UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10‑Q10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2016March 31, 2017
 
Commission file number 001-2979
 
WELLS FARGO & COMPANY
(Exact name of registrant as specified in its charter)
Delaware No. 41-0449260
(State of incorporation) (I.R.S. Employer Identification No.)
 
420 Montgomery Street, San Francisco, California 94163
(Address of principal executive offices)  (Zip Code)
 
Registrant’s telephone number, including area code:  1-866-249-3302 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ
 
No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes þ
 
No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑acceleratednon-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
 
 
Large accelerated filer    þ
 
Accelerated filer  o
 
     
 
Non‑acceleratedNon-accelerated filer    o (Do not check if a smaller reporting company)
 
Smaller reporting company  o
 
Emerging growth company  o
          
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o
 
No þ
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
  Shares Outstanding
  October 25, 2016April 26, 2017
Common stock, $1-2/3 par value 5,022,303,0274,997,318,006
          


FORM 10-QFORM 10-Q FORM 10-Q 
CROSS-REFERENCE INDEXCROSS-REFERENCE INDEX CROSS-REFERENCE INDEX 
PART IFinancial Information Financial Information 
Item 1.Financial StatementsPageFinancial StatementsPage
Consolidated Statement of Income
69
Consolidated Statement of Income
71
Consolidated Statement of Comprehensive Income
70
Consolidated Statement of Comprehensive Income
72
Consolidated Balance Sheet
71
Consolidated Balance Sheet
73
Consolidated Statement of Changes in Equity
72
Consolidated Statement of Changes in Equity
74
Consolidated Statement of Cash Flows
74
Consolidated Statement of Cash Flows
76
Notes to Financial Statements  Notes to Financial Statements  
1
—Summary of Significant Accounting Policies  
75
1
—Summary of Significant Accounting Policies  
77
2
—Business Combinations
78
2
—Business Combinations
79
3
—Federal Funds Sold, Securities Purchased under Resale Agreements and Other Short-Term Investments  
78
3
—Federal Funds Sold, Securities Purchased under Resale Agreements and Other Short-Term Investments  
79
4
—Investment Securities
79
4
—Investment Securities
80
5
—Loans and Allowance for Credit Losses
86
5
—Loans and Allowance for Credit Losses
87
6
—Other Assets
103
6
—Other Assets
103
7
—Securitizations and Variable Interest Entities
104
7
—Securitizations and Variable Interest Entities
104
8
—Mortgage Banking Activities
112
8
—Mortgage Banking Activities
111
9
—Intangible Assets
115
9
—Intangible Assets
114
10
—Guarantees, Pledged Assets and Collateral
117
10
—Guarantees, Pledged Assets and Collateral
116
11
—Legal Actions
121
11
—Legal Actions
120
12
—Derivatives
122
12
—Derivatives
122
13
—Fair Values of Assets and Liabilities
129
13
—Fair Values of Assets and Liabilities
129
14
—Preferred Stock
150
14
—Preferred Stock
146
15
—Employee Benefits
153
15
—Employee Benefits
149
16
—Earnings Per Common Share
154
16
—Earnings Per Common Share
150
17
—Other Comprehensive Income
155
17
—Other Comprehensive Income
151
18
—Operating Segments
157
18
—Operating Segments
153
19
—Regulatory and Agency Capital Requirements
158
19
—Regulatory and Agency Capital Requirements
154
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations (Financial Review) Management’s Discussion and Analysis of Financial Condition and Results of Operations (Financial Review) 
Summary Financial Data  
2
Summary Financial Data  
2
Overview
3
Overview
3
Earnings Performance
6
Earnings Performance
6
Balance Sheet Analysis
21
Balance Sheet Analysis
18
Off-Balance Sheet Arrangements  
24
Off-Balance Sheet Arrangements  
21
Risk Management
25
Risk Management
22
Capital Management
55
Capital Management
54
Regulatory Reform
62
Regulatory Matters
61
Critical Accounting Policies  
63
Critical Accounting Policies  
63
Current Accounting Developments
64
Current Accounting Developments
64
Forward-Looking Statements  
66
Forward-Looking Statements  
67
Risk Factors 
67
Risk Factors 
69
Glossary of Acronyms
159
Glossary of Acronyms
155
Item 3.Quantitative and Qualitative Disclosures About Market Risk
45
Quantitative and Qualitative Disclosures About Market Risk
43
Item 4.Controls and Procedures
68
Controls and Procedures
70
    
PART IIOther Information Other Information 
Item 1.Legal Proceedings
160
Legal Proceedings
156
Item 1A.Risk Factors
160
Risk Factors
156
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
160
Unregistered Sales of Equity Securities and Use of Proceeds
156
Item 6.Exhibits
161
Exhibits
157
    
SignatureSignature
161
Signature
157
   
Exhibit IndexExhibit Index
162
Exhibit Index
158


PART I - FINANCIAL INFORMATION

FINANCIAL REVIEW
Summary Financial Data                           
      % Change                % Change 
Quarter ended  Sep 30, 2016 from  Nine months ended    
Quarter ended  Mar 31, 2017 from 
($ in millions, except per share amounts)Sep 30,
2016
 Jun 30,
2016
 Sep 30,
2015
 Jun 30,
2016
 Sep 30,
2015
 Sep 30,
2016

Sep 30,
2015
 
%
Change

Mar 31,
2017
 Dec 31,
2016
 Mar 31,
2016
 Dec 31,
2016
 Mar 31,
2016
For the Period                           
Wells Fargo net income$5,644
 5,558
 5,796
 2 % (3) $16,664
 17,319
 (4)%$5,457
 5,274
 5,462
 3 % —
Wells Fargo net income applicable to common stock5,243
 5,173
 5,443
 1
 (4) 15,501
 16,267
 (5)5,056
 4,872
 5,085
 4
 (1)
Diluted earnings per common share1.03
 1.01
 1.05
 2
 (2) 3.03
 3.12
 (3)1.00
 0.96
 0.99
 4
 1
Profitability ratios (annualized):                        
Wells Fargo net income to average assets (ROA)1.17% 1.20
 1.32
 (3) (11) 1.19% 1.34
 (11)1.15% 1.08
 1.21
 6
 (5)
Wells Fargo net income applicable to common stock to average Wells Fargo common stockholders' equity (ROE)11.60
 11.70
 12.62
 (1) (8) 11.68
 12.83
 (9)11.54
 10.94
 11.75
 5
 (2)
Return on average tangible common equity (ROTCE) (1)13.96
 14.15
 15.19
 (1) (8) 14.08
 15.46
 (9)13.85
 13.16
 14.15
 5
 (2)
Efficiency ratio (2)59.4
 58.1
 56.7
 2
 5
 58.7
 58.0
 1
62.7
 61.2
 58.7
 2
 7
Total revenue$22,328
 22,162
 21,875
 1
 2
 $66,685
 64,471
 3
$22,002
 21,582
 22,195
 2
 (1)
Pre-tax pre-provision profit (PTPP) (3)9,060
 9,296
 9,476
 (3) (4) 27,523
 27,096
 2
8,210
 8,367
 9,167
 (2) (10)
Dividends declared per common share0.380
 0.380
 0.375
 —
 1
 1.135
 1.100
 3
0.380
 0.380
 0.375
 —
 1
Average common shares outstanding5,043.4
 5,066.9
 5,125.8
 —
 (2) 5,061.9
 5,145.9
 (2)5,008.6
 5,025.6
 5,075.7
 —
 (1)
Diluted average common shares outstanding5,094.6
 5,118.1
 5,193.8
 —
 (2) 5,118.2
 5,220.3
 (2)5,070.4
 5,078.2
 5,139.4
 —
 (1)
Average loans$957,484
 950,751
 895,095
 1
 7
 $945,197
 876,384
 8
$963,645
 964,147
 927,220
 —
 4
Average assets1,914,586
 1,862,084
 1,746,402
 3
 10
 1,865,694
 1,727,967
 8
1,931,041
 1,944,250
 1,819,875
 (1) 6
Average total deposits1,261,527
 1,236,658
 1,198,874
 2
 5
 1,239,287
 1,186,412
 4
1,299,191
 1,284,158
 1,219,430
 1
 7
Average consumer and small business banking deposits (4)739,066
 726,359
 683,245
 2
 8
 726,798
 674,741
 8
758,754
 749,946
 714,837
 1
 6
Net interest margin2.82% 2.86
 2.96
 (1) (5) 2.86% 2.96
 (3)2.87% 2.87
 2.90
 —
 (1)
At Period End                           
Investment securities$390,832
 353,426
 345,074
 11
 13
 $390,832
 345,074
 13
$407,560
 407,947
 334,899
 —
 22
Loans961,326
 957,157
 903,233
 —
 6
 961,326
 903,233
 6
958,405
 967,604
 947,258
 (1) 1
Allowance for loan losses11,583
 11,664
 11,659
 (1) (1) 11,583
 11,659
 (1)11,168
 11,419
 11,621
 (2) (4)
Goodwill26,688
 26,963
 25,684
 (1) 4
 26,688
 25,684
 4
26,666
 26,693
 27,003
 —
 (1)
Assets1,942,124
 1,889,235
 1,751,265
 3
 11
 1,942,124
 1,751,265
 11
1,951,564
 1,930,115
 1,849,182
 1
 6
Deposits1,275,894
 1,245,473
 1,202,179
 2
 6
 1,275,894
 1,202,179
 6
1,325,444
 1,306,079
 1,241,490
 1
 7
Common stockholders' equity179,916
 178,633
 172,089
 1
 5
 179,916
 172,089
 5
178,388
 176,469
 175,534
 1
 2
Wells Fargo stockholders' equity203,028
 201,745
 193,051
 1
 5
 203,028
 193,051
 5
201,500
 199,581
 197,496
 1
 2
Total equity203,958
 202,661
 194,043
 1
 5
 203,958
 194,043
 5
202,489
 200,497
 198,504
 1
 2
Tangible common equity (1)149,829
 148,110
 143,352
 1
 5
 149,829
 143,352
 5
148,850
 146,737
 144,679
 1
 3
Capital ratios (5)(6):                           
Total equity to assets10.50% 10.73
 11.08
 (2) (5) 10.50% 11.08
 (5)10.38% 10.39
 10.73
 —
 (3)
Risk-based capital:        

       

        

Common Equity Tier 110.93
 10.82
 10.87
 1
 1
 10.93
 10.87
 1
11.52
 11.13
 10.87
 4
 6
Tier 1 capital12.60
 12.50
 12.42
 1
 1
 12.60
 12.42
 1
13.27
 12.82
 12.49
 4
 6
Total capital15.40
 15.14
 14.86
 2
 4
 15.40
 14.86
 4
16.41
 16.04
 14.91
 2
 10
Tier 1 leverage9.11
 9.25
 9.51
 (2) (4) 9.11
 9.51
 (4)9.07
 8.95
 9.26
 1
 (2)
Common shares outstanding5,023.9
 5,048.5
 5,108.5
 —
 (2) 5,023.9
 5,108.5
 (2)4,996.7
 5,016.1
 5,075.9
 —
 (2)
Book value per common share (7)$35.81
 35.38
 33.69
 1
 6
 $35.81
 33.69
 6
$35.70
 35.18
 34.58
 1
 3
Tangible book value per common share (1) (7)29.82
 29.34
 28.06
 2
 6
 29.82
 28.06 6
29.79
 29.25
 28.50
 2
 5
Common stock price:                           
High51.00
 51.41
 58.77
 (1) (13) 53.27
 58.77
 (9)59.99
 58.02
 53.27
 3
 13
Low44.10
 44.50
 47.75
 (1) (8) 44.10
 47.75
 (8)53.35
 43.55
 44.50
 23
 20
Period end44.28
 47.33
 51.35
 (6) (14) 44.28
 51.35
 (14)55.66
 55.11
 48.36
 1
 15
Team members (active, full-time equivalent)268,800
 267,900
 265,200
 —
 1
 268,800
 265,200
 1
272,800
 269,100
 268,600
 1
 2
(1)Tangible common equity is a non-GAAP financial measure and represents total equity less preferred equity, noncontrolling interests, and goodwill and certain identifiable intangible assets (including goodwill and intangible assets associated with certain of our nonmarketable equity investments but excluding mortgage servicing rights), net of applicable deferred taxes. The methodology of determining tangible common equity may differ among companies. Management believes that return on average tangible common equity and tangible book value per common share, which utilize tangible common equity, are useful financial measures because they enable investors and others to assess the Company's use of equity. For additional information, including a corresponding reconciliation to GAAP financial measures, see the "Capital Management – Tangible Common Equity" section in this Report.
(2)The efficiency ratio is noninterest expense divided by total revenue (net interest income and noninterest income).
(3)Pre-tax pre-provision profit (PTPP) is total revenue less noninterest expense. Management believes that PTPP is a useful financial measure because it enables investors and others to assess the Company's ability to generate capital to cover credit losses through a credit cycle.
(4)Consumer and small business banking deposits are total deposits excluding mortgage escrow and wholesale deposits.
(5)
The risk-based capital ratios presented at September 30 and June 30, 2016, and September 30, 2015 were calculated under the lower of Standardized or Advanced Approach determined pursuant to Basel III with Transition Requirements. Accordingly, the total capital ratio was calculated under the Advanced Approach and the other ratios were calculated under the Standardized Approach, for each of the periods, respectively.
periods.
(6)See the "Capital Management" section and Note 19 (Regulatory and Agency Capital Requirements) to Financial Statements in this Report for additional information.
(7)Book value per common share is common stockholders' equity divided by common shares outstanding. Tangible book value per common share is tangible common equity divided by common shares outstanding.
Overview (continued)

This Quarterly Report, including the Financial Review and the Financial Statements and related Notes, contains forward-looking statements, which may include forecasts of our financial results and condition, expectations for our operations and business, and our assumptions for those forecasts and expectations. Do not unduly rely on forward-looking statements. Actual results may differ materially from our forward-looking statements due to several factors. Factors that could cause our actual results to differ materially from our forward-looking statements are described in this Report, including in the “Forward-Looking Statements” section, and the “Risk Factors” and “Regulation and Supervision” sections of our Annual Report on Form 10-K for the year ended December 31, 2015 (20152016 (2016 Form 10-K).
 
When we refer to “Wells Fargo,” “the Company,” “we,” “our” or “us” in this Report, we mean Wells Fargo & Company and Subsidiaries (consolidated). When we refer to the “Parent,” we mean Wells Fargo & Company. See the Glossary of Acronyms for terms used throughout this Report.
 
Financial Review
 
Overview
Wells Fargo & Company is a diversified, community-based financial services company with $1.9$1.95 trillion in assets. Founded in 1852 and headquartered in San Francisco, we provide banking, insurance, investments, mortgage, and consumer and commercial finance through more than 8,6008,500 locations, 13,000 ATMs, digital (online, mobile and social), and contact centers (phone, email and correspondence), and we have offices in 42 countries and territories to support customers who conduct business in the global economy. With approximately 269,000273,000 active, full-time equivalent team members, we serve one in three households in the United States and ranked No. 27 on Fortune’s 2016 rankings of America’s largest corporations. We ranked third in assets and second in the market value of our common stock among all U.S. banks at September 30, 2016.March 31, 2017.
We use our Vision and Values to guide us toward growth and success. Our vision is to satisfy our customers’ financial needs, help them succeed financially, be recognized as the premier financial services company in our markets and be one of America’s great companies. We aspire to create deep and enduring relationships with our customers by providing them with an exceptional experience and by discovering their needs and delivering the most relevant products, services, advice, and guidance.
We have five primary values, which are based on our vision and provide the foundation for everything we do. First, we value and support our people as a competitive advantage and strive to attract, develop, retain and motivate the most talented people we can find. Second, we strive for the highest ethical standards with our team members, our customers, our communities and our shareholders. Third, with respect to our customers, we strive to base our decisions and actions on what is right for them in everything we do. Fourth, for team members we strive to build and sustain a diverse and inclusive culture – one where they feel valued and respected for who they are as well as for the skills and experiences they bring to our company. Fifth, we also look to each of our team members to be leaders in establishing, sharing and communicating our vision. In addition to our five primary values, one of our key day-to-day priorities is to make risk management a competitive advantage by working hard to ensure that appropriate controls are in place to reduce risks to our customers, maintain and increase our competitive market position, and protect Wells Fargo’s long-term safety, soundness and reputation.
In keeping with our primary values and risk management priorities, we announced six new long-term goals for the Company in March 2017, which entail becoming the leader in the following areas:
Customer service and advice – provide best-in-class service and guidance to our customers to help them reach their
financial goals.
Team member engagement – be a company where people matter, teamwork is rewarded, everyone feels respected and empowered to speak up, diversity and inclusion are embraced, and “how” our work gets done is just as important as getting the work done.
Innovation – create new kinds of lasting value for our customers and businesses by using innovative technologies and moving quickly to bring about change.
Risk management – desire to set the global standard in managing all forms of risk.
Corporate citizenship – make better every community in which we live and do business.
Shareholder value – earn the confidence of shareholders by maximizing long-term value.

Sales Practices Matters
OnAs we have previously reported, on September 8, 2016, we announced settlements with the Consumer Financial Protection Bureau (CFPB), the Office of the Comptroller of the Currency (OCC) and the Office of the Los Angeles City Attorney regarding allegations that some of our
retail customers received products and services they did not request. As a result, rebuilding trust through a comprehensive action plan that includes making things right for our customers, team members, and other stakeholders, and building a better Company for the future remains our current top priority. The amountjob of the settlements, which was fully accrued for as of June 30, 2016, totaled $185 million, plus $5 millionrebuilding trust in customer remediation.Wells Fargo is a long-term effort – one requiring our commitment, patience and perseverance. Our commitment to addressing the concerns raised by these settlements and our priority of rebuilding trust has included:included the following additional actions:
We added two new independent directors to help contribute to the Board's oversight of Wells Fargo and help ensure we continue to move in the right direction to restore trust and create value for our shareholders.
The Independent DirectorsBoard released the findings of the Board have retained the law firm of Shearman & Sterling LLP to assist in its independent investigation into the Company's retail banking sales practices and related matters.matters in order to understand the root causes of improper sales practices in the Community Bank, identify remedial actions to ensure these issues won't be repeated, and help rebuild the trust customers place in the bank.
An extensive review was performedThe Board took compensation actions, including clawing back approximately $69 million from former CEO John Stumpf and $67 million from former Community Bank head Carrie Tolstedt; total executive compensation actions taken by an independent consulting firm going back to 2011, which was completed prior to these settlements. This review was conducted to identify financial harm stemming from potentially unauthorized accounts. The review identified approximately 2.1 million potentially unauthorized consumer and small business accounts, including 623,000 consumer and small business unsecured credit card accounts. As a resultthe Board now total over $180 million.
Terminated the employment of this review, $2.6 million has been refunded to customerssenior managers in the Community Bank for any fees associatedcause, with the potentially unauthorized accounts. Since the announcement of the settlements, the review has been voluntarily expandedresult that they forfeited annual incentive and outstanding equity awards.
Made several important changes in our organizational structure to include 2009provide greater role clarity, increased coordination, and 2010.
Changes in senior management:
◦John Stumpf retired and has been replaced by Tim Sloan as CEO and Stephen Sanger, an independent member of the Board, as Chairman. Consistent with his recommendation, Mr. Stumpf forfeited unvested equity awards valued at approximately $41 million.
◦Carrie Tolstedt left the Company and has been replaced by Mary Mack as head of Community Banking. Ms. Tolstedt forfeited unvested equity awards valued at approximately $19 million, will not receive severance or retirement enhancements in connection with her separation from the Company, and has agreed not to exercise vested options during the investigation by the Independent Directors of the Board.
◦Neither executive will receive a bonus for 2016.
Eliminated product sales goals for retail banking team members. Implemented interim incentive-based compensation plans‎ in retail banking for fourth quarter 2016. Management continues to review incentive-based compensation practices in retail banking.
Implemented procedures to send retail banking customers a confirmation email approximately an hour after opening a checking or savings account and an acknowledgment letter after submitting a credit card application.
Attempting to contact all retail and small business deposit customers across the country,stronger oversight, including those who have already received refunded fees, to invite them to review their accounts with their banker. Also contacting credit card customers identified as possibly having unauthorized accounts to confirm whether they need or want their credit card.changing


Investmentsreporting lines for control function groups such as human resources and risk.
Agreed in enhanced team member training and monitoring and controls have been made, including reinforcement of our Code of Ethics and Business Conduct and our EthicsLine.
Evaluation of potential credit score and related impactsprinciple to customersa $142 million class action settlement, subject to develop a plan for regulatory approval.
Expanding branch-basedcourt approval, that will go to remediating customer experience surveys and instituted mystery shopper program.harm.

As we move forward we haveWells Fargo has a specific action plan in place that is focused on outreachreaching out to everyone who has been affected by improper retail banking sales practices including our community, our customers, our regulators, our team members and our investors. For additional information regarding sales practices matters, including related legal matters, see the "Earnings Performance – Operating Segment Results – Cross-sell" and “Risk Factors” sectionssection in our 2016 Form 10-K and Note 11 (Legal Actions) to Financial Statements in this Report.
 
Financial Performance
Wells Fargo net income was $5.6$5.5 billion in thirdfirst quarter 20162017 with diluted earnings per common share (EPS) of $1.03,$1.00, compared with $5.8$5.5 billion and $1.05,$0.99, respectively, a year ago. We have now generated quarterly earnings of more than $5 billion for 1618 consecutive quarters, which reflected the ability of our diversified business model and risk discipline to generate consistent financial performance during a period that included persistent low interest rates, market volatility and economic uncertainty. We remain focused on meeting the financial needs of our customers and on investing in our businesses so we may continue to meet the evolving needs of our customers in the future.
Compared with a year ago:
revenue was $22.322.0 billion, updown 2%1%, with growthdriven by a decline in mortgage banking income and lower other noninterest income (reflecting the accounting impact of net hedge ineffectiveness), which was partially offset by a 5% increase in net interest income despite equity investment gains being at a five quarter low and $780 million lower than a year ago;income;
noninterest expense increased driven by higher personnel expenses and higher operating lease expense due to the GE Capital business acquisitions;
our investment securities reached a record $390.8 billion, an increaseaverage loans of $45.8963.6 billion increased $36.4 billion, or 13%4%;
our total loans reached a high of $961.3 billion, an increase of $58.1 billion, or 6%;
our deposit franchise generated strong customer and balance growth, with total deposits reachingwere a record $1.281.3 trillion, up $73.784.0 billion, or 6%7%, and we grew the number of primary consumer checking customers by 4.7% (August 2016 compared with August 2015); and
our solid capital position enabled us to return $3.2credit results improved with a net charge-off rate of 34 basis points (annualized) of average loans and we had a $200 million release from the allowance for credit losses;
we returned $3.1 billion to shareholders through common stock dividends and net share repurchases, which was the fifthseventh consecutive quarter of returning more than $3 billion.billion; and
we reduced our common shares outstanding to below 5 billion shares for the first time since 2009.

Balance Sheet and Liquidity
Our balance sheet maintained its strengthremained strong during first quarter 2017 with high levels of liquidity and capital and record deposit balances. Our total assets reached a record $1.95 trillion at March 31, 2017. Cash, federal funds sold, securities purchased under resale agreements and other short-term investments reached an all-time high of $328.4 billion in thirdfirst quarter 2016 as we increased2017 driven by continued growth in deposits and a linked-quarter decline in our liquidity position, generated loan investmentportfolio.
Investment securities and deposit growth, experienced solid credit quality and maintained strong capital levels. We have been able to grow our loans on a year-over-year basis for 21 consecutive quarters (for the past 18 quarters year-over-year loan growth has been 3% or greater). Our loan portfolio increased $44.8of $407.6 billion declined less than 1% from December 31, 2015, predominantly due to growth in commercial and industrial, real estate mortgage, real estate construction and lease financing loans within the commercial loan portfolio segment, which included $26.5 billion of commercial and
industrial loans and capital leases acquired from GE Capital in the first nine months of 2016.
With the expectation of interest rates remaining lower for a longer period, we grew our investment securities portfolio by $43.3 billion, or 12%, from December 31, 2015,2016, with approximately $57$16 billion of gross purchases during thirdfirst quarter 2016, compared with last year's average of $26 billion per quarter. The amount of2017 more than offset by run-off and sales. We believe interest rates are in a transitional period and, accordingly, our decision to maintain a relatively stable investment securities purchasedportfolio was higher than in prior quarters due to the fact that we did not add duration in the loan portfolio withdriven primarily by interest rate swaps, as we had in prior quarters.and other comprehensive income risk management.
Our funding sources grewcontinued to grow in thirdfirst quarter 20162017 with long-term debt up $55.3$1.4 billion from December 31, 2015,2016, on $19.7
$12.8 billion of issuances in third quarter 2016, including $9.2 billion that we anticipate will be Total Loss Absorbing Capacity (TLAC) eligible.during the quarter. Deposit growth also continued in the first nine months of 2016quarter 2017 with period-end deposits up $52.6$19.4 billion, or 4%1%, from December 31, 2015.2016. Our average deposit cost in thirdfirst quarter 20162017 was 1117 basis points, up 37 basis points from a year ago, which reflected an increase in commercial deposit pricing for certain wholesale banking customers.rates. We successfully grew our primary consumer checking customers (i.e., customers who actively use their checking account with transactions such as debit card purchases, online bill payments, and direct deposit) by 4.7% (August 20161.6% (March 2017 compared with August 2015)March 2016).

Credit Quality
Solid overall credit results continued in thirdfirst quarter 20162017 as losses remained low and we continued to originate high quality loans, reflecting our long-term risk focus. Net charge-offs were $805 million, or 0.33%0.34% (annualized) of average loans, in thirdfirst quarter 2016,2017, compared with $703$886 million a year ago (0.31%(0.38%). The increasedecrease in net charge-offs in thirdfirst quarter 2016,2017, compared with a year ago, was predominantly due to continued challengesdriven by lower losses in the oil and gas portfolio and increased recoveries in the commercial portfolio. However, ourOur total oil and gas loan exposure, which includes unfunded commitments and loans outstanding, was down 10%16% from a year ago.
Our commercial portfolio net charge-offs were $215$143 million, or 1711 basis points of average commercial loans, in thirdfirst quarter 2016,2017, compared with net charge-offs of $94$237 million, or 820 basis points, a year ago. Net consumer credit losses declinedincreased to 5159 basis points of average consumer loans in thirdfirst quarter 20162017 from 5357 basis points in thirdfirst quarter 2015.2016. Our commercial real estate portfolios were in a net recovery position for the 15th17th consecutive quarter, reflecting our conservative risk discipline and improved market conditions. Losses on our consumer real estate portfolios declined $82$92 million, or 75%, from a year ago, down 54%. The lower consumer loss levels reflectedreflecting the benefit of the continued improvement in the housing market and our continued focus on originating high quality loans. Approximately 72%74% of the consumer first mortgage portfolio outstanding at March 31, 2017, was originated after 2008, when more stringent underwriting standards were implemented.
The allowance for credit losses as of September 30, 2016, increased $132March 31, 2017, decreased $381 million compared with a year ago.ago and decreased $253 million from December 31, 2016. The allowance coverage for total loans was 1.32%1.28% at September 30, 2016,March 31, 2017, compared with 1.39%1.34% a year ago.ago and 1.30% at December 31, 2016. The allowance covered 4.03.8 times annualized thirdfirst quarter net charge-offs, compared with 4.53.6 times a year ago. Future allowance levels will be based on a variety of factors, including loan growth, portfolio performance and general economic conditions. Our provision for loan losses was $805$605 million in thirdfirst quarter 2016, up2017, down from $703 million$1.1 billion a year ago, primarily reflecting lossesimprovement in the oil and gas portfolio and the loan growth mentioned above.portfolio.
Nonperforming assets decreased $1.1 billion,$698 million, or 8%6%, from June 30,December 31, 2016, with improvement across our consumer and

Overview (continued)

commercial portfolios and lower foreclosed assets. Nonperforming assets were only 1.25%1.11% of total loans, the lowest level since the merger with Wachovia in 2008. Nonaccrual loans decreased $977$625 million from the prior quarter primarily due to a $732$353 million decrease in consumercommercial nonaccruals. In addition, foreclosed assets were down $97$73 million from the prior quarter.
During the first week of October 2016, Hurricane Matthew caused destruction along the coasts of Florida, Georgia, South Carolina and North Carolina and resulted in, among other things, property damage for our customers and the closing of many businesses. We are currently assessing the impact to our customers and our business as a result of Hurricane Matthew. The financial impact to us is expected to primarily relate to our consumer real estate, commercial real estate and auto loan portfolios and will depend on a number of factors, including the types of loans most affected by the hurricane, the extent of damage to our collateral, the extent of available insurance coverage, the availability of government assistance for our borrowers, and whether our borrowers’ ability to repay their loans has been diminished.
Overview (continued)

Capital
Our financial performance in thirdfirst quarter 20162017 resulted in strong capital generation, which increased total equity to a record $204.0$202.5 billion at September 30, 2016,March 31, 2017, up $1.3$2.0 billion from the prior quarter.December 31, 2016. We returned $3.2$3.1 billion to shareholders in thirdfirst quarter 20162017 through common stock dividends and net share repurchases and our net payout ratio (which is the ratio of (i) common stock dividends and share repurchases less issuances and stock compensation-related items, divided by (ii) net income applicable to common stock) was 61%, comparedin line with 62% in the prior quarter, and within our targeted range of 55-75%. We continued to reduce our common share countshares outstanding through the repurchase of 38.353.1 million common shares in the quarter. We also entered into a $750 million forward repurchase contract with an unrelated third party in October 2016April 2017 that is expected to settle in firstthird quarter 2017 for approximately 1714 million shares. We expect to reduce our common shares outstanding through share repurchases throughout the remainder of 2016.2017.
We believe an important measure of our capital strength is the Common Equity Tier 1 ratio under Basel III, fully phased-in, which was 10.71%11.23% at September 30, 2016.March 31, 2017. Likewise, our other regulatory capital ratios remained strong. See the “Capital Management” section in this Report for more information regarding our capital, including the calculation of our regulatory capital amounts.



Earnings Performance
Wells Fargo net income for thirdfirst quarter 20162017 was $5.6$5.5 billion ($1.031.00 diluted earnings per common share), compared with $5.8$5.5 billion ($1.050.99 diluted per share) for thirdfirst quarter 2015. Net income for the first nine months of 2016 was $16.7 billion ($3.03), compared with $17.3 billion ($3.12) for the same period a year ago. Our third quarter and first nine months of 2016 earnings reflected continued execution of our business strategy as we continued to satisfy our customers' financial needs.2016. We generated revenue growth across many of our businesses and grew loans and deposits.businesses. Our financial performance in the first nine months of 2016,quarter 2017, compared with the same period a year ago, benefited from a $1.6 billion$633 million increase in net interest income which was offset byand a $1.4 billion increase$481 million decrease in our provision for credit losses, offset by a $826 million decrease in noninterest income and a $1.8 billion$764 million increase in noninterest expense. The key drivers of our financial performance in the thirdIn first quarter and first nine months of 2016 were balanced2017, net interest income and noninterestrepresented 56% of revenue, compared with 53% for the same period in 2016. Noninterest income diversified sourceswas $9.7 billion in first quarter 2017, representing 44% of fee income, and a diversified and growing loan portfolio.revenue, compared with $10.5 billion (47%) in first quarter 2016.
Revenue, the sum of net interest income and noninterest income, was $22.3$22.0 billion in thirdfirst quarter 2016,2017, compared with $21.9$22.2 billion in thirdfirst quarter 2015. Revenue for the first nine months of 2016 was $66.7 billion, up 3% from the first nine months of 2015.2016. The increasedecrease in revenue for the thirdfirst quarter and first nine months of 2016, compared with the same periods in 2015, was largely due to an increase in net interest income, reflecting increases in interest income from loans and trading assets, partially offset by higher long-term debt and deposit interest expense. In the third quarter and first nine months of 2016, net interest income represented 54% and 53% of revenue, respectively, compared with 52% for both periods in 2015.
Noninterest income was $10.38 billion and $31.33 billion in the third quarter and first nine months of 2016, representing 46% and 47% of revenue, respectively, compared with $10.42 billion (48%) and $30.76 billion (48%) in the third quarter and first nine months of 2015. Noninterest income in third quarter 2016 decreased $42 million,2017, compared with the same period in 2015,2016, was largely due to a decline in mortgage banking income and lower other noninterest income predominantly due to the accounting impact of net hedge ineffectiveness and lower insurance income due to the divestiture of our crop insurance business in first quarter 2016. First quarter 2017 included a $193 million net gains on equity investments and insurance, partially offset by an increasehedge ineffectiveness accounting loss, resulting largely from foreign currency fluctuations, compared with a $379 million net hedge ineffectiveness accounting gain in net gains from trading activities and lease income. Noninterest incomefirst quarter 2016. The decline in revenue for the first nine months of 2016,quarter 2017, compared with the same period in 2015, reflected an increase in lease income related to the GE Capital business acquisitions, gains from the sale of our crop insurance and health benefit services businesses, and hedge ineffectiveness income, primarily on our long-term debt hedges,a year ago, was partially offset by lower trusthigher interest income from loans and investment fees, and net gains on equity investments.securities.
Noninterest expense was $13.3 billion and $39.2 billion in the third quarter and first nine months of 2016, respectively, compared with $12.4 billion and $37.4 billion for the same periods in 2015. The increase in noninterest expense for the third quarter and first nine months of 2016, compared with the same periods in 2015, was predominantly due to higher personnel expenses, operating lease expense, FDIC and other deposit assessments, and outside professional services and contract services, as well as increased operating losses, reflecting higher litigation accruals, partially offset by lower foreclosed assets expense, insurance and outside data processing. Noninterest expense as a percentage of revenue (efficiency ratio) was 59.4% in third quarter 2016 (58.7% in the first nine months of 2016), compared with 56.7% in third quarter 2015 (58.0% in the first nine months of 2015).
During first quarter 2016, we closed substantially all of the
acquisition of certain commercial lending businesses and assets from GE Capital. A portion of the assets were acquired in January 2016 with additional assets acquired in March 2016. In third quarter 2016, we closed the acquisition of the Asia, Australia, and New Zealand segments of GE Capital’s Commercial Distribution Finance business. In October 2016, the final phase of our GE Capital business acquisitions was completed when we closed the acquisition of the Europe, Middle East, and Africa segments of the GE Capital Commercial Distribution Finance business.
Net Interest Income
Net interest income is the interest earned on debt securities, loans (including yield-related loan fees) and other interest-earning assets minus the interest paid on deposits, short-term borrowings and long-term debt. The net interest margin is the average yield on earning assets minus the average interest rate paid for deposits and our other sources of funding. Net interest income and the net interest margin are presented on a taxable-equivalent basis in Table 1 to consistently reflect income from taxable and tax-exempt loans and securities based on a 35% federal statutory tax rate.
While the Company believes that it has the ability to increase net interest income over time, net interest income and the net interest margin in any one period can be significantly affected by a variety of factors including the mix and overall size of our earning assets portfolio and the cost of funding those assets. In addition, some variable sources of interest income, such as resolutions from purchased credit-impaired (PCI) loans, loan fees and collection of interest on nonaccrual loans, can vary from period to period. Net interest income and net interest margin growth has been challenged during the prolonged low interest rate environment as higher yielding loans and securities have run off and been replaced with lower yielding assets.
Net interest income on a taxable-equivalent basis was $12.3 billion and $36.3$12.6 billion in the thirdfirst quarter and first nine months of 2016, respectively,2017, compared with $11.7 billion and $34.5$12.0 billion for the same periodsperiod a year ago. The net interest margin was 2.82% and 2.86%2.87% for the thirdfirst quarter and first nine months of 2016,2017, down from 2.96%2.90% for both the thirdfirst quarter and first nine months of 2015.2016. The increase in net interest income in the thirdfirst quarter and first nine months of 20162017 from the same periodsperiod a year ago resulted from an increase in interest income, partially offset by an increase in interest expense on funding interest expense.sources. The increase in interest income was driven by growth in commercial and consumer loans including the GE Capital business acquisitions that closed in 2016, growth inand investment securities, increased trading income and the benefit of higher short-term interest rates. Funding interestInterest expense on funding sources increased in the thirdfirst quarter and first nine months of 2016,2017, compared with the same periodsperiod a year ago, primarily due to growth and repricing of long-term debt. Deposit interest expense was also higher, predominantly due to an increase in wholesale pricing resulting from higher short-term interest rates.
The decline in net interest margin in the thirdfirst quarter and first nine months of 2016,2017, compared with the same periodsperiod a year ago, was primarily due to deposit growth and higher long-term debt balances, including debt issued to fund the GE Capital business acquisitions. As a result of growth in funding balances, net interest margin was diluted by an increase in cash, federal funds sold, and other short-term investments, whichbalances. This was partially offset by growth in loans, trading,investments securities, and the benefit of higher short-term interest rates.

Earnings Performance (continued)




Average earning assets increased $158.4 billion and $135.5$121.4 billion in the thirdfirst quarter and first nine months of 2016, respectively,2017, compared with the same periodsperiod a year ago, as average loans increased $62.4$36.4 billion in the thirdfirst quarter and $68.8 billion in the first nine months of 2016,2017, average investment securities increased $24.2$69.7 billion in the thirdfirst quarter and $21.5 billion in the first nine months of 2016,2017 and average trading assets increased $21.6$13.3 billion in the thirdfirst quarter and $17.6 billion in the first nine months of 2016,2017, compared with the same periodsperiod a year ago. In addition, average federal funds sold and other short-term investments increased $49.2 billion and $28.4 billiondecreased $930 million in the thirdfirst quarter and first nine months of 2016, respectively,2017, compared with the same periodsperiod a year ago.
Deposits are an important low-cost source of funding and affect both net interest income and the net interest margin. Deposits include noninterest-bearing deposits, interest-bearing checking, market rate and other savings, savings certificates, other time deposits, and deposits in foreign offices. Average deposits of $1.26$1.30 trillion increased in thirdfirst quarter 2017, compared with $1.22 trillion in first quarter 2016, ($1.24 trillion in the first nine months of 2016), compared with $1.20 trillion in third quarter 2015 ($1.19 trillion in the first nine months of 2015), and represented 132%135% of average loans in thirdfirst quarter 2016 (131% in the first nine months of 2016),2017, compared with 134% and 135%132% for the same periodsperiod a year ago. Average deposits decreased to 73% of average earning assets in both the thirdfirst quarter and first nine months of 2016,2017, compared with 76%74% for the same periodsperiod a year ago as the growth in total loans outpaced deposit growth.

Earnings Performance (continued)




Table 1: Average Balances, Yields and Rates Paid (Taxable-Equivalent Basis) (1)(2)
Quarter ended September 30, Quarter ended March 31, 
    2016
     2015
    2017
     2016
(in millions)
Average
balance

 
Yields/
rates

 
Interest
income/
expense

 
Average
balance

 
Yields/
rates

 
Interest
income/
expense

Average
balance

 
Yields/
rates

 
Interest
income/
expense

 
Average
balance

 
Yields/
rates

 
Interest
income/
expense

Earning assets                      
Federal funds sold, securities purchased under resale agreements and other short-term investments$299,351
 0.50% $373
 250,104
 0.26% $167
$283,767
 0.76% $532
 284,697
 0.49% $344
Trading assets88,838
 2.72
 605
 67,223
 2.93
 492
93,765
 2.80
 655
 80,464
 3.01
 605
Investment securities (3):                       
Available-for-sale securities:                      
Securities of U.S. Treasury and federal agencies25,817
 1.52
 99
 35,709
 1.59
 143
25,034
 1.54
 95
 34,474
 1.59
 136
Securities of U.S. states and political subdivisions55,170
 4.28
 590
 48,238
 4.22
 510
52,248
 4.03
 526
 50,512
 4.24
 535
Mortgage-backed securities:                      
Federal agencies105,780
 2.39
 631
 98,459
 2.70
 665
156,617
 2.58
 1,011
 96,423
 2.80
 675
Residential and commercial18,080
 5.54
 250
 21,876
 5.84
 319
14,452
 5.32
 192
 20,827
 5.20
 271
Total mortgage-backed securities123,860
 2.85
 881
 120,335
 3.27
 984
171,069
 2.81
 1,203
 117,250
 3.23
 946
Other debt and equity securities54,176
 3.37
 459
 50,371
 3.40
 430
50,620
 3.60
 452
 53,558
 3.21
 429
Total available-for-sale securities259,023
 3.13
 2,029
 254,653
 3.24
 2,067
298,971
 3.05
 2,276
 255,794
 3.20
 2,046
Held-to-maturity securities:                      
Securities of U.S. Treasury and federal agencies44,678
 2.19
 246
 44,649
 2.18
 245
44,693
 2.20
 243
 44,664
 2.20
 244
Securities of U.S. states and political subdivisions2,507
 5.24
 33
 2,151
 5.17
 28
6,273
 5.30
 83
 2,156
 5.41
 29
Federal agency and other mortgage-backed securities47,971
 1.97
 236
 27,079
 2.38
 161
51,786
 2.51
 324
 28,114
 2.49
 175
Other debt securities3,909
 1.98
 19
 5,371
 1.75
 24
3,329
 2.34
 19
 4,598
 1.92
 22
Total held-to-maturity securities99,065
 2.15
 534
 79,250
 2.30
 458
106,081
 2.54
 669
 79,532
 2.37
 470
Total investment securities358,088
 2.86
 2,563
 333,903
 3.02
 2,525
405,052
 2.92
 2,945
 335,326
 3.01
 2,516
Mortgages held for sale (4)24,060
 3.44
 207
 24,159
 3.69
 223
19,893
 3.70
 184
 17,870
 3.59
 161
Loans held for sale (4)199
 3.04
 2
 568
 2.57
 4
112
 4.44
 1
 282
 3.23
 2
Loans:                      
Commercial:                      
Commercial and industrial – U.S.271,226
 3.48
 2,369
 241,409
 3.30
 2,005
274,749
 3.59
 2,436
 257,727
 3.39
 2,177
Commercial and industrial – Non U.S.51,261
 2.40
 309
 45,923
 1.83
 212
55,347
 2.73
 373
 49,508
 2.10
 258
Real estate mortgage128,809
 3.48
 1,127
 120,983
 3.31
 1,009
132,449
 3.56
 1,164
 122,739
 3.41
 1,040
Real estate construction23,212
 3.50
 205
 21,626
 3.39
 184
24,591
 3.72
 225
 22,603
 3.61
 203
Lease financing18,896
 4.70
 223
 12,282
 4.18
 129
19,070
 4.94
 235
 15,047
 4.74
 178
Total commercial493,404
 3.42
 4,233
 442,223
 3.18
 3,539
506,206
 3.54
 4,433
 467,624
 3.31
 3,856
Consumer:                      
Real estate 1-4 family first mortgage278,509
 3.97
 2,764
 269,437
 4.10
 2,762
275,480
 4.02
 2,766
 274,722
 4.05
 2,782
Real estate 1-4 family junior lien mortgage48,927
 4.37
 537
 55,298
 4.22
 588
45,285
 4.60
 515
 52,236
 4.39
 571
Credit card34,578
 11.60
 1,008
 31,649
 11.73
 936
35,437
 11.97
 1,046
 33,366
 11.61
 963
Automobile62,461
 5.60
 880
 58,534
 5.80
 855
61,510
 5.46
 828
 60,114
 5.67
 848
Other revolving credit and installment39,605
 5.92
 590
 37,954
 5.84
 559
39,727
 6.02
 590
 39,158
 5.99
 584
Total consumer464,080
 4.97
 5,779
 452,872
 5.01
 5,700
457,439
 5.06
 5,745
 459,596
 5.02
 5,748
Total loans (4)957,484
 4.17
 10,012
 895,095
 4.11
 9,239
963,645
 4.26
 10,178
 927,220
 4.16
 9,604
Other6,488
 2.30
 36
 5,028
 5.11
 64
6,865
 2.96
 50
 5,808
 2.06
 30
Total earning assets$1,734,508
 3.17% $13,798
 1,576,080
 3.21% $12,714
$1,773,099
 3.31% $14,545
 1,651,667
 3.22% $13,262
Funding sources                      
Deposits:                      
Interest-bearing checking$44,056
 0.15% $17
 37,783
 0.05% $5
$50,686
 0.29% $37
 38,711
 0.12% $11
Market rate and other savings667,185
 0.07
 110
 628,119
 0.06
 90
684,175
 0.09
 157
 651,551
 0.07
 107
Savings certificates25,185
 0.30
 19
 30,897
 0.58
 44
23,466
 0.29
 17
 27,880
 0.45
 31
Other time deposits54,921
 0.93
 128
 48,676
 0.46
 57
54,915
 1.31
 178
 58,206
 0.74
 107
Deposits in foreign offices107,072
 0.30
 82
 111,521
 0.13
 36
122,200
 0.49
 148
 97,682
 0.21
 51
Total interest-bearing deposits898,419
 0.16
 356
 856,996
 0.11
 232
935,442
 0.23
 537
 874,030
 0.14
 307
Short-term borrowings116,228
 0.29
 86
 90,357
 0.06
 13
98,549
 0.47
 115
 107,857
 0.25
 67
Long-term debt252,400
 1.59
 1,006
 180,569
 1.45
 655
259,793
 1.83
 1,183
 216,883
 1.56
 842
Other liabilities16,771
 2.11
 88
 16,435
 2.13
 89
16,806
 2.22
 92
 16,492
 2.14
 89
Total interest-bearing liabilities1,283,818
 0.48
 1,536
 1,144,357
 0.34
 989
1,310,590
 0.59
 1,927
 1,215,262
 0.43
 1,305
Portion of noninterest-bearing funding sources450,690
 —
 —
 431,723
 —
 —
462,509
 —
 —
 436,405
 —
 —
Total funding sources$1,734,508
 0.35
 1,536
 1,576,080
 0.25
 989
$1,773,099
 0.44
 1,927
 1,651,667
 0.32
 1,305
Net interest margin and net interest income on a taxable-equivalent basis (5)  2.82% $12,262
   2.96% $11,725
  2.87% $12,618
   2.90% $11,957
Noninterest-earning assets                      
Cash and due from banks$18,682
       16,979
      $18,706
       17,995
      
Goodwill26,979
       25,703
      26,673
       26,069
      
Other134,417
     127,640
    112,563
     124,144
    
Total noninterest-earning assets$180,078
     170,322
    $157,942
     168,208
    
Noninterest-bearing funding sources                        
Deposits$363,108
     341,878
    $363,749
     345,400
    
Other liabilities63,777
     67,964
    54,935
     62,627
    
Total equity203,883
     192,203
    201,767
     196,586
    
Noninterest-bearing funding sources used to fund earning assets(450,690)     (431,723)    (462,509)     (436,405)    
Net noninterest-bearing funding sources$180,078
     170,322
    $157,942
     168,208
    
Total assets$1,914,586
     1,746,402
    $1,931,041
     1,819,875
    
                      
(1)
Our average prime rate was 3.50%3.80% and 3.25%3.50% both for the quarters ended September 30, 2016March 31, 2017 and 2015, and for the first nine months of 2016 and 2015, respectively. The average three-month London Interbank Offered Rate (LIBOR) was 0.79%1.07% and 0.31%0.62% for thesame quarters, ended September 30, 2016 and 2015, respectively, and 0.69% and 0.28% for the first nine months of 2016 and 2015, respectively.
(2)Yields/rates and amounts include the effects of hedge and risk management activities associated with the respective asset and liability categories.
(3)Yields and rates are based on interest income/expense amounts for the period, annualized based on the accrual basis for the respective accounts. The average balance amounts represent amortized cost for the periods presented.
(4)Nonaccrual loans and related income are included in their respective loan categories.
(5)
Includes taxable-equivalent adjustments of $310318 million and $268290 million for the quarters ended September 30, 2016March 31, 2017 and 2015, respectively, and $909 million and $780 million for the first nine months of 2016 and 2015, respectively, predominantly related to tax-exempt income on certain loans and securities. The federal statutory tax rate utilized was 35% for the periods presented.



 Nine months ended September 30, 
       2016
       2015
(in millions)
Average
balance

 
Yields/
rates

 
Interest
income/
expense

 
Average
balance

 
Yields/
rates

 
Interest
income/
expense

Earning assets           
Federal funds sold, securities purchased under resale agreements and other short-term investments$292,635
 0.49% $1,076
 264,218
 0.27% $543
Trading assets83,580
 2.86
 1,792
 65,954
 2.91
 1,437
Investment securities (3):           
Available-for-sale securities:            
Securities of U.S. Treasury and federal agencies30,588
 1.56
 358
 31,242
 1.57
 368
Securities of U.S. states and political subdivisions52,637
 4.25
 1,678
 46,765
 4.18
 1,468
Mortgage-backed securities:           
Federal agencies98,099
 2.57
 1,889
 99,523
 2.71
 2,021
Residential and commercial19,488
 5.39
 787
 22,823
 5.80
 992
Total mortgage-backed securities117,587
 3.03
 2,676
 122,346
 3.28
 3,013
Other debt and equity securities53,680
 3.36
 1,349
 48,758
 3.44
 1,257
Total available-for-sale securities254,492
 3.18
 6,061
 249,111
 3.27
 6,106
Held-to-maturity securities:           
Securities of U.S. Treasury and federal agencies44,671
 2.19
 733
 44,010
 2.19
 722
Securities of U.S. states and political subdivisions2,274
 5.34
 91
 2,064
 5.16
 80
Federal agency and other mortgage-backed securities37,087
 2.08
 577
 19,871
 2.14
 319
Other debt securities4,193
 1.94
 61
 6,139
 1.72
 79
Total held-to-maturity securities88,225
 2.21
 1,462
 72,084
 2.22
 1,200
Total investment securities342,717
 2.93
 7,523
 321,195
 3.03
 7,306
Mortgages held for sale (4)20,702
 3.53
 549
 22,416
 3.62
 609
Loans held for sale (4)240
 3.71
 7
 644
 2.93
 14
Loans:               
Commercial:               
Commercial and industrial – U.S.266,622
 3.44
 6,874
 233,598
 3.31
 5,788
Commercial and industrial – Non U.S.50,658
 2.29
 867
 45,373
 1.88
 638
Real estate mortgage125,902
 3.43
 3,236
 115,224
 3.45
 2,972
Real estate construction22,978
 3.53
 608
 20,637
 3.68
 567
Lease financing17,629
 4.86
 643
 12,322
 4.77
 441
Total commercial483,789
 3.38
 12,228
 427,154
 3.26
 10,406
Consumer:           
Real estate 1-4 family first mortgage276,369
 4.01
 8,311
 267,107
 4.12
 8,243
Real estate 1-4 family junior lien mortgage50,585
 4.38
 1,659
 57,068
 4.24
 1,812
Credit card33,774
 11.58
 2,927
 30,806
 11.74
 2,704
Automobile61,246
 5.64
 2,588
 57,180
 5.87
 2,512
Other revolving credit and installment39,434
 5.94
 1,755
 37,069
 5.91
 1,638
Total consumer461,408
 4.99
 17,240
 449,230
 5.03
 16,909
Total loans (4)945,197
 4.16
 29,468
 876,384
 4.16
 27,315
Other6,104
 2.23
 101
 4,874
 5.21
 191
Total earning assets$1,691,175
 3.20% $40,516
 1,555,685
 3.21% $37,415
Funding sources           
Deposits:               
Interest-bearing checking$40,858
 0.13% $41
 38,491
 0.05% $15
Market rate and other savings659,257
 0.07
 327
 620,510
 0.06
 274
Savings certificates26,432
 0.37
 73
 32,639
 0.66
 160
Other time deposits58,087
 0.84
 364
 52,459
 0.43
 168
Deposits in foreign offices100,783
 0.25
 190
 107,153
 0.13
 105
Total interest-bearing deposits885,417
 0.15
 995
 851,252
 0.11
 722
Short-term borrowings111,993
 0.28
 231
 82,258
 0.09
 52
Long-term debt235,209
 1.57
 2,769
 183,130
 1.37
 1,879
Other liabilities16,534
 2.10
 260
 16,576
 2.16
 269
Total interest-bearing liabilities1,249,153
 0.45
 4,255
 1,133,216
 0.34
 2,922
Portion of noninterest-bearing funding sources442,022
   —
 422,469
 —
 —
Total funding sources$1,691,175
 0.34
 4,255
 1,555,685
 0.25
 2,922
Net interest margin and net interest income on a taxable-equivalent basis (5)   2.86% $36,261
    2.96% $34,493
Noninterest-earning assets                 
Cash and due from banks$18,499
     17,167
    
Goodwill26,696
     25,703
    
Other129,324
     129,412
    
Total noninterest-earning assets$174,519
     172,282
    
Noninterest-bearing funding sources             
Deposits$353,870
     335,160
    
Other liabilities62,169
     69,167
    
Total equity200,502
     190,424
    
Noninterest-bearing funding sources used to fund earning assets(442,022)     (422,469)    
Net noninterest-bearing funding sources$174,519
     172,282
    
Total assets$1,865,694
     1,727,967
    
            




Noninterest Income
Table 2: Noninterest Income
Quarter ended Sep 30,  %
 Nine months ended Sep 30,  %
Quarter ended March 31,  %
(in millions)2016
 2015
 Change
 2016
 2015
 Change
2017
 2016
 Change
Service charges on deposit accounts$1,370
 1,335
 3 % $4,015
 3,839
 5 %$1,313
 1,309
 — %
Trust and investment fees:                
Brokerage advisory, commissions and other fees2,344
 2,368
 (1) 6,874
 7,147
 (4)2,324
 2,239
 4
Trust and investment management849
 843
 1
 2,499
 2,556
 (2)829
 815
 2
Investment banking420
 359
 17
 1,172
 1,254
 (7)417
 331
 26
Total trust and investment fees3,613
 3,570
 1
 10,545
 10,957
 (4)3,570
 3,385
 5
Card fees997
 953
 5
 2,935
 2,754
 7
945
 941
 —
Other fees:          
     
Charges and fees on loans306
 307
 —
 936
 920
 2
307
 313
 (2)
Cash network fees138
 136
 1
 407
 393
 4
126
 131
 (4)
Commercial real estate brokerage commissions119
 124
 (4) 322
 394
 (18)81
 117
 (31)
Letters of credit fees81
 89
 (9) 242
 267
 (9)74
 78
 (5)
Wire transfer and other remittance fees103
 95
 8
 296
 275
 8
107
 92
 16
All other fees (3)179
 348
 (49) 562
 1,035
 (46)170
 202
 (16)
Total other fees926
 1,099
 (16) 2,765

3,284
 (16)865
 933
 (7)
Mortgage banking:          
     
Servicing income, net359
 674
 (47) 1,569
 1,711
 (8)456
 850
 (46)
Net gains on mortgage loan origination/sales activities1,308
 915
 43
 3,110
 3,130
 (1)772
 748
 3
Total mortgage banking1,667
 1,589
 5
 4,679

4,841
 (3)1,228
 1,598
 (23)
Insurance293
 376
 (22) 1,006
 1,267
 (21)277
 427
 (35)
Net gains (losses) from trading activities415
 (26) NM
 943
 515
 83
Net gains from trading activities439
 200
 120
Net gains on debt securities106
 147
 (28) 797
 606
 32
36
 244
 (85)
Net gains from equity investments140
 920
 (85) 573
 1,807
 (68)403
 244
 65
Lease income534
 189
 183
 1,404
 476
 195
481
 373
 29
Life insurance investment income152
 150
 1
 455
 440
 3
144
 154
 (6)
All other (3)163
 116
 41
 1,216
 (28) NM
1
 720
 (100)
Total$10,376
 10,418
 —
 $31,333

30,758
 2
$9,702
 10,528
 (8)
NM- Not meaningful
(1)Wire transfer and other remittance fees, reflected in all other fees prior to 2016, have been separately disclosed.
(2)All other fees have been revised to include merchant processing fees for all periods presented.
(3)Effective fourth quarter 2015, the Company's proportionate share of its merchant services joint venture earnings is included in All other income.

Noninterest income was $10.38of $9.7 billion and $31.33 billion for the third quarter and first nine months of 2016, respectively, compared with $10.42 billion and $30.76 billion for the same periods a year ago. This income represented 46% and 47%44% of revenue for the thirdfirst quarter and first nine months of 2016, respectively,2017, compared with 48%$10.5 billion, or 47% for both the thirdfirst quarter and first nine months of 2015.2016. The decline in noninterest income in thirdfirst quarter 2016,2017, compared with the same period a year ago, was due topredominantly driven by net hedge ineffectiveness, lower net gains on equity investmentsdebt securities, lower insurance income due to the divestiture of our crop insurance business in first quarter 2016, and insurance,lower mortgage banking income. The decreases in noninterest income were partially offset by an increase inhigher net gains from trading activities, trust and lease income. The increase in noninterest income for the first nine months of 2016, compared with the same period a year ago, was driven by higherinvestment fees, net gains from equity investments due to strong equity markets, and lease income related to the GE Capital business acquisitions gains from the sale of our crop insurance and health benefit services businesses, and hedge ineffectiveness income primarily on our long-term debt hedges, partially offset by lower trust and investment fees, and net gains on equity investments.in 2016. Many of our businesses, including consumer and small business deposits, credit and debit cards,capital finance, retail brokerage, venture capital, capital markets, international, community lending, multi-family capital,and corporate trust, equipment finance, and structured real estate,banking grew noninterest income in the thirdfirst quarter and first nine months of 2016.
Service charges on deposit accounts were $1.37 billion and $4.02 billion in the third quarter and first nine months of 2016, respectively, compared with $1.34 billion and $3.84 billion in the third quarter and first nine months of 2015. The increase in third quarter 2016, compared with the same period a year ago, was driven by account growth and higher overdraft fee revenue, while the increase in the first nine months of 2016, compared with the same period a year ago, was driven by higher overdraft fee revenue, account growth and higher fees from commercial product sales and commercial product re-pricing.2017.
Brokerage advisory, commissions and other fees are received for providing full-service and discount brokerage services predominantly to retail brokerage clients. Income from these brokerage-related activities include asset-based fees for advisory accounts, which are based on the market value of the client’s assets, and transactional commissions based on the number and size of transactions executed at the client’s direction. These fees decreasedincreased to $2.3 billion and $6.9 billion in the thirdfirst quarter and first nine months of 2016, respectively,2017 from $2.4 billion and $7.1$2.2 billion for the same periodsperiod in 2015.2016. The decreaseincrease in thirdfirst quarter 2016 was predominantly due to lower brokerage transaction revenue. The decrease for the first nine months of 20162017 was due to lower brokerage transaction revenue and lower

Earnings Performance (continued)




higher asset-based fees. Retail brokerage client assets totaled $1.48$1.6 trillion at September 30, 2016,March 31, 2017, compared with $1.35 $1.4
trillion at September 30, 2015,March 31, 2016, with all retail brokerage services provided by our Wealth and Investment Management (WIM) operating segment. For additional information on retail brokerage client assets, see the discussion and Tables 4d and 4e in the "Operating Segment Results – Wealth and Investment Management – Retail Brokerage Client Assets" section in this Report.
We earn trust and investment management fees from managing and administering assets, including mutual funds, institutional separate accounts, corporate trust, personal trust, employee benefit trust and agency assets. Trust and investment management fee income is primarily from client assets under management (AUM) for which the fees are determined based on a tiered scale relative to the market value of the AUM. AUM consists of assets for which we have investment management discretion. Our AUM totaled $667.5$654.9 billion at September 30, 2016,March 31, 2017, compared with $639.9$645.7 billion at September 30, 2015,March 31, 2016, with substantially all of our AUM managed by our WIM operating segment. Additional information regarding our WIM operating segment AUM is provided in Table 4f and the related discussion in the "Operating Segment Results – Wealth and Investment Management – Trust and Investment Client Assets Under Management" section in this Report. In addition to AUM we have client assets under administration (AUA) that earn various administrative fees which are generally based on the typeextent of the services provided to administer the account. Our AUA totaled $1.55
Earnings Performance (continued)




$1.6 trillion at September 30, 2016,March 31, 2017, compared with $1.52$1.3 trillion at September 30, 2015.March 31, 2016. Trust and investment management fees increased $6$14 million to $849$829 million in thirdfirst quarter 2017 from $815 million in first quarter 2016 but decreased $57 million to $2.5 billion in the first nine months of 2016. The decrease in the first nine months of 2016 was due to lower average AUMgrowth in management fees for investment advice on mutual funds, business growth and a shift of assets into lower yielding products.higher fee rate schedule.
We earn investment banking fees from underwriting debt and equity securities, arranging loan syndications, and performing other related advisory services. Investment banking fees increased to $420$417 million in thirdfirst quarter 2017 from $331 million in first quarter 2016, from $359 milliondue to an increase in third quarter 2015 driven by higher fee income across all products. Investment banking fees decreased to $1.2 billion in the first nine months of 2016 from $1.3 billion in the same period a year ago driven by declines in debt andadvisory services, equity originations due to market volatility.and loan syndications.
Card fees were $997$945 million and $2.9 billion in the thirdfirst quarter and first nine months of 2016, respectively,2017, compared with $953$941 million and $2.8 billion for the same periods a year ago. The increase was predominantlyin first quarter 2016, due to account growth and increasedan increase in purchase activity.
Other fees decreased to $926$865 million and $2.8 billion in the thirdfirst quarter and first nine months of 2016, respectively,2017, from $1.1 billion and $3.3 billion$933 million for the same periodsperiod in 2015,2016, predominantly driven by lower commercial real estate brokerage commissions and all other fees. Commercial real estate brokerage commissions decreased to $81 million in first quarter 2017, compared with $117 million in first quarter 2016 driven by lower sales and other property-related activities including financing and advisory services. All other fees were $179 million and $562$170 million in the thirdfirst quarter and first nine months of 2016, respectively,2017, compared with $348$202 million and $1.0 billion for the same periodsperiod in 2015. The decrease was predominantly due to the deconsolidation of our merchant2016, driven by lower hedge fund fees and lower merchant-related services joint venture in fourth quarter 2015, which resulted in a proportionate share of that income now being reported in all other income.and incentives.
Mortgage banking noninterest income, consisting of net servicing income and net gains on mortgage loan origination/sales activities, totaled $1.7 billion and $4.7$1.2 billion in the thirdfirst quarter and first nine months of 2016, respectively,2017, compared with $1.6 billion and $4.8 billion for the same periodsperiod a year ago.
In addition to servicing fees, net mortgage loan servicing
income includes amortization of commercial mortgage servicing rights (MSRs), changes in the fair value of residential MSRs during the period, as well as changes in the value of derivatives (economic hedges) used to hedge the residential MSRs. Net servicing income of $359$456 million for thirdfirst quarter 20162017 included a $134$102 million net MSR valuation gain ($8174 million increase in the fair value of the MSRs and a $72 million hedge loss). Net servicing income of $850 million for first quarter 2016 included a $498 million net MSR valuation gain ($957 million decrease in the fair value of the MSRs and a $142 million hedge gain). Net servicing income of $674 million for third quarter 2015 included a $253 million net MSR valuation gain ($833 million decrease in the fair value of the MSRs and a $1.1$1.5 billion hedge gain). For the first nine months of 2016, net servicing income of $1.6 billion included a $786 million net MSR valuation gain ($1.8 billionThe decrease in the fair value of the MSRs and a $2.6 billion hedge gain) and for the same period in 2015 net servicing income of $1.7 billion included a $468 million net MSR valuation gain ($553 million decrease in the fair value of the MSRs and a $1.0 billion hedge gain). Net servicing income decreased in third quarter 2016, compared with the same period a year ago, from lower net MSR valuation gains, higher unreimbursed servicing costs related to FHA loans, lower contractual servicing fees due to servicing portfolio runoff and higher other changes in MSR fair value losses due to higher payoffs in third quarter 2016. The increase in net MSR valuation gains in the first nine months of 2016,quarter 2017, compared with the same period in 2015,2016, was predominantlyprimarily attributable to MSR valuation adjustments in first quarter 20152016 that reflected higher prepayment expectations due to the reduction in FHA mortgage insurance premiums as well as a reduction in forecasted prepayments in the first nine months ofquarter 2016 due to updated economic, customer data attributes, and mortgage market rate inputs.
Our portfolio of loans serviced for others was $1.70$1.68 trillion at September 30, 2016,both March 31, 2017 and $1.78 trillion at December 31, 2015.2016. At September 30, 2016,March 31, 2017, the ratio of combined residential and commercial MSRs to related loans serviced for others was 0.69%0.87%, compared with 0.77%0.85% at December 31, 2015.2016. See the “Risk Management – Asset/Liability Management – Mortgage Banking Interest Rate and Market Risk” section in this Report for additional information regarding our MSRs risks and hedging approach.
Net gains on mortgage loan origination/sales activities was $1.3 billion and $3.1 billion$772 million in the thirdfirst quarter and first nine months of 2016, respectively,2017, compared with $915$748 million and $3.1 billion for the same periodsperiod a year ago. The increase in thirdfirst quarter 2016,2017, compared with the same period a year ago, was primarily driven by higherdue to a 10% increase in held for sale mortgage loan originations, partially offset by lower production margins. Mortgagewhich increased to $34 billion in first quarter 2017 from $31 billion in first quarter 2016. Total mortgage loan originations were $70 billion and $177$44 billion for the thirdboth first quarter 2017 and first nine months of 2016, respectively, compared with $55 billion and $166 billion for the same periods a year ago.2016. The production margin on residential held-for-sale mortgage originations, which represents net gains on residential mortgage loan origination/
sales activities divided by total residential held-for-sale mortgage originations, provides a measure of the profitability of our residential mortgage origination activity. Table 2a presents the information used in determining the production margin.



Table 2a: Selected Mortgage Production Data
 Quarter
ended Sep 30,		  Nine months ended Sep 30,  Quarter
ended Mar 31,		 
 2016
2015
 2016
2015
 2017
2016
Net gains on mortgage loan origination/sales activities (in millions):        
Residential(A)$953
736
 2,229
2,261
(A)$569
532
Commercial 167
55
 310
254
 101
71
Residential pipeline and unsold/repurchased loan management (1) 188
124
 571
615
 102
145
Total $1,308
915
 3,110
3,130
 $772
748
Residential real estate originations (in billions):        
Held-for-sale(B)$53
39
 130
122
(B)$34
31
Held-for-investment 17
16
 47
44
 10
13
Total $70
55
 177
166
 $44
44
Production margin on residential held-for-sale mortgage originations(A)/(B)1.81%1.88
 1.72
1.85
(A)/(B)1.68%1.68
(1)Primarily includes the results of GNMA loss mitigation activities, interest rate management activities and changes in estimate to the liability for mortgage loan repurchase losses.

The production margin was 1.81%1.68% for both first quarter 2017 and 1.72% for the third quarter and first nine months of 2016, respectively, compared with 1.88% and 1.85% for the same periods a year ago.2016. Mortgage applications were $100 billion and $272$59 billion for the thirdfirst quarter and first nine months of 2016, respectively,2017, compared with $73 billion and $247$77 billion for the same periodsperiod a year ago. The 1-4 family first mortgage unclosed pipeline was $50$28 billion at September 30, 2016,March 31, 2017, compared with $34$39 billion at September 30, 2015.March 31, 2016. For additional information about our mortgage banking activities and results, see the “Risk Management – Asset/Liability Management – Mortgage Banking Interest Rate and Market Risk” section and Note 8 (Mortgage Banking Activities) and Note 13 (Fair Values of Assets and Liabilities) to Financial Statements in this Report.
Net gains on mortgage loan origination/sales activities include adjustments to the mortgage repurchase liability. Mortgage loans are repurchased from third parties based on standard representations and warranties, and early payment default clauses in mortgage sale contracts. For the first nine months of 2016,quarter 2017, we released ahad no net $106 million fromrelease or build to the repurchase liability, including $13 million in third quarter 2016, compared with a net $40$12 million release for the first nine months of 2015, including $6 million in third quarter 2015.2016. For additional information about mortgage loan repurchases, see the “Risk Management – Credit Risk Management – Liability for Mortgage Loan Repurchase Losses” section and Note 8 (Mortgage Banking Activities) to Financial Statements in this Report.
Insurance income was $277 million in first quarter 2017, compared with $427 million in the same period a year ago. The decrease was driven by the divestiture of our crop insurance business in first quarter 2016.
Net gains from trading activities, which reflect both unrealized changes in fair value of our trading positions and realized gains and losses, were $415 million and $943$439 million in the thirdfirst quarter and first nine months of 2016, respectively,2017, compared with $(26)$200 million and $515 million for the same periods a year ago.in first quarter 2016. The increase in the third quarter and the first nine months of 2016 was predominantlyprimarily driven by higher deferred compensation gainsplan investment results (offset in employee benefits expense) and higher customer accommodation trading activity within our capital markets business reflecting higher fixed income trading gains.activity. Net gains from trading activities do not include interest and dividend income and expense on trading securities. Those amounts are reported within interest income from trading assets and other interest

expense from trading liabilities. For additional information about our trading activities, see the “Risk Management – Asset/Liability Management – Market Risk – Trading Activities” section in this Report. 
Net gains on debt and equity securities totaled $246$439 million for first quarter 2017, and $1.4 billion for the third$488 million in first quarter and first nine months of 2016, respectively, compared with $1.1 billion and $2.4 billion for the same periods in 2015, after other-than-temporary impairment (OTTI) write-downs of $136$129 million and $464 million, respectively, for the thirdfirst quarter and first nine months of 2016,2017, compared with $140 million and $308$198 million for the same periodsperiod in 2015.2016. The decrease in net gains on debt and equity securities in the thirdfirst quarter and first nine months of 2016, compared with the same periods a year ago,2017 reflected lower net gains from debt securities, partially offset by strong equity investments as our portfolio benefited from strong public and private equity markets in 2015.markets.
Lease income was $534of $481 million and $1.4 billion in the thirdfirst quarter and first nine months of 2016, respectively, compared with $189 million and $4762017, increased from $373 million for the same periodsperiod a year ago, largelypredominantly driven by the GE Capital business acquisitions.acquisitions, partially offset by lower gains on early leveraged lease terminations.
All other income was $163$1 million and $1.2 billion in the thirdfirst quarter and first nine months of 2016, respectively,2017, compared with $116$720 million and $(28) million for the same periods a year ago.in first quarter 2016. All other income includes ineffectiveness recognized on derivatives that qualify for hedge accounting, the results of certain economic hedges, losses on low income housing tax credit investments, foreign currency adjustments, and income from investments accounted for under the equity method, any of which can cause decreases and net losses in other income. The increasedecrease in other income for the thirdfirst quarter and first nine months of 2016,2017, compared with the same periodsperiod a year ago, reflected changeswas predominantly due to net hedge ineffectiveness, and the gain from the sale of our crop insurance business in first quarter 2016, partially offset by higher income from equity method investments. Hedge ineffectiveness was driven by an increase in ineffectiveness recognized on interest rate swaps used to hedge our exposure to interest rate risk on long-term debt and cross-currency swaps, cross-currency interest rate swaps and forward contracts used to hedge our exposure to foreign currency risk and interest rate risk involving non-U.S. dollar denominated long-term debt. AThe portion of the hedge ineffectiveness recognized was partially offset by the results of certain economic hedges and, accordingly, we recognized a net hedge benefitloss of $142 million and $577$193 million for the thirdfirst quarter and first nine months of 2016, respectively,2017, compared with a net hedge gainbenefit of $109$379 million and $56 million for the same periods a year ago. Other income for the first nine months of 2016 also included a $381 million gain from the sale of our crop insurance business in first quarter 2016, and a $290 million gain from the sale of our health benefit services business in second quarter 2016. For additional information about derivatives used as part of our asset/liability management, see Note 12 (Derivatives) to Financial Statements in this Report.


Earnings Performance (continued)




Noninterest Expense
Table 3: Noninterest Expense
Quarter ended Sep 30,  %
 Nine months ended Sep 30,  %
Quarter ended Mar 31,  %
(in millions)2016
 2015
 Change
 2016
 2015
 Change
2017
 2016
 Change
Salaries$4,224
 4,035
 5 % $12,359
 11,822
 5 %$4,261
 4,036
 6 %
Commission and incentive compensation2,520
 2,604
 (3) 7,769
 7,895
 (2)2,725
 2,645
 3
Employee benefits1,223
 821
 49
 3,993
 3,404
 17
1,686
 1,526
 10
Equipment491
 459
 7
 1,512
 1,423
 6
577
 528
 9
Net occupancy718
 728
 (1) 2,145
 2,161
 (1)712
 711
 —
Core deposit and other intangibles299
 311
 (4) 891
 935
 (5)289
 293
 (1)
FDIC and other deposit assessments310
 245
 27
 815
 715
 14
333
 250
 33
Outside professional services802
 663
 21
 2,154
 1,838
 17
804
 583
 38
Operating losses577
 523
 10
 1,365
 1,339
 2
282
 454
 (38)
Operating leases345
 235
 47
Contract services325
 282
 15
Outside data processing233
 258
 (10) 666
 780
 (15)220
 208
 6
Contract services313
 249
 26
 878
 712
 23
Travel and entertainment179
 172
 4
Postage, stationery and supplies150
 174
 (14) 466
 525
 (11)145
 163
 (11)
Travel and entertainment144
 166
 (13) 509
 496
 3
Advertising and promotion117
 135
 (13) 417
 422
 (1)127
 134
 (5)
Insurance23
 95
 (76) 156
 391
 (60)
Telecommunications101
 109
 (7) 287
 333
 (14)91
 92
 (1)
Foreclosed assets(17) 109
 NM
 127
 361
 (65)86
 78
 10
Operating leases363
 79
 359
 950
 205
 363
Insurance24
 111
 (78)
All other677
 636
 6
 1,703
 1,618
 5
581
 527
 10
Total$13,268
 12,399
 7
 $39,162
 37,375
 5
$13,792
 13,028
 6
NM - Not meaningful
Noninterest expense was $13.3$13.8 billion in thirdfirst quarter 2016 and $39.22017, up 6% from $13.0 billion in the first nine months of 2016, up 7% and 5%, respectively, from the same periodsperiod a year ago, driven predominantly by higher personnel expenses, operating lease expense, outside professional services, and contract services,operating leases, FDIC expense, and other deposit assessments, and operating losses,expense, partially offset by lower foreclosed assets expense,operating losses and insurance and outside data processing.expense.
Personnel expenses, which include salaries, commissions, incentive compensation and employee benefits, were up $507$465 million, or 7%6%, in thirdfirst quarter 20162017 compared with the same period aquarter last year, ago, and up $1.0 billion, or 4%, for the first nine months of 2016 compared with the same period a year ago. The increase in both periods was due to annual salary increases and increased staffing in technology, risk management, virtual channels, and operations, higher deferred compensation costs (included in employee benefits expense (offsetand offset in trading revenue), and staffing growth driven by the GE Capital business acquisitions, as well as investments in risk management. The increase in the first nine months of 2016 was also driven by an extra payroll day.incentive compensation expense.
Operating lease expense was up $284 million in third quarter 2016 and $745 million in the first nine months of 2016, compared with the same periods a year ago, largely due to depreciation expense on the operating leases acquired from GE Capital.
Outside professional services expense was up 21% and 17% in the third quarter and first nine months of 2016, respectively, compared with the same periods a year ago. Contract services expense was up 26% and 23% in the third quarter and first nine months of 2016, respectively, compared with the same periods a year ago. The increase in both expense categories reflected continued investments in our products, technology and service delivery, as well as costs to meet heightened regulatory expectations and evolving cybersecurity risk.
FDIC and other deposit assessments were up 27% and 14%$83 million, or 33%, in the thirdfirst quarter and first nine months of 2016, respectively,2017 compared with the same periodsperiod a year ago, due to an increase in deposit assessments as a result of a temporary surcharge which became effective on July 1, 2016. See the "Regulatory Reform" section in this Report for additional information.
Operating losses were up 10%Outside professional and 2% in the third quarter and first nine months of 2016, respectively, compared with the same periods a year ago, predominantly due to higher litigation and compliance expense for various legal matters.
Foreclosed assetscontract services expense was a net recoveryup $264 million, or 31%, in thirdfirst quarter 20162017 compared to a net expense inwith the same period a year ago. Higher gains onThe increase was largely driven by higher project and technology spending, as well as higher legal expense related to sales of foreclosed properties contributed to the net recoverypractices matters.
Operating losses were down $172 million, or 38%, in thirdfirst quarter 2016. Foreclosed assets expense was down 65% in the first nine months of 20162017 compared with the same period a year ago driven bypredominantly due to lower operatinglitigation accruals for various legal matters.
Operating lease expense and write-downs.was up $110 million, or 47%, in first quarter 2017 compared with the same period a year ago, predominantly due to the leases acquired from GE Capital.
Insurance expense was down 76% and 60%$87 million, or 78%, in the thirdfirst quarter and first nine months of 2016, respectively,2017 compared with the same periodsperiod a year ago due topredominantly driven by the sale of our crop insurance business in first quarter 2016 and the sale of our Warranty Solutions business in third quarter 2015.2016.
Outside data processingAll other noninterest expense was downup $54 million, or 10% and 15%, in the thirdfirst quarter and first nine months of 2016, respectively,2017 compared with the same periodsperiod a year ago predominantly due to the deconsolidation of our merchant services joint venture in fourth quarter 2015 as well as lower card processingdriven by higher donations expense.
All other expense in third quarter 2016 included a $107 million contribution to the Wells Fargo Foundation, compared with $126 million in third quarter 2015.
The efficiency ratio was 59.4%62.7% in thirdfirst quarter 2016,2017, compared with 56.7%58.7% in thirdfirst quarter 2015.2016. The Company expects the efficiency ratio to remain at an elevated level.elevated.



Income Tax Expense
Our effective tax rate was 31.5%27.4% and 32.5%32.0% for thirdfirst quarter 2017 and 2016, and 2015, respectively. The decrease in the effective tax rate for third quarter 2016 was largely due to an increase in tax credit investments, partially offset by the recognition of net changes in discrete tax benefits and expenses relating to tax disputes, settlements and uncertain tax positions. Our effective tax rate was 31.9% in the first nine months of 2016, up from 31.1% in the first nine months of 2015. The effective tax rate for the first nine months of 2015 reflected $359 million ofquarter 2017 included discrete tax benefits primarilytotaling $197 million, of which $183 million resulted from reductionsthe tax benefits associated with stock compensation activity during the quarter which was subject to ASU 2016-09 accounting guidance adopted in reservesfirst quarter 2017. See Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report for uncertain tax positions due to audit resolutions of prior period matters with U.S. federal and state taxing authorities.

additional information about ASU 2016-09.


Operating Segment Results
We are organized for management reporting purposes into three operating segments: Community Banking; Wholesale Banking; and Wealth and Investment Management (WIM). These segments are defined by product type and customer segment and their results are based on our management accounting process, for which there is no comprehensive, authoritative financial accounting guidance equivalent to generally accepted accounting principles (GAAP). Commencing in second quarter 2016, operating segment results reflect a shift in expenses between the personnel and other expense categories as a result of the
movement of support staff from the Wholesale Banking and WIM segments into a consolidated organization within the Community Banking segment. Since then personnel expenses associated with the transferred support staff have been allocated from Community Banking back to the Wholesale Banking and WIM segments through other expense. Table 4 and the following discussion present our results by operating segment. For additional description of our operating segments, including additional financial information and the underlying management accounting process, see Note 18 (Operating Segments) to Financial Statements in this Report.

Table 4: Operating Segment Results – Highlights
(income/expense in millions, Community Banking  Wholesale Banking  Wealth and Investment Management  Other (1)  
Consolidated
Company
  Community Banking  Wholesale Banking  Wealth and Investment Management  Other (1)  
Consolidated
Company
 
average balances in billions) 2016
 2015
 2016
 2015
 2016
 2015
 2016
 2015
 2016
 2015
 2017
 2016
 2017
 2016
 2017
 2016
 2017
 2016
 2017
 2016
Quarter ended Sep 30,                    
Quarter ended March 31,                    
Revenue $12,387
 12,933
 7,147
 6,326
 4,099
 3,878
 (1,305) (1,262) 22,328
 21,875
 $12,093
 12,614
 7,038
 6,958
 4,193
 3,854
 (1,322) (1,231) 22,002
 22,195
Provision (reversal of provision) for credit losses 651
 668
 157
 36
 4
 (6) (7) 5
 805
 703
 646
 720
 (43) 363
 (4) (14) 6
 17
 605
 1,086
Noninterest expense 6,953
 6,778
 4,120
 3,503
 2,999
 2,909
 (804) (791) 13,268
 12,399
 7,221
 6,836
 4,225
 3,968
 3,206
 3,042
 (860) (818) 13,792
 13,028
Net income (loss) 3,227
 3,560
 2,047
 1,925
 677
 606
 (307) (295) 5,644
 5,796
 3,009
 3,296
 2,115
 1,921
 623
 512
 (290) (267) 5,457
 5,462
Average loans $489.2
 477.0
 454.3
 405.6
 68.4
 61.1
 (54.4) (48.6) 957.5
 895.1
 $482.7
 484.3
 466.3
 429.8
 70.7
 64.1
 (56.1) (51.0) 963.6
 927.2
Average deposits 708.0
 655.6
 441.2
 442.0
 189.2
 172.6
 (76.9) (71.3) 1,261.5
 1,198.9
 717.2
 683.0
 466.0
 428.0
 195.6
 184.5
 (79.6) (76.1) 1,299.2
 1,219.4
Nine months ended Sep 30,                    
Revenue $37,205
 37,011
 21,389
 19,345
 11,872
 11,830
 (3,781) (3,715) 66,685
 64,471
Provision (reversal of provision) for credit losses 2,060
 1,723
 905
 (99) (8) (19) 8
 6
 2,965
 1,611
Noninterest expense 20,437
 20,088
 12,124
 10,625
 9,017
 9,069
 (2,416) (2,407) 39,162
 37,375
Net income (loss) 9,702
 10,322
 6,041
 6,090
 1,773
 1,721
 (852) (814) 16,664
 17,319
Average loans $486.4
 473.9
 445.2
 390.7
 66.4
 59.1
 (52.8) (47.3) 945.2
 876.4
Average deposits 698.3
 651.3
 431.7
 435.4
 185.4
 170.4
 (76.1) (70.7) 1,239.3
 1,186.4
(1)Includes the elimination of certain items that are included in more than one business segment, substantially all of which represents products and services for WIM customers served through Community Banking distribution channels.

Cross-sellWe aspire to create deep and enduring relationships with our customers by providing them with an exceptional experience and by discovering their needs and delivering the most relevant products, services, advice, and guidance. An outcome of offering customers the products and services they need, want and value is that we earn more opportunities to serve them, or what we call cross-sell. Cross-sell is the result of serving our customers well, understanding their financial needs and goals over their lifetimes, and ensuring we innovate our products, services and channels so that we earn more of their business and help them succeed financially. Our customer-focused approach to cross-sell is needs-based as some customers will benefit from more products, and some may need fewer. We believe there is continued opportunity to meet our customers' financial needs as we build lifelong relationships with them. One way we track the degree to which we are satisfying our customers' financial needs is through our cross-sell metrics, which help us measure the depth of relationships we have formed with our Community Banking, Wholesale Banking and WIM customers. For additional information regarding our cross-sell metrics, see the "Earnings Performance – Operating Segments – Cross-sell" section in our 2015 Form 10-K.
The “Earnings Performance – Operating Segments – Cross-sell” section in our 2015 Form 10-K described our methodology
for measuring and tracking cross-sell metrics. As described below, in second quarter 2016 we modified our methodology for Community Banking to better align our cross-sell metrics with ongoing changes in Community Banking’s business and products. This change in methodology was unrelated to the sales practices settlements announced on September 8, 2016. Instead, the change in methodology was the result of a long-term evaluation spanning 18 months that explored several alternatives and involved product groups and lines of business in order to best align our Community Banking cross-sell metric with our strategic focus of long-term retail banking relationships. For similar reasons, we are currently in the process of evaluating changes in our cross-sell methodology for Wholesale Banking and WIM. In response to the sales practices settlements, however, we eliminated product sales goals for retail banking team members effective October 1, 2016.
For Community Banking, the cross-sell metric represents the average number of products per retail banking household. For example, one checking account and two loans for the same household would be treated as three products for the metric. During second quarter 2016, we changed how we determine retail banking households within Community Banking to include only those households that have a retail (consumer) checking account, which we believe provides the foundation for long-term retail

Earnings Performance (continued)




banking relationships. Previously, retail banking households were defined as a household that had at least one of the following retail products – a checking account, savings account, savings certificate, individual retirement account (IRA) certificate of deposit, IRA savings account, personal line of credit, personal loan, home equity line of credit or home equity loan. We continue to determine a retail banking household for Community Banking based on aggregating all products with the same address. This change to how we determine retail banking households resulted in the removal from the cross-sell metric of approximately 1.7 million households and over 3 million associated products. In order to provide a more comprehensive and holistic view of a retail banking household’s entire relationship with us, during second quarter 2016 we also updated the products included in the Community Banking cross-sell metrics to capture business products (over 6 million business products added, consisting primarily of checking accounts and debit cards), in addition to retail products, that have the potential for revenue generation and long-term viability. Products and services that generally do not meet these criteria – such as ATM cards, online banking, bill pay and direct deposit – are not included. The removal of bill pay, which was previously included, resulted in over 9 million products being removed from the cross-sell metric, as we believe bill pay is better classified as one of the many omni-channel services we provide. On an ongoing basis, we may periodically update the products included in our cross-sell metrics to account for changes in our product offerings.
Our Community Banking cross-sell metrics, as revised for prior periods to conform to the current period presentation, were 6.33, 6.31, 6.37 and 6.36 as of August 2015 and November 2015, 2014 and 2013, respectively, reflecting a one month reporting lag for each period. Cross-sell metrics have not been adjusted to reflect the impact of approximately 2.1 million potentially unauthorized accounts identified in a review by an independent consulting firm. Due to our ongoing processes to actively monitor balances and usage of accounts and remove those that are inactive over established timeframes, not all of these potentially unauthorized accounts affected our cross-sell metrics at any one time. Accordingly, the maximum impact of these accounts to this reported metric in any one quarter was 0.02 products per household, or 0.3%.

Operating Segment Results
The following discussion provides a description of each of our operating segments, including cross-sell metrics and financial results. Operating segment results for 2016 reflect a shift in expenses between the personnel and other expense categories as a result of the movement of support staff from the Wholesale Banking and WIM segments into a consolidated organization within the Community Banking segment. Personnel expenses associated with the transferred support staff are now being allocated from Community Banking back to the Wholesale Banking and WIM segments through other expense.

Community Banking offers a complete line of diversified financial products and services for consumers and small businesses including checking and savings accounts, credit and debit cards, and automobile, student, and small business lending. These products also include investment, insurance and trust services in 39 states and D.C., and mortgage and home equity loans in all 50 states and D.C. The Community Banking segment
also includes the results of our Corporate Treasury activities net of allocations in support of the other operating segments and results of investments in our affiliated venture capital partnerships. Our retail banking household cross-sell (on the revised basis described above) was 6.25 products per household in August 2016, compared with 6.33 in August 2015, reflecting a one month reporting lag for each period. Table 4a provides additional financial information for Community Banking.


Table 4a: Community Banking
Quarter ended Sep 30,    Nine months ended Sep 30,   Quarter ended March 31,   
(in millions, except average balances which are in billions)2016
 2015
 % Change 2016
 2015
 % Change
2017
 2016
 % Change
Net interest income$7,430
 7,409
 — % $22,277
 21,833
 2 %$7,627
 7,468
 2 %
Noninterest income:                
Service charges on deposit accounts821
 793
 4
 2,347
 2,232
 5
741
 753
 (2)
Trust and investment fees:          
    
Brokerage advisory, commissions and other fees (1)479
 516
 (7) 1,384
 1,545
 (10)444
 450
 (1)
Trust and investment management (1)222
 218
 2
 631
 641
 (2)218
 205
 6
Investment banking (2)(23) (35) 34
 (92) (95) 3
(27) (19) (42)
Total trust and investment fees678
 699
 (3) 1,923
 2,091
 (8)635
 636
 —
Card fees911
 862
 6
 2,670
 2,497
 7
868
 852
 2
Other fees362
 369
 (2) 1,100
 1,091
 1
395
 372
 6
Mortgage banking1,481
 1,513
 (2) 4,314
 4,523
 (5)1,105
 1,508
 (27)
Insurance2
 31
 (94) 4
 94
 (96)12
 2
 500
Net gains (losses) from trading activities33
 (143) 123
 (54) (149) 64
50
 (27) 285
Net gains on debt securities131
 75
 75
 744
 349
 113
102
 219
 (53)
Net gains from equity investments (3)109
 825
 (87) 448
 1,438
 (69)367
 175
 110
Other income of the segment429
 500
 (14) 1,432
 1,012
 42
191
 656
 (71)
Total noninterest income4,957
 5,524
 (10) 14,928
 15,178
 (2)4,466
 5,146
 (13)
          
    
Total revenue12,387
 12,933
 (4) 37,205
 37,011
 1
12,093
 12,614
 (4)
          
    
Provision for credit losses651
 668
 (3) 2,060
 1,723
 20
646
 720
 (10)
Noninterest expense:          
    
Personnel expense4,606
 4,350
 6
 13,886
 13,266
 5
5,181
 4,618
 12
Equipment462
 420
 10
 1,421
 1,315
 8
551
 493
 12
Net occupancy520
 533
 (2) 1,551
 1,574
 (1)524
 510
 3
Core deposit and other intangibles123
 144
 (15) 380
 431
 (12)112
 128
 (13)
FDIC and other deposit assessments159
 140
 14
 453
 398
 14
191
 146
 31
Outside professional services300
 253
 19
 749
 674
 11
342
 185
 85
Operating losses525
 381
 38
 1,224
 1,009
 21
261
 407
 (36)
Other expense of the segment258
 557
 (54) 773
 1,421
 (46)59
 349
 (83)
Total noninterest expense6,953
 6,778
 3
 20,437
 20,088
 2
7,221
 6,836
 6
Income before income tax expense and noncontrolling interests4,783
 5,487
 (13) 14,708
 15,200
 (3)4,226
 5,058
 (16)
Income tax expense1,546
 1,785
 (13) 4,910
 4,695
 5
1,127
 1,697
 (34)
Net income from noncontrolling interests (4)10
 142
 (93) 96
 183
 (48)90
 65
 38
Net income$3,227
 3,560
 (9) $9,702
 10,322
 (6)$3,009
 3,296
 (9)
Average loans$489.2
 477.0
 3
 $486.4
 473.9
 3
$482.7
 484.3
 —
Average deposits708.0
 655.6
 8
 698.3
 651.3
 7
717.2
 683.0
 5
(1)Represents income on products and services for WIM customers served through Community Banking distribution channels and is eliminated in consolidation.
(2)Includes syndication and underwriting fees paid to Wells Fargo Securities which are offset in our Wholesale Banking segment.
(3)PrimarilyPredominantly represents gains resulting from venture capital investments.
(4)Reflects results attributable to noncontrolling interests primarilypredominantly associated with the Company’s consolidated venture capital investments.
Community Banking reported net income of $3.2$3.0 billion in thirdfirst quarter 2016,2017, down $333$287 million, or 9%, from thirdfirst quarter 2015, and $9.7 billion for the first nine months of 2016, down $620 million, or 6%, compared with the same period a year ago. Results from the first nine months of 20152016. First quarter 2017 results included a discrete tax benefit in income tax expense of $359$195 million. Revenue of $12.4$12.1 billion decreased $546$521 million, or 4%, from third quarter 2015, and revenue of $37.2 billion for the first nine months of 2016 increased $194 million, or 1%, compared with the same period last year. The decrease from third quarter 2015 wasa year ago primarily due to lower other income driven by negative hedge ineffectiveness related to our long term debt hedging results, lower mortgage banking revenue, and lower gains on sales of debt securities, partially offset by higher gains on equity investments, and othernet interest income, partially offset by higherand deferred compensation plan investment resultsinvestments (offset in employee benefits expense), higher gains on debt securities, revenue from debit and credit card volumes, and deposit service charges. The increase from the first nine months of 2015 was due to higher net interest income, other income driven by positive hedge ineffectiveness, gains on debt securities, revenue from debit and credit card volumes, and deposit service charges, partially offset by lower gains on equity investments, mortgage banking revenue, and trust and investment fees.. Average loans of $489.2$482.7 billion in thirdfirst quarter 2016 increased $12.2 billion, or 3%, from third2017 were stable compared with first quarter 2015, and average loans of $486.4 billion in the first nine months of 2016 increased $12.5 billion, or 3%, from the first nine months of 2015.2016. Average deposits increased $52.4$34.2 billion, or 8%5%, from thirdfirst quarter 2015 and $47.0 billion, or 7%, from the first nine months of 2015.2016. Primary consumer
checking customers (customers who actively use their checking account with transactions such as debit card purchases, online bill payments, and direct deposit) as of August 2016March 2017 were up 4.7%1.6% from August 2015.March 2016. Noninterest expense increased 3%$385 million, or 6%, from thirdfirst quarter 2015 and increased 2% from the first nine months of 2015. The increase from third quarter 2015 was 2016,
driven by higher deferred compensation plan expense (offset in trading revenue) and operating losses, partially offset by lower foreclosed assets expense and other expense. The increase from the first nine months of 2015 was due to higher personnel expenseexpenses including higher deferred compensation plan expense (offset in trading revenue), operating losses,professional services, and equipment expense, partially offset by lower foreclosed assets expense, data processing,operating losses and other expense. The provision for credit losses decreased $17$74 million from third quarter 2015a year ago primarily due to lower net charge-offs, and increased $337 million from the first nine months of 2015 due to allowance releasesan improvement in the prior yearconsumer real estate portfolio compared with an allowance build for the first nine months of 2016, reflecting loan growth in the automobile and credit card portfolios.quarter 2016.


Wholesale Banking provides financial solutions to businesses across the United States and globally with annual sales generally in excess of $5 million. Products and businesses include Business Banking, Middle Market Commercial Banking, Government and Institutional Banking, Corporate Banking, Commercial Real Estate, Treasury Management, Wells Fargo Capital Finance,

Earnings Performance (continued)




Insurance, International, Real Estate Capital Markets, Commercial Mortgage Servicing, Corporate Trust, Equipment Finance, Wells Fargo Securities, Principal Investments, and Asset Backed Finance. As previously mentioned, we are currently evaluating changes in our cross-sell methodology to better align
our metrics with ongoing changes in Wholesale Banking's business and products. Table 4b provides additional financial information for Wholesale Banking.

Table 4b: Wholesale Banking
Quarter ended Sep 30,    Nine months ended Sep 30,   Quarter ended March 31,   
(in millions, except average balances which are in billions)2016
 2015
 % Change 2016
 2015
 % Change
2017
 2016
 % Change
Net interest income$4,062
 3,611
 12 % $11,729
 10,639
 10 %$4,148
 3,748
 11 %
Noninterest income:                
Service charges on deposit accounts549
 542
 1
 1,667
 1,606
 4
571
 555
 3
Trust and investment fees:          
    
Brokerage advisory, commissions and other fees91
 77
 18
 276
 209
 32
84
 91
 (8)
Trust and investment management117
 104
 13
 351
 305
 15
129
 111
 16
Investment banking444
 389
 14
 1,265
 1,349
 (6)445
 350
 27
Total trust and investment fees652
 570
 14
 1,892
 1,863
 2
658
 552
 19
Card fees85
 90
 (6) 263
 255
 3
77
 89
 (13)
Other fees562
 728
 (23) 1,660
 2,189
 (24)468
 560
 (16)
Mortgage banking186
 76
 145
 367
 319
 15
123
 91
 35
Insurance291
 345
 (16) 1,002
 1,172
 (15)256
 425
 (40)
Net gains from trading activities302
 187
 61
 853
 671
 27
290
 207
 40
Net gains (losses) on debt securities(25) 72
 NM
 52
 256
 (80)(66) 25
 NM
Net gains from equity investments26
 100
 (74) 118
 358
 (67)36
 66
 (45)
Other income of the segment457
 5
 NM
 1,786
 17
 NM
477
 640
 (25)
Total noninterest income3,085
 2,715
 14
 9,660
 8,706
 11
2,890
 3,210
 (10)
          
    
Total revenue7,147
 6,326
 13
 21,389
 19,345
 11
7,038
 6,958
 1
          
    
Provision (reversal of provision) for credit losses157
 36
 336
 905
 (99) NM
(43) 363
 NM
Noninterest expense:          
    
Personnel expense1,806
 1,671
 8
 5,563
 5,210
 7
1,823
 1,974
 (8)
Equipment18
 26
 (31) 55
 69
 (20)16
 21
 (24)
Net occupancy116
 112
 4
 350
 340
 3
110
 118
 (7)
Core deposit and other intangibles101
 86
 17
 286
 260
 10
105
 90
 17
FDIC and other deposit assessments125
 87
 44
 299
 262
 14
118
 86
 37
Outside professional services269
 210
 28
 759
 567
 34
248
 214
 16
Operating losses55
 87
 (37) 130
 130
 —
6
 37
 (84)
Other expense of the segment1,630
 1,224
 33
 4,682
 3,787
 24
1,799
 1,428
 26
Total noninterest expense4,120
 3,503
 18
 12,124
 10,625
 14
4,225
 3,968
 6
Income before income tax expense and noncontrolling interests2,870
 2,787
 3
 8,360
 8,819
 (5)2,856
 2,627
 9
Income tax expense827
 815
 1
 2,341
 2,583
 (9)746
 719
 4
Net income (loss) from noncontrolling interests(4) 47
 NM
 (22) 146
 NM
Net loss from noncontrolling interests(5) (13) 62
Net income$2,047
 1,925
 6
 $6,041
 6,090
 (1)$2,115
 1,921
 10
Average loans$454.3
 405.6
 12
 $445.2
 390.7
 14
$466.3
 429.8
 8
Average deposits441.2
 442.0
 —
 431.7
 435.4
 (1)466.0
 428.0
 9
NM – Not meaningful
Wholesale Banking hadreported net income of $2.0$2.1 billion in thirdfirst quarter 2016,2017, up $122$194 million, or 6%10%, from thirdfirst quarter 2015. In the first nine months of 2016, net income of $6.0 billion decreased $492016. Revenue grew $80 million, or 1%, from the same period a year ago. The increase in the thirdfirst quarter 2016 as increased net interest income was driven by higher revenue, partially offset by higher expenses and provision for credit losses. The decline in the first nine months of 2016 was driven by increased provision for credit losses and noninterest expense, partially offset by increased revenue. Revenue of $7.1 billion in third quarter 2016 increased $821 million, or 13%, from third quarter 2015 and revenue of $21.4 billion in the first nine months of 2016 increased $2.0 billion, or 11%, from the first nine months of 2015 on higher net interest income andlower noninterest income. Net interest income increased $451$400 million, or 12%11%, driven by strong loan growth, which included the benefit from third quarter 2015 and $1.1 billion,the GE Capital business acquisitions in 2016. Noninterest income decreased $320 million, or 10%, fromprimarily due to the first nine monthsquarter 2016 sale of 2015our crop insurance business which resulted in lower insurance and gain on sale income, as well as lower gains on debt securities, which were partially offset by higher investment banking fees, customer accommodation trading, lease income related to the GE Capital business acquisitions and higher income on investments accounted for under the equity method. Average loans of $466.3 billion increased $36.5 billion, or 8%, from first quarter 2016, driven by the GE Capital business acquisitions and broad-based loan growth. Noninterest income increased $370 million, or 14%, from third quarter 2015 on higher lease income related to the GE Capital business acquisitions, higher customer accommodation trading, mortgage banking fees and investment banking fees, partially offset by lower gains on equity and debt
securities, lower insurance income as a result of the sale of our crop insurance business in first quarter 2016, and the deconsolidation of our merchant services joint venture in fourth quarter 2015, which previously recognized a large share of income in all other fees. Noninterest income increased $1.0 billion, or 11%, from the first nine months of 2015 on higher lease income related to the GE Capital business acquisitions, gains on the sales of our crop insurance and health benefit services businesses, and higher customer accommodation trading, partially offset by lower insurance fees related to the sale of our crop insurance business, lower other fees related to lower commercial real estate brokerage fees and the deconsolidation of our merchant services joint venture, and lower gains on equity investments and debt securities. Average loans of $454.3 billion in third quarter 2016 increased $48.7 billion, or 12%, from third quarter 2015, driven by the GE Capital business acquisitions and broad based growth in asset backed finance, capital finance, commercial real estate, corporate banking, equipment finance, middle market banking and structured real estate. Average deposits of $441.2$466.0 billion in thirdincreased $38.0 billion, or 9%, from
first quarter 2016 remained flat from third quarter 2015.reflecting growth in corporate banking, corporate trust and international global financial institutions. Noninterest expense increased $617$257 million, or 18%6%, from thirdfirst quarter 2015 and


$1.5 billion, or 14%, from the first nine months of 2015,2016 substantially due to higher personnel and operating lease expense related to the GE Capital business acquisitions as well asand higher expensesexpense related to growth initiatives, compliance and regulatory requirements. The provision for credit losses increased $121decreased $406 million from thirdfirst quarter 2015 and $1.0 billion from the first nine months of 20152016 driven by increased losses and credit deteriorationimprovement in the oil and gas portfolio.

Earnings Performance (continued)




Wealth and Investment Management provides a full range of personalized wealth management, investment and retirement products and services to clients across U.S. based businesses including Wells Fargo Advisors, The Private Bank, Abbot Downing, Wells Fargo Institutional Retirement and Trust, and
Wells Fargo Asset Management. We deliver financial planning, private banking, credit, investment management and fiduciary services to high-net worth and ultra-high-net worth individuals
and families. We also serve clients’ brokerage needs, supply retirement and trust services to institutional clients and provide investment management capabilities delivered to global institutional clients through separate accounts and the Wells Fargo Funds. As previously mentioned, we are currently evaluating changes in our cross-sell methodology to better align our metrics with ongoing changes in WIM's business and products. Table 4c provides additional financial information for WIM.

Table 4c: Wealth and Investment Management
Quarter ended Sep 30,    Nine months ended Sep 30,   Quarter ended March 31,   
(in millions, except average balances which are in billions)2016
 2015
 % Change 2016
 2015
 % Change
2017
 2016
 % Change
Net interest income$977
 887
 10 % $2,852
 2,545
 12 %$1,074
 943
 14 %
Noninterest income:                
Service charges on deposit accounts5
 4
 25
 15
 14
 7
5
 5
 —
Trust and investment fees:                
Brokerage advisory, commissions and other fees2,256
 2,295
 (2) 6,618
 6,942
 (5)2,245
 2,154
 4
Trust and investment management738
 747
 (1) 2,168
 2,274
 (5)707
 712
 (1)
Investment banking (1)—
 5
 (100) (1) —
 NM
(1) —
 NM
Total trust and investment fees2,994
 3,047
 (2) 8,785
 9,216
 (5)2,951
 2,866
 3
Card fees2
 2
 —
 5
 4
 25
1
 1
 —
Other fees4
 4
 —
 13
 12
 8
5
 4
 25
Mortgage banking(2) (2) —
 (6) (5) (20)(2) (2) —
Insurance—
 —
 NM
 —
 1
 (100)20
 —
 NM
Net gains (losses) from trading activities80
 (70) 214
 144
 (7) NM
99
 20
 395
Net gains on debt securities—
 —
 NM
 1
 1
 —
—
 —
 NM
Net gains (losses) from equity investments5
 (5) 200
 7
 11
 (36)—
 3
 NM
Other income of the segment34
 11
 209
 56
 38
 47
40
 14
 186
Total noninterest income3,122
 2,991
 4
 9,020
 9,285
 (3)3,119
 2,911
 7
                
Total revenue4,099
 3,878
 6
 11,872
 11,830
 —
4,193
 3,854
 9
                
Provision (reversal of provision) for credit losses4
 (6) 167
 (8) (19) 58
Reversal of provision for credit losses(4) (14) 71
Noninterest expense:                
Personnel expense1,966
 1,850
 6
 5,902
 5,889
 —
2,105
 2,025
 4
Equipment12
 14
 (14) 40
 42
 (5)11
 15
 (27)
Net occupancy111
 113
 (2) 332
 335
 (1)107
 112
 (4)
Core deposit and other intangibles75
 81
 (7) 225
 244
 (8)72
 75
 (4)
FDIC and other deposit assessments44
 30
 47
 106
 93
 14
40
 31
 29
Outside professional services241
 207
 16
 668
 619
 8
222
 191
 16
Operating losses(1) 57
 NM
 17
 206
 (92)17
 12
 42
Other expense of the segment551
 557
 (1) 1,727
 1,641
 5
632
 581
 9
Total noninterest expense2,999
 2,909
 3
 9,017
 9,069
 (1)3,206
 3,042
 5
Income before income tax expense and noncontrolling interests1,096
 975
 12
 2,863
 2,780
 3
991
 826
 20
Income tax expense415
 371
 12
 1,087
 1,054
 3
362
 314
 15
Net income (loss) from noncontrolling interests4
 (2) 300
 3
 5
 (40)
Net income from noncontrolling interests6
 —
 NM
Net income$677
 606
 12
 $1,773
 1,721
 3
$623
 512
 22
Average loans$68.4
 61.1
 12
 $66.4
 59.1
 12
$70.7
 64.1
 10
Average deposits189.2
 172.6
 10
 185.4
 170.4
 9
195.6
 184.5
 6
NM – Not meaningful
(1)Includes syndication and underwriting fees paid to Wells Fargo Securities which are offset in our Wholesale Banking segment.
WIM reported net income of $677$623 million in thirdfirst quarter 2017, up $111 million, or 22%, from first quarter 2016. Revenue of $4.2 billion in first quarter 2017 was up $339 million, or 9%, from first quarter 2016, up $71 millionresulting from third quarter 2015. The increaseincreases in net income from third quarter 2015 was driven by higher noninterest income and net interest income, partially offset by higher noninterest expense. Net income for the first nine months of 2016 was $1.8 billion, up $52 million, or 3%, compared with the same period a year ago, driven by higherboth net interest income and lower noninterest expense, primarilyincome. Net interest income increased 14% from first quarter 2016 due to lower operating losses, partially offset by lower noninterest income. Revenue was up $221 million, or 6%,growth in investment securities and loan balances. Noninterest income increased 7% from thirdfirst quarter 2015 and up $42 million from the first nine months of 2015,2016 substantially driven by growth in net interest income and gains onhigher asset-based fees, deferred compensation plan
investments (offset in employee benefits expense), partially offset by lower asset-basedand other fee income. Asset-based fees and lower brokerage transaction revenue. Net interest income increased 10% from third quarter 2015, and waswere up 12% from the first nine months of 2015,primarily due to growth in loan balanceshigher brokerage advisory account client assets driven by higher market valuations and investment portfolios.positive net flows. Average loan balances of $68.4$70.7 billion in thirdfirst quarter 2017 increased 10% from first quarter 2016 increased 12% from third quarter 2015. Average loans in the first nine months of 2016 increased 12% from the same period a year ago. Average loan growth wasprimarily driven by growth in non-conforming mortgage loans and securities-based lending.loans. Average deposits in thirdfirst quarter 20162017 of $189.2$195.6 billion increased 10%6% from thirdfirst quarter 2015. Average deposits in the first nine months of 2016 increased

Earnings Performance (continued)




9% from the same period a year ago.2016. Noninterest expense of $3.2 billion in first quarter 2017 was up 3%$164 million, or 5%, from thirdfirst quarter 2015, substantially driven by
2016, due to higher non-personnel expenses, deferred compensation plan expense (offset in trading revenue), partially offset by lower operating losses, and down 1% from the first nine months of 2015, driven by lower operating losses andhigher broker commissions partially offset bymainly due to higher deferred compensation plan expense (offset in trading revenue) and other non-personnel expenses. Provisionbrokerage revenue. Total provision for credit losses increased $10 million from thirdfirst quarter 2015 and $11 million from the first nine months of 2015.2016, driven by higher net charge-offs.

The following discussions provide additional information for client assets we oversee in our retail brokerage advisory and trust and investment management business lines.

Retail Brokerage Client Assets Brokerage advisory, commissions and other fees are received for providing full-service
and discount brokerage services predominantly to retail brokerage clients. Offering advisory account relationships to our brokerage clients is an important component of our broader strategy of meeting their financial needs. Although a majority of our retail brokerage client assets are in accounts that earn
brokerage commissions, the fees from those accounts generally represent transactional commissions based on the number and size of transactions executed at the client’s direction. Fees earned from advisory accounts are asset-based and depend on changes in the value of the client’s assets as well as the level of assets resulting from inflows and outflows. A major portionmajority of our brokerage advisory, commissions and other fee income is earned from advisory accounts. Table 4d shows advisory account client assets as a percentage of total retail brokerage client assets at September 30, 2016March 31, 2017 and 2015.2016.

Table 4d: Retail Brokerage Client Assets
September 30, March 31, 
(in billions)2016
 2015
2017
 2016
Retail brokerage client assets$1,483.3
 1,351.7
$1,555.5
 1,415.7
Advisory account client assets458.3
 408.8
490.1
 428.2
Advisory account client assets as a percentage of total client assets31% 30
32% 30
Retail Brokerage advisory accounts include assets that are financial advisor-directed and separately managed by third-party managers, as well as certain client-directed brokerage assets where we earn a fee for advisory and other services, but do not have investment discretion. These advisory accounts generate fees as a percentage of the market value of the assets, which vary
across the account types based on the distinct services provided,
and are affected by investment performance as well as asset inflows and outflows. For the thirdfirst quarter 2017 and first nine months of 2016, and 2015, the average fee rate by account type ranged from 80 to 120 basis points. Table 4e presents retail brokerage advisory account client assets activity by account type for the thirdfirst quarter 2017 and first nine months of 2016 and 2015.2016.

Table 4e: Retail Brokerage Advisory Account Client Assets
 Quarter ended September 30, 2016 Nine months ended September 30, 2016
(in billions)Jun 30, 2016
Inflows (5)
Outflows (6)
Market impact (7)
Sep 30, 2016
 Dec 31, 2015
Inflows (5)
Outflows (6)
Market impact (7)
Sep 30, 2016
Client directed (1)$158.5
9.2
(9.5)3.1
161.3
 154.7
27.4
(27.7)6.9
161.3
Financial advisor directed (2)104.2
6.3
(4.7)4.7
110.5
 91.9
21.4
(13.5)10.7
110.5
Separate accounts (3)118.9
6.0
(5.6)3.5
122.8
 110.4
19.0
(15.6)9.0
122.8
Mutual fund advisory (4)62.1
2.2
(2.6)2.0
63.7
 62.9
6.1
(8.5)3.2
63.7
Total advisory client assets$443.7
23.7
(22.4)13.3
458.3
 419.9
73.9
(65.3)29.8
458.3
         
  
 Quarter ended September 30, 2015 Nine months ended September 30, 2015
 Jun 30, 2015
Inflows (5)
Outflows (6)
Market impact (7)
Sep 30, 2015
 Dec 31, 2014
Inflows (5)
Outflows (6)
Market impact (7)
Sep 30, 2015
Client directed (1)$161.8
9.2
(9.0)(10.2)151.8
 159.8
30.0
(27.9)(10.1)151.8
Financial advisor directed (2)91.4
4.8
(4.1)(4.4)87.7
 85.4
15.4
(12.5)(0.6)87.7
Separate accounts (3)113.0
4.9
(5.3)(5.8)106.8
 110.7
16.5
(15.4)(5.0)106.8
Mutual fund advisory (4)67.4
2.4
(3.1)(4.2)62.5
 66.9
8.0
(9.0)(3.4)62.5
Total advisory client assets$433.6
21.3
(21.5)(24.6)408.8
 422.8
69.9
(64.8)(19.1)408.8
 Quarter ended 
(in billions)Balance, beginning of period
Inflows (1)
Outflows (2)
Market impact (3)
Balance, end of period
March 31, 2017     
Client directed (4)$159.1
12.0
(11.6)3.8
163.3
Financial advisor directed (5)115.7
9.4
(6.0)7.1
126.2
Separate accounts (6)125.7
8.2
(6.2)6.0
133.7
Mutual fund advisory (7)63.3
3.8
(3.0)2.8
66.9
Total advisory client assets$463.8
33.4
(26.8)19.7
490.1
March 31, 2016     
Client directed (4)$154.7
8.9
(9.2)0.9
155.3
Financial advisor directed (5)91.9
7.3
(4.0)2.2
97.4
Separate accounts (6)110.4
5.7
(4.8)2.2
113.5
Mutual fund advisory (7)62.9
1.9
(3.0)0.2
62.0
Total advisory client assets$419.9
23.8
(21.0)5.5
428.2
(1)Inflows include new advisory account assets, contributions, dividends and interest.
(2)Outflows include closed advisory account assets, withdrawals, and client management fees.
(3)Market impact reflects gains and losses on portfolio investments.
(4)Investment advice and other services are provided to client, but decisions are made by the client and the fees earned are based on a percentage of the advisory account assets, not the number and size of transactions executed by the client.
(2)(5)Professionally managed portfolios with fees earned based on respective strategies and as a percentage of certain client assets.
(3)(6)Professional advisory portfolios managed by Wells Fargo asset managementAsset Management advisors or third-party asset managers. Fees are earned based on a percentage of certain client assets.
(4)(7)Program with portfolios constructed of load-waived, no-load and institutional share class mutual funds. Fees are earned based on a percentage of certain client assets.
(5)Inflows include new advisory account assets, contributions, dividends and interest.
(6)Outflows include closed advisory account assets, withdrawals, and client management fees.
(7)Market impact reflects gains and losses on portfolio investments.

Earnings Performance (continued)




Trust and Investment Client Assets Under Management We earn trust and investment management fees from managing and administering assets, including mutual funds, institutional separate accounts, personal trust, employee benefit trust and agency assets through our asset management, wealth and retirement businesses. Our asset management business is conducted by Wells Fargo Asset Management (WFAM), which offers Wells Fargo proprietary mutual funds and manages institutional separate accounts. Our wealth business manages
assets for high net worth clients, and our retirement business
provides total retirement management, investments, and trust and custody solutions tailored to meet the needs of institutional clients. Substantially all of our trust and investment management fee income is earned from AUM where we have discretionary management authority over the investments and generate fees as a percentage of the market value of the AUM. Table 4f presents AUM activity for the thirdfirst quarter of 2017 and first nine months of 2016 and 2015.2016.

Table 4f: WIM Trust and Investment – Assets Under Management
 Quarter ended September 30, 2016 Nine months ended September 30, 2016
(in billions)Jun 30, 2016
Inflows (4)
Outflows (5)
Market impact (6)
Sep 30, 2016
 Dec 31, 2015
Inflows (4)
Outflows (5)
Market impact (6)
Sep 30, 2016
Assets managed by WFAM (1):    

 
   
Money market funds (2)$108.9
7.4
—
—
116.3
 123.6
—
(7.3)—
116.3
Other assets managed374.9
31.0
(30.3)6.2
381.8
 366.1
86.9
(85.2)14.0
381.8
Assets managed by Wealth and Retirement (3)164.6
8.4
(7.4)3.1
168.7
 162.1
25.7
(25.4)6.3
168.7
Total assets under management$648.4
46.8
(37.7)9.3
666.8
 651.8
112.6
(117.9)20.3
666.8
       
    
 Quarter ended September 30, 2015 Nine months ended September 30, 2015
 Jun 30, 2015
Inflows (4)
Outflows (5)
Market impact (6)
Sep 30, 2015
 Dec 31, 2014
Inflows (4)
Outflows (5)
Market impact (6)
Sep 30, 2015
Assets managed by WFAM (1):
 
 
 
   
Money market funds (2)$108.3
3.6
—
—
111.9
 123.1
—
(11.2)—
111.9
Other assets managed379.5
21.0
(20.6)(11.4)368.5
 372.6
73.5
(71.6)(6.0)368.5
Assets managed by Wealth and Retirement (3)165.5
9.0
(7.3)(8.2)159.0
 165.3
26.7
(25.2)(7.8)159.0
Total assets under management$653.3
33.6
(27.9)(19.6)639.4
 661.0
100.2
(108.0)(13.8)639.4
 Quarter ended 
(in billions)Balance, beginning of period
Inflows (1)
Outflows (2)
Market impact (3)
Balance, end of period
March 31, 2017     
Assets managed by WFAM (4):    

Money market funds (5)$102.6
—
(5.9)—
96.7
Other assets managed379.6
29.4
(34.2)9.6
384.4
Assets managed by Wealth and Retirement (6)168.5
9.4
(9.4)5.0
173.5
Total assets under management$650.7
38.8
(49.5)14.6
654.6
March 31, 2016     
Assets managed by WFAM (4):
 
 
Money market funds (5)$123.6
—
(9.7)—
113.9
Other assets managed366.1
27.1
(28.5)2.4
367.1
Assets managed by Wealth and Retirement (6)162.1
9.1
(8.8)1.0
163.4
Total assets under management$651.8
36.2
(47.0)3.4
644.4
(1)Inflows include new managed account assets, contributions, dividends and interest.
(2)Outflows include closed managed account assets, withdrawals and client management fees.
(3)Market impact reflects gains and losses on portfolio investments.
(4)Assets managed by Wells Fargo Asset ManagementWFAM consist of equity, alternative, balanced, fixed income, money market, and stable value, and include client assets that are managed or sub-advised on behalf of other Wells Fargo lines of business.
(2)(5)Money Market fund activity is presented on a net inflow or net outflow basis, because the gross flows are not meaningful nor used by management as an indicator of performance.
(3)(6)
Includes $8.2 billion and $8.9 billion as of December 31, 2015 and 2014 and $7.76.3 billion and $8.3 billion as of September 30, 2016March 31, 2017 and 20152016, respectively, of client assets invested in proprietary funds managed by WFAM.
(4)Inflows include new managed account assets, contributions, dividends and interest.
(5)Outflows include closed managed account assets, withdrawals and client management fees.
(6)Market impact reflects gains and losses on portfolio investments.


Balance Sheet Analysis (continued)

Balance Sheet Analysis 
At September 30, 2016,March 31, 2017, our assets totaled $1.9$1.95 trillion, up $154.5$21.4 billion from December 31, 2015.2016. The predominant areasarea of asset growth werewas in federal funds sold and other short-term investments, which increased $28.2$42.7 billion, investment securities,partially offset by loans, which increased $43.3decreased $9.2 billion, and loans, which increased $44.8 billion (including $26.5 billion from the GE Capital business acquisitions). Additionally, other assets, increased $22.8 billion due to $5.9 billion in operating leases from the first quarter 2016 GE Capital business acquisitions, higher receivables related to unsettled trading security transactions and higher fair values for derivative assets designated as hedging instruments due to decreasing interest rates.which decreased $6.8 billion. An increase of $55.3$1.4 billion in long-term debt, (including
debt issued to fund the GE Capital business acquisitions and debt issued that is anticipated to be TLAC eligible), deposit growth of $52.6 billion, an increase in short-term borrowings of $27.1$19.4 billion, and total equity growth of $10.1$2.0 billion from December 31, 2015,2016, were the predominant sources that funded our asset growth in the first nine monthsquarter of 2016. 2017.
Equity growth benefited from $9.4$3.0 billion in earnings net of dividends paid.
The following discussion provides additional information about the major components of our balance sheet. Information regarding our capital and changes in our asset mix is included in the “Earnings Performance – Net Interest Income” and “Capital Management” sections and Note 19 (Regulatory and Agency Capital Requirements) to Financial Statements in this Report.


Investment Securities
Table 5: Investment Securities – Summary
September 30, 2016  December 31, 2015 March 31, 2017  December 31, 2016 
(in millions)Amortized Cost
 
Net
 unrealized
gain

 Fair value
 Amortized Cost
 
Net
unrealized
gain

 Fair value
Amortized Cost
 
Net
 unrealized
gain (loss)

 Fair value
 Amortized Cost
 
Net
unrealized
gain (loss)

 Fair value
Available-for-sale securities:                      
Debt securities$286,367
 3,991
 290,358
 263,318
 2,403
 265,721
$300,013
 (1,608) 298,405
 309,447
 (2,294) 307,153
Marketable equity securities751
 482
 1,233
 1,058
 579
 1,637
675
 450
 1,125
 706
 505
 1,211
Total available-for-sale securities287,118
 4,473
 291,591
 264,376
 2,982
 267,358
300,688
 (1,158) 299,530
 310,153
 (1,789) 308,364
Held-to-maturity debt securities99,241
 3,306
 102,547
 80,197
 370
 80,567
108,030
 (401) 107,629
 99,583
 (428) 99,155
Total investment securities (1)$386,359
 7,779
 394,138
 344,573
 3,352
 347,925
$408,718
 (1,559) 407,159
 409,736
 (2,217) 407,519
(1)Available-for-sale securities are carried on the balance sheet at fair value. Held-to-maturity securities are carried on the balance sheet at amortized cost.

Table 5 presents a summary of our investment securities portfolio, which increased $43.3 billiondecreased $387 million from December 31, 2015,2016, predominantly due to purchasessales and paydowns of federal agency and other mortgage-backed securities.securities, securities of U.S. treasury and federal agencies, and collateralized debt obligations. The increasedecrease in investment securities was partially offset by sales and pay-downspurchases of federal agency mortgage-backed securities and sales of U.S. Treasury securities in our available-for-sale portfolio.securities.
The total net unrealized gainslosses on available-for-sale securities were $4.5$1.2 billion at September 30, 2016, upMarch 31, 2017, down from $3.0net unrealized losses of $1.8 billion at December 31, 2015,2016, due to a slight decline in interest rates.rates and a transfer from the available-for-sale portfolio to held-to-maturity. For a discussion of our investment management objectives and practices, see the "Balance Sheet Analysis" section in our 20152016 Form 10-K. Also, see the “Risk Management – Asset/Liability Management” section in this Report for information on our use of investments to manage liquidity and interest rate risk.
We analyze securities for other-than-temporary impairment (OTTI) quarterly or more often if a potential loss-triggering event occurs. Of the $464$129 million in OTTI write-downs recognized in earnings in the first nine months of 2016, $142quarter 2017, $52 million related to debt securities and $5$1 million related to marketable equity securities, which are included in available-for-sale securities. Another $317$76 million in OTTI write-downs were related to nonmarketable equity investments, which are included in other assets. OTTI write-downs recognized in earnings related to oil and gas investments totaled $185$39 million in the first nine months of 2016,quarter 2017, of which $57$15 million related to investment securities and $128$24 million related to nonmarketable equity investments. For a discussion of our OTTI accounting policies and underlying considerations and analysis see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 20152016 Form
10-K and Note 4 (Investment Securities) to Financial Statements in this Report.
At September 30, 2016,March 31, 2017, investment securities included $58.4 billion of municipal bonds, of which 96.3%96.6% were rated “A-”
or better based largely on external and, in some cases, internal ratings. Additionally, some of the securities in our total municipal bond portfolio are guaranteed against loss by bond insurers. These guaranteed bonds are predominantly investment grade and were generally underwritten in accordance with our own investment standards prior to the determination to purchase, without relying on the bond insurer’s guarantee in making the investment decision. The credit quality of our municipal bond holdings are monitored as part of our ongoing impairment analysis.
The weighted-average expected maturity of debt securities available-for-sale was 5.76.7 years at September 30, 2016.March 31, 2017. Because 53%57% of this portfolio is MBS, the expected remaining maturity is shorter than the remaining contractual maturity because borrowers generally have the right to prepay obligations before the underlying mortgages mature. The estimated effects of a 200 basis point increase or decrease in interest rates on the fair value and the expected remaining maturity of the MBS available-for-sale portfolio are shown in Table 6.


Table 6: Mortgage-Backed Securities Available for Sale
(in billions)Fair value
 Net unrealized gain (loss)
 
Expected remaining maturity
(in years)

Fair value
 Net unrealized gain (loss)
 
Expected remaining maturity
(in years)

At September 30, 2016     
At March 31, 2017     
Actual$154.1
 3.7
 5.3
$171.2
 (1.6) 6.7
Assuming a 200 basis point:          
Increase in interest rates140.1
 (10.3) 7.4
152.8
 (20.0) 8.2
Decrease in interest rates158.8
 8.4
 2.8
179.5
 6.7
 2.9
The weighted-average expected maturity of debt securities held-to-maturity was 5.56.4 years at September 30, 2016.March 31, 2017. See Note 4
Balance Sheet Analysis (continued)

(Investment Securities) to Financial Statements in this Report for a summary of investment securities by security type.
Loan Portfolios
Table 7 provides a summary of total outstanding loans by portfolio segment. Total loans increased $44.8decreased $9.2 billion from December 31, 2015, predominantly2016, driven by a continued decline in junior lien
mortgage loans as well as a decline in credit card balances due to growthseasonality and the effect of a slowdown in commercial and industrial, real estate mortgage and lease financingnew credit card account openings. In addition, there was an expected decline in auto loans within the commercial loan portfolio segment, which included $26.5 billion of commercial and industrial loans and capital leases acquired from GE Capital.fourth quarter 2016 as continued proactive steps to tighten underwriting standards resulted in lower origination volume.

Table 7: Loan Portfolios
(in millions)September 30, 2016
 December 31, 2015
March 31, 2017
 December 31, 2016
Commercial$496,454
 456,583
$505,004
 506,536
Consumer464,872
 459,976
453,401
 461,068
Total loans$961,326
 916,559
$958,405
 967,604
Change from prior year-end$44,767
 54,008
$(9,199) 51,045

A discussion of average loan balances and a comparative detail of average loan balances is included in Table 1 under “Earnings Performance – Net Interest Income” earlier in this Report. Additional information on total loans outstanding by portfolio segment and class of financing receivable is included in the “Risk Management – Credit Risk Management” section in this Report. Period-end balances and other loan related
information are in Note 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report. 
Table 8 shows contractual loan maturities for loan categories normally not subject to regular periodic principal reduction and the contractual distribution of loans in those categories to changes in interest rates.

Table 8: Maturities for Selected Commercial Loan Categories
 September 30, 2016  December 31, 2015  March 31, 2017  December 31, 2016 
(in millions) 
Within
one
 year

 
After one
year
through
five years

 
After
 five
years

 Total
 
Within
one
year

 
After one
year
through
 five years

 
After
five
years

 Total
 
Within
one
 year

 
After one
year
through
five years

 
After
 five
years

 Total
 
Within
one
year

 
After one
year
through
 five years

 
After
five
years

 Total
Selected loan maturities:                                
Commercial and industrial $97,678
 199,697
 26,645
 324,020
 91,214
 184,641
 24,037
 299,892
 $96,689
 206,333
 26,230
 329,252
 105,421
 199,211
 26,208
 330,840
Real estate mortgage 20,933
 70,027
 39,263
 130,223
 18,622
 68,391
 35,147
 122,160
 21,004
 68,753
 41,775
 131,532
 22,713
 68,928
 40,850
 132,491
Real estate construction 8,583
 13,447
 1,310
 23,340
 7,455
 13,284
 1,425
 22,164
 10,332
 13,474
 1,258
 25,064
 9,576
 13,102
 1,238
 23,916
Total selected loans $127,194
 283,171
 67,218
 477,583
 117,291
 266,316
 60,609
 444,216
 $128,025
 288,560
 69,263
 485,848
 137,710
 281,241
 68,296
 487,247
Distribution of loans to changes in interest
rates:
                                
Loans at fixed interest rates $19,542
 29,272
 26,086
 74,900
 16,819
 27,705
 23,533
 68,057
 $18,910
 29,188
 26,890
 74,988
 19,389
 29,748
 26,859
 75,996
Loans at floating/variable interest rates 107,652
 253,899
 41,132
 402,683
 100,472
 238,611
 37,076
 376,159
 109,115
 259,372
 42,373
 410,860
 118,321
 251,493
 41,437
 411,251
Total selected loans $127,194
 283,171
 67,218
 477,583
 117,291
 266,316
 60,609
 444,216
 $128,025
 288,560
 69,263
 485,848
 137,710
 281,241
 68,296
 487,247

Balance Sheet Analysis (continued)

Deposits
Deposits increased $52.6$19.4 billion from December 31, 2015,2016, to $1.28$1.3 trillion, reflecting continued broad-based growth in our consumer and small business banking deposits, as well as commercial deposits. Table 9 provides additional information
regarding deposits. Information regarding
the impact of deposits on net interest income and a comparison of average deposit balances is provided in the “Earnings Performance – Net Interest Income” section and Table 1 earlier in this Report. 

Table 9: Deposits
($ in millions)Sep 30,
2016
 
% of
total
deposits

 Dec 31,
2015
 % of
total
deposits
 

% Change

Mar 31,
2017
 
% of
total
deposits

 Dec 31,
2016
 % of
total
deposits
 

% Change

Noninterest-bearing$376,136
 29% $351,579
 29% 7
$365,780
 28% $375,967
 29% (3)
Interest-bearing checking44,738
 4
 40,115
 3
 12
57,294
 4
 49,403
 4
 16
Market rate and other savings677,382
 53
 651,563
 54
 4
701,935
 53
 687,846
 52
 2
Savings certificates24,816
 2
 28,614
 2
 (13)22,977
 2
 23,968
 2
 (4)
Other time and deposits46,926
 4
 49,032
 4
 (4)56,516
 4
 52,649
 4
 7
Deposits in foreign offices (1)105,896
 8
 102,409
 8
 3
120,942
 9
 116,246
 9
 4
Total deposits$1,275,894
 100% $1,223,312
 100% 4
$1,325,444
 100% $1,306,079
 100% 1
(1)Includes Eurodollar sweep balances of $64.3$70.8 billion and $71.1$74.8 billion at September 30, 2016,March 31, 2017, and December 31, 2015,2016, respectively.

Fair Value of Financial Instruments
We use fair value measurements to record fair value adjustments to certain financial instruments and to determine fair value disclosures. See our 20152016 Form 10-K for a description of our critical accounting policy related to fair value of financial instruments and a discussion of our fair value measurement techniques.
Table 10 presents the summary of the fair value of financial instruments recorded at fair value on a recurring basis, and the amounts measured using significant Level 3 inputs (before derivative netting adjustments). The fair value of the remaining assets and liabilities were measured using valuation methodologies involving market-based or market-derived information (collectively Level 1 and 2 measurements).
Table 10: Fair Value Level 3 Summary
September 30, 2016  December 31, 2015 March 31, 2017  December 31, 2016 
($ in billions)
Total
balance

 Level 3 (1)
 
Total
balance

 Level 3 (1)
Total
balance

 Level 3 (1)
 
Total
balance

 Level 3 (1)
Assets carried
at fair value (2)
$447.9
 25.9
 384.2
 27.6
$423.9
 24.3
 436.3
 23.5
As a percentage
of total assets
23% 1
 21
 2
22% 1
 23
 1
Liabilities carried
at fair value
$34.8
 1.8
 29.6
 1.5
$32.4
 1.8
 30.9
 1.7
As a percentage of
total liabilities
2% *
 2
 * 
2% *
 2
 *
* Less than 1%.
(1)Before derivative netting adjustments.
(2)
Level 3 assets at December 31, 2015, have been revised in accordance with our adoption of Accounting Standards Update 2015-07 (Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent)). See Note 13 (Fair Values of Assets and Liabilities) to Financial Statements in this Report for additional information.

See Note 13 (Fair Values of Assets and Liabilities) to Financial Statements in this Report for additional information on fair value measurements and a description of the Level 1, 2 and 3 fair value hierarchy.

Equity
Total equity was $204.0$202.5 billion at September 30, 2016,March 31, 2017, compared with $193.9$200.5 billion at December 31, 2015.2016. The increase was predominantly driven by a $9.4$3.0 billion increase in retained earnings from earnings net of dividends paid, and a $2.4 billion increase in preferred stock, partially offset by a net reduction in common stock due to repurchases.





Off-Balance Sheet Arrangements
In the ordinary course of business, we engage in financial transactions that are not recorded on the balance sheet, or may be recorded on the balance sheet in amounts that are different from the full contract or notional amount of the transaction. Our off-balance sheet arrangements include commitments to lend and purchase securities, transactions with unconsolidated entities, guarantees, derivatives, and other commitments. These transactions are designed to (1) meet the financial needs of customers, (2) manage our credit, market or liquidity risks, and/or (3) diversify our funding sources.
 
Commitments to Lend and Purchase Securities
We enter into commitments to lend funds to customers, which are usually at a stated interest rate, if funded, and for specific purposes and time periods. When we make commitments, we are exposed to credit risk. However, the maximum credit risk for these commitments will generally be lower than the contractual amount because a significant portion of these commitments is expected to expire without being used by the customer. For more information on lending commitments, see Note 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report. We also enter into commitments to purchase securities under resale agreements. For more information on commitments to purchase securities under resale agreements, see Note 3 (Federal Funds Sold, Securities Purchased under Resale Agreements and Other Short-Term Investments) to Financial Statements in this Report.
 
Transactions with Unconsolidated Entities
In the normal course of business, we enter into various types of on- and off-balance sheet transactions with special purpose entities (SPEs), which are corporations, trusts, limited liability companies or partnerships that are established for a limited purpose. Generally, SPEs are formed in connection with securitization transactions and are considered variable interest entities (VIEs). For more information on securitizations, including sales proceeds and cash flows from securitizations, see Note 7 (Securitizations and Variable Interest Entities) to Financial Statements in this Report.
 
Guarantees and Certain Contingent Arrangements
Guarantees are contracts that contingently require us to make payments to a guaranteed party based on an event or a change in an underlying asset, liability, rate or index. Guarantees are generally in the form of standby letters of credit, securities lending and other indemnifications, written put options, recourse obligations and other types of guarantee arrangements. For more information on guarantees and certain contingent arrangements, see Note 10 (Guarantees, Pledged Assets and Collateral) to Financial Statements in this Report.

Derivatives
We use derivatives to manage exposure to market risk, including interest rate risk, credit risk and foreign currency risk, and to assist customers with their risk management objectives. Derivatives are recorded on the balance sheet at fair value, and volume can be measured in terms of the notional amount, which is generally not exchanged but is used only as the basis on which interest and other payments are determined. The notional amount is not recorded on the balance sheet and is not, when viewed in isolation, a meaningful measure of the risk profile of the instruments. For more information on derivatives, see Note 12 (Derivatives) to Financial Statements in this Report.
 
Other Commitments
We also have other off-balance sheet transactions, including obligations to make rental payments under noncancelable operating leases and commitments to purchase certain debt and equity securities. Our operating lease obligations are discussed in Note 7 (Premises, Equipment, Lease Commitments and Other Assets) to Financial Statements in our 20152016 Form 10-K. For more information on commitments to purchase debt and equity securities, see the “Off-Balance Sheet Arrangements”Arrangements – Contractual Cash Obligations” section in our 20152016 Form 10-K.



Risk Management
Wells Fargo manages a variety of risks that can significantly affect our financial performance and our ability to meet the expectations of our customers, stockholders, regulators and other stakeholders. Among the risks that we manage are conduct risk, operational risk, credit risk, and asset/liability management risk,related risks, which includesinclude interest rate risk, market risk, and liquidity risk, and funding related risks. OurWe operate under a Board-level approved risk culture is strongly rooted inframework which outlines our Vision and Values, and in ordercompany-wide approach to succeed in our mission of satisfying our customers’ financial needs and helping them succeed financially, our business practices and operating model must support prudent risk management practices.and oversight, and describes the structures and practices employed to manage current and emerging risks inherent to Wells Fargo. For more information about how we manage these risks, see the “Risk Management” section in our 20152016 Form 10-K. The discussion that follows provides an update regarding these risks.
Conduct Risk Management
Our Board oversees the alignment of team member conduct to the Company’s risk appetite (which the Board approves annually) and culture as reflected in our Vision and Values and Code of Ethics and Business Conduct. The Board’s Risk Committee has primary oversight responsibility for enterprise-wide conduct risk, while certain other Board committees have primary oversight responsibility for specific components of conduct risk.
At the management level, several committees have primary oversight responsibility for key elements of conduct risk, including internal investigations, sales practices, complaints oversight, and our ethics and integrity program. These management-level committees have escalation and informational reporting paths to the relevant Board committee.
Our Office of Ethics, Oversight and Integrity, which reports to our Chief Risk Officer and has an informational reporting path to the Board's Risk Committee, is responsible for fostering and promoting an enterprise-wide culture of prudent conduct risk management and compliance with internal directives, rules, regulations, and regulatory expectations throughout the Company and to provide assurance that the Company’s internal operations and its treatment of customers and other external stakeholders are safe and sound, fair, and ethical.

Operational Risk Management
Operational risk is the risk of loss resulting from inadequate or failed internal controls and processes, people and systems, or resulting from external events. These losses may be caused by events such as fraud, breaches of customer privacy, business disruptions, inappropriate employee behavior, vendors that do not adequately or appropriately perform their responsibilities, and regulatory fines and penalties.
Information security is a significant operational risk for financial institutions such as Wells Fargo, and includes the risk of losses resulting from cyber attacks. Wells Fargo and other financial institutions continue to be the target of various evolving and adaptive cyber attacks, including malware and denial-of-service, as part of an effort to disrupt the operations of financial institutions, potentially test their cybersecurity capabilities, or obtain confidential, proprietary or other information. Cyber attacks have also focused on targeting the infrastructure of the internet, causing the widespread unavailability of websites and degrading website performance. Wells Fargo has not experienced any material losses relating to these or other cyber attacks. Addressing cybersecurity risks is a priority for Wells Fargo, and we continue to develop and enhance our controls, processes and systems in order to protect our networks, computers, software and data from attack, damage or unauthorized access. We are
also proactively involved in industry cybersecurity efforts and working with other parties, including our third-party service providers and governmental agencies, to continue to enhance defenses and improve resiliency to cybersecurity threats. See the “Risk Factors” section in our 20152016 Form 10-K for additional information regarding the risks associated with a failure or breach of our operational or security systems or infrastructure, including as a result of cyber attacks.

Credit Risk Management
We define credit risk as the risk of loss associated with a borrower or counterparty default (failure to meet obligations in accordance with agreed upon terms). Credit risk exists with many of our assets and exposures such as debt security holdings, certain derivatives, and loans. The following discussion focuses on our loan portfolios, which represent the largest component of assets on our balance sheet for which we have credit risk. Table 11 presents our total loans outstanding by portfolio segment and class of financing receivable.


Table 11: Total Loans Outstanding by Portfolio Segment and Class of Financing Receivable
(in millions)Sep 30, 2016
 Dec 31, 2015
Mar 31, 2017
 Dec 31, 2016
Commercial:      
Commercial and industrial$324,020
 299,892
$329,252
 330,840
Real estate mortgage130,223
 122,160
131,532
 132,491
Real estate construction23,340
 22,164
25,064
 23,916
Lease financing18,871
 12,367
19,156
 19,289
Total commercial496,454
 456,583
505,004
 506,536
Consumer:      
Real estate 1-4 family first mortgage278,689
 273,869
274,633
 275,579
Real estate 1-4 family junior lien mortgage48,105
 53,004
44,333
 46,237
Credit card34,992
 34,039
34,742
 36,700
Automobile62,873
 59,966
60,408
 62,286
Other revolving credit and installment40,213
 39,098
39,285
 40,266
Total consumer464,872
 459,976
453,401
 461,068
Total loans$961,326
 916,559
$958,405
 967,604

We manage our credit risk by establishing what we believe are sound credit policies for underwriting new business, while monitoring and reviewing the performance of our existing loan portfolios. We employ various credit risk management and monitoring activities to mitigate risks associated with multiple risk factors affecting loans we hold, could acquire or originate including:
Loan concentrations and related credit quality
Counterparty credit risk
Economic and market conditions
Legislative or regulatory mandates
Changes in interest rates
Merger and acquisition activities
Reputation risk

Our credit risk management oversight process is governed centrally, but provides for decentralized management and accountability by our lines of business. Our overall credit process includes comprehensive credit policies, disciplined credit underwriting, frequent and detailed risk measurement and modeling, extensive credit training programs, and a continual loan review and audit process.
A key to our credit risk management is adherence to a well-controlled underwriting process, which we believe is appropriate for the needs of our customers as well as investors who purchase the loans or securities collateralized by the loans.



Credit Quality Overview  Credit quality remained solidimproved in thirdfirst quarter 20162017, as our loss rate remained low at 0.33%.improved to 0.34% of average total loans. We continued to benefit from improvements in the performance of our residential real estate portfolio which was partially offset byas well as reduced losses in our oil and gas portfolio. In particular:
Nonaccrual loans were $11.09.8 billion at September 30, 2016March 31, 2017, down from $11.4 billion at December 31, 2015. Although commercial nonaccrual loans increased to $4.3 billion at September 30, 2016, compared with $2.410.4 billion at December 31, 20152016. Commercial nonaccrual loans declined to $3.7 billion at March 31, 2017, compared with $4.1 billion at December 31, 2016, and consumer nonaccrual loans declined to $6.76.1 billion at September 30, 2016March 31, 2017, compared with $9.06.3 billion at December 31, 20152016. The increasedecline in consumer nonaccrual loans reflected an improved housing market, while the decline in commercial nonaccrual loans was predominantly driven by loans in our oil and gas portfolio, partially offset the decline in consumer nonaccrual loans, reflecting an improved housing market.portfolio. Nonaccrual loans represented 1.14%1.02% of total loans at September 30, 2016March 31, 2017, compared with 1.24%1.07% at December 31, 20152016.
Net charge-offs (annualized) as a percentage of average total loans increaseddecreased to 0.33%0.34% andin 0.37%first quarter 2017, compared with 0.38% in the third quarter and first nine months of 2016, respectively, compared with 0.31% in both periodssame period a year ago. Net charge-offs (annualized) as a percentage of our average commercial and consumer portfolios were 0.17%0.11% and 0.51%0.59% in thirdfirst quarter and 0.22% and 0.52% in the first nine months of 20162017, respectively, compared with 0.08%0.20% and 0.53%0.57% in the third quarter and 0.06% and 0.55% in the first nine months of 2015quarter 2016.
Loans that are not government insured/guaranteed and 90 days or more past due and still accruing were $51102 million and $802838 million in our commercial and consumer portfolios, respectively, at September 30, 2016March 31, 2017, compared with $11464 million and $867908 million at December 31, 20152016.
Our provision for credit losses was $805605 million and $3.0 billionin the third quarter and first nine months of 2016quarter 2017, respectively, compared with $703 million and $1.61.1 billion, for the same periodsperiod a year ago.
The allowance for credit losses totaled $12.712.3 billion, or 1.32%1.28% of total loans, at September 30, 2016March 31, 2017, updown from $12.5 billion, or 1.37%1.30%, at December 31, 20152016.
 
Additional information on our loan portfolios and our credit quality trends follows.


 
PURCHASED CREDIT-IMPAIRED (PCI) LOANS Loans acquired with evidence of credit deterioration since their origination and where it is probable that we will not collect all contractually required principal and interest payments are PCI loans. Substantially all of our PCI loans were acquired in the Wachovia acquisition on December 31, 2008. PCI loans are recorded at fair value at the date of acquisition, and the historical allowance for credit losses related to these loans is not carried over. The carrying value of PCI loans at September 30, 2016, which included $290 million from the GE Capital business acquisitions,March 31, 2017, totaled $17.7$15.7 billion, compared with $20.0$16.7 billion at December 31, 2015,2016, and $58.8 billion at December 31, 2008. The decrease from December 31, 2015,2016, was due in part to higher prepayment trends observed in our Pick-a-Pay PCI portfolio.portfolio, as home price appreciation and the resulting reduction in loan to collateral value ratios enabled more borrowers to qualify for refinancing options. PCI loans are considered to be accruing due to the existence of the accretable yield amount, which represents the cash expected to be collected in excess of their carrying value, and not based on consideration given to contractual interest payments. The accretable yield at September 30, 2016,March 31, 2017, was $11.6$10.3 billion.
A nonaccretable difference is established for PCI loans to absorb losses expected on the contractual amounts of those loans in excess of the fair value recorded at the date of acquisition. Amounts absorbed by the nonaccretable difference do not affect the income statement or the allowance for credit losses. Since December 31, 2008, we have released $12.9$13.3 billion in nonaccretable difference, including $11.0$11.3 billion transferred from the nonaccretable difference to the accretable yield due to decreases in our initial estimate of loss on contractual amounts, and $1.9$2.0 billion released to income through loan resolutions. Also, we have provided $1.7 billion for losses on certain PCI loans or pools of PCI loans that have had credit-related decreases to cash flows expected to be collected. The net result is an $11.2$11.6 billion reduction from December 31, 2008, through September 30, 2016,March 31, 2017, in our initial projected losses of $41.0 billion on all PCI loans acquired in the Wachovia acquisition. At September 30, 2016, $936March 31, 2017, $585 million in nonaccretable difference which included $116 million from the GE Capital business acquisitions, remained to absorb losses on PCI loans.
For additional information on PCI loans, see the "Risk Management – Credit Risk Management – Real Estate 1-4 Family First and Junior Lien Mortgage Loans – Pick-a-Pay Portfolio" section in this Report, Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 20152016 Form 10-K, and Note 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.


Risk Management - Credit Risk Management (continued)

Significant Loan Portfolio Reviews Measuring and monitoring our credit risk is an ongoing process that tracks delinquencies, collateral values, FICO scores, economic trends by geographic areas, loan-level risk grading for certain portfolios (typically commercial) and other indications of credit risk. Our credit risk monitoring process is designed to enable early identification of developing risk and to support our determination of an appropriate allowance for credit losses. The following discussion provides additional characteristics and analysis of our significant portfolios. See Note 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report for more analysis and credit metric information for each of the following portfolios.

COMMERCIAL AND INDUSTRIAL LOANS AND LEASE FINANCING  For purposes of portfolio risk management, we aggregate commercial and industrial loans and lease financing according to market segmentation and standard industry codes. We generally subject commercial and industrial loans and lease financing to individual risk assessment using our internal borrower and collateral quality ratings. Our ratings are aligned to regulatory definitions of pass and criticized categories with criticized divided between special mention, substandard, doubtful and loss categories.
The commercial and industrial loans and lease financing portfolio totaled $342.9$348.4 billion, or 36% of total loans, at September 30, 2016.March 31, 2017. The annualized net charge-off rate for this portfolio was 0.30% and 0.36%0.20% in the thirdfirst quarter and first nine months of 2016, respectively,2017, compared with 0.17% and 0.13% for the same periods a year ago.0.34% in first quarter 2016. At September 30, 2016, 1.00%March 31, 2017, 0.86% of this portfolio was nonaccruing, compared with 0.44%0.95% at December 31, 2015, an increase2016, reflecting a decrease of $2.0 billion.$337 million in nonaccrual loans, predominantly due to improvement in the oil and gas portfolio. Also, $23.7$21.9 billion of thisthe commercial and industrial loan and lease financing portfolio was internally classified as criticized in accordance with regulatory guidance at September 30, 2016,March 31, 2017, compared with $19.1$24.0 billion at December 31, 2015.2016. The increasedecrease in criticized loans, which also includes the increasedecrease in nonaccrual loans, was primarilymostly due to the initial classification of loans and capital leases acquired from GE Capital, and to deteriorationimprovement in the oil and gas portfolio. Based on additional refinement of our initial classification of the criticized loans and leases acquired from GE Capital, we continued to see classification improvement.
Most of our commercial and industrial loans and lease financing portfolio is secured by short-term assets, such as accounts receivable, inventory and securities, as well as long-lived assets, such as equipment and other business assets. Generally, the collateral securing this portfolio represents a secondary source of repayment.
Table 12 provides a breakout of commercial and industrial loans and lease financing by industry, and includes $52.5$58.0 billion of foreign loans at September 30, 2016.March 31, 2017. Foreign loans totaled $14.2$18.0 billion within the investor category, $16.6$16.0 billion within the financial institutions category and $2.1$1.4 billion within the oil and gas category.
The investors category includes loans to special purpose vehicles (SPVs) formed by sponsoring entities to invest in financial assets backed predominantly by commercial and residential real estate or corporate cash flow, and are repaid from the asset cash flows or the sale of assets by the SPV. We limit loan amounts to a percentage of the value of the underlying assets, as determined by us, based on analysis of underlying credit risk and other factors such as asset duration and ongoing performance.
 
We provide financial institutions with a variety of relationship focused products and services, including loans supporting short-term trade finance and working capital needs. The $16.6$16.0 billion of foreign loans in the financial institutions category were predominantly originated by our Global Financial Institutions (GFI) business.
The oil and gas loan portfolio totaled $16.0$12.8 billion, or 2%1% of total outstanding loans at September 30, 2016,March 31, 2017, compared with $17.4$14.8 billion, or 2% of total outstanding loans, at December 31, 2015.2016. Unfunded loan commitments in the oil and gas loan portfolio totaled $22.3$23.9 billion at September 30, 2016. ApproximatelyMarch 31, 2017. Almost half of our oil and gas loans were to businesses in the exploration and production (E&P) sector. Most of these E&P loans are secured by oil and/or gas reserves and have underlying borrowing base arrangements which include regular (typically semi-annual) “redeterminations” that consider refinements to borrowing structure and prices used to determine borrowing limits. The majority of the other oil and gas loans were to midstream companies. We proactively monitor our oil and gas loan portfolio and work with customers to address any emerging issues. Oil and gas nonaccrual loans increaseddecreased to $2.5$2.1 billion at September 30, 2016,March 31, 2017, compared with $844 million$2.4 billion at December 31, 2015,2016, due to weaker borrower financialimproved portfolio performance.
Table 12: Commercial and Industrial Loans and Lease Financing by Industry (1)
September 30, 2016 March 31, 2017 
(in millions)
Nonaccrual
loans

 
Total
portfolio

 (2) 
% of
total
loans

Nonaccrual
loans

 
Total
portfolio

 (2) 
% of
total
loans

Investors$7
 54,252
 6%$7
 60,708
 6%
Financial institutions19
 37,975
 4
4
 39,210
 4
Cyclical retailers87
 25,498
 3
125
 28,112
 3
Oil and gas2,525
 16,010
 2
Food and beverage17
 16,573
 2
Healthcare36
 15,682
 2
31
 15,999
 2
Food and beverage88
 15,420
 2
Industrial equipment29
 15,253
 2
86
 14,690
 2
Real estate lessor10
 14,467
 2
10
 14,485
 2
Oil and gas2,055
 12,751
 1
Technology56
 12,437
 1
51
 11,536
 1
Transportation96
 9,614
 1
172
 9,355
 1
Public administration13
 9,490
 1
12
 9,254
 1
Business services27
 9,172
 1
28
 9,075
 1
Other430
 107,621
 (3) 9
396
 106,660
 (3) 10
Total$3,423
 342,891
 36%$2,994
 348,408
 36%
(1)Industry categories are based on the North American Industry Classification System and the amounts reported include foreign loans. See Note 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report for a breakout of commercial foreign loans.
(2)
Includes $367177 million of PCI loans, which are considered to be accruing due to the existence of the accretable yield and not based on consideration given to contractual interest payments.
(3)
No other single industry had total loans in excess of $6.7 billion. 


COMMERCIAL REAL ESTATE (CRE) We generally subject CRE loans to individual risk assessment using our internal borrower and collateral quality ratings. Our ratings are aligned to regulatory definitions of pass and criticized categories with criticized divided betweenamong special mention, substandard, doubtful and loss categories. The CRE portfolio, which included $8.8$8.7 billion of foreign CRE loans, totaled $153.6$156.6 billion, or 16% of total loans, at September 30, 2016,March 31, 2017, and consisted of $130.2$131.5 billion of mortgage loans and $23.4$25.1 billion of construction loans.
Table 13 summarizes CRE loans by state and property type with the related nonaccrual totals. The portfolio is diversified both geographically and by property type. The largest geographic concentrations of CRE loans are in California, New York, Texas
and Florida, which combined represented 49% of the total CRE
portfolio. By property type, the largest concentrations are office buildings at 28%27% and apartments at 16% of the portfolio. CRE nonaccrual loans totaled 0.5% of the CRE outstanding balance at September 30, 2016, compared with 0.7% atboth March 31, 2017, and December 31, 2015.2016. At September 30, 2016,March 31, 2017, we had $5.6$5.2 billion of criticized CRE mortgage loans, compared with $6.8$5.4 billion at December 31, 2015,2016, and $562$600 million of criticized CRE construction loans, compared with $549$461 million at December 31, 2015.2016.
At September 30, 2016,March 31, 2017, the recorded investment in PCI CRE loans totaled $470$186 million, down from $12.3 billion when acquired at December 31, 2008, reflecting principal payments, loan resolutions and write-downs.

Table 13: CRE Loans by State and Property Type
September 30, 2016 March 31, 2017 
Real estate mortgage    Real estate construction    Total     Real estate mortgage    Real estate construction    Total     
(in millions)
Nonaccrual
loans

 
Total
portfolio

 (1) 
Nonaccrual
loans

 
Total
portfolio

 (1) 
Nonaccrual
loans

 
Total
portfolio

 (1) 
% of
total
loans

Nonaccrual
loans

 
Total
portfolio

 (1) 
Nonaccrual
loans

 
Total
portfolio

 (1) 
Nonaccrual
loans

 
Total
portfolio

 (1) 
% of
total
loans

By state:                          
California$200
 36,635
 11
 4,252
 211
 40,887
 4%$147
 37,156
 —
 4,571
 147
 41,727
 4%
New York30
 9,659
 —
 2,132
 30
 11,791
 1
28
 10,121
 —
 2,710
 28
 12,831
 1
Texas53
 9,452
 1
 2,227
 54
 11,679
 1
71
 9,476
 —
 2,474
 71
 11,950
 1
Florida73
 8,742
 1
 1,967
 74
 10,709
 1
43
 8,520
 1
 1,847
 44
 10,367
 1
North Carolina36
 4,071
 6
 891
 42
 4,962
 1
Arizona32
 4,357
 1
 550
 33
 4,907
 1
27
 4,148
 —
 669
 27
 4,817
 1
North Carolina46
 3,907
 6
 891
 52
 4,798
 *
Georgia25
 3,695
 1
 766
 26
 4,461
 *
Washington25
 3,375
 —
 953
 25
 4,328
 *
24
 3,463
 —
 863
 24
 4,326
 *
Georgia29
 3,678
 5
 571
 34
 4,249
 *
Virginia10
 3,263
 —
 943
 10
 4,206
 *
20
 3,290
 —
 960
 20
 4,250
 *
Illinois25
 3,498
 —
 291
 25
 3,789
 *
5
 3,618
 —
 315
 5
 3,933
 *
Other257
 43,657
 34
 8,563
 291
 52,220
 (2) 5
246
 43,974
 32
 8,998
 278
 52,972
 (2) 6
Total$780
 130,223
 59
 23,340
 839
 153,563
 16%$672
 131,532
 40
 25,064
 712
 156,596
 16%
By property:                          
Office buildings$224
 40,197
 —
 2,896
 224
 43,093
 4%$163
 39,576
 —
 3,073
 163
 42,649
 4%
Apartments28
 15,488
 —
 8,813
 28
 24,301
 3
38
 15,948
 —
 9,224
 38
 25,172
 3
Industrial/warehouse115
 15,498
 —
 1,522
 115
 17,020
 2
101
 15,201
 2
 1,984
 103
 17,185
 2
Retail (excluding shopping center)104
 15,237
 —
 863
 104
 16,100
 2
83
 16,323
 —
 760
 83
 17,083
 2
Shopping center43
 10,494
 —
 1,482
 43
 11,976
 1
28
 10,970
 —
 1,323
 28
 12,293
 1
Hotel/motel15
 10,509
 4
 1,098
 19
 11,607
 1
12
 10,482
 4
 1,606
 16
 12,088
 1
Real estate - other95
 8,148
 —
 228
 95
 8,376
 1
101
 8,208
 —
 174
 101
 8,382
 1
Institutional30
 3,123
 —
 1,025
 30
 4,148
 *
31
 3,205
 —
 1,276
 31
 4,481
 *
Agriculture36
 2,628
 —
 15
 36
 2,643
 *
1-4 family structure—
 3
 7
 2,663
 7
 2,666
 *
—
 3
 7
 2,571
 7
 2,574
 *
Agriculture42
 2,474
 —
 9
 42
 2,483
 *
Other84
 9,052
 48
 2,741
 132
 11,793
 1
79
 8,988
 27
 3,058
 106
 12,046
 1
Total$780
 130,223
 59
 23,340
 839
 153,563
 16%$672
 131,532
 40
 25,064
 712
 156,596
 16%
*Less than 1%.
(1)
Includes a total of $470186 million PCI loans, consisting of $410164 million of real estate mortgage and $6022 million of real estate construction, which are considered to be accruing due to the existence of the accretable yield and not based on consideration given to contractual interest payments.
(2)
Includes 40 states; no state had loans in excess of $3.63.7 billion.


Risk Management - Credit Risk Management (continued)

FOREIGN LOANS AND COUNTRY RISK EXPOSURE We classify loans for financial statement and certain regulatory purposes as foreign primarily based on whether the borrower’s primary address is outside of the United States. At September 30, 2016,March 31, 2017, foreign loans totaled $61.7$67.1 billion, representing approximately 6%7% of our total consolidated loans outstanding, compared with $58.6$65.7 billion, or approximately 6%7% of total consolidated loans outstanding, at December 31, 2015.2016. Foreign loans were approximately 3% of our consolidated total assets at September 30, 2016March 31, 2017 and at December 31, 2015.2016.
Our foreign country risk monitoring process incorporates frequent dialogue with our financial institution customers, counterparties and regulatory agencies, enhanced by centralized monitoring of macroeconomic and capital markets conditions in the respective countries. We establish exposure limits for each country through a centralized oversight process based on customer needs, and in consideration of relevant economic, political, social, legal, and transfer risks. We monitor exposures closely and adjust our country limits in response to changing conditions.
We evaluate our individual country risk exposure based on our assessment of ultimatethe borrower’s ability to repay, which gives consideration for allowable transfers of risk which is normally based on the country of residence of the guarantor orsuch as guarantees and collateral location, and may be different from the reporting based on the borrower’s primary address. Our largest single foreign country exposure based on an ultimateour assessment of risk basis at September 30, 2016,March 31, 2017, was the United Kingdom, which totaled $26.9$27.1 billion, or approximately 1% of our total assets, and included $3.5$4.6 billion of sovereign claims. Our United Kingdom sovereign claims arise predominantly from deposits we have placed with the Bank of England pursuant to regulatory requirements in support of our London branch. Britain's voteThe United Kingdom officially announced its intention to withdraw fromleave the European Union (Brexit) in June 2016 did noton March 29, 2017, starting the two-year negotiation process leading to its departure. We continue to conduct assessments and have a material impact onbegun to execute our United Kingdom or other foreign exposure as of September 30, 2016. As the United Kingdom prepares for the negotiations on the terms of its exit from the European Union,implementation plans to ensure we will be reviewingcan continue to prudently serve our capabilities in the region and plan to make any adjustments necessary and prudent for serving our customers. Our exposure to Canada, our second largest foreign country exposure on an ultimate risk basis, totaled $17.7 billion at September 30, 2016, up $2.6 billion from December 31, 2015, predominantly due to the GE Capital business acquisitions.customers post-Brexit.
 
We conduct periodic stress tests of our significant country risk exposures, analyzing the direct and indirect impacts on the risk of loss from various macroeconomic and capital markets scenarios. We do not have significant exposure to foreign country risks because our foreign portfoliocredit exposure is relatively small. However, we have identified exposure to increased loss from U.S. borrowers associated with the potential impact of a regional or worldwide economic downturn on the U.S. economy. We mitigate these potential impacts on the risk of loss through our normal risk management processes which include active monitoring and, if necessary, the application of aggressive loss mitigation strategies.
Table 14 provides information regarding our top 20 exposures by country (excluding the U.S.) and our Eurozone exposure, based on an ultimateour assessment of risk, basis.which gives consideration to the country of any guarantors and/or underlying collateral. Our exposure to Puerto Rico (considered part of U.S. exposure) is largely through automobile lending and was not material to our consolidated country risk exposure.


Table 14: Select Country Exposures-
September 30, 2016 March 31, 2017 
Lending (1)  Securities (2)  Derivatives and other (3)  Total exposure Lending (1)  Securities (2)  Derivatives and other (3)  Total exposure 
(in millions)Sovereign
 
Non-
sovereign

 Sovereign
 
Non-
sovereign

 Sovereign
 
Non-
sovereign

 Sovereign
 
Non-
sovereign (4)

 Total
Sovereign
 
Non-
sovereign

 Sovereign
 
Non-
sovereign

 Sovereign
 
Non-
sovereign

 Sovereign
 
Non-
sovereign (4)

 Total
Top 20 country exposures:                                  
United Kingdom$3,522
 16,743
 7
 3,557
 —
 3,096
 3,529
 23,396
 26,925
$4,631
 18,466
 4
 2,488
 —
 1,527
 4,635
 22,481
 27,116
Canada1
 16,190
 71
 567
 —
 836
 72
 17,593
 17,665
22
 16,795
 (13) 101
 —
 677
 9
 17,573
 17,582
Cayman Islands—
 4,597
 —
 —
 —
 237
 —
 4,834
 4,834
—
 4,930
 —
 —
 —
 123
 —
 5,053
 5,053
Germany1,693
 1,572
 (1) 25
 —
 352
 1,692
 1,949
 3,641
Ireland—
 3,975
 —
 123
 —
 117
 —
 4,215
 4,215
—
 3,231
 —
 115
 —
 38
 —
 3,384
 3,384
Germany2,368
 1,259
 —
 100
 —
 438
 2,368
 1,797
 4,165
Bermuda—
 2,793
 —
 181
 —
 145
 —
 3,119
 3,119
—
 2,628
 —
 220
 —
 132
 —
 2,980
 2,980
Netherlands—
 2,145
 54
 325
 —
 83
 54
 2,553
 2,607
India200
 2,068
 —
 187
 —
 —
 200
 2,255
 2,455
China—
 1,903
 (3) 331
 8
 2
 5
 2,236
 2,241
Australia—
 1,620
 —
 757
 —
 67
 —
 2,444
 2,444
—
 1,305
 —
 707
 —
 35
 —
 2,047
 2,047
India—
 2,134
 —
 178
 —
 7
 —
 2,319
 2,319
Netherlands—
 1,722
 —
 500
 —
 53
 —
 2,275
 2,275
Brazil—
 1,880
 —
 11
 —
 8
 —
 1,899
 1,899
—
 1,860
 1
 25
 —
 1
 1
 1,886
 1,887
France—
 840
 —
 919
 —
 91
 —
 1,850
 1,850
—
 790
 —
 855
 —
 146
 —
 1,791
 1,791
China—
 1,732
 (2) 77
 8
 1
 6
 1,810
 1,816
Guernsey—
 1,651
 —
 3
 —
 1
 —
 1,655
 1,655
South Korea—
 1,577
 (2) 58
 1
 1
 (1) 1,636
 1,635
—
 1,495
 10
 108
 2
 —
 12
 1,603
 1,615
Switzerland—
 1,461
 —
 3
 —
 77
 —
 1,541
 1,541
—
 1,572
 —
 1
 —
 25
 —
 1,598
 1,598
Luxembourg—
 1,057
 —
 175
 —
 30
 —
 1,262
 1,262
Mexico193
 1,262
 1
 16
 —
 8
 194
 1,286
 1,480
124
 1,076
 —
 8
 —
 6
 124
 1,090
 1,214
Guernsey—
 1,463
 —
 (2) —
 1
 —
 1,462
 1,462
Chile—
 1,435
 —
 5
 —
 9
 —
 1,449
 1,449
—
 1,036
 (1) 37
 —
 4
 (1) 1,077
 1,076
Japan235
 604
 7
 40
 —
 124
 242
 768
 1,010
Turkey—
 1,218
 —
 80
 —
 1
 —
 1,299
 1,299
—
 905
 —
 57
 —
 —
 —
 962
 962
Luxembourg—
 977
 —
 153
 —
 15
 —
 1,145
 1,145
Jersey, C.I.—
 790
 —
 236
 —
 29
 —
 1,055
 1,055
Total top 20 country exposures$6,084
 65,668
 75
 7,519
 9
 5,237
 6,168
 78,424
 84,592
$6,905
 67,089
 58
 5,808
 10
 3,306
 6,973
 76,203
 83,176
Eurozone exposure:                                  
Eurozone countries included in Top 20 above (5)$2,368
 8,773
 —
 1,795
 —
 714
 2,368
 11,282
 13,650
$1,693
 8,795
 53
 1,495
 —
 649
 1,746
 10,939
 12,685
Belgium—
 725
 —
 (3) —
 5
 —
 727
 727
Austria—
 595
 —
 —
 —
 1
 —
 596
 596
—
 680
 —
 —
 —
 —
 —
 680
 680
Spain—
 302
 —
 84
 —
 9
 —
 395
 395
—
 319
 —
 54
 —
 9
 —
 382
 382
Belgium—
 288
 —
 3
 —
 1
 —
 292
 292
Other Eurozone exposure (6)22
 109
 —
 38
 —
 8
 22
 155
 177
21
 229
 (4) 62
 —
 1
 17
 292
 309
Total Eurozone exposure$2,390
 10,067
 —
 1,920
 —
 733
 2,390
 12,720
 15,110
$1,714
 10,748
 49
 1,608
 —
 664
 1,763
 13,020
 14,783
(1)
Lending exposure includes funded loans and unfunded commitments, leveraged leases, and money market placements presented on a gross basis prior to the deduction of impairment allowance and collateral received under the terms of the credit agreements. For the countries listed above, includes $1615 million in PCI loans predominantly to customers in Germany and the Netherlands, and $947906 million in defeased leases secured primarily by U.S. Treasury and government agency securities, or government guaranteed.securities.
(2)Represents exposure on debt and equity securities of foreign issuers. Long and short positions are netted and net short positions are reflected as negative exposure.
(3)
Represents counterparty exposure on foreign exchange and derivative contracts, and securities resale and lending agreements. This exposure is presented net of counterparty netting adjustments and reduced by the amount of cash collateral. It includes credit default swaps (CDS) predominantly used to manage ourfor market making activities in the U.S. and London-based cash creditLondon based trading businesses, which sometimes results in selling and purchasing protection on the identical reference entity. Generally, we do not use market instruments such as CDS to hedge the credit risk of our investment or loan positions, although we do use them to manage risk in our trading businesses.businesses At September 30, 2016March 31, 2017, the gross notional amount of our CDS sold that reference assets in the Top 20 or Eurozone countries was $2.31.4 billion, which was offset by the notional amount of CDS purchased of $2.51.5 billion. We did not have any CDS purchased or sold that reference pools of assets that contain sovereign debt or where the reference asset was solely the sovereign debt of a foreign country.
(4)
For countries presented in the table, total non-sovereign exposure comprises $37.733.2 billion exposure to financial institutions and $42.245.1 billion to non-financial corporations at September 30, 2016March 31, 2017.
(5)Consists of exposure to Germany, Ireland, Germany, Netherlands, France and Luxembourg included in Top 20.
(6)
Includes non-sovereign exposure to Italy, Portugal, and PortugalGreece in the amount of $114145 million, $24 million and $221 million, respectively, and no non-sovereign exposure in Greece.respectively. We had no sovereign debt exposure to Italy and Greece, and the exposure to Portugal was immaterialin these countries at September 30, 2016March 31, 2017.
Risk Management - Credit Risk Management (continued)

REAL ESTATE 1-4 FAMILY FIRST AND JUNIOR LIEN MORTGAGE LOANS Our real estate 1-4 family first and junior lien mortgage loans, as presented in Table 15, include loans we have made to customers and retained as part of our asset/liability management strategy, the Pick-a-Pay portfolio acquired from
 
Wachovia which is discussed later in this Report and other purchased loans, and loans included on our balance sheet as a result of consolidation of variable interest entities (VIEs).

Table 15: Real Estate 1-4 Family First and Junior Lien Mortgage Loans
September 30, 2016  December 31, 2015 March 31, 2017  December 31, 2016 
(in millions)Balance
 
% of
portfolio

 Balance
 
% of
portfolio

Balance
 
% of
portfolio

 Balance
 
% of
portfolio

Real estate 1-4 family first mortgage$278,689
 85% $273,869
 84%$274,633
 86% $275,579
 86%
Real estate 1-4 family junior lien mortgage48,105
 15
 53,004
 16
44,333
 14
 46,237
 14
Total real estate 1-4 family mortgage loans$326,794
 100% $326,873
 100%$318,966
 100% $321,816
 100%

The real estate 1-4 family mortgage loan portfolio includes some loans with adjustable-rate features and some with an interest-only feature as part of the loan terms. Interest-only loans were approximately 7%6% and 9%7% of total loans at September 30, 2016,March 31, 2017, and December 31, 2015,2016, respectively. We believe we have manageable adjustable-rate mortgage (ARM) reset risk across our owned mortgage loan portfolios. We do not offer option ARM products, nor do we offer variable-rate mortgage products with fixed payment amounts, commonly referred to within the financial services industry as negative amortizing mortgage loans. The option ARMs we do have are included in the Pick-a-Pay portfolio which was acquired from Wachovia. Since our acquisition of the Pick-a-Pay loan portfolio at the end of 2008, the option payment portion of the portfolio has reduced from 86% to 37% at September 30, 2016,March 31, 2017, as a result of our modification activities and customers exercising their option to convert to fixed payments.loss mitigation efforts. For more information, see the “Pick-a-Pay Portfolio” section in this Report.
We continue to modify real estate 1-4 family mortgage loans to assist homeowners and other borrowers experiencing financial difficulties. For more information on our participation in the U.S. Treasury’s Making Home Affordable (MHA)modification programs, see the “Risk Management – Credit Risk Management – Real Estate 1-4 Family First and Junior Lien Mortgage Loans” section in our 20152016 Form 10-K.
Part of our credit monitoring includes tracking delinquency, current FICO scores and loan/combined loan to collateral values (LTV/CLTV) on the entire real estate 1-4 family mortgage loan portfolio. These credit risk indicators, which exclude government insured/guaranteed loans, continued to improve in thirdfirst quarter 20162017 on the non-PCI mortgage portfolio. Loans 30 days or more delinquent at September 30, 2016,March 31, 2017, totaled $6.0$5.2 billion, or 2% of total non-PCI mortgages, compared with $8.3$5.9 billion, or 3%2%, at December 31, 2015.2016. Loans with FICO scores lower than 640 totaled $17.6$14.1 billion, or 6%5% of total non-PCI mortgages at September 30, 2016,March 31, 2017, compared with $21.1$16.6 billion, or 7%5%, at December 31, 2015.2016. Mortgages with a LTV/CLTV greater than 100% totaled $10.5$8.3 billion at September 30, 2016,March 31, 2017, or 3% of total non-PCI mortgages, compared with $15.1$8.9 billion, or 5%3%, at December 31, 2015.2016. Information regarding credit quality indicators, including PCI credit quality indicators, can be found in Note 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.
Real estate 1-4 family first and junior lien mortgage loans by state are presented in Table 16. Our real estate 1-4 family mortgage loans (including PCI loans) to borrowers in California represented approximately 12% of total loans at September 30, 2016,March 31, 2017, located mostly within the larger metropolitan areas, with no single California metropolitan area consisting of more than 5% of total loans. We monitor changes in real estate values and
underlying economic or market conditions for all geographic areas of our real estate 1-4 family mortgage portfolio as part of
our credit risk management process. Our underwriting and periodic review of loans secured by residential real estate collateral includes appraisals or estimates from automated valuation models (AVMs) to support property values. Additional information about AVMs and our policy for their use can be found in Note 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report and the “Risk Management – Credit Risk Management – Real Estate 1-4 Family First and Junior Lien Mortgage Loans” section in our 20152016 Form 10-K.
Table 16: Real Estate 1-4 Family First and Junior Lien Mortgage Loans by State
September 30, 2016 March 31, 2017 
(in millions)
Real estate
1-4 family
first
mortgage

 
Real estate
1-4 family
junior lien
mortgage

 
Total real
estate 1-4
family
mortgage

 
% of
total
loans

Real estate
1-4 family
first
mortgage

 
Real estate
1-4 family
junior lien
mortgage

 
Total real
estate 1-4
family
mortgage

 
% of
total
loans

Real estate 1-4 family loans (excluding PCI):              
California$92,671
 13,168
 105,839
 11%$94,457
 11,971
 106,428
 11%
New York23,198
 2,253
 25,451
 2
24,388
 2,117
 26,505
 3
Florida13,824
 4,388
 18,212
 2
13,530
 4,097
 17,627
 2
New Jersey12,529
 4,160
 16,689
 2
12,632
 3,901
 16,533
 1
Virginia7,456
 2,780
 10,236
 1
7,569
 2,606
 10,175
 1
Texas8,491
 810
 9,301
 1
8,604
 785
 9,389
 1
Washington7,615
 1,105
 8,720
 1
7,971
 988
 8,959
 1
North Carolina6,049
 2,064
 8,113
 1
Pennsylvania5,761
 2,565
 8,326
 1
5,694
 2,413
 8,107
 1
North Carolina6,086
 2,217
 8,303
 1
Other (1)64,511
 14,617
 79,128
 8
63,937
 13,357
 77,294
 8
Government insured/
guaranteed loans (2)
19,717
 —
 19,717
 2
14,529
 —
 14,529
 1
Real estate 1-4 family loans (excluding PCI)261,859
 48,063
 309,922
 32
259,360
 44,299
 303,659
 31
Real estate 1-4 family PCI loans (3)16,830
 42
 16,872
 2
15,273
 34
 15,307
 2
Total$278,689
 48,105
 326,794
 34%$274,633
 44,333
 318,966
 33%
(1)
Consists of 41 states; no state had loans in excess of $7.27.1 billion.
(2)Represents loans whose repayments are predominantly insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA).
(3)
Includes $11.710.5 billion in real estate 1-4 family mortgage PCI loans in California.



First Lien Mortgage Portfolio  Our total real estate 1-4 family first lien mortgage portfolio increased $1.5 billiondecreased $946 million in thirdfirst quarter 2016 and $4.8 billion2017, as continued run-off of higher-yielding legacy portfolios more than offset growth in non-conforming loans, which was slowed by the decline in originations in first nine months of 2016, as wequarter 2017. We retained $15.9 billion and $43.9$9.2 billion in non-conforming originations, consisting of loans that exceed conventional conforming loan amount limits established by federal government-sponsored entities (GSEs), in the third quarter and first nine months of 2016, respectively..
The credit performance associated with our real estate 1-4 family first lien mortgage portfolio continued to improve in thirdfirst quarter 2016,2017, as measured through net charge-offs and nonaccrual loans. Net charge-offs (annualized) as a percentage of
average real estate 1-4 family first lien mortgage loans improved
to 0.03% and 0.04%0.01% in the thirdfirst quarter and first nine months of 2016, respectively,2017, compared with 0.09% and 0.11%0.07% for the same periodsperiod a year ago. Nonaccrual loans were $5.3$4.7 billion at September 30, 2016,March 31, 2017, compared with $7.3$5.0 billion at December 31, 2015.2016. Improvement in the credit performance was driven by an improving housing environment. Real estate 1-4 family first lien mortgage loans originated after 2008, which generally utilized tighter underwriting standards, have resulted in minimal losses to date and were approximately 72%74% of our total real estate 1-4 family first lien mortgage portfolio as of September 30, 2016.March 31, 2017.
Table 17 shows certain delinquency and loss information for the first lien mortgage portfolio and lists the top five states by outstanding balance.

Table 17: First Lien Mortgage Portfolio Performance
Outstanding balance  % of loans 30 days or more past due Loss (recovery) rate (annualized) quarter ended Outstanding balance  % of loans 30 days or more past due Loss (recovery) rate (annualized) quarter ended 
(in millions)Sep 30,
2016
Dec 31,
2015
 Sep 30,
2016
Dec 31,
2015		 Sep 30,
2016
Jun 30,
2016
Mar 31,
2016
Dec 31,
2015
Sep 30,
2015
Mar 31,
2017
Dec 31,
2016
 Mar 31,
2017
Dec 31,
2016		 Mar 31,
2017
Dec 31,
2016
Sep 30,
2016
Jun 30,
2016
Mar 31,
2016
California$92,671
88,367
 1.29%1.87 (0.08)(0.09)(0.07)(0.05)(0.05)$94,457
94,015
 1.08%1.21 (0.05)(0.08)(0.08)(0.09)(0.07)
New York23,198
20,962
 2.03
3.07 0.07
0.11
0.12
0.08
0.13
24,388
23,815
 1.78
1.97 0.06
0.04
0.07
0.11
0.12
Florida13,824
14,068
 3.73
5.14 (0.04)(0.19)0.03
0.02
0.16
13,530
13,737
 3.27
3.62 (0.08)(0.18)(0.04)(0.19)0.03
New Jersey12,529
11,825
 3.79
5.68 0.37
0.42
0.44
0.33
0.38
12,632
12,669
 3.16
3.66 0.22
0.21
0.37
0.42
0.44
Texas8,491
8,153
 2.21
2.80 0.06
0.09
0.10
0.02
—
8,604
8,584
 1.86
2.19 (0.01)(0.01)0.06
0.09
0.10
Other91,429
88,951
 2.58
3.72 0.10
0.10
0.18
0.21
0.23
91,220
91,136
 2.19
2.51 0.05
0.06
0.10
0.10
0.18
Total242,142
232,326
 2.15%3.11 0.03
0.02
0.08
0.09
0.11
244,831
243,956
 1.82
2.07 0.01
—
0.03
0.02
0.08
Government insured/guaranteed loans19,717
22,353
    14,529
15,605
    
PCI16,830
19,190
    15,273
16,018
    
Total first lien mortgages$278,689
273,869
    $274,633
275,579
    
Pick-a-Pay Portfolio The Pick-a-Pay portfolio was one of the consumer residential first lien mortgage portfolios we acquired from Wachovia and a majority of the portfolio was identified as PCI loans.
The Pick-a-Pay portfolio includes loans that offer payment options (Pick-a-Pay option payment loans), and also includes loans that were originated without the option payment feature, loans that no longer offer the option feature as a result of our modification efforts since the acquisition, and loans where the customer voluntarily converted to a fixed-rate product. The Pick-a-Pay portfolio is included in the consumer real estate 1-4 family
 
first mortgage class of loans throughout this Report. Table 18 provides balances by types of loans as of September 30, 2016,March 31, 2017, as a result of modification efforts, compared to the types of loans included in the portfolio at acquisition. Total adjusted unpaid principal balance of PCI Pick-a-Pay loans was $21.4$19.7 billion at September 30, 2016,March 31, 2017, compared with $61.0 billion at acquisition. Due to loan modification and loss mitigation efforts, the adjusted unpaid principal balance of option payment PCI loans has declined to 14% of the total Pick-a-Pay portfolio at September 30, 2016,March 31, 2017, compared with 51% at acquisition.

Table 18: Pick-a-Pay Portfolio – Comparison to Acquisition Date
  December 31,   December 31, 
September 30, 2016  2015  2008 March 31, 2017  2016  2008 
(in millions)
Adjusted
unpaid
principal
balance (1)

 
% of
total

 
Adjusted
unpaid
principal
balance (1)

 
% of
total

 
Adjusted
unpaid
principal
balance (1)

 
% of
total

Adjusted
unpaid
principal
balance (1)

 
% of
total

 
Adjusted
unpaid
principal
balance (1)

 
% of
total

 
Adjusted
unpaid
principal
balance (1)

 
% of
total

Option payment loans$14,378
 37% $16,828
 39% $99,937
 86%$12,888
 37% $13,618
 37% $99,937
 86%
Non-option payment adjustable-rate
and fixed-rate loans
4,907
 13
 5,706
 13
 15,763
 14
4,404
 12
 4,630
 13
 15,763
 14
Full-term loan modifications19,333
 50
 21,193
 48
 —
 —
18,005
 51
 18,598
 50
 —
 —
Total adjusted unpaid principal balance$38,618
 100% $43,727
 100% $115,700
 100%$35,297
 100% $36,846
 100% $115,700
 100%
Total carrying value$33,999
   39,065
   95,315
  $30,791
   32,292
   95,315
  
(1)Adjusted unpaid principal balance includes write-downs taken on loans where severe delinquency (normally 180 days) or other indications of severe borrower financial stress exist that indicate there will be a loss of contractually due amounts upon final resolution of the loan.

 

Risk Management - Credit Risk Management (continued)

Table 19 reflects the geographic distribution of the Pick-a-Pay portfolio broken out between PCI loans and all other loans. The LTV ratio is a useful metric in evaluating future real estate 1-4 family first mortgage loan performance, including potential charge-offs. Because PCI loans were initially recorded at fair value, including write-downs for expected credit losses, the ratio
 
of the carrying value to the current collateral value will be lower compared with the LTV based on the adjusted unpaid principal balance. For informational purposes, we have included both ratios for PCI loans in the following table.

Table 19: Pick-a-Pay Portfolio (1)
September 30, 2016 March 31, 2017 
PCI loans  All other loans PCI loans  All other loans 
(in millions)
Adjusted
unpaid
principal
balance (2)

 
Current
LTV
ratio (3)

 
Carrying
value (4)

 
Ratio of
carrying
value to
current
value (5)

 
Carrying
value (4)

 
Ratio of
carrying
value to
current
value (5)

Adjusted
unpaid
principal
balance (2)

 
Current
LTV
ratio (3)

 
Carrying
value (4)

 
Ratio of
carrying
value to
current
value (5)

 
Carrying
value (4)

 
Ratio of
carrying
value to
current
value (5)

California$14,852
 66% $11,643
 51% $8,330
 48%$13,659
 64% $10,525
 49% $7,477
 46%
Florida1,701
 76
 1,266
 55
 1,740
 61
1,597
 71
 1,210
 53
 1,582
 57
New Jersey697
 80
 509
 57
 1,142
 67
632
 78
 473
 57
 1,048
 64
New York494
 75
 415
 57
 561
 64
471
 70
 385
 53
 523
 61
Texas182
 50
 161
 44
 686
 40
168
 49
 127
 37
 626
 38
Other states3,458
 75
 2,712
 58
 4,834
 61
Other3,195
 71
 2,445
 54
 4,370
 58
Total Pick-a-Pay loans$21,384
 69
 $16,706
 53
 $17,293
 54
$19,722
 66
 $15,165
 50
 $15,626
 52
                      
(1)
The individual states shown in this table represent the top five states based on the total net carrying value of the Pick-a-Pay loans at the beginning of 20162017.
(2)Adjusted unpaid principal balance includes write-downs taken on loans where severe delinquency (normally 180 days) or other indications of severe borrower financial stress exist that indicate there will be a loss of contractually due amounts upon final resolution of the loan.
(3)The current LTV ratio is calculated as the adjusted unpaid principal balance divided by the collateral value. Collateral values are generally determined using automated valuation models (AVM) and are updated quarterly. AVMs are computer-based tools used to estimate market values of homes based on processing large volumes of market data including market comparables and price trends for local market areas.
(4)Carrying value does not reflect related allowance for loan losses but does reflect remaining purchase accounting adjustments and any charge-offs.
(5)The ratio of carrying value to current value is calculated as the carrying value divided by the collateral value.

Since the Wachovia acquisition, we have completed over 135,000136,000 proprietary and Home Affordability Modification Program (HAMP) Pick-a-Pay loan modifications, including over 900800 modifications in thirdfirst quarter 2016.2017. Pick-a-Pay loan modifications have resulted in over $6.1 billion of principal forgiveness.forgiveness since December 31, 2008. We have also provided interest rate reductions and loan term extensions of up to 40 years to enable sustainable homeownership for our Pick-a-Pay customers. As a result of these loss mitigation programs, approximately 70%71% of our Pick-a-Pay PCI adjusted unpaid principal balance as of September 30, 2016March 31, 2017 has been modified.
The predominant portion of our PCI loans is included in the Pick-a-Pay portfolio. We regularly evaluate our estimates, of cash flows expected to be collected on our PCI loans. Our cash flows expected to be collected have been favorably affected over time by lower expected defaults and losses as a result of observed and forecasted economic strengthening, particularly in housing prices, and our loan modification efforts. When we periodically update our cash flow estimates we have historically expected that the credit-stressed borrower characteristics and distressed collateral values associated with our Pick-a-Pay PCI loans would limit the ability of these borrowers to prepay their loans, thus increasing the future expected weighted-average life of the portfolio since acquisition. However, over the last several quarters we have observed a higher prepayment trend emergingthat emerged in our Pick-a-Pay PCI loans portfolio. Weportfolio in the prior year, which we attribute this favorable prepayment experience to the benefits of home price appreciation which has resultedcontinued to result in more loan (unpaid principal balance) to value ratios reaching an important industry refinancing inflection point of below 80%. As a result, we have experiencedcontinued to experience an increased level of borrowers qualifying for products to refinance their loans which may not have previously been available to them. Therefore, for thirdduring first quarter 2016,2017 , we revised our Pick-a-Pay PCI loan cash flow estimates to reflect our expectation that the modified portion of the portfolio will have significantly higher
prepayments over the remainder of
its life. The recent reductions in loan to value ratios and projections of sustained higher housing prices have reduced our loss estimates for this portfolio. The significant increase in expected prepayments lowered our estimated weighted-average life to approximately 7.66.7 years at September 30, 2016,March 31, 2017, from 11.57.4 years at June 30,December 31, 2016. Also, our revised cash flow estimates resulted in a $4.1 billion reduction in the accretable yield balance as of September 30, 2016,declined $840 million during first quarter 2017, driven by realized accretion of $319 million and a $4.9 billion$915 million reduction in expected cash flows resulting from the shorter estimated weighted-average life, partially offset by a transfer of $1.2 billion$394 million from nonaccretable difference to accretable yield due to the reduction in expected losses. Because the $1.2 billion transfer from nonaccretable difference to accretable yield resulted in a high amount of accretable yield relative to the shortened estimated weighted-average life, weWe expect the accretable yield percentage to be 8.22%9.47% for fourthsecond quarter 2016,2017, up from 6.68%8.22% at September 30,December 31, 2016.
Since acquisition, due to better than expected performance observed on the PCI portion of the Pick-a-Pay portfolio compared with the original acquisition estimates, we have reclassified $8.3$8.7 billion from the nonaccretable difference to the accretable yield. Fluctuations in the accretable yield are driven by changes in interest rate indices for variable rate PCI loans, prepayment assumptions, and expected principal and interest payments over the estimated life of the portfolio, which will be affected by the pace and degree of improvements in the U.S. economy and housing markets and projected lifetime performance resulting from loan modification activity. Changes in the projected timing of cash flow events, including loan liquidations, modifications and short sales, can also affect the accretable yield and the estimated weighted-average life of the portfolio.
For further information on the judgment involved in estimating expected cash flows for PCI loans, see the “Critical Accounting Policies – Purchased Credit-Impaired Loans” section


and Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 20152016 Form 10-K.
For further information on the Pick-a-Pay portfolio, including recast risk, deferral of interest and loan modifications, see the "Risk Management – Credit Risk Management – Pick-a-Pay Portfolio" section in our 20152016 Form 10-K.

Junior Lien Mortgage Portfolio  The junior lien mortgage portfolio consists of residential mortgage lines and loans that are subordinate in rights to an existing lien on the same property. It is not unusual for these lines and loans to have draw periods, interest only payments, balloon payments, adjustable rates and similar features. Substantially all of our junior lien loan products are amortizing payment loans with fixed interest rates and repayment periods between five to 30 years. 
We continuously monitor the credit performance of our junior lien mortgage portfolio for trends and factors that influence the frequency and severity of loss. We have observed that the severity of loss for junior lien mortgages is high and generally not affected by whether we or a third party own or service the related first lien mortgage, but the frequency of delinquency is typically lower when we own or service the first lien mortgage. In general, we have limited information available on the delinquency status of the third party owned or serviced
senior lien where we also hold a junior lien. To capture this inherent loss content, our allowance process for junior lien mortgages considers the relative difference in loss experience for junior lien mortgages behind first lien mortgage loans we own or service, compared with those behind first lien mortgage loans owned or serviced by third parties. In addition, our allowance
process for junior lien mortgages that are current, but are in their revolving period, considers the inherent loss where the borrower is delinquent on the corresponding first lien mortgage loans.
Table 20 shows certain delinquency and loss information for the junior lien mortgage portfolio and lists the top five states by outstanding balance. The decrease in outstanding balances since December 31, 2015,2016, predominantly reflects loan paydowns. As of September 30, 2016, 13%March 31, 2017, 11% of the outstanding balance of the junior lien mortgage portfolio was associated with loans that had a combined loan to value (CLTV) ratio in excess of 100%. Of those junior lien mortgages with a CLTV ratio in excess of 100%, 2.64%2.50% were 30 days or more past due. CLTV means the ratio of the total loan balance of first lien mortgages and junior lien mortgages (including unused line amounts for credit line products) to property collateral value. The unsecured portion (the outstanding amount that was in excess of the most recent property collateral value) of the outstanding balances of these loans totaled 5%4% of the junior lien mortgage portfolio at September 30, 2016.March 31, 2017. For additional information on consumer loans by LTV/CLTV, see Table 5.12 in Note 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.

Table 20: Junior Lien Mortgage Portfolio Performance
Outstanding balance  % of loans 30 days or more past due Loss rate (annualized) quarter ended Outstanding balance  % of loans 30 days or more past due Loss (recovery) rate (annualized) quarter ended 
(in millions)Sep 30,
2016
 Dec 31,
2015
 Sep 30,
2016
 Dec 31,
2015		 Sep 30,
2016
 Jun 30,
2016
 Mar 31,
2016
 Dec 31,
2015
 Sep 30,
2015
Mar 31,
2017
 Dec 31,
2016
 Mar 31,
2017
 Dec 31,
2016		 Mar 31,
2017
 Dec 31,
2016
 Sep 30,
2016
 Jun 30,
2016
 Mar 31,
2016
California$13,168
 14,554
 1.77% 2.03 (0.13) 0.07
 0.27
 0.12
 0.21
$11,971
 12,539
 1.80% 1.86 (0.37) (0.18) (0.13) 0.07
 0.27
Florida4,388
 4,823
 2.21
 2.45 0.56
 0.76
 0.79
 0.51
 1.02
4,097
 4,252
 2.13
 2.17 0.30
 0.47
 0.56
 0.76
 0.79
New Jersey4,160
 4,462
 2.89
 3.06 0.96
 1.10
 0.84
 0.77
 1.23
3,901
 4,031
 2.63
 2.79 1.06
 1.36
 0.96
 1.10
 0.84
Virginia2,780
 2,991
 1.85
 2.05 0.55
 0.87
 0.80
 0.77
 0.73
2,606
 2,696
 1.85
 1.97 0.48
 0.67
 0.55
 0.87
 0.80
Pennsylvania2,565
 2,748
 2.14
 2.35 0.75
 0.58
 0.55
 0.66
 0.79
2,413
 2,494
 1.96
 2.07 0.67
 1.01
 0.75
 0.58
 0.55
Other21,002
 23,357
 1.96
 2.24 0.51
 0.53
 0.63
 0.68
 0.70
19,311
 20,189
 1.97
 2.09 0.28
 0.39
 0.51
 0.53
 0.63
Total48,063

52,935
 2.01% 2.27 0.40
 0.49
 0.57
 0.52
 0.64
44,299

46,201
 1.99
 2.09 0.21
 0.38
 0.40
 0.49
 0.57
PCI42
 69
            34
 36
            
Total junior lien mortgages$48,105
 53,004
            $44,333
 46,237
            

Risk Management - Credit Risk Management (continued)

Our junior lien, as well as first lien, lines of credit portfolios generally have draw periods of 10, 15 or 20 years with variable interest rate and payment options during the draw period of (1) interest only or (2) 1.5% of outstanding principal balance plus accrued interest. During the draw period, the borrower has the option of converting all or a portion of the line from a variable interest rate to a fixed rate with terms including interest-only payments for a fixed period between three to seven years or a fully amortizing payment with a fixed period between five to 30 years. At the end of the draw period, a line of credit generally converts to an amortizing payment schedule with repayment terms of up to 30 years based on the balance at time of conversion. Certain lines and loans have been structured with a balloon payment, which requires full repayment of the outstanding balance at the end of the term period. The conversion of lines or loans to fully amortizing or balloon payoff may result in a significant payment increase, which can affect some borrowers’ ability to repay the outstanding balance.
On a monthly basis, we monitor the payment characteristics of borrowers in our junior lien portfolio. In September 2016,March 2017, approximately 48%46% of these borrowers paid only the minimum amount due and approximately 46%49% paid more than the minimum amount due. The rest were either delinquent or paid less than the minimum amount due. For the borrowers with an interest only payment feature, approximately 35%32% paid only the
 
minimum amount due and approximately 60%63% paid more than the minimum amount due.
The lines that enter their amortization period may experience higher delinquencies and higher loss rates than the ones in their draw or term period. We have considered this increased inherent risk in our allowance for credit loss estimate.
In anticipation of our borrowers reaching the end of their contractual commitment, we have created a program to inform, educate and help these borrowers transition from interest-only to fully-amortizing payments or full repayment. We monitor the performance of the borrowers moving through the program in an effort to refine our ongoing program strategy.
Table 21 reflects the outstanding balance of our portfolio of junior lien mortgages, including lines and loans, and senior lien lines segregated into scheduled end of draw or end of term periods and products that are currently amortizing, or in balloon repayment status. It excludes real estate 1-4 family first lien line reverse mortgages, which total $2.0 billion,$171 million, because they are predominantly insured by the FHA, and it excludes PCI loans, which total $67$58 million, because their losses were generally reflected in our nonaccretable difference established at the date of acquisition.


Table 21: Junior Lien Mortgage Line and Loan and Senior Lien Mortgage Line Portfolios Payment Schedule
    Scheduled end of draw / term       Scheduled end of draw / term   
(in millions)Outstanding balance September 30, 2016
 Remainder of 2016
 2017
 2018
 2019
 2020
 
2021 and
thereafter (1)

 Amortizing
Outstanding balance March 31, 2017
 Remainder of 2017
 2018
 2019
 2020
 2021
 
2022 and
thereafter (1)

 Amortizing
Junior lien lines and loans$48,063
 853
 4,222
 2,483
 1,004
 904
 25,466
 13,131
$44,299
 2,577
 2,091
 865
 784
 1,543
 23,094
 13,345
First lien lines15,459
 116
 634
 770
 356
 325
 11,259
 1,999
14,699
 400
 662
 318
 291
 654
 10,297
 2,077
Total (2)(3)$63,522
 969
 4,856
 3,253
 1,360
 1,229
 36,725
 15,130
$58,998
 2,977
 2,753
 1,183
 1,075
 2,197
 33,391
 15,422
% of portfolios100% 2
 8
 5
 2
 2
 58
 23
100% 5
 5
 2
 2
 4
 56
 26
(1)
Substantially all lines and loans are scheduled to convert to amortizing loans by the end of 2026, with annual scheduled amounts through that date ranging from $2.44.5 billion to $8.17.7 billion and averaging $6.16.5 billion per year.
(2)
Junior and first lien lines are mostly interest-only during their draw period. The unfunded credit commitments for junior and first lien lines totaled $66.665.4 billion at September 30, 2016March 31, 2017.
(3)
Includes scheduled end-of-term balloon payments for lines and loans totaling $31177 million, $281309 million, $359307 million, $346335 million, $373532 million and $963326 million for 20162017 2017, 2018, 2019, 2020, 2021, and 20212022 and thereafter, respectively. Amortizing lines and loans include $133115 million of end-of-term balloon payments, which are past due. At September 30, 2016March 31, 2017, $503490 million, or 4% of outstanding lines of credit that are amortizing, are 30 days or more past due compared to $737663 million or 2% for lines in their draw period.
CREDIT CARDS  Our credit card portfolio totaled $35.0$34.7 billion at September 30, 2016,March 31, 2017, which represented 4% of our total outstanding loans. The net charge-off rate (annualized) for our credit card portfolio was 2.82%3.54% for thirdfirst quarter 2016,2017, compared with 2.71%3.16% for thirdfirst quarter 2015 and 3.07% and 3.03% for the first nine months of 2016 and 2015, respectively.2016.
 
AUTOMOBILE Our automobile portfolio, predominantly composed of indirect loans, totaled $62.9$60.4 billion at September 30, 2016.March 31, 2017. The net charge-off rate (annualized) for our automobile portfolio was 0.87%1.10% for thirdfirst quarter 2016,2017, compared with 0.76%0.85% for thirdfirst quarter 2015 and 0.77% and 0.66% for the first nine months of 2016 and 2015, respectively.2016. The increase in net charge-offs in 2016 as2017, compared with 20152016, was due to increased loss severities and was consistent with trends in the automobile lending industry.

 
OTHER REVOLVING CREDIT AND INSTALLMENT Other revolving credit and installment loans totaled $40.2$39.3 billion at September 30, 2016,March 31, 2017, and primarily included student and security-basedsecurities-based loans. Student loansOur private student loan portfolio totaled $12.5 billion at September 30, 2016.March 31, 2017. All remaining student loans guaranteed by agencies on behalf of the U.S. Department of Education under the Federal Family Education Loan Program (FFELP) were sold as of March 31, 2017. The net charge-off rate (annualized) for other revolving credit and installment loans was 1.40%1.60% for thirdfirst quarter 2016,2017, compared with 1.35%1.42% for thirdfirst quarter 2015 and 1.38% and 1.31% for the first nine months of 2016 and 2015, respectively.2016.
 



NONPERFORMING ASSETS (NONACCRUAL LOANS AND FORECLOSED ASSETS) Table 22 summarizes nonperforming assets (NPAs) for each of the last four quarters. Total NPAs decreased $1.1 billion$698 million from secondfourth quarter 2016 to $12.0$10.7 billion with improvement across our consumer and commercial portfolios. Nonaccrual loans decreased $977$625 million from secondfourth quarter 2016 to $11.0$9.8 billion led by a $732 million decrease inreflecting declines across all major commercial asset classes, as well as continued lower consumer nonaccruals, which included the sale of nonaccrual loans during third quarter 2016.real estate nonaccruals. Foreclosed assets of $1.0 billion$905 million were down $97$73 million from secondfourth quarter 2016.

We generally place loans on nonaccrual status when:
the full and timely collection of interest or principal becomes uncertain (generally based on an assessment of the borrower’s financial condition and the adequacy of collateral, if any);
 
they are 90 days (120 days with respect to real estate 1-4 family first and junior lien mortgages) past due for interest or principal, unless both well-secured and in the process of collection;
part of the principal balance has been charged off;
for junior lien mortgages, we have evidence that the related first lien mortgage may be 120 days past due or in the process of foreclosure regardless of the junior lien delinquency status; or
consumer real estate and automobile loans are discharged in bankruptcy, regardless of their delinquency status.


Credit card loans are not placed on nonaccrual status, but are generally fully charged off when the loan reaches 180 days past due.

Table 22: Nonperforming Assets (Nonaccrual Loans and Foreclosed Assets)
 September 30, 2016  June 30, 2016  March 31, 2016  December 31, 2015  March 31, 2017  December 31, 2016  September 30, 2016  June 30, 2016 
($ in millions) Balance
 
% of
total
loans

 Balance
 
% of
total
loans

 Balance
 
% of
total
loans

 Balance
 
% of
total
loans

 Balance
 
% of
total
loans

 Balance
 
% of
total
loans

 Balance
 
% of
total
loans

 Balance
 
% of
total
loans

Nonaccrual loans:                                
Commercial:                                
Commercial and industrial $3,331
 1.03% $3,464
 1.07% $2,911
 0.91% $1,363
 0.45% $2,898
 0.88% $3,216
 0.97% $3,331
 1.03% $3,464
 1.07%
Real estate mortgage 780
 0.60
 872
 0.68
 896
 0.72
 969
 0.79
 672
 0.51
 685
 0.52
 780
 0.60
 872
 0.68
Real estate construction 59
 0.25
 59
 0.25
 63
 0.27
 66
 0.30
 40
 0.16
 43
 0.18
 59
 0.25
 59
 0.25
Lease financing 92
 0.49
 112
 0.59
 99
 0.52
 26
 0.21
 96
 0.50
 115
 0.60
 92
 0.49
 112
 0.59
Total commercial 4,262
 0.86
 4,507
 0.91
 3,969
 0.81
 2,424
 0.53
 3,706
 0.73
 4,059
 0.80
 4,262
 0.86
 4,507
 0.91
Consumer:                                
Real estate 1-4 family first mortgage (1) 5,310
 1.91
 5,970
 2.15
 6,683
 2.43
 7,293
 2.66
 4,743
 1.73
 4,962
 1.80
 5,310
 1.91
 5,970
 2.15
Real estate 1-4 family junior lien mortgage 1,259
 2.62
 1,330
 2.67
 1,421
 2.77
 1,495
 2.82
 1,153
 2.60
 1,206
 2.61
 1,259
 2.62
 1,330
 2.67
Automobile 108
 0.17
 111
 0.18
 114
 0.19
 121
 0.20
 101
 0.17
 106
 0.17
 108
 0.17
 111
 0.18
Other revolving credit and installment 47
 0.12
 45
 0.11
 47
 0.12
 49
 0.13
 56
 0.14
 51
 0.13
 47
 0.12
 45
 0.11
Total consumer 6,724
 1.45
 7,456
 1.61
 8,265
 1.80
 8,958
 1.95
 6,053
 1.34
 6,325
 1.37
 6,724
 1.45
 7,456
 1.61
Total nonaccrual loans (2)(3)(4) 10,986
 1.14
 11,963
 1.25
 12,234
 1.29
 11,382
 1.24
 9,759
 1.02
 10,384
 1.07
 10,986
 1.14
 11,963
 1.25
Foreclosed assets:                                
Government insured/guaranteed (5) 282
   321
   386
   446
   179
   197
   282
   321
  
Non-government insured/guaranteed 738
   796
   893
   979
   726
   781
   738
   796
  
Total foreclosed assets 1,020
   1,117
   1,279
   1,425
   905
   978
   1,020
   1,117
  
Total nonperforming assets $12,006
 1.25% $13,080
 1.37% $13,513
 1.43% $12,807
 1.40% $10,664
 1.11% $11,362
 1.17% $12,006
 1.25% $13,080
 1.37%
Change in NPAs from prior quarter $(1,074)   (433)   706
   (497)   $(698)   (644)   (1,074)   (433)  
(1)
Includes MHFS of $150145 million, $155149 million, $157150 million, and $177155 million at September 30, June 30March 31, 2017 and MarchDecember 31 2016, September 30, and December 31, 2015June 30, 2016, respectively.
(2)Excludes PCI loans because they continue to earn interest income from accretable yield, independent of performance in accordance with their contractual terms.
(3)Real estate 1-4 family mortgage loans predominantly insured by the FHA or guaranteed by the VA and student loans predominantlylargely guaranteed by agencies on behalf of the U.S. Department of Education under the Federal Family Education Loan ProgramFFELP are not placed on nonaccrual status because they are insured or guaranteed. All remaining student loans guaranteed under the FFELP were sold as of March 31, 2017.
(4)See Note 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report for further information on impaired loans.
(5)
Consistent with regulatory reporting requirements, foreclosed real estate resulting from government insured/guaranteed loans are classified as nonperforming. BothHowever, both principal and interest related to these foreclosed real estate assets are collectible because the loans were predominantly insured by the FHA or guaranteed by the VA. Foreclosure of certain government guaranteed residential real estate mortgage loans that meet criteria specified by Accounting Standards Update (ASU) 2014-14, Classification of Certain Government-Guaranteed Mortgage Loans Upon Foreclosure, effective as of January 1, 2014 are excluded from this table and included in Accounts Receivable in Other Assets. For more information on the changes in foreclosures for government guaranteed residential real estate mortgage loans, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 20152016 Form 10-K.


Risk Management - Credit Risk Management (continued)

Table 23 provides an analysis of the changes in nonaccrual loans.

Table 23: Analysis of Changes in Nonaccrual Loans
Quarter ended Quarter ended 
(in millions)Sep 30,
2016
 Jun 30,
2016
 Mar 31,
2016
 Dec 31,
2015
 Sep 30,
2015
Mar 31,
2017
 Dec 31,
2016
 Sep 30,
2016
 Jun 30,
2016
 Mar 31,
2016
Commercial nonaccrual loans                  
Balance, beginning of period$4,507
 3,969
 2,424
 2,336
 2,522
$4,059
 4,262
 4,507
 3,969
 2,424
Inflows1,180
 1,936
 2,291
 793
 382
945
 951
 1,180
 1,936
 2,291
Outflows:                  
Returned to accruing(80) (32) (34) (44) (26)(133) (59) (80) (32) (34)
Foreclosures(1) (6) (4) (72) (32)(1) (15) (1) (6) (4)
Charge-offs(290) (420) (317) (243) (135)(202) (292) (290) (420) (317)
Payments, sales and other (1)(1,054) (940) (391) (346) (375)(962) (788) (1,054) (940) (391)
Total outflows(1,425) (1,398) (746) (705) (568)(1,298) (1,154) (1,425) (1,398) (746)
Balance, end of period4,262

4,507

3,969

2,424

2,336
3,706

4,059

4,262

4,507

3,969
Consumer nonaccrual loans                  
Balance, beginning of period7,456
 8,265
 8,958
 9,201
 9,921
6,325
 6,724
 7,456
 8,265
 8,958
Inflows868
 829
 964
 1,226
 1,019
814
 863
 868
 829
 964
Outflows:                  
Returned to accruing(597) (546) (584) (646) (676)(428) (410) (597) (546) (584)
Foreclosures(85) (85) (98) (89) (99)(81) (59) (85) (85) (98)
Charge-offs(192) (167) (203) (204) (228)(151) (158) (192) (167) (203)
Payments, sales and other (1)(726) (840) (772) (530) (736)(426) (635) (726) (840) (772)
Total outflows(1,600) (1,638) (1,657) (1,469) (1,739)(1,086) (1,262) (1,600) (1,638) (1,657)
Balance, end of period6,724

7,456

8,265

8,958

9,201
6,053

6,325

6,724

7,456

8,265
Total nonaccrual loans$10,986
 11,963
 12,234
 11,382
 11,537
$9,759
 10,384
 10,986
 11,963
 12,234
(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 September 30, 2016:March 31, 2017:
94%96% of total commercial nonaccrual loans and over 99% of total consumer nonaccrual loans are secured. Of the consumer nonaccrual loans, 98%97% are secured by real estate and 78%81% have a combined LTV (CLTV) ratio of 80% or less.
losses of $463464 million and $2.32.1 billion have already been recognized on 13%15% of commercial nonaccrual loans and 48%46% 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.
88%89% 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 remaining risk of loss of all nonaccrual loans has been considered and we believe is adequately covered by the allowance for loan losses.
$1.71.6 billion of consumer loans discharged in bankruptcy and classified as nonaccrual were 60 days or less past due, of which $1.61.4 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 MHAMaking Home Affordable (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.


Table 24 provides a summary of foreclosed assets and an analysis of changes in foreclosed assets.


Table 24: Foreclosed Assets
(in millions)Sep 30,
2016
 Jun 30,
2016
 Mar 31,
2016
 Dec 31,
2015
 Sep 30,
2015
Mar 31,
2017
 Dec 31,
2016
 Sep 30,
2016
 Jun 30,
2016
 Mar 31,
2016
Summary by loan segment                  
Government insured/guaranteed$282
 321
 386
 446
 502
$179
 197
 282
 321
 386
PCI loans:                  
Commercial98
 124
 142
 152
 297
84
 91
 98
 124
 142
Consumer88
 91
 97
 103
 126
80
 75
 88
 91
 97
Total PCI loans186
 215
 239
 255
 423
164
 166
 186
 215
 239
All other loans:                  
Commercial298
 313
 357
 384
 437
275
 287
 298
 313
 357
Consumer254
 268
 297
 340
 405
287
 328
 254
 268
 297
Total all other loans552
 581
 654
 724
 842
562
 615
 552
 581
 654
Total foreclosed assets$1,020
 1,117
 1,279
 1,425
 1,767
$905
 978
 1,020
 1,117
 1,279
Analysis of changes in foreclosed assets(1)                  
Balance, beginning of period$1,117
 1,279
 1,425
 1,767
 1,958
$978
 1,020
 1,117
 1,279
 1,425
Net change in government insured/guaranteed (1)(2)(39) (65) (60) (56) (86)(18) (85) (39) (65) (60)
Additions to foreclosed assets (2)(3)261
 281
 290
 327
 325
288
 405
 261
 281
 290
Reductions:                  
Sales(421) (405) (390) (719) (468)(307) (296) (421) (405) (390)
Write-downs and gains (losses) on sales102
 27
 14
 106
 38
(36) (66) 102
 27
 14
Total reductions(319) (378) (376) (613) (430)(343) (362) (319) (378) (376)
Balance, end of period$1,020
 1,117
 1,279
 1,425
 1,767
$905
 978
 1,020
 1,117
 1,279
(1)
During fourth quarter 2016, we evaluated a population of foreclosed properties that were previously security for FHA insured loans, and made the decision to retain some of the properties as foreclosed real estate, thereby foregoing the FHA insurance claim. Accordingly, the loans for which we decided not to file a claim are reported as additions to foreclosed assets rather than included as net change in government insured/guaranteed foreclosures.
(2)Foreclosed government insured/guaranteed loans are temporarily transferred to and held by us as servicer, until reimbursement is received from FHA or VA. The net change in government insured/guaranteed foreclosed assets is generally made up of inflows from mortgages held for investment and MHFS, and outflows when we are reimbursed by FHA/VA. Transfers from government insured/guaranteed loans to foreclosed assets amounted to $110 million, $45 million, $61 million, $46 million and $38 million for the quarters ended September 30, June 30 and March 31, 2016, and December 31 and September 30, 2015, respectively.
(2)(3)Predominantly includeIncludes loans moved into foreclosure from nonaccrual status, PCI loans transitioned directly to foreclosed assets and repossessed automobiles.

Foreclosed assets at September 30, 2016,March 31, 2017, included $604$524 million of foreclosed residential real estate, of which 47%34% is predominantly FHA insured or VA guaranteed and expected to have minimal or no loss content. The remaining foreclosed assets balance of $416$381 million has been written down to estimated net realizable value. Foreclosed assets at September 30, 2016 decreased compared with December 31, 2015. Of the $1.0 billion$905 million in foreclosed assets at September 30, 2016, 53%March 31, 2017, 51% have been in the foreclosed assets portfolio one year or less.


Risk Management - Credit Risk Management (continued)

TROUBLED DEBT RESTRUCTURINGS (TDRs)


Table 25: Troubled Debt Restructurings (TDRs)
(in millions)Sep 30,
2016

Jun 30,
2016

Mar 31,
2016

Dec 31,
2015

Sep 30,
2015
Mar 31,
2017

Dec 31,
2016

Sep 30,
2016

Jun 30,
2016

Mar 31,
2016
Commercial:                  
Commercial and industrial$2,445
 1,951
 1,606
 1,123
 999
$2,484
 2,584
 2,445
 1,951
 1,606
Real estate mortgage1,256
 1,324
 1,364
 1,456
 1,623
1,090
 1,119
 1,256
 1,324
 1,364
Real estate construction95
 106
 116
 125
 207
73
 91
 95
 106
 116
Lease financing8
 5
 6
 1
 1
8
 6
 8
 5
 6
Total commercial TDRs3,804
 3,386
 3,092
 2,705
 2,830
3,655
 3,800
 3,804
 3,386
 3,092
Consumer:                  
Real estate 1-4 family first mortgage14,761
 15,518
 16,299
 16,812
 17,193
13,680
 14,134
 14,761
 15,518
 16,299
Real estate 1-4 family junior lien mortgage2,144
 2,214
 2,261
 2,306
 2,336
2,027
 2,074
 2,144
 2,214
 2,261
Credit Card294
 291
 295
 299
 307
308
 300
 294
 291
 295
Automobile89
 92
 97
 105
 109
80
 85
 89
 92
 97
Other revolving credit and installment93
 86
 81
 73
 63
107
 101
 93
 86
 81
Trial modifications348
 364
 380
 402
 421
261
 299
 348
 364
 380
Total consumer TDRs (1)17,729
 18,565
 19,413
 19,997
 20,429
16,463
 16,993
 17,729
 18,565
 19,413
Total TDRs$21,533
 21,951
 22,505
 22,702
 23,259
$20,118
 20,793
 21,533
 21,951
 22,505
TDRs on nonaccrual status$6,429
 6,404
 6,484
 6,506
 6,709
$5,819
 6,193
 6,429
 6,404
 6,484
TDRs on accrual status (1)15,104
 15,547
 16,021
 16,196
 16,550
14,299
 14,600
 15,104
 15,547
 16,021
Total TDRs$21,533
 21,951
 22,505
 22,702
 23,259
$20,118
 20,793
 21,533
 21,951
 22,505
(1)
TDR loans include $1.5 billion, $1.5 billion, $1.6 billion, $1.7 billion, $1.8 billion, $1.8 billion, and $1.8 billion at September 30March 31, 2017 and December 31, September 30,June 30,, and March 31, 2016, and December 31, and September 30,2015, respectively, of government insured/guaranteed loans that are predominantly insured by the FHA or guaranteed by the VA and accruing.
 
Table 25 provides information regarding the recorded investment of loans modified in TDRs. The allowance for loan losses for TDRs was $2.4$1.9 billion and $2.7$2.2 billion at September 30, 2016,March 31, 2017, and December 31, 2015,2016, respectively. See Note 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report for additional information regarding TDRs. In those situations where principal is forgiven, the entire amount of such forgiveness is immediately charged off to the extent not done so prior to the modification. We sometimesWhen we delay the timing on the repayment of a portion of principal (principal forbearance) and, we charge off the amount of forbearance if that amount is not considered fully collectible.
For more information on our nonaccrual policies when a restructuring is involved, see the "Risk Management – Credit Risk Management – Troubled Debt Restructurings (TDRs)" section in our 20152016 Form 10-K.
 
Table 26 provides an analysis of the changes in TDRs. Loans modified more than once are reported as TDR inflows only in the period they are first modified. Other than resolutions such as foreclosures, sales and transfers to held for sale, we may remove loans held for investment from TDR classification, but only if they have been refinanced or restructured at market terms and qualify as a new loan.


Table 26: Analysis of Changes in TDRs
    Quarter ended     Quarter ended 
(in millions)Sep 30,
2016
 Jun 30,
2016
 Mar 31,
2016
 Dec 31,
2015
 Sep 30,
2015
Mar 31,
2017
 Dec 31,
2016
 Sep 30,
2016
 Jun 30,
2016
 Mar 31,
2016
Commercial:                  
Balance, beginning of quarter$3,386
 3,092
 2,705
 2,830
 2,786
$3,800
 3,804
 3,386
 3,092
 2,705
Inflows (1)914
 797
 866
 474
 573
642
 615
 914
 797
 866
Outflows                  
Charge-offs(76) (153) (124) (109) (86)(108) (120) (76) (153) (124)
Foreclosures(2) —
 (1) (64) (30)—
 (13) (2) —
 (1)
Payments, sales and other (2)(418) (350) (354) (426) (413)(679) (486) (418) (350) (354)
Balance, end of quarter3,804
 3,386
 3,092
 2,705
 2,830
3,655
 3,800
 3,804
 3,386
 3,092
Consumer:                  
Balance, beginning of quarter18,565
 19,413
 19,997
 20,429
 21,008
16,993
 17,729
 18,565
 19,413
 19,997
Inflows (1)542
 508
 661
 672
 753
517
 513
 542
 508
 661
Outflows                  
Charge-offs(65) (38) (67) (73) (79)(51) (48) (65) (38) (67)
Foreclosures(230) (217) (238) (226) (226)(179) (166) (230) (217) (238)
Payments, sales and other (2)(1,067) (1,085) (917) (786) (998)(779) (987) (1,067) (1,085) (917)
Net change in trial modifications (3)(16) (16) (23) (19) (29)(38) (48) (16) (16) (23)
Balance, end of quarter17,729
 18,565
 19,413
 19,997
 20,429
16,463
 16,993
 17,729
 18,565
 19,413
Total TDRs$21,533
 21,951
 22,505
 22,702
 23,259
$20,118
 20,793
 21,533
 21,951
 22,505
(1)Inflows include loans that both modify, andeven if they resolve within the period as well as advances on loans that modified in a prior period.
(2)
Other outflows include normal amortization/accretion of loan basis adjustments and loans transferred to held-for-sale. It also includes $64 million of loans refinanced or restructured at market terms and qualifying as new loans and removed from TDR classification for the quarter ended December 31, 20152016, while no loans were removed from TDR classification for the quarters ended March 31, 2017 and September 30, June 30,, and March 31,, 2016, and September 30, 2015.
(3)Net change in trial modifications includes: inflows of new TDRs entering the trial payment period, net of outflows for modifications that either (i) successfully perform and enter into a permanent modification, or (ii) did not successfully perform according to the terms of the trial period plan and are subsequently charged-off, foreclosed upon or otherwise resolved. Our experience is that substantially all of the mortgages that enter a trial payment period program are successful in completing the program requirements.

Risk Management - Credit Risk Management (continued)

LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING
Loans 90 days or more past due as to interest or principal are still accruing if they are (1) well-secured and in the process of collection or (2) real estate 1-4 family mortgage loans or consumer loans exempt under regulatory rules from being classified as nonaccrual until later delinquency, usually 120 days past due. PCI loans are not included in past due and still accruing loans even thoughwhen they are 90 days or more contractually past due. These PCI loans are considered to be accruing because they continue to earn interest from accretable yield, independent of performance in accordance with their contractual terms.
Excluding insured/guaranteed loans, loans 90 days or more past due and still accruing at September 30, 2016,March 31, 2017, were down $128$32 million, or 13%3%, from December 31, 2015,2016, due to payoffs, modifications and other loss mitigation activities and credit
stabilization. Also, fluctuations from quarter to quarter are influenced by seasonality.
Loans 90 days or more past due and still accruing whose repayments are predominantly insured by the FHA or guaranteed by the VA for mortgages were $9.6 billion at March 31, 2017, down from $10.9 billion at December 31, 2016, due to improving credit trends and seasonally lower delinquencies. All remaining student loans guaranteed by agencies on behalf of the U.S. Department of Education for student loans under the Federal Family Education Loan Program (FFELP)FFELP were $11.2 billion at September 30, 2016, down from $13.4 billion at Decembersold as of March 31, 2015, due to seasonally lower delinquencies.2017.
Table 27 reflects non-PCI loans 90 days or more past due and still accruing by class for loans not government insured/guaranteed. For additional information on delinquencies by loan class, see Note 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.

Table 27: Loans 90 Days or More Past Due and Still Accruing
(in millions)Sep 30, 2016
 Jun 30, 2016
 Mar 31, 2016
 Dec 31, 2015
 Sep 30, 2015
Mar 31, 2017
 Dec 31, 2016
 Sep 30, 2016
 Jun 30, 2016
 Mar 31, 2016
Total (excluding PCI (1)):$12,068
 12,385
 13,060
 14,380
 14,405
$10,525
 11,858
 12,068
 12,385
 13,060
Less: FHA insured/VA guaranteed (2)(3)11,198
 11,577
 12,233
 13,373
 13,500
9,585
 10,883
 11,198
 11,577
 12,233
Less: Student loans guaranteed under the FFELP (4)17
 20
 24
 26
 33
—
 3
 17
 20
 24
Total, not government insured/guaranteed$853
 788
 803
 981
 872
$940
 972
 853
 788
 803
By segment and class, not government insured/guaranteed:
Commercial:
                  
Commercial and industrial$47
 36
 24
 97
 53
$88
 28
 47
 36
 24
Real estate mortgage4
 22
 8
 13
 24
11
 36
 4
 22
 8
Real estate construction—
 —
 2
 4
 —
3
 —
 —
 —
 2
Total commercial51

58

34

114

77
102

64

51

58

34
Consumer:                  
Real estate 1-4 family first mortgage (3)171
 169
 167
 224
 216
149
 175
 171
 169
 167
Real estate 1-4 family junior lien mortgage (3)54
 52
 55
 65
 61
42
 56
 54
 52
 55
Credit card392
 348
 389
 397
 353
453
 452
 392
 348
 389
Automobile81
 64
 55
 79
 66
79
 112
 81
 64
 55
Other revolving credit and installment104
 97
 103
 102
 99
115
 113
 104
 97
 103
Total consumer802
 730

769

867

795
838
 908

802

730

769
Total, not government insured/guaranteed$853
 788

803

981

872
$940
 972

853

788

803
(1)
PCI loans totaled $1.8 billion, $2.0 billion, $2.2 billion, $2.4 billion, and $2.7 billion at March 31, $2.9 billion2017, and $3.2 billionDecember 31 at, September 30, June 30,, and March 31, 2016, and December 31, and September 30, 20152016, respectively.
(2)Represents loans whose repayments are predominantly insured by the FHA or guaranteed by the VA.
(3)Includes mortgages held for sale 90 days or more past due and still accruing.
(4)Represents loans whose repayments are predominantlylargely guaranteed by agencies on behalf of the U.S. Department of Education under the FFELP. All remaining student loans guaranteed under the FFELP were sold as of March 31, 2017.



NET CHARGE-OFFS

Table 28: Net Charge-offs
              Quarter ended                Quarter ended  
Sep 30, 2016  Jun 30, 2016  Mar 31, 2016  Dec 31, 2015  Sep 30, 2015 Mar 31, 2017  Dec 31, 2016  Sep 30, 2016  Jun 30, 2016  Mar 31, 2016 
($ in millions)
Net loan
charge-
offs

 
% of 
avg. 
loans(1) 

 
Net loan
charge-
offs

 % of avg. loans (1)
 
Net loan
charge-
offs

 % of avg. loans (1)
 
Net loan
charge-offs

 
% of
avg. loans (1)

 
Net loan
charge-offs

 
% of
avg.
loans (1)

Net loan
charge-
offs

 
% of 
avg. 
loans(1) 

 
Net loan
charge-
offs

 % of avg. loans (1)
 
Net loan
charge-
offs

 % of avg. loans (1)
 
Net loan
charge-offs

 
% of
avg. loans (1)

 
Net loan
charge-offs

 
% of
avg.
loans (1)

Commercial:                                      
Commercial and industrial$259
 0.32 % $368
 0.46 % $273
 0.36 % $215
 0.29 % $122
 0.17 %$171
 0.21 % $256
 0.31 % $259
 0.32 % $368
 0.46 % $273
 0.36 %
Real estate mortgage(28) (0.09) (20) (0.06) (29) (0.10) (19) (0.06) (23) (0.08)(25) (0.08) (12) (0.04) (28) (0.09) (20) (0.06) (29) (0.10)
Real estate construction(18) (0.32) (3) (0.06) (8) (0.13) (10) (0.18) (8) (0.15)(8) (0.15) (8) (0.13) (18) (0.32) (3) (0.06) (8) (0.13)
Lease financing2
 0.04
 12
 0.27
 1
 0.01
 1
 0.01
 3
 0.11
5
 0.11
 15
 0.32
 2
 0.04
 12
 0.27
 1
 0.01
Total commercial215
 0.17
 357
 0.29
 237
 0.20
 187
 0.16
 94
 0.08
143
 0.11
 251
 0.20
 215
 0.17
 357
 0.29
 237
 0.20
Consumer:                                      
Real estate 1-4 family
first mortgage
20
 0.03
 14
 0.02
 48
 0.07
 50
 0.07
 62
 0.09
7
 0.01
 (3) —
 20
 0.03
 14
 0.02
 48
 0.07
Real estate 1-4 family
junior lien mortgage
49
 0.40
 62
 0.49
 74
 0.57
 70
 0.52
 89
 0.64
23
 0.21
 44
 0.38
 49
 0.40
 62
 0.49
 74
 0.57
Credit card245
 2.82
 270
 3.25
 262
 3.16
 243
 2.93
 216
 2.71
309
 3.54
 275
 3.09
 245
 2.82
 270
 3.25
 262
 3.16
Automobile137
 0.87
 90
 0.59
 127
 0.85
 135
 0.90
 113
 0.76
167
 1.10
 166
 1.05
 137
 0.87
 90
 0.59
 127
 0.85
Other revolving credit and
installment
139
 1.40
 131
 1.32
 138
 1.42
 146
 1.49
 129
 1.35
156
 1.60
 172
 1.70
 139
 1.40
 131
 1.32
 138
 1.42
Total consumer590
 0.51
 567
 0.49
 649
 0.57
 644
 0.56
 609
 0.53
662
 0.59
 654
 0.56
 590
 0.51
 567
 0.49
 649
 0.57
Total$805
 0.33 % $924
 0.39 % $886
 0.38 % $831
 0.36 % $703
 0.31 %$805
 0.34 % $905
 0.37 % $805
 0.33 % $924
 0.39 % $886
 0.38 %
                                      
(1)Quarterly net charge-offs (recoveries) as a percentage of average respective loans are annualized.

Table 28 presents net charge-offs for thirdfirst quarter 20162017 and the previous four quarters. Net charge-offs in thirdfirst quarter 20162017 were $805 million (0.33%(0.34% of average total loans outstanding) compared with $703$886 million (0.31%(0.38%) in thirdfirst quarter 2015.2016.
The increasedecrease in commercial and industrial net charge-offs from thirdfirst quarter 20152016, reflected higherlower oil and gas portfolio losses.losses and increased recoveries. Our commercial real estate portfolios were in a net recovery position. Total consumer net charge-offs decreased slightlyincreased from the prior year.

year due to an increase in credit card, automobile and other revolving credit and installment losses, partially offset by a decline in residential real estate net charge-offs.
ALLOWANCE FOR CREDIT LOSSES The allowance for credit losses, which consists of the allowance for loan losses and the allowance for unfunded credit commitments, is management’s estimate of credit losses inherent in the loan portfolio and unfunded credit commitments at the balance sheet date, excluding loans carried at fair value. The detail of the changes in the allowance for credit losses by portfolio segment (including charge-offs and recoveries by loan class) is in Note 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.
 
We apply a disciplined process and methodology to establish our allowance for credit losses each quarter. This process takes into consideration many factors, including historical and forecasted loss trends, loan-level credit quality ratings and loan grade-specific characteristics. The process involves subjective and complex judgments. In addition, we review a variety of credit metrics and trends. These credit metrics and trends, however, do not solely determine the amount of the allowance as we use several analytical tools. Our estimation approach for the commercial portfolio reflects the estimated probability of default in accordance with the borrower’s financial strength, and the severity of loss in the event of default, considering the quality of any underlying collateral. Probability of default and severity at the time of default are statistically derived through historical observations of defaults and losses after default within each credit risk rating. Our estimation approach for the consumer portfolio uses forecasted losses that represent our best estimate of inherent loss based on historical experience, quantitative and other mathematical techniques. For additional information on our allowance for credit losses, see the “Critical Accounting Policies – Allowance for Credit Losses” section in our 20152016 Form 10-K and Note 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.
Table 29 presents the allocation of the allowance for credit losses by loan segment and class for the most recent quarter end and last four year ends.

Risk Management - Credit Risk Management (continued)

Table 29: Allocation of the Allowance for Credit Losses (ACL)
Sep 30, 2016  Dec 31, 2015  Dec 31, 2014  Dec 31, 2013  Dec 31, 2012 Mar 31, 2017  Dec 31, 2016  Dec 31, 2015  Dec 31, 2014  Dec 31, 2013 
(in millions)ACL
 
Loans
as %
of total
loans

 ACL
 
Loans
as %
of total
loans

 ACL
 
Loans
as %
of total
loans

 ACL
 
Loans
as %
of total
loans

 ACL
 
Loans
as %
of total
loans

ACL
 
Loans
as %
of total
loans

 ACL
 
Loans
as %
of total
loans

 ACL
 
Loans
as %
of total
loans

 ACL
 
Loans
as %
of total
loans

 ACL
 
Loans
as %
of total
loans

Commercial:                                      
Commercial and industrial$4,723
 34% $4,231
 33% $3,506
 32% $3,040
 29% $2,789
 28%$4,339
 34% $4,560
 34% $4,231
 33% $3,506
 32% $3,040
 29%
Real estate mortgage1,199
 14
 1,264
 13
 1,576
 13
 2,157
 14
 2,284
 13
1,280
 14
 1,320
 14
 1,264
 13
 1,576
 13
 2,157
 14
Real estate construction1,269
 2
 1,210
 3
 1,097
 2
 775
 2
 552
 2
1,288
 3
 1,294
 2
 1,210
 3
 1,097
 2
 775
 2
Lease financing178
 2
 167
 1
 198
 1
 131
 1
 89
 2
235
 2
 220
 2
 167
 1
 198
 1
 131
 1
Total commercial7,369
 52
 6,872
 50
 6,377
 48
 6,103
 46
 5,714
 45
7,142
 53
 7,394
 52
 6,872
 50
 6,377
 48
 6,103
 46
Consumer:                                      
Real estate 1-4 family first mortgage1,513
 29
 1,895
 30
 2,878
 31
 4,087
 32
 6,100
 31
1,155
 29
 1,270
 29
 1,895
 30
 2,878
 31
 4,087
 32
Real estate 1-4 family
junior lien mortgage
892
 5
 1,223
 6
 1,566
 7
 2,534
 8
 3,462
 10
760
 5
 815
 5
 1,223
 6
 1,566
 7
 2,534
 8
Credit card1,518
 4
 1,412
 4
 1,271
 4
 1,224
 3
 1,234
 3
1,657
 3
 1,605
 4
 1,412
 4
 1,271
 4
 1,224
 3
Automobile739
 6
 529
 6
 516
 6
 475
 6
 417
 6
890
 6
 817
 6
 529
 6
 516
 6
 475
 6
Other revolving credit and installment663
 4
 581
 4
 561
 4
 548
 5
 550
 5
683
 4
 639
 4
 581
 4
 561
 4
 548
 5
Total consumer5,325
 48
 5,640
 50
 6,792
 52
 8,868
 54
 11,763
 55
5,145
 47
 5,146
 48
 5,640
 50
 6,792
 52
 8,868
 54
Total$12,694
 100% $12,512
 100% $13,169
 100% $14,971
 100% $17,477
 100%$12,287
 100% $12,540
 100% $12,512
 100% $13,169
 100% $14,971
 100%
                                      
Sep 30, 2016  Dec 31, 2015  Dec 31, 2014  Dec 31, 2013  Dec 31, 2012 Mar 31, 2017  Dec 31, 2016  Dec 31, 2015  Dec 31, 2014  Dec 31, 2013 
Components:                  
Allowance for loan losses$11,583  11,545  12,319  14,502  17,060 $11,168  11,419  11,545  12,319  14,502 
Allowance for unfunded
credit commitments
1,111  967  850  469  417 1,119  1,121  967  850  469 
Allowance for credit losses$12,694  12,512  13,169  14,971  17,477 $12,287  12,540  12,512  13,169  14,971 
Allowance for loan losses as a percentage of total loans1.20% 1.26  1.43  1.76  2.13 1.17% 1.18  1.26  1.43  1.76 
Allowance for loan losses as a percentage of total net charge-offs (1)362  399  418  322  189 342  324  399  418  322 
Allowance for credit losses as a percentage of total loans1.32  1.37  1.53  1.82  2.19 1.28  1.30  1.37  1.53  1.82 
Allowance for credit losses as a percentage of total nonaccrual loans116  110  103  96  85 126  121  110  103  96 
(1)
Total net charge-offs are annualized for quarter ended September 30, 2016March 31, 2017.

In addition to the allowance for credit losses, there was $936$585 million at September 30, 2016,March 31, 2017, and $1.9 billion$954 million at December 31, 2015,2016, of nonaccretable difference to absorb losses for PCI loans, which totaled $17.7$15.7 billion at September 30, 2016.March 31, 2017. The allowance for credit losses is lower than otherwise would have been required without PCI loan accounting. As a result of PCI loans, certain ratios of the Company may not be directly comparable with credit-related metrics for other financial institutions. Additionally, loans purchased at fair value, including loans from the GE Capital business acquisitions, generally reflect a lifetime credit loss adjustment and therefore do not initially require additions to the allowance as is typically associated with loan growth. For additional information on PCI loans, see the “Risk Management – Credit Risk Management – Purchased Credit-Impaired Loans” section and Note 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.
The ratio of the allowance for credit losses to total nonaccrual loans may fluctuate significantly from period to period due to such factors as the mix of loan types in the portfolio, borrower credit strength and the value and marketability of collateral. Our nonaccrual loans consisted
 
primarily of real estate 1-4 family first and junior lien mortgage loans at September 30, 2016.March 31, 2017.
The allowance for credit losses increased $182decreased$253 million, or 1%2%, from December 31, 2015,2016, due to an increasea decrease in our commercial allowance reflecting deterioration in the oil and gas portfolio, and loan growth in the commercial, automobile and credit card portfolios, partially offset by continued improvement in the residential real estate portfolios. Total provision for credit losses was $805 million in third quarter 2016, compared with $703 million in third quarter 2015. The increase in the provision for credit losses reflected deterioration in the oil and gas portfolio, as well as the growthimprovement in our residential real estate portfolios, partially offset by increased allowance in the loan portfoliosautomobile and credit card portfolios. Total provision for credit losses was $605 million in first quarter 2017, compared with $1.1 billion in first quarter 2016, reflecting the same changes mentioned above.above for the allowance for credit losses.
We believe the allowance for credit losses of $12.7$12.3 billion at September 30, 2016,March 31, 2017, was appropriate to cover credit losses inherent in the loan portfolio, including unfunded credit commitments, at that date. Approximately $1.4$1.0 billion of the allowance at September 30, 2016March 31, 2017, was allocated to our oil and gas portfolio, compared with $1.2$1.3 billion at December 31, 2015.2016. This represented 8.8%8.1% and 6.7%8.5% of total oil and gas loans outstanding at September 30, 2016,March 31, 2017, and December 31, 2015,2016, respectively. However, the entire allowance is available to absorb credit losses inherent in the total loan portfolio. The allowance for credit


losses is subject to change and reflects existing factors as of the date of determination, including economic or market conditions and ongoing internal and external examination processes. Due to the sensitivity of the allowance for credit losses to changes in the economic and business environment, it is possible that we will incur incremental credit losses not anticipated as of the balance sheet date. Future allowance levels will be based on a variety of factors, including loan growth, portfolio performance and general economic conditions. Our process for determining the allowance for credit losses is discussed in the “Critical Accounting Policies – Allowance for Credit Losses” section and Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 20152016 Form 10-K.
LIABILITY FOR MORTGAGE LOAN REPURCHASE LOSSES 
In connection with our sales and securitization of residential mortgage loans to various parties, we have established a mortgage repurchase liability, initially at fair value, related to various representations and warranties that reflect management’s estimate of losses for loans for which we could have a repurchase obligation, whether or not we currently service those loans, based on a combination of factors. Our mortgage repurchase liability estimation process also incorporates a forecast of repurchase demands associated with mortgage insurance rescission activity.
Because we typically retain the servicing for the mortgage loans we sell or securitize, we believe the quality of our residential mortgage loan servicing portfolio provides helpful information in evaluating our repurchase liability. Of the $1.6$1.5 trillion in the residential mortgage loan servicing portfolio at September 30, 2016, 95%March 31, 2017, 96% was current and less than 2%1% was subprime at origination. Our combined delinquency and foreclosure rate on this portfolio was 4.63%3.98% at September 30, 2016,March 31, 2017, compared with 5.18%4.83% at December 31, 2015.2016. Two percent of this portfolio is private label securitizations for which we originated the loans and, therefore have some repurchase risk.
The overall level of unresolved repurchase demands and mortgage insurance rescissions outstanding at September 30, 2016,March 31, 2017, was $57$117 million, representing 298565 loans, downup from a year ago both in number of outstanding loans and in total dollar balances asbalances. The increase was due to private investor demands we observed a decline in new demands, continuedexpect to work through the outstanding demands and mortgage insurance rescissions, and resolved certain exposures.resolve with minimal repurchase risk.
Our liability for mortgage repurchases, included in “Accrued expenses and other liabilities” in our consolidated balance sheet, represents our best estimate of the probable loss that we expect to incur for various representations and warranties in the contractual provisions of our sales of mortgage loans. The liability was $239$222 million at September 30, 2016,March 31, 2017, and $378$229 million at December 31, 2015.2016. In thirdfirst quarter 2016, we released $13 million, which increased net gains on mortgage loan origination/sales activities,2017, no provision was necessary, compared with a release of $6$12 million in thirdfirst quarter 2015. The release in third quarter 2016 was due to a re-estimation of our liability based on recently observed trends.2016. We incurred net losses on repurchased loans and investor reimbursements totaling $3$7 million in thirdfirst quarter 2016,2017, compared with $13$11 million in thirdfirst quarter 2015.2016.
Because of the uncertainty in the various estimates underlying the mortgage repurchase liability, there is a range of losses in excess of the recorded mortgage repurchase liability that are reasonably possible. The estimate of the range of possible loss for representations and warranties does not represent a probable loss, and is based on currently available information, significant judgment, and a number of
assumptions that are subject to change. The high end of this range of reasonably possible losses exceeded our recorded liability by $191$155 million at September 30, 2016,March 31, 2017, and was determined based upon modifying the assumptions (particularly to assume significant changes in investor repurchase demand practices) used in our best estimate of probable loss to reflect what we believe to be the high end of reasonably possible adverse assumptions.
For additional information on our repurchase liability, see the “Risk Management – Credit Risk Management – Liability For Mortgage Loan Repurchase Losses” section in our 20152016 Form 10-K and Note 8 (Mortgage Banking Activities) to Financial Statements in this Report.

RISKS RELATING TO SERVICING ACTIVITIES In addition to servicing loans in our portfolio, we act as servicer and/or master servicer of residential mortgage loans included in GSE-guaranteed mortgage securitizations, GNMA-guaranteed mortgage securitizations of FHA-insured/VA-guaranteed mortgages and private label mortgage securitizations, as well as for unsecuritized loans owned by institutional investors. In connection with our servicing activities, we have entered into various settlements with federal and state regulators to resolve certain alleged servicing issues and practices. In general, these settlements required us to provide customers with loan modification relief, refinancing relief, and foreclosure prevention and assistance, as well as imposed certain monetary penalties on us.
For additional information about the risks and various settlements related to our servicing activities, see the “Risk Management – Credit Risk Management – Risks Relating to Servicing Activities” section in our 20152016 Form 10-K.



Asset/Liability Management (continued)

Asset/Liability Management
Asset/liability management involves evaluating, monitoring and managing interest rate risk, market risk, liquidity and funding. Primary oversight of interest rate risk and market risk resides with the Finance Committee of our Board of Directors (Board), which oversees the administration and effectiveness of financial risk management policies and processes used to assess and manage these risks. Primary oversight of liquidity and funding resides with the Risk Committee of the Board. At the management level we utilize a Corporate Asset/Liability Management Committee (Corporate ALCO), which consists of senior financial, risk, and business executives, to oversee these risks and report on them periodically to the Board’s Finance Committee and Risk Committee as appropriate. Each of our principal lines of business has its own asset/liability management committee and process linked to the Corporate ALCO process. As discussed in more detail for trading activities below, we employ separate management level oversight specific to market risk.
 
INTEREST RATE RISK Interest rate risk, which potentially can have a significant earnings impact, is an integral part of being a financial intermediary. We are subject to interest rate risk because:
assets and liabilities may mature or reprice at different times (for example, if assets reprice faster than liabilities and interest rates are generally falling, earnings will initially decline);
assets and liabilities may reprice at the same time but by different amounts (for example, when the general level of interest rates is falling, we may reduce rates paid on checking and savings deposit accounts by an amount that is less than the general decline in market interest rates);
short-term and long-term market interest rates may change by different amounts (for example, the shape of the yield curve may affect new loan yields and funding costs differently);
the remaining maturity of various assets or liabilities may shorten or lengthen as interest rates change (for example, if long-term mortgage interest rates decline sharply, MBS held in the investment securities portfolio may prepay significantly earlier than anticipated, which could reduce portfolio income); or
interest rates may also have a direct or indirect effect on loan demand, collateral values, credit losses, mortgage origination volume, the fair value of MSRs and other financial instruments, the value of the pension liability and other items affecting earnings.

We assess interest rate risk by comparing outcomes under various earningsnet interest income simulations using many interest rate scenarios that differ in the direction of interest rate changes, the degree of change over time, the speed of change and the projected shape of the yield curve. These simulations require assumptions regarding how changes in interest rates and related market conditions could influence drivers of earnings and balance sheet composition such as loan origination demand,originations, prepayment speeds on loans and investment securities, deposit balancesflows and mix, as well as pricing strategies.
Our risk measures include both net interest income sensitivity and interest rate sensitive noninterest income and expense impacts. We refer to the combination of these exposures as interest rate sensitive earnings. In general, the Company is positioned to benefit from higher interest rates. Currently, our profile is such that we project net interest income will benefit modestly from higher interest rates as our assets would reprice faster and to a greater degree than our liabilities, and,while in response tothe case of lower marketinterest rates, our assets willwould reprice downward and to a greater degree than our liabilities.
As of March 31, 2017, our most recent simulations estimate net interest income sensitivity over the next two years under a range of both lower and higher interest rates. Measured impacts from standardized ramps (gradual changes) and shocks
(instantaneous changes) are summarized in Table 30, indicating net interest income sensitivity relative to the Company's base net interest income plan. Ramp scenarios assume interest rates move gradually in parallel across the yield curve relative to the base scenario in year one, and the full amount of the ramp is held as a constant differential to the base scenario in year two. The following describes the simulation assumptions for the scenarios presented in Table 30:
Simulations are dynamic and reflect anticipated growth across assets and liabilities.
Other macroeconomic variables that could be correlated with the changes in interest rates are held constant.
Mortgage prepayment and origination assumptions vary across scenarios and reflect only the impact of the higher or lower interest rates.
Our base scenario deposit forecast incorporates mix changes consistent with the base interest rate trajectory. Deposit mix is modeled to be the same as in the base scenario across the alternative scenarios. In higher rate scenarios, customer activity that shifts balances into higher-yielding products could reduce expected net interest income.
We hold the size of the projected investment securities portfolio constant across scenarios.
Table 30:Net Interest Income Sensitivity Over Next Two-Year Horizon Relative to Base Expectation
  Lower Rates Higher Rates
($ in billions)Base
100 bps
Ramp
Parallel
 Decrease
 
100 bps Instantaneous
Parallel
Increase
 
200 bps
Ramp
Parallel
Increase
First Year of Forecasting Horizon      
Net Interest Income Sensitivity to Base Scenario $(0.9) - (0.4) 1.1 - 1.6 0.8 - 1.3
Key Rates at Horizon End      
Fed Funds Target1.33%0.33 2.33 3.33
10-year CMT (1)2.77
1.77 3.77 4.77
Second Year of Forecasting Horizon      
Net Interest Income Sensitivity to Base Scenario $(1.6) - (1.1) 1.3 - 1.8 1.5 - 2.0
Key Rates at Horizon End      
Fed Funds Target2.09%1.09 3.09 4.09
10-year CMT (1)3.46
2.46 4.46 5.46
(1)U.S. Constant Maturity Treasury Rate

The sensitivity results above do not capture interest rate sensitive noninterest income and expense impacts. Our interest rate sensitive noninterest income and expense is largely driven by mortgage activity, and tends tomay move in the opposite direction of our net interest income. So,Typically, in response to higher interest rates, mortgage activity, includingprimarily refinancing activity, generally declines. And in response to lower interest rates, mortgage activity generally increases. Mortgage results in our simulations are also impacted by the valuation of MSRs and related hedge positions. See the “Risk Management – Asset/Liability Management – Mortgage Banking Interest Rate and Market Risk” section in this Report for more information.
The degree to which these sensitivities offset each other is dependent upon the timing and magnitude of changes in interest rates, and the slope of the yield curve. During a transition to a higher or lower interest rate environment, a reduction or increase in interest-sensitive earnings from the mortgage banking business could occur quickly, while the benefit or detriment from balance sheet repricing could take more time to develop. For example, our lower rate scenarios (scenario 1 and scenario 2) in the following table measure a decline in interest rates versus our most likely scenario. Although the performance in these rate scenarios contain benefits from increased mortgage banking activity, the result is lower earnings relative to the most likely scenario over time given pressure on net interest income. The higher rate scenarios (scenario 3 and scenario 4) measure the impact of varying degrees of rising short-term and long-term
interest rates over the course of the forecast horizon relative to the most likely scenario, both resulting in positive earnings sensitivity.
For more information about the various causes of interest rate risk, see the "Risk Management–Asset/Liability Management–Interest Rate Risk" section in our 2015 Form 10-K.
As of September 30, 2016, our most recent simulations estimate earnings at risk over the next 24 months under a range of both lower and higher interest rates. The results of the simulations are summarized in Table 30, indicating cumulative net income after tax earnings sensitivity relative to the most likely earnings plan over the 24 month horizon (a positive range indicates a beneficial earnings sensitivity measurement relative to the most likely earnings plan and a negative range indicates a detrimental earnings sensitivity relative to the most likely earnings plan). 
Table 30:Earnings Sensitivity Over 24 Month Horizon Relative to Most Likely Earnings Plan
 Most
Lower rates Higher rates
 likely
Scenario 1Scenario 2 Scenario 3 Scenario 4
Ending rates:       
Federal funds1.84%0.251.64 2.10 5.25
10-year treasury (1)2.97
1.552.47 3.47 5.90
Earnings relative to most likelyN/A
(2)-(3)%(2)-(3) 0-5 0-5
(1)U.S. Constant Maturity Treasury Rate

We use the investment securities portfolio and exchange-traded and over-the-counter (OTC) interest rate derivatives to hedge our interest rate exposures. See the “Balance Sheet Analysis – Investment Securities” section in this Report for more information on the use of the available-for-sale and held-to-maturityheld-to-

maturity securities portfolios. The notional or contractual amount, credit risk amount and fair value of the derivatives used to hedge our interest rate risk exposures as of September 30, 2016,March 31, 2017, and December 31, 2015,2016, are presented in Note 12 (Derivatives) to Financial Statements in this Report. We use derivatives for asset/liability management in two main ways:
to convert the cash flows from selected asset and/or liability instruments/portfolios including investments, commercial loans and long-term debt, from fixed-rate payments to floating-rate payments, or vice versa; and
to economically hedge our mortgage origination pipeline, funded mortgage loans and MSRs using interest rate swaps, swaptions, futures, forwards and options.
 
MORTGAGE BANKING INTEREST RATE AND MARKET RISK We originate, fund and service mortgage loans, which subjects us to various risks, including credit, liquidity and interest rate risks. For more information on mortgage banking interest rate and market risk, see the "Risk Management – Asset/Liability Management – Mortgage Banking Interest Rate and Market Risk" section in our 20152016 Form 10-K.
While our hedging activities are designed to balance our mortgage banking interest rate risks, the financial instruments we use may not perfectly correlate with the values and income being hedged. For example, the change in the value of ARM production held for sale from changes in mortgage interest rates may or may not be fully offset by Treasury and LIBOR index-based financial instruments used as economic hedges for such ARMs. Additionally, hedge-carry income on our economic hedges for the MSRs may not continue at recent levels if the spread between short-term and long-term rates decreases or there are


other changes in the market for mortgage forwards that affect the implied carry.
The total carrying value of our residential and commercial MSRs was $11.8$14.6 billion at September 30, 2016,March 31, 2017, and $13.7$14.4 billion at December 31, 2015.2016. The weighted-average note rate on our portfolio of loans serviced for others was 4.28%4.23% at September 30, 2016,March 31, 2017, and 4.37%4.26% at December 31, 2015.2016. The carrying value of our total MSRs represented 0.69%0.87% of mortgage loans serviced for others at September 30, 2016,March 31, 2017, and 0.77%0.85% of mortgage loans serviced for others at December 31, 2015.2016.
 
MARKET RISK – TRADING ACTIVITIES The Finance Committee of our Board of Directors reviews the acceptable market risk appetite for our trading activities. We engage in trading activities to accommodate the investment and risk management activities of our customers (which involvesgenerally comprises a subset of the transactions that are recorded as trading and derivative assets and liabilities on our balance sheet), and to execute economic hedging to manage certain balance sheet risks. These activities largelyprimarily occur within our Wholesale Banking businesses and to a lesser extent other divisions of the Company. All of our trading assets, and derivative assets and liabilities, including(including securities, foreign exchange transactions, and commodity transactions, and derivativestransactions) are carried at fair value. Income earned related to these trading activities include net interest income and changes in fair value related to trading assets and derivative assets and liabilities. Net interest income earned onfrom trading assets and liabilitiesactivity is reflected in the interest income and interest expense components of our income statement. Changes in fair value ofrelated to trading assets, and derivative assets and liabilities are reflected in net gains on trading activities, a component of noninterest income in our income statement.
Table 31 presents total revenue from trading activities.

Table 31: Net gains (losses)Gains (Losses) from Trading Activities
Quarter ended September 30,  Nine months ended September 30,  Quarter ended March 31, 
(in millions) 2016
 2015
 2016
 2015
 2017
 2016
Interest income (1) $593
 485
 1,761
 1,413
 $643
 596
Less: Interest expense (2) 88
 89
 260
 269
 92
 89
Net interest income 505
 396
 1,501
 1,144
 551
 507
Noninterest income:            
Net gains (losses) from trading activities (3):            
Customer accommodation 348
 168
 947
 723
 345
 219
Economic hedges and other (4) 67
 (194) (4) (208) 94
 (19)
Total net gains from trading activities 415
 (26) 943
 515
 439
 200
Total trading-related net interest and noninterest income $920
 370
 2,444
 1,659
 $990
 707
(1)Represents interest and dividend income earned on trading securities.
(2)Represents interest and dividend expense incurred on trading securities we have sold but have not yet purchased.
(3)Represents realized gains (losses) from our trading activity and unrealized gains (losses) due to changes in fair value of our trading positions, attributable to the type of business activity.
(4)Excludes economic hedging of mortgage banking and asset/liability management activities, for which hedge results (realized and unrealized) are reported with the respective hedged activities.
Customer accommodation Customer accommodation activities are conducted to help customers manage their investment and risk management needs. We engage in market-making activities or act as an intermediary to purchase or sell financial instruments in anticipation of or in response to customer needs.
This category also includes positions we use to manage our exposure to customer transactions.
In our customer accommodation trading, we serve as intermediary between buyer and seller. For example, we may purchase or sell a derivative to a customer who wants to manage interest rate risk exposure. We typically enter into offsetting derivative or security positions with a separate counterparty or exchange to manage our exposure to the derivative with our customer. We earn income on this activity based on the transaction price difference between the customer and offsetting derivative or security positions, which is reflected in the fair value changes of the positions recorded in net gains on trading activities.
Customer accommodation trading also includes net gains related to market-making activities in which we take positions to facilitate customer order flow. For example, we may own securities recorded as trading assets (long positions) or sold securities we have not yet purchased, recorded as trading liabilities (short positions), typically on a short-term basis, to facilitate support of buying and selling demand from our customers. As a market maker in these securities, we earn income due to: (1) the difference between the price paid or received for the purchase and sale of the security (bid-ask spread), (2) the net interest income, and (3) the change in fair value of the long or short positions during the short-term period held on our balance sheet. Additionally, we may enter into separate derivative or security positions to manage our exposure related to our long or short security positions. Income earned on this type of market-making activity is reflected in the fair value changes of these positions recorded in net gains on trading activities.
Asset/Liability Management (continued)

Economic hedges and other Economic hedges in trading activities are not designated in a hedge accounting relationship and exclude economic hedging related to our asset/liability risk management and mortgage banking risk management activities. Economic hedging activities include the use of trading securities to economically hedge risk exposures related to non-trading activities or derivatives to hedge risk exposures related to trading assets or trading liabilities. Economic hedges are unrelated to our customer accommodation activities. Other activities include financial assets held for investment purposes that we elected to carry at fair value with changes in fair value recorded to earnings in order to mitigate accounting measurement mismatches or avoid embedded derivative accounting complexities.
 
Daily Trading-Related Revenue Table 32 provides information on the distribution of daily trading-related revenues for the Company’s trading portfolio. This trading-related revenue is defined as the change in value of the trading assets and trading liabilities, trading-related net interest income, and trading-related intra-day gains and losses. Net trading-related revenue does not include activity related to long-term positions held for economic hedging purposes, period-end adjustments, and other activity not representative of daily price changes driven by market factors.








Asset/Liability Management (continued)

Table 32: Distribution of Daily Trading-Related Revenues
table32dailytradereva04.jpgtradrevgrapha01.jpg
Market riskRisk Market risk is the risk of possible economic loss from adverse changes in market risk factors such as interest rates, credit spreads, foreign exchange rates, equity, commodity prices, mortgage rates, and market liquidity. Market risk is intrinsic to the Company’s sales and trading, market making, investing, and risk management activities.
The Company uses value-at-risk (VaR) metrics complemented with sensitivity analysis and stress testing in measuring and monitoring market risk. VaR is a statistical risk measure used to estimate the potential loss from adverse moves in the financial markets. For more information on VaR, see the "Risk Management – Asset/Liability Management – Market Risk – Trading Activities" section in our 2016 Form 10-K.
Trading VaR is the measure used to provide insight into the market risk exhibited by the Company’s trading positions. The
Company calculates Trading VaR for risk management purposes to establish line of business and Company-wide risk limits. Trading VaR is calculated based on all trading positions classified as trading assets or tradingother liabilities, derivative assets or derivative liabilities on our balance sheet.

Table 33 shows the Company’s Trading General VaR by risk category. As presented in the table, average Company Trading General VaR was $22$26 million for the quarter ended September 30, 2016,March 31, 2017, compared with $21$23 million for the quarter ended June 30,
December 31, 2016. The increase was primarily driven by changes in portfolio composition.

Table 33: Trading 1-Day 99% General VaR by Risk Category
  Quarter ended   Quarter ended 
September 30, 2016  June 30, 2016 March 31, 2017  December 31, 2016 
(in millions)
Period
end

 Average
 Low
 High
 
Period
end

 Average
 Low
 High
Period
end

 Average
 Low
 High
 
Period
end

 Average
 Low
 High
Company Trading General VaR Risk Categories                              
Credit$15
 17
 14
 20
 16
 15
 12
 18
$27
 25
 19
 30
 20
 21
 14
 32
Interest rate12
 11
 5
 17
 15
 10
 5
 19
22
 18
 13
 23
 13
 15
 8
 23
Equity16
 16
 15
 17
 14
 15
 11
 19
10
 12
 9
 17
 14
 14
 13
 16
Commodity1
 2
 1
 3
 1
 2
 1
 3
1
 1
 1
 2
 1
 2
 1
 4
Foreign exchange1
 1
 1
 2
 1
 1
 —
 2
1
 1
 0
 1
 0
 1
 0
 14
Diversification benefit (1)(22) (25)     (27) (22)    (35) (31)     (25) (30)    
Company Trading General VaR$23
 22
     20
 21
    $26
 26
     23
 23
    
(1)The period-end VaR was less than the sum of the VaR components described above, which is due to portfolio diversification. The diversification effect arises because the risks are not perfectly correlated causing a portfolio of positions to usually be less risky than the sum of the risks of the positions alone. The diversification benefit is not meaningful for low and high metrics since they may occur on different days.


Regulatory Market Risk Capital  reflects U.S. regulatory agency risk-based capital regulations that are based on the Basel Committee Capital Accord of the Basel Committee on Banking Supervision. The Company must calculate regulatory capital under the Basel III market risk capital rule, which requires banking organizations with significant trading activities to adjust their capital requirements to reflect the market risks of those activities based on comprehensive and risk sensitive methods and models. The market risk capital rule is intended to cover the risk of loss in value of covered positions due to changes in market conditions.
 
Composition of Material Portfolio of Covered Positions The positions that are “covered” by the market risk capital rule are generally a subset of our trading assets, and tradingderivative assets and liabilities, specifically those held by the Company for the purpose of short-term resale or with the intent of benefiting from actual or expected short-term price movements, or to lock in arbitrage profits. Positions excluded from market risk regulatory capital treatment are subject to the credit risk capital rules applicable to the “non-covered” trading positions.
The material portfolio of the Company’s “covered” positions is predominantlymostly concentrated in the trading assets, and tradingderivative assets and liabilities managed within Wholesale Banking where the substantial portion of market risk capital resides. Wholesale Banking engages in the fixed income, traded credit, foreign exchange, equities, and commodities markets businesses. Other business segments hold smaller trading positions covered under the market risk capital rule.

Regulatory Market Risk Capital Components  The capital required for market risk on the Company’s “covered” positions is
determined by internally developed models or standardized specific risk charges. The market risk regulatory capital models are subject to internal model risk management and validation. The models are continuously monitored and enhanced in response to changes in market conditions, improvements in system capabilities, and changes in the Company’s market risk exposure. The Company is required to obtain and has received prior written approval from its regulators before using its internally developed models to calculate the market risk capital charge.
Basel III prescribes various VaR measures in the determination of regulatory capital and RWAs. The Company uses the same VaR models for both market risk management purposes as well as regulatory capital calculations. For regulatory purposes, we use the following metrics to determine the Company’s market risk capital requirements:
 
General VaR measures the risk of broad market movements such as changes in the level of credit spreads, interest rates, equity prices, commodity prices, and foreign exchange rates. General VaR uses historical simulation analysis based on 99% confidence level and a 10-day holding period.
Asset/Liability Management (continued)

Table 34 shows the General VaR measure categorized by major risk categories. Average 10-day Company Regulatory General VaR was $13$26 million for the quarter ended September 30, 2016,March 31, 2017, compared with $27$29 million for the quarter ended June 30,
December 31, 2016. The decrease was primarily driven by changes in portfolio composition.

Table 34: Regulatory 10-Day 99% General VaR by Risk Category
  Quarter ended   Quarter ended 
September 30, 2016  June 30, 2016 March 31, 2017  December 31, 2016 
(in millions)
Period
end

 Average
 Low
 High
 
Period
end

 Average
 Low
 High
Period
end

 Average
 Low
 High
 
Period
end

 Average
 Low
 High
Wholesale Regulatory General VaR Risk CategoriesWholesale Regulatory General VaR Risk Categories              Wholesale Regulatory General VaR Risk Categories              
Credit$30
 27
 20
 33
 31
 25
 18
 35
$69
 67
 52
 81
 47
 49
 20
 83
Interest rate28
 26
 9
 43
 42
 27
 18
 56
47
 38
 25
 50
 28
 36
 21
 55
Equity (1)4
 2
 0
 5
 6
 4
 1
 8
4
 4
 1
 7
 3
 4
 2
 8
Commodity5
 7
 4
 13
 8
 6
 3
 11
3
 4
 2
 6
 6
 9
 4
 23
Foreign exchange2
 2
 1
 4
 1
 3
 1
 9
7
 6
 4
 10
 3
 4
 1
 25
Diversification benefit (2)(49) (51)     (64) (38)    (103) (94)     (69) (75)    
Wholesale Regulatory General VaR$20
 13
 7
 21
 24
 27
 17
 39
$27
 25
 16
 37
 18
 27
 15
 49
Company Regulatory General VaR20
 13
 6
 24
 21
 27
 16
 41
27
 26
 17
 38
 21
 29
 16
 52
(1)The low in the Wholesale equity risk category was driven by equity option positions that reduced potential trading losses.
(2)The period-end VaR was less than the sum of the VaR components described above, which is due to portfolio diversification. The diversification benefit arises because the risks are not perfectly correlated causing a portfolio of positions to usually be less risky than the sum of the risks of the positions alone. The diversification benefit is not meaningful for low and high metrics since they may occur on different days.

Specific Risk measures the risk of loss that could result from factors other than broad market movements, or name-specific market risk. Specific Risk uses Monte Carlo simulation analysis based on a 99% confidence level and a 10-day holding period.

Total VaR (as presented in Table 35) is composed of General VaR and Specific Risk and uses the previous 12 months of historical market data in compliance with regulatory requirements.

Total Stressed VaR (as presented in Table 35) uses a historical period of significant financial stress over a continuous 12 month period using historically available market data and is composed
of Stressed General VaR and Stressed Specific Risk. Total Stressed VaR uses the same methodology and models as Total VaR. 

Incremental Risk Charge (as presented in Table 35) captures losses due to both issuer default and migration risk at the 99.9% confidence level over the one-year capital horizon under the assumption of constant level of risk or a constant position assumption. The model covers non-securitized credit-sensitive trading products.
The Company calculates Incremental Risk by generating a portfolio loss distribution using Monte Carlo simulation, which

Asset/Liability Management (continued)

assumes numerous scenarios, where an assumption is made that the portfolio’s composition remains constant for a one-year time horizon. Individual issuer credit grade migration and issuer default risk is modeled through generation of the issuer’s credit rating transition based upon statistical modeling. Correlation between credit grade migration and default is captured by a multifactor proprietary model which takes into account industry classifications as well as regional effects. Additionally, the impact of market and issuer specific concentrations is reflected in the modeling framework by assignment of a higher charge for
portfolios that have increasing concentrations in particular issuers or sectors. Lastly, the model captures product basis risk; that is, it reflects the material disparity between a position and its hedge.
Table 35 provides information on Total VaR, Total Stressed VaR and the Incremental Risk Charge results for the quarter ended September 30, 2016. For theMarch 31, 2017. Incremental Risk Charge uses the higher of the quarterly average or the quarter end result. For first quarter 2017, the required capital for market risk at quarter end equals the average forof the first quarter.


Table 35: Market Risk Regulatory Capital Modeled Components
Quarter ended September 30, 2016  September 30, 2016 Quarter ended March 31, 2017  March 31, 2017 
(in millions)Average
 Low
 High
 Period end
 Risk-
based
capital (1)
 Risk-
weighted
assets (1)
Average
 Low
 High
 Period end
 Risk-
based
capital (1)
 Risk-
weighted
assets (1)
Total VaR$97
 68
 116
 100
 292
 3,653
$71
 65
 76
 65
 214
 2,680
Total Stressed VaR329
 231
 459
 411
 988
 12,347
353
 293
 400
 400
 1,058
 13,224
Incremental Risk Charge259
 213
 308
 238
 259
 3,238
177
 141
 214
 163
 177
 2,212
(1)Results represent the risk-based capital and RWAs based on the VaR and Incremental Risk Charge models.

Securitized Products Charge Basel III requires a separate market risk capital charge for positions classified as a securitization or re-securitization. The primary criteria for classification as a securitization are whether there is a transfer of risk and whether the credit risk associated with the underlying exposures has been separated into at least two tranches reflecting different levels of
seniority. Covered trading securitizations positions include consumer and commercial asset-backed securities (ABS), commercial mortgage-backed securities (CMBS), residential mortgage-backed securities (RMBS), and collateralized loan and other debt obligations (CLO/CDO) positions. The securitization capital requirements are the greater of the capital requirements

of the net long or short exposure, and are capped at the maximum loss that could be incurred on any given transaction.
Table 36 shows the aggregate net fair market value of securities and derivative securitization positions by exposure type that meet the regulatory definition of a covered trading securitization position at September 30, 2016,March 31, 2017, and December 31, 2015.2016.
Table 36: Covered Securitization Positions by Exposure Type (Net Market Value)
(in millions)ABS
 CMBS
 RMBS
 CLO/CDO
September 30, 2016       
Securitization exposure:       
Securities$957
 411
 740
 613
Derivatives4
 6
 1
 (10)
Total$961
 417
 741
 603
December 31, 2015       
Securitization exposure:       
Securities$962
 402
 571
 667
Derivatives15
 6
 2
 (21)
Total$977
 408
 573
 646
(in millions)ABS
 CMBS
 RMBS
 CLO/CDO
March 31, 2017       
Securitization exposure:       
Securities$645
 277
 468
 809
Derivatives3
 3
 1
 (5)
Total$648
 280
 469
 804
December 31, 2016       
Securitization exposure:       
Securities$801
 397
 911
 791
Derivatives3
 4
 1
 (8)
Total$804
 401
 912
 783
Securitization Due Diligence and Risk Monitoring The market risk capital rule requires that the Company conduct due diligence on the risk of each securitization position within three days of the purchase of a securitization position.its purchase. The Company’s due diligence seeks to provide an understanding of the features that would materially affect the performance of a securitization or re-securitization. The due diligence analysis is re-performed on a quarterly basis for each
securitization and re-securitization position. The Company uses an automated solution to track the due diligence associated with securitization activity. The Company aims to manage the risks associated with securitization and re-securitization positions through the use of offsetting positions and portfolio diversification.

Standardized Specific Risk Charge For debt and equity positions that are not evaluated by the approved internal specific risk models, a regulatory prescribed standard specific risk charge is applied. The standard specific risk add-on for sovereign entities, public sector entities, and depository institutions is based on the Organization for Economic Co-operation and Development (OECD) country risk classifications (CRC) and the remaining contractual maturity of the position. These risk add-ons for debt positions range from 0.25% to 12%. The add-on for corporate debt is based on creditworthiness and the remaining contractual maturity of the position. All other types of debt positions are subject to an 8% add-on. The standard specific risk add-on for equity positions is generally 8%.
 
Comprehensive Risk Charge / Correlation Trading The market risk capital rule requires capital for correlation trading positions. The Company's remaining correlation trading exposure covered under the market risk capital rule matured in fourth quarter 2014.
Table 37 summarizes the market risk-based capital requirements charge and market RWAs in accordance with the Basel III market risk capital rule as of September 30, 2016,March 31, 2017, and December 31, 2015.2016. The market RWAs are calculated as the sum of the components in the table below.



Table 37: Market Risk Regulatory Capital and RWAs
September 30, 2016  December 31, 2015 March 31, 2017  December 31, 2016 
(in millions)
Risk-
based
capital

 
Risk-
weighted
assets

 
Risk-
based
capital

 
Risk-
weighted
assets

Risk-
based
capital

 
Risk-
weighted
assets

 
Risk-
based
capital

 
Risk-
weighted
assets

Total VaR$292
 3,653
 188
 2,350
$214
 2,680
 247
 3,091
Total Stressed VaR988
 12,347
 773
 9,661
1,058
 13,224
 1,135
 14,183
Incremental Risk Charge259
 3,238
 309
 3,864
177
 2,212
 217
 2,710
Securitized Products Charge615
 7,683
 616
 7,695
569
 7,116
 561
 7,007
Standardized Specific Risk Charge1,357
 16,963
 1,048
 13,097
1,329
 16,615
 1,357
 16,962
De minimis Charges (positions not included in models)93
 1,170
 19
 243
74
 912
 11
 147
Total$3,604
 45,054
 2,953
 36,910
$3,421
 42,759
 3,528
 44,100

Asset/Liability Management (continued)

RWA Rollforward Table 38 depicts the changes in the market risk regulatory capital and RWAs under Basel III for the first nine months and third quarter of2016.2017.
Table 38: Analysis of Changes in Market Risk Regulatory Capital and RWAs
(in millions)
Risk-
based
capital

 
Risk-
weighted
assets

Risk-
based
capital

 
Risk-
weighted
assets

Balance, December 31, 2015$2,953
 36,910
Balance, December 31, 2016$3,528
 44,100
Total VaR104
 1,302
(33) (411)
Total Stressed VaR215
 2,686
(77) (959)
Incremental Risk Charge(50) (626)(40) (498)
Securitized Products Charge(1) (12)9
 109
Standardized Specific Risk Charge309
 3,866
(28) (346)
De minimis Charges74
 928
62
 764
Balance, September 30, 2016$3,604
 45,054
   
Balance, June 30, 2016$2,817
 35,207
Total VaR96
 1,198
Total Stressed VaR301
 3,761
Incremental Risk Charge(17) (212)
Securitized Products Charge166
 2,081
Standardized Specific Risk Charge155
 1,936
De minimis Charges86
 1,083
Balance, September 30, 2016$3,604
 45,054
Balance, March 31, 2017$3,421
 42,759

The largest contributor to the changes to market risk regulatory capital and RWAs in thirdfirst quarter and first nine months of 2016 were2017 was associated with changes in positions due to normal trading activity. RWAs in third quarter 2016 primarily increased from an increase in index trading.

VaR Backtesting The market risk capital rule requires backtesting as one form of validation of the VaR model. Backtesting is a comparison of the daily VaR estimate with the actual clean profit and loss (clean P&L) as defined by the market risk capital rule. Clean P&L is the change in the value of the Company’s covered trading positions that would have occurred had previous end-of-day covered trading positions remained
unchanged (therefore, excluding fees, commissions, net interest income, and intraday trading gains and losses). The backtesting analysis compares the daily Total VaR for each of the trading days in the preceding 12 months with the net clean P&L. Clean P&L does not include credit adjustments and other activity not representative of daily price changes driven by market risk factors. The clean P&L measure of revenue is used to evaluate the performance of the Total VaR and is not comparable to our actual daily trading net revenues, as reported elsewhere in this Report.
Any observed clean P&L loss in excess of the Total VaR is considered a market risk regulatory capital backtesting exception. The actual number of exceptions (that is, the number of business days for which the clean P&L losses exceed the corresponding 1-day, 99% Total VaR measure) over the preceding 12 months is used to determine the capital multiplier for the capital calculation. The number of actual backtesting exceptions is dependent on current market performance relative to historic market volatility in addition to model performance and assumptions. This capital multiplier increases from a minimum of three to a maximum of four, depending on the number of exceptions. No backtesting exceptions occurred over the preceding 12 months. Backtesting is also performed at granularline of business levels within the Company.
Table 39 shows daily Total VaR (1-day, 99%) used for regulatory market risk capital backtesting for the 12 months ended September 30, 2016.March 31, 2017. The Company’s average Total VaR for thirdfirst quarter 20162017 was $32$35 million with a low of $23$33 million and a high of $38$36 million. The increase in Total 1-day VaR isin third quarter 2016 was attributable to indexequity trading activity.


Asset/Liability Management (continued)

Table 39: Daily Total 1-Day 99% VaR Measure (Rolling 12 Months)
table39dailyvarmeasure.jpgmktriskcharta02.jpg

Market Risk Governance, Measurement, Monitoring and Model Risk Management We employ a well-defined and structured market risk governance process and market risk measurement process, which incorporates value-at-risk (VaR) measurements combined with sensitivity analysis and stress testing to help us monitor our market risk. These monitoring measurements require the use of market risk models, which we govern by our Corporate Model Risk policies and procedures. For more information on our governance, measurement, monitoring, and model risk management practices, see the "Risk Management – Asset/Liability Management – Market Risk – Trading Activities" section in our 20152016 Form 10-K.

MARKET RISK – EQUITY INVESTMENTS We are directly and indirectly affected by changes in the equity markets. We make and manage direct equity investments in start-up businesses, emerging growth companies, management buy-outs, acquisitions and corporate recapitalizations. We also invest in non-affiliated funds that make similar private equity investments. These private equity investments are made within capital allocations approved by management and the Board. The Board’s policy is to review business developments, key risks and historical returns for the private equity investment portfolio at least annually. Management reviews these investments at least quarterly and assesses them for possible OTTI. For nonmarketable investments, the analysis is based on facts and circumstances of each individual investment and the expectations for that investment’s cash flows and capital needs, the viability of its business model and our exit strategy. Nonmarketable investments include private equity investments accounted for under the cost method, equity method and fair value option.
In conjunction with the March 2008 initial public offering (IPO) of Visa, Inc. (Visa), we received approximately 20.7 million shares of Visa Class B common stock, the class which was apportioned to member banks of Visa at the time of the IPO. To manage our exposure to Visa and realize the value of the appreciated Visa shares, we incrementally sold these shares
 

through a series of sales over the past few years, thereby eliminating this position as of September 30, 2015. As part of these sales, we agreed to compensate the buyer for any additional contributions to a litigation settlement fund for the litigation matters associated with the Class B shares we sold. Our exposure to this retained litigation risk has been updated quarterly and is reflected on our balance sheet. For additional information about the associated litigation matters, see the "Interchange Litigation" section in Note 15 (Legal Actions) to Financial Statements in the 2015our 2016 Form 10-K as supplemented by Note 11 (Legal Actions) to Financial Statements in our 20162017 Quarterly Reports on Form
Form 10-Q.
As part of our business to support our customers, we trade public equities, listed/OTC equity derivatives and convertible bonds. We have parameters that govern these activities. We also have marketable equity securities in the available-for-sale securities portfolio, including securities relating to our venture capital activities. We manage these investments within capital risk limits approved by management and the Board and monitored by Corporate ALCO and the Corporate Market Risk Committee. Gains and losses on these securities are recognized in net income when realized and periodically include OTTI charges.
Changes in equity market prices may also indirectly affect our net income by (1) the value of third party assets under management and, hence, fee income, (2) borrowers whose ability to repay principal and/or interest may be affected by the stock market, or (3) brokerage activity, related commission income and other business activities. Each business line monitors and manages these indirect risks.
Table 40 provides information regarding our marketable and nonmarketable equity investments as of September 30, 2016,March 31, 2017, and December 31, 2015.2016.

Asset/Liability Management (continued)

Table 40: Nonmarketable and Marketable Equity Investments
(in millions)Sep 30,
2016
 Dec 31,
2015
Mar 31,
2017
 Dec 31,
2016
Nonmarketable equity investments:      
Cost method:      
Federal bank stock$6,072
 4,814
$6,185
 6,407
Private equity1,459
 1,626
1,484
 1,465
Auction rate securities546
 595
453
 525
Total cost method8,077
 7,035
8,122
 8,397
Equity method:      
LIHTC (1)9,228
 8,314
9,624
 9,714
Private equity3,674
 3,300
3,620
 3,635
Tax-advantaged renewable energy1,599
 1,625
2,013
 2,054
New market tax credit and other312
 408
277
 305
Total equity method14,813
 13,647
15,534
 15,708
Fair value (2)3,441
 3,065
3,780
 3,275
Total nonmarketable equity investments (3)$26,331
 23,747
$27,436
 27,380
Marketable equity securities:      
Cost$751
 1,058
$675
 706
Net unrealized gains482
 579
450
 505
Total marketable equity securities (4)$1,233
 1,637
$1,125
 1,211
(1)Represents low income housing tax credit investments.
(2)Represents nonmarketable equity investments for which we have elected the fair value option. See Note 6 (Other Assets) and Note 13 (Fair Values of Assets and Liabilities) to Financial Statements in this Report for additional information.
(3)Included in other assets on the balance sheet. See Note 6 (Other Assets) to Financial Statements in this Report for additional information.
(4)Included in available-for-sale securities. See Note 4 (Investment Securities) to Financial Statements in this Report for additional information.

LIQUIDITY AND FUNDING The objective of effective liquidity management is to ensure that we can meet customer loan requests, customer deposit maturities/withdrawals and other cash commitments efficiently under both normal operating conditions and under periods of Wells Fargo-specific and/or market stress. To achieve this objective, the Board of Directors establishes liquidity guidelines that require sufficient asset-based liquidity to cover potential funding requirements and to avoid over-dependence on volatile, less reliable funding markets. These guidelines are monitored on a monthly basis by the Corporate ALCO and on a quarterly basis by the Board of Directors. These guidelines are established and monitored for both the consolidated company and for the Parent on a stand-alone basis to ensure that the Parent is a source of strength for its regulated, deposit-taking banking subsidiaries.
 

Liquidity Standards On September 3, 2014, the FRB, OCC and FDIC issued a final rule that implements a quantitative liquidity requirement consistent with the liquidity coverage ratio (LCR) established by the Basel Committee on Banking Supervision (BCBS). The rule requires banking institutions, such as Wells Fargo, to hold high-quality liquid assets, such as central bank reserves and government and corporate debt that can be converted easily and quickly into cash, in an amount equal to or greater than its projected net cash outflows during a 30-day stress period. A minimum LCR of 90 percent was required as of January 1, 2016, and will increase to 100 percent on January 1, 2017. These minimum requirements areThe rule is applicable to the Company on a consolidated basis and to our insured depository institutions with total assets greater than $10 billion. In addition, the FRB finalized rules imposing enhanced liquidity management standards on large bank holding companies (BHC) such as Wells Fargo, and has proposedfinalized a rule that would requirerequires large bank holding companies to publicly disclose on a quarterly basis beginning April 1, 2017, certain quantitative and qualitative information regarding their LCR calculations.
The FRB, OCC and FDIC recentlyhave proposed a rule that would implement a stable funding requirement, the net stable funding ratio (NSFR), which would require large banking organizations, such as Wells Fargo, to maintain a sufficient amount of stable funding in relation to their assets, derivative exposures and commitments over a one-year horizon period. As proposed, the rule would become effective on January 1, 2018.

Liquidity Sources We maintain liquidity in the form of cash, cash equivalents and unencumbered high-quality, liquid securities. These assets make up our primary sources of liquidity which are presented in Table 41. Our cash is predominantly on deposit with the Federal Reserve. Securities included as part of our primary sources of liquidity are comprised of U.S. Treasury and federal agency debt, and mortgage-backed securities issued by federal agencies within our investment securities portfolio. We believe these securities provide quick sources of liquidity through sales or by pledging to obtain financing, regardless of market conditions. Some of these securities are within the held-to-maturity portion of our investment securities portfolio and as such are not intended for sale but may be pledged to obtain financing. Some of the legal entities within our consolidated group of companies are subject to various regulatory, tax, legal and other restrictions that can limit the transferability of their funds. We believe we maintain adequate liquidity for these entities in consideration of such funds transfer restrictions.

Table 41: Primary Sources of Liquidity
September 30, 2016  December 31, 2015 March 31, 2017  December 31, 2016 
(in millions)Total
 Encumbered
 Unencumbered
 Total
 Encumbered
 Unencumbered
Total
 Encumbered
 Unencumbered
 Total
 Encumbered
 Unencumbered
Interest-earning deposits$224,438
 —
 224,438
 $220,409
 —
 220,409
$227,635
 —
 227,635
 $200,671
 —
 200,671
Securities of U.S. Treasury and federal agencies73,267
 5,193
 68,074
 81,417
 6,462
 74,955
69,779
 1,067
 68,712
 70,898
 1,160
 69,738
Mortgage-backed securities of federal agencies (1)184,363
 65,582
 118,781
 132,967
 74,778
 58,189
209,848
 43,957
 165,891
 205,655
 52,672
 152,983
Total$482,068
 70,775
 411,293
 $434,793
 81,240
 353,553
$507,262
 45,024
 462,238
 $477,224
 53,832
 423,392
(1)
Included in encumbered securities at September 30, 2016March 31, 2017, were securities with a fair value of $9.4 billion814 million which were purchased in September 2016,March 2017, but settled in October 2016.April 2017.

In addition to our primary sources of liquidity shown in Table 41, liquidity is also available through the sale or financing of other securities including trading and/or available-for-sale securities, as well as through the sale, securitization or financing of loans, to the extent such securities and loans are not
encumbered. In addition, other securities in our held-to-maturity
portfolio, to the extent not encumbered, may be pledged to obtain financing.
Deposits have historically provided a sizeable source of relatively low-cost funds. Deposits were 133%138% of total loans at March 31, 2017 and 135% at December 31, 2016. Additional

Asset/Liability Management (continued)

both September 30, 2016 and December 31, 2015. Additional funding is provided by long-term debt and short-term borrowings.
Table 42 shows selected information for short-term borrowings, which generally mature in less than 30 days.

Table 42: Short-Term Borrowings
Quarter ended Quarter ended 
(in millions)Sep 30
2016
 Jun 30,
2016
 Mar 31,
2016
 Dec 31,
2015
 Sep 30,
2015
Mar 31
2017
 Dec 31,
2016
 Sep 30,
2016
 Jun 30,
2016
 Mar 31,
2016
Balance, period end                  
Federal funds purchased and securities sold under agreements to repurchase$108,468
 104,812
 92,875
 82,948
 74,652
$76,366
 78,124
 108,468
 104,812
 92,875
Commercial paper123
 154
 519
 334
 393
10
 120
 123
 154
 519
Other short-term borrowings16,077
 15,292
 14,309
 14,246
 13,024
18,495
 18,537
 16,077
 15,292
 14,309
Total$124,668
 120,258
 107,703
 97,528
 88,069
$94,871
 96,781
 124,668
 120,258
 107,703
Average daily balance for period                  
Federal funds purchased and securities sold under agreements to repurchase$101,252
 97,702
 93,502
 88,949
 79,445
$79,942
 107,271
 101,252
 97,702
 93,502
Commercial paper137
 326
 442
 414
 484
51
 121
 137
 326
 442
Other short-term borrowings14,839
 13,820
 13,913
 13,552
 10,428
18,556
 17,306
 14,839
 13,820
 13,913
Total$116,228
 111,848
 107,857
 102,915
 90,357
$98,549
 124,698
 116,228
 111,848
 107,857
Maximum month-end balance for period                  
Federal funds purchased and securities sold under agreements to repurchase (1)$108,468
 104,812
 98,718
 89,800
 80,961
$81,284
 109,645
 108,468
 104,812
 98,718
Commercial paper (2)138
 451
 519
 461
 510
78
 121
 138
 451
 519
Other short-term borrowings (3)16,077
 15,292
 14,593
 14,246
 13,024
19,439
 18,537
 16,077
 15,292
 14,593
(1)
Highest month-end balance in each of the last five quarters was in SeptemberFebruary 2017, October, September, June and February 2016, and October and August 2015.2016.
(2)
Highest month-end balance in each of the last five quarters was in JulyJanuary 2017, November, July, April and March 2016, and November and July 2015.2016.
(3)
Highest month-end balance in each of the last five quarters was in SeptemberFebruary 2017, December, September, June and February 2016, and December and September 2015.2016.
We access domestic and international capital markets for long-term funding (generally greater than one year) through issuances of registered debt securities, private placements and asset-backed secured funding.

Long-Term Debt We issue long-term debt in a variety of maturities and currencies to achieve cost-efficient funding and to
maintain an appropriate maturity profile. Long-term debt of $254.8$256.5 billion at September 30, 2016,March 31, 2017, increased $55.3$1.4 billion from December 31, 2015, including $24.4 billion in Parent
issuances that are anticipated to be TLAC eligible.2016. We issued $19.7$13.2 billion of long-term debt in thirdfirst quarter 2016, including $9.2 billion that we anticipate will be TLAC eligible. For more information regarding TLAC, see the "Capital Management – Other Regulatory Capital Matters" section in this Report.2017. Table 43 provides the aggregate carrying value of long-term debt maturities (based on contractual payment dates) for the remainder of 20162017 and the following years thereafter, as of September 30, 2016.March 31, 2017.

Table 43: Maturity of Long-Term Debt
September 30, 2016 March 31, 2017 
(in millions)Remaining 2016
 2017
 2018
 2019
 2020
 Thereafter
 Total
Remaining 2017
 2018
 2019
 2020
 2021
 Thereafter
 Total
Wells Fargo & Company (Parent Only)                          
Senior notes$4,049
 13,127
 7,916
 6,555
 13,351
 62,977
 107,975
$11,753
 8,037
 6,566
 13,036
 17,603
 57,540
 114,535
Subordinated notes1,657
 —
 588
 —
 —
 26,807
 29,052
—
 556
 —
 —
 —
 26,049
 26,605
Junior subordinated notes—
 —
 —
 —
 —
 1,817
 1,817
—
 —
 —
 —
 —
 1,640
 1,640
Total long-term debt - Parent$5,706
 13,127
 8,504
 6,555
 13,351
 91,601
 138,844
$11,753
 8,593
 6,566
 13,036
 17,603
 85,229
 142,780
Wells Fargo Bank, N.A. and other bank entities (Bank)                          
Senior notes$4,146
 9,436
 28,955
 22,189
 11,011
 8,181
 83,918
$9,328
 26,156
 30,881
 11,010
 10,237
 165
 87,777
Subordinated notes—
 1,339
 —
 —
 —
 5,741
 7,080
1,337
 —
 —
 —
 —
 5,328
 6,665
Junior subordinated notes—
 —
 —
 —
 —
 330
 330
—
 —
 —
 —
 —
 335
 335
Securitizations and other bank debt1,490
 4,266
 2,010
 612
 572
 10,991
 19,941
3,991
 1,604
 558
 473
 126
 8,673
 15,425
Total long-term debt - Bank$5,636
 15,041
 30,965
 22,801
 11,583
 25,243
 111,269
$14,656
 27,760
 31,439
 11,483
 10,363
 14,501
 110,202
Other consolidated subsidiaries                          
Senior notes$—
 1,142
 778
 1,161
 —
 1,412
 4,493
$—
 761
 1,136
 —
 972
 389
 3,258
Junior subordinated notes—
 —
 —
 —
 —
 155
 155
—
 —
 —
 —
 —
 155
 155
Securitizations and other bank debt—
 1
 73
 —
 —
 —
 74
—
 73
 —
 —
 —
 —
 73
Total long-term debt - Other consolidated subsidiaries$—
 1,143
 851
 1,161
 —
 1,567
 4,722
$—
 834
 1,136
 —
 972
 544
 3,486
Total long-term debt$11,342
 29,311
 40,320
 30,517
 24,934
 118,411
 254,835
$26,409
 37,187
 39,141
 24,519
 28,938
 100,274
 256,468
Asset/Liability Management (continued)

Parent Under SEC rules, our Parent is classified as a “well-known seasoned issuer,” which allows it to file a registration statement that does not have a limit on issuance capacity. In May 2014,February 2017, the Parent filed a registration statement with the SEC for the issuance of senior and subordinated notes, preferred stock and other securities.The Parent’s ability to issue debt and other securities under this registration statement is limited by the debt issuance authority granted by the Board. As of September 30, 2016,March 31, 2017, the Parent was authorized by the Board to issue $60$50 billion in outstanding short-term debt and $170$180 billion in outstanding long-term debt. At September 30, 2016, the Parent had available $40.5 billion in short-term debt issuance authority and $29.5 billion in long-term debt issuance authority. In October 2016, the Board decreased theThe Parent’s short-term debt issuance authority from $60 billiongranted by the Board is limited to $50 billion and increaseddebt issued to affiliates, while the Parent’s long-term debt issuance authority from $170 billion to $180 billion. The Parent’s debt issuance authority granted by the Board includes short-term and long-term debt issued to affiliates.affiliates and others. At March 31, 2017, the Parent had available $30.7 billion in short-term debt issuance authority and $29.6 billion in long-term debt issuance authority. During the first nine months of 2016,quarter 2017, the Parent issued $23.9$10.2 billion of senior notes, of which $15.8$7.2 billion were registered with the SEC. The Parent issued $2.0 billion of subordinated notes during the first nine months of 2016, all of which were registered with the SEC. In addition,Additionally, in October 2016,April 2017, the Parent issued $6.3$1.8 billion of senior notes, all of which $1.7 billion were registered with the SEC.
The Parent’s proceeds from securities issued were used for general corporate purposes, and, unless otherwise specified in the applicable prospectus or prospectus supplement, we expect the proceeds from securities issued in the future will be used for the same purposes. Depending on market conditions, we may purchase our outstanding debt securities from time to time in privately negotiated or open market transactions, by tender offer, or otherwise.

Wells Fargo Bank, N.A. As of March 31, 2017, Wells Fargo Bank, N.A. iswas authorized by its board of directors to issue $100 billion in outstanding short-term debt and $125 billion in outstanding long-term debt. At September 30, 2016, Wells Fargo Bank, N.A.debt and had available $100$99.7 billion in short-term debt issuance authority and $34.5$30.6 billion in long-term debt issuance authority. In April 2017, the board of directors of Wells Fargo Bank, N.A. increased the authorized amount of long-term debt that can be outstanding from $125 billion to $175 billion. In April 2015, Wells Fargo Bank, N.A. established a $100 billion bank note program under which, subject to any other debt outstanding under the limits described above, it may issue $50 billion in outstanding short-term senior notes and $50
billion in outstanding long-term senior or subordinated notes. At September 30, 2016,March 31, 2017, Wells Fargo Bank, N.A. had remaining
issuance capacity under the bank note program of $50.0 billion in short-term senior notes and $41.0$36.0 billion in long-term senior or subordinated notes. During the first nine monthsquarter of 2016,2017, Wells Fargo Bank, N.A. issued $10.0 billion$530 million of unregistered senior notes, none of which $9.0 billion were issued under the bank note program. In addition, during the first nine monthsquarter of 2016,2017, Wells Fargo Bank, N.A. executed advances of $31.6$2.5 billion with the Federal Home Loan Bank of Des Moines, and as of September 30, 2016,March 31, 2017, Wells Fargo Bank, N.A. had outstanding advances of $68.7$71.6 billion across the Federal Home Loan Bank System. In addition, in April 2017, Wells Fargo Bank, N.A. executed $6.0 billion of Federal Home Loan Bank advances.

Credit Ratings Investors in the long-term capital markets, as well as other market participants, generally will consider, among other factors, a company’s debt rating in making investment decisions. Rating agencies base their ratings on many quantitative and qualitative factors, including capital adequacy, liquidity, asset quality, business mix, the level and quality of earnings, and rating agency assumptions regarding the probability and extent of federal financial assistance or support for certain large financial institutions. Adverse changes in these factors could result in a reduction of our credit rating; however, our debt securities do not contain credit rating covenants.
On October 4, 2016, Fitch Ratings ("Fitch") affirmed the Company's ratings and revisedThere were no significant actions undertaken by any of the rating outlookagencies with regard to negative from stable. Fitch noted that the outlook was revised given the uncertain impact to the Company's franchise following the regulatory settlements regarding sales practices in the retail bank. On October 18, 2016, Standard and Poor's (S&P) also affirmed the Company'sour ratings and revised the rating outlook to negative from stable, noting similar concerns.during first quarter 2017. Both the Parent and Wells Fargo Bank, N.A. remain among the top-rated financial firms in the U.S.
See the “Risk Management – Asset/Liability Management” section in this Report and the "Risk Factors" section in our 20152016 Form 10-K for additional information regarding our credit ratings and the potential impact a credit rating downgrade would have on our liquidity and operations, as well as Note 12 (Derivatives) to Financial Statements in this Report for information regarding additional collateral and funding obligations required for certain derivative instruments in the event our credit ratings were to fall below investment grade.
The credit ratings of the Parent and Wells Fargo Bank, N.A. as of September 30, 2016,March 31, 2017, are presented in Table 44.

Table 44: Credit Ratings as of September 30, 2016March 31, 2017
 Wells Fargo & Company Wells Fargo Bank, N.A.
 Senior debt 
Short-term
borrowings 
 
Long-term
deposits 
 
Short-term
borrowings 
Moody's A2  P-1  Aa1  P-1
S&P A  A-1  AA-  A-1+
Fitch Ratings, Inc. AA-  F1+  AA+  F1+
DBRS AA  R-1*  AA**  R-1**
* middle ** high       
FEDERAL HOME LOAN BANK MEMBERSHIP The Federal Home Loan Banks (the FHLBs) are a group of cooperatives that lending institutions use to finance housing and economic development in local communities. We are a member of the FHLBs based in Dallas, Des Moines and San Francisco. Each member of the FHLBs is required to maintain a minimum
investment in capital stock of the applicable FHLB. The board of directors of each FHLB can increase the minimum investment requirements in the event it has concluded that additional capital is required to allow it to meet its own regulatory capital
requirements. Any increase in the minimum investment requirements outside of specified ranges requires the approval of

Asset/Liability Management (continued)

the Federal Housing Finance Board. Because the extent of any obligation to increase our investment in any of the FHLBs depends entirely upon the occurrence of a future event, potential future payments to the FHLBs are not determinable.



Capital Management

We have an active program for managing capital through a comprehensive process for assessing the Company’s overall capital adequacy. Our objective is to maintain capital at an amount commensurate with our risk profile and risk tolerance objectives, and to meet both regulatory and market expectations. We primarily fund our capital needs through the retention of earnings net of both dividends and share repurchases, as well as through the issuance of preferred stock and long and short-term debt. Retained earnings increased $9.4$3.0 billion from December 31, 2015,2016, predominantly from Wells Fargo net income of $16.7$5.5 billion, less common and preferred stock dividends of $7.0$2.3 billion. During thirdfirst quarter 2016,2017, we issued 13.733.7 million shares of common stock, andstock. In addition, in April 2017, we issued approximately 28 million Depositary Shares, each representing a 1/1,000th interest in a share of the Company’s newly issued Non-Cumulative Perpetual Class A Preferred Stock, Series Y, for an aggregate public offering price of approximately $700 million. During first quarter 2017, we repurchased 38.353.1 million shares of common stock in open market transactions, private transactions and from employee benefit plans, at a cost of $1.8$2.9 billion. We also entered into a $750 million forward repurchase contract with an unrelated third party in October 2016April 2017 that is expected to settle in firstthird quarter 2017 for approximately 1714 million shares. For additional information about our forward repurchase agreements, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report.
 
Regulatory Capital Guidelines
The Company and each of our insured depository institutions are subject to various regulatory capital adequacy requirements administered by the FRB and the OCC. Risk-based capital (RBC) guidelines establish a risk-adjusted ratio relating capital to different categories of assets and off-balance sheet exposures as discussed below.

RISK-BASED CAPITAL AND RISK-WEIGHTED ASSETS The Company is subject to final and interim final rules issued by federal banking regulators to implement Basel III capital requirements for U.S. banking organizations. These rules are based on international guidelines for determining regulatory capital issued by the Basel Committee on Banking Supervision (BCBS). The federal banking regulators’ capital rules, among other things, require on a fully phased-in basis:
a minimum Common Equity Tier 1 (CET1) ratio of 9.0%, comprised of a 4.5% minimum requirement plus a capital conservation buffer of 2.5% and for us, as a global systemically important bank (G-SIB), a capital surcharge to be calculated annually, which is 2.0% based on our year-end 20142015 data;
a minimum tier 1 capital ratio of 10.5%, comprised of a 6.0% minimum requirement plus the capital conservation buffer of 2.5% and the G-SIB capital surcharge of 2.0%;
a minimum total capital ratio of 12.5%, comprised of a 8.0% minimum requirement plus the capital conservation buffer of 2.5% and the G-SIB capital surcharge of 2.0%;
a potential countercyclical buffer of up to 2.5% to be added to the minimum capital ratios, which is currently not in effect but could be imposed by regulators at their discretion if it is determined that a period of excessive credit growth is contributing to an increase in systemic risk;
a minimum tier 1 leverage ratio of 4.0%; and
a minimum supplementary leverage ratio (SLR) of 5.0% (comprised of a 3.0% minimum requirement plus a supplementary leverage buffer of 2.0%) for large and internationally active bank holding companies (BHCs).

We were required to comply with the final Basel III capital rules beginning January 2014, with certain provisions subject to phase-in periods. The Basel III capital rules are scheduled to be fully phased in by the end of 2021. The Basel III capital rules contain two frameworks for calculating capital requirements, a Standardized Approach, which replaced Basel I, and an Advanced Approach applicable to certain institutions, including Wells Fargo. Accordingly, in the assessment of our capital adequacy, we must report the lower of our CET1, tier 1 and total capital ratios calculated under the Standardized Approach and under the Advanced Approach.
Because the Company has been designated as a G-SIB, we will also be subject to the FRB’s rule implementing the additional capital surcharge of between 1.0-4.5% on G-SIBs. Under the rule, we must annually calculate our surcharge under two methods and use the higher of the two surcharges. The first method (method one) will consider our size, interconnectedness, cross-jurisdictional activity, substitutability, and complexity, consistent with a methodology developed by the BCBS and the Financial Stability Board (FSB). The second (method two) will use similar inputs, but will replace substitutability with use of short-term wholesale funding and will generally result in higher surcharges than the BCBS methodology. The phase-in period for the G-SIB surcharge began on January 1, 2016 and will become fully effective on January 1, 2019. Based on year-end 20142015 data, our 20162017 G-SIB surcharge under method two is 2.0% of the Company’s RWAs, which is the higher of method one and method two. Because the G-SIB surcharge is calculated annually based on data that can differ over time, the amount of the surcharge is subject to change in future years. Under the Standardized Approach (fully phased-in), our CET1 ratio of 10.71%11.23% exceeded the minimum of 9.0% by 171223 basis points at September 30, 2016.March 31, 2017.


The tables that follow provide information about our risk- based capital and related ratios as calculated under Basel III capital guidelines. For banking industry regulatory reporting purposes, we report our capital in accordance with Transition Requirements but are managing our capital based on a fully phased-in calculation. For information about our capital requirements calculated in accordance with Transition Requirements, see Note 19 (Regulatory and Agency Capital
Requirements) to Financial Statements in this Report.
Capital Management (continued)

Table 45 summarizes our CET1, tier 1 capital, total capital, risk-weighted assets and capital ratios on a fully phased-in basis at September 30, 2016March 31, 2017 and December 31, 2015.2016. As of September 30, 2016,March 31, 2017, our CET1 and tier 1 capital ratios were lower using RWAs calculated under the Standardized Approach.




Table 45: Capital Components and Ratios (Fully Phased-In) (1)
 September 30, 2016  December 31, 2015   March 31, 2017  December 31, 2016  
(in millions) Advanced Approach
 Standardized Approach
  Advanced Approach
 Standardized Approach
  Advanced Approach
 Standardized Approach
  Advanced Approach
 Standardized Approach
 
Common Equity Tier 1(A)$147,830
 147,830
 142,367
 142,367
 (A)$148,743
 148,743
 146,424
 146,424
 
Tier 1 Capital(B)170,528
 170,528
 162,810
 162,810
 (B)171,446
 171,446
 169,063
 169,063
 
Total Capital(C)199,360
 210,586
 190,374
 200,750
 (C)202,922
 212,811
 200,344
 210,796
 
Risk-Weighted Assets(D)1,332,796
 1,380,006
 1,282,849
 1,321,703
 (D)1,275,820
 1,324,487
 1,298,688
 1,358,933
 
Common Equity Tier 1 Capital Ratio(A)/(D)11.09% 10.71
* 11.10
 10.77
*(A)/(D)11.66% 11.23
* 11.27
 10.77
*
Tier 1 Capital Ratio(B)/(D)12.79
 12.36
* 12.69
 12.32
*(B)/(D)13.44
 12.94
* 13.02
 12.44
*
Total Capital Ratio(C)/(D)14.96
*15.26
 14.84
*15.19
 (C)/(D)15.91
*16.07
 15.43
*15.51
 
*Denotes the lowest capital ratio as determined under the Advanced and Standardized Approaches.
(1)
Fully phased-in regulatory capital amounts, ratios and RWAs are considered non-GAAP financial measures that are used by management, bank regulatory agencies, investors and analysts to assess and monitor the Company’s capital position. See Table 46 for information regarding the calculation and components of CET1, tier 1 capital, total capital and RWAs, as well as the corresponding reconciliation of our regulatory capital amounts to GAAP financial measures.
Capital Management (continued)

Table 46 provides information regarding the calculation and composition of our risk-based capital under the Advanced and Standardized Approaches at September 30, 2016March 31, 2017 and December 31, 2015.2016.



Table 46: Risk-Based Capital Calculation and Components
 September 30, 2016  December 31, 2015  March 31, 2017  December 31, 2016 
(in millions) Advanced Approach
 Standardized Approach
 Advanced Approach
 Standardized Approach
 Advanced Approach
 Standardized Approach
 Advanced Approach
 Standardized Approach
Total equity $203,958
 203,958
 193,891
 193,891
 $202,489
 202,489
 200,497
 200,497
Adjustments:                
Preferred stock (24,594) (24,594) (22,214) (22,214) (25,501) (25,501) (24,551) (24,551)
Additional paid-in capital on ESOP preferred stock (130) (130) (110) (110) (157) (157) (126) (126)
Unearned ESOP shares 1,612
 1,612
 1,362
 1,362
 2,546
 2,546
 1,565
 1,565
Noncontrolling interests (930) (930) (893) (893) (989) (989) (916) (916)
Total common stockholders' equity
179,916
 179,916
 172,036
 172,036

178,388
 178,388
 176,469
 176,469
Adjustments:                
Goodwill (26,688) (26,688) (25,529) (25,529) (26,666) (26,666) (26,693) (26,693)
Certain identifiable intangible assets (other than MSRs) (3,001) (3,001) (3,167) (3,167) (2,449) (2,449) (2,723) (2,723)
Other assets (1) (2,230) (2,230) (2,074) (2,074) (2,121) (2,121) (2,088) (2,088)
Applicable deferred taxes (2) 1,832
 1,832
 2,071
 2,071
 1,698
 1,698
 1,772
 1,772
Investment in certain subsidiaries and other (1,999) (1,999) (970) (970) (107) (107) (313) (313)
Common Equity Tier 1 (Fully Phased-In)
147,830
 147,830
 142,367
 142,367

148,743
 148,743
 146,424
 146,424
Effect of Transition Requirements 1,015
 1,015

1,880
 1,880
 1,117
 1,117

2,361
 2,361
Common Equity Tier 1 (Transition Requirements) $148,845
 148,845
 144,247
 144,247
 $149,860
 149,860
 148,785
 148,785
                
Common Equity Tier 1 (Fully Phased-In) $147,830
 147,830
 142,367
 142,367
 $148,743
 148,743
 146,424
 146,424
Preferred stock 24,594
 24,594
 22,214
 22,214
 25,501
 25,501
 24,551
 24,551
Additional paid-in capital on ESOP preferred stock 130
 130
 110
 110
 157
 157
 126
 126
Unearned ESOP shares (1,612) (1,612) (1,362) (1,362) (2,546) (2,546) (1,565) (1,565)
Other (414) (414) (519) (519) (409) (409) (473) (473)
Total Tier 1 capital (Fully Phased-In)(A)170,528
 170,528
 162,810
 162,810
(A)171,446
 171,446
 169,063
 169,063
Effect of Transition Requirements 963
 963
 1,774
 1,774
 1,097
 1,097
 2,301
 2,301
Total Tier 1 capital (Transition Requirements) $171,491
 171,491
 164,584
 164,584
 $172,543
 172,543
 171,364
 171,364
                
Total Tier 1 capital (Fully Phased-In) $170,528
 170,528
 162,810
 162,810
 $171,446
 171,446
 169,063
 169,063
Long-term debt and other instruments qualifying as Tier 2 27,687
 27,687
 25,818
 25,818
 29,350
 29,350
 29,465
 29,465
Qualifying allowance for credit losses (3) 1,468
 12,694
 2,136
 12,512
 2,398
 12,287
 2,088
 12,540
Other (323) (323) (390) (390) (272) (272) (272) (272)
Total Tier 2 capital (Fully Phased-In)(B)28,832
 40,058
 27,564
 37,940
(B)31,476
 41,365
 31,281
 41,733
Effect of Transition Requirements 1,859
 1,859
 3,005
 3,005
 1,250
 1,250
 1,780
 1,780
Total Tier 2 capital (Transition Requirements) $30,691
 41,917
 30,569
 40,945
 $32,726
 42,615
 33,061
 43,513
                
Total qualifying capital (Fully Phased-In)(A)+(B)$199,360
 210,586
 190,374
 200,750
(A)+(B)$202,922
 212,811
 200,344
 210,796
Total Effect of Transition Requirements 2,822
 2,822
 4,779
 4,779
 2,347
 2,347
 4,081
 4,081
Total qualifying capital (Transition Requirements) $202,182
 213,408
 195,153
 205,529
 $205,269
 215,158
 204,425
 214,877
                
Risk-Weighted Assets (RWAs) (4)(5):                
Credit risk $990,754
 1,334,952
 989,639
 1,284,793
 $934,824
 1,281,728
 960,763
 1,314,833
Market risk 45,054
 45,054
 36,910
 36,910
 42,759
 42,759
 44,100
 44,100
Operational risk 296,988
   N/A
 256,300
  N/A
 298,237
 N/A
 293,825
 N/A
Total RWAs (Fully Phased-In) $1,332,796
 1,380,006
 1,282,849
 1,321,703
 $1,275,820
 1,324,487
 1,298,688
 1,358,933
Credit risk $971,038
 1,316,351
 969,972
 1,266,238
 $909,634
 1,257,964
 936,664
 1,292,098
Market risk 45,054
 45,054
 36,910
 36,910
 42,759
 42,759
 44,100
 44,100
Operational risk 296,988
   N/A
 256,300
  N/A
 298,237
 N/A
 293,825
 N/A
Total RWAs (Transition Requirements) $1,313,080
 1,361,405
 1,263,182
 1,303,148
 $1,250,630
 1,300,723
 1,274,589
 1,336,198
(1)Represents goodwill and other intangibles on nonmarketable equity investments, which are included in other assets.
(2)Applicable deferred taxes relate to goodwill and other intangible assets. They were determined by applying the combined federal statutory rate and composite state income tax rates to the difference between book and tax basis of the respective goodwill and intangible assets at period end.
(3)Under the Advanced Approach the allowance for credit losses that exceeds expected credit losses is eligible for inclusion in Tier 2 Capital, to the extent the excess allowance does not exceed 0.6% of Advanced credit RWAs, and under the Standardized Approach, the allowance for credit losses is includable in Tier 2 Capital up to 1.25% of Standardized credit RWAs, with any excess allowance for credit losses being deducted from total RWAs.
(4)RWAs calculated under the Advanced Approach utilize a risk-sensitive methodology, which relies upon the use of internal credit models based upon our experience with internal rating grades. Advanced Approach also includes an operational risk component, which reflects the risk of operating loss resulting from inadequate or failed internal processes or systems.
(5)Under the regulatory guidelines for risk-based capital, on-balance sheet assets and credit equivalent amounts of derivatives and off-balance sheet items are assigned to one of several broad risk categories according to the obligor, or, if relevant, the guarantor or the nature of any collateral. The aggregate dollar amount in each risk category is then multiplied by the risk weight associated with that category. The resulting weighted values from each of the risk categories are aggregated for determining total RWAs.
Capital Management (continued)

Table 47 presents the changes in Common Equity Tier 1 under the Advanced Approach for the nine monthsquarter ended September 30, 2016.March 31, 2017.



Table 47: Analysis of Changes in Common Equity Tier 1
(in millions)    
Common Equity Tier 1 (Fully Phased-In) at December 31, 2015 $142,367
Common Equity Tier 1 (Fully Phased-In) at December 31, 2016 $146,424
Net income 15,501
 5,056
Common stock dividends (5,752) (1,903)
Common stock issued, repurchased, and stock compensation-related items (3,707) (1,195)
Goodwill (1,160) 27
Certain identifiable intangible assets (other than MSRs) 167
 275
Other assets (1) (156) (34)
Applicable deferred taxes (2) (240) (74)
Investment in certain subsidiaries and other 810
 167
Change in Common Equity Tier 1 5,463
 2,319
Common Equity Tier 1 (Fully Phased-In) at September 30, 2016 $147,830
Common Equity Tier 1 (Fully Phased-In) at March 31, 2017 $148,743
(1)Represents goodwill and other intangibles on nonmarketable equity investments, which are included in other assets.
(2)Applicable deferred taxes relate to goodwill and other intangible assets. They were determined by applying the combined federal statutory rate and composite state income tax rates to the difference between book and tax basis of the respective goodwill and intangible assets at period end.

Table 48presents net changes in the components of RWAs under the Advanced and Standardized Approaches for the nine monthsquarter ended September 30, 2016.March 31, 2017.



Table 48: Analysis of Changes in RWAs
(in millions)Advanced Approach
Standardized Approach
Advanced Approach
Standardized Approach
RWAs (Fully Phased-In) at December 31, 2015$1,282,849
1,321,703
RWAs (Fully Phased-In) at December 31, 2016$1,298,688
1,358,933
Net change in credit risk RWAs1,115
50,159
(25,939)(33,105)
Net change in market risk RWAs8,144
8,144
(1,341)(1,341)
Net change in operational risk RWAs40,688
 N/A
4,412
N/A
Total change in RWAs49,947
58,303
(22,868)(34,446)
RWAs (Fully Phased-In) at September 30, 20161,332,796
1,380,006
RWAs (Fully Phased-In) at March 31, 20171,275,820
1,324,487
Effect of Transition Requirements(19,716)(18,601)(25,190)(23,764)
RWAs (Transition Requirements) at September 30, 2016$1,313,080
1,361,405
RWAs (Transition Requirements) at March 31, 2017$1,250,630
1,300,723



Capital Management (continued)

TANGIBLE COMMON EQUITY We also evaluate our business based on certain ratios that utilize tangible common equity. Tangible common equity is a non-GAAP financial measure and represents total equity less preferred equity, noncontrolling interests, and goodwill and certain identifiable intangible assets (including goodwill and intangible assets associated with certain of our nonmarketable equity investments but excluding mortgage servicing rights), net of applicable deferred taxes. These tangible common equity ratios are as follows:
Tangible book value per common share, which represents tangible common equity divided by common shares outstanding.
Return on average tangible common equity (ROTCE), which represents our annualized earnings contribution as a percentage of tangible common equity.

The methodology of determining tangible common equity may differ among companies. Management believes that tangible book value per common share and return on average tangible common equity, which utilize tangible common equity, are useful financial measures because they enable investors and others to assess the Company's use of equity.
Table 49 provides a reconciliation of these non-GAAP financial measures to GAAP financial measures.


Table 49: Tangible Common Equity
 Balance at period end Average balance Balance at period end Average balance
 Quarter ended Quarter ended Nine months ended Quarter ended Quarter ended
(in millions,
except ratios)
 Sep 30,
2016
Jun 30,
2016
Sep 30,
2015
 Sep 30,
2016
 Jun 30,
2016
Sep 30,
2015
 Sep 30,
2016
Sep 30,
2015
 Mar 31,
2017
Dec 31,
2016
Mar 31,
2016
 Mar 31,
2017
 Dec 31,
2016
Mar 31,
2016
Total equity $203,958
202,661
194,043
 203,883
 201,003
192,203
 200,502
190,424
 $202,489
200,497
198,504
 201,767
 201,247
196,586
Adjustments:                
Preferred stock (24,594)(24,830)(22,424) (24,813) (24,091)(21,807) (24,291)(21,481) (25,501)(24,551)(24,051) (25,163) (24,579)(23,963)
Additional paid-in capital on ESOP preferred stock (130)(150)(128) (148) (168)(147) (172)(142) (157)(126)(182) (146) (128)(201)
Unearned ESOP shares 1,612
1,868
1,590
 1,850
 2,094
1,818
 2,150
1,764
 2,546
1,565
2,271
 2,198
 1,596
2,509
Noncontrolling interests (930)(916)(992) (927) (984)(1,012) (938)(1,071) (989)(916)(1,008) (957) (928)(904)
Total common stockholders' equity(A) 179,916
178,633
172,089
 179,845
 177,854
171,055
 177,251
169,494
(A) 178,388
176,469
175,534
 177,699
 177,208
174,027
Adjustments:                
Goodwill (26,688)(26,963)(25,684) (26,979) (27,037)(25,703) (26,696)(25,703) (26,666)(26,693)(27,003) (26,673) (26,713)(26,069)
Certain identifiable intangible assets (other than MSRs) (3,001)(3,356)(3,479) (3,145) (3,600)(3,636) (3,383)(3,953) (2,449)(2,723)(3,814) (2,588) (2,871)(3,407)
Other assets (1) (2,230)(2,110)(1,742) (2,131) (2,096)(1,757) (2,097)(1,542) (2,121)(2,088)(2,023) (2,095) (2,175)(2,065)
Applicable deferred taxes (2) 1,832
1,906
2,168
 1,855
 1,934
2,200
 1,973
2,344
 1,698
1,772
1,985
 1,722
 1,785
2,014
Tangible common equity(B) $149,829
148,110
143,352
 149,445
 147,055
142,159
 147,048
140,640
(B) $148,850
146,737
144,679
 148,065
 147,234
144,500
Common shares outstanding(C) 5,023.9
5,048.5
5,108.5
 N/A
 N/A
N/A
 N/A
N/A
(C) 4,996.7
5,016.1
5,075.9
 N/A
 N/A
N/A
Net income applicable to common stock (3)(D) N/A
N/A
N/A
 5,243
 5,173
5,443
 15,501
16,267
(D) N/A
N/A
N/A
 $5,056
 4,872
5,085
Book value per common share(A)/(C) $35.81
35.38
33.69
 N/A
 N/A
N/A
 N/A
N/A
(A)/(C) $35.70
35.18
34.58
 N/A
 N/A
N/A
Tangible book value per common share(B)/(C) 29.82
29.34
28.06
 N/A
 N/A
N/A
 N/A
N/A
(B)/(C) 29.79
29.25
28.50
 N/A
 N/A
N/A
Return on average common stockholders’ equity (ROE)(D)/(A) N/A
N/A
N/A
 11.60
%11.70
12.62
 11.68
12.83
(D)/(A) N/A
N/A
N/A
 11.54
%10.94
11.75
Return on average tangible common equity (ROTCE)(D)/(B) N/A
N/A
N/A
 13.96
 14.15
15.19
 14.08
15.46
(D)/(B) N/A
N/A
N/A
 13.85
 13.16
14.15
(1)Represents goodwill and other intangibles on nonmarketable equity investments, which are included in other assets.
(2)Applicable deferred taxes relate to goodwill and other intangible assets. They were determined by applying the combined federal statutory rate and composite state income tax rates to the difference between book and tax basis of the respective goodwill and intangible assets at period end.
(3)
Quarter and nine months ended net income applicable to common stock is annualized for the respective ROE and ROTCE ratios.

Capital Management (continued)

SUPPLEMENTARY LEVERAGE RATIO In April 2014, federal banking regulators finalized a rule that enhances the SLR requirements for BHCs, like Wells Fargo, and their insured depository institutions. The SLR consists of Tier 1 capital divided by the Company’s total leverage exposure. Total leverage exposure consists of the total average on-balance sheet assets, plus off-balance sheet exposures, such as undrawn commitments and derivative exposures, less amounts permitted to be deducted from Tier 1 capital. The rule, which becomes effective on January 1, 2018, will require a covered BHC to maintain a SLR of at least 5.0% (comprised of the 3.0% minimum requirement plus a supplementary leverage buffer of 2.0%) to avoid restrictions on capital distributions and discretionary bonus payments. The rule will also require that all of our insured depository institutions maintain a SLR of 6.0% under applicable regulatory capital adequacy guidelines. In September 2014, federal banking regulators finalized additional changes to the SLR requirements to implement revisions to the Basel III leverage framework finalized by the BCBS in January 2014. These additional changes, among other things, modify the methodology for including off- balance sheet items, including credit derivatives, repo-style transactions and lines of credit, in the denominator of the SLR, and will become effective on January 1, 2018. At September 30, 2016,March 31, 2017, our SLR for the Company was 7.7% assuming full phase-in of the Advanced Approach capital framework. Based on our review, our current leverage levels would exceed the applicable requirements for each of our insured depository institutions as well. The fully phased-in SLR is considered a non-GAAP financial measure that is used by management, bank regulatory agencies, investors and analysts to assess and monitor the Company’s leverage exposure. See Table 50 for information regarding the calculation and components of the SLR.
Table 50: Fully Phased-In SLR
(in millions)September 30, 2016
(in millions, except ratio)March 31, 2017
Tier 1 capital$170,528
$171,446
Total average assets1,914,586
1,931,041
Less: deductions from Tier 1 capital30,712
30,189
Total adjusted average assets1,883,874
1,900,852
Adjustments:  
Derivative exposures64,792
68,025
Repo-style transactions4,608
3,093
Other off-balance sheet exposures259,075
248,810
Total adjustments328,475
319,928
Total leverage exposure$2,212,349
$2,220,780
Supplementary leverage ratio7.7%7.7%
OTHER REGULATORY CAPITAL MATTERS In October 2015,December 2016, the FRB proposedfinalized rules to address the amount of equity and unsecured long-term debt a U.S. G-SIB must hold to improve its resolvability and resiliency, often referred to as Total Loss Absorbing Capacity (TLAC). Under the proposed rules, which become effective on January 1, 2019, U.S. G-SIBs wouldwill be required to have a minimum TLAC amount (consisting of CET1 capital and additional tier 1 capital issued directly by the top-tier or covered BHC plus eligible external long-term debt) equal to the greater of (i) 18% of RWAs and (ii) 9.5%7.5% of total leverage exposure (the denominator of the SLR calculation). Additionally, U.S. G-SIBs wouldwill be required to maintain (i) a TLAC buffer equal to 2.5% of RWAs plus the firm’s applicable G-SIB capital surcharge calculated under method one plus any applicable countercyclical buffer that wouldwill be added to the 18% minimum and (ii) an external
TLAC leverage buffer equal to 2.0% of total leverage exposure that will be added to the 7.5% minimum, in order to avoid restrictions on capital
distributions and discretionary bonus payments. The proposed rules wouldwill also require U.S. G-SIBs to have a minimum amount of eligible unsecured long-term debt equal to the greater of (i) 6.0% of RWAs plus the firm’s applicable G-SIB capital surcharge calculated under method two and (ii) 4.5% of the total leverage exposure. In addition, the proposed rules wouldwill impose certain restrictions on the operations and liabilities of the top-tier or covered BHC in order to further facilitate an orderly resolution, including prohibitions on the issuance of short-term debt to external investors and on entering into derivatives and certain other types of financial contracts with external counterparties. The proposedWhile the rules were open for comments until February 1, 2016. Ifpermit permanent grandfathering of a significant portion of otherwise ineligible long-term debt that was issued prior to December 31, 2016, long-term debt issued after that date must be fully compliant with the proposedeligibility requirements of the rules are finalized as proposed,in order to count toward the minimum TLAC amount. As a result of the rules, we maywill be required to issue additional long-term debt.
In addition, as discussed in the “Risk Management – Asset/ Liability Management – Liquidity and Funding – Liquidity Standards” section in this Report, federal banking regulators have issued a final rule regarding the U.S. implementation of the Basel III LCR and a proposed rule regarding the NSFR.

Capital Planning and Stress Testing
Our planned long-term capital structure is designed to meet regulatory and market expectations. We believe that our long-term targeted capital structure enables us to invest in and grow our business, satisfy our customers'customers’ financial needs in varying environments, access markets, and maintain flexibility to return capital to our shareholders. Our long-term targeted capital structure also considers capital levels sufficient to exceed capital requirements including the G-SIB surcharge. Accordingly, based on the final Basel III capital rules under the lower of the Standardized or Advanced Approaches CET1 capital ratios, we currently target a long-term CET1 capital ratio at or in excess of 10%, which includes a 2% G-SIB surcharge. Our capital targets are subject to change based on various factors, including changes to the regulatory capital framework and expectations for large banks promulgated by bank regulatory agencies, planned capital actions, changes in our risk profile and other factors.
Under the FRB’s capital plan rule, large BHCs are required to submit capital plans annually for review to determine if the FRB has any objections before making any capital distributions. The rule requires updates to capital plans in the event of material changes in a BHC’s risk profile, including as a result of any significant acquisitions. The FRB assesses the overall financial condition, risk profile, and capital adequacy of BHCs while considering both quantitative and qualitative factors when evaluating capital plans.
Our 2016 CCAR,2017 capital plan, which was submitted on April 4, 2016,2017, as part of CCAR, included a comprehensive capital planoutlook supported by an assessment of expected sources and uses of capital over a given planning horizon under a range of expected and stress scenarios, similar to the process the FRB used to conduct the 2015 CCAR.scenarios. As part of the 20162017 CCAR, the FRB also generated a supervisory stress test, which assumed a sharp decline in the economy and significant decline in asset pricing using the information provided by the Company to estimate performance. The FRB reviewedis expected to review the supervisory stress results both as required under the Dodd-Frank Act using a common set of capital actions for all large BHCs and by taking into account the Company’s proposed capital actions. The FRB publishedhas indicated that it will publish its supervisory stress test results

as required under the Dodd-Frank Act, onand the related CCAR results taking into account the Company’s proposed capital actions, by June 23, 2016. On June 29, 2016, the FRB notified us that it did not object to our capital plan included in the 2016 CCAR.30, 2017.
In addition to CCAR, federalFederal banking regulators also require stress tests to evaluate whether an institution has sufficient capital to continue to operate during periods of adverse economic

Capital Management (continued)

and financial conditions. These stress testing requirements set forth the timing and type of stress test activities large BHCs and banks must undertake as well as rules governing stress testing controls, oversight and disclosure requirements. The rules also limit a large BHC’s ability to make capital distributions to the extent its actual capital issuances were less than amounts indicated in its capital plan. As required under the FRB’s stress testing rule, we must submit a mid-cycle stress test based on second quarter data and scenarios developed by the Company. We submitted the results of the mid-cycle stress test to the FRB, and disclosed a summary of the results in November 2016.

Securities Repurchases
From time to time the Board authorizes the Company to repurchase shares of our common stock. Although we announce when the Board authorizes share repurchases, we typically do not give any public notice before we repurchase our shares. Future stock repurchases may be private or open-market repurchases, including block transactions, accelerated or delayed block transactions, forward transactions, and similar transactions. Additionally, we may enter into plans to purchase stock that satisfy the conditions of Rule 10b5-1 of the Securities Exchange Act of 1934. Various factors determine the amount and timing of our share repurchases, including our capital requirements, the number of shares we expect to issue for employee benefit plans and acquisitions, market conditions (including the trading price of our stock), and regulatory and legal considerations, including the FRB’s response to our capital plan and to changes in our risk profile.
In January 2016, the Board authorized the repurchase of 350 million shares of our common stock. At September 30, 2016,March 31, 2017, we had remaining authority to repurchase approximately 292214 million shares, subject to regulatory and legal conditions. For more information about share repurchases during thirdfirst quarter 2016,2017, see Part II, Item 2 in this Report.
 
Historically, our policy has been to repurchase shares under the “safe harbor” conditions of Rule 10b-18 of the Securities Exchange Act of 1934 including a limitation on the daily volume of repurchases. Rule 10b-18 imposes an additional daily volume limitation on share repurchases during a pending merger or acquisition in which shares of our stock will constitute some or all of the consideration. Our management may determine that during a pending stock merger or acquisition when the safe harbor would otherwise be available, it is in our best interest to repurchase shares in excess of this additional daily volume limitation. In such cases, we intend to repurchase shares in compliance with the other conditions of the safe harbor, including the standing daily volume limitation that applies whether or not there is a pending stock merger or acquisition.
In connection with our participation in the Capital Purchase Program (CPP), a part of the Troubled Asset Relief Program (TARP), we issued to the U.S. Treasury Department warrants to purchase 110,261,688 shares of our common stock with an original exercise price of $34.01 per share expiring on October 28, 2018. The terms of the warrants require the exercise price to be adjusted under certain circumstances when the Company’s quarterly common stock dividend exceeds $0.34 per share, which began occurring in second quarter 2014. Accordingly, with each quarterly common stock dividend above $0.34 per share, we must calculate whether an adjustment to the exercise price is required by the terms of the warrants, including whether certain minimum thresholds have been met to trigger an adjustment, and notify the holders of any such change. The Board authorized the repurchase by the Company of up to $1 billion of the warrants. At September 30, 2016,March 31, 2017, there were 33,137,57329,846,894 warrants outstanding, exercisable at $33.840$33.787 per share, and $452 million of unused warrant repurchase authority. Depending on market conditions, we may purchase from time to time additional warrants in privately negotiated or open market transactions, by tender offer or otherwise.



Regulatory ReformMatters
Since the enactment of the Dodd-Frank Act in 2010, the U.S. financial services industry has been subject to a significant increase in regulation and regulatory oversight initiatives. This increased regulation and oversight has substantially changed how most U.S. financial services companies conduct business and has increased their regulatory compliance costs.
The following supplements our discussion of the significant regulations and regulatory oversight initiatives that have affected or may affect our business contained in the "Regulatory Reform"Matters" and "Risk Factors" sections in our 20152016 Form 10-K and the "Regulatory Reform" section in our 2016 First and Second Quarter Reports on Form 10-Q.10-K.

REGULATION OF CONSUMER FINANCIAL PRODUCTSThe Dodd-Frank Act established the Consumer Financial Protection Bureau (CFPB) to ensure consumers receive clear and accurate disclosures regarding financial products and to protect them from hidden fees and unfair or abusive practices. With respect to residential mortgage lending, the CFPB issued a number of final rules in 2013 implementing new origination, notification, disclosure and other requirements, that generally became effective in January 2014. In November 2013, the CFPB also finalized rules integrating disclosures required of lenders and settlement agents under the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA). These rules, which became effective in October 2015, combine existing separate disclosure forms under the TILA and RESPA into new integrated forms and provideas well as additional limitations on the fees and charges that may be increased from the estimates provided by lenders. In October 2015, the CFPB finalized amendments to the rule implementing the Home Mortgage Disclosure Act, resulting in a significant expansion of the data points lenders will be required to collect beginning January 1, 2018 and report to the CFPB beginning January 1, 2019. The CFPB also expanded the transactions covered by the rule and increased the reporting frequency from annual to quarterly for large volume lenders, such as Wells Fargo, beginning January 1, 2020. With respect to other financial products, in October 2016, the CFPB finalized rules, most of which become effective on OctoberApril 1, 2017,2018, to make prepaid cards subject to similar consumer protections as those provided by more traditional debit and credit cards such as fraud protection and expanded access to account information.
DEPOSIT INSURANCE ASSESSMENTS Our subsidiary banks, including Wells Fargo Bank, N.A., are members of the Deposit Insurance Fund (DIF) maintained by the FDIC. Through the DIF, the FDIC insures the deposits of our banks up to prescribed limits for each depositor and funds the DIF through assessments on member banks. To maintain the DIF, member institutions are assessed an insurance premium based on an assessment base and an assessment rate.
The Dodd-Frank Act gave the FDIC greater discretion to manage the DIF, changed the assessment base from domestic deposits to consolidated average assets less average tangible equity, and mandated a minimum Designated Reserve Ratio (reserve ratio or DRR) of 1.35%. The FDIC Board adopted a Restoration Plan to ensure that the DIF reserve ratio reaches 1.35% by September 30, 2020, as required by the Dodd-Frank Act, and, in March 2016, issued a final rule to meet this DRR level. The final rule, which became effective on July 1, 2016, imposes on insured depository institutions with $10 billion or more in assets, such as Wells Fargo, a surcharge of 4.5 cents per
$100 of their assessment base, after making certain adjustments. The surcharge is in addition to the base assessments paid by the affected institutions and could significantly increase the overall amount of their deposit insurance assessments. The FDIC expects the surcharge to be in effect for approximately two years, however, if the DIF reserve ratio does not reach 1.35% by December 31, 2018, the final rule provides that the FDIC will impose a shortfall assessment on any bank that was subject to the surcharge. In addition to ensuring thatthese rulemaking activities, the DIF reserve ratio reachesCFPB is continuing its on-going supervisory examination activities of the statutory minimumfinancial services industry with respect to a number of 1.35% by September 30, 2020,consumer businesses and products, including mortgage lending and servicing, fair lending requirements, student lending activities, and automobile finance. At this time, the FDIC Board has also finalized a comprehensive, long-range plan for DIF management, wherebyCompany cannot predict the DRR has been targeted at 2%.full impact of the CFPB’s rulemaking and supervisory authority on our business practices or financial results.

"LIVING WILL" REQUIREMENTS AND RELATED MATTERS
Rules adopted by the FRB and the FDIC under the Dodd-Frank Act require large financial institutions, including Wells Fargo, to prepare and periodically revise resolution plans, so-called “living-wills”, that would facilitate their resolution in the event of material distress or failure. Under the rules, resolution plans are required to provide strategies for resolution under the Bankruptcy Code and other applicable insolvency regimes that can be accomplished in a reasonable period of time and in a manner that mitigates the risk that failure would have serious adverse effects on the financial stability of the United States. On April 12,December 13, 2016, the FRB and FDIC notified us that they had jointly determined that our 2016 resolution plan submission did not adequately remedy two of the three deficiencies identified by the FRB and FDIC in our 2015 resolution plan is not credible or would not facilitate an orderly resolution under the Bankruptcy Code.plan. We were required to remedy the two deficiencies in a revised submission that we provided to the FRB and FDIC on September 30, 2016, but have not yet received regulatory feedback on the submission. In the event that our submission does not adequately remedy the deficiencies,March 31, 2017 (the “Revised Submission”). On April 24, 2017, the FRB and FDIC announced that the Revised Submission had adequately remedied the remaining deficiencies. We must submit our 2017 resolution plan
to the FRB and FDIC by July 1, 2017. If the FRB and FDIC determine that our 2017 resolution plan has deficiencies, they may impose more stringent capital, leverage or liquidity requirements on us or restrict our growth, activities or operations until we submit a plan remedyingadequately remedy the deficiencies. If the FRB and FDIC ultimately determine that we have been unable to remedy theany deficiencies, they could orderrequire us to divest certain assets or operations in order to facilitate our orderly resolution in the event of our material distress or failure.operations.
We must also prepare and submit to the FRB on an annual basis a recovery plan that identifies a range of options that we may consider during times of idiosyncratic or systemic economic stress to remedy any financial weaknesses and restore market confidence without extraordinary government support. Recovery options include the possible sale, transfer or disposal of assets, securities, loan portfolios or businesses. Our insured national bank subsidiary, Wells Fargo Bank, N.A., must also prepare and submit to the OCC a recovery plan that sets forth the bank’s plan to remain a going concern when the bank is experiencing considerable financial or operational stress, but has not yet deteriorated to the point where liquidation or resolution is imminent. If either the FRB or the OCC determine that our recovery plan is deficient, they may impose fines, or restrictions on our business.business or ultimately require us to divest assets.
If Wells Fargo were to fail, it may be resolved in a bankruptcy proceeding or, if certain conditions are met, under the resolution regime created by the Dodd-Frank Act known as the “orderly liquidation authority.” The orderly liquidation authority allows for the appointment of the FDIC as receiver for a systemically important financial institution that is in default or in danger of default if, among other things, the resolution of the institution under the U.S. Bankruptcy Code would have serious adverse effects on financial stability in the United States. If the FDIC is appointed as receiver for Wells Fargo & Company (the “Parent”), then the orderly liquidation authority, rather than the U.S. Bankruptcy Code, would determine the powers of the receiver and the rights and obligations of our security holders. The FDIC’s orderly liquidation authority requires that security holders of a company in receivership bear all losses before U.S. taxpayers are exposed to any losses, and allows the FDIC to disregard the strict priority of creditor claims under the U.S. Bankruptcy Code in certain circumstances.
Whether under the U.S. Bankruptcy Code or by the FDIC under the orderly liquidation authority, Wells Fargo could be resolved using a “multiple point of entry” strategy, in which the Parent and one or more of its subsidiaries would each undergo separate resolution proceedings, or a “single point of entry” strategy, in which the Parent would likely be the only material legal entity to enter resolution proceedings. The FDIC has announced that a single point of entry strategy may be a desirable strategy under its implementation of the orderly liquidation authority, but not all aspects of how the FDIC might exercise this authority are known and additional rulemaking is possible.
To facilitate the orderly resolution of systemically important financial institutions in case of material distress or failure, federal banking regulations require that institutions, such as Wells Fargo, maintain a minimum amount of equity and unsecured debt to absorb losses and recapitalize operating subsidiaries. Federal banking regulators have also required measures to facilitate the continued operation of operating subsidiaries notwithstanding the failure of their parent companies, such as limitations on parent guarantees, and have issued guidance encouraging institutions to take legally binding measures to

provide capital and liquidity resources to certain subsidiaries in order to facilitate an orderly resolution. In response to the regulators’ guidance and to facilitate the implementation of the Company’s preferred “multiple point of entry” resolution strategy, the Board has authorized the Parent to enter into a support agreement (the “Support Agreement”) with an intermediate holding company (“IHC”) and certain of the Parent’s material subsidiaries in anticipation of the Parent’s resolution plan submission to be filed by July 1, 2017. Pursuant to the Support Agreement, the Parent would transfer a substantial portion of its assets to the IHC upon entering into the Support Agreement and would contribute certain additional assets to the IHC from time to time. The IHC would be obligated to use those assets to provide capital and/or liquidity to Wells Fargo Bank, N.A., Wells Fargo Securities, LLC (“WFS”) and Wells Fargo Capital Services, LLC (“WFCS”) in the event of our material financial distress or failure, including through repurchase facilities with WFS and WFCS under which the IHC would provide liquidity in exchange for securities. Under the Support Agreement, the IHC would also provide funding and liquidity to the Parent through a subordinated note and a committed line of credit. If certain liquidity and/or capital metrics fall below defined triggers, the subordinated note would be forgiven and the committed line of credit would terminate, which could materially and adversely impact the Parent’s liquidity and its ability to satisfy its debts and other obligations, and could result in the commencement of bankruptcy proceedings by the Parent at an earlier time than might have otherwise occurred if the Support Agreement were not implemented. The obligations of both the Parent and the IHC under the Support Agreement are expected to be secured pursuant to a security agreement.

DEPARTMENT OF LABOR ERISA FIDUCIARY STANDARD In April 2016, the U.S. Department of Labor adopted a rule under the Employee Retirement Income Security Act of 1974 (ERISA) that, among other changes and subject to certain exceptions, will as of the current applicability date of June 9, 2017 make anyone, including broker-dealers, providing investment advice to retirement investors a fiduciary who must act in the best interest of clients when providing investment advice for direct or indirect compensation to a retirement plan, to a plan fiduciary, participant or beneficiary, or to an investment retirement account (IRA) or IRA holder. The rule may impact the manner in which business is conducted with retirement investors and affect product offerings with respect to retirement plans and IRAs.
COMMUNITY REINVESTMENT ACT (CRA) RATING In March 2017, we announced that the OCC had downgraded our most recent CRA rating, which covers the years 2009-2012, to "Needs to Improve" due to previously issued regulatory consent orders. A “Needs to Improve” rating imposes regulatory restrictions and limitations on certain of the Company’s nonbank activities, including its ability to engage in certain nonbank mergers and acquisitions or undertake new financial in nature activities, and CRA performance is taken into account by regulators in reviewing applications to establish bank branches and for approving proposed bank mergers and acquisitions. The rating also results in the loss of expedited processing of applications to undertake certain activities, and requires the Company to receive prior regulatory approval for certain activities, including to issue or prepay certain subordinated debt obligations, open or relocate bank branches, or make certain public welfare investments. In addition, a “Needs to Improve” rating could have an impact on the Company’s relationships with certain states, counties, municipalities or other public agencies to the extent applicable law, regulation or policy limits, restricts or influences whether such entity may do business with a company that has a below “Satisfactory” rating.



Critical Accounting Policies
Our significant accounting policies (see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 20152016 Form 10-K) are fundamental to understanding our results of operations and financial condition because they require that we use estimates and assumptions that may affect the value of our assets or liabilities and financial results. Five of these policies are critical because they require management to make difficult, subjective and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. These policies govern:
the allowance for credit losses;
PCI loans;
the valuation of residential MSRs;
the fair value of financial instruments; and
income taxes.

Management and the Board's Audit and Examination Committee have reviewed and approved these critical accounting policies. These policies are described further in the “Financial Review – Critical Accounting Policies” section and Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 20152016 Form 10-K.


Current Accounting Developments
Table 51 provides accounting pronouncements applicable to us that have been issued by the FASB but are not yet effective.


Table 51: Current Accounting Developments – Issued Standards
Standard Description Effective date and financial statement impact
Accounting Standards Update (ASU or Update) 2016-152017-08 – Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash PaymentsPremium Amortization on Purchased Callable Debt Securities
 The Update addresses eight specific cash flow issues withchanges the objective of reducingaccounting for certain purchased callable debt securities held at a premium to shorten the existing diversity in practiceamortization period for reporting in the Statement of Cash Flows.premium to the earliest call date rather than to the maturity date. Accounting for purchased callable debt securities held at a discount does not change. The discount would continue to amortize to the maturity date. The Update is effective for usWe expect to adopt the guidance in first quarter 20182019 using the modified retrospective method with retrospective application.a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. Our investment securities portfolio includes holdings of callable debt securities. We are evaluating the impact of the Update will have on our consolidated financial statements.statements, which will be affected by our investments in callable debt securities carried at a premium at the time of adoption.
ASU 2016-13 – Financial Instruments – Credit Losses (Topic 326):Measurement of Credit Losses on Financial Instruments
 The Update changes the accounting for credit losses on loans and debt securities. For loans and held-to-maturity debt securities, the Update requires a current expected credit loss (CECL) approach to determine the allowance for credit losses. CECL requires loss estimates for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts. Also, the Update eliminates the existing guidance for PCI loans, but requires an allowance for purchased financial assets with more than insignificant deterioration since origination. In addition, the Update modifies the other-than-temporary impairment model for available-for-sale debt securities to require an allowance for credit impairment instead of a direct write-down, which allows for reversal of credit impairments in future periods based on improvements in credit. 
The guidance is effective for us in first quarter 2020 with a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. EarlyWhile early adoption is permitted beginning in first quarter 2019. While2019, we do not expect to elect that option. We are evaluating the impact of the Update will have on our consolidated financial statements, westatements. We expect the Update will result in an increase in the allowance for credit losses given the change to estimated losses over the contractual life adjusted for expected prepayments with an anticipated material impact from longer duration portfolios, as well as the estimated lifeaddition of the financial asset, including an allowance for debt securities. The amount of the increase will be impacted by the portfolio composition and credit quality at the adoption date as well as economic conditions and forecasts at that time.

ASU 2016-092016-02 – Compensation – Stock CompensationLeases (Topic 718): Improvements to Employee Share-Based Payment Accounting

842)		 The Update simplifiesrequires lessees to recognize leases on the balance sheet with lease liabilities and corresponding right-of-use assets based on the present value of lease payments. Lessor accounting for share-based payment awards issuedactivities are largely unchanged from existing lease accounting. The Update also eliminates leveraged lease accounting but allows existing leveraged leases to employees, including recognition of excess tax benefits and tax deficiencies in the statement of income instead of within additional paid-in capital, and changes to classification in the statement of cash flows.continue their current accounting until maturity, termination or modification. We expect to adopt the guidance in first quarter 20172019 using the modified retrospective method and practical expedients for transition. The practical expedients allow us to largely account for our existing leases consistent with current guidance except for the incremental balance sheet recognition for lessees. We have started our implementation of the Update which has included an initial evaluation of our leasing contracts and activities. As a lessee we are developing our methodology to estimate the right-of use assets and lease liabilities, which is based on the present value of lease payments (the December 31, 2016 future minimum lease payments were $6.9 billion). We do not expect a material change to the timing of expense recognition. Given the limited changes to lessor accounting, we do not expect material changes to recognition or measurement, but we are early in the implementation process and will begin recording excess tax benefitscontinue to evaluate the impact. We are evaluating our existing disclosures and tax deficiencies within income tax expense in the statementmay need to provide additional information as a result of income on a prospective basis.
ASU 2016-07 – Investments – Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting
The Update eliminates the requirement for companies to retroactively apply the equity method of accounting for investments when increases in ownership interests or degree of influence result in the adoption of the equity method. Under the new guidance, the equity method should be applied prospectively in the period in which the ownership changes occur.We expect to adopt the guidance in first quarter 2017 on a prospective basis. The Update will not have a material impact on our consolidated financial statements.
ASU 2016-06 – Derivatives and Hedging (Topic 815):Contingent Put and Call Options in Debt Instruments
The Update clarifies the criteria entities should use when evaluating whether embedded contingent put and call options in debt instruments should be separated from the debt instrument and accounted for separately as derivatives. The Update clarifies that companies should not consider whether the event that triggers the ability to exercise put or call options is related to interest rates or credit risk.We expect to adopt the guidance in first quarter 2017. The Update will not have a material impact on our consolidated financial statements.
ASU 2016-05 – Derivatives and Hedging (Topic 815):Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships
The Update clarifies that a change in the counterparty to a derivative instrument that has been designated as an accounting hedge does not require the hedging relationship to be dedesignated as long as all other hedge accounting criteria continue to be met.We expect to adopt the guidance in first quarter 2017. The Update will not have a material impact on our consolidated financial statements.Update.
Current Accounting Developments (continued)

Standard Description Effective date and financial statement impact
ASU 2016-04 – Liabilities – Extinguishments of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value Products
The Update requires entities to recognize breakage for prepaid stored-value card liabilities (e.g. gift cards) provided the liabilities meet certain criteria.
The guidance is effective for us in first quarter 2018 with early adoption permitted. The guidance allows us to elect the transition method, permitting either a modified retrospective application with a cumulative-effect adjustment to the balance sheet as of the beginning of the adoption period or retrospective application to each period presented. We are evaluating the impact the Update will have on our consolidated financial statements.

ASU 2016-02 – Leases (Topic 842)
The Update requires lessees to recognize leases on the balance sheet with lease liabilities and corresponding right-of-use assets based on the present value of lease payments. Lessor accounting is largely unchanged with lease financings and operating lease assets similar to existing lease accounting. The Update also eliminates leveraged lease accounting but allows existing leveraged leases to continue their current accounting until maturity or termination.The guidance is effective for us in first quarter 2019 with modified retrospective application. Early adoption is permitted. We are evaluating the impact the Update will have on our consolidated financial statements.
ASU 2016-01 – Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
 The Update amends the presentation and accounting for certain financial instruments, including liabilities measured at fair value under the fair value option and equity investments. The guidance also updates fair value presentation and disclosure requirements for financial instruments measured at amortized cost.
 The Update is effective for usWe expect to adopt the guidance in first quarter 2018 with prospective application to changes in guidance related to nonmarketable equity investments. The remaining amendments should be applied with a cumulative-effect adjustment to the balance sheetretained earnings as of the beginning of the year of adoption, period. Early application is only permittedexcept for changes related to liabilities measurednonmarketable equity investments, which is applied prospectively. We expect the primary accounting changes will relate to our equity investments.
Our investments in marketable equity securities that are classified as available-for-sale will be accounted for at fair value with unrealized gains or losses reflected in earnings. Our investments in nonmarketable equity investments accounted for under the cost method of accounting (except for Federal Bank Stock) will be accounted for either at fair value with unrealized gains and losses reflected in earnings or, if we elect, using an alternative method. The alternative method is similar to the cost method of accounting, except that the carrying value is adjusted (through earnings) for subsequent observable transactions in the same or similar investment. We are currently evaluating which method will be applied to these nonmarketable equity investments.
Additionally, for purposes of disclosing the fair value option. Early adoption is prohibited for the remaining amendments. Weof loans carried at amortized cost, we are evaluating our valuation methods to determine the impact ofnecessary changes to conform to an “exit price” notion as required by the Update on our consolidated financial statements.Standard. Accordingly, the fair value amounts disclosed for such loans may change upon adoption.
ASU 2014-09 – Revenue from Contracts With Customers (Topic 606) and subsequent related Updates
 The Update modifies the guidance companies useused to recognize revenue from contracts with customers for transfers of goods or services and transfers of nonfinancial assets, unless those contracts are within the scope of other standards.guidance. The guidanceUpdate also requires new qualitative and quantitative disclosures, including information about contract balancesdisaggregation of revenues and descriptions of performance obligations. 
In August 2015,We will adopt the FASB issued ASU 2015-14 (Revenue from Contracts with Customers (Topic 606):Deferral of the Effective Date), which defers the effective date of ASU 2014-09 to first quarter 2018. Early adoption is permittedguidance in first quarter 2017.2018 using the modified retrospective method with a cumulative-effect adjustment to opening retained earnings. Our revenue is balanced between net interest income onand noninterest income. The scope of the guidance explicitly excludes net interest income as well as many other revenues for financial assets and liabilities which is explicitly excludedincluding loans, leases, securities, and derivatives. Accordingly, the majority of our revenues will not be affected. We have performed an assessment of our revenue contracts as well as worked with industry participants on matters of interpretation and application. We expect our accounting policies will not change materially since the principles of revenue recognition from the scopeUpdate are largely consistent with existing guidance and current practices applied by our businesses. We have not identified material changes to the timing or amount of revenue recognition. Based on changes to guidance applied by broker-dealers, we expect a minor change to the presentation of our broker-dealer’s costs for underwriting activities which will be presented in expenses rather than the current presentation against the related revenues. We are evaluating our disclosures and may provide additional disaggregation of revenues as a result of adoption of the new guidance,Update. Our evaluations are not final and noninterest income. Wewe continue to evaluateassess the impact of the Update to our noninterest income and on our presentation and disclosures. We expect to adopt the Update in first quarter 2018 with a cumulative-effect adjustment to opening retained earnings.
revenue contracts.

In addition to the list above, the following updates are applicable to us but, subject to completion of our assessment, are not expected to have a material impact on our consolidated financial statements:
ASU 2017-04 –Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
ASU 2017-03 –Accounting Changes and Error Corrections (Topic 250) and Investments-Equity Method and Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings (SEC Update)
ASU 2017-01 –Business Combinations (Topic 805): Clarifying the Definition of a Business
ASU 2016-18 – Statement of Cash Flows (Topic 230): Restricted Cash
ASU 2016-16 – Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory
ASU 2016-15 – Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
ASU 2016-04 – Liabilities – Extinguishments of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value Products

We have determined that other existing accounting updates are either not applicable to us or have completed our assessment and determined will not have a material impact on our consolidated financial statements.

Forward-Looking Statements (continued)

Forward-Looking Statements
This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, we may make forward-looking statements in our other documents filed or furnished with the SEC, and our management may make forward-looking statements orally to analysts, investors, representatives of the media and others. Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects,” “target,” “projects,” “outlook,” “forecast,” “will,” “may,” “could,” “should,” “can” and similar references to future periods. In particular, forward-looking statements include, but are not limited to, statements we make about: (i) the future operating or financial performance of the Company, including our outlook for future growth; (ii) our noninterest expense and efficiency ratio; (iii) future credit quality and performance, including our expectations regarding future loan losses and allowance levels; (iv) the appropriateness of the allowance for credit losses; (v) our expectations regarding net interest income and net interest margin; (vi) loan growth or the reduction or mitigation of risk in our loan portfolios; (vii) future capital levels or targets and our estimated Common Equity Tier 1 ratio under Basel III capital standards; (viii) the performance of our mortgage business and any related exposures; (ix) the expected outcome and impact of legal, regulatory and legislative developments, as well as our expectations regarding compliance therewith; (x) future common stock dividends, common share repurchases and other uses of capital; (xi) our targeted range for return on assets and return on equity; (xii) the outcome of contingencies, such as legal proceedings; and (xiii) the Company’s plans, objectives and strategies.
Forward-looking statements are not based on historical facts but instead represent our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you, therefore, against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. While there is no assurance that any list of risks and uncertainties or risk factors is complete, important factors that could cause actual results to differ materially from those in the forward-looking statements include the following, without limitation:
current and future economic and market conditions, including the effects of declines in housing prices, high unemployment rates, U.S. fiscal debt, budget and tax matters, geopolitical matters, and the overall slowdown in global economic growth;
our capital and liquidity requirements (including under regulatory capital standards, such as the Basel III capital standards) and our ability to generate capital internally or raise capital on favorable terms;
financial services reform and other current, pending or future legislation or regulation that could have a negative effect on our revenue and businesses, including the Dodd-Frank Act and other legislation and regulation relating to bank products and services;
the extent of our success in our loan modification efforts, as well as the effects of regulatory requirements or guidance regarding loan modifications;
 
the amount of mortgage loan repurchase demands that we receive and our ability to satisfy any such demands without having to repurchase loans related thereto or otherwise indemnify or reimburse third parties, and the credit quality of or losses on such repurchased mortgage loans;
negative effects relating to our mortgage servicing and foreclosure practices, as well as changes in industry standards or practices, regulatory or judicial requirements, penalties or fines, increased servicing and other costs or obligations, including loan modification requirements, or delays or moratoriums on foreclosures;
our ability to realize our efficiency ratio target as part of our expense management initiatives, including as a result of business and economic cyclicality, seasonality, changes in our business composition and operating environment, growth in our businesses and/or acquisitions, and unexpected expenses relating to, among other things, litigation and regulatory matters;
the effect of the current low interest rate environment or changes in interest rates on our net interest income, net interest margin and our mortgage originations, mortgage servicing rights and mortgages held for sale;
significant turbulence or a disruption in the capital or financial markets, which could result in, among other things, reduced investor demand for mortgage loans, a reduction in the availability of funding or increased funding costs, and declines in asset values and/or recognition of other-than-temporary impairment on securities held in our investment securities portfolio;
the effect of a fall in stock market prices on our investment banking business and our fee income from our brokerage, asset and wealth management businesses;
negative effects from the retail banking sales practices matter, including on our legal, operational and compliance costs, our ability to engage in certain business activities or offer certain products or services, our ability to keep and attract customers, our ability to attract and retain qualified team members, and our reputation;
reputational damage from negative publicity, protests, fines, penalties and other negative consequences from regulatory violations and legal actions;
a failure in or breach of our operational or security systems or infrastructure, or those of our third party vendors or other service providers, including as a result of cyber attacks;
the effect of changes in the level of checking or savings account deposits on our funding costs and net interest margin;
fiscal and monetary policies of the Federal Reserve Board; and
the other risk factors and uncertainties described under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 20152016.
 
In addition to the above factors, we also caution that the amount and timing of any future common stock dividends or repurchases will depend on the earnings, cash requirements and financial condition of the Company, market conditions, capital requirements (including under Basel capital standards), common stock issuance requirements, applicable law and regulations (including federal securities laws and federal banking regulations), and other factors deemed relevant by the Company’s

Forward-Looking Statements (continued)

Board of Directors, and may be subject to regulatory approval or conditions.
For more information about factors that could cause actual results to differ materially from our expectations, refer to our reports filed with the Securities and Exchange Commission, including the discussion under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2015,2016, as filed with the Securities and Exchange Commission and available on its website at www.sec.gov. 
Any forward-looking statement made by us speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.


Risk Factors
An investment in the Company involves risk, including the possibility that the value of the investment could fall substantially and that dividends or other distributions on the investment could be reduced or eliminated. For a discussion of risk factors that could adversely affect our financial results and condition, and the value of, and return on, an investment in the Company, we refer you to the “Risk Factors” section in our 20152016 Form 10-K. The following risk factor updates the risk factors described in our 2015 Form 10-K:

Risks Related to Sales Practices. Various government entities and offices, as well as Congressional committees, have undertaken formal or informal inquiries, investigations or examinations arising out of certain sales practices of the Company that were the subject of settlements with the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency and the Office of the Los Angeles City Attorney announced by the Company on September 8, 2016. In addition to imposing monetary penalties and other sanctions, regulatory authorities may require admissions of wrongdoing and compliance with other conditions in connection with such matters, which can lead to restrictions on our ability to engage in certain business activities or offer certain products or services, limitations on our ability to access capital markets, limitations on capital distributions, the loss of customers, and/or other direct and indirect adverse consequences. A number of lawsuits have also been filed by non-governmental parties seeking damages or other remedies related to these sales practices. The ultimate resolution of any of these pending legal proceedings or government investigations, depending on the sanctions and remedy sought and granted, could materially adversely affect our results of operations and financial condition. We may also incur additional costs and expenses in order to address and defend these pending legal proceedings and government investigations, and we may have increased compliance and other costs related to these matters. Furthermore, negative publicity or public opinion resulting from these matters may increase the risk of reputational harm to our business, which can impact our ability to keep and attract customers, our ability to attract and retain qualified team members, result in the loss of revenue, or have other material adverse effects on our results of operations and financial condition.
For more information, refer to Note 11 (Legal Actions) to Financial Statements in this Report.


Controls and Procedures
Disclosure Controls and Procedures
The Company’s management evaluated the effectiveness, as of September 30, 2016,March 31, 2017, of the Company’s disclosure controls and procedures. The Company’s chief executive officer and chief financial officer participated in the evaluation. Based on this evaluation, the Company’s chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2016.March 31, 2017.

Internal Control Over Financial Reporting
Internal control over financial reporting is defined in Rule 13a-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s Board, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles (GAAP) and includes those policies and procedures that:
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of assets of the Company;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. No change occurred during thirdfirst quarter 20162017 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Wells Fargo & Company and SubsidiariesConsolidated Statement of Income (Unaudited)
Quarter ended September 30,  Nine months ended September 30, Quarter ended March 31, 
(in millions, except per share amounts)2016
 2015
 2016
 2015
2017
 2016
Interest income            
Trading assets$593
 485
 1,761
 1,413
$643
 596
Investment securities2,298
 2,289
 6,736
 6,614
2,675
 2,262
Mortgages held for sale207
 223
 549
 609
184
 161
Loans held for sale2
 4
 7
 14
1
 2
Loans9,978
 9,216
 29,377
 27,252
10,141
 9,577
Other interest income409
 228
 1,175
 732
582
 374
Total interest income13,487
 12,445
 39,605
 36,634
14,226
 12,972
Interest expense            
Deposits356
 232
 995
 722
537
 307
Short-term borrowings85
 12
 229
 51
114
 67
Long-term debt1,006
 655
 2,769
 1,879
1,183
 842
Other interest expense88
 89
 260
 269
92
 89
Total interest expense1,535
 988
 4,253
 2,921
1,926
 1,305
Net interest income11,952
 11,457
 35,352

33,713
12,300

11,667
Provision for credit losses805
 703
 2,965
 1,611
605
 1,086
Net interest income after provision for credit losses11,147
 10,754
 32,387
 32,102
11,695
 10,581
Noninterest income            
Service charges on deposit accounts1,370
 1,335
 4,015
 3,839
1,313
 1,309
Trust and investment fees3,613
 3,570
 10,545
 10,957
3,570
 3,385
Card fees997
 953
 2,935
 2,754
945
 941
Other fees926
 1,099
 2,765
 3,284
865
 933
Mortgage banking1,667
 1,589
 4,679
 4,841
1,228
 1,598
Insurance293
 376
 1,006
 1,267
277
 427
Net gains (losses) from trading activities415
 (26) 943
 515
Net gains from trading activities439
 200
Net gains on debt securities (1)106
 147
 797
 606
36
 244
Net gains from equity investments (2)140
 920
 573
 1,807
403
 244
Lease income534
 189
 1,404
 476
481
 373
Other315
 266
 1,671
 412
145
 874
Total noninterest income10,376
 10,418
 31,333
 30,758
9,702
 10,528
Noninterest expense            
Salaries4,224
 4,035
 12,359
 11,822
4,261
 4,036
Commission and incentive compensation2,520
 2,604
 7,769
 7,895
2,725
 2,645
Employee benefits1,223
 821
 3,993
 3,404
1,686
 1,526
Equipment491
 459
 1,512
 1,423
577
 528
Net occupancy718
 728
 2,145
 2,161
712
 711
Core deposit and other intangibles299
 311
 891
 935
289
 293
FDIC and other deposit assessments310
 245
 815
 715
333
 250
Other3,483
 3,196
 9,678
 9,020
3,209
 3,039
Total noninterest expense13,268
 12,399
 39,162
 37,375
13,792
 13,028
Income before income tax expense8,255
 8,773
 24,558

25,485
7,605

8,081
Income tax expense2,601
 2,790
 7,817
 7,832
2,057
 2,567
Net income before noncontrolling interests5,654
 5,983
 16,741

17,653
5,548

5,514
Less: Net income from noncontrolling interests10
 187
 77
 334
91
 52
Wells Fargo net income$5,644
 5,796
 16,664

17,319
$5,457

5,462
Less: Preferred stock dividends and other401
 353
 1,163
 1,052
401
 377
Wells Fargo net income applicable to common stock$5,243
 5,443
 15,501
 16,267
$5,056
 5,085
Per share information            
Earnings per common share$1.04
 1.06
 3.06
 3.16
$1.01
 1.00
Diluted earnings per common share1.03
 1.05
 3.03
 3.12
1.00
 0.99
Dividends declared per common share0.380
 0.375
 1.135
 1.100
0.380
 0.375
Average common shares outstanding5,043.4
 5,125.8
 5,061.9
 5,145.9
5,008.6
 5,075.7
Diluted average common shares outstanding5,094.6
 5,193.8
 5,118.2
 5,220.3
5,070.4
 5,139.4
(1)
Total other-than-temporary impairment (OTTI) losses were $3643 million and $7076 million for thirdfirst quarter 20162017 and 20152016, respectively. Of total OTTI, losses of $5152 million and $7365 million were recognized in earnings, and reversallosses (reversal of losseslosses) of $(15)(9) million and $(3)11 million were recognized as non-credit-related OTTI in other comprehensive income for thirdfirst quarter 20162017 and 2015, respectively. Total OTTI losses were $123 million and $73 million for the first nine months of 2016 and 2015, respectively. Of total OTTI, losses of $142 million and $123 million were recognized in earnings, and reversal of losses of $(19) million and $(50) million were recognized as non-credit-related OTTI in other comprehensive income for the first nine months of 2016 and 2015, respectively.
(2)
Includes OTTI losses of $8577 million and $67133 million for thirdfirst quarter 20162017 and 2015, respectively, and $322 million and $185 million for the first nine months of 2016 and 2015, respectively.

The accompanying notes are an integral part of these statements.

Wells Fargo & Company and Subsidiaries            
Consolidated Statement of Comprehensive Income (Unaudited)Consolidated Statement of Comprehensive Income (Unaudited)    Consolidated Statement of Comprehensive Income (Unaudited)
 Quarter ended Sep 30,  Nine months ended Sep 30,  Quarter ended Mar 31, 
(in millions) 2016
 2015
 2016
 2015
 2017
 2016
Wells Fargo net income $5,644
 5,796
 16,664
 17,319
 $5,457
 5,462
Other comprehensive income (loss), before tax:            
Investment securities:            
Net unrealized gains (losses) arising during the period 112
 (441) 2,478
 (2,017)
Net unrealized gains arising during the period 369
 795
Reclassification of net gains to net income (193) (439) (1,001) (957) (145) (304)
Derivatives and hedging activities:            
Net unrealized gains (losses) arising during the period (445) 1,769
 2,611
 2,233
 (133) 1,999
Reclassification of net gains on cash flow hedges to net income (262) (293) (783) (795) (202) (256)
Defined benefit plans adjustments:            
Net actuarial losses arising during the period (447) —
 (474) (11)
Net actuarial and prior service losses arising during the period (7) (8)
Amortization of net actuarial loss, settlements and other to net income 39
 30
 115
 103
 38
 37
Foreign currency translation adjustments:            
Net unrealized gains (losses) arising during the period (10) (59) 27
 (104)
Net unrealized gains arising during the period 16
 43
Other comprehensive income (loss), before tax (1,206) 567
 2,973
 (1,548) (64) 2,306
Income tax (expense) benefit related to other comprehensive income 461
 (268) (1,110) 544
 37
 (857)
Other comprehensive income (loss), net of tax (745) 299
 1,863
 (1,004) (27) 1,449
Less: Other comprehensive income (loss) from noncontrolling interests 19
 (22) (24) 125
 14
 (28)
Wells Fargo other comprehensive income (loss), net of tax (764) 321
 1,887
 (1,129) (41) 1,477
Wells Fargo comprehensive income 4,880
 6,117
 18,551
 16,190
 5,416
 6,939
Comprehensive income from noncontrolling interests 29
 165
 53
 459
 105
 24
Total comprehensive income $4,909
 6,282
 18,604
 16,649
 $5,521
 6,963

The accompanying notes are an integral part of these statements.

Wells Fargo & Company and Subsidiaries      
Consolidated Balance Sheet      
(in millions, except shares)Sep 30,
2016
 Dec 31,
2015
Mar 31,
2017
 Dec 31,
2016
Assets(Unaudited)
  (Unaudited)
  
Cash and due from banks$19,287
 19,111
$19,698
 20,729
Federal funds sold, securities purchased under resale agreements and other short-term investments298,325
 270,130
308,747
 266,038
Trading assets85,946
 77,202
80,326
 74,397
Investment securities:      
Available-for-sale, at fair value 291,591
 267,358
299,530
 308,364
Held-to-maturity, at cost (fair value $102,547 and $80,567)99,241
 80,197
Mortgages held for sale (includes $22,647 and $13,539 carried at fair value) (1) 27,423
 19,603
Held-to-maturity, at cost (fair value $107,629 and $99,155)108,030
 99,583
Mortgages held for sale (includes $14,018 and $22,042 carried at fair value) (1) 17,822
 26,309
Loans held for sale183
 279
253
 80
Loans (includes $4,788 and $5,316 carried at fair value) (1)961,326
 916,559
Loans (includes $505 and $758 carried at fair value) (1)958,405
 967,604
Allowance for loan losses (11,583) (11,545)(11,168) (11,419)
Net loans949,743
 905,014
947,237
 956,185
Mortgage servicing rights:         
Measured at fair value 10,415
 12,415
13,208
 12,959
Amortized 1,373
 1,308
1,402
 1,406
Premises and equipment, net 8,322
 8,704
8,320
 8,333
Goodwill 26,688
 25,529
26,666
 26,693
Other assets (includes $3,441 and $3,065 carried at fair value) (1) 123,587
 100,782
Derivative assets12,564
 14,498
Other assets (includes $3,780 and $3,275 carried at fair value) (1) 107,761
 114,541
Total assets (2) $1,942,124
 1,787,632
$1,951,564
 1,930,115
Liabilities         
Noninterest-bearing deposits $376,136
 351,579
$365,780
 375,967
Interest-bearing deposits 899,758
 871,733
959,664
 930,112
Total deposits 1,275,894
 1,223,312
1,325,444
 1,306,079
Short-term borrowings 124,668
 97,528
94,871
 96,781
Derivative liabilities12,461
 14,492
Accrued expenses and other liabilities82,769
 73,365
59,831
 57,189
Long-term debt 254,835
 199,536
256,468
 255,077
Total liabilities (3) 1,738,166
 1,593,741
1,749,075
 1,729,618
Equity         
Wells Fargo stockholders' equity:         
Preferred stock 24,594
 22,214
25,501
 24,551
Common stock – $1-2/3 par value, authorized 9,000,000,000 shares; issued 5,481,811,474 shares 9,136
 9,136
9,136
 9,136
Additional paid-in capital 60,685
 60,714
60,585
 60,234
Retained earnings 130,288
 120,866
136,032
 133,075
Cumulative other comprehensive income2,184
 297
(3,178) (3,137)
Treasury stock – 457,922,273 shares and 389,682,664 shares (22,247) (18,867)
Treasury stock – 485,076,875 shares and 465,702,148 shares (24,030) (22,713)
Unearned ESOP shares (1,612) (1,362)(2,546) (1,565)
Total Wells Fargo stockholders' equity 203,028
 192,998
201,500
 199,581
Noncontrolling interests 930
 893
989
 916
Total equity 203,958
 193,891
202,489
 200,497
Total liabilities and equity$1,942,124
 1,787,632
$1,951,564
 1,930,115
(1)Parenthetical amounts represent assets and liabilities for which we have elected the fair value option.
(2)
Our consolidated assets at September 30, 2016March 31, 2017, and December 31, 20152016, include the following assets of certain variable interest entities (VIEs) that can only be used to settle the liabilities of those VIEs: Cash and due from banks, $145128 million and $157168 million; Federal funds sold, securities purchased under resale agreements and other short-term investments, $90485 million and $074 million; Trading assets, $126 million and $130 million; Investment securities, $0 million at both period ends; Net loans, $13.1 billion and $12.6 billion; Derivative assets, $1 million and $1 million; Investment securities,Other assets, $244361 million and $425 million; Net loans, $12.4 billion and $4.8 billion; Other assets, $414 million and $242452 million; and Total assets, $13.414.2 billion and $5.613.4 billion, respectively.
(3)
Our consolidated liabilities at September 30, 2016March 31, 2017, and December 31, 20152016, include the following VIE liabilities for which the VIE creditors do not have recourse to Wells Fargo: Derivative liabilities, $30 million and $33 million; Accrued expenses and other liabilities, $79103 million and $57107 million; Long-term debt, $3.93.6 billion and $1.33.7 billion; and Total liabilities, $3.93.8 billion and $1.4 billion,at both period ends, respectively. 

The accompanying notes are an integral part of these statements.


Wells Fargo & Company and Subsidiaries              
Consolidated Statement of Changes in Equity (Unaudited)Consolidated Statement of Changes in Equity (Unaudited)    Consolidated Statement of Changes in Equity (Unaudited)    
          
Preferred stock  Common stock Preferred stock  Common stock 
(in millions, except shares)Shares
 Amount
 Shares
 Amount
Shares
 Amount
 Shares
 Amount
Balance January 1, 201511,138,818
 $19,213
 5,170,349,198
 $9,136
Balance December 31, 201511,259,917
 $22,214
 5,092,128,810
 $9,136
Cumulative effect from change in consolidation accounting (1)       
Balance January 1, 201611,259,917
 $22,214
 5,092,128,810
 $9,136
Net income              
Other comprehensive income (loss), net of tax              
Noncontrolling interests              
Common stock issued    63,017,857
      28,984,457
  
Common stock repurchased    (136,363,436)      (51,674,544)  
Preferred stock issued to ESOP826,598
 826
    1,150,000
 1,150
    
Preferred stock released by ESOP              
Preferred stock converted to common shares(616,066) (615) 11,470,349
  (312,927) (313) 6,464,167
  
Common stock warrants repurchased/exercised              
Preferred stock issued120,000
 3,000
    40,000
 1,000
    
Common stock dividends              
Preferred stock dividends              
Tax benefit from stock incentive compensation              
Stock incentive compensation expense              
Net change in deferred compensation and related plans              
Net change330,532

3,211

(61,875,230)
—
877,073

1,837

(16,225,920)
—
Balance September 30, 201511,469,350

$22,424

5,108,473,968

$9,136
Balance December 31, 201511,259,917
 $22,214
 5,092,128,810
 $9,136
Cumulative effect from change in consolidation accounting (1)       
Balance January 1, 201611,259,917
 $22,214
 5,092,128,810
 $9,136
Balance March 31, 201612,136,990

$24,051

5,075,902,890

$9,136
Balance January 1, 201711,532,712
 $24,551
 5,016,109,326
 $9,136
Net income              
Other comprehensive income (loss), net of tax              
Noncontrolling interests              
Common stock issued    47,151,609
      33,699,497
  
Common stock repurchased    (134,787,773)      (53,074,224)  
Preferred stock issued to ESOP1,150,000
 1,150
    950,000
 950
    
Preferred stock released by ESOP              
Preferred stock converted to common shares(920,314) (920) 19,396,555
  —
 —
 —
  
Common stock warrants repurchased/exercised              
Preferred stock issued86,000
 2,150
    —
 —
    
Common stock dividends              
Preferred stock dividends              
Tax benefit from stock incentive compensation(2)              
Stock incentive compensation expense              
Net change in deferred compensation and related plans              
Net change315,686

2,380

(68,239,609)
—
950,000

950

(19,374,727)
—
Balance September 30, 201611,575,603

$24,594

5,023,889,201

$9,136
Balance March 31, 201712,482,712

$25,501

4,996,734,599

$9,136
(1)
Effective January 1, 2016, we adopted changes in consolidation accounting pursuant to ASU 2015-02 (Amendments to the Consolidation Analysis). Accordingly, we recorded a $121 million increase to beginning noncontrolling interests as a cumulative-effect adjustment.
(2)
Effective January 1, 2017, we adopted Accounting Standards Update 2016-09 (Improvements to Employee Share-Based Payment Accounting). Accordingly, tax benefit from stock incentive compensation is reported in income tax expense in the consolidated statement of income.

The accompanying notes are an integral part of these statements.



               
               
  
       Wells Fargo stockholders' equity       
Additional
paid-in
capital

 
Retained
earnings

 
Cumulative
other
comprehensive
income

 
Treasury
stock

 
Unearned
ESOP
shares

 
Total
Wells Fargo
stockholders'
equity

 
Noncontrolling
interests

 
Total
equity

60,537
 107,040
 3,518
 (13,690) (1,360) 184,394
 868
 185,262
  17,319
       17,319
 334
 17,653
    (1,129)     (1,129) 125
 (1,004)
3
         3
 (335) (332)
(381) —
   2,715
   2,334
   2,334
750
     (7,473)   (6,723)   (6,723)
74
       (900) —
   —
(55)       670
 615
   615
81
     534
   —
   —
(49)         (49)   (49)
(28)         2,972
   2,972
48
 (5,711)       (5,663)   (5,663)
  (1,055)       (1,055)   (1,055)
431
         431
   431
640
         640
   640
(1,053)     15
   (1,038)   (1,038)
461

10,553

(1,129)
(4,209)
(230)
8,657

124

8,781
60,998

117,593

2,389

(17,899)
(1,590)
193,051

992

194,043
60,714
 120,866
 297
 (18,867) (1,362) 192,998
 893
 193,891
            121
 121
60,714
 120,866
 297
 (18,867) (1,362) 192,998
 1,014
 194,012
  16,664
       16,664
 77
 16,741
    1,887
     1,887
 (24) 1,863
1
         1
 (137) (136)
(194) (286)   2,256
   1,776
   1,776
500
     (6,582)   (6,082)   (6,082)
99
       (1,249) —
   —
(79)       999
 920
   920
(16)     936
   —
   —
(17)         (17)   (17)
(49)         2,101
   2,101
39
 (5,791)       (5,752)   (5,752)
  (1,165)       (1,165)   (1,165)
203
         203
   203
547
         547
   547
(1,063)     10
   (1,053)   (1,053)
(29)
9,422

1,887

(3,380)
(250)
10,030

(84)
9,946
60,685

130,288

2,184

(22,247)
(1,612)
203,028

930

203,958
               
               
      Wells Fargo stockholders' equity     
Additional
paid-in
capital

 
Retained
earnings

 
Cumulative
other
comprehensive
income

 
Treasury
stock

 
Unearned
ESOP
shares

 
Total
Wells Fargo
stockholders'
equity

 
Noncontrolling
interests

 
Total
equity

60,714
 120,866
 297
 (18,867) (1,362) 192,998
 893
 193,891
            121
 121
60,714
 120,866
 297
 (18,867) (1,362) 192,998
 1,014
 194,012
  5,462
       5,462
 52
 5,514
    1,477
     1,477
 (28) 1,449
1
         1
 (30) (29)
(160) (140)   1,379
   1,079
   1,079
500
     (2,529)   (2,029)   (2,029)
99
       (1,249) —
   —
(27)       340
 313
   313
1
     312
   —
   —
—
         —
   —
(25)         975
   975
15
 (1,919)       (1,904)   (1,904)
  (378)       (378)   (378)
149
         149
   149
369
         369
   369
(1,034)     18
   (1,016)   (1,016)
(112)
3,025

1,477

(820)
(909)
4,498

(6)
4,492
60,602

123,891

1,774

(19,687)
(2,271)
197,496

1,008

198,504
60,234
 133,075
 (3,137) (22,713) (1,565) 199,581
 916
 200,497
  5,457
       5,457
 91
 5,548
    (41)     (41) 14
 (27)
2
         2
 (32) (30)
3
 (184)   1,587
   1,406
   1,406
750
     (2,925)   (2,175)   (2,175)
31
       (981) —
   —
—
       —
 —
   —
—
     —
   —
   —
(44)         (44)   (44)
—
         —
   —
12
 (1,915)       (1,903)   (1,903)
  (401)       (401)   (401)
—
         —
   —
389
         389
   389
(792)     21
   (771)   (771)
351

2,957

(41)
(1,317)
(981)
1,919

73

1,992
60,585

136,032

(3,178)
(24,030)
(2,546)
201,500

989

202,489



Wells Fargo & Company and Subsidiaries      
Consolidated Statement of Cash Flows (Unaudited)      
Nine months ended September 30, Quarter ended March 31, 
(in millions)2016
 2015
2017
 2016
Cash flows from operating activities:      
Net income before noncontrolling interests$16,741
 17,653
$5,548
 5,514
Adjustments to reconcile net income to net cash provided by operating activities:    
    
Provision for credit losses2,965
 1,611
605
 1,086
Changes in fair value of MSRs, MHFS and LHFS carried at fair value1,695
 585
8
 883
Depreciation, amortization and accretion3,598
 2,396
1,237
 1,295
Other net gains(74) (4,176)
Other net (gains) losses(961) 1,855
Stock-based compensation1,474
 1,525
740
 716
Excess tax benefits related to stock incentive compensation(209) (431)
Originations of MHFS(144,018) (138,204)
Proceeds from sales of and principal collected on mortgages originated for sale91,873
 101,083
Proceeds from sales of and principal collected on LHFS4
 7
Purchases of LHFS(4) (28)
Originations and purchases of MHFS and LHFS (1)(37,675) (37,114)
Proceeds from sales of and paydowns on mortgages originated for sale and LHFS (1)25,270
 29,605
Net change in:    
    
Trading assets38,334
 40,300
Trading assets (1)14,721
 12,234
Deferred income taxes(1,617) (2,421)1,007
 (1,240)
Accrued interest receivable(419) (643)
Accrued interest payable333
 79
Other assets(16,091) (562)
Other accrued expenses and liabilities902
 1,027
Net cash provided (used) by operating activities(4,513) 19,801
Derivative assets and liabilities (1)(481) 292
Other assets (1)3,553
 (10,202)
Other accrued expenses and liabilities (1)(381) 990
Net cash provided by operating activities13,191
 5,914
Cash flows from investing activities:      
Net change in:          
Federal funds sold, securities purchased under resale agreements and other short-term investments(28,296) 3,453
(39,716) (30,518)
Available-for-sale securities:      
Sales proceeds28,147
 15,959
3,231
 13,058
Prepayments and maturities27,768
 23,681
11,016
 6,651
Purchases(66,685) (56,526)(14,495) (5,321)
Held-to-maturity securities:      
Paydowns and maturities5,085
 4,278
1,470
 997
Purchases(23,593) (22,823)
Nonmarketable equity investments:      
Sales proceeds1,298
 2,904
1,016
 529
Purchases(3,001) (1,083)(442) (995)
Loans:      
Loans originated by banking subsidiaries, net of principal collected(28,155) (40,372)5,153
 (9,798)
Proceeds from sales (including participations) of loans held for investment6,958
 8,898
2,504
 2,134
Purchases (including participations) of loans(4,007) (12,710)(1,148) (727)
Principal collected on nonbank entities’ loans8,736
 7,448
3,881
 3,376
Loans originated by nonbank entities(9,091) (9,586)(3,050) (2,875)
Net cash paid for acquisitions(29,797) —
(46) (28,904)
Proceeds from sales of foreclosed assets and short sales5,560
 5,769
1,519
 1,859
Net cash from purchases and sales of MSRs(45) (96)
Other, net(70) (1,627)
Other, net (1)(166) 168
Net cash used by investing activities(109,188) (72,433)(29,273) (50,366)
Cash flows from financing activities:      
Net change in:  
   
  
   
Deposits52,582
 34,107
19,365
 18,178
Short-term borrowings26,882
 24,551
(1,064) 10,175
Long-term debt:    
    
Proceeds from issuance67,677
 24,495
12,975
 23,934
Repayment(23,505) (24,104)(11,937) (4,523)
Preferred stock:    
    
Proceeds from issuance2,101
 2,972
—
 975
Cash dividends paid(1,173) (1,063)(408) (386)
Common stock:    
    
Proceeds from issuance1,024
 1,454
572
 479
Stock tendered for payment of withholding taxes (1)(359) (468)
Repurchased(6,082) (6,723)(2,175) (2,029)
Cash dividends paid(5,609) (5,529)(1,859) (1,858)
Excess tax benefits related to stock incentive compensation209
 431
Net change in noncontrolling interests(159) (191)(30) (32)
Other, net(70) 56
(29) (20)
Net cash provided by financing activities113,877
 50,456
15,051
 44,425
Net change in cash and due from banks176
 (2,176)(1,031) (27)
Cash and due from banks at beginning of period19,111
 19,571
20,729
 19,111
Cash and due from banks at end of period$19,287
 17,395
$19,698
 19,084
Supplemental cash flow disclosures:      
Cash paid for interest$3,920
 2,842
$1,612
 1,054
Cash paid for income taxes7,158
 9,270
215
 138

(1)Prior periods have been revised to conform to the current period presentation.
The accompanying notes are an integral part of these statements. See Note 1 (Summary of Significant Accounting Policies) for noncash activities.
NotesNote 1: Summary of Significant Accounting Policies (continued)

See the Glossary of Acronyms at the end of this Report for terms used throughout the Financial Statements and related Notes.
 
Note 1:  Summary of Significant Accounting Policies
Wells Fargo & Company is a diversified financial services company. We provide banking, insurance, trust and investments, mortgage banking, investment banking, retail banking, brokerage, and consumer and commercial finance through branches, the internet and other distribution channels to consumers, businesses and institutions in all 50 states, the District of Columbia, and in foreign countries. When we refer to “Wells Fargo,” “the Company,” “we,” “our” or “us,” we mean Wells Fargo & Company and Subsidiaries (consolidated). Wells Fargo & Company (the Parent) is a financial holding company and a bank holding company. We also hold a majority interest in a real estate investment trust, which has publicly traded preferred stock outstanding.
Our accounting and reporting policies conform with U.S. generally accepted accounting principles (GAAP) and practices in the financial services industry. For discussion of our significant accounting policies, see Note 1 (Summary of Significant Accounting Policies) in our Annual Report on Form 10-K for the year ended December 31, 2015 (20152016 (2016 Form 10-K). There were no material changes to these policies in the first nine months of 2016.quarter 2017. To prepare the financial statements in conformity with GAAP, management must make estimates based on assumptions about future economic and market conditions (for example, unemployment, market liquidity, real estate prices, etc.) that affect the reported amounts of assets and liabilities at the date of the financial statements, income and expenses during the reporting period and the related disclosures. Although our estimates contemplate current conditions and how we expect them to change in the future, it is reasonably possible that actual conditions could be worse than anticipated in those estimates, which could materially affect our results of operations and financial condition. Management has made significant estimates in several areas, including allowance for credit losses and purchased credit-impaired (PCI) loans (Note 5 (Loans and Allowance for Credit Losses)), valuations of residential mortgage servicing rights (MSRs) (Note 7 (Securitizations and Variable Interest Entities) and Note 8 (Mortgage Banking Activities)) and financial instruments (Note 13 (Fair Values of Assets and Liabilities)), and income taxes. Actual results could differ from those estimates.
These unaudited interim financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the periods presented. These adjustments are of a normal recurring nature, unless otherwise disclosed in this Form 10-Q. The results of operations in the interim financial statements do not necessarily indicate the results that may be expected for the full year. The interim financial information should be read in conjunction with our 20152016 Form 10-K.
 
Accounting Standards Adopted in 20162017
In first quarter 2016,2017, we adopted the following new accounting guidance:

Accounting Standards Update (ASU or Update) 2015-162016-09 – Compensation –Business Combinations (Topic 805) Stock Compensation (Topic 718): Simplifying the Accounting for Measurement-Period Adjustments;Improvements to Employee Share-Based Payment Accounting;
 
ASU 2015-07 2016-07 -–Fair Value Measurement Investments - Equity Method and Joint Ventures (Topic 820)323):Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent); Simplifying the Transition to the Equity Method of Accounting;
ASU 2015-032016-06 - – Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs;
ASU 2015-02 – Consolidation (Topic 810): Amendments to the Consolidation Analysis;
ASU 2015-01 – Income Statement – Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items;
ASU 2014-16 – Derivatives and Hedging (Topic 815): Determining Whether the Host ContractContingent Put and Call Options in a Hybrid Financial Instrument Issued in the Form of a Share is More Akin to Debt or to Equity;
ASU 2014-13 – Consolidation (Topic 810): Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity; Instruments; and
ASU 2014-122016-05 - – Compensation – Stock CompensationDerivatives and Hedging (Topic 718)815): Effect of Derivative Contract Novations on Existing Hedge Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.Relationships.

ASU 2015-162016-09Simplifies the accounting for share-based payment awards issued to employees. We have income tax effects based on changes in our stock price from the grant date to the vesting date of the employee stock compensation. The Update requires these income tax effects to be recognized in the statement of income within income tax expense instead of within additional paid-in capital. In addition, the Update requires changes to the Statement of Cash Flows including the classification between the operating and financing section for tax activity related to employee stock compensation, which we adopted retrospectively. We recorded excess tax benefits and tax deficiencies within income tax expense in the statement of income in first quarter 2017, on a prospective basis.

ASU 2016-07 eliminates the requirement for companies to retrospectively adjust initial amounts recognizedretroactively apply the equity method of accounting for investments when increases in business combinations whenownership interests or degree of influence result in the accounting is incomplete atadoption of the acquisition date.equity method. Under the new guidance, companiesthe equity method should record adjustmentsbe applied prospectively in the same reporting period in which the amounts are determined.ownership changes occur. We adopted this accounting change in first quarter 2016 with2017. The Update did not impact our consolidated financial statements, as the standard is applied on a prospective application.basis.

ASU 2016-06 clarifies the criteria entities should use when evaluating whether embedded contingent put and call options in debt instruments should be separated from the debt instrument and accounted for separately as derivatives. The Update clarifies that companies should not consider whether the event that triggers the ability to exercise put or call options is related to interest rates or credit risk. We adopted this change in first quarter 2017. The Update did not have a material impact on our consolidated financial statements.

ASU 2015-072016-05 eliminatesclarifies that a change in the disclosure requirementcounterparty to categorize investments withina derivative instrument that has been designated as an accounting hedge does not require the fair value hierarchy that are measured at fair value using net asset valuehedging relationship to be dedesignated as a practical expedient.long as all other hedge accounting criteria continue to be met. We adopted this changethe guidance in first quarter 2016 with retrospective application. The Update did not affect our consolidated financial statements as it impacts only the fair value disclosure requirements for certain investments. For additional information, see Note 13 (Fair Values of Assets and Liabilities).

ASU 2015-03 changes the balance sheet presentation for debt issuance costs. Under the new guidance, debt issuance costs should be reported as a deduction from debt liabilities rather than as a deferred charge classified as an asset. We adopted this change in first quarter 2016, which resulted in a $180 million reclassification from Other assets to Long-term debt on January 1, 2016. Because the impact on prior periods was not material, we applied the guidance prospectively.

ASU 2015-02 requires companies to reevaluate all legal entities under new consolidation guidance. The new guidance amends the criteria companies use to evaluate whether they should consolidate certain variable interest entities that have fee arrangements and the criteria used to determine whether partnerships and similar entities are variable interest entities. The new guidance also amends the consolidation analysis for certain investment funds and excludes certain money market


funds. We adopted the accounting changes on January 1, 2016, which resulted in a net increase in assets and a corresponding cumulative-effect adjustment to noncontrolling interests of $121 million. There was no impact to consolidated retained earnings. For additional information, see Note 7 (Securitizations and Variable Interest Entities).

ASU 2015-01 removes the concept of extraordinary items from GAAP and eliminates the requirement for extraordinary items to be separately presented in the statement of income. We adopted this change in first quarter 2016 with prospective application. This Update did not have a material impact on our consolidated financial statements.

ASU 2014-16 clarifies that the nature of host contracts in hybrid financial instruments that are issued in share form should be determined based on the entire instrument, including the embedded derivative. We adopted this new requirement in first quarter 2016. This Update did not have a material impact on our consolidated financial statements.

ASU 2014-13 provides a measurement alternative to companies that consolidate collateralized financing entities (CFEs), such as collateralized debt obligation and collateralized loan obligation structures. Under the new guidance, companies can measure both the financial assets and financial liabilities of a CFE using the more observable fair value of the financial assets or of the financial liabilities. We adopted this accounting change in first quarter 2016.2017. The Update did not have a material impact on our consolidated financial statements.
Note 1: Summary of Significant Accounting Policies (continued)

ASU 2014-12 provides accounting guidance for employee share-based payment awards with specific performance targets. The Update clarifies that performance targets should be treated as performance conditions if the targets affect vesting and could be achieved after the requisite service period. We adopted this change in first quarter 2016 with prospective application. The Update did not have a material effect on our consolidated financial statements, as our historical practice complies with the new requirements.

Accounting Standards with Retrospective Application
The following accounting pronouncement has been issued by the FASB but is not yet effective:

ASU 2016-15 – Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.

ASU 2016-15 addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice for reporting in the Statement of Cash Flows. The Update is effective for us in first quarter 2018 with retrospective application. We are evaluating the impact the Update will have on our consolidated financial statements.

Private Share Repurchases
From time to time we enter into private forward repurchase transactionswith unrelated third parties to complement our open-market common stock repurchase strategies, to allow us to manage our share repurchases in a manner consistent with our capital plans submitted annually under the Comprehensive Capital Analysis and Review (CCAR) and to provide an economic benefit to the Company.
Our payments to the counterparties for these contracts are recorded in permanent equity in the quarter paid and are not subject to re-measurement. The classification of the up-front payments as permanent equity assures that we have appropriate repurchase timing consistent with our capital plans, which contemplate a fixed dollar amount available per quarter for share repurchases pursuant to Federal Reserve Board (FRB) supervisory guidance. In return, the counterparty agrees to deliver a variable number of shares based on a per share discount to the volume-weighted average stock price over the contract period. There are no scenarios where the contracts would not either physically settle in shares or allow us to choose the settlement method. Our total number of outstanding shares of common stock is not reduced until settlement of the private share repurchase contract.
We had no unsettled private share repurchase contracts at both September 30, 2016March 31, 2017 and September 30, 2015.


Notes 1: Summary of Significant Accounting Policies (continued)
March 31, 2016.

SUPPLEMENTAL CASH FLOW INFORMATION Significant noncash activities are presented below.


Table 1.1: Supplemental Cash Flow Information
Nine months ended September 30, Quarter ended March 31, 
(in millions)2016
 2015
2017
 2016
Trading assets retained from securitization of MHFS$47,291
 34,994
$20,929
 9,955
Transfers from loans to MHFS5,257
 7,219
1,657
 1,839
Transfers from available-for-sale to held-to-maturity securities816
 4,972
9,897
 —

SUBSEQUENT EVENTS  We have evaluated the effects of events that have occurred subsequent to September 30, 2016,March 31, 2017, and there have been no material events that would require recognition in our thirdfirst quarter 20162017 consolidated financial statements or disclosure in the Notes to the consolidated financial statements. During the first week of October 2016, Hurricane Matthew caused destruction along the coasts of Florida, Georgia, South Carolina and North Carolina and resulted in, among other things, property damage for our customers and the closing of many businesses. We are currently assessing the impact to our customers and our business as a result of Hurricane Matthew. The financial impact to us is expected to primarily relate to our consumer real estate, commercial real estate and auto loan portfolios and will depend on a number of factors, including the types of loans most affected by the hurricane, the extent of damage to our collateral, the extent of available insurance coverage, the availability of government assistance for our borrowers, and whether our borrowers’ ability to repay their loans has been diminished.




Note 2:  Business Combinations
We regularly explore opportunities to acquire financial services companies and businesses. Generally, we do not make a public announcement about an acquisition opportunity until a definitive agreement has been signed. For information on additional contingent consideration related to acquisitions, which is considered to be a guarantee, see Note 10 (Guarantees, Pledged Assets and Collateral). We also periodically review existing businesses to ensure they remain strategically aligned with our operating business model and risk profile.
During the first nine months of 2016,quarter 2017, we completed two acquisitions and refinedfinalized the related purchase accounting adjustments. On January 1,of our 2016 we acquired $4.3 billion in assets associated with GE Railcar Services, which included 77,000 railcars and 1,000 locomotives. The acquired assets included $918 million of loans and capital leases and $3.2 billion of operating lease assets.
On March 1, 2016, we acquired the North American portionacquisition of GE Capital’sCapital's Commercial Distribution Finance and Vendor Finance businesses. The North American portion represented approximately 90% of the total assets to be acquired. The Asia, Australia and New Zealand portions closed during third quarter 2016 and the remainder of the international portion closed on
October 1, 2016. As of September 30, 2016, and reflective of purchase accounting adjustment refinements, a total of $31.1 billion in assets have been acquired, including $25.6 billion of loans and capital leases, $2.7 billion of operating lease assets, and $1.8 billion of goodwill and intangible assets. The international portion that closed on October 1, 2016, completed the overall acquisition and consisted of an additional $1.3 billion in acquired assets.
We also completed two significantno acquisitions during first quarter 2017, and a few small divestitures during the first nine monthshad no business combinations pending as of 2016. On March 31, 2016, we completed the divestiture of Rural Community Insurance, our crop insurance business. The transaction resulted in a pre-tax gain of $381 million. On May 31, 2016, we sold our health benefit services business, which resulted in a pre-tax gain of $290 million.
As of September 30, 2016, we had one pending acquisition involving a registered investment advisor with approximately $15 billion in assets under management. We closed the acquisition on October 1, 2016.2017.



Note 3:  Federal Funds Sold, Securities Purchased under Resale Agreements and Other Short-Term Investments
Table 3.1 provides the detail of federal funds sold, securities purchased under short-term resale agreements (generally less than one year) and other short-term investments. Substantially all of the interest-earning deposits at September 30, 2016,March 31, 2017, and December 31, 2015,2016, were held at the Federal Reserve. Reserve Banks.
Table 3.1: Fed Funds Sold and Other Short-Term Investments
(in millions)Sep 30,
2016
 Dec 31,
2015
Mar 31,
2017
 Dec 31,
2016
Federal funds sold and securities purchased under resale agreements$67,443
 45,828
$68,457
 58,215
Interest-earning deposits224,438
 220,409
227,635
 200,671
Other short-term investments6,444
 3,893
12,655
 7,152
Total$298,325
 270,130
$308,747
 266,038

 
As part of maintaining our memberships in certain clearing organizations, we are required to stand ready to provide liquidity meant to sustain market clearing activity in the event unforeseen events occur or are deemed likely to occur. This includes commitments we have entered into to purchase securities under resale agreements from a central clearing organization that, at its option, require us to provide funding under such agreements. We do not have any outstanding amounts funded, and the amount of our unfunded contractual commitment was $3.3$1.7 billion and $2.2$2.9 billion as of September 30, 2016,March 31, 2017, and December 31, 2015,2016, respectively.
We have classified securities purchased under long-term resale agreements (generally one year or more), which totaled $21.2 billion and $20.1$21.3 billion at September 30, 2016,March 31, 2017, and December 31, 2015,2016, respectively, in loans. For additional information on the collateral we receive from other entities under resale agreements and securities borrowings, see the “Offsetting of Resale and Repurchase Agreements and Securities Borrowing and Lending Agreements” section in Note 10 (Guarantees, Pledged Assets and Collateral).




Note 4: Investment Securities (continued)

Note 4:  Investment Securities
Table 4.1 provides the amortized cost and fair value by major categories of available-for-sale securities, which are carried at fair value, and held-to-maturity debt securities, which are carried at
 
amortized cost. The net unrealized gains (losses) for available-for-sale securities are reported on an after-tax basis as a component of cumulative OCI.

Table 4.1: Amortized Cost and Fair Value
(in millions)Amortized Cost
 
Gross
unrealized
gains

 
Gross
unrealized
losses

 
Fair
value

Amortized Cost
 
Gross
unrealized
gains

 
Gross
unrealized
losses

 
Fair
value

September 30, 2016       
March 31, 2017       
Available-for-sale securities:              
Securities of U.S. Treasury and federal agencies$25,968
 410
 (2) 26,376
$24,681
 43
 (99) 24,625
Securities of U.S. states and political subdivisions56,000
 910
 (1,544) 55,366
52,747
 624
 (1,310) 52,061
Mortgage-backed securities:              
Federal agencies132,732
 3,020
 (60) 135,692
159,098
 1,042
 (3,174) 156,966
Residential7,881
 653
 (7) 8,527
7,146
 457
 (10) 7,593
Commercial9,801
 126
 (67) 9,860
6,595
 93
 (48) 6,640
Total mortgage-backed securities150,414
 3,799
 (134) 154,079
172,839
 1,592
 (3,232) 171,199
Corporate debt securities12,506
 389
 (174) 12,721
10,097
 418
 (85) 10,430
Collateralized loan and other debt obligations (1) 35,201
 292
 (48) 35,445
33,686
 341
 (18) 34,009
Other (2)6,278
 128
 (35) 6,371
5,963
 139
 (21) 6,081
Total debt securities286,367
 5,928
 (1,937) 290,358
300,013
 3,157
 (4,765) 298,405
Marketable equity securities:              
Perpetual preferred securities529
 65
 (3) 591
467
 21
 (6) 482
Other marketable equity securities222
 420
 —
 642
208
 436
 (1) 643
Total marketable equity securities751
 485
 (3) 1,233
675
 457
 (7) 1,125
Total available-for-sale securities287,118
 6,413
 (1,940) 291,591
300,688
 3,614
 (4,772) 299,530
Held-to-maturity securities:              
Securities of U.S. Treasury and federal agencies44,682
 2,209
 —
 46,891
44,697
 518
 (61) 45,154
Securities of U.S. states and political subdivisions2,994
 121
 (8) 3,107
6,331
 28
 (120) 6,239
Federal agency and other mortgage-backed securities (3)47,721
 969
 —
 48,690
53,778
 91
 (870) 52,999
Collateralized loan obligations1,406
 7
 (2) 1,411
1,011
 5
 —
 1,016
Other (2)2,438
 11
 (1) 2,448
2,213
 9
 (1) 2,221
Total held-to-maturity securities99,241
 3,317
 (11) 102,547
108,030
 651
 (1,052) 107,629
Total$386,359
 9,730
 (1,951) 394,138
$408,718
 4,265
 (5,824) 407,159
December 31, 2015       
December 31, 2016       
Available-for-sale securities:              
Securities of U.S. Treasury and federal agencies$36,374
 24
 (148) 36,250
$25,874
 54
 (109) 25,819
Securities of U.S. states and political subdivisions49,167
 1,325
 (502) 49,990
52,121
 551
 (1,571) 51,101
Mortgage-backed securities:              
Federal agencies103,391
 1,983
 (828) 104,546
163,513
 1,175
 (3,458) 161,230
Residential7,843
 740
 (25) 8,558
7,375
 449
 (8) 7,816
Commercial13,943
 230
 (85) 14,088
8,475
 101
 (74) 8,502
Total mortgage-backed securities125,177
 2,953
 (938) 127,192
179,363
 1,725
 (3,540) 177,548
Corporate debt securities15,548
 312
 (449) 15,411
11,186
 381
 (110) 11,457
Collateralized loan and other debt obligations (1)31,210
 125
 (368) 30,967
34,764
 287
 (31) 35,020
Other (2)5,842
 115
 (46) 5,911
6,139
 104
 (35) 6,208
Total debt securities263,318
 4,854
 (2,451) 265,721
309,447
 3,102
 (5,396) 307,153
Marketable equity securities:              
Perpetual preferred securities819
 112
 (13) 918
445
 35
 (11) 469
Other marketable equity securities239
 482
 (2) 719
261
 481
 —
 742
Total marketable equity securities1,058
 594
 (15) 1,637
706
 516
 (11) 1,211
Total available-for-sale securities264,376
 5,448
 (2,466) 267,358
310,153
 3,618
 (5,407) 308,364
Held-to-maturity securities:              
Securities of U.S. Treasury and federal agencies44,660
 580
 (73) 45,167
44,690
 466
 (77) 45,079
Securities of U.S. states and political subdivisions2,185
 65
 —
 2,250
6,336
 17
 (144) 6,209
Federal agency and other mortgage-backed securities (3)28,604
 131
 (314) 28,421
45,161
 100
 (804) 44,457
Collateralized loan obligations1,405
 —
 (24) 1,381
1,065
 6
 (1) 1,070
Other (2)3,343
 8
 (3) 3,348
2,331
 10
 (1) 2,340
Total held-to-maturity securities80,197
 784
 (414) 80,567
99,583
 599
 (1,027) 99,155
Total$344,573
 6,232
 (2,880) 347,925
$409,736
 4,217
 (6,434) 407,519
(1)
The available-for-sale portfolio includes collateralized debt obligations (CDOs) with a cost basis and fair value of $824875 million and $832945 million, respectively, at September 30, 2016March 31, 2017, and $247819 million and $257847 million, respectively, at December 31, 20152016.
(2)
The “Other” category of available-for-sale securities largely includes asset-backed securities collateralized by credit cards, student loans, home equity loans and automobile leases or loans and cash.loans. Included in the “Other” category of held-to-maturity securities are asset-backed securities collateralized by automobile leases or loans and cash with a cost basis and fair value of $1.41.2 billion each at September 30, 2016March 31, 2017, and $1.91.3 billion each at December 31, 20152016. Also included in the “Other” category of held-to-maturity securities are asset-backed securities collateralized by dealer floorplan loans with a cost basis and fair value of $1.1 billion each at both September 30, 2016, and $1.4 billionMarch 31, 2017 each atand December 31, 20152016.
(3)
Predominantly consists of federal agency mortgage-backed securities at both September 30, 2016March 31, 2017. The entire balance consists of federal agency mortgage-backed securities at and December 31, 20152016.

Note 4: Investment Securities (continued)

Gross Unrealized Losses and Fair Value
Table 4.2 shows the gross unrealized losses and fair value of securities in the investment securities portfolio by length of time that individual securities in each category have been in a continuous loss position. Debt securities on which we have taken credit-related OTTI write-downs are categorized as being “less
 
than 12 months” or “12 months or more” in a continuous loss position based on the point in time that the fair value declined to below the cost basis and not the period of time since the credit-related OTTI write-down.

Table 4.2: Gross Unrealized Losses and Fair Value
 Less than 12 months  12 months or more  Total 
(in millions)
Gross
unrealized
losses

 
Fair
value

 
Gross
unrealized
losses

 
Fair
value

 
Gross
unrealized
losses

 
Fair
value

September 30, 2016           
Available-for-sale securities:           
Securities of U.S. Treasury and federal agencies$(2) 2,033
 —
 —
 (2) 2,033
Securities of U.S. states and political subdivisions(455) 21,306
 (1,089) 12,596
 (1,544) 33,902
Mortgage-backed securities:          
Federal agencies(7) 4,785
 (53) 3,697
 (60) 8,482
Residential(3) 379
 (4) 210
 (7) 589
Commercial(23) 1,255
 (44) 2,415
 (67) 3,670
Total mortgage-backed securities(33) 6,419
 (101) 6,322
 (134) 12,741
Corporate debt securities(11) 758
 (163) 1,683
 (174) 2,441
Collateralized loan and other debt obligations(6) 754
 (42) 5,256
 (48) 6,010
Other(7) 1,107
 (28) 1,304
 (35) 2,411
Total debt securities(514) 32,377
 (1,423) 27,161
 (1,937) 59,538
Marketable equity securities:        
 
Perpetual preferred securities(1) 5
 (2) 51
 (3) 56
Other marketable equity securities—
 —
 —
 —
 —
 —
Total marketable equity securities(1) 5
 (2) 51
 (3) 56
Total available-for-sale securities(515) 32,382
 (1,425) 27,212
 (1,940) 59,594
Held-to-maturity securities:        
 
Securities of U.S. Treasury and federal agencies—
 —
 —
 —
 —
 —
Securities of U.S. states and political subdivisions(5) 547
 (3) 252
 (8) 799
Federal agency and other mortgage-backed
   securities
—
 —
 —
 —
 —
 —
Collateralized loan obligations—
 —
 (2) 285
 (2) 285
Other(1) 739
 —
 —
 (1) 739
Total held-to-maturity securities(6) 1,286
 (5) 537
 (11) 1,823
Total$(521) 33,668
 (1,430) 27,749
 (1,951) 61,417
December 31, 2015           
Available-for-sale securities:           
Securities of U.S. Treasury and federal agencies$(148) 24,795
 —
 —
 (148) 24,795
Securities of U.S. states and political subdivisions(26) 3,453
 (476) 12,377
 (502) 15,830
Mortgage-backed securities:           
Federal agencies(522) 36,329
 (306) 9,888
 (828) 46,217
Residential(20) 1,276
 (5) 285
 (25) 1,561
Commercial(32) 4,476
 (53) 2,363
 (85) 6,839
Total mortgage-backed securities(574) 42,081
 (364) 12,536
 (938) 54,617
Corporate debt securities(244) 4,941
 (205) 1,057
 (449) 5,998
Collateralized loan and other debt obligations(276) 22,214
 (92) 4,844
 (368) 27,058
Other(33) 2,768
 (13) 425
 (46) 3,193
Total debt securities(1,301) 100,252
 (1,150) 31,239
 (2,451) 131,491
Marketable equity securities:           
Perpetual preferred securities(1) 24
 (12) 109
 (13) 133
Other marketable equity securities(2) 40
 —
 —
 (2) 40
Total marketable equity securities(3) 64
 (12) 109
 (15) 173
Total available-for-sale securities(1,304) 100,316
 (1,162) 31,348
 (2,466) 131,664
Held-to-maturity securities:           
Securities of U.S. Treasury and federal agencies(73) 5,264
 —
 —
 (73) 5,264
Securities of U.S. states and political subdivisions—
 —
 —
 —
 —
 —
Federal agency and other mortgage-backed securities(314) 23,115
 —
 —
 (314) 23,115
Collateralized loan obligations(20) 1,148
 (4) 233
 (24) 1,381
Other(3) 1,096
 —
 —
 (3) 1,096
Total held-to-maturity securities(410) 30,623
 (4) 233
 (414) 30,856
Total$(1,714) 130,939
 (1,166) 31,581
 (2,880) 162,520
Note 4: Investment Securities (continued)
 Less than 12 months  12 months or more  Total 
(in millions)
Gross
unrealized
losses

 
Fair
value

 
Gross
unrealized
losses

 
Fair
value

 
Gross
unrealized
losses

 
Fair
value

March 31, 2017           
Available-for-sale securities:           
Securities of U.S. Treasury and federal agencies$(99) 11,090
 —
 —
 (99) 11,090
Securities of U.S. states and political subdivisions(210) 14,826
 (1,100) 16,070
 (1,310) 30,896
Mortgage-backed securities:          
Federal agencies(3,066) 112,495
 (108) 3,358
 (3,174) 115,853
Residential(5) 389
 (5) 240
 (10) 629
Commercial(30) 974
 (18) 1,084
 (48) 2,058
Total mortgage-backed securities(3,101) 113,858
 (131) 4,682
 (3,232) 118,540
Corporate debt securities(7) 883
 (78) 878
 (85) 1,761
Collateralized loan and other debt obligations(2) 1,366
 (16) 1,399
 (18) 2,765
Other(6) 727
 (15) 988
 (21) 1,715
Total debt securities(3,425) 142,750
 (1,340) 24,017
 (4,765) 166,767
Marketable equity securities:        
 
Perpetual preferred securities(1) 61
 (5) 48
 (6) 109
Other marketable equity securities(1) 5
 —
 —
 (1) 5
Total marketable equity securities(2) 66
 (5) 48
 (7) 114
Total available-for-sale securities(3,427) 142,816
 (1,345) 24,065
 (4,772) 166,881
Held-to-maturity securities:        
 
Securities of U.S. Treasury and federal agencies(61) 4,772
 —
 —
 (61) 4,772
Securities of U.S. states and political subdivisions(120) 4,497
 —
 —
 (120) 4,497
Federal agency and other mortgage-backed
   securities
(870) 48,779
 —
 —
 (870) 48,779
Collateralized loan obligations—
 —
 —
 —
 —
 —
Other—
 —
 (1) 178
 (1) 178
Total held-to-maturity securities(1,051) 58,048
 (1) 178
 (1,052) 58,226
Total$(4,478) 200,864
 (1,346) 24,243
 (5,824) 225,107
December 31, 2016           
Available-for-sale securities:           
Securities of U.S. Treasury and federal agencies$(109) 10,816
 —
 —
 (109) 10,816
Securities of U.S. states and political subdivisions(341) 17,412
 (1,230) 16,213
 (1,571) 33,625
Mortgage-backed securities:           
Federal agencies(3,338) 120,735
 (120) 3,481
 (3,458) 124,216
Residential(4) 527
 (4) 245
 (8) 772
Commercial(43) 1,459
 (31) 1,690
 (74) 3,149
Total mortgage-backed securities(3,385) 122,721
 (155) 5,416
 (3,540) 128,137
Corporate debt securities(11) 946
 (99) 1,229
 (110) 2,175
Collateralized loan and other debt obligations(2) 1,899
 (29) 3,197
 (31) 5,096
Other(9) 971
 (26) 1,262
 (35) 2,233
Total debt securities(3,857) 154,765
 (1,539) 27,317
 (5,396) 182,082
Marketable equity securities:           
Perpetual preferred securities(3) 41
 (8) 45
 (11) 86
Other marketable equity securities—
 —
 —
 —
 —
 —
Total marketable equity securities(3) 41
 (8) 45
 (11) 86
Total available-for-sale securities(3,860) 154,806
 (1,547) 27,362
 (5,407) 182,168
Held-to-maturity securities:           
Securities of U.S. Treasury and federal agencies(77) 6,351
 —
 —
 (77) 6,351
Securities of U.S. states and political subdivisions(144) 4,871
 —
 —
 (144) 4,871
Federal agency and other mortgage-backed securities(804) 40,095
 —
 —
 (804) 40,095
Collateralized loan obligations—
 —
 (1) 266
 (1) 266
Other—
 —
 (1) 633
 (1) 633
Total held-to-maturity securities(1,025) 51,317
 (2) 899
 (1,027) 52,216
Total$(4,885) 206,123
 (1,549) 28,261
 (6,434) 234,384

We have assessed each security with gross unrealized losses included in the previous table for credit impairment. As part of that assessment we evaluated and concluded that we do not intend to sell any of the securities and that it is more likely than not that we will not be required to sell prior to recovery of the amortized cost basis. For debt securities, we evaluate, where necessary, whether credit impairment exists by comparing the present value of the expected cash flows to the securities’ amortized cost basis. For equity securities, we consider numerous factors in determining whether impairment exists, including our intent and ability to hold the securities for a period of time sufficient to recover the cost basis of the securities.
For descriptions of the factors we consider when analyzing securities for impairment, see Note 1 (Summary of Significant Accounting Policies) and Note 5 (Investment Securities) to Financial Statements in our 20152016 Form 10-K. There were no material changes to our methodologies for assessing impairment in the first nine months of 2016.quarter 2017. 
Table 4.3 shows the gross unrealized losses and fair value of debt and perpetual preferred investment securities by those rated investment grade and those rated less than investment grade,
 
according to their lowest credit rating by Standard & Poor’s Rating Services (S&P) or Moody’s Investors Service (Moody’s). Credit ratings express opinions about the credit quality of a security. Securities rated investment grade, that is those rated BBB- or higher by S&P or Baa3 or higher by Moody’s, are generally considered by the rating agencies and market participants to be low credit risk. Conversely, securities rated below investment grade, labeled as “speculative grade” by the rating agencies, are considered to be distinctively higher credit risk than investment grade securities. We have also included securities not rated by S&P or Moody’s in the table below based on our internal credit grade of the securities (used for credit risk management purposes) equivalent to the credit rating assigned by major credit agencies. The unrealized losses and fair value of unrated securities categorized as investment grade based on internal credit grades were $63$38 million and $4.0$5.9 billion, respectively, at September 30, 2016,March 31, 2017, and $17$54 million and $3.7$7.0 billion, respectively, at December 31, 2015.2016. If an internal credit grade was not assigned, we categorized the security as non-investment grade. 

Table 4.3: Gross Unrealized Losses and Fair Value by Investment Grade
Investment grade  Non-investment grade Investment grade  Non-investment grade 
(in millions)
Gross
unrealized
losses

 
Fair
value

 
Gross
unrealized
losses

 
Fair
value

Gross
unrealized
losses

 
Fair
value

 
Gross
unrealized
losses

 
Fair
value

September 30, 2016       
March 31, 2017       
Available-for-sale securities:              
Securities of U.S. Treasury and federal agencies$(2) 2,033
 —
 —
$(99) 11,090
 —
 —
Securities of U.S. states and political subdivisions(1,509) 33,572
 (35) 330
(1,262) 30,538
 (48) 358
Mortgage-backed securities:              
Federal agencies(60) 8,482
 —
 —
(3,174) 115,853
 —
 —
Residential(1) 150
 (6) 439
(1) 105
 (9) 524
Commercial(20) 3,041
 (47) 629
(8) 1,562
 (40) 496
Total mortgage-backed securities(81) 11,673
 (53) 1,068
(3,183) 117,520
 (49) 1,020
Corporate debt securities(78) 1,417
 (96) 1,024
(23) 972
 (62) 789
Collateralized loan and other debt obligations(48) 6,010
 —
 —
(18) 2,765
 —
 —
Other(30) 2,043
 (5) 368
(16) 1,307
 (5) 408
Total debt securities(1,748) 56,748
 (189) 2,790
(4,601) 164,192
 (164) 2,575
Perpetual preferred securities(3) 56
 —
 —
(5) 90
 (1) 19
Total available-for-sale securities(1,751)
56,804

(189)
2,790
(4,606)
164,282

(165)
2,594
Held-to-maturity securities:              
Securities of U.S. Treasury and federal agencies—
 —
 —
 —
(61) 4,772
 —
 —
Securities of U.S. states and political subdivisions(8) 799
 —
 —
(120) 4,497
 —
 —
Federal agency and other mortgage-backed securities—
 —
 —
 —
(869) 48,711
 (1) 68
Collateralized loan obligations(2) 285
 —
 —
—
 —
 —
 —
Other(1) 739
 —
 —
(1) 178
 —
 —
Total held-to-maturity securities(11) 1,823
 —
 —
(1,051) 58,158
 (1) 68
Total$(1,762) 58,627
 (189) 2,790
$(5,657) 222,440
 (166) 2,662
December 31, 2015  
    
December 31, 2016  
    
Available-for-sale securities:              
Securities of U.S. Treasury and federal agencies$(148) 24,795
 —
 —
$(109) 10,816
 —
 —
Securities of U.S. states and political subdivisions(464) 15,470
 (38) 360
(1,517) 33,271
 (54) 354
Mortgage-backed securities:              
Federal agencies(828) 46,217
 —
 —
(3,458) 124,216
 —
 —
Residential(12) 795
 (13) 766
(1) 176
 (7) 596
Commercial(59) 6,361
 (26) 478
(15) 2,585
 (59) 564
Total mortgage-backed securities(899) 53,373
 (39) 1,244
(3,474) 126,977
 (66) 1,160
Corporate debt securities(140) 4,167
 (309) 1,831
(31) 1,238
 (79) 937
Collateralized loan and other debt obligations(368) 27,058
 —
 —
(31) 5,096
 —
 —
Other(43) 2,915
 (3) 278
(30) 1,842
 (5) 391
Total debt securities(2,062) 127,778
 (389) 3,713
(5,192) 179,240
 (204) 2,842
Perpetual preferred securities(13) 133
 —
 —
(10) 68
 (1) 18
Total available-for-sale securities(2,075) 127,911
 (389) 3,713
(5,202) 179,308
 (205) 2,860
Held-to-maturity securities:              
Securities of U.S. Treasury and federal agencies(73) 5,264
 —
 —
(77) 6,351
 —
 —
Securities of U.S. states and political subdivisions—
 —
 —
 —
(144) 4,871
 —
 —
Federal agency and other mortgage-backed securities(314) 23,115
 —
 —
(803) 40,078
 (1) 17
Collateralized loan obligations(24) 1,381
 —
 —
(1) 266
 —
 —
Other(3) 1,096

—
 —
(1) 633

—
 —
Total held-to-maturity securities(414) 30,856
 —
 —
(1,026) 52,199
 (1) 17
Total$(2,489) 158,767
 (389) 3,713
$(6,228) 231,507
 (206) 2,877
Note 4: Investment Securities (continued)

Contractual Maturities
Table 4.4 shows the remaining contractual maturities and contractual weighted-average yields (taxable-equivalent basis) of available-for-sale debt securities. The remaining contractual principal maturities for MBS do not consider
 
prepayments. Remaining expected maturities will differ from contractual maturities because borrowers may have the right to prepay obligations before the underlying mortgages mature.
 

Table 4.4: Contractual Maturities
    Remaining contractual maturity     Remaining contractual maturity 
Total
   
 Within one year  
After one year
through five years
  
After five years
through ten years
  After ten years Total
   
 Within one year  
After one year
through five years
  
After five years
through ten years
  After ten years 
(in millions)

amount

 Yield
 Amount
 Yield
 Amount
 Yield
 Amount
 Yield
 Amount
 Yield

amount

 Yield
 Amount
 Yield
 Amount
 Yield
 Amount
 Yield
 Amount
 Yield
September 30, 2016                   
March 31, 2017                   
Available-for-sale debt securities (1):                                       
Fair value:                                      
Securities of U.S. Treasury and federal agencies$26,376
 1.44% $110
 1.39% $25,217
 1.42% $1,049
 1.80% $—
 —%$24,625
 1.45% $1,322
 0.92% $22,288
 1.46% $1,015
 1.80% $—
 —%
Securities of U.S. states and political subdivisions55,366
 5.76
 2,985
 1.70
 9,305
 2.80
 2,885
 5.06
 40,191
 6.79
52,061
 5.68
 2,590
 1.80
 9,990
 2.86
 2,597
 4.65
 36,884
 6.78
Mortgage-backed securities:                                        
Federal agencies135,692
 3.11
 —
 —
 133
 2.95
 2,930
 3.37
 132,629
 3.10
156,966
 3.11
 1
 5.16
 107
 3.07
 5,564
 3.08
 151,294
 3.11
Residential8,527
 3.86
 —
 —
 27
 5.19
 37
 4.29
 8,463
 3.86
7,593
 3.84
 —
 —
 26
 5.50
 23
 3.85
 7,544
 3.84
Commercial9,860
 4.82
 —
 —
 —
 —
 31
 3.15
 9,829
 4.82
6,640
 4.40
 —
 —
 —
 —
 31
 3.13
 6,609
 4.40
Total mortgage-backed securities154,079
 3.26
 —
 —
 160
 3.33
 2,998
 3.38
 150,921
 3.26
171,199
 3.20
 1
 5.16
 133
 3.54
 5,618
 3.08
 165,447
 3.20
Corporate debt securities12,721
 4.78
 2,264
 3.12
 4,210
 5.50
 4,956
 4.77
 1,291
 5.36
10,430
 4.92
 1,467
 3.70
 3,124
 5.79
 4,696
 4.63
 1,143
 5.35
Collateralized loan and other debt obligations35,445
 2.53
 1
 1.03
 361
 1.32
 16,965
 2.48
 18,118
 2.61
34,009
 2.81
 —
 —
 153
 1.84
 17,841
 2.77
 16,015
 2.86
Other6,371
 2.09
 57
 3.00
 916
 2.34
 1,163
 2.02
 4,235
 2.04
6,081
 2.37
 40
 3.21
 871
 2.41
 1,170
 2.24
 4,000
 2.39
Total available-for-sale debt securities at fair value$290,358
 3.52% $5,417
 2.30% $40,169
 2.20% $30,016
 3.16% $214,756
 3.85%$298,405
 3.48% $5,420
 2.11% $36,559
 2.25% $32,937
 3.19% $223,489
 3.76%
December 31, 2015                   
December 31, 2016                   
Available-for-sale debt securities (1):        `                  `          
Fair value:                                      
Securities of U.S. Treasury and federal agencies$36,250
 1.49% $216
 0.77% $31,602
 1.44% $4,432
 1.86% $—
 —%$25,819
 1.44% $1,328
 0.92% $23,477
 1.45% $1,014
 1.80% $—
 —%
Securities of U.S. states and political subdivisions49,990
 5.82
 1,969
 2.09
 7,709
 2.02
 3,010
 5.25
 37,302
 6.85
51,101
 5.65
 2,990
 1.69
 9,299
 2.74
 2,391
 4.71
 36,421
 6.78
Mortgage-backed securities:                                        
Federal agencies104,546
 3.29
 3
 6.55
 373
 1.58
 1,735
 3.84
 102,435
 3.29
161,230
 3.09
 —
 —
 128
 2.98
 5,363
 3.16
 155,739
 3.09
Residential8,558
 4.17
 —
 —
 34
 5.11
 34
 6.03
 8,490
 4.16
7,816
 3.84
 —
 —
 25
 5.21
 35
 4.34
 7,756
 3.83
Commercial14,088
 5.06
 —
 —
 61
 2.79
 —
 —
 14,027
 5.07
8,502
 4.58
 —
 —
 —
 —
 30
 3.13
 8,472
 4.59
Total mortgage-backed securities127,192
 3.54
 3
 6.55
 468
 1.99
 1,769
 3.88
 124,952
 3.55
177,548
 3.19
 —
 —
 153
 3.34
 5,428
 3.16
 171,967
 3.19
Corporate debt securities15,411
 4.57
 1,960
 3.84
 6,731
 4.47
 5,459
 4.76
 1,261
 5.47
11,457
 4.81
 2,043
 2.90
 3,374
 5.89
 4,741
 4.71
 1,299
 5.38
Collateralized loan and other debt obligations30,967
 2.08
 2
 0.33
 804
 0.90
 12,707
 2.01
 17,454
 2.19
35,020
 2.70
 —
 —
 168
 1.34
 16,482
 2.66
 18,370
 2.74
Other5,911
 2.05
 68
 2.47
 1,228
 2.57
 953
 1.94
 3,662
 1.89
6,208
 2.18
 57
 3.06
 971
 2.35
 1,146
 2.04
 4,034
 2.17
Total available-for-sale debt securities at fair value$265,721
 3.55% $4,218
 2.84% $48,542
 1.98% $28,330
 2.98% $184,631
 4.07%$307,153
 3.44% $6,418
 1.93% $37,442
 2.20% $31,202
 3.17% $232,091
 3.72%
(1)Weighted-average yields displayed by maturity bucket are weighted based on fair value and predominantly represent contractual coupon rates without effect for any related hedging derivatives.

Note 4: Investment Securities (continued)

Table 4.5 shows the amortized cost and weighted-average yields of held-to-maturity debt securities by contractual maturity.

Table 4.5: Amortized Cost by Contractual Maturity
    Remaining contractual maturity     Remaining contractual maturity 
Total
   
 Within one year  
After one year
through five years
  
After five years
through ten years
  After ten years Total
   
 Within one year  
After one year
through five years
  
After five years
through ten years
  After ten years 
(in millions)amount
 Yield
 Amount
 Yield
 Amount
 Yield
 Amount
 Yield
 Amount
 Yield
amount
 Yield
 Amount
 Yield
 Amount
 Yield
 Amount
 Yield
 Amount
 Yield
September 30, 2016                   
March 31, 2017                   
Held-to-maturity securities (1):                                       
Amortized cost:                                      
Securities of U.S. Treasury and federal agencies$44,682
 2.12% $—
 —% $24,638
 2.08% $20,044
 2.16% $—
 —%$44,697
 2.12% $—
 —% $32,311
 2.04% $12,386
 2.32% $—
 —%
Securities of U.S. states and political subdivisions2,994
 5.86
 —
 —
 —
 —
 203
 7.25
 2,791
 5.76
6,331
 6.04
 —
 —
 24
 8.20
 470
 6.72
 5,837
 5.98
Federal agency and other mortgage-backed securities47,721
 3.24
 —
 —
 —
 —
 —

—
 47,721
 3.24
53,778
 3.19
 —
 —
 —
 —
 —

—
 53,778
 3.19
Collateralized loan obligations1,406
 2.42
 —
 —
 —
 —
 1,406
 2.42
 —
 —
1,011
 2.66
 —
 —
 —
 —
 1,011
 2.66
 —
 —
Other2,438
 1.69
 —
 —
 1,790
 1.69
 648
 1.68
 —
 —
2,213
 2.00
 —
 —
 1,565
 1.95
 648
 2.13
 —
 —
Total held-to-maturity debt securities at amortized cost$99,241
 2.76% $—
 —% $26,428
 2.05% $22,301
 2.21% $50,512
 3.38%$108,030
 2.88% $—
 —% $33,900
 2.04% $14,515
 2.48% $59,615
 3.46%
December 31, 2015                   
December 31, 2016                   
Held-to-maturity securities (1):                                      
Amortized cost:                                      
Securities of U.S. Treasury and federal agencies$44,660
 2.12% $—
 —% $1,276
 1.75% $43,384
 2.13% $—
 —%$44,690
 2.12% $—
 —% $31,956
 2.05% $12,734
 2.30% $—
 —%
Securities of U.S. states and political subdivisions2,185
 5.97
 —
 —
 —
 —
 104
 7.49
 2,081
 5.89
6,336
 6.04
 —
 —
 24
 8.20
 436
 6.76
 5,876
 5.98
Federal agency and other mortgage-backed securities28,604
 3.47
 —
 —
 —
 —
 —
 —
 28,604
 3.47
45,161
 3.23
 —
 —
 —
 —
 —
 —
 45,161
 3.23
Collateralized loan obligations1,405
 2.03
 —
 —
 —
 —
 —
 —
 1,405
 2.03
1,065
 2.58
 —
 —
 —
 —
 1,065
 2.58
 —
 —
Other3,343
 1.68
 —
 —
 2,351
 1.74
 992
 1.53
 —
 —
2,331
 1.83
 —
 —
 1,683
 1.81
 648
 1.89
 —
 —
Total held-to-maturity debt securities at amortized cost$80,197
 2.69% $—
 —% $3,627
 1.74% $44,480
 2.13% $32,090
 3.57%$99,583
 2.87% $—
 —% $33,663
 2.04% $14,883
 2.43% $51,037
 3.55%
(1)Weighted-average yields displayed by maturity bucket are weighted based on amortized cost and predominantly represent contractual coupon rates.

Table 4.6 shows the fair value of held-to-maturity debt securities by contractual maturity.
 


Table 4.6: Fair Value by Contractual Maturity
  
 Remaining contractual maturity   
 Remaining contractual maturity 
Total
 Within one year
 
After one year
through five years

 
After five years
through ten years

 After ten years
Total
 Within one year
 
After one year
through five years

 
After five years
through ten years

 After ten years
(in millions)amount
 Amount
 Amount
 Amount
 Amount
amount
 Amount
 Amount
 Amount
 Amount
September 30, 2016         
March 31, 2017         
Held-to-maturity securities:                  
Fair value:                  
Securities of U.S. Treasury and federal agencies$46,891
 —
 25,782
 21,109
 —
$45,154
 —
 32,686
 12,468
 —
Securities of U.S. states and political subdivisions3,107
 —
 —
 213
 2,894
6,239
 —
 24
 469
 5,746
Federal agency and other mortgage-backed securities48,690
 —
 —
 —
 48,690
52,999
 —
 —
 —
 52,999
Collateralized loan obligations1,411
 —
 —
 1,411
 —
1,016
 —
 —
 1,016
 —
Other2,448
 —
 1,795
 653
 —
2,221
 —
 1,568
 653
 —
Total held-to-maturity debt securities at fair value$102,547
 —
 27,577
 23,386
 51,584
$107,629
 —
 34,278
 14,606
 58,745
December 31, 2015          
December 31, 2016          
Held-to-maturity securities:                    
Fair value:                    
Securities of U.S. Treasury and federal agencies$45,167
 —
 1,298
 43,869
 —
$45,079
 —
 32,313
 12,766
 —
Securities of U.S. states and political subdivisions2,250
 —
 —
 105
 2,145
6,209
 —
 24
 430
 5,755
Federal agency and other mortgage-backed securities28,421
 —
 —
 —
 28,421
44,457
 —
 —
 —
 44,457
Collateralized loan obligations1,381
 —
 —
 —
 1,381
1,070
 —
 —
 1,070
 —
Other3,348
 —
 2,353
 995
 —
2,340
 —
 1,688
 652
 —
Total held-to-maturity debt securities at fair value$80,567
 —
 3,651
 44,969
 31,947
$99,155
 —
 34,025
 14,918
 50,212
Note 4: Investment Securities (continued)

Realized Gains and Losses
Table 4.7 shows the gross realized gains and losses on sales and OTTI write-downs related to the available-for-sale securities
 
portfolio, which includes marketable equity securities, as well as net realized gains and losses on nonmarketable equity investments (see Note 6 (Other Assets)).

Table 4.7: Realized Gains and Losses
Quarter ended Sep 30,  Nine months ended Sep 30, Quarter ended March 31, 
(in millions)2016
 2015
 2016
 2015
2017
 2016
Gross realized gains$266
 530
 1,215
 1,133
$241
 385
Gross realized losses(23) (21) (67) (57)(36) (13)
OTTI write-downs(52) (74) (147) (125)(53) (69)
Net realized gains from available-for-sale securities191
 435
 1,001
 951
152
 303
Net realized gains from nonmarketable equity investments55
 632
 369
 1,462
287
 185
Net realized gains from debt securities and equity investments$246
 1,067
 1,370
 2,413
$439
 488

Other-Than-Temporary Impairment
Table 4.8 shows the detail of total OTTI write-downs included in earnings for available-for-sale debt securities, marketable equity
 
securities and nonmarketable equity investments. There were no OTTI write-downs on held-to-maturity securities during the first nine months ofquarter 20162017 and 20152016.

Table 4.8: OTTI Write-downs
Quarter ended Sep 30,  Nine months ended Sep 30, Quarter ended March 31, 
(in millions)2016
 2015
 2016
 2015
2017
 2016
OTTI write-downs included in earnings          
Debt securities:              
Securities of U.S. states and political subdivisions$30
 2
 40
 18
$8
 4
Mortgage-backed securities:      
   
  
   
Residential4
 9
 28
 43
3
 12
Commercial10
 3
 11
 3
25
 1
Corporate debt securities7
 59
 57
 59
16
 45
Other debt securities—
 —
 6
 —
—
 3
Total debt securities51
 73
 142
 123
52
 65
Equity securities:      
   
  
   
Marketable equity securities:      
    
  
Other marketable equity securities1
 1
 5
 2
1
 4
Total marketable equity securities1
 1
 5
 2
1
 4
Total investment securities (1)52
 74
 147
 125
53
 69
Nonmarketable equity investments (1)84
 66
 317
 183
76
 129
Total OTTI write-downs included in earnings (1)$136
 140
 464
 308
$129
 198
(1)
The quarterquarters ended September 30,March 31, 2017 and March 31, 2016, includesinclude $3239 million and $124 million, respectively, in OTTI write-downs of oil and gas investments, of which $615 million and $46 million, respectively, related to investment securities and $2624 million related to nonmarketable equity investments. Oil and gas related OTTI for the first nine months of 2016 totaled $18578 million, of which $57 million related to investment securities and $128 millionrespectively, related to nonmarketable equity investments.
Note 4: Investment Securities (continued)

Other-Than-Temporarily Impaired Debt Securities
Table 4.9 shows the detail of OTTI write-downs on available-for-sale debt securities included in earnings and the related changes in OCI for the same securities.

Table 4.9: OTTI Write-downs Included in Earnings
Quarter ended Sep 30,  Nine months ended Sep 30, Quarter ended March 31, 
(in millions)2016
 2015
 2016
 2015
2017
 2016
OTTI on debt securities      
   
  
   
Recorded as part of gross realized losses:      
   
  
   
Credit-related OTTI$21
 70
 102
 109
$52
 61
Intent-to-sell OTTI30
 3
 40
 14
—
 4
Total recorded as part of gross realized losses51
 73
 142
 123
52
 65
Changes to OCI for losses (reversal of losses) in non-credit-related OTTI (1):      
    
  
Securities of U.S. states and political subdivisions—
 —
 —
 (1)(5) —
Residential mortgage-backed securities(4) (6) 1
 (37)3
 10
Commercial mortgage-backed securities(11) 2
 (9) (13)(7) 3
Corporate debt securities—
 1
 (13) 1
—
 (4)
Other debt securities—
 —
 2
 —
—
 2
Total changes to OCI for non-credit-related OTTI(15) (3) (19) (50)(9) 11
Total OTTI losses recorded on debt securities$36
 70
 123
 73
$43
 76
(1)Represents amounts recorded to OCI for impairment, due to factors other than credit, on debt securities that have also had credit-related OTTI write-downs during the period. Increases represent initial or subsequent non-credit-related OTTI on debt securities. Decreases represent partial to full reversal of impairment due to recoveries in the fair value of securities due to non-credit factors.
Table 4.10 presents a rollforward of the OTTI credit loss that has been recognized in earnings as a write-down of available-for-sale debt securities we still own (referred to as "credit-impaired" debt securities) and do not intend to sell. Recognized credit loss
 
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 loss.

Table 4.10: Rollforward of OTTI Credit Loss
Quarter ended Sep 30,  Nine months ended Sep 30, Quarter ended March 31, 
(in millions)2016
 2015
 2016
 2015
2017
 2016
Credit loss recognized, beginning of period$1,080
 993
 1,092
 1,025
$1,043
 1,092
Additions:              
For securities with initial credit impairments16
 64
 54
 64
6
 38
For securities with previous credit impairments5
 6
 48
 45
46
 23
Total additions21
 70
 102
 109
52
 61
Reductions:              
For securities sold, matured, or intended/required to be sold(22) (23) (111) (89)(7) (6)
For recoveries of previous credit impairments (1)(2) (1) (6) (6)(2) (2)
Total reductions(24) (24) (117) (95)(9) (8)
Credit loss recognized, end of period$1,077
 1,039
 1,077
 1,039
$1,086
 1,145
(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.
Note 5: Loans and Allowance for Credit Losses (continued)

Note 5:  Loans and Allowance for Credit Losses 
Table 5.1 presents total loans outstanding by portfolio segment and class of financing receivable. Outstanding balances include a total net reduction of $4.5$4.3 billion and $3.8$4.4 billion at September 30, 2016,March 31, 2017, and December 31, 2015,2016, respectively, for unearned income,
net deferred loan fees, and unamortized
discounts and premiums. Outstanding balances at September 30, 2016 also reflect the acquisition of various loans and capital leases from GE Capital as described in Note 2 (Business Combinations).

Table 5.1: Loans Outstanding
(in millions)Sep 30,
2016
 Dec 31,
2015
Mar 31,
2017
 Dec 31,
2016
Commercial:  
   
  
   
Commercial and industrial$324,020
 299,892
$329,252
 330,840
Real estate mortgage130,223
 122,160
131,532
 132,491
Real estate construction23,340
 22,164
25,064
 23,916
Lease financing18,871
 12,367
19,156
 19,289
Total commercial496,454
 456,583
505,004
 506,536
Consumer:      
Real estate 1-4 family first mortgage278,689
 273,869
274,633
 275,579
Real estate 1-4 family junior lien mortgage48,105
 53,004
44,333
 46,237
Credit card34,992
 34,039
34,742
 36,700
Automobile62,873
 59,966
60,408
 62,286
Other revolving credit and installment40,213
 39,098
39,285
 40,266
Total consumer464,872
 459,976
453,401
 461,068
Total loans$961,326
 916,559
$958,405
 967,604

Our foreign loans are reported by respective class of financing receivable in the table above. Substantially all of our foreign loan portfolio is commercial loans. Loans are classified as foreign primarily based on whether the borrower’s primary
 
address is outside of the United States. Table 5.2 presents total commercial foreign loans outstanding by class of financing receivable.

Table 5.2: Commercial Foreign Loans Outstanding
(in millions)Sep 30,
2016
 Dec 31,
2015
Mar 31,
2017
 Dec 31,
2016
Commercial foreign loans:      
Commercial and industrial$51,515
 49,049
$56,987
 55,396
Real estate mortgage8,466
 8,350
8,206
 8,541
Real estate construction310
 444
471
 375
Lease financing958
 274
986
 972
Total commercial foreign loans$61,249
 58,117
$66,650
 65,284

Note 5: Loans and Allowance for Credit Losses (continued)

Loan Purchases, Sales, and Transfers
Table 5.3 summarizes the proceeds paid or received for purchases and sales of loans and transfers from loans held for investment to mortgages/loans held for sale at lower of cost or fair value. This loan activity also includes participating interests, whereby we
 
receive or transfer a portion of a loan. The table excludes PCI loans and loans for which we have elected the fair value option, including loans originated for sale because their loan activity normally does not impact the allowance for credit losses. 

Table 5.3: Loan Purchases, Sales, and Transfers
2016  2015 2017  2016 
(in millions)Commercial (1)
 Consumer (2)
 Total
 Commercial
 Consumer (2)
 Total
Commercial
 Consumer (1)
 Total
 Commercial (2)
 Consumer (1)
 Total
Quarter ended September 30,           
Quarter ended March 31,           
Purchases$1,902
 —
 1,902
 1,818
 29
 1,847
$1,159
 2
 1,161
 24,646
 —
 24,646
Sales(324) (306) (630) (286) (130) (416)(287) (62) (349) (223) (272) (495)
Transfers to MHFS/LHFS(44) (1) (45) (39) (7) (46)(479) —
 (479) (32) (3) (35)
Nine months ended September 30,           
Purchases$29,155
 —
 29,155
 12,648
 340
 12,988
Sales(932) (985) (1,917) (649) (160) (809)
Transfers to MHFS/LHFS(145) (5) (150) (91) (14) (105)
(1)Purchases include loans and capital leases from the GE Capital business acquisitions as described in Note 2 (Business Combinations).
(2)Excludes activity in government insured/guaranteed real estate 1-4 family first mortgage loans. As servicer, we are able to buy delinquent insured/guaranteed loans out of the Government National Mortgage Association (GNMA) pools, and manage and/or resell them in accordance with applicable requirements. These loans are predominantly insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA). Accordingly, these loans have limited impact on the allowance for loan losses.
(2)Purchases include loans and capital leases from the 2016 GE Capital business acquisitions.
Commitments to Lend
A commitment to lend is a legally binding agreement to lend funds to a customer, usually at a stated interest rate, if funded, and for specific purposes and time periods. We generally require a fee to extend such commitments. Certain commitments are subject to loan agreements with covenants regarding the financial performance of the customer or borrowing base formulas on an ongoing basis that must be met before we are required to fund the commitment. We may reduce or cancel consumer commitments, including home equity lines and credit card lines, in accordance with the contracts and applicable law.
We may, as a representative for other lenders, advance funds or provide for the issuance of letters of credit under syndicated loan or letter of credit agreements. Any advances are generally repaid in less than a week and would normally require default of both the customer and another lender to expose us to loss. These temporary advance arrangements totaled approximately $75$76 billion and $77 billion at both September 30, 2016March 31, 2017 and December 31, 2015.2016, respectively.
We issue commercial letters of credit to assist customers in purchasing goods or services, typically for international trade. At both September 30, 2016,March 31, 2017, and December 31, 2015,2016, we had $1.1 billion of outstanding issued commercial letters of credit. We also originate multipurpose lending commitments under which borrowers have the option to draw on the facility for different purposes in one of several forms, including a standby letter of credit. See Note 10 (Guarantees, Pledged Assets and Collateral) for additional information on standby letters of credit. 
When we make commitments, we are exposed to credit risk. The maximum credit risk for these commitments will generally be lower than the contractual amount because a significant portion of these commitments is expected to expire without being used by the customer. In addition, we manage the potential risk in commitments to lend by limiting the total amount of commitments, both by individual customer and in total, by monitoring the size and maturity structure of these commitments and by applying the same credit standards for these commitments as for all of our credit activities.
For loans and commitments to lend, we generally require collateral or a guarantee. We may require various types of collateral, including commercial and consumer real estate,
automobiles, other short-term liquid assets such as accounts receivable or inventory and long-lived assets, such as equipment and other business assets. Collateral requirements for each loan or commitment may vary based on the loan product and our assessment of a customer’s credit risk according to the specific credit underwriting, including credit terms and structure.
The contractual amount of our unfunded credit commitments, including unissued standby and commercial letters of credit, is summarized by portfolio segment and class of financing receivable in Table 5.4. The table excludes the issued standby and commercial letters of credit and temporary advance arrangements described above.
Table 5.4: Unfunded Credit Commitments
(in millions)Sep 30,
2016
 Dec 31,
2015
Mar 31,
2017
 Dec 31,
2016
Commercial:      
Commercial and industrial$309,075
 296,710
$316,794
 319,662
Real estate mortgage7,807
 7,378
7,448
 7,833
Real estate construction18,735
 18,047
17,794
 18,840
Lease financing17
 —
11
 16
Total commercial335,634
 322,135
342,047
 346,351
Consumer:      
Real estate 1-4 family first mortgage39,066
 34,621
33,594
 33,498
Real estate 1-4 family
junior lien mortgage
41,974
 43,309
41,070
 41,431
Credit card102,252
 98,904
104,630
 101,895
Other revolving credit and installment28,584
 27,899
27,814
 28,349
Total consumer211,876
 204,733
207,108
 205,173
Total unfunded
credit commitments
$547,510
 526,868
$549,155
 551,524

Note 5: Loans and Allowance for Credit Losses (continued)

Allowance for Credit Losses
Table 5.5 presents the allowance for credit losses, which consists of the allowance for loan losses and the allowance for unfunded credit commitments.

Table 5.5: Allowance for Credit Losses
Quarter ended September 30,  Nine months ended September 30, Quarter ended March 31, 
(in millions)2016
 2015
 2016
 2015
2017
 2016
Balance, beginning of period$12,749
 12,614
 12,512
 13,169
$12,540
 12,512
Provision for credit losses805
 703
 2,965
 1,611
605
 1,086
Interest income on certain impaired loans (1)(54) (48) (153) (150)(48) (48)
Loan charge-offs:          
Commercial:          
Commercial and industrial(324) (172) (1,110) (459)(253) (349)
Real estate mortgage(7) (9) (13) (48)(5) (3)
Real estate construction—
 —
 (1) (2)—
 —
Lease financing(4) (5) (25) (11)(7) (4)
Total commercial(335) (186) (1,149) (520)(265) (356)
Consumer:            
Real estate 1-4 family first mortgage(106) (145) (366) (394)(69) (137)
Real estate 1-4 family junior lien mortgage(119) (159) (385) (501)(93) (133)
Credit card(296) (259) (930) (821)(367) (314)
Automobile(215) (186) (602) (531)(255) (211)
Other revolving credit and installment(170) (160) (508) (465)(189) (175)
Total consumer(906) (909) (2,791) (2,712)(973) (970)
Total loan charge-offs(1,241) (1,095) (3,940) (3,232)(1,238) (1,326)
Loan recoveries:          
Commercial:          
Commercial and industrial65
 50
 210
 192
82
 76
Real estate mortgage35
 32
 90
 97
30
 32
Real estate construction18
 8
 30
 25
8
 8
Lease financing2
 2
 10
 6
2
 3
Total commercial120
 92
 340
 320
122
 119
Consumer:            
Real estate 1-4 family first mortgage86
 83
 284
 182
62
 89
Real estate 1-4 family junior lien mortgage70
 70
 200
 195
70
 59
Credit card51
 43
 153
 123
58
 52
Automobile78
 73
 248
 249
88
 84
Other revolving credit and installment31
 31
 100
 102
33
 37
Total consumer316
 300
 985
 851
311
 321
Total loan recoveries436
 392
 1,325
 1,171
433
 440
Net loan charge-offs(805) (703) (2,615) (2,061)(805) (886)
Other(1) (4) (15) (7)(5) 4
Balance, end of period$12,694
 12,562
 12,694
 12,562
$12,287
 12,668
Components:            
Allowance for loan losses$11,583
 11,659
 11,583
 11,659
$11,168
 11,621
Allowance for unfunded credit commitments1,111
 903
 1,111
 903
1,119
 1,047
Allowance for credit losses$12,694
 12,562
 12,694
 12,562
$12,287
 12,668
Net loan charge-offs (annualized) as a percentage of average total loans0.33% 0.31
 0.37
 0.31
0.34% 0.38
Allowance for loan losses as a percentage of total loans1.20
 1.29
 1.20
 1.29
1.17
 1.23
Allowance for credit losses as a percentage of total loans1.32
 1.39
 1.32
 1.39
1.28
 1.34
(1)Certain impaired loans with an allowance calculated by discounting expected cash flows using the loan’s effective interest rate over the remaining life of the loan recognize changes in allowance attributable to the passage of time as interest income.


Note 5: Loans and Allowance for Credit Losses (continued)

Table 5.6 summarizes the activity in the allowance for credit losses by our commercial and consumer portfolio segments.

Table 5.6: Allowance Activity by Portfolio Segment
  
   
 2016
   
   
 2015
  
   
 2017
   
   
 2016
(in millions)Commercial
 Consumer
 Total
 Commercial
 Consumer
 Total
Commercial
 Consumer
 Total
 Commercial
 Consumer
 Total
Quarter ended September 30,           
Quarter ended March 31,           
Balance, beginning of period$7,441
 5,308
 12,749
 6,279
 6,335
 12,614
$7,394
 5,146
 12,540
 6,872
 5,640
 12,512
Provision for credit losses158
 647
 805
 348
 355
 703
Provision (reversal of provision) for credit losses(89) 694
 605
 714
 372
 1,086
Interest income on certain impaired loans(14) (40) (54) (3) (45) (48)(15) (33) (48) (5) (43) (48)
                      
Loan charge-offs(335) (906) (1,241) (186) (909) (1,095)(265) (973) (1,238) (356) (970) (1,326)
Loan recoveries120
 316
 436
 92
 300
 392
122
 311
 433
 119
 321
 440
Net loan charge-offs(215) (590) (805) (94) (609) (703)(143) (662) (805) (237) (649) (886)
Other(1) —
 (1) (4) —
 (4)(5) —
 (5) 4
 —
 4
Balance, end of period$7,369
 5,325
 12,694
 6,526
 6,036
 12,562
$7,142
 5,145
 12,287
 7,348
 5,320
 12,668
           
Nine months ended September 30,           
Balance, beginning of period$6,872
 5,640
 12,512
 6,377
 6,792
 13,169
Provision for credit losses1,350
 1,615
 2,965
 368
 1,243
 1,611
Interest income on certain impaired loans(29) (124) (153) (12) (138) (150)
           
Loan charge-offs(1,149) (2,791) (3,940) (520) (2,712) (3,232)
Loan recoveries340
 985
 1,325
 320
 851
 1,171
Net loan charge-offs(809) (1,806) (2,615) (200) (1,861) (2,061)
Other(15) —
 (15) (7) —
 (7)
Balance, end of period$7,369
 5,325
 12,694
 6,526
 6,036
 12,562

Table 5.7 disaggregates our allowance for credit losses and recorded investment in loans by impairment methodology.

Table 5.7: Allowance by Impairment Methodology
Allowance for credit losses  Recorded investment in loans Allowance for credit losses  Recorded investment in loans 
(in millions)Commercial
 Consumer
 Total
 Commercial
 Consumer
 Total
Commercial
 Consumer
 Total
 Commercial
 Consumer
 Total
September 30, 2016           
March 31, 2017           
Collectively evaluated (1)$6,254
 3,531
 9,785
 489,945
 430,259
 920,204
$6,281
 3,691
 9,972
 499,565
 421,619
 921,184
Individually evaluated (2)1,113
 1,794
 2,907
 5,672
 17,741
 23,413
859
 1,454
 2,313
 5,076
 16,475
 21,551
PCI (3)2
 —
 2
 837
 16,872
 17,709
2
 —
 2
 363
 15,307
 15,670
Total$7,369
 5,325
 12,694
 496,454
 464,872
 961,326
$7,142
 5,145
 12,287
 505,004
 453,401
 958,405
December 31, 2015 
December 31, 2016 
Collectively evaluated (1)$5,999
 3,436
 9,435
 452,063
 420,705
 872,768
$6,392
 3,553
 9,945
 500,487
 428,009
 928,496
Individually evaluated (2)872
 2,204
 3,076
 3,808
 20,012
 23,820
1,000
 1,593
 2,593
 5,372
 17,005
 22,377
PCI (3)1
 —
 1
 712
 19,259
 19,971
2
 —
 2
 677
 16,054
 16,731
Total$6,872
 5,640
 12,512
 456,583
 459,976
 916,559
$7,394
 5,146
 12,540
 506,536
 461,068
 967,604
(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 03-3) 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).We. We obtain FICO scores at loan origination and the scores are generally updated at least quarterly, except in limited circumstances, including compliance with the Fair Credit Reporting Act (FCRA). Generally, the LTV and CLTV indicators are updated in the second month of each quarter, with updates no older than June 30,December 31, 2016. See the “Purchased Credit-Impaired Loans” section in 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.
Note 5: Loans and Allowance for Credit Losses (continued)

Table 5.8 provides a breakdown of outstanding commercial loans by risk category. Of the $22.3$20.4 billion in criticized commercial and industrial loans and $6.0$5.7 billion in criticized commercial real estate (CRE) loans at September 30, 2016, $3.3March 31, 2017,
$2.9 billion and $839$712 million, respectively, have been placed on nonaccrual status and written down to net realizable collateral value.


Table 5.8: Commercial Loans by Risk Category
(in millions)
Commercial
and
industrial

 
Real
estate
mortgage

 
Real
estate
construction

 
Lease
financing

 Total
Commercial
and
industrial

 
Real
estate
mortgage

 
Real
estate
construction

 
Lease
financing

 Total
September 30, 2016         
March 31, 2017         
By risk category:                  
Pass$301,402
 124,350
 22,729
 17,616
 466,097
$308,652
 126,215
 24,450
 17,881
 477,198
Criticized22,251
 5,463
 551
 1,255
 29,520
20,423
 5,153
 592
 1,275
 27,443
Total commercial loans (excluding PCI)323,653
 129,813
 23,280
 18,871
 495,617
329,075
 131,368
 25,042
 19,156
 504,641
Total commercial PCI loans (carrying value)367
 410
 60
 —
 837
177
 164
 22
 —
 363
Total commercial loans$324,020
 130,223
 23,340
 18,871
 496,454
$329,252
 131,532
 25,064
 19,156
 505,004
December 31, 2015         
December 31, 2016         
By risk category:                  
Pass$281,356
 115,025
 21,546
 11,772
 429,699
$308,166
 126,793
 23,408
 17,899
 476,266
Criticized18,458
 6,593
 526
 595
 26,172
22,437
 5,315
 451
 1,390
 29,593
Total commercial loans (excluding PCI)299,814
 121,618
 22,072
 12,367
 455,871
330,603
 132,108
 23,859
 19,289
 505,859
Total commercial PCI loans (carrying value)78
 542
 92
 —
 712
237
 383
 57
 —
 677
Total commercial loans$299,892
 122,160
 22,164
 12,367
 456,583
$330,840
 132,491
 23,916
 19,289
 506,536


Table 5.9 provides past due information for commercial loans, which we monitor as part of our credit risk management practices.
 
 

Table 5.9: Commercial Loans by Delinquency Status
(in millions)
Commercial
and
industrial

 
Real
estate
mortgage

 
Real
estate
construction

 
Lease
financing

 Total
Commercial
and
industrial

 
Real
estate
mortgage

 
Real
estate
construction

 
Lease
financing

 Total
September 30, 2016         
March 31, 2017         
By delinquency status:                  
Current-29 days past due (DPD) and still accruing$319,764
 128,888
 23,197
 18,645
 490,494
$325,001
 130,566
 24,969
 18,946
 499,482
30-89 DPD and still accruing511
 141
 24
 134
 810
1,088
 119
 30
 114
 1,351
90+ DPD and still accruing47
 4
 —
 —
 51
88
 11
 3
 —
 102
Nonaccrual loans3,331
 780
 59
 92
 4,262
2,898
 672
 40
 96
 3,706
Total commercial loans (excluding PCI)323,653
 129,813
 23,280
 18,871
 495,617
329,075
 131,368
 25,042
 19,156
 504,641
Total commercial PCI loans (carrying value)367
 410
 60
 —
 837
177
 164
 22
 —
 363
Total commercial loans$324,020
 130,223
 23,340
 18,871
 496,454
$329,252
 131,532
 25,064
 19,156
 505,004
December 31, 2015         
December 31, 2016         
By delinquency status:                  
Current-29 DPD and still accruing$297,847
 120,415
 21,920
 12,313
 452,495
$326,765
 131,165
 23,776
 19,042
 500,748
30-89 DPD and still accruing507
 221
 82
 28
 838
594
 222
 40
 132
 988
90+ DPD and still accruing97
 13
 4
 —
 114
28
 36
 —
 —
 64
Nonaccrual loans1,363
 969
 66
 26
 2,424
3,216
 685
 43
 115
 4,059
Total commercial loans (excluding PCI)299,814
 121,618
 22,072
 12,367
 455,871
330,603
 132,108
 23,859
 19,289
 505,859
Total commercial PCI loans (carrying value)78
 542
 92
 —
 712
237
 383
 57
 —
 677
Total commercial loans$299,892
 122,160
 22,164
 12,367
 456,583
$330,840
 132,491
 23,916
 19,289
 506,536

Note 5: Loans and Allowance for Credit Losses (continued)

CONSUMER CREDIT QUALITY INDICATORS We have various classes of consumer loans that present unique risks. Loan delinquency, FICO credit scores and LTV for loan types are common credit quality indicators that we monitor and utilize in our evaluation of the appropriateness of the allowance for credit losses for the consumer portfolio segment.
 
Many of our loss estimation techniques used for the allowance for credit losses rely on delinquency-based models; therefore, delinquency is an important indicator of credit quality and the establishment of our allowance for credit losses. Table 5.10 provides the outstanding balances of our consumer portfolio by delinquency status.

Table 5.10: Consumer Loans by Delinquency Status
(in millions)
Real estate
1-4 family
first
mortgage

 
Real estate
1-4 family
junior lien
mortgage

 
Credit
card

 Automobile
 
Other
revolving
credit and
installment

 Total
Real estate
1-4 family
first
mortgage

 
Real estate
1-4 family
junior lien
mortgage

 
Credit
card

 Automobile
 
Other
revolving
credit and
installment

 Total
September 30, 2016           
March 31, 2017           
By delinquency status:                      
Current-29 DPD$237,074
 47,094
 34,158
 61,498
 39,821
 419,645
$240,508
 43,422
 33,868
 59,064
 38,885
 415,747
30-59 DPD1,810
 288
 262
 1,032
 150
 3,542
1,612
 286
 238
 1,007
 154
 3,297
60-89 DPD714
 147
 180
 253
 113
 1,407
635
 137
 183
 243
 95
 1,293
90-119 DPD312
 102
 151
 85
 85
 735
253
 80
 160
 87
 89
 669
120-179 DPD338
 112
 239
 5
 24
 718
289
 99
 292
 6
 33
 719
180+ DPD1,894
 320
 2
 —
 20
 2,236
1,534
 275
 1
 1
 29
 1,840
Government insured/guaranteed loans (1)19,717
 —
 —
 —
 —
 19,717
14,529
 —
 —
 —
 —
 14,529
Total consumer loans (excluding PCI)261,859
 48,063
 34,992
 62,873
 40,213
 448,000
259,360
 44,299
 34,742
 60,408
 39,285
 438,094
Total consumer PCI loans (carrying value)16,830
 42
 —
 —
 —
 16,872
15,273
 34
 —
 —
 —
 15,307
Total consumer loans$278,689
 48,105
 34,992
 62,873
 40,213
 464,872
$274,633
 44,333
 34,742
 60,408
 39,285
 453,401
December 31, 2015           
December 31, 2016           
By delinquency status:                      
Current-29 DPD$225,195
 51,778
 33,208
 58,503
 38,690
 407,374
$239,061
 45,238
 35,773
 60,572
 39,833
 420,477
30-59 DPD2,072
 325
 257
 1,121
 175
 3,950
1,904
 296
 275
 1,262
 177
 3,914
60-89 DPD821
 184
 177
 253
 107
 1,542
700
 160
 200
 330
 111
 1,501
90-119 DPD402
 110
 150
 84
 86
 832
307
 102
 169
 116
 93
 787
120-179 DPD460
 145
 246
 4
 21
 876
323
 108
 279
 5
 30
 745
180+ DPD3,376
 393
 1
 1
 19
 3,790
1,661
 297
 4
 1
 22
 1,985
Government insured/guaranteed loans (1)22,353
 —
 —
 —
 —
 22,353
15,605
 —
 —
 —
 —
 15,605
Total consumer loans (excluding PCI)254,679
 52,935
 34,039
 59,966
 39,098
 440,717
259,561
 46,201
 36,700
 62,286
 40,266
 445,014
Total consumer PCI loans (carrying value)19,190
 69
 —
 —
 —
 19,259
16,018
 36
 —
 —
 —
 16,054
Total consumer loans$273,869
 53,004
 34,039
 59,966
 39,098
 459,976
$275,579
 46,237
 36,700
 62,286
 40,266
 461,068
(1)
Represents loans whose repayments are predominantly insured by the FHA or guaranteed by the VA. Loans insured/guaranteed by the FHA/VA and 90+ DPD totaled $9.89.2 billion at September 30, 2016March 31, 2017, compared with $12.410.1 billion at December 31, 20152016.

Of the $3.7$3.2 billion of consumer loans not government insured/guaranteed that are 90 days or more past due at September 30, 2016, $802March 31, 2017, $838 million was accruing, compared with $5.5$3.5 billion past due and $867$908 million accruing at December 31, 2015.2016.
Real estate 1-4 family first mortgage loans 180 days or more past due totaled $1.9$1.5 billion, or 0.7%0.6% of total first mortgages (excluding PCI), at September 30, 2016,March 31, 2017, compared with $3.4$1.7 billion, or 1.3%0.6%, at December 31, 2015.2016.
Note 5: Loans and Allowance for Credit Losses (continued)

Table 5.11 provides a breakdown of our consumer portfolio by FICO. The March 31, 2017 FICO scores for real estate 1-4 family first and junior lien mortgages reflect a new FICO score version we adopted in first quarter 2017 to monitor and manage those portfolios. In general the impact for us is a shift to higher scores, particularly to the 800+ level, as the new FICO score version utilizes a more refined approach that better distinguishes borrower credit risk. Most of the scored consumer portfolio has
an updated FICO of 680 and above, reflecting a strong current borrower credit profile. FICO is not available for certain loan types, andor may not be obtainedrequired if we deem it unnecessary due to strong collateral and other borrower attributes, substantiallyattributes. Substantially all of whichloans not requiring a FICO score are security-basedsecurities-based loans originated through retail brokerage, of $7.6and totaled $7.9 billion at September 30, 2016,March 31, 2017, and $7.0$8.0 billion at December 31, 2015.2016.


Table 5.11: Consumer Loans by FICO
(in millions)
Real estate
1-4 family
first
mortgage

 
Real estate
1-4 family
junior lien
mortgage

 
Credit
card

 Automobile
 
Other
revolving
credit and
installment

 Total
Real estate
1-4 family
first
mortgage (1)

 
Real estate
1-4 family
junior lien
mortgage (1)

 
Credit
card

 Automobile
 
Other
revolving
credit and
installment (1)

 Total
September 30, 2016           
March 31, 2017           
By FICO:                      
< 600$7,177
 2,720
 3,245
 9,919
 943
 24,004
$6,260
 2,123
 3,352
 9,906
 947
 22,588
600-6395,661
 2,017
 2,984
 6,982
 1,052
 18,696
4,256
 1,501
 2,943
 6,393
 1,009
 16,102
640-67911,334
 3,910
 5,492
 10,447
 2,396
 33,579
8,081
 2,934
 5,371
 9,763
 2,158
 28,307
680-71923,451
 6,783
 7,124
 11,341
 4,395
 53,094
16,503
 5,663
 7,080
 10,826
 3,899
 43,971
720-75938,387
 9,864
 7,357
 8,718
 5,997
 70,323
28,250
 7,106
 7,339
 8,525
 5,407
 56,627
760-799100,971
 15,365
 5,938
 8,159
 8,548
 138,981
51,813
 7,993
 5,823
 7,945
 6,614
 80,188
800+49,460
 6,638
 2,776
 6,881
 6,600
 72,355
124,534
 16,237
 2,792
 6,720
 8,682
 158,965
No FICO available5,701
 766
 76
 426
 2,651
 9,620
5,134
 742
 42
 330
 2,643
 8,891
FICO not required—
 —
 —
 —
 7,631
 7,631
—
 —
 —
 —
 7,926
 7,926
Government insured/guaranteed loans (1)(2)19,717
 —
 —
 —
 —
 19,717
14,529
 —
 —
 —
 —
 14,529
Total consumer loans (excluding PCI)261,859
 48,063
 34,992
 62,873
 40,213
 448,000
259,360
 44,299
 34,742
 60,408
 39,285
 438,094
Total consumer PCI loans (carrying value)16,830
 42
 —
 —
 —
 16,872
15,273
 34
 —
 —
 —
 15,307
Total consumer loans$278,689
 48,105
 34,992
 62,873
 40,213
 464,872
$274,633
 44,333
 34,742
 60,408
 39,285
 453,401
December 31, 2015          

December 31, 2016          

By FICO:          
          
< 600$8,716
 3,025
 2,927
 9,260
 965
 24,893
$6,720
 2,591
 3,475
 9,934
 976
 23,696
600-6396,961
 2,367
 2,875
 6,619
 1,086
 19,908
5,400
 1,917
 3,109
 6,705
 1,056
 18,187
640-67913,006
 4,613
 5,354
 10,014
 2,416
 35,403
10,975
 3,747
 5,678
 10,204
 2,333
 32,937
680-71924,460
 7,863
 6,857
 10,947
 4,388
 54,515
23,300
 6,432
 7,382
 11,233
 4,302
 52,649
720-75938,309
 10,966
 7,017
 8,279
 6,010
 70,581
38,832
 9,413
 7,632
 8,769
 5,869
 70,515
760-79992,975
 16,369
 5,693
 7,761
 8,351
 131,149
103,608
 14,929
 6,191
 8,164
 8,348
 141,240
800+44,452
 6,895
 3,090
 6,654
 6,510
 67,601
49,508
 6,391
 2,868
 6,856
 6,434
 72,057
No FICO available3,447
 837
 226
 432
 2,395
 7,337
5,613
 781
 365
 421
 2,906
 10,086
FICO not required—
 —
 —
 —
 6,977
 6,977
—
 —
 —
 —
 8,042
 8,042
Government insured/guaranteed loans (1)(2)22,353
 —
 —
 —
 —
 22,353
15,605
 —
 —
 —
 —
 15,605
Total consumer loans (excluding PCI)254,679
 52,935
 34,039
 59,966
 39,098
 440,717
259,561
 46,201
 36,700
 62,286
 40,266
 445,014
Total consumer PCI loans (carrying value)19,190
 69
 —
 —
 —
 19,259
16,018
 36
 —
 —
 —
 16,054
Total consumer loans$273,869
 53,004
 34,039
 59,966
 39,098
 459,976
$275,579
 46,237
 36,700
 62,286
 40,266
 461,068
(1)
The March 31, 2017, amounts reflect updated FICO score version implemented in first quarter 2017.
(2)Represents loans whose repayments are predominantly insured by the FHA or guaranteed by the VA.
 
LTV refers to the ratio comparing the loan’s unpaid principal balance to the property’s collateral value. CLTV refers to the combination of first mortgage and junior lien mortgage (including unused line amounts for credit line products) ratios. LTVs and CLTVs are updated quarterly using a cascade approach which first uses values provided by automated valuation models (AVMs) for the property. If an AVM is not available, then the value is estimated using the original appraised value adjusted by the change in Home Price Index (HPI) for the property location. If an HPI is not available, the original appraised value is used. The HPI value is normally the only method considered for high value properties, generally with an original value of $1 million or more, as the AVM values have proven less accurate for these properties.
 
Table 5.12 shows the most updated LTV and CLTV distribution of the real estate 1-4 family first and junior lien mortgage loan portfolios. We consider the trends in residential real estate markets as we monitor credit risk and establish our allowance for credit losses. In the event of a default, any loss should be limited to the portion of the loan amount in excess of the net realizable value of the underlying real estate collateral value. Certain loans do not have an LTV or CLTV due to industry data availability and portfolios acquired from or serviced by other institutions.

Note 5: Loans and Allowance for Credit Losses (continued)

Table 5.12: Consumer Loans by LTV/CLTV
September 30, 2016  December 31, 2015 March 31, 2017  December 31, 2016 
(in millions)
Real estate
1-4 family
first
mortgage
by LTV

 
Real estate
1-4 family
junior lien
mortgage
by CLTV

 Total
 
Real estate
1-4 family
first
mortgage
by LTV

 
Real estate
1-4 family
junior lien
mortgage
by CLTV

 Total
Real estate
1-4 family
first
mortgage
by LTV

 
Real estate
1-4 family
junior lien
mortgage
by CLTV

 Total
 
Real estate
1-4 family
first
mortgage
by LTV

 
Real estate
1-4 family
junior lien
mortgage
by CLTV

 Total
By LTV/CLTV:                      
0-60%$119,444
 16,499
 135,943
 109,558
 15,805
 125,363
$121,653
 16,024
 137,677
 121,430
 16,464
 137,894
60.01-80%100,450
 15,571
 116,021
 92,005
 16,579
 108,584
101,956
 14,651
 116,607
 101,726
 15,262
 116,988
80.01-100%16,509
 9,381
 25,890
 22,765
 11,385
 34,150
16,506
 8,312
 24,818
 15,795
 8,765
 24,560
100.01-120% (1)3,015
 4,055
 7,070
 4,480
 5,545
 10,025
2,459
 3,339
 5,798
 2,644
 3,589
 6,233
> 120% (1)1,385
 2,041
 3,426
 2,065
 3,051
 5,116
1,025
 1,482
 2,507
 1,066
 1,613
 2,679
No LTV/CLTV available1,339
 516
 1,855
 1,453
 570
 2,023
1,232
 491
 1,723
 1,295
 508
 1,803
Government insured/guaranteed loans (2)19,717
 —
 19,717
 22,353
 —
 22,353
14,529
 —
 14,529
 15,605
 —
 15,605
Total consumer loans (excluding PCI)261,859
 48,063
 309,922
 254,679
 52,935
 307,614
259,360
 44,299
 303,659
 259,561
 46,201
 305,762
Total consumer PCI loans (carrying value)16,830
 42
 16,872
 19,190
 69
 19,259
15,273
 34
 15,307
 16,018
 36
 16,054
Total consumer loans$278,689
 48,105
 326,794
 273,869
 53,004
 326,873
$274,633
 44,333
 318,966
 275,579
 46,237
 321,816
(1)Reflects total loan balances with LTV/CLTV amounts in excess of 100%. In the event of default, the loss content would generally be limited to only the amount in excess of 100% LTV/CLTV.
(2)Represents loans whose repayments are predominantly insured by the FHA or guaranteed by the VA.
 
NONACCRUAL LOANS Table 5.13 provides loans on nonaccrual status. PCI loans are excluded from this table because they continue to earn interest from accretable yield, independent of performance in accordance with their contractual terms.
Table 5.13: Nonaccrual Loans
(in millions)Sep 30,
2016
 Dec 31,
2015
Mar 31,
2017
 Dec 31,
2016
Commercial:          
Commercial and industrial$3,331
 1,363
$2,898
 3,216
Real estate mortgage780
 969
672
 685
Real estate construction59
 66
40
 43
Lease financing92
 26
96
 115
Total commercial4,262
 2,424
3,706
 4,059
Consumer:      
Real estate 1-4 family first mortgage (1)5,310
 7,293
4,743
 4,962
Real estate 1-4 family junior lien mortgage1,259
 1,495
1,153
 1,206
Automobile108
 121
101
 106
Other revolving credit and installment47
 49
56
 51
Total consumer6,724
 8,958
6,053
 6,325
Total nonaccrual loans
(excluding PCI)
$10,986
 11,382
$9,759
 10,384
(1)
Includes MHFS of $150145 million and $177149 million at September 30, 2016March 31, 2017, and December 31, 20152016, respectively.
 
LOANS IN PROCESS OF FORECLOSURE Our recorded investment in consumer mortgage loans collateralized by residential real estate property that are in process of foreclosure was $8.5$7.8 billion and $11.0$8.1 billion at September 30, 2016March 31, 2017 and December 31, 2015,2016, respectively, which included $5.0$4.7 billion and $6.2$4.8 billion, respectively, of loans that are government insured/guaranteed. We commence the foreclosure process on consumer real estate loans when a borrower becomes 120 days delinquent in accordance with Consumer Finance Protection Bureau Guidelines. Foreclosure procedures and timelines vary depending on whether the property address resides in a judicial or non-judicial state. Judicial states require the foreclosure to be processed through the state’s courts while non-judicial states are processed without court intervention. Foreclosure timelines vary according to state law.


Note 5: Loans and Allowance for Credit Losses (continued)

LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING Certain loans 90 days or more past due as to interest or principal are still accruing, because they are (1) well-secured and in the process of collection or (2) real estate 1-4 family mortgage loans or consumer loans exempt under regulatory rules from being classified as nonaccrual until later delinquency, usually 120 days past due. PCI loans of $2.2$1.8 billion at September 30, 2016,March 31, 2017, and $2.9$2.0 billion at December 31, 2015,2016, are not included in these past due and still accruing loans even thoughwhen they are 90 days or more contractually past due. These PCI loans are considered to be accruing because they continue to earn interest from accretable yield, independent of performance in accordance with their contractual terms.
Table 5.14 shows non-PCI loans 90 days or more past due and still accruing by class for loans not government insured/guaranteed.
Table 5.14: Loans 90 Days or More Past Due and Still Accruing
(in millions)Sep 30, 2016
 Dec 31, 2015
Mar 31, 2017
 Dec 31, 2016
Total (excluding PCI):$12,068
 14,380
$10,525
 11,858
Less: FHA insured/guaranteed by the VA (1)(2)11,198
 13,373
9,585
 10,883
Less: Student loans guaranteed under the FFELP (3)17
 26
Less: Student loans guaranteed under the Federal Family Education Loan Program (FFELP) (3)—
 3
Total, not government insured/guaranteed$853
 981
$940
 972
By segment and class, not government insured/guaranteed:      
Commercial:      
Commercial and industrial$47
 97
$88
 28
Real estate mortgage4
 13
11
 36
Real estate construction—
 4
3
 —
Total commercial51
 114
102
 64
Consumer:      
Real estate 1-4 family first mortgage (2)171
 224
149
 175
Real estate 1-4 family junior lien mortgage (2)54
 65
42
 56
Credit card392
 397
453
 452
Automobile81
 79
79
 112
Other revolving credit and installment104
 102
115
 113
Total consumer802
 867
838
 908
Total, not government insured/guaranteed$853
 981
$940
 972
(1)Represents loans whose repayments are predominantly insured by the FHA or guaranteed by the VA.
(2)Includes mortgages held for sale 90 days or more past due and still accruing.
(3)Represents loans whose repayments are predominantlylargely guaranteed by agencies on behalf of the U.S. Department of Education under the FFELP. All remaining student loans guaranteed under the FFELP were sold as of March 31, 2017.

Note 5: Loans and Allowance for Credit Losses (continued)

IMPAIRED LOANS Table 5.15 summarizes key information for impaired loans. Our impaired loans predominantly include loans on nonaccrual status in the commercial portfolio segment and loans modified in a TDR, whether on accrual or nonaccrual status. These impaired loans generally have estimated losses which are included in the allowance for credit losses. We have impaired loans with no allowance for credit losses when loss content has been previously recognized through charge-offs and we do not anticipate additional charge-offs or losses, or certain
 
loans are currently performing in accordance with their terms and for which no loss has been estimated. Impaired loans exclude PCI loans. Table 5.15 includes trial modifications that totaled $348$261 million at September 30, 2016,March 31, 2017, and $402$299 million at December 31, 2015.2016.
For additional information on our impaired loans and allowance for credit losses, see Note 1 (Summary of Significant Accounting Policies) in our 20152016 Form 10-K.

Table 5.15: Impaired Loans Summary
  Recorded investment     Recorded investment   
(in millions)
Unpaid
principal
balance (1)

 
Impaired
loans

 
Impaired loans
with related
allowance for
credit losses

 
Related
allowance for
credit losses

Unpaid
principal
balance (1)

 
Impaired
loans

 
Impaired loans
with related
allowance for
credit losses

 
Related
allowance for
credit losses

September 30, 2016       
March 31, 2017       
Commercial:              
Commercial and industrial$5,054
 3,885
 3,444
 780
$4,833
 3,508
 3,158
 571
Real estate mortgage1,996
 1,588
 1,566
 292
1,722
 1,393
 1,393
 236
Real estate construction186
 103
 103
 23
134
 73
 73
 14
Lease financing119
 96
 96
 18
149
 102
 102
 38
Total commercial7,355
 5,672
 5,209
 1,113
6,838
 5,076
 4,726
 859
Consumer:              
Real estate 1-4 family first mortgage17,189
 15,028
 9,898
 1,328
15,891
 13,872
 9,075
 996
Real estate 1-4 family junior lien mortgage2,486
 2,236
 1,645
 344
2,339
 2,106
 1,628
 326
Credit card294
 294
 294
 100
308
 308
 308
 107
Automobile156
 89
 32
 5
146
 80
 29
 7
Other revolving credit and installment101
 94
 84
 17
117
 109
 99
 18
Total consumer (2)20,226
 17,741
 11,953
 1,794
18,801
 16,475
 11,139
 1,454
Total impaired loans (excluding PCI)$27,581
 23,413
 17,162
 2,907
$25,639
 21,551
 15,865
 2,313
December 31, 2015       
December 31, 2016       
Commercial:              
Commercial and industrial$2,746
 1,835
 1,648
 435
$5,058
 3,742
 3,418
 675
Real estate mortgage2,369
 1,815
 1,773
 405
1,777
 1,418
 1,396
 280
Real estate construction262
 131
 112
 23
167
 93
 93
 22
Lease financing38
 27
 27
 9
146
 119
 119
 23
Total commercial5,415
 3,808
 3,560
 872
7,148
 5,372
 5,026
 1,000
Consumer:              
Real estate 1-4 family first mortgage19,626
 17,121
 11,057
 1,643
16,438
 14,362
 9,475
 1,117
Real estate 1-4 family junior lien mortgage2,704
 2,408
 1,859
 447
2,399
 2,156
 1,681
 350
Credit card299
 299
 299
 94
300
 300
 300
 104
Automobile173
 105
 41
 5
153
 85
 31
 5
Other revolving credit and installment86
 79
 71
 15
109
 102
 91
 17
Total consumer (2)22,888
 20,012
 13,327
 2,204
19,399
 17,005
 11,578
 1,593
Total impaired loans (excluding PCI)$28,303
 23,820
 16,887
 3,076
$26,547
 22,377
 16,604
 2,593
(1)Excludes the unpaid principal balance for loans that have been fully charged off or otherwise have zero recorded investment.
(2)
Includes the recorded investment of $1.6 billion and 1.81.5 billion at both September 30, 2016March 31, 2017, and December 31, 20152016, respectively, of government insured/guaranteed loans that are predominantly insured by the FHA or guaranteed by the VA and generally do not have an allowance. Impaired loans may also have limited, if any, allowance when the recorded investment of the loan approximates estimated net realizable value as a result of charge-offs prior to a TDR modification.
Note 5: Loans and Allowance for Credit Losses (continued)

Commitments to lend additional funds on loans whose terms have been modified in a TDR amounted to $440$630 million and $363$403 million at September 30, 2016March 31, 2017 and December 31, 2015,2016, respectively.
 
Table 5.16 provides the average recorded investment in impaired loans and the amount of interest income recognized on impaired loans by portfolio segment and class.

Table 5.16: Average Recorded Investment in Impaired Loans
Quarter ended September 30,  Nine months ended September 30, Quarter ended March 31, 
2016  2015  2016  2015 2017  2016 
(in millions)
Average
recorded
investment

 
Recognized
interest
income

 
Average
recorded
investment

 
Recognized
interest
income

 
Average
recorded
investment

 
Recognized
interest
income

 
Average
recorded
investment

 
Recognized
interest
income

Average
recorded
investment

 
Recognized
interest
income

 
Average
recorded
investment

 
Recognized
interest
income

Commercial:                      
Commercial and industrial$3,961
 25
 1,407
 21
 3,350
 65
 1,108
 64
$3,675
 33
 2,766
 19
Real estate mortgage1,644
 33
 2,109
 34
 1,699
 99
 2,241
 108
1,394
 27
 1,772
 32
Real estate construction108
 3
 232
 7
 117
 8
 260
 22
84
 1
 130
 2
Lease financing99
 —
 27
 —
 89
 —
 24
 —
119
 —
 75
 —
Total commercial5,812
 61
 3,775
 62
 5,255
 172
 3,633
 194
5,272
 61
 4,743
 53
Consumer:                      
Real estate 1-4 family first mortgage15,471
 203
 17,761
 231
 16,224
 635
 18,125
 697
14,132
 190
 16,911
 221
Real estate 1-4 family junior lien mortgage2,268
 32
 2,467
 34
 2,327
 99
 2,499
 103
2,131
 31
 2,382
 34
Credit card292
 9
 310
 10
 294
 26
 321
 30
302
 8
 297
 9
Automobile90
 3
 111
 3
 95
 9
 118
 11
83
 3
 101
 3
Other revolving credit and installment91
 2
 61
 1
 84
 5
 57
 3
106
 2
 82
 1
Total consumer18,212
 249
 20,710
 279
 19,024
 774
 21,120
 844
16,754
 234
 19,773
 268
Total impaired loans (excluding PCI)$24,024
 310
 24,485
 341
 24,279
 946
 24,753
 1,038
$22,026
 295
 24,516
 321
Interest income:                      
Cash basis of accounting  $87
   104
   274
   323
  $78
   95
Other (1)  223
   237
   672
   715
  217
   226
Total interest income  $310
   341
   946
   1,038
  $295
   321
(1)Includes interest recognized on accruing TDRs, interest recognized related to certain impaired loans which have an allowance calculated using discounting, and amortization of purchase accounting adjustments related to certain impaired loans.


TROUBLED DEBT RESTRUCTURINGS (TDRs)  When, for economic or legal reasons related to a borrower’s financial difficulties, we grant a concession for other than an insignificant period of time to a borrower that we would not otherwise consider, the related loan is classified as a TDR, the balance of which totaled $21.5$20.1 billion and $22.7$20.8 billion at September 30, 2016March 31, 2017 and December 31, 2015,2016, respectively. We do not consider any loans modified through a loan resolutionresolutions such as foreclosure or short sale to be a TDR.
We may require some consumer borrowers experiencing financial difficulty to make trial payments generally for a period of three to four months, according to the terms of a planned permanent modification, to determine if they can perform according to those terms. These arrangements represent trial modifications, which we classify and account for as TDRs. While loans are in trial payment programs, their original terms are not considered modified and they continue to advance through delinquency status and accrue interest according to their original terms. The planned modifications for these arrangements primarily involve interest rate reductions; however, the exact concession type and resulting financial effect are usually not finalized and do not take effect until the loan is permanently modified. The trial period terms are developed in accordance with our proprietary programs or the U.S. Treasury’s Making Home Affordable programs for real estate 1-4 family first lien (i.e. Home Affordable Modification Program – HAMP) and junior lien (i.e. Second Lien Modification Program – 2MP) mortgage loans.

At September 30, 2016, the loans in trial modification period were $146 million under HAMP, $28 million under 2MP and $174 million under proprietary programs, compared with $130 million, $32 million and $240 million at December 31, 2015, respectively. Trial modifications with a recorded investment of $125 million at September 30, 2016, and $136 million at December 31, 2015, were accruing loans and $223 million and $266 million, respectively, were nonaccruing loans. Our experience is that most of the mortgages that enter a trial payment period program are successful in completing the program requirements and are then permanently modified at the end of the trial period. Our allowance process considers the impact of those modifications that are probable to occur.
Table 5.17 summarizes our TDR modifications for the periods presented by primary modification type and includes the financial effects of these modifications. For those loans that modify more than once, the table reflects each modification that occurred during the period. Loans that both modify and pay off
within the period, as well as changes in recorded investment during the period for loans modified in prior periods, are not included in the table.

Note 5: Loans and Allowance for Credit Losses (continued)

Table 5.17: TDR Modifications
 Primary modification type (1)  Financial effects of modifications 
(in millions)Principal (2)
 Interest
rate
reduction
 Other
concessions (3)
 Total
 Charge-
offs (4)
 Weighted
average
interest
rate
reduction
 Recorded
investment
related to
interest rate
reduction (5)
Quarter ended September 30, 2016             
Commercial:             
Commercial and industrial$—
 10
 1,032
 1,042
 61
 1.28% $10
Real estate mortgage—
 28
 168
 196
 1
 0.99
 29
Real estate construction—
 12
 —
 12
 —
 0.80
 12
Lease financing—
 —
 4
 4
 —
 —
 —
Total commercial—
 50
 1,204
 1,254
 62
 1.01
 51
Consumer:             
Real estate 1-4 family first mortgage84
 79
 330
 493
 11
 2.56
 138
Real estate 1-4 family junior lien mortgage5
 25
 22
 52
 9
 3.08
 29
Credit card—
 46
 —
 46
 —
 12.13
 46
Automobile1
 4
 15
 20
 11
 6.42
 4
Other revolving credit and installment—
 9
 3
 12
 —
 6.86
 9
Trial modifications (6)—
 —
 15
 15
 —
 —
 —
Total consumer90
 163
 385
 638
 31
 4.82
 226
Total$90
 213
 1,589
 1,892
 93
 4.13% $277
Quarter ended September 30, 2015             
Commercial:             
Commercial and industrial$3
 11
 487
 501
 58
 1.66% $11
Real estate mortgage—
 44
 154
 198
 —
 1.46
 44
Real estate construction—
 1
 9
 10
 —
 1.00
 1
Lease financing—
 —
 —
 —
 —
 —
 —
Total commercial3
 56
 650
 709
 58
 1.48
 56
Consumer:             
Real estate 1-4 family first mortgage114
 98
 514
 726
 11
 2.51
 188
Real estate 1-4 family junior lien mortgage8
 24
 39
 71
 10
 3.12
 31
Credit card—
 41
 —
 41
 —
 11.48
 41
Automobile—
 1
 22
 23
 10
 7.84
 1
Other revolving credit and installment—
 7
 1
 8
 —
 5.85
 7
Trial modifications (6)—
 —
 (1) (1) —
 —
 —
Total consumer122
 171
 575
 868
 31
 4.06
 268
Total$125
 227
 1,225
 1,577
 89
 3.61% $324

Primary modification type (1)  Financial effects of modifications Primary modification type (1)  Financial effects of modifications 
(in millions)Principal (2)
 
Interest
rate
reduction

 
Other
concessions (3)

 Total
 
Charge-
offs (4)

 
Weighted
average
interest
rate
reduction

 
Recorded
investment
related to
interest rate
reduction (5)

Principal (2)
 
Interest
rate
reduction

 
Other
concessions (3)

 Total
 
Charge-
offs (4)

 
Weighted
average
interest
rate
reduction

 
Recorded
investment
related to
interest rate
reduction (5)

Nine months ended September 30, 2016             
Quarter ended March 31, 2017             
Commercial:                          
Commercial and industrial$42
 123
 2,361
 2,526
 304
 1.95% $123
$—
 6
 928
 934
 65
 0.82% $6
Real estate mortgage—
 81
 462
 543
 1
 1.14
 81
—
 14
 181
 195
 —
 1.00
 14
Real estate construction—
 26
 62
 88
 —
 0.94
 26
—
 —
 3
 3
 —
 2.00
 —
Lease financing—
 —
 8
 8
 —
 —
 —
—
 —
 3
 3
 —
 —
 —
Total commercial42
 230
 2,893
 3,165
 305
 1.55
 230
—
 20
 1,115
 1,135
 65
 0.95
 20
Consumer:                          
Real estate 1-4 family first mortgage272
 222
 1,094
 1,588
 36
 2.66
 395
74
 72
 291
 437
 9
 2.60
 103
Real estate 1-4 family junior lien mortgage17
 81
 82
 180
 30
 3.03
 96
13
 21
 23
 57
 6
 2.95
 24
Credit card—
 131
 —
 131
 —
 12.02
 131
—
 57
 —
 57
 —
 12.22
 57
Automobile2
 11
 44
 57
 27
 6.45
 11
1
 3
 12
 16
 7
 6.42
 3
Other revolving credit and installment—
 25
 8
 33
 1
 6.64
 25
—
 11
 3
 14
 —
 7.29
 11
Trial modifications (6)—
 —
 47
 47
 —
 —
 —
—
 —
 (17) (17) —
 —
 —
Total consumer291
 470
 1,275
 2,036
 94
 4.80
 658
88
 164
 312
 564
 22
 5.72
 198
Total$333
 700
 4,168
 5,201
 399
 3.96% $888
$88
 184
 1,427
 1,699
 87
 5.27% $218
Nine months ended September 30, 2015             
Quarter ended March 31, 2016             
Commercial:                          
Commercial and industrial$3
 26
 1,136
 1,165
 60
 1.17% $26
$42
 78
 632
 752
 106
 1.89% $78
Real estate mortgage4
 114
 734
 852
 1
 1.55
 114
—
 24
 159
 183
 —
 1.13
 24
Real estate construction11
 4
 66
 81
 —
 0.77
 4
—
 —
 44
 44
 —
 —
 —
Lease financing—
 —
 —
 —
 —
 —
 —
—
 —
 4
 4
 —
 —
 —
Total commercial18
 144
 1,936
 2,098
 61
 1.46
 144
42
 102
 839
 983
 106
 1.71
 102
Consumer:                          
Real estate 1-4 family first mortgage296
 269
 1,455
 2,020
 38
 2.53
 508
96
 65
 450
 611
 13
 2.81
 119
Real estate 1-4 family junior lien mortgage25
 65
 129
 219
 30
 3.17
 86
6
 29
 27
 62
 10
 2.92
 34
Credit card—
 125
 —
 125
 —
 11.36
 125
—
 44
 —
 44
 —
 11.94
 44
Automobile1
 3
 66
 70
 27
 8.59
 3
—
 4
 15
 19
 8
 6.54
 4
Other revolving credit and installment—
 20
 5
 25
 1
 5.85
 20
—
 8
 3
 11
 1
 6.10
 8
Trial modifications (6)—
 —
 43
 43
 —
 —
 —
—
 —
 15
 15
 —
 —
 —
Total consumer322
 482
 1,698
 2,502
 96
 4.21
 742
102
 150
 510
 762
 32
 4.94
 209
Total$340
 626
 3,634
 4,600
 157
 3.76% $886
$144
 252
 1,349
 1,745
 138
 3.88% $311
(1)
Amounts represent the recorded investment in loans after recognizing the effects of the TDR, if any. TDRs may have multiple types of concessions, but are presented only once in the first modification type based on the order presented in the table above. The reported amounts include loans remodified of $484657 million and $369348 million, for quarters ended September 30, 2016March 31, 2017 and 2015, and $1.1 billion and $1.5 billion for the first nine months of 2016 and 2015, respectively.
(2)Principal modifications include principal forgiveness at the time of the modification, contingent principal forgiveness granted over the life of the loan based on borrower performance, and principal that has been legally separated and deferred to the end of the loan, with a zero percent contractual interest rate.
(3)Other concessions include loans discharged in bankruptcy, loan renewals, term extensions and other interest and noninterest adjustments, but exclude modifications that also forgive principal and/or reduce the contractual interest rate.
(4)
Charge-offs include write-downs of the investment in the loan in the period it is contractually modified. The amount of charge-off will differ from the modification terms if the loan has been charged down prior to the modification based on our policies. In addition, there may be cases where we have a charge-off/down with no legal principal modification. Modifications resulted in legally forgiving principal (actual, contingent or deferred) of $169 million and $3219 million for the quarters ended September 30, 2016March 31, 2017 and 2015, and $54 million and $78 million for the first nine months of 2016 and 2015, respectively.
(5)Reflects the effect of reduced interest rates on loans with an interest rate concession as one of their concession types, which includes loans reported as a principal primary modification type that also have an interest rate concession.
(6)Trial modifications are granted a delay in payments due under the original terms during the trial payment period. However, these loans continue to advance through delinquency status and accrue interest according to their original terms. Any subsequent permanent modification generally includes interest rate related concessions; however, the exact concession type and resulting financial effect are usually not known until the loan is permanently modified. Trial modifications for the period are presented net of previously reported trial modifications that became permanent in the current period.
Note 5: Loans and Allowance for Credit Losses (continued)

Table 5.18 summarizes permanent modification TDRs that have defaulted in the current period within 12 months of their permanent modification date. We are reporting these defaulted TDRs based on a payment default definition of 90 days past due for the commercial portfolio segment and 60 days past due for the consumer portfolio segment.
 



Table 5.18: Defaulted TDRs
Recorded investment of defaults Recorded investment of defaults 
Quarter ended September 30,  Nine months ended September 30, Quarter ended March 31, 
(in millions)2016
 2015
 2016
 2015
2017
 2016
Commercial:          
Commercial and industrial$39
 12
 84
 58
$62
 25
Real estate mortgage7
 31
 58
 103
21
 20
Real estate construction—
 —
 3
 2
—
 2
Total commercial46
 43
 145
 163
83
 47
Consumer:          
Real estate 1-4 family first mortgage36
 49
 97
 143
25
 31
Real estate 1-4 family junior lien mortgage6
 5
 15
 13
4
 5
Credit card15
 12
 41
 39
15
 13
Automobile4
 3
 10
 9
3
 3
Other revolving credit and installment—
 1
 2
 3
1
 1
Total consumer61
 70
 165
 207
48
 53
Total$107
 113
 310
 370
$131
 100

Purchased Credit-Impaired Loans
Substantially all of our PCI loans were acquired from Wachovia on December 31, 2008, at which time we acquired commercial and consumer loans with a carrying value of $18.7 billion and $40.1 billion, respectively. The unpaid principal balance on December 31, 2008 was $98.2 billion for the total of commercial and consumer PCI loans. Table 5.19 presents PCI loans net of any remaining purchase accounting adjustments. Commercial and industrial PCI loans at September 30, 2016, included $290 million from the GE Capital business acquisitions. Real estate 1-4 family first mortgage PCI loans are predominantly Pick-a-Pay loans.
Table 5.19: PCI Loans
(in millions)Sep 30,
2016
 Dec 31,
2015
Mar 31,
2017
 Dec 31,
2016
Commercial:      
Commercial and industrial$367
 78
$177
 237
Real estate mortgage410
 542
164
 383
Real estate construction60
 92
22
 57
Total commercial837
 712
363
 677
Consumer:      
Real estate 1-4 family first mortgage16,830
 19,190
15,273
 16,018
Real estate 1-4 family junior lien mortgage42
 69
34
 36
Total consumer16,872
 19,259
15,307
 16,054
Total PCI loans (carrying value)$17,709
 19,971
$15,670
 16,731
Total PCI loans (unpaid principal balance)$25,423
 28,278
$22,855
 24,136



ACCRETABLE YIELD The excess of cash flows expected to be collected over the carrying value of PCI loans is referred to as the accretable yield and is recognized in interest income using an effective yield method over the remaining life of the loan, or pools of loans. The accretable yield is affected by:
changes in interest rate indices for variable rate PCI loans – expected future cash flows are based on the variable rates in effect at the time of the regular evaluations of cash flows expected to be collected;
changes in prepayment assumptions – prepayments affect the estimated life of PCI loans which may change the amount of interest income, and possibly principal, expected to be collected; and
changes in the expected principal and interest payments over the estimated weighted-average life – updates to expected
 
cash flows are driven by the credit outlook and actions taken with borrowers. Changes in expected future cash flows from loan modifications are included in the regular evaluations of cash flows expected to be collected.
 
The change in the accretable yield related to PCI loans since the merger with Wachovia is presented in Table 5.20. Changes during thirdfirst quarter 20162017 reflect an expectation, as a result of our quarterly evaluation of PCI cash flows, that prepayment of modified Pick-a-Pay loans will significantly increase over their estimated weighted-average life and that expected loss has decreased as a result of reduced loan to value ratios and sustained higher housing prices.

Table 5.20: Change in Accretable Yield
(in millions)Quarter ended Sep 30, 2016
 Nine months ended Sep 30, 2016
 2009-2015
Quarter
 ended March 31, 2017

 2009-2016
Balance, beginning of period$15,727
 16,301
 10,447
$11,216
 10,447
Change in accretable yield due to acquisitions(11) 58
 132
2
 159
Accretion into interest income (1)(324) (992) (14,212)(357) (15,577)
Accretion into noninterest income due to sales (2)—
 (9) (458)(25) (467)
Reclassification from nonaccretable difference for loans with improving credit-related cash flows 1,163
 1,221
 9,734
406
 10,955
Changes in expected cash flows that do not affect nonaccretable difference (3)(4,936) (4,960) 10,658
(927) 5,699
Balance, end of period $11,619
 11,619
 16,301
$10,315
 11,216
(1)Includes accretable yield released as a result of settlements with borrowers, which is included in interest income.
(2)Includes accretable yield released as a result of sales to third parties, which is included in noninterest income.
(3)Represents changes in cash flows expected to be collected due to the impact of modifications, changes in prepayment assumptions, changes in interest rates on variable rate PCI loans and sales to third parties.

COMMERCIAL PCI CREDIT QUALITY INDICATORS Table 5.21 provides a breakdown of commercial PCI loans by risk category.
 
 

Table 5.21: Commercial PCI Loans by Risk Category
(in millions)
Commercial
and
industrial

 
Real
estate
mortgage

 
Real
estate
construction

 Total
Commercial
and
industrial

 
Real
estate
mortgage

 
Real
estate
construction

 Total
September 30, 2016       
March 31, 2017       
By risk category:              
Pass$154
 262
 49
 465
$21
 129
 14
 164
Criticized213
 148
 11
 372
156
 35
 8
 199
Total commercial PCI loans$367
 410
 60
 837
$177
 164
 22
 363
December 31, 2015       
December 31, 2016       
By risk category:              
Pass$35
 298
 68
 401
$92
 263
 47
 402
Criticized43
 244
 24
 311
145
 120
 10
 275
Total commercial PCI loans$78
 542
 92
 712
$237
 383
 57
 677


Note 5: Loans and Allowance for Credit Losses (continued)

Table 5.22 provides past due information for commercial PCI loans.

Table 5.22: Commercial PCI Loans by Delinquency Status
(in millions)
Commercial
and
industrial

 
Real
estate
mortgage

 
Real
estate
construction

 Total
Commercial
and
industrial

 
Real
estate
mortgage

 
Real
estate
construction

 Total
September 30, 2016       
March 31, 2017       
By delinquency status:              
Current-29 DPD and still accruing$364
 356
 49
 769
$175
 147
 14
 336
30-89 DPD and still accruing3
 1
 —
 4
2
 —
 —
 2
90+ DPD and still accruing—
 53
 11
 64
—
 17
 8
 25
Total commercial PCI loans$367
 410
 60
 837
$177
 164
 22
 363
December 31, 2015       
December 31, 2016       
By delinquency status:              
Current-29 DPD and still accruing$78
 510
 90
 678
$235
 353
 48
 636
30-89 DPD and still accruing—
 2
 —
 2
2
 10
 —
 12
90+ DPD and still accruing—
 30
 2
 32
—
 20
 9
 29
Total commercial PCI loans$78
 542
 92
 712
$237
 383
 57
 677
CONSUMER PCI CREDIT QUALITY INDICATORS Our consumer PCI loans were aggregated into several pools of loans at acquisition. Below, we have provided credit quality indicators based on the unpaid principal balance (adjusted for write-downs) of the individual loans included in the pool, but we have not
 
allocated the remaining purchase accounting adjustments, which were established at a pool level. Table 5.23 provides the delinquency status of consumer PCI loans.
 

Table 5.23: Consumer PCI Loans by Delinquency Status
September 30, 2016  December 31, 2015 March 31, 2017  December 31, 2016 
(in millions)
Real estate
1-4 family
first
mortgage

 
Real estate
1-4 family
junior lien
mortgage

 Total
 
Real estate
1-4 family
first
mortgage

 
Real estate
1-4 family
junior lien
mortgage

 Total
Real estate
1-4 family
first
mortgage

 
Real estate
1-4 family
junior lien
mortgage

 Total
 
Real estate
1-4 family
first
mortgage

 
Real estate
1-4 family
junior lien
mortgage

 Total
By delinquency status:                      
Current-29 DPD and still accruing$16,779
 179
 16,958
 18,086
 202
 18,288
$15,851
 167
 16,018
 16,095
 171
 16,266
30-59 DPD and still accruing1,486
 7
 1,493
 1,686
 7
 1,693
1,276
 6
 1,282
 1,488
 7
 1,495
60-89 DPD and still accruing671
 3
 674
 716
 3
 719
572
 2
 574
 668
 2
 670
90-119 DPD and still accruing229
 1
 230
 293
 2
 295
185
 1
 186
 233
 2
 235
120-179 DPD and still accruing254
 2
 256
 319
 3
 322
209
 1
 210
 238
 2
 240
180+ DPD and still accruing2,271
 8
 2,279
 3,035
 12
 3,047
1,884
 7
 1,891
 2,081
 8
 2,089
Total consumer PCI loans (adjusted unpaid principal balance)$21,690
 200
 21,890
 24,135
 229
 24,364
$19,977
 184
 20,161
 20,803
 192
 20,995
Total consumer PCI loans (carrying value)$16,830
 42
 16,872
 19,190
 69
 19,259
$15,273
 34
 15,307
 16,018
 36
 16,054

Table 5.24 provides FICO scores for consumer PCI loans.

Table 5.24: Consumer PCI Loans by FICO
September 30, 2016  December 31, 2015 March 31, 2017 (1)  December 31, 2016 
(in millions)
Real estate
1-4 family
first
mortgage

 
Real estate
1-4 family
junior lien
mortgage

 Total
 
Real estate
1-4 family
first
mortgage

 
Real estate
1-4 family
junior lien
mortgage

 Total
Real estate
1-4 family
first
mortgage

 
Real estate
1-4 family
junior lien
mortgage

 Total
 
Real estate
1-4 family
first
mortgage

 
Real estate
1-4 family
junior lien
mortgage

 Total
By FICO:                      
< 600$4,643
 50
 4,693
 5,737
 52
 5,789
$5,022
 46
 5,068
 4,292
 46
 4,338
600-6393,167
 26
 3,193
 4,754
 38
 4,792
2,703
 24
 2,727
 3,001
 26
 3,027
640-6794,129
 38
 4,167
 6,208
 48
 6,256
3,075
 34
 3,109
 3,972
 35
 4,007
680-7193,255
 38
 3,293
 4,283
 43
 4,326
2,653
 34
 2,687
 3,170
 37
 3,207
720-7591,801
 25
 1,826
 1,914
 24
 1,938
1,956
 24
 1,980
 1,767
 24
 1,791
760-799933
 16
 949
 910
 13
 923
952
 12
 964
 962
 15
 977
800+257
 4
 261
 241
 3
 244
457
 7
 464
 254
 4
 258
No FICO available3,505
 3
 3,508
 88
 8
 96
3,159
 3
 3,162
 3,385
 5
 3,390
Total consumer PCI loans (adjusted unpaid principal balance)$21,690
 200
 21,890
 24,135
 229
 24,364
$19,977
 184
 20,161
 20,803
 192
 20,995
Total consumer PCI loans (carrying value)$16,830
 42
 16,872
 19,190
 69
 19,259
$15,273
 34
 15,307
 16,018
 36
 16,054
(1)
March 31, 2017 amounts reflect updated FICO score version implemented in first quarter 2017.

Table 5.25 shows the distribution of consumer PCI loans by LTV for real estate 1-4 family first mortgages and by CLTV for real estate 1-4 family junior lien mortgages. 

Table 5.25: Consumer PCI Loans by LTV/CLTV
September 30, 2016  December 31, 2015 March 31, 2017  December 31, 2016 
(in millions)
Real estate
1-4 family
first
mortgage
by LTV

 
Real estate
1-4 family
junior lien
mortgage
by CLTV

 Total
 
Real estate
1-4 family
first
mortgage
by LTV

 
Real estate
1-4 family
junior lien
mortgage
by CLTV

 Total
Real estate
1-4 family
first
mortgage
by LTV

 
Real estate
1-4 family
junior lien
mortgage
by CLTV

 Total
 
Real estate
1-4 family
first
mortgage
by LTV

 
Real estate
1-4 family
junior lien
mortgage
by CLTV

 Total
By LTV/CLTV:                      
0-60%$7,252
 36
 7,288
 5,437
 32
 5,469
$7,710
 40
 7,750
 7,513
 38
 7,551
60.01-80%9,384
 78
 9,462
 10,036
 65
 10,101
8,490
 74
 8,564
 9,000
 76
 9,076
80.01-100%3,871
 56
 3,927
 6,299
 80
 6,379
3,063
 50
 3,113
 3,458
 54
 3,512
100.01-120% (1)926
 21
 947
 1,779
 36
 1,815
575
 15
 590
 669
 18
 687
> 120% (1)255
 8
 263
 579
 15
 594
137
 5
 142
 161
 5
 166
No LTV/CLTV available2
 1
 3
 5
 1
 6
2
 —
 2
 2
 1
 3
Total consumer PCI loans (adjusted unpaid principal balance)$21,690
 200
 21,890
 24,135
 229
 24,364
$19,977
 184
 20,161
 20,803
 192
 20,995
Total consumer PCI loans (carrying value)$16,830
 42
 16,872
 19,190
 69
 19,259
$15,273
 34
 15,307
 16,018
 36
 16,054
(1)Reflects total loan balances with LTV/CLTV amounts in excess of 100%. In the event of default, the loss content would generally be limited to only the amount in excess of 100% LTV/CLTV.


Note 6:  Other Assets
Table 6.1 presents the components of other assets.
Table 6.1: Other Assets
(in millions)Sep 30,
2016
 Dec 31,
2015
Mar 31,
2017
 Dec 31,
2016
Nonmarketable equity investments:      
Cost method:      
Federal bank stock$6,072
 4,814
$6,185
 6,407
Private equity1,459
 1,626
1,484
 1,465
Auction rate securities546
 595
453
 525
Total cost method8,077
 7,035
8,122
 8,397
Equity method:      
LIHTC (1)9,228
 8,314
9,624
 9,714
Private equity3,674
 3,300
3,620
 3,635
Tax-advantaged renewable energy1,599
 1,625
2,013
 2,054
New market tax credit and other312
 408
277
 305
Total equity method14,813
 13,647
15,534
 15,708
Fair value (2)3,441
 3,065
3,780
 3,275
Total nonmarketable equity investments26,331
 23,747
27,436
 27,380
Corporate/bank-owned life insurance19,303
 19,199
19,368
 19,325
Accounts receivable (3)31,220
 26,251
31,570
 31,056
Interest receivable5,309
 5,065
5,486
 5,339
Core deposit intangibles1,850
 2,539
1,407
 1,620
Customer relationship and other amortized intangibles1,137
 614
1,028
 1,089
Foreclosed assets:      
Residential real estate:      
Government insured/guaranteed (3)282
 446
179
 197
Non-government insured/guaranteed322
 414
345
 378
Non-residential real estate416
 565
381
 403
Operating lease assets10,253
 3,782
9,837
 10,089
Due from customers on acceptances265
 273
191
 196
Other (4)26,899
 17,887
10,533
 17,469
Total other assets$123,587
 100,782
$107,761
 114,541
(1)Represents low income housing tax credit investments.
(2)Represents nonmarketable equity investments for which we have elected the fair value option. See Note 13 (Fair Values of Assets and Liabilities) for additional information.
(3)
Certain government-guaranteed residential real estate mortgage loans upon foreclosure are included in Accounts receivable. Both principal and interest related to these foreclosed real estate assets are collectible because the loans were predominantly insured by the FHA or guaranteed by the VA. For more information on ASU 2014-14 and the classification of certain government-guaranteed mortgage loans upon foreclosure, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 20152016 10-K.
(4)Includes derivatives designated as hedging instruments, derivatives not designated as hedging instruments, and derivative loan commitments, which are carried at fair value. See Note 12 (Derivatives) for additional information.

 
Table 6.2 presents income (expense) related to nonmarketable equity investments. 
Table 6.2: Nonmarketable Equity Investments
Quarter ended September 30,  Nine months ended September 30,  Quarter ended March 31, 
(in millions)2016
 2015
 2016
 2015
 2017
 2016
Net realized gains from nonmarketable equity investments$55
 632
 369
 1,462
 $287
 185
All other(83) (161) (404) (587) (45) (186)
Total$(28) 471
 (35) 875
 $242
 (1)
Low Income Housing Tax Credit Investments We invest in affordable housing projects that qualify for the low income housing tax credit (LIHTC), which is designed to promote private development of low income housing. These investments generate a return mostly through realization of federal tax credits.
Total LIHTC investments were $9.2$9.6 billion and $8.3$9.7 billion at September 30, 2016March 31, 2017 and December 31, 2015,2016, respectively. In thirdfirst quarter and first nine months of 2016,2017, we recognized pre-tax losses of $199$230 million and $600 million, respectively, related to our LIHTC investments, compared with $173$202 million and $529 million, respectively, for the same periods a year ago.in first quarter 2016. We also recognized total tax benefits of $308 million and $919$347 million in the thirdfirst quarter and first nine months of 2016,2017, which included tax credits recorded in income taxes of $233 million and $693 million for the same periods, respectively.$261 million. In the thirdfirst quarter and first nine months of 2015,2016, total tax benefits were $269$307 million, and $819 million, respectively, which included tax credits of $203 million and $619 million for the same periods, respectively.$230 million. We are periodically required to provide additional financial support during the investment period. Our liability for these unfunded commitments was $3.4 billion at September 30, 2016March 31, 2017 and $3.0$3.6 billion at December 31, 2015.2016. Predominantly all of this liability is expected to be paid over the next three years. This liability is included in long-term debt.



Note 7: Securitizations and Variable Interest Entities
Involvement with SPEs
In the normal course of business, we enter into various types of on- and off-balance sheet transactions with SPEs, which are corporations, trusts, limited liability companies or partnerships that are established for a limited purpose. Generally, SPEs are formed in connection with securitization transactions and are considered variable interest entities (VIEs). For further description of our involvement with SPEs, see Note 8 (Securitizations and Variable Interest Entities) to Financial Statements in our 20152016 Form 10-K.
 
We have segregated our involvement with VIEs between those VIEs which we consolidate, those which we do not consolidate and those for which we account for the transfers of financial assets as secured borrowings. Secured borrowings are transactions involving transfers of our financial assets to third parties that are accounted for as financings with the assets pledged as collateral. Accordingly, the transferred assets remain recognized on our balance sheet. Subsequent tables within this Note further segregate these transactions by structure type.
Table 7.1 provides the classifications of assets and liabilities in our balance sheet for our transactions with VIEs.

Table 7.1: Balance Sheet Transactions with VIEs
(in millions)
VIEs that we
do not
consolidate

 
VIEs
that we
consolidate

Transfers that
we account
for as secured
borrowings
  Total
VIEs that we
do not
consolidate

 
VIEs
that we
consolidate

Transfers that
we account
for as secured
borrowings
  Total
September 30, 2016     
March 31, 2017     
Cash$—
 145
 —
 145
$—
 128
 —
 128
Federal funds sold, securities purchased under resale agreements and other short-term investments—
 90
 —
 90
—
 485
 —
 485
Trading assets2,335
 130
 203
 2,668
1,546
 126
 201
 1,873
Investment securities (1)
9,331
 244
 1,048
 10,623
7,221
 —
 650
 7,871
Loans7,865
 12,417
 4,144
 24,426
6,527
 13,056
 127
 19,710
Mortgage servicing rights10,830
 —
 —
 10,830
13,704
 —
 —
 13,704
Derivative assets68
 1
 —
 69
Other assets9,804
 414
 14
 10,232
10,148
 361
 10
 10,519
Total assets40,165
 13,440
 5,409
 59,014
39,214
 14,157
 988
 54,359
Short-term borrowings—
 —
 1,066
 1,066
—
 —
 783
 783
Derivative liabilities57
 30
(2)—
 87
Accrued expenses and other liabilities
413
 79
(2)2
 494
287
 103
(2)2
 392
Long-term debt
3,360
 3,850
(2)4,115
 11,325
3,351
 3,640
(2)129
 7,120
Total liabilities3,773
 3,929
 5,183
 12,885
3,695
 3,773
 914
 8,382
Noncontrolling interests—
 147
 —
 147
—
 132
 —
 132
Net assets$36,392
 9,364
 226
 45,982
$35,519
 10,252
 74
 45,845
December 31, 2015       
December 31, 2016       
Cash$—
 157
 —
 157
$—
 168
 —
 168
Federal funds sold, securities purchased under resale agreements and other short-term investments—
 —
 —
 —
—
 74
 —
 74
Trading assets1,340
 1
 203
 1,544
2,034
 130
 201
 2,365
Investment securities (1)12,388
 425
 2,171
 14,984
8,530
 —
 786
 9,316
Loans9,661
 4,811
 4,887
 19,359
6,698
 12,589
 138
 19,425
Mortgage servicing rights12,518
 —
 —
 12,518
13,386
 —
 —
 13,386
Derivative assets91
 1
 —
 92
Other assets8,938
 242
 26
 9,206
10,281
 452
 11
 10,744
Total assets44,845
 5,636
 7,287
 57,768
41,020
 13,414
 1,136
 55,570
Short-term borrowings—
 —
 1,799
 1,799
—
 —
 905
 905
Derivative liabilities59
 33
(2)—
 92
Accrued expenses and other liabilities629
 57
(2)1
 687
306
 107
(2)2
 415
Long-term debt3,021
 1,301
(2)4,844
 9,166
3,598
 3,694
(2)136
 7,428
Total liabilities3,650
 1,358
 6,644
 11,652
3,963
 3,834
 1,043
 8,840
Noncontrolling interests—
 93
 —
 93
—
 138
 —
 138
Net assets$41,195
 4,185
 643
 46,023
$37,057
 9,442
 93
 46,592
(1)Excludes certain debt securities related to loans serviced for the Federal National Mortgage Association (FNMA), Federal Home Loan Mortgage Corporation (FHLMC) and GNMA.
(2)
There were no VIE liabilities with recourse to the general credit of Wells Fargo for the periods presented.

Note 7: Securitizations and Variable Interest Entities (continued)

Transactions with Unconsolidated VIEs
Our transactions with unconsolidated VIEs include securitizations of residential mortgage loans, CRE loans, student loans, automobile loans and leases, certain dealer floorplan loans; investment and financing activities involving collateralized debt obligations (CDOs) backed by asset-backed and CRE
securities, tax credit structures, collateralized loan obligations (CLOs) backed by corporate loans, and other types of structured financing. We have various forms of involvement with VIEs, including servicing, holding senior or subordinated interests, entering into liquidity arrangements, credit default swaps and other derivative contracts. Involvements with these

Note 7: Securitizations and Variable Interest Entities (continued)

unconsolidated VIEs are recorded on our balance sheet in trading assets, investment securities, loans, MSRs, derivative assets and liabilities, other assets, other liabilities, and long-term debt, as appropriate.
Table 7.2 provides a summary of unconsolidated VIEs with which we have significant continuing involvement, but we are not the primary beneficiary. We do not consider our continuing involvement in an unconsolidated VIE to be significant when it relates to third-party sponsored VIEs for which we were not the transferor (unless we are servicer and have other significant forms of involvement) or if we were the sponsor only or sponsor
and servicer but do not have any other forms of significant involvement.
Significant continuing involvement includes transactions where we were the sponsor or transferor and have other significant forms of involvement. Sponsorship includes transactions with unconsolidated VIEs where we solely or materially participated in the initial design or structuring of the
entity or marketing of the transaction to investors. When we transfer assets to a VIE and account for the transfer as a sale, we are considered the transferor. We consider investments in securities (other than those held temporarily in trading), loans, guarantees, liquidity agreements, written options and servicing of collateral to be other forms of involvement that may be significant. We have excluded certain transactions with unconsolidated VIEs from the balances presented in the following table where we have determined that our continuing involvement is not significant due to the temporary nature and size of our variable interests, because we were not the transferor or because we were not involved in the design of the unconsolidated VIEs. We also exclude from the table secured borrowing transactions with unconsolidated VIEs (for information on these transactions, see the Transactions with Consolidated VIEs and Secured Borrowings section in this Note).

Table 7.2: Unconsolidated VIEs
  Carrying value – asset (liability)   Carrying value – asset (liability) 
(in millions)
Total
VIE
assets

 
Debt and
equity
interests (1)

 
Servicing
assets

 Derivatives
 
Other
commitments
and
guarantees

 
Net
assets

Total
VIE
assets

 
Debt and
equity
interests (1)

 
Servicing
assets

 Derivatives
 
Other
commitments
and
guarantees

 
Net
assets

September 30, 2016           
March 31, 2017           
Residential mortgage loan securitizations:                      
Conforming (2)$1,169,571
 2,997
 9,908
 —
 (245) 12,660
$1,176,819
 2,539
 12,750
 —
 (226) 15,063
Other/nonconforming20,764
 1,075
 108
 —
 (2) 1,181
17,459
 824
 101
 —
 (2) 923
Commercial mortgage securitizations169,236
 4,820
 814
 309
 (32) 5,911
152,603
 3,115
 853
 62
 (34) 3,996
Collateralized debt obligations:                      
Debt securities2,353
 —
 —
 17
 (31) (14)1,336
 —
 —
 —
 (25) (25)
Loans (3)1,564
 1,527
 —
 —
 —
 1,527
1,527
 1,489
 —
 —
 —
 1,489
Asset-based finance structures11,699
 7,967
 —
 —
 —
 7,967
8,039
 6,142
 —
 —
 —
 6,142
Tax credit structures27,896
 10,111
 —
 —
 (3,387) 6,724
29,808
 10,642
 —
 —
 (3,351) 7,291
Collateralized loan obligations102
 10
 —
 —
 —
 10
49
 10
 —
 —
 —
 10
Investment funds209
 49
 —
 —
 —
 49
220
 52
 —
 —
 —
 52
Other (4)13,687
 454
 —
 (77) —
 377
1,720
 629
 —
 (51) —
 578
Total$1,417,081
 29,010
 10,830
 249
 (3,697) 36,392
$1,389,580
 25,442
 13,704
 11
 (3,638) 35,519
  Maximum exposure to loss   Maximum exposure to loss 
  
Debt and
equity
interests (1)

 
Servicing
assets

 Derivatives
 
Other
commitments
and
guarantees

 
Total
exposure

  
Debt and
equity
interests (1)

 
Servicing
assets

 Derivatives
 
Other
commitments
and
guarantees

 
Total
exposure

Residential mortgage loan securitizations:                      
Conforming  $2,997
 9,908
 —
 967
 13,872
  $2,539
 12,750
 —
 929
 16,218
Other/nonconforming  1,075
 108
 —
 2
 1,185
  824
 101
 —
 2
 927
Commercial mortgage securitizations  4,820
 814
 309
 9,130
 15,073
  3,115
 853
 72
 9,783
 13,823
Collateralized debt obligations:                      
Debt securities  —
 —
 17
 31
 48
  —
 —
 —
 25
 25
Loans (3)  1,527
 —
 —
 —
 1,527
  1,489
 —
 —
 —
 1,489
Asset-based finance structures  7,967
 —
 —
 444
 8,411
  6,142
 —
 —
 71
 6,213
Tax credit structures  10,111
 —
 —
 970
 11,081
  10,642
 —
 —
 941
 11,583
Collateralized loan obligations  10
 —
 —
 —
 10
  10
 —
 —
 —
 10
Investment funds  49
 —
 —
 —
 49
  52
 —
 —
 —
 52
Other (4)  454
 —
 114
 —
 568
  629
 —
 89
 —
 718
Total  $29,010
 10,830
 440
 11,544
 51,824
  $25,442
 13,704
 161
 11,751
 51,058
(continued on following page)

(continued from previous page)
  Carrying value – asset (liability)   Carrying value – asset (liability) 
(in millions)
Total
VIE
assets

 
Debt and
equity
interests (1)

 
Servicing
assets

 Derivatives
 
Other
commitments
and
guarantees

 
Net
assets

Total
VIE
assets

 
Debt and
equity
interests (1)

 
Servicing
assets

 Derivatives
 
Other
commitments
and
guarantees

 
Net
assets

December 31, 2015           
December 31, 2016           
Residential mortgage loan securitizations:                      
Conforming (2)$1,199,225
 2,458
 11,665
 —
 (386) 13,737
$1,166,296
 3,026
 12,434
 —
 (232) 15,228
Other/nonconforming24,809
 1,228
 141
 —
 (1) 1,368
18,805
 873
 109
 —
 (2) 980
Commercial mortgage securitizations184,959
 6,323
 712
 203
 (26) 7,212
166,596
 4,258
 843
 87
 (35) 5,153
Collateralized debt obligations:                      
Debt securities3,247
 —
 —
 64
 (57) 7
1,472
 —
 —
 —
 (25) (25)
Loans (3)3,314
 3,207
 —
 —
 —
 3,207
1,545
 1,507
 —
 —
 —
 1,507
Asset-based finance structures13,063
 8,956
 —
 (66) —
 8,890
9,152
 6,522
 —
 —
 —
 6,522
Tax credit structures26,099
 9,094
 —
 —
 (3,047) 6,047
29,713
 10,669
 —
 —
 (3,609) 7,060
Collateralized loan obligations898
 213
 —
 —
 —
 213
78
 10
 —
 —
 —
 10
Investment funds1,131
 47
 —
 —
 —
 47
214
 48
 —
 —
 —
 48
Other (4)12,690
 511
 —
 (44) —
 467
1,733
 630
 —
 (56) —
 574
Total$1,469,435
 32,037
 12,518
 157
 (3,517) 41,195
$1,395,604
 27,543
 13,386
 31
 (3,903) 37,057
  Maximum exposure to loss   Maximum exposure to loss 
  
Debt and
equity
interests (1)

 
Servicing
assets

 Derivatives
 
Other
commitments
and
guarantees

 
Total
exposure

  
Debt and
equity
interests (1)

 
Servicing
assets

 Derivatives
 
Other
commitments
and
guarantees

 
Total
exposure

Residential mortgage loan securitizations:                      
Conforming  $2,458
 11,665
 —
 1,452
 15,575
  $3,026
 12,434
 —
 979
 16,439
Other/nonconforming  1,228
 141
 —
 1
 1,370
  873
 109
 —
 2
 984
Commercial mortgage securitizations  6,323
 712
 203
 7,152
 14,390
  4,258
 843
 94
 9,566
 14,761
Collateralized debt obligations:                      
Debt securities  —
 —
 64
 57
 121
  —
 —
 —
 25
 25
Loans (3)  3,207
 —
 —
 —
 3,207
  1,507
 —
 —
 —
 1,507
Asset-based finance structures  8,956
 —
 76
 444
 9,476
  6,522
 —
 —
 72
 6,594
Tax credit structures  9,094
 —
 —
 866
 9,960
  10,669
 —
 —
 1,104
 11,773
Collateralized loan obligations  213
 —
 —
 —
 213
  10
 —
 —
 —
 10
Investment funds  47
 —
 —
 —
 47
  48
 —
 —
 —
 48
Other (4)  511
 —
 117
 150
 778
  630
 —
 93
 —
 723
Total  $32,037
 12,518
 460
 10,122
 55,137
  $27,543
 13,386
 187
 11,748
 52,864
(1)
Includes total equity interests of $9.810.1 billion and $8.910.3 billion at September 30, 2016March 31, 2017, and December 31, 20152016, respectively. Also includes debt interests in the form of both loans and securities. Excludes certain debt securities held related to loans serviced for FNMA, FHLMC and GNMA.
(2)
Excludes assets and related liabilities with a recorded carrying value on our balance sheet of $1.2 billion888 million and $1.31.2 billion at September 30, 2016March 31, 2017, and December 31, 20152016, respectively, for certain delinquent loans that are eligible for repurchase from GNMA loan securitizations. The recorded carrying value represents the amount that would be payable if the Company was to exercise the repurchase option. The carrying amounts are excluded from the table because the loans eligible for repurchase do not represent interests in the VIEs.
(3)
Represents senior loans to trusts that are collateralized by asset-backed securities. The trusts invest predominantly in senior tranches from a diversified pool of U.S. asset securitizations, of which all are current and 100% and 70%were rated as investment grade by the primary rating agencies at both September 30, 2016March 31, 2017, and December 31, 20152016, respectively.. These senior loans are accounted for at amortized cost and are subject to the Company’s allowance and credit charge-off policies.
(4)Includes structured financing and credit-linked note structures. Also contains investments in auction rate securities (ARS) issued by VIEs that we do not sponsor and, accordingly, are unable to obtain the total assets of the entity.


Note 7: Securitizations and Variable Interest Entities (continued)

In Table 7.2, “Total VIE assets” represents the remaining principal balance of assets held by unconsolidated VIEs using the most current information available. For VIEs that obtain exposure to assets synthetically through derivative instruments, the remaining notional amount of the derivative is included in the asset balance. “Carrying value” is the amount in our consolidated balance sheet related to our involvement with the unconsolidated VIEs. “Maximum exposure to loss” from our involvement with off-balance sheet entities, which is a required disclosure under GAAP, is determined as the carrying value of our involvement with off-balance sheet (unconsolidated) VIEs plus the remaining undrawn liquidity and lending commitments, the notional amount of net written derivative contracts, and generally the notional amount of, or stressed loss estimate for, other commitments and guarantees. It represents estimated loss that would be incurred under severe, hypothetical circumstances, for which we believe the possibility is extremely remote, such as where the value of our interests and any associated collateral declines to zero, without any consideration of recovery or offset from any economic hedges. Accordingly, this required disclosure is not an indication of expected loss.
For complete descriptions of our types of transactions with unconsolidated VIEs with which we have a significant continuing involvement, but we are not the primary beneficiary, see Note 8 (Securitizations
(Securitizations and Variable Interest Entities) to Financial Statements in our 20152016 Form 10-K.

INVESTMENT FUNDS In first quarter 2016, we adoptedSubsequent to adopting ASU 2015-02 (Amendments to the Consolidation Analysis) which changed the consolidation analysis for certain investment funds. Wein first quarter 2016, we do not consolidate these investment funds because we do not hold variable interests that are considered significant to the funds.
We voluntarily waived a portion of our management fees for certain money market funds that are exempt from the consolidation analysis to ensure the funds maintained a minimum level of daily net investment income. The amount of fees waived in the third quarter and first nine months of 2016 was $28$14 million and $84$30 million respectively, compared with $50 millionin first quarter 2017 and $159 million, respectively, in the same periods of 2015.2016, respectively.

OTHER TRANSACTIONS WITH VIEs  Other VIEs include certain entities that issue auction rate securities (ARS) which are debt instruments with long-term maturities, that re-price more frequently, and preferred equities with no maturity. At September 30,both March 31, 2017 and December 31, 2016, we held $453 million of ARS issued by VIEs compared with $502 million at December 31, 2015.VIEs. We acquired the ARS pursuant to agreements entered into in 2008 and 2009.
We do not consolidate the VIEs that issued the ARS because we do not have power over the activities of the VIEs.
Note 7: Securitizations and Variable Interest Entities (continued)

TRUST PREFERRED SECURITIES  VIEs that we wholly own issue debt securities or preferred equity to third party investors. All of the proceeds of the issuance are invested in debt securities or preferred equity that we issue to the VIEs. The VIEs’ operations and cash flows relate only to the issuance, administration and repayment of the securities held by third parties. We do not consolidate these VIEs because the sole assets of the VIEs are receivables from us, even though we own all of the voting equity shares of the VIEs, have fully guaranteed the obligations of the VIEs and may have the right to redeem the third party securities under certain circumstances. In our consolidated balance sheet at September 30, 2016,March 31, 2017, and December 31, 2015,2016, we reported the debt securities issued to the VIEs as long-term junior subordinated debt with a carrying value of $2.3$2.1 billion and $2.2 billion, respectively, and the preferred equity securities issued to the VIEs as preferred stock with a carrying value of $2.5 billion at both
dates. These amounts are in addition to the involvements in these VIEs included in the preceding table.
 
Loan Sales and Securitization Activity
We periodically transfer consumer and CRE loans and other types of financial assets in securitization and whole loan sale transactions. We typically retain the servicing rights from these sales and may continue to hold other beneficial interests in the transferred financial assets. We may also provide liquidity to investors in the beneficial interests and credit enhancements in the form of standby letters of credit. Through these transfers we may be exposed to liability under limited amounts of recourse as well as standard representations and warranties we make to purchasers and issuers. Table 7.3 presents the cash flows for our transfers accounted for as sales.


Table 7.3: Cash Flows From Sales and Securitization Activity
2016  2015 2017  2016 
(in millions)
Mortgage
loans

 
Other
financial
assets

 
Mortgage
loans

 
Other
financial
assets

Mortgage
loans

 
Other
financial
assets

 
Mortgage
loans

 
Other
financial
assets

Quarter ended September 30,  
   
   
   
Quarter ended March 31,       
Proceeds from securitizations and whole loan sales$66,830
 53
 52,733
 192
$58,257
 21
 45,016
 50
Fees from servicing rights retained891
 —
 902
 1
854
 —
 881
 —
Cash flows from other interests held (1)930
 —
 328
 10
834
 —
 407
 1
Repurchases of assets/loss reimbursements (2):              
Non-agency securitizations and whole loan transactions4
 —
 3
 —
2
 —
 3
 —
Agency securitizations (3)22
 —
 72
 —
23
 —
 47
 —
Servicing advances, net of repayments(52) —
 (88) —
(142) —
 (68) —
Nine months ended September 30,       
Proceeds from securitizations and whole loan sales$178,301
 186
 153,626
 373
Fees from servicing rights retained2,636
 —
 2,760
 5
Cash flows from other interests held (1)1,964
 1
 942
 33
Repurchases of assets/loss reimbursements (2):       
Non-agency securitizations and whole loan transactions22
 —
 10
 —
Agency securitizations (3)104
 —
 210
 —
Servicing advances, net of repayments(159) —
 (342) —
(1)Cash flows from other interests held include principal and interest payments received on retained bonds and excess cash flows received on interest-only strips.
(2)Consists of cash paid to repurchase loans from investors and cash paid to investors to reimburse them for losses on individual loans that are already liquidated.
(3)
Represent loans repurchased from GNMA, FNMA, and FHLMC under representation and warranty provisions included in our loan sales contracts. ThirdFirst quarter 2017and first nine months of 2016 exclude $$2.42.3 billion and $7.3$2.9 billion, respectively, in delinquent insured/guaranteed loans that we service and have exercised our option to purchase out of GNMA pools, compared with $2.2 billion and $8.2 billion, respectively, in the same periods of 2015.pools. These loans are predominantly insured by the FHA or guaranteed by the VA.

In the thirdfirst quarter 2017 and first nine months of 2016, we recognized net gains of $141$132 million and $436$195 million, respectively, from transfers accounted for as sales of financial assets, compared with $88 million and $404 million, respectively, in the same periods of 2015.assets. These net gains largely relate to commercial mortgage securitizations and residential mortgage securitizations where the loans were not already carried at fair value.
Sales with continuing involvement during the thirdfirst quarter 2017 and first nine months of 2016 and 2015 largely related to securitizations of residential mortgages that are sold to the government-sponsored entities (GSEs), including FNMA, FHLMC and GNMA (conforming residential mortgage securitizations). During the thirdfirst quarter 2017 and first nine months of 2016, we transferred $63.3$55.5 billion and $165.6$37.3 billion, respectively, in fair value of residential mortgages to unconsolidated VIEs and third-party investors and recorded the transfers as sales, compared with $50.2 billion and $143.1 billion, respectively, in the same periods of 2015.sales. Substantially all of these transfers did not result in a gain or loss because the loans were already carried at fair value. In connection with all of these transfers, in the first nine months of 2016,quarter 2017, we recorded a $1.3 billion$546 million servicing asset, measured at fair value using a Level 3 measurement technique, securities of $3.0$2.8 billion, classified as Level 2, and a $26$8 million liability for repurchase losses which reflects management’s estimate of probable losses related to various representations and warranties for the loans transferred, initially measured at fair value. In the first nine months of 2015,quarter 2016, we recorded a $1.2 billion$315 million servicing asset, securities of $787$832 million, and a $34$7 million liability.
Table 7.4 presents the key weighted-average assumptions we used to measure residential mortgage servicing rights at the date of securitization.
 
Table 7.4: Residential Mortgage Servicing Rights
Residential mortgage
servicing rights
 
Residential mortgage
servicing rights
 
2016
 2015
2017
 2016
Quarter ended September 30,  
   
Quarter ended March 31,   
Prepayment speed (1)12.4% 11.5
10.3% 13.0
Discount rate6.2
 7.1
6.8
 6.8
Cost to service ($ per loan) (2)$124
 223
$134
 146
Nine months ended September 30,   
Prepayment speed (1)12.5% 12.1
Discount rate6.5
 7.4
Cost to service ($ per loan) (2)$136
 232
(1)The prepayment speed assumption for residential mortgage servicing rights includes a blend of prepayment speeds and default rates. Prepayment speed assumptions are influenced by mortgage interest rate inputs as well as our estimation of drivers of borrower behavior.
(2)Includes costs to service and unreimbursed foreclosure costs, which can vary period to period depending on the mix of modified government-guaranteed loans sold to GNMA.
During the thirdfirst quarter 2017 and first nine months of 2016, we transferred $4.0$3.3 billion and $13.9$8.1 billion, respectively, in carrying value of commercial mortgages to unconsolidated VIEs and third-party investors and recorded the transfers as sales, compared with $3.0 billion and $12.5 billion in the same periods of 2015, respectively.sales. These transfers resulted in gains of $134$96 million and $327$135 million infor the third quarter and first nine months of 2016,same periods, respectively, because the loans were carried at lower of cost ofor market value (LOCOM), compared with gains of $63 million and $263 million in the third quarter and first nine months of 2015, respectively.. In connection with these transfers, in the first nine months of 2016,quarter 2017, we recorded a servicing asset of $204$45 million, initially measured at fair value using a Level 3 measurement technique, and no securities of $236 million,were classified as Level 2. In the first nine months of 2015,quarter 2016, we recorded a servicing asset of $131$97 million and securities of $209$86 million.


Note 7: Securitizations and Variable Interest Entities (continued)

Retained Interests from Unconsolidated VIEs
Table 7.5 provides key economic assumptions and the sensitivity of the current fair value of residential mortgage servicing rights and other interests held to immediate adverse changes in those assumptions. “Other interests held” relate to residential and commercial mortgage loan securitizations. Residential mortgage-backed securities retained in securitizations issued through GSEs, such as FNMA, FHLMC and GNMA, are excluded from the table because these securities have a remote risk of credit loss due to
 
the GSE guarantee. These securities also have economic characteristics similar to GSE mortgage-backed securities that we purchase, which are not included in the table. Subordinated interests include only those bonds whose credit rating was below AAA by a major rating agency at issuance. Senior interests include only those bonds whose credit rating was AAA by a major rating agency at issuance. The information presented excludes trading positions held in inventory.

Table 7.5: Retained Interests from Unconsolidated VIEs
  Other interests held   Other interests held 
Residential
mortgage
servicing
rights (1)

 
Interest-only
strips

 Consumer
 Commercial (2) 
Residential
mortgage
servicing
rights (1)

 
Interest-only
strips

 Consumer
 Commercial (2) 
($ in millions, except cost to service amounts) 
Subordinated
bonds

 
Subordinated
bonds

 
Senior
bonds

 
Subordinated
bonds

 
Subordinated
bonds

 
Senior
bonds

Fair value of interests held at September 30, 2016$10,415
 30
 1
 285
 656
Fair value of interests held at March 31, 2017$13,208
 26
 —
 346
 545
Expected weighted-average life (in years)5.3
 3.6
 9.2
 1.2
 5.8
6.4
 3.9
 0.0
 4.5
 5.5
Key economic assumptions:                  
Prepayment speed assumption (3)13.5% 18.9
 15.3
      10.2% 17.2
 —
    
Decrease in fair value from:                  
10% adverse change$585
 1
 —
    $570
 1
 —
    
25% adverse change1,376
 2
 —
    1,353
 2
 —
    
Discount rate assumption6.2% 12.1
 9.9
 9.1
 3.2
6.9% 13.6
 —
 4.3
 2.9
Decrease in fair value from:                  
100 basis point increase$485
 1
 —
 3
 31
$658
 1
 —
 12
 24
200 basis point increase927
 1
 —
 6
 61
1,257
 1
 —
 23
 47
Cost to service assumption ($ per loan)161
        150
        
Decrease in fair value from:                  
10% adverse change509
        498
        
25% adverse change1,271
        1,246
        
Credit loss assumption    2.6% 2.3
 —
    —% 3.4
 —
Decrease in fair value from:                  
10% higher losses    $—
 1
 —
    $—
 —
 —
25% higher losses    —
 1
 —
    —
 —
 —
Fair value of interests held at December 31, 2015$12,415
 34
 1
 342
 673
Fair value of interests held at December 31, 2016$12,959
 28
 1
 249
 552
Expected weighted-average life (in years)6.0
 3.6
 11.6
 1.9
 5.8
6.3
 3.9
 8.3
 3.1
 5.1
Key economic assumptions:        
               
Prepayment speed assumption (3)11.4% 19.0
 15.1
      10.3% 17.4
 13.5
    
Decrease in fair value from:        
               
10% adverse change$616
 1
 —
      $583
 1
 —
    
25% adverse change1,463
 3
 —
      1,385
 2
 —
    
Discount rate assumption7.3% 13.8
 10.5
 5.3
 3.0
6.8% 13.3
 10.7
 5.2
 2.7
Decrease in fair value from:        
               
100 basis point increase$605
 1
 —
 6
 33
$649
 1
 —
 7
 23
200 basis point increase1,154
 1
 —
 11
 63
1,239
 1
 —
 12
 45
Cost to service assumption ($ per loan)168
      
      155
        
Decrease in fair value from:        
               
10% adverse change567
      
      515
        
25% adverse change1,417
      
      1,282
        
Credit loss assumption      1.1% 2.8
 —
    3.0% 4.7
 —
Decrease in fair value from:        
               
10% higher losses      $—
 —
 —
    $—
 —
 —
25% higher losses      —
 2
 —
    —
 —
 —
(1)See narrative following this table for a discussion of commercial mortgage servicing rights.
(2)Prepayment speed assumptions do not significantly impact the value of commercial mortgage securitization bonds as the underlying commercial mortgage loans experience significantly lower prepayments due to certain contractual restrictions, impacting the borrower’s ability to prepay the mortgage.
(3)The prepayment speed assumption for residential mortgage servicing rights includes a blend of prepayment speeds and default rates. Prepayment speed assumptions are influenced by mortgage interest rate inputs as well as our estimation of drivers of borrower behavior.
Note 7: Securitizations and Variable Interest Entities (continued)

In addition to residential mortgage servicing rights (MSRs) included in the previous table, we have a small portfolio of commercial MSRs with a fair value of $1.6$2.1 billion and $1.7$2.0 billion at September 30, 2016,March 31, 2017, and December 31, 2015,2016, respectively. The nature of our commercial MSRs, which are carried at LOCOM, is different from our residential MSRs. Prepayment activity on serviced loans does not significantly impact the value of commercial MSRs because, unlike residential mortgages, commercial mortgages experience significantly lower prepayments due to certain contractual restrictions, impacting the borrower’s ability to prepay the mortgage. Additionally, for our commercial MSR portfolio, we are typically master/primary servicer, but not the special servicer, who is separately responsible for the servicing and workout of delinquent and foreclosed loans. It is the special servicer, similar to our role as servicer of residential mortgage loans, who is affected by higher servicing and foreclosure costs due to an increase in delinquent and foreclosed loans. Accordingly, prepayment speeds and costs to service are not key assumptions for commercial MSRs as they do not significantly impact the valuation. The primary economic driver impacting the fair value of our commercial MSRs is forward interest rates, which are derived from market observable yield curves used to price capital markets instruments. Market interest rates significantly affect interest earned on custodial deposit balances. The sensitivity of the current fair value to an immediate adverse 25% change in the assumption about interest earned on deposit balances at September 30, 2016,March 31, 2017, and December 31, 2015,2016, results in a decrease in fair value of $183$270 million and $150$259 million, respectively. See Note 8 (Mortgage Banking Activities) for further information on our commercial MSRs.
We also have a loan to an unconsolidated third party VIE that we extended in fourth quarter 2014 in conjunction with our sale of government guaranteed student loans. The loan is carried at amortized cost and approximates fair value at September 30, 2016,March 31, 2017, and December 31, 2015.2016. The carrying amount of the loan at September 30, 2016,March 31, 2017, and December 31, 2015,2016, was $4.4$3.1 billion and $4.9$3.2 billion, respectively. The estimated fair value of the loan is considered a Level 3 measurement that is determined using
discounted cash flows that are based on changes in the discount
rate due to changes in the risk premium component (credit spreads). The primary economic assumption impacting the fair value of our loan is the discount rate. Changes in the credit loss assumption are not expected to affect the estimated fair value of the loan due to the government guarantee of the underlying collateral. The sensitivity of the current fair value to an immediate adverse increase of 200 basis points in the risk premium component of the discount rate assumption is a decrease in fair value of $93$129 million and $82$154 million at September 30, 2016,March 31, 2017, and December 31, 2015,2016, respectively.
The sensitivities in the preceding paragraphs and table are hypothetical and caution should be exercised when relying on this data. Changes in value based on variations in assumptions generally cannot be extrapolated because the relationship of the change in the assumption to the change in value may not be linear. Also, the effect of a variation in a particular assumption on the value of the other interests held is calculated independently without changing any other assumptions. In reality, changes in one factor may result in changes in others (for example, changes in prepayment speed estimates could result in changes in the credit losses), which might magnify or counteract the sensitivities.

Off-Balance Sheet Loans
Table 7.6 presents information about the principal balances of off-balance sheet loans that were sold or securitized, including residential mortgage loans sold to FNMA, FHLMC, GNMA and other investors, for which we have some form of continuing involvement (including servicer). Delinquent loans include loans 90 days or more past due and loans in bankruptcy, regardless of delinquency status. For loans sold or securitized where servicing is our only form of continuing involvement, we would only experience a loss if we were required to repurchase a delinquent loan or foreclosed asset due to a breach in representations and warranties associated with our loan sale or servicing contracts.



Table 7.6: Off-Balance Sheet Loans Sold or Securitized
        Net charge-offs         Net charge-offs 
Total loans  Delinquent loans and foreclosed assets (1)  Nine months ended September 30, Total loans  Delinquent loans and foreclosed assets (1)  Quarter ended Mar 31, 
(in millions)Sep 30, 2016
 Dec 31, 2015
 Sep 30, 2016
 Dec 31, 2015
 2016
 2015
Mar 31, 2017
 Dec 31, 2016
 Mar 31, 2017
 Dec 31, 2016
 2017
 2016
Commercial:                      
Real estate mortgage$108,251
 110,815
 3,284
 6,670
 210
 301
$100,695
 106,745
 3,076
 3,325
 295
 83
Total commercial108,251
 110,815
 3,284
 6,670
 210
 301
100,695
 106,745
 3,076
 3,325
 295
 83
Consumer:                      
Real estate 1-4 family first mortgage1,172,789
 1,235,662
 16,773
 20,904
 764
 678
1,162,112
 1,160,191
 15,202
 16,453
 200
 287
Total consumer1,172,789
 1,235,662
 16,773
 20,904
 764
 678
1,162,112
 1,160,191
 15,202
 16,453
 200
 287
Total off-balance sheet sold or securitized loans (2)$1,281,040
 1,346,477
 20,057
 27,574
 974
 979
$1,262,807
 1,266,936
 18,278
 19,778
 495
 370
(1)
Includes $1.81.5 billion and $5.01.7 billion of commercial foreclosed assets and $2.01.6 billion and $2.21.8 billion of consumer foreclosed assets at September 30, 2016March 31, 2017, and December 31, 20152016, respectively.
(2)
At September 30, 2016March 31, 2017, and December 31, 20152016, the table includes total loans of $1.2 trillion at both dates, delinquent loans of $9.89.5 billion and $12.19.8 billion, and foreclosed assets of $1.41.2 billion and $1.71.3 billion, respectively, for FNMA, FHLMC and GNMA. Net charge-offs exclude loans sold to FNMA, FHLMC and GNMA as we do not service or manage the underlying real estate upon foreclosure and, as such, do not have access to net charge-off information.
Note 7: Securitizations and Variable Interest Entities (continued)

Transactions with Consolidated VIEs and Secured Borrowings
Table 7.7 presents a summary of financial assets and liabilities for asset transfers accounted for as secured borrowings and involvements with consolidated VIEs. “Assets” are presented using GAAP measurement methods, which may include fair value, credit impairment or other adjustments, and therefore in
 
some instances will differ from “Total VIE assets.” For VIEs that obtain exposure synthetically through derivative instruments, the remaining notional amount of the derivative is included in “Total VIE assets.” On the consolidated balance sheet, we separately disclose the consolidated assets of certain VIEs that can only be used to settle the liabilities of those VIEs.


Table 7.7: Transactions with Consolidated VIEs and Secured Borrowings
  Carrying value   Carrying value 
(in millions)
Total VIE
assets

 Assets
 Liabilities
 
Noncontrolling
interests

 Net assets
Total VIE
assets

 Assets
 Liabilities
 
Noncontrolling
interests

 Net assets
September 30, 2016         
March 31, 2017         
Secured borrowings:                  
Municipal tender option bond securitizations$1,720
 1,265
 (1,068) —
 197
$1,328
 861
 (785) —
 76
Residential mortgage securitizations4,033
 4,144
 (4,115) —
 29
131
 127
 (129) —
 (2)
Total secured borrowings5,753
 5,409
 (5,183) —
 226
1,459
 988
 (914) —
 74
Consolidated VIEs:                  
Commercial and industrial loans and leases8,439
 8,439
 (2,846) (13) 5,580
9,504
 9,306
 (2,812) (12) 6,482
Nonconforming residential mortgage loan securitizations3,532
 3,143
 (1,066) —
 2,077
3,189
 2,812
 (950) —
 1,862
Commercial real estate loans1,276
 1,276
 —
 —
 1,276
1,747
 1,747
 —
 —
 1,747
Structured asset finance25
 15
 (11) —
 4
22
 11
 (8) —
 3
Investment funds420
 420
 (5) (69) 346
147
 147
 (2) (69) 76
Other158
 147
 (1) (65) 81
157
 134
 (1) (51) 82
Total consolidated VIEs13,850
 13,440
 (3,929) (147) 9,364
14,766
 14,157
 (3,773) (132) 10,252
Total secured borrowings and consolidated VIEs$19,603
 18,849
 (9,112) (147) 9,590
$16,225
 15,145
 (4,687) (132) 10,326
December 31, 2015         
December 31, 2016         
Secured borrowings:                  
Municipal tender option bond securitizations$2,818
 2,400
 (1,800) —
 600
$1,473
 998
 (907) —
 91
Residential mortgage securitizations4,738
 4,887
 (4,844) —
 43
139
 138
 (136) —
 2
Total secured borrowings7,556
 7,287
 (6,644) —
 643
1,612
 1,136
 (1,043) —
 93
Consolidated VIEs:                  
Commercial and industrial loans and leases8,821
 8,623
 (2,819) (14) 5,790
Nonconforming residential mortgage loan securitizations4,134
 3,654
 (1,239) —
 2,415
3,349
 2,974
 (1,003) —
 1,971
Commercial real estate loans1,185
 1,185
 —
 —
 1,185
1,516
 1,516
 —
 —
 1,516
Structured asset finance54
 20
 (18) —
 2
23
 13
 (9) —
 4
Investment funds482
 482
 —
 —
 482
142
 142
 (2) (67) 73
Other305
 295
 (101) (93) 101
166
 146
 (1) (57) 88
Total consolidated VIEs6,160
 5,636
 (1,358) (93) 4,185
14,017
 13,414
 (3,834) (138) 9,442
Total secured borrowings and consolidated VIEs$13,716
 12,923
 (8,002) (93) 4,828
$15,629
 14,550
 (4,877) (138) 9,535
COMMERCIAL AND INDUSTRIAL LOANS AND LEASES In conjunction with the GE Capital business acquisitions, on March 1, 2016, we acquired certain consolidated SPE entities. The most significant of these SPEs is a revolving master trust entity that purchases dealer floorplan loans and issues senior and subordinated notes. The senior notes are held by third parties and the subordinated notes and residual equity interests are held by us. At September 30, 2016, total assets held by the master trust were $6.9 billion and the outstanding senior notes were $2.7 billion. The other SPEs acquired include securitization term trust entities, which purchase vendor finance lease and loan assets and issue notes to investors, and a SPE that engages in leasing activities to specific vendors. At September 30, 2016, total assets held by these SPEs were $1.5 billion, with outstanding debt of $102 million. We are the primary beneficiary of these acquired SPEs due to our ability to direct the significant activities of the SPEs, such as our role as servicer, and because we hold variable interests that are considered significant.

INVESTMENT FUNDS Our adoption ofSubsequent to adopting ASU 2015-02 (Amendments to the Consolidation Analysis) changed the consolidation analysis for certain investment funds. Wein first quarter 2016, we consolidate certain investment funds because we have both the power to manage fund assets and hold variable interests that are considered significant.

OTHER CONSOLIDATED VIE STRUCTURES In addition to the structure types included in the previous table, at both September 30, 2016,March 31, 2017, and December 31, 2015,2016, we had approximately $6.0 billion of private placement debt financing issued through a consolidated VIE. The issuance is classified as long-term debt in our consolidated financial statements. At September 30, 2016,March 31, 2017, we pledged approximately $457$414 million in loans (principal and interest eligible to be capitalized) and $5.8$6.2 billion in available-for-sale securities to collateralize the VIE’s borrowings, compared with $529$434 million and $5.9$6.1 billion, respectively, at December 31, 2015.2016. These assets were not transferred to the VIE, and accordingly we have excluded the VIE


from the previous table.
For complete descriptions of our accounting for transfers accounted for as secured borrowings and involvements with consolidated VIEs, see Note 8 (Securitizations and Variable Interest Entities) to Financial Statements in our 20152016 Form 10-K.


Note 8: Mortgage Banking Activities (continued)

Note 8:  Mortgage Banking Activities

Mortgage banking activities, included in the Community Banking and Wholesale Banking operating segments, consist of residential and commercial mortgage originations, sale activity and servicing.
 
We apply the amortization method to commercial MSRs and apply the fair value method to residential MSRs. Table 8.1 presents the changes in MSRs measured using the fair value method.

Table 8.1: Analysis of Changes in Fair Value MSRs
Quarter ended Sep 30,  Nine months ended Sep 30, Quarter ended March 31, 
(in millions)2016
 2015
 2016
 2015
2017
 2016
Fair value, beginning of period$10,396
 12,661
 12,415
 12,738
$12,959
 12,415
Servicing from securitizations or asset transfers (1)609
 448
 1,452
 1,184
583
 366
Sales and other (2)4
 6
 (18) —
(47) —
Net additions613
 454
 1,434
 1,184
536
 366
Changes in fair value:          
Due to changes in valuation model inputs or assumptions:          
Mortgage interest rates (3)39
 (858) (1,824) (313)152
 (1,084)
Servicing and foreclosure costs (4)(10) (18) 13
 (46)27
 27
Prepayment estimates and other (5)(37) 43
 22
 (194)(5) 100
Net changes in valuation model inputs or assumptions(8) (833) (1,789) (553)174
 (957)
Other changes in fair value (6)(586) (504) (1,645) (1,591)
Changes due to collection/realization of expected cash flows over time(461) (491)
Total changes in fair value(594) (1,337) (3,434) (2,144)(287) (1,448)
Fair value, end of period$10,415
 11,778
 10,415
 11,778
$13,208
 11,333
(1)Includes impacts associated with exercising our right to repurchase delinquent loans from GNMA loan securitization pools.
(2)Includes sales and transfers of MSRs, which can result in an increase of total reported MSRs if the sales or transfers are related to nonperforming loan portfolios.
(3)Includes prepayment speed changes as well as other valuation changes due to changes in mortgage interest rates (such as changes in estimated interest earned on custodial deposit balances).
(4)Includes costs to service and unreimbursed foreclosure costs.
(5)Represents changes driven by other valuation model inputs or assumptions including prepayment speed estimation changes and other assumption updates. Prepayment speed estimation changes are influenced by observed changes in borrower behavior and other external factors that occur independent of interest rate changes.
(6)Represents changes due to collection/realization of expected cash flows over time.
 
Table 8.2 presents the changes in amortized MSRs.
 
 

Table 8.2: Analysis of Changes in Amortized MSRs
Quarter ended Sep 30,  Nine months ended Sep 30, Quarter ended March 31, 
(in millions)2016
 2015
 2016
 2015
2017
 2016
Balance, beginning of period$1,353
 1,262
 1,308
 1,242
$1,406
 1,308
Purchases18
 45
 63
 96
18
 21
Servicing from securitizations or asset transfers69
 35
 204
 131
45
 97
Amortization(67) (65) (202) (192)(67) (67)
Balance, end of period (1)$1,373
 1,277
 1,373
 1,277
$1,402
 1,359
Fair value of amortized MSRs:          
Beginning of period$1,620
 1,692
 1,680
 1,637
$1,956
 1,680
End of period1,627
 1,643
 1,627
 1,643
2,051
 1,725
(1)Commercial amortized MSRs are evaluated for impairment purposes by the following risk strata: agency (GSEs) for multi-family properties and non-agency. There was no valuation allowance recorded for the periods presented on the commercial amortized MSRs.



Note 8: Mortgage Banking Activities (continued)

We present the components of our managed servicing portfolio in Table 8.3 at unpaid principal balance for loans serviced and subserviced for others and at book value for owned loans serviced.
 
 

Table 8.3: Managed Servicing Portfolio
(in billions)Sep 30, 2016
 Dec 31, 2015
Mar 31, 2017
 Dec 31, 2016
Residential mortgage servicing:  
   
   
Serviced for others$1,226
 1,300
$1,204
 1,205
Owned loans serviced352
 345
335
 347
Subserviced for others4
 4
4
 8
Total residential servicing1,582
 1,649
1,543
 1,560
Commercial mortgage servicing:        
Serviced for others477
 478
474
 479
Owned loans serviced130
 122
132
 132
Subserviced for others8
 7
7
 8
Total commercial servicing615
 607
613
 619
Total managed servicing portfolio$2,197
 2,256
$2,156
 2,179
Total serviced for others$1,703
 1,778
$1,678
 1,684
Ratio of MSRs to related loans serviced for others0.69% 0.77
0.87% 0.85
 
Table 8.4 presents the components of mortgage banking noninterest income. 

Table 8.4: Mortgage Banking Noninterest Income
 Quarter ended Sep 30,  Nine months ended Sep 30,  Quarter ended March 31, 
(in millions) 2016
 2015
 2016
 2015
 2017
 2016
Servicing income, net:            
Servicing fees:            
Contractually specified servicing fees $954
 1,001
 2,857
 3,029
 $907
 954
Late charges 45
 48
 135
 147
 48
 48
Ancillary fees 56
 69
 171
 221
 50
 61
Unreimbursed direct servicing costs (1) (177) (128) (533) (371) (123) (153)
Net servicing fees 878
 990
 2,630
 3,026
 882
 910
Changes in fair value of MSRs carried at fair value:            
Due to changes in valuation model inputs or assumptions (2)(A)(8) (833) (1,789) (553)(A)174
 (957)
Other changes in fair value (3) (586) (504) (1,645) (1,591)
Changes due to collection/realization of expected cash flows over time (461) (491)
Total changes in fair value of MSRs carried at fair value (594) (1,337) (3,434) (2,144) (287) (1,448)
Amortization (67) (65) (202) (192) (67) (67)
Net derivative gains from economic hedges (4)(B)142
 1,086
 2,575
 1,021
Net derivative gains (losses) from economic hedges (3)(B)(72) 1,455
Total servicing income, net 359
 674
 1,569
 1,711
 456
 850
Net gains on mortgage loan origination/sales activities 1,308
 915
 3,110
 3,130
 772
 748
Total mortgage banking noninterest income $1,667
 1,589
 4,679
 4,841
 $1,228
 1,598
Market-related valuation changes to MSRs, net of hedge results (4)(3)(A)+(B)$134
 253
 786
 468
(A)+(B)$102
 498
(1)Includes costs associated with foreclosures, unreimbursed interest advances to investors, and other interest costs.
(2)Refer to the analysis of changes in fair value of MSRs tablepresented in Table 8.1 in this Note for more detail.
(3)Represents changes due to collection/realization of expected cash flows over time.
(4)Represents results from economic hedges used to hedge the risk of changes in fair value of MSRs. See Note 12 (Derivatives Not Designated as Hedging Instruments) for additional discussion and detail.

Note 8: Mortgage Banking Activities (continued)

Table 8.5 summarizes the changes in our liability for mortgage loan repurchase losses. This liability is in “Accrued expenses and other liabilities” in our consolidated balance sheet and adjustments to the provision for repurchase losses reducesliability are recorded in net gains on mortgage loan origination/sales activities in “Mortgage banking” in our consolidated income statement.
Because of the uncertainty in the various estimates underlying the mortgage repurchase liability, there is a range of losses in excess of the recorded mortgage repurchase liability that is reasonably possible. The estimate of the range of possible loss for representations and warranties does not represent a probable
 
loss, and is based on currently available information, significant judgment, and a number of assumptions that are subject to change. The high end of this range of reasonably possible losses exceeded our recorded liability by $191$155 million at September 30, 2016,March 31, 2017, and was determined based upon modifying the assumptions (particularly to assume significant changes in investor repurchase demand practices) used in our best estimate of probable loss to reflect what we believe to be the high end of reasonably possible adverse assumptions.

Table 8.5: Analysis of Changes in Liability for Mortgage Loan Repurchase Losses
Quarter ended Sep 30,  Nine months ended Sep 30, Quarter ended March 31, 
(in millions)2016
 2015
 2016
 2015
2017
 2016
Balance, beginning of period$255
 557
 378
 615
$229
 378
Provision for repurchase losses:          
Loan sales11
 11
 26
 34
8
 7
Change in estimate (1)(24) (17) (132) (74)(8) (19)
Net reductions(13) (6) (106) (40)
Net additions (reductions)—
 (12)
Losses(3) (13) (33) (37)(7) (11)
Balance, end of period$239
 538
 239
 538
$222
 355
(1)Results from changes in investor demand and mortgage insurer practices, credit deterioration and changes in the financial stability of correspondent lenders.



Note 9:  Intangible Assets
Table 9.1 presents the gross carrying value of intangible assets and accumulated amortization.

Table 9.1: Intangible Assets
September 30, 2016  December 31, 2015 March 31, 2017  December 31, 2016 
(in millions)
Gross
carrying
value

 
Accumulated
amortization

 
Net
carrying
value

 
Gross
carrying
value

 
Accumulated
amortization

 
Net
carrying
value

Gross
carrying
value

 
Accumulated
amortization

 
Net
carrying
value

 
Gross
carrying
value

 
Accumulated
amortization

 
Net
carrying
value

Amortized intangible assets (1):                      
MSRs (2)$3,495
 (2,122) 1,373
 3,228
 (1,920) 1,308
$3,658
 (2,256) 1,402
 3,595
 (2,189) 1,406
Core deposit intangibles12,834
 (10,984) 1,850
 12,834
 (10,295) 2,539
12,834
 (11,427) 1,407
 12,834
 (11,214) 1,620
Customer relationship and other intangibles3,901
 (2,764) 1,137
 3,163
 (2,549) 614
3,945
 (2,917) 1,028
 3,928
 (2,839) 1,089
Total amortized intangible assets$20,230
 (15,870) 4,360
 19,225
 (14,764) 4,461
$20,437
 (16,600) 3,837
 20,357
 (16,242) 4,115
Unamortized intangible assets:                      
MSRs (carried at fair value) (2)$10,415
     12,415
    $13,208
     12,959
    
Goodwill26,688
     25,529
    26,666
     26,693
    
Trademark14
     14
    14
     14
    
(1)Excludes fully amortized intangible assets.
(2)See Note 8 (Mortgage Banking Activities) for additional information on MSRs.

Table 9.2 provides the current year and estimated future amortization expense for amortized intangible assets. We based our projections of amortization expense shown below on existing
 
existing asset balances at September 30, 2016.March 31, 2017. Future amortization expense may vary from these projections.

Table 9.2: Amortization Expense for Intangible Assets
(in millions) Amortized MSRs
 
Core deposit
intangibles

 
Customer
relationship
and other
intangibles (1)

 Total
 Amortized MSRs
 
Core deposit
intangibles

 
Customer
relationship
and other
intangibles (1)

 Total
Nine months ended September 30, 2016(actual)$202
 689
 215
 1,106
Estimate for the remainder of 2016 $67
 229
 74
 370
Three months ended March 31, 2017 (actual) $67
 213
 79
 359
Estimate for the remainder of 2017 $190
 638
 230
 1,058
Estimate for year ended December 31,Estimate for year ended December 31,       Estimate for year ended December 31,       
2017 240
 851
 302
 1,393
2018 201
 770
 295
 1,266
 218
 769
 300
 1,287
2019 178
 —
 103
 281
 194
 

 108
 302
2020 162
 —
 85
 247
 178
 

 89
 267
2021 138
 —
 70
 208
 153
 

 76
 229
2022 134
 

 63
 197
(1)
The ninethree months ended September 30, 2016March 31, 2017 balance includes $133 million for lease intangible amortization.

Note 9: Intangible Assets (continued)


For our goodwill impairment analysis, we allocate all of the goodwill to the individual operating segments. We identify reporting units that are one level below an operating segment (referred to as a component), and distinguish these reporting units based on how the segments and components are managed, taking into consideration the economic characteristics, nature of the products and customers of the components. At the time we acquire a business, we allocate
goodwill to applicable reporting units based on their relative fair value, and if we have a significant business reorganization, we may reallocate the goodwill. See Note 18 (Operating Segments) for further information on management reporting.
Table 9.3 shows the allocation of goodwill to our reportable operating segments for purposes of goodwill impairment testing.segments.

Table 9.3: Goodwill
(in millions)
Community
Banking

 
Wholesale
Banking

 Wealth and Investment Management
 
Consolidated
Company

Community
Banking

 
Wholesale
Banking

 Wealth and Investment Management
 
Consolidated
Company

December 31, 2014$16,870
 7,633
 1,202

25,705
Reduction in goodwill related to divested businesses and other(21) —
 —
 (21)
Goodwill from business combinations—
 —
 —
 —
September 30, 2015$16,849
 7,633
 1,202
 25,684
December 31, 2015$16,849
 7,475
 1,205
 25,529
$16,849
 7,475
 1,205

25,529
Reduction in goodwill related to divested businesses and other—
 (84) (2) (86)—
 (58) —
 (58)
Goodwill from business combinations—
 1,245
 —
 1,245
—
 1,532
 —
 1,532
September 30, 2016$16,849
 8,636
 1,203
 26,688
March 31, 2016$16,849
 8,949
 1,205
 27,003
December 31, 2016$16,849
 8,585
 1,259
 26,693
Reduction in goodwill related to divested businesses and other—
 (27) —
 (27)
March 31, 2017$16,849
 8,558
 1,259
 26,666
We assess goodwill for impairment at a reporting unit level, which is one level below the operating segments. See Note 18 (Operating Segments) for further information on management reporting.


Note 10: Guarantees, Pledged Assets and Collateral (continued)

Note 10:  Guarantees, Pledged Assets and Collateral
Guarantees are contracts that contingently require us to make payments to a guaranteed party based on an event or a change in an underlying asset, liability, rate or index. Guarantees are generally in the form of standby letters of credit, securities lending and other indemnifications, written put options, recourse obligations, and other types of arrangements. For complete
 
descriptions of our guarantees, see Note 14 (Guarantees, Pledged Assets and Collateral) to Financial Statements in our 20152016 Form 10-K. Table 10.1 shows carrying value, maximum exposure to loss on our guarantees and the related non-investment grade amounts.
 

Table 10.1: Guarantees – Carrying Value and Maximum Exposure to Loss
  
 Maximum exposure to loss   Maximum exposure to loss 
(in millions)
Carrying
value

 
Expires in
one year
or less

 
Expires after
one year
through
three years

 
Expires after
three years
through
five years

 
Expires
after five
years

 Total
 
Non-
investment
grade

Carrying
value of obligation (asset)

 
Expires in
one year
or less

 
Expires after
one year
through
three years

 
Expires after
three years
through
five years

 
Expires
after five
years

 Total
 
Non-
investment
grade

September 30, 2016             
March 31, 2017             
Standby letters of credit (1)$39
 16,757
 9,245
 3,599
 639
 30,240
 9,875
$39
 15,818
 8,319
 3,288
 661
 28,086
 9,594
Securities lending and other indemnifications (2)—
 —
 —
 —
 1,869
 1,869
 —
—
 —
 —
 1
 793
 794
 2
Written put options (3)47
 13,243
 11,173
 5,072
 1,512
 31,000
 19,602
(129) 12,708
 10,690
 4,354
 1,438
 29,190
 17,870
Loans and MHFS sold with recourse (4)57
 108
 653
 892
 8,163
 9,816
 6,832
54
 213
 533
 980
 8,739
 10,465
 7,425
Factoring guarantees (5)—
 1,079
 —
 —
 —
 1,079
 1,079
—
 766
 —
 —
 —
 766
 766
Other guarantees6
 27
 21
 16
 3,407
 3,471
 23
4
 13
 20
 17
 4,507
 4,557
 5
Total guarantees$149
 31,214
 21,092
 9,579
 15,590
 77,475
 37,411
$(32) 29,518
 19,562
 8,640
 16,138
 73,858
 35,662
December 31, 2015             
December 31, 2016             
Standby letters of credit (1)$38
 16,360
 9,618
 4,116
 642
 30,736
 8,981
$38
 16,050
 8,727
 3,194
 658
 28,629
 9,898
Securities lending and other indemnifications (2)—
 —
 —
 —
 1,841
 1,841
 —
—
 —
 —
 1
 1,166
 1,167
 2
Written put options (3)290
 9,450
 7,401
 5,742
 1,487
 24,080
 13,868
37
 10,427
 10,805
 4,573
 1,216
 27,021
 15,915
Loans and MHFS sold with recourse (4)62
 112
 723
 690
 6,434
 7,959
 4,864
55
 84
 637
 947
 8,592
 10,260
 7,228
Factoring guarantees (5)—
 1,598
 —
 —
 —
 1,598
 1,598
—
 1,109
 —
 —
 —
 1,109
 1,109
Other guarantees28
 62
 17
 17
 2,482
 2,578
 53
6
 19
 21
 17
 3,580
 3,637
 15
Total guarantees$418
 27,582
 17,759
 10,565
 12,886
 68,792
 29,364
$136
 27,689
 20,190
 8,732
 15,212
 71,823
 34,167
(1)
Total maximum exposure to loss includes direct pay letters of credit (DPLCs) of $10.58.8 billion and $11.89.2 billion at September 30, 2016March 31, 2017, and December 31, 20152016, respectively. We issue DPLCs to provide credit enhancements for certain bond issuances. Beneficiaries (bond trustees) may draw upon these instruments to make scheduled principal and interest payments, redeem all outstanding bonds because a default event has occurred, or for other reasons as permitted by the agreement. We also originate multipurpose lending commitments under which borrowers have the option to draw on the facility in one of several forms, including as a standby letter of credit. Total maximum exposure to loss includes the portion of these facilities for which we have issued standby letters of credit under the commitments.
(2)
Includes indemnifications provided to certain third-party clearing agents. Outstanding customer obligations under these arrangements were $18775 million and $352175 million with related collateral of $1.7 billion718 million and $1.5 billion991 million at September 30, 2016March 31, 2017, and December 31, 20152016, respectively. Estimated maximum exposure to loss was $1.9 billion793 million at September 30, 2016March 31, 2017 and $1.81.2 billion at December 31, 20152016.
(3)Written put options, which are in the form of derivatives, are also included in the derivative disclosures in Note 12 (Derivatives). Amounts for December 31, 2015 have been revised to include previously omitted contracts.
(4)
Represent recourse provided, predominantly to the GSEs, on loans sold under various programs and arrangements. Under these arrangements, we repurchased $21 million and $4 million respectively, of loans associated with these agreements in the thirdfirst quarter and first nine months of 20162017, and $2 million and $51 million in the same periodsperiod of 20152016, respectively..
(5)Consists of guarantees made under certain factoring arrangements to purchase trade receivables from third parties, generally upon their request, if receivable debtors default on their payment obligations.

“Maximum exposure to loss” and “Non-investment grade” are required disclosures under GAAP. Non-investment grade represents those guarantees on which we have a higher risk of being required to perform under the terms of the guarantee. If the underlying assets under the guarantee are non-investment grade (that is, an external rating that is below investment grade or an internal credit default grade that is equivalent to a below investment grade external rating), we consider the risk of performance to be high. Internal credit default grades are determined based upon the same credit policies that we use to evaluate the risk of payment or performance when making loans and other extensions of credit. These credit policiesCredit quality indicators we usually consider in evaluating risk of payments or performance are further described in Note 5 (Loans and Allowance for Credit Losses).
 
Maximum exposure to loss represents the estimated loss that would be incurred under an assumed hypothetical circumstance, despite what we believe is its extremely remote possibility, where the value of our interests and any associated collateral declines to zero. Maximum exposure to loss estimates in Table 10.1 do not reflect economic hedges or collateral we could use to offset or recover losses we may incur under our guarantee agreements. Accordingly, this required disclosure is not an indication of expected loss. We believe the carrying value, which is either fair value for derivative-related products or the allowance for lending-related commitments, is more representative of our exposure to loss than maximum exposure to loss.


Note 10: Guarantees, Pledged Assets and Collateral (continued)

Pledged Assets
As part of our liquidity management strategy, we pledge various assets to secure trust and public deposits, borrowings and letters of credit from the FHLB and FRB, securities sold under agreements to repurchase (repurchase agreements), securities lending arrangements, and for other purposes as required or permitted by law or insurance statutory requirements. The types of collateral we pledge include securities issued by federal agencies, GSEs, domestic and foreign companies and various commercial and consumer loans. Table 10.2 provides the total carrying amount of pledged assets by asset type and pledged off-
 
balance sheet securities for securities financings. The table excludes pledged consolidated VIE assets of $14.2 billion and $13.4 billion and $5.6 billion at September 30, 2016,March 31, 2017, and December 31, 2015,2016, respectively, which can only be used to settle the liabilities of those entities. The table also excludes $5.4$1.0 billion and $7.3$1.1 billion in assets pledged in transactions with VIE's accounted for as secured borrowings at September 30, 2016,March 31, 2017, and December 31, 2015,2016, respectively. See Note 7 (Securitizations and Variable Interest Entities) for additional information on consolidated VIE assets and secured borrowings. 

Table 10.2: Pledged Assets
(in millions)Sep 30,
2016
 Dec 31,
2015
Mar 31,
2017
 Dec 31,
2016
Trading assets and other (1)$107,973
 73,396
$93,849
 84,603
Investment securities (2)93,840
 113,912
78,163
 90,946
Mortgages held for sale and Loans (3)504,037
 453,058
Mortgages held for sale and loans (3)506,776
 516,112
Total pledged assets$705,850
 640,366
$678,788
 691,661
(1)
Consists of trading assets of $47.331.1 billion and $38.733.2 billion at September 30, 2016March 31, 2017, and December 31, 20152016, respectively and off-balance sheet securities of $60.762.7 billion and $34.751.4 billion as of the same dates, respectively, that are pledged as collateral for repurchase agreements and other securities financings. Total trading assets and other includes $107.593.4 billion and $73.084.2 billion at September 30, 2016March 31, 2017, and December 31, 20152016, respectively that permit the secured parties to sell or repledge the collateral.
(2)
Includes carrying value of $5.64.8 billion and $6.56.2 billion (fair value of $5.84.7 billion and $6.56.2 billion) in collateral for repurchase agreements at September 30, 2016March 31, 2017, and December 31, 20152016, respectively, which are pledged under agreements that do not permit the secured parties to sell or repledge the collateral. Also includes $12.9 billion101 million and $13.0 billion617 million in collateral pledged under repurchase agreements at September 30, 2016March 31, 2017, and December 31, 20152016, respectively, that permit the secured parties to sell or repledge the collateral. All other pledged securities are pursuant to agreements that do not permit the secured party to sell or repledge the collateral.
(3)
Includes mortgages held for sale of $15.99.7 billion and $8.715.8 billion at September 30, 2016March 31, 2017, and December 31, 20152016, respectively. Balance consistsSubstantially all of the total mortgages held for sale and loans that are pledged under agreements that do not permit the secured parties to sell or repledge the collateral. Amounts exclude $1.2 billion888 million and $1.31.2 billion at September 30, 2016March 31, 2017, and December 31, 20152016, respectively, of pledged loans recorded on our balance sheet representing certain delinquent loans that are eligible for repurchase from GNMA loan securitizations. See Note 7 (Securitizations and Variable Interest Entities) for additional information.



Note 10: Guarantees, Pledged Assets and Collateral (continued)

Securities Financing Activities
We enter into resale and repurchase agreements and securities borrowing and lending agreements (collectively, “securities financing activities”) typically to finance trading positions (including securities and derivatives), acquire securities to cover short trading positions, accommodate customers’ financing needs, and settle other securities obligations. These activities are conducted through our broker dealer subsidiaries and to a lesser extent through other bank entities. Most of our securities financing activities involve high quality, liquid securities such as U.S. Treasury securities and government agency securities, and to a lesser extent, less liquid securities, including equity securities, corporate bonds and asset-backed securities. We account for these transactions as collateralized financings in which we typically receive or pledge securities as collateral. We believe these financing transactions generally do not have material credit risk given the collateral provided and the related monitoring processes.

OFFSETTING OF RESALE AND REPURCHASE AGREEMENTS AND SECURITIES BORROWING AND LENDING AGREEMENTS Table 10.3 presents resale and repurchase agreements subject to master repurchase agreements (MRA) and securities borrowing and lending agreements subject to master securities lending agreements (MSLA). We account for
 
transactions subject to these agreements as collateralized financings, and those with a single counterparty are presented net on our balance sheet, provided certain criteria are met that permit balance sheet netting. Most transactions subject to these agreements do not meet those criteria and thus are not eligible for balance sheet netting.
Collateral we pledged consists of non-cash instruments, such as securities or loans, and is not netted on the balance sheet against the related liability. Collateral we received includes securities or loans and is not recognized on our balance sheet. Collateral pledged or received may be increased or decreased over time to maintain certain contractual thresholds as the assets underlying each arrangement fluctuate in value. Generally, these agreements require collateral to exceed the asset or liability recognized on the balance sheet. The following table includes the amount of collateral pledged or received related to exposures subject to enforceable MRAs or MSLAs. While these agreements are typically over-collateralized, U.S. GAAP requires disclosure in this table to limit the reported amount of such collateral to the amount of the related recognized asset or liability for each counterparty.
In addition to the amounts included in Table 10.3, we also have balance sheet netting related to derivatives that is disclosed in Note 12 (Derivatives).

Table 10.3: Offsetting – Resale and Repurchase Agreements
(in millions)Sep 30,
2016
 Dec 31,
2015
Mar 31,
2017
 Dec 31,
2016
Assets:        
Resale and securities borrowing agreements        
Gross amounts recognized$105,200
 74,935
$110,061
 91,123
Gross amounts offset in consolidated balance sheet (1)(16,621) (9,158)(20,529) (11,680)
Net amounts in consolidated balance sheet (2)88,579
 65,777
89,532
 79,443
Collateral not recognized in consolidated balance sheet (3)(87,662) (65,035)(88,755) (78,837)
Net amount (4)$917
 742
$777
 606
Liabilities:        
Repurchase and securities lending agreements        
Gross amounts recognized (5)$124,392
 91,278
$96,273
 89,111
Gross amounts offset in consolidated balance sheet (1)(16,621) (9,158)(20,529) (11,680)
Net amounts in consolidated balance sheet (6)107,771
 82,120
75,744
 77,431
Collateral pledged but not netted in consolidated balance sheet (7)(107,278) (81,772)(75,505) (77,184)
Net amount (8)$493
 348
$239
 247
(1)Represents recognized amount of resale and repurchase agreements with counterparties subject to enforceable MRAs that have been offset in the consolidated balance sheet.
(2)
At September 30, 2016March 31, 2017, and December 31, 20152016, includes $67.468.3 billion and $45.758.1 billion, respectively, classified on our consolidated balance sheet in federal funds sold, securities purchased under resale agreements and other short-term investments and $21.2 billion and $20.121.3 billion, respectively, in loans.
(3)
Represents the fair value of collateral we have received under enforceable MRAs or MSLAs, limited for table presentation purposes to the amount of the recognized asset due from each counterparty. At September 30, 2016March 31, 2017, and December 31, 20152016, we have received total collateral with a fair value of $116.0120.8 billion and $84.9102.3 billion, respectively, all of which, we have the right to sell or repledge. These amounts include securities we have sold or repledged to others with a fair value of $59.261.5 billion at September 30, 2016March 31, 2017, and $33.450.0 billion (revised to correct amount previously reported) at December 31, 20152016.
(4)Represents the amount of our exposure that is not collateralized and/or is not subject to an enforceable MRA or MSLA.
(5)For additional information on underlying collateral and contractual maturities, see the "Repurchase and Securities Lending Agreements" section in this Note.
(6)Amount is classified in short-term borrowings on our consolidated balance sheet.
(7)
Represents the fair value of collateral we have pledged, related to enforceable MRAs or MSLAs, limited for table presentation purposes to the amount of the recognized liability owed to each counterparty. At September 30, 2016March 31, 2017, and December 31, 20152016, we have pledged total collateral with a fair value of $126.598.6 billion and $92.991.4 billion, respectively, of which, the counterparty does not have the right to sell or repledge $6.15.1 billion as of September 30, 2016March 31, 2017 and $6.96.6 billion as of December 31, 20152016.
(8)Represents the amount of our obligation that is not covered by pledged collateral and/or is not subject to an enforceable MRA or MSLA.

Note 10: Guarantees, Pledged Assets and Collateral (continued)

REPURCHASE AND SECURITIES LENDING AGREEMENTS Securities sold under repurchase agreements and securities lending arrangements are effectively short-term collateralized borrowings. In these transactions, we receive cash in exchange for transferring securities as collateral and recognize an obligation to reacquire the securities for cash at the transaction's maturity. These types of transactions create risks, including (1) the counterparty may fail to return the securities at maturity, (2) the fair value of the securities transferred may decline below the amount of our obligation to reacquire the securities, and therefore create an obligation for us to pledge additional amounts, and (3) the counterparty may accelerate the maturity
 
on demand, requiring us to reacquire the security prior to contractual maturity. We attempt to mitigate these risks by the fact that most of our securities financing activities involve highly liquid securities, we underwrite and monitor the financial strength of our counterparties, we monitor the fair value of collateral pledged relative to contractually required repurchase amounts, and we monitor that our collateral is properly returned through the clearing and settlement process in advance of our cash repayment. Table 10.4 provides the underlying collateral types of our gross obligations under repurchase and securities lending agreements.

Table 10.4: Underlying Collateral Types of Gross Obligations
(in millions) Sep 30,
2016
 Dec 31,
2015
 Mar 31,
2017
 Dec 31,
2016
Repurchase agreements:        
Securities of U.S. Treasury and federal agencies $58,777
 32,254
 $44,376
 34,335
Securities of U.S. States and political subdivisions 136
 7
 106
 81
Federal agency mortgage-backed securities 38,587
 37,033
 28,726
 32,669
Non-agency mortgage-backed securities 2,334
 1,680
 1,800
 2,167
Corporate debt securities 6,359
 4,674
 7,481
 6,829
Asset-backed securities 3,129
 2,275
 2,370
 3,010
Equity securities 2,154
 2,457
 1,530
 1,309
Other 901
 1,162
 1,151
 1,704
Total repurchases 112,377
 81,542
 87,540
 82,104
Securities lending:        
Securities of U.S. Treasury and federal agencies 186
 61
 130
 152
Federal agency mortgage-backed securities 138
 76
 240
 104
Non-agency mortgage-backed securities —
 —
 —
 1
Corporate debt securities 908
 899
 556
 653
Equity securities (1) 10,783
 8,700
 7,807
 6,097
Total securities lending 12,015
 9,736
 8,733
 7,007
Total repurchases and securities lending $124,392
 91,278
 $96,273
 89,111
(1)Equity securities are generally exchange traded and either re-hypothecated under margin lending agreements or obtained through contemporaneous securities borrowing transactions with other counterparties.

Table 10.5 provides the contractual maturities of our gross obligations under repurchase and securities lending agreements.

Table 10.5: Contractual Maturities of Gross Obligations
(in millions)Overnight/continuous
 Up to 30 days
 30-90 days
 >90 days
 Total gross obligation
Overnight/continuous
 Up to 30 days
 30-90 days
 >90 days
 Total gross obligation
September 30, 2016         
March 31, 2017         
Repurchase agreements$86,113
 11,545
 9,570
 5,149
 112,377
$64,530
 12,321
 5,723
 4,966
 87,540
Securities lending9,726
 712
 1,577
 —
 12,015
7,054
 432
 1,247
 —
 8,733
Total repurchases and securities lending (1)$95,839
 12,257
 11,147
 5,149
 124,392
$71,584
 12,753
 6,970
 4,966
 96,273
December 31, 2015 
December 31, 2016 
Repurchase agreements$58,021
 19,561
 2,935
 1,025
 81,542
$60,516
 9,598
 6,762
 5,228
 82,104
Securities lending7,845
 362
 1,529
 —
 9,736
5,565
 167
 1,275
 —
 7,007
Total repurchases and securities lending (1)$65,866
 19,923
 4,464
 1,025
 91,278
$66,081
 9,765
 8,037
 5,228
 89,111
(1)Repurchase and securitiesSecurities lending transactions are largely conductedis executed under enforceable master lending agreements that allow either party to terminate the transaction on demand. These transactionswithout notice, while repurchase agreements have been reporteda term structure to them that technically matures at a point in time. The overnight/continuous repurchase agreements require election of both parties to roll the trade rather than the election to terminate the arrangement as continuous obligations unless the MRA or MSLA has been modified with an overriding agreement that specifies an alternative termination date.in securities lending.




Note 11:  Legal Actions
The following supplements our discussion of certain matters previously reported in Note 15 (Legal Actions) to Financial Statements in our 20152016 Form 10-K and Note 11 (Legal Actions) to Financial Statements in our 2016 first and second quarter Quarterly Reports on Form 10-Q for events occurring during thirdfirst quarter 2016.2017.

MORTGAGE RELATED REGULATORY INVESTIGATIONS INTERCHANGE LITIGATIONFederal and state government agencies, including the United States Department of Justice, continue investigations or examinations of certain mortgage related practices of Wells Fargo and predecessor institutions.Bank, N.A., Wells Fargo for itself and for predecessor institutions, has responded, and continues to respond, to requests from these agencies seeking information regarding the origination, underwriting and securitization of residential mortgages, including sub-prime mortgages. This includes discussions with various government agencies that are part of the RMBS Working Group of the Financial Fraud Enforcement Task Force in which potential theories of liability have been raised. Other financial institutions have entered into settlements with these agencies, the nature of which related to the specific activities of those financial institutions, including the imposition of significant financial penalties and remedial actions.

ORDER OF POSTING LITIGATIONA series of putative class actions have been filed against& Company, Wachovia Bank, N.A. and Wells Fargo Bank, N.A.,Wachovia Corporation are named as well as many other banks, challengingdefendants, separately or in combination, in putative class actions filed on behalf of a plaintiff class of merchants and in individual actions brought by individual merchants with regard to the "high to low" order in which the banks post debitinterchange fees associated with Visa and MasterCard payment card transactions to consumer deposit accounts. There are currently several such cases pending against Wells Fargo Bank (including the Wachovia Bank cases to which Wells Fargo succeeded), most of whichtransactions. These actions have been consolidated in multi-district litigation proceedings (the "MDL proceedings") in the U.S. District Court for the Eastern District of New York. Visa, MasterCard and several banks and bank holding companies are named as defendants in these actions. The amended and consolidated complaint asserts claims against defendants based on alleged violations of federal and state antitrust laws and seeks damages, as well as injunctive relief. Plaintiff merchants allege that Visa, MasterCard and payment card issuing banks unlawfully colluded to set interchange rates. Plaintiffs also allege that enforcement of certain Visa and MasterCard rules and alleged tying and bundling of services offered to merchants are anticompetitive. Wells Fargo and Wachovia, along with other defendants and entities, are parties to Loss and Judgment Sharing Agreements, which provide that they, along with other entities, will share, based on a formula, in any losses from the Interchange Litigation. On July 13, 2012, Visa, MasterCard and the financial institution defendants, including Wells Fargo, signed a memorandum of understanding with plaintiff merchants to resolve the consolidated class actions and reached a separate settlement in principle of the consolidated individual actions. The settlement payments to be made by all defendants in the consolidated class and individual actions totaled approximately $6.6 billion before reductions applicable to certain merchants opting out of the settlement. The class settlement also provided for the distribution to class merchants of 10 basis points of default interchange across all credit rate categories for a period of eight consecutive months. The District Court granted final approval of the settlement, which was appealed to the Second Circuit Court of Appeals by settlement objector merchants. Other merchants opted out of the settlement and are pursuing several individual actions. On June 30, 2016, the Second Circuit Court of Appeals vacated the settlement agreement and reversed and remanded the consolidated action to the U.S. District Court for the Eastern District of New York for further proceedings. On November 23, 2016, prior class counsel filed a petition to the United States Supreme Court, seeking review of the reversal of the settlement by the Second Circuit, and the Supreme Court denied the petition on March 27, 2017. On November 30, 2016, the District Court appointed lead class counsel for a damages class and an equitable relief class. Several of the opt-out litigations were settled during the pendency of the Second Circuit appeal while others remain pending. Discovery is proceeding in the opt-out litigations and the remanded class cases.

RMBS TRUSTEE LITIGATION In November 2014, a group of institutional investors (the “Institutional Investor Plaintiffs”) filed a putative class action complaint in the United States District Court for the Southern District of Florida. The court in the MDL proceedings has certified a class of putative plaintiffs andNew York against Wells Fargo moved to compel arbitrationBank, N.A., alleging claims against the bank in its capacity as trustee for a number of the claims of unnamed class members. The court denied these motions to compel arbitration on October 17, 2016.residential mortgage-
 
backed securities (“RMBS”) trusts (the “Federal Court Complaint”). Similar complaints have been filed against other trustees in various courts, including in the Southern District of New York, in New York state court and in other states, by RMBS investors. The Federal Court Complaint alleges that Wells Fargo Bank, N.A., as trustee, caused losses to investors and asserts causes of action based upon, among other things, the trustee's alleged failure to notify and enforce repurchase obligations of mortgage loan sellers for purported breaches of representations and warranties, notify investors of alleged events of default, and abide by appropriate standards of care following alleged events of default. Plaintiffs seek money damages in an unspecified amount, reimbursement of expenses, and equitable relief. In December 2014 and December 2015, certain other investors filed four complaints alleging similar claims against Wells Fargo Bank, N.A. in the Southern District of New York, and the various cases pending against us are proceeding before the same judge. On January 19, 2016, an order was entered in connection with the Federal Court Complaint in which the District Court dismissed claims related to certain of the trusts at issue (the “Dismissed Trusts”). Our motion to dismiss the Federal Court Complaint was granted in part and denied in part in March 2017. A complaint raising similar allegations to the Federal Court Complaint was filed in May 2016 in New York state court by a different plaintiff investor. In addition, the Institutional Investor Plaintiffs subsequently filed a complaint relating to the Dismissed Trusts and certain additional trusts in California state court (the “California Action”). The California Action was subsequently dismissed in September 2016. In December 2016, the Institutional Investor Plaintiffs filed a new putative class action complaint in New York state court in respect of 261 RMBS trusts, including the Dismissed Trusts, for which Wells Fargo Bank, N.A. serves or served as trustee.

SALES PRACTICES MATTERSFederal, state and local government agencies, including the United States Department of Justice, and the United States Securities and Exchange Commission and the United States Department of Labor, and state attorneys general and prosecutors’ offices, as well as Congressional committees, have undertaken formal or informal inquiries, investigations or examinations arising out of certain sales practices of the Company that were the subject of settlements with the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency and the Office of the Los Angeles City Attorney announced by the Company on September 8, 2016. The Company has responded, and continues to respond, to requests from a number of the foregoing seeking information regarding these sales practices and the circumstances of the settlements and related matters. A
In addition, a number of lawsuits have also been filed by non-governmental parties seeking damages or other remedies related to these sales practices. First, various class plaintiffs purporting to represent consumers who allege that they received products or services without their authorization or consent have brought eleven separate putative class action lawsuits against the Company in the United States District Court for the Northern District of California and various other jurisdictions. In April 2017, the Company entered into a settlement agreement in the first-filed action, Jabbari v. Wells Fargo Bank, N.A., to resolve any claims regarding products or services provided without authorization or consent for the time period May 1, 2002 to April


20, 2017. Pursuant to the settlement, we will pay $142 million for remediation, attorneys’ fees, and settlement fund claims administration. The settlement is subject to approval by the District Court. Second, Wells Fargo shareholders are pursuing a consolidated securities fraud class action in the United States District Court for the Northern District of California alleging certain misstatements and omissions in the Company’s disclosures related to sales practices matters. Third, Wells Fargo shareholders have brought numerous shareholder derivative lawsuits asserting breach of fiduciary claims, among others, against current and former directors and officers for their alleged failure to detect and prevent sales practices issues, which lawsuits are consolidated into two separate actions in the United States District Court for the Northern District of California and California state court, as well as a third in Delaware state court. Fourth, a range of employment litigation has been brought against Wells Fargo, including an Employee Retirement Income Security Act class action in the United States District Court for the District of Minnesota brought on behalf of 401(k) plan participants; class actions brought in the United States District Court for the Northern District of California and New York state court on behalf of employees who allege they protested sales practice misconduct and/or were terminated for not meeting sales goals; various wage and hour class actions brought in federal and state court in California, New Jersey, and Pennsylvania on behalf of non-exempt branch based employees alleging sales pressure resulted in uncompensated overtime; and multiple single plaintiff Sarbanes-Oxley Act complaints and state law whistleblower actions filed with the Department of Labor or in various state courts alleging adverse employment action for raising sales practice misconduct issues.

VA LOAN GUARANTY PROGRAM QUI TAM Wells Fargo Bank, N.A. is named as a defendant in a qui tam lawsuit, United States ex rel. Bibby & Donnelly v. Wells Fargo, et al., brought in the U.S. District Court for the Northern District of Georgia by two individuals on behalf of the United States under the federal False Claims Act. The lawsuit was originally filed on March 8, 2006, and then unsealed on October 3, 2011. The United States elected not to intervene in the action. The plaintiffs allege that Wells Fargo charged certain impermissible closing or origination fees to borrowers under a U.S. Department of Veteran Affairs’ (“VA”) loan guaranty program and then made false statements to the VA concerning such fees in violation of the civil False Claims Act. On their behalf and on behalf of the United States, the plaintiffs seek, among other things, damages equal to three times the amount paid by the VA in connection with any loan guaranty as to which the borrower paid certain impermissible fees or charges less the net amount received by the VA upon any re-sale of collateral, statutory civil penalties of between $5,500 and $11,000 per False Claims Act violation, and attorneys’ fees. The parties have engaged in extensive discovery, and both parties have moved for judgment in their favor as a matter of law. The trial date has been postponed and a status conference is expected to be scheduled for May 2017.
OUTLOOK When establishing a liability for contingent litigation losses, the Company determines a range of potential losses for each matter that is both probable and estimable, and records the amount it considers to be the best estimate within the range. The high end of the range of reasonably possible potential litigation losses in excess of the Company’s liability for probable and estimable losses was approximately $1.7$2.0 billion as of September 30, 2016.March 31, 2017. The change in the high endoutcomes of the range from June 30, 2016 relatedlegal actions are unpredictable and subject to a number of matters. Itsignificant uncertainties, and it is inherently difficult to determine whether any loss is probable or even possible orpossible. It is also inherently difficult to estimate the amount of any loss. Accordingly,loss and there may be matters for which a range ofloss is probable or reasonably possible but not currently estimable. Accordingly, actual losses may be in excess of the established liability or the range of reasonably possible loss. Wells Fargo is unable to determine whether the ultimate resolution of either the mortgage related regulatory investigations or the sales practices matters will have a material adverse effect on its consolidated financial condition. Based on information currently available, advice of counsel, available insurance coverage and established reserves, Wells Fargo believes that the eventual outcome of other actions against Wells Fargo and/or its subsidiaries will not, individually or in the aggregate, have a material adverse effect on Wells Fargo’s consolidated financial condition. However, it is possible that the ultimate resolution of a matter, if unfavorable, may be material to Wells Fargo’s results of operations for any particular period.


Note 12:  Derivatives
We use derivatives to manage exposure to market risk, including interest rate risk, credit risk and foreign currency risk, and to assist customers with their risk management objectives. We designate certain derivatives as hedging instruments in a qualifying hedge accounting relationship (fair value or cash flow hedge). Our remaining derivatives consist of economic hedges that do not qualify for hedge accounting and derivatives held for customer accommodation trading, or other purposes. For more information on our derivative activities, see Note 16 (Derivatives) to Financial Statements in our 20152016 Form 10-K.
Table 12.1 presents the total notional or contractual amounts and fair values for our derivatives. Derivative transactions can be
measured in terms of the notional amount, but this amount is not recorded on the balance sheet and is not, when viewed in isolation, a meaningful measure of the risk profile of the instruments. The notional amount is generally not exchanged but is used only as the basis on which interest and other payments are determined. Derivatives designated as qualifying hedging instruments and economic hedges are recorded on the balance sheet at fair value in other assets or other liabilities. Customer accommodation trading and other derivatives are recorded on the balance sheet at fair value in trading assets, other assets or other liabilities.

Table 12.1: Notional or Contractual Amounts and Fair Values of Derivatives
September 30, 2016  December 31, 2015 March 31, 2017  December 31, 2016 
Notional or
contractual
amount

   Fair value
 
Notional or
contractual
amount

   Fair value
Notional or
contractual
amount

   Fair value
 
Notional or
contractual
amount

   Fair value
(in millions) 
Derivative
assets

 
Derivative
liabilities

 Derivative
assets
 Derivative
liabilities
 
Derivative
assets

 
Derivative
liabilities

 Derivative
assets
 Derivative
liabilities
Derivatives designated as hedging instruments                      
Interest rate contracts (1)$228,108
 13,924
 1,522
 191,684
 7,477
 2,253
$243,374
 5,910
 2,876
 235,222
 6,587
 2,710
Foreign exchange contracts (1)28,858
 1,134
 1,499
 25,115
 378
 2,494
27,692
 540
 2,556
 25,861
 673
 2,779
Total derivatives designated as qualifying hedging instruments  15,058
 3,021
   7,855
 4,747
  6,450
 5,432
   7,260
 5,489
Derivatives not designated as hedging instruments                      
Economic hedges:                      
Interest rate contracts (2)280,338
 422
 731
 211,375
 195
 315
222,692
 547
 548
 228,051
 1,098
 1,441
Equity contracts8,446
 602
 139
 7,427
 531
 47
9,036
 586
 98
 7,964
 545
 83
Foreign exchange contracts14,966
 600
 125
 16,407
 321
 100
17,308
 130
 142
 20,435
 626
 165
Credit contracts – protection purchased534
 94
 —
 —
 —
 —
161
 85
 —
 482
 102
 —
Subtotal  1,718
 995
   1,047
 462
  1,348
 788
   2,371
 1,689
Customer accommodation trading and                      
other derivatives:                      
Interest rate contracts6,111,740
 97,444
 100,134
 4,685,898
 55,053
 55,409
7,231,404
 57,030
 60,008
 6,018,370
 57,583
 61,058
Commodity contracts55,865
 2,573
 2,711
 47,571
 4,659
 5,519
63,882
 1,738
 1,348
 65,532
 3,057
 2,551
Equity contracts170,192
 6,955
 6,368
 139,956
 7,068
 4,761
174,984
 5,670
 6,712
 151,675
 4,813
 6,029
Foreign exchange contracts340,620
 7,092
 7,571
 295,962
 8,248
 8,339
325,923
 7,048
 6,930
 318,999
 9,595
 9,798
Credit contracts – protection sold10,399
 82
 417
 10,544
 83
 541
10,601
 142
 300
 10,483
 85
 389
Credit contracts – protection purchased21,469
 400
 130
 18,018
 567
 88
19,652
 296
 184
 19,964
 365
 138
Other contracts986
 —
 73
 1,041
 —
 58
977
 —
 36
 961
 —
 47
Subtotal  114,546
 117,404
   75,678
 74,715
  71,924
 75,518
   75,498
 80,010
Total derivatives not designated as hedging instruments  116,264
 118,399
   76,725
 75,177
  73,272
 76,306
   77,869
 81,699
Total derivatives before netting  131,322
 121,420
   84,580
 79,924
  79,722
 81,738
   85,129
 87,188
Netting (3)  (112,586) (107,817)   (66,924) (66,004)  (67,158) (69,277)   (70,631) (72,696)
Total  $18,736
 13,603
   17,656
 13,920
  $12,564
 12,461
   14,498
 14,492
(1)
Notional amounts presented exclude $1.9 billion of interest rate contracts at both September 30, 2016March 31, 2017, and December 31, 20152016, for certain derivatives that are combined for designation as a hedge on a single instrument. The notional amount for foreign exchange contracts at September 30, 2016March 31, 2017, and December 31, 20152016, excludes $10.29.8 billion and $7.89.6 billion, respectively, for certain derivatives that are combined for designation as a hedge on a single instrument.
(2)Includes economic hedge derivatives used to hedge the risk of changes in the fair value of residential MSRs, MHFS, loans, derivative loan commitments and other interests held.
(3)Represents balance sheet netting of derivative asset and liability balances, related cash collateral and portfolio level counterparty valuation adjustments. See Table 12.2 for further information.

Note 12: Derivatives (continued)

Table 12.2 provides information on the gross fair values of derivative assets and liabilities, the balance sheet netting adjustments and the resulting net fair value amount recorded on our balance sheet, as well as the non-cash collateral associated with such arrangements. We execute substantially all of our derivative transactions under master netting arrangements. Wearrangements and reflect all derivative balances and related cash collateral subject to enforceable master netting arrangements on a net basis within the balance sheet. The “Gross amounts recognized” column in the following table includes $116.2$70.5 billion and $114.2$75.5 billion of gross derivative assets and liabilities, respectively, at September 30, 2016,March 31, 2017, and $69.9$74.4 billion and $74.0$78.4 billion, respectively, at December 31, 2015,2016, with counterparties subject to enforceable master netting arrangements that are carried on the balance sheet net of offsetting amounts. The remaining gross derivative assets and liabilities of $15.2$9.2 billion and $7.0$6.2 billion, respectively, at September 30, 2016,March 31, 2017, and $14.6$10.7 billion and $5.9$8.7 billion, respectively, at December 31, 2015,2016, include those with counterparties subject to master netting arrangements for which we have not assessed the enforceability because they are with counterparties where we do not currently have positions to offset, those subject to master netting arrangements where we have not been able to confirm the enforceability and those not subject to master netting arrangements. As such, we do not net derivative balances or collateral within the balance sheet for these counterparties.
We determine the balance sheet netting adjustments based on the terms specified within each master netting arrangement. We disclose the balance sheet netting amounts within the column titled “Gross amounts offset in consolidated balance sheet.” Balance sheet netting adjustments are determined at the counterparty level for which there may be multiple contract types. For disclosure purposes, we allocate these netting adjustments to the contract type for each counterparty proportionally based upon the “Gross amounts recognized” by counterparty. As a result, the net amounts disclosed by contract type may not represent the actual exposure upon settlement of the contracts.
 
Balance sheet netting doesWe do not includenet non-cash collateral that we receive and pledge.pledge on the balance sheet. For disclosure purposes, we present the fair value of this non-cash collateral in the column titled “Gross amounts not offset in consolidated balance sheet (Disclosure-only netting)” within the table. We determine and allocate the Disclosure-only netting amounts in the same manner as balance sheet netting amounts.
The “Net amounts” column within Table 12.2 represents the aggregate of our net exposure to each counterparty after considering the balance sheet and Disclosure-only netting adjustments. We manage derivative exposure by monitoring the credit risk associated with each counterparty using counterparty specific credit risk limits, using master netting arrangements and obtaining collateral. Derivative contracts executed in over-the-counter markets include bilateral contractual arrangements that are not cleared through a central clearing organization but are typically subject to master netting arrangements. The percentage of our bilateral derivative transactions outstanding at period end in such markets, based on gross fair value, is provided within the following table. Other derivative contracts executed in over-the-counter or exchange-traded markets are settled through a central clearing organization and are excluded from this percentage. In addition to the netting amounts included in the table, we also have balance sheet netting related to resale and repurchase agreements that are disclosed within Note 10 (Guarantees, Pledged Assets and Collateral).


Table 12.2: Gross Fair Values of Derivative Assets and Liabilities
(in millions)
Gross
amounts
recognized

 
Gross amounts
offset in
consolidated
balance
sheet (1)

 
Net amounts in
consolidated
balance
sheet (2)

 
Gross amounts
not offset in
consolidated
balance sheet
(Disclosure-only
netting) (3)

 
Net
amounts

 
Percent
exchanged in
over-the-counter
market (4)

Gross
amounts
recognized

 
Gross amounts
offset in
consolidated
balance
sheet (1)

 
Net amounts in
consolidated
balance
sheet

 
Gross amounts
not offset in
consolidated
balance sheet
(Disclosure-only
netting) (2)

 
Net
amounts

 
Percent
exchanged in
over-the-counter
market (3)

September 30, 2016           
March 31, 2017           
Derivative assets                      
Interest rate contracts$111,790
 (102,677) 9,113
 (1,314) 7,799
 28%$63,487
 (56,813) 6,674
 (355) 6,319
 31%
Commodity contracts2,573
 (834) 1,739
 (75) 1,664
 59
1,738
 (734) 1,004
 (6) 998
 87
Equity contracts7,557
 (2,719) 4,838
 (422) 4,416
 53
6,256
 (3,123) 3,133
 (328) 2,805
 71
Foreign exchange contracts8,826
 (5,933) 2,893
 (69) 2,824
 93
7,718
 (6,142) 1,576
 (22) 1,554
 96
Credit contracts – protection sold82
 (45) 37
 —
 37
 60
142
 (54) 88
 —
 88
 19
Credit contracts – protection purchased494
 (378) 116
 (5) 111
 99
381
 (292) 89
 (1) 88
 99
Total derivative assets$131,322
 (112,586) 18,736
 (1,885) 16,851
   $79,722
 (67,158) 12,564
 (712) 11,852
   
Derivative liabilities                      
Interest rate contracts$102,387
 (96,409) 5,978
 (4,250) 1,728
 23%$63,432
 (58,885) 4,547
 (2,038) 2,509
 27%
Commodity contracts2,711
 (563) 2,148
 (31) 2,117
 68
1,348
 (378) 970
 (33) 937
 83
Equity contracts6,507
 (2,570) 3,937
 (473) 3,464
 83
6,810
 (2,939) 3,871
 (451) 3,420
 83
Foreign exchange contracts9,195
 (7,862) 1,333
 (695) 638
 100
9,628
 (6,813) 2,815
 (783) 2,032
 99
Credit contracts – protection sold417
 (358) 59
 (57) 2
 100
300
 (252) 48
 (40) 8
 96
Credit contracts – protection purchased130
 (55) 75
 (4) 71
 39
184
 (10) 174
 (33) 141
 14
Other contracts73
 —
 73
 —
 73
 100
36
 —
 36
 —
 36
 100
Total derivative liabilities$121,420
 (107,817) 13,603
 (5,510) 8,093
   $81,738
 (69,277) 12,461
 (3,378) 9,083
   
December 31, 2015           
December 31, 2016           
Derivative assets                      
Interest rate contracts$62,725
 (56,612) 6,113
 (749) 5,364
 39%$65,268
 (59,880) 5,388
 (987) 4,401
 34%
Commodity contracts4,659
 (998) 3,661
 (76) 3,585
 35
3,057
 (707) 2,350
 (30) 2,320
 74
Equity contracts7,599
 (2,625) 4,974
 (471) 4,503
 51
5,358
 (3,018) 2,340
 (365) 1,975
 75
Foreign exchange contracts8,947
 (6,141) 2,806
 (34) 2,772
 98
10,894
 (6,663) 4,231
 (362) 3,869
 97
Credit contracts – protection sold83
 (79) 4
 —
 4
 76
85
 (48) 37
 —
 37
 61
Credit contracts – protection purchased567
 (469) 98
 (2) 96
 100
467
 (315) 152
 (1) 151
 98
Total derivative assets$84,580
 (66,924) 17,656
 (1,332) 16,324
   $85,129
 (70,631) 14,498
 (1,745) 12,753
   
Derivative liabilities                      
Interest rate contracts$57,977
 (53,259) 4,718
 (3,543) 1,175
 35%$65,209
 (58,956) 6,253
 (3,129) 3,124
 30%
Commodity contracts5,519
 (1,052) 4,467
 (40) 4,427
 84
2,551
 (402) 2,149
 (37) 2,112
 38
Equity contracts4,808
 (2,241) 2,567
 (154) 2,413
 85
6,112
 (2,433) 3,679
 (331) 3,348
 85
Foreign exchange contracts10,933
 (8,968) 1,965
 (634) 1,331
 100
12,742
 (10,572) 2,170
 (251) 1,919
 100
Credit contracts – protection sold541
 (434) 107
 (107) —
 100
389
 (295) 94
 (44) 50
 98
Credit contracts – protection purchased88
 (50) 38
 (6) 32
 70
138
 (38) 100
 (2) 98
 50
Other contracts58
 —
 58
 —
 58
 100
47
 —
 47
 —
 47
 100
Total derivative liabilities$79,924
 (66,004) 13,920
 (4,484) 9,436
   $87,188
 (72,696) 14,492
 (3,794) 10,698
   
(1)
Represents amounts with counterparties subject to enforceable master netting arrangements that have been offset in the consolidated balance sheet, including related cash collateral and portfolio level counterparty valuation adjustments. Counterparty valuation adjustments were $423288 million and $375348 million related to derivative assets and$11199 million and $81114 million related to derivative liabilities at September 30, 2016March 31, 2017, and December 31, 20152016, respectively. Cash collateral totaled $9.13.7 billion and $4.76.0 billion, netted against derivative assets and liabilities, respectively, at September 30, 2016March 31, 2017, and $5.34.8 billion and $4.77.1 billion, respectively, at December 31, 20152016.
(2)
Net derivative assets of $4.9 billion and $12.4 billion are classified in Trading assets at September 30, 2016, and December 31, 2015, respectively. $13.9 billion and $5.3 billion are classified in Other assets in the consolidated balance sheet at September 30, 2016, and December 31, 2015, respectively. Net derivative liabilities are classified in Accrued expenses and other liabilities in the consolidated balance sheet.
(3)Represents non-cash collateral pledged and received against derivative assets and liabilities with the same counterparty that are subject to enforceable master netting arrangements. U.S. GAAP does not permit netting of such non-cash collateral balances in the consolidated balance sheet but requires disclosure of these amounts.
(4)(3)Represents derivatives executed in over-the-counter markets that are not settled through a central clearing organization. Over-the-counter percentages are calculated based on gross amounts recognized as of the respective balance sheet date. The remaining percentage represents derivatives settled through a central clearing organization, which are executed in either over-the-counter or exchange-traded markets.



Note 12: Derivatives (continued)

Fair Value Hedges
We use derivatives to hedge against changes in fair value of certain financial instruments, including available-for-sale debt securities, mortgages held for sale, and long-term debt. For more information on fair value hedges, see Note 1 (Summary of Significant Accounting Policies) and Note 16 (Derivatives) to Financial Statements in our 20152016 Form 10-K.
Table 12.3 shows the net gains (losses) recognized in the income statement related to derivatives in fair value hedging relationships. The entire derivative gain or loss is included in the
assessment of hedge effectiveness for all fair value hedge relationships, except for those involving foreign-currency denominated available-for-sale securities and long-term debt hedged with foreign currency forward derivatives for which the time value component of the derivative gain or loss related to the changes in the difference between the spot and forward price is excluded from the assessment of hedge effectiveness.
 

Table 12.3: Derivatives in Fair Value Hedging Relationships
Interest rate
contracts hedging:
  
Foreign exchange
contracts hedging:
  
Total net
gains
(losses)
on fair
value
hedges

Interest rate
contracts hedging:
  
Foreign exchange
contracts hedging:
  
Total net
gains
(losses)
on fair
value
hedges

(in millions)
Available-
for-sale
securities

 
Mortgages
held for
sale

 
Long-term
debt

 
Available-
for-sale
securities

 
Long-term
debt

 
Available-
for-sale
securities

 
Mortgages
held for
sale

 
Long-term
debt

 
Available-
for-sale
securities

 
Long-term
debt

 
Quarter ended September 30, 2016  
   
   
   
   
   
Net interest income (expense) recognized on derivatives$(117) (1) 471
 2
 9
 364
Quarter ended March 31, 2017  
   
   
   
   
   
Net interest income (expense) recognized on derivatives (1)$(131) (2) 427
 4
 (33) 265
Gains (losses) recorded in noninterest income          
                 
      
Recognized on derivatives21
 6
 (271) 30
 312
 98
126
 (1) (564) (42) 157
 (324)
Recognized on hedged item(10) (7) 354
 (32) (234) 71
(141) —
 540
 44
 (311) 132
Net recognized on fair value hedges (ineffective portion) (1) $11
 (1) 83
 (2) 78
 169
Quarter ended September 30, 2015  
   
   
   
   
   
Net interest income (expense) recognized on derivatives$(199) (3) 494
 —
 35
 327
Net recognized on fair value hedges (ineffective portion)$(15)
(1)
(24)
2

(154) (192)
Quarter ended March 31, 2016  
   
   
   
   
   
Net interest income (expense) recognized on derivatives (1)$(181) (2) 482
 —
 16
 315
Gains (losses) recorded in noninterest income  
   
   
   
        
   
   
   
      
Recognized on derivatives(1,182) (20) 2,233
 27
 (200) 858
(1,683) (37) 3,103
 (66) 1,618
 2,935
Recognized on hedged item1,180
 16
 (2,039) (29) 213
 (659)1,691
 33
 (2,807) 59
 (1,402) (2,426)
Net recognized on fair value hedges (ineffective portion) (1)$(2) (4) 194
 (2) 13
 199
Nine months ended September 30, 2016  
   
   
   
   
   
Net interest income (expense) recognized on derivatives$(468) (5) 1,436
 4
 40
 1,007
Gains (losses) recorded in noninterest income           
      
Recognized on derivatives(2,674) (36) 4,815
 98
 1,475
 3,678
Recognized on hedged item2,699
 32
 (4,215) (106) (1,242) (2,832)
Net recognized on fair value hedges (ineffective portion) (1)$25

(4)
600

(8)
233
 846
Nine months ended September 30, 2015  
   
   
   
   
   
Net interest income (expense) recognized on derivatives$(585) (10) 1,445
 —
 152
 1,002
Gains (losses) recorded in noninterest income  
   
   
   
      
Recognized on derivatives(496) (14) 1,186
 191
 (1,823) (956)
Recognized on hedged item484
 5
 (1,121) (187) 1,860
 1,041
Net recognized on fair value hedges (ineffective portion) (1)$(12) (9) 65
 4
 37
 85
Net recognized on fair value hedges (ineffective portion)$8
 (4) 296
 (7) 216
 509
(1)
The third quarter and first nine months of 2016 included $(3) million and $(10) million, respectively, and the third quarter and first nine months of 2015 includedIncludes $(1) million and $(4) million, respectively, for the quarters ended March 31,2017 and 2016, of the time value component recognized as net interest income (expense) on forward derivatives hedging foreign currency available-for-sale securities and long-term debt that were excluded from the assessment of hedge effectiveness.
Cash Flow Hedges
We use derivatives to hedge certain financial instruments against future interest rate increases and to limit the variability of cash flows on certain financial instruments due to changes in the benchmark interest rate. For more information on cash flow hedges, see Note 1 (Summary of Significant Accounting Policies) and Note 16 (Derivatives) to Financial Statements in our 20152016 Form 10-K.
Based upon current interest rates, we estimate that $887$416 million (pre tax) of deferred net gains on derivatives in OCI
at September 30, 2016,March 31, 2017, will be reclassified into net interest
income during the next twelve months. Future changes to interest rates may significantly change actual amounts reclassified to earnings. We are hedging our exposure to the variability of future cash flows for all forecasted transactions for a maximum of 6 years.
Table 12.4 shows the net gains (losses) recognized related to derivatives in cash flow hedging relationships.
 

Table 12.4: Derivatives in Cash Flow Hedging Relationships
Quarter ended Sep 30,  Nine months ended Sep 30, Quarter ended March 31, 
(in millions)2016
 2015
 2016
 2015
2017
 2016
Gains (losses) (pre tax) recognized in OCI on derivatives$(445) 1,769
 2,611
 2,233
(133) 1,999
Gains (pre tax) reclassified from cumulative OCI into net income (1)262
 293
 783
 795
202
 256
Gains (losses) (pre tax) recognized in noninterest income for hedge ineffectiveness (2)—
 —
 1
 1
(3) 1
  
(1)See Note 17 (Other Comprehensive Income) for detail on components of net income.
(2)None of the change in value of the derivatives was excluded from the assessment of hedge effectiveness. 

Derivatives Not Designated as Hedging Instruments
We use economic hedges primarily to hedge the risk of changes in the fair value of certain residential MHFS, certain loans held for investment, residential MSRs measured at fair value, derivative loan commitments and other interests held. We also use economic hedge derivatives to mitigate the periodic earnings volatility caused by ineffectiveness recognized on our fair value accounting hedges. The resulting gain or loss on these economic hedge derivatives is reflected in mortgage banking noninterest income, net gains (losses) from equity investments and other noninterest income.
The derivatives used to hedge MSRs measured at fair value, resulted in net derivative gains (losses) of $142$(72) million in first quarter 2017 and $2.6$1.5 billion in the third first quarter and first nine months of 2016, respectively, and $1.1 billion and $1.0 billion in the third quarter and first nine months of 2015, respectively, which are included in mortgage banking noninterest income. The aggregate fair value of these derivatives was a netassetof $263$228 million at September 30, 2016,March 31, 2017, and net liability of $3$617 million at December 31, 2015.2016. The change in fair value of these derivatives for each period end is due
to changes in the underlying market indices and
interest rates as well as the purchase and sale of derivative financial instruments throughout the period as part of our dynamic MSR risk management process.
Interest rate lock commitments for mortgage loans that we intend to sell are considered derivatives. The aggregate fair value of derivative loan commitments on the balance sheet was a net asset of $236$113 million and $56net liability of $6 million at September 30, 2016,March 31, 2017, and December 31, 2015,2016, respectively, and is included in the caption “Interest rate contracts” under “Customer accommodation trading and other derivatives” in Table 12.1 in this Note.
For more information on economic hedges and other derivatives, see Note 16 (Derivatives) to Financial Statementsin our 20152016 Form 10-K. Table 12.5 shows the net gains recognized in the income statement related to derivatives not designated as hedging instruments.
 

Table 12.5: Derivatives Not Designated as Hedging Instruments
Quarter ended
September 30,		  Nine months ended
September 30,		 Quarter ended March 31, 
(in millions)2016
 2015
 2016
 2015
2017
 2016
Net gains (losses) recognized on economic hedges derivatives:          
Interest rate contracts
Recognized in noninterest income:
          
Mortgage banking (1)$4
 621
 1,435
 885
(9) 865
Other (2)(56) (92) (308) (42)6
 (135)
Equity contracts (3)(372) (90) (84) (85)(481) 83
Foreign exchange contracts (2)175
 325
 504
 303
(93) (166)
Credit contracts (2)12
 —
 12
 —
4
 —
Subtotal(4)(237) 764
 1,559
 1,061
(573) 647
Net gains (losses) recognized on customer accommodation trading and other derivatives:          
Interest rate contracts
Recognized in noninterest income:
          
Mortgage banking (4)(5)510
 442
 1,485
 806
193
 465
Other (5)(6)210
 (340) (520) 56
45
 (450)
Commodity contracts (5)(6)45
 10
 162
 54
60
 53
Equity contracts (5)(6)(982) 747
 (1,277) 797
(1,109) 20
Foreign exchange contracts (5)(6)188
 286
 686
 611
185
 222
Credit contracts (5)(6)(25) 37
 (66) 36
(15) (16)
Other (2)15
 (33) (15) (26)12
 (21)
Subtotal(39) 1,149
 455
 2,334
(629) 273
Net gains (losses) recognized related to derivatives not designated as hedging instruments$(276) 1,913
 2,014
 3,395
(1,202) 920
(1)Reflected in mortgage banking noninterest income including gains (losses) on the derivatives used as economic hedges of MSRs measured at fair value, interest rate lock commitments and mortgages held for sale.
(2)Included in other noninterest income.
(3)Included in net gains (losses) from equity investments and other noninterest income.
(4)
Includes hedging gains (losses) of $2 million and $(131) million for first quarter 2017, and 2016, respectively, which partially offset hedge accounting ineffectiveness.
(5)Reflected in mortgage banking noninterest income including gains (losses) on interest rate lock commitments and net gains from trading activities in noninterest income.
(5)(6)Included in net gains from trading activities in noninterest income.


Note 12: Derivatives (continued)

Credit Derivatives
Credit derivative contracts are arrangements whose value is derived from the transfer of credit risk of a reference asset or entity from one party (the purchaser of credit protection) to another party (the seller of credit protection). We use credit derivatives to assist customers with their risk management objectives. We may also use credit derivatives in structured product transactions or liquidity agreements written to special purpose vehicles. The maximum exposure of sold credit derivatives is managed through posted collateral, purchased credit derivatives and similar products in order to achieve our desired credit risk profile. This credit risk management provides an ability to recover a significant portion of any amounts that would be paid under the sold credit derivatives. We would be
 
required to perform under sold credit derivatives in the event of default by the referenced obligors. Events of default include events such as bankruptcy, capital restructuring or lack of principal and/or interest payment. In certain cases, other triggers may exist, such as the credit downgrade of the referenced obligors or the inability of the special purpose vehicle for which we have provided liquidity to obtain funding.
Table 12.6 provides details of sold and purchased credit derivatives.

Table 12.6: Sold and Purchased Credit Derivatives
  Notional amount      Notional amount    
(in millions)
Fair value
liability

 
Protection
sold (A)

 
Protection
sold –
non-
investment
grade

 
Protection
purchased
with
identical
underlyings (B)

 
Net
protection
sold
(A) - (B)

 
Other
protection
purchased

 
Range of
maturities
Fair value
liability

 
Protection
sold (A)

 
Protection
sold –
non-
investment
grade

 
Protection
purchased
with
identical
underlyings (B)

 
Net
protection
sold
(A) - (B)

 
Other
protection
purchased

 
Range of
maturities
September 30, 2016            
March 31, 2017            
Credit default swaps on:                        
Corporate bonds$14
 4,343
 1,661
 3,284
 1,059
 1,900
 2016 - 2025$15
 3,306
 1,645
 2,577
 729
 1,024
 2017 - 2026
Structured products214
 441
 353
 307
 134
 84
 2020 - 2047141
 306
 271
 245
 61
 209
 2020 - 2047
Credit protection on:                            
Default swap index—
 2,300
 380
 1,113
 1,187
 3,852
 2016 - 2021—
 3,043
 665
 241
 2,802
 4,168
 2017 - 2027
Commercial mortgage-backed securities index170
 560
 —
 516
 44
 153
 2047 - 2058126
 499
 —
 461
 38
 66
 2047 - 2058
Asset-backed securities index18
 45
 —
 40
 5
 189
 2045 - 204617
 44
 —
 40
 4
 5
 2045 - 2046
Other1
 2,710
 2,710
 —
 2,710
 10,565
 2016 - 20261
 3,403
 3,403
 —
 3,403
 10,777
 2017 - 2028
Total credit derivatives$417
 10,399
 5,104
 5,260
 5,139
 16,743
 $300
 10,601
 5,984
 3,564
 7,037
 16,249
 
December 31, 2015            
December 31, 2016            
Credit default swaps on:                        
Corporate bonds$44
 4,838
 1,745
 3,602
 1,236
 2,272
 2016 - 2025$22
 4,324
 1,704
 3,060
 1,264
 1,804
 2017 - 2026
Structured products275
 598
 463
 395
 203
 142
 2017 - 2047193
 405
 333
 295
 110
 79
 2020 - 2047
Credit protection on:                        
Default swap index—
 1,727
 370
 1,717
 10
 960
 2016 - 2020—
 1,515
 257
 139
 1,376
 3,668
 2017 - 2021
Commercial mortgage-backed securities index203
 822
 —
 766
 56
 316
 2047 - 2057156
 627
 —
 584
 43
 71
 2047 - 2058
Asset-backed securities index18
 47
 —
 1
 46
 71
 2045 - 204617
 45
 —
 40
 5
 187
 2045 - 2046
Other1
 2,512
 2,512
 —
 2,512
 7,776
 2016 - 20251
 3,567
 3,568
 —
 3,567
 10,519
 2017 - 2047
Total credit derivatives$541
 10,544
 5,090
 6,481
 4,063
 11,537
 $389
 10,483
 5,862
 4,118
 6,365
 16,328
 

Protection sold represents the estimated maximum exposure to loss that would be incurred under an assumed hypothetical circumstance, where the value of our interests and any associated collateral declines to zero, without any consideration of recovery or offset from any economic hedges. We believe this hypothetical circumstance to be an extremely remote possibility and accordingly, this required disclosure is not an indication of expected loss. The amounts under non-investment grade represent the notional amounts of those credit derivatives on which we have a higher risk of being required to perform under the terms of the credit derivative and are a function of the underlying assets.
 
We consider the risk of performance to be high if the underlying assets under the credit derivative have an external rating that is below investment grade or an internal credit default grade that is equivalent thereto. We believe the net protection sold, which is representative of the net notional amount of protection sold and purchased with identical underlyings, in combination with other protection purchased, is more representative of our exposure to loss than either non-investment grade or protection sold. Other protection purchased represents additional protection, which may offset the exposure to loss for protection sold, that was not purchased with an identical underlying of the protection sold.



Credit-Risk Contingent Features
Certain of our derivative contracts contain provisions whereby if the credit rating of our debt were to be downgraded by certain major credit rating agencies, the counterparty could demand additional collateral or require termination or replacement of derivative instruments in a net liability position. The aggregate fair value of all derivative instruments with such credit-risk-related contingent features that are in a net liability position was $13.7$11.3 billion at September 30, 2016,March 31, 2017, and $12.3$12.8 billion at December 31, 2015,2016, for which we posted $10.2$8.3 billion and $8.8$8.9 billion, respectively, in collateral in the normal course of business. If the credit rating of our debt had been downgraded below investment grade, which is the credit-risk-related contingent feature that if triggered requires the maximum amount of collateral to be posted, on September 30, 2016,March 31, 2017, or December 31, 2015,2016, we would have been required to post additional collateral of $3.5$3.0 billion or $3.6$4.0 billion, respectively, or potentially settle the contract in an amount equal to its fair value. Some contracts require that we provide more collateral than the fair value of derivatives that are in a net liability position if a downgrade occurs.
 
 
Counterparty Credit Risk
By using derivatives, we are exposed to counterparty credit risk if counterparties to the derivative contracts do not perform as expected. If a counterparty fails to perform, our counterparty credit risk is equal to the amount reported as a derivative asset on our balance sheet. The amounts reported as a derivative asset are derivative contracts in a gain position, and to the extent subject to legally enforceable master netting arrangements, net of derivatives in a loss position with the same counterparty and cash collateral received. We minimize counterparty credit risk through credit approvals, limits, monitoring procedures, executing master netting arrangements and obtaining collateral, where appropriate. To the extent the master netting arrangements and other criteria meet the applicable requirements, including determining the legal enforceability of the arrangement, it is our policy to present derivative balances and related cash collateral amounts net on the balance sheet. We incorporate credit valuation adjustments (CVA) to reflect counterparty credit risk in determining the fair value of our derivatives. Such adjustments, which consider the effects of enforceable master netting agreements and collateral arrangements, reflect market-based views of the credit quality of each counterparty. Our CVA calculation is determined based on observed credit spreads in the credit default swap market and indices indicative of the credit quality of the counterparties to our derivatives.


Note 13: Fair Values of Assets and Liabilities (continued)

Note 13:  Fair Values of Assets and Liabilities

We use fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Assets and liabilities recorded at fair value on a recurring basis are presented in Table 13.2 in this Note. From time to time, we may be required to record fair value adjustments on a nonrecurring basis. These nonrecurring fair value adjustments typically involve application of LOCOM accounting or write-downs of individual assets. Assets recorded on a nonrecurring basis are presented in Table 13.14 in this Note.
See Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 20152016 Form 10-K for discussion of how we determine fair value. For descriptions of the valuation methodologies we use for assets and liabilities recorded at fair value on a recurring or nonrecurring basis and for estimating fair value for financial instruments that are not recorded at fair value, see Note 17 (Fair Values of Assets and Liabilities) to Financial Statements in our 20152016 Form 10-K.
 
FAIR VALUE HIERARCHY  We group our assets and liabilities measured at fair value in three levels based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:
Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets.
Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3 – Valuation is generated from techniques that use significant assumptions that are not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.
 
In accordance with new accounting guidance that we adopted effective January 1, 2016, we do not classify an investment in the fair value hierarchy if we use the non-published net asset value (NAV) per share (or its equivalent) that has been communicated to us as an investor as a practical expedient to measure fair value. We generally use NAV per share as the fair value measurement for certain nonmarketable equity fund investments. This guidance was required to be applied retrospectively. Accordingly, certain prior period fair value disclosures have been revised to conform with current period presentation. Marketable equity investments with published NAVs continue to be classified in the fair value hierarchy.
Fair Value Measurements from Vendors
For certain assets and liabilities, we obtain fair value measurements from vendors, which predominantly consist of third-party pricing services, and record the unadjusted fair value in our financial statements. For additional information, see Note 17 (Fair Values of Assets and Liabilities) to Financial Statements in our 20152016 Form 10-K. Table 13.1. presents unadjusted fair value measurements provided by brokers or third-party pricing services by fair value hierarchy level. Fair value measurements obtained from brokers or third-party pricing services that we have adjusted to determine the fair value recorded in our financial statements are excluded from Table 13.1.


Table 13.1: Fair Value Measurements by Brokers or Third-Party Pricing Services
Brokers  Third-party pricing services Brokers  Third-party pricing services 
(in millions)Level 1
 Level 2
 Level 3
 Level 1
 Level 2
 Level 3
Level 1
 Level 2
 Level 3
 Level 1
 Level 2
 Level 3
September 30, 2016                 
Trading assets (excluding derivatives)$—
 —
 —
 1,050
 118
 —
March 31, 2017                 
Trading assets$—
 —
 —
 648
 55
 —
Available-for-sale securities:                                  
Securities of U.S. Treasury and federal agencies—
 —
 —
 23,309
 3,067
 —
—
 —
 —
 21,672
 2,953
 —
Securities of U.S. states and political subdivisions—
 —
 —
 —
 54,166
 49
—
 —
 —
 —
 50,701
 214
Mortgage-backed securities—
 279
 —
 —
 151,897
 94
—
 69
 —
 —
 170,540
 89
Other debt securities (1)—
 154
 947
 —
 50,669
 130
—
 777
 861
 —
 46,797
 250
Total debt securities—
 433
 947
 23,309
 259,799
 273
—
 846
 861
 21,672
 270,991
 553
Total marketable equity securities—
 —
 —
 —
 466
 —
—
 —
 —
 —
 293
 —
Total available-for-sale securities—
 433
 947
 23,309
 260,265
 273
—
 846
 861
 21,672
 271,284
 553
Derivatives (trading and other assets)—
 —
 —
 —
 198
 —
Derivatives (liabilities)—
 —
 —
 —
 (194) —
Derivatives assets—
 —
 —
 25
 7
 —
Derivatives liabilities—
 —
 —
 (21) (2) —
Other liabilities (2)—
 —
 —
 —
 (1) —
—
 —
 —
 —
 —
 —
December 31, 2015                 
Trading assets (excluding derivatives) (3)$—
 —
 —
 700
 5
 —
December 31, 2016                 
Trading assets$—
 —
 —
 899
 60
 —
Available-for-sale securities:                                  
Securities of U.S. Treasury and federal agencies—
 —
 —
 32,868
 3,382
 —
—
 —
 —
 22,870
 2,949
 —
Securities of U.S. states and political subdivisions—
 —
 —
 —
 48,443
 51
—
 —
 —
 —
 49,837
 208
Mortgage-backed securities—
 226
 —
 —
 126,525
 73
—
 171
 —
 —
 176,923
 92
Other debt securities (1)—
 503
 409
 —
 48,721
 345
—
 450
 968
 —
 49,162
 54
Total debt securities—
 729
 409
 32,868
 227,071
 469
—
 621
 968
 22,870
 278,871
 354
Total marketable equity securities—
 —
 —
 —
 484
 —
—
 —
 —
 —
 358
 —
Total available-for-sale securities—
 729
 409
 32,868
 227,555
 469
—
 621
 968
 22,870
 279,229
 354
Derivatives (trading and other assets)—
 —
 —
 —
 224
 —
Derivatives (liabilities)—
 —
 —
 —
 (221) —
Derivatives assets—
 —
 —
 22
 —
 —
Derivatives liabilities—
 —
 —
 (109) (1) —
Other liabilities (2)—
 —
 —
 —
 (1) —
—
 —
 —
 —
 —
 —
(1)Includes corporate debt securities, collateralized loan and other debt obligations, asset-backed securities, and other debt securities.
(2)Includes short sale liabilities and other liabilities.
(3)The Level 1 third-party pricing services balance for trading assets has been revised to correct the amount previously reported.
Note 13: Fair Values of Assets and Liabilities (continued)

Assets and Liabilities Recorded at Fair Value on a Recurring Basis
 
Table 13.2 presents the balances of assets and liabilities recorded at fair value on a recurring basis.

Table 13.2: Fair Value on a Recurring Basis
(in millions)Level 1
 Level 2
 Level 3
 Netting
 Total
Level 1
 Level 2
 Level 3
 Netting
 Total
September 30, 2016         
Trading assets (excluding derivatives)         
March 31, 2017         
Trading assets         
Securities of U.S. Treasury and federal agencies$19,184
 3,883
 —
  —
  23,067
$12,369
 3,436
 —
  —
  15,805
Securities of U.S. states and political subdivisions—
 3,899
 3
  —
  3,902
—
 3,330
 3
  —
  3,333
Collateralized loan obligations—
 343
 288
  —
  631
—
 426
 398
  —
  824
Corporate debt securities25
 7,355
 46
  —
  7,426
—
 9,252
 37
  —
  9,289
Mortgage-backed securities—
 21,039
 —
  —
 21,039
—
 20,466
 —
  —
 20,466
Asset-backed securities—
 1,253
 —
  —
 1,253
—
 794
 —
  —
 794
Equity securities22,701
 286
 —
 —
 22,987
28,414
 246
 —
 —
 28,660
Total trading securities (1)41,910
 38,058
 337
 —
 80,305
40,783
 37,950
 438
 —
 79,171
Other trading assets—
 759
 30
  —
 789
—
 1,129
 26
  —
 1,155
Total trading assets (excluding derivatives)41,910
 38,817
 367
 —
 81,094
Total trading assets40,783
 39,079
 464
 —
 80,326
Securities of U.S. Treasury and federal agencies23,309
 3,067
 —
  —
 26,376
21,672
 2,953
 —
  —
 24,625
Securities of U.S. states and political subdivisions—
 54,166
 1,200
(2)—
 55,366
—
 50,701
 1,360
(2)—
 52,061
Mortgage-backed securities:            
            
Federal agencies—
 135,692
 —
  —
 135,692
—
 156,966
 —
  —
 156,966
Residential—
 8,526
 1
  —
 8,527
—
 7,592
 1
  —
 7,593
Commercial—
 9,767
 93
  —
 9,860
—
 6,551
 89
  —
 6,640
Total mortgage-backed securities—
 153,985
 94
 —
 154,079
—
 171,109
 90
 —
 171,199
Corporate debt securities60
 12,186
 475
  —
 12,721
60
 9,979
 391
  —
 10,430
Collateralized loan and other debt obligations (3)—
 34,485
 960
(2)—
 35,445
—
 33,045
 964
(2)—
 34,009
Asset-backed securities:             
             
Automobile loans and leases—
 10
 —
 —
 10
—
 11
 —
 —
 11
Home equity loans—
 390
 —
  —
 390
—
 319
 —
  —
 319
Other asset-backed securities—
 4,921
 1,046
(2)—
 5,967
—
 4,905
 845
(2)—
 5,750
Total asset-backed securities—
 5,321
 1,046
  —
 6,367
—
 5,235
 845
  —
 6,080
Other debt securities—
 4
 —
  —
 4
—
 1
 —
  —
 1
Total debt securities23,369
 263,214
 3,775
  —
 290,358
21,732
 273,023
 3,650
  —
 298,405
Marketable equity securities:             
             
Perpetual preferred securities125
 466
 —
 —
 591
190
 292
 —
 —
 482
Other marketable equity securities642
 —
 —
  —
 642
642
 1
 —
  —
 643
Total marketable equity securities767
 466
 —
 —
 1,233
832
 293
 —
 —
 1,125
Total available-for-sale securities24,136
 263,680
 3,775
 —
 291,591
22,564
 273,316
 3,650
 —
 299,530
Mortgages held for sale—
 21,540
 1,107
  —
 22,647
—
 13,061
 957
  —
 14,018
Loans—
 —
 4,788
  —
  4,788
—
 —
 505
  —
  505
Mortgage servicing rights (residential)—
 —
 10,415
  —
  10,415
—
 —
 13,208
  —
  13,208
Derivative assets:              
              
Interest rate contracts17
 125,709
 667
  —
  126,393
28
 63,205
 254
  —
  63,487
Commodity contracts—
 2,547
 26
  —
  2,573
—
 1,701
 37
  —
  1,738
Equity contracts3,530
 2,956
 1,071
  —
  7,557
1,808
 3,215
 1,233
  —
  6,256
Foreign exchange contracts33
 9,390
 29
  —
  9,452
25
 7,679
 14
  —
  7,718
Credit contracts—
 290
 286
  —
  576
—
 294
 229
  —
  523
Netting—
 —
 —
  (112,586)(4)(112,586)—
 —
 —
  (67,158)(4)(67,158)
Total derivative assets (5)
3,580
 140,892
 2,079
  (112,586) 33,965
1,861
 76,094
 1,767
  (67,158) 12,564
Other assets – excluding nonmarketable equity investments at NAV—
 23
 3,418
  —
  3,441
—
 40
 3,740
  —
  3,780
Total assets included in the fair value hierarchy$69,626
 464,952
 25,949
 (112,586) 447,941
$65,208
 401,590
 24,291
 (67,158) 423,931
Other assets – nonmarketable equity investments at NAV (6)(5)

       —


       —
Total assets recorded at fair value

 

   

 $447,941


 

   

 $423,931
Derivative liabilities:              
              
Interest rate contracts$(29) (104,288) (34)  —
  (104,351)$(19) (63,377) (36)  —
  (63,432)
Commodity contracts—
 (2,705) (6)  —
  (2,711)—
 (1,330) (18)  —
  (1,348)
Equity contracts(1,088) (3,973) (1,446)  —
  (6,507)(1,164) (4,114) (1,532)  —
  (6,810)
Foreign exchange contracts(17) (10,608) (12)  —
  (10,637)(21) (9,596) (11)  —
  (9,628)
Credit contracts—
 (331) (216)  —
  (547)—
 (342) (142)  —
  (484)
Other derivative contracts—
 —
 (73)  —
  (73)—
 —
 (36)  —
  (36)
Netting—
 —
 —
  107,817
(4)107,817
—
 —
 —
  69,277
(4)69,277
Total derivative liabilities (5)(1,134) (121,905) (1,787)  107,817
  (17,009)(1,204) (78,759) (1,775)  69,277
  (12,461)
Short sale liabilities:              
              
Securities of U.S. Treasury and federal agencies(10,906) (835) —
  —
  (11,741)(12,164) (809) —
  —
  (12,973)
Corporate debt securities—
 (4,501) —
  —
  (4,501)—
 (4,712) —
  —
  (4,712)
Equity securities(1,435) (27) —
  —
  (1,462)(2,246) —
 —
  —
  (2,246)
Other securities—
 (105) —
  —
  (105)—
 (51) —
  —
  (51)
Total short sale liabilities(12,341) (5,468) —
  —
  (17,809)(14,410) (5,572) —
  —
  (19,982)
Other liabilities (excluding derivatives)—
 —
 (4)  —
  (4)
Other liabilities—
 —
 (4)  —
  (4)
Total liabilities recorded at fair value$(13,475) (127,373) (1,791)  107,817
  (34,822)$(15,614) (84,331) (1,779)  69,277
  (32,447)
(1)
Net gains (losses) from trading activities recognized in the income statement for the quarters ended first nine months of 2016March 31,2017 and 20152016 include $1.4 billion587 million and $(985)572 million in net unrealized gains (losses) on trading securities held at September 30, 2016March 31, 2017 and 20152016, respectively.
(2)Balances consist of securities that are mostly investment grade based on ratings received from the ratings agencies or internal credit grades categorized as investment grade if external ratings are not available. The securities are classified as Level 3 due to limited market activity.
(3)
Includes collateralized debt obligations of $832945 million.
(4)Represents balance sheet netting of derivative asset and liability balances and related cash collateral. See Note 12 (Derivatives) for additional information.
(5)Derivative assets and derivative liabilities include contracts qualifying for hedge accounting, economic hedges, and derivatives included in trading assets and trading liabilities, respectively.
(6)Consists of certain nonmarketable equity investments that are measured at fair value using NAV per share (or its equivalent) as a practical expedient and are excluded from the fair value hierarchy.
(continued on following page)

(continued from previous page)
(in millions)
Level 1
 Level 2
 Level 3
 Netting
 Total
Level 1
 Level 2
 Level 3
 Netting
 Total
December 31, 2015         
Trading assets (excluding derivatives)         
December 31, 2016         
Trading assets         
Securities of U.S. Treasury and federal agencies $13,357
 3,469
 —
 —
 16,826
$14,950
 2,710
 —
 —
 17,660
Securities of U.S. states and political subdivisions —
 1,667
 8
 —
 1,675
—
 2,910
 3
 —
 2,913
Collateralized loan obligations—
 346
 343
 —
 689
—
 501
 309
 —
 810
Corporate debt securities —
 7,909
 56
 —
 7,965
—
 9,481
 34
 —
 9,515
Mortgage-backed securities —
 20,619
 —
 —
 20,619
—
 20,254
 —
 —
 20,254
Asset-backed securities —
 1,005
 —
 —
 1,005
—
 1,128
 —
 —
 1,128
Equity securities 15,010
 101
 —
 —
 15,111
20,462
 290
 —
 —
 20,752
Total trading securities (1)28,367
 35,116
 407
 —
 63,890
35,412
 37,274
 346
 —
 73,032
Other trading assets —
 891
 34
 —
 925
—
 1,337
 28
 —
 1,365
Total trading assets (excluding derivatives) 28,367
 36,007
 441
 —
 64,815
Total trading assets35,412
 38,611
 374
 —
 74,397
Securities of U.S. Treasury and federal agencies 32,868
 3,382
 —
 —
 36,250
22,870
 2,949
 —
 —
 25,819
Securities of U.S. states and political subdivisions—
 48,490
 1,500
(2)—
 49,990
—
 49,961
 1,140
(2)—
 51,101
Mortgage-backed securities:              
             
Federal agencies —
 104,546
 —
  —
 104,546
—
 161,230
 —
  —
 161,230
Residential —
 8,557
 1
  —
 8,558
—
 7,815
 1
  —
 7,816
Commercial —
 14,015
 73
  —
 14,088
—
 8,411
 91
  —
 8,502
Total mortgage-backed securities —
 127,118
 74
 —
 127,192
—
 177,456
 92
 —
 177,548
Corporate debt securities 54
 14,952
 405
  —
 15,411
58
 10,967
 432
  —
 11,457
Collateralized loan and other debt obligations (3)—
 30,402
 565
(2)—
 30,967
—
 34,141
 879
(2)—
 35,020
Asset-backed securities:              
             
Automobile loans and leases —
 15
 —
 —
 15
—
 9
 —
 —
 9
Home equity loans —
 414
 —
  —
 414
—
 327
 —
  —
 327
Other asset-backed securities —
 4,290
 1,182
(2)—
 5,472
—
 4,909
 962
(2)—
 5,871
Total asset-backed securities —
 4,719
 1,182
  —
 5,901
—
 5,245
 962
  —
 6,207
Other debt securities —
 10
 —
  —
 10
—
 1
 —
  —
 1
Total debt securities 32,922
 229,073
 3,726
  —
 265,721
22,928
 280,720
 3,505
  —
 307,153
Marketable equity securities:              
             
Perpetual preferred securities434
 484
 —
 —
 918
112
 357
 —
 —
 469
Other marketable equity securities 719
 —
 —
  —
 719
741
 1
 —
  —
 742
Total marketable equity securities 1,153
 484
 —
 —
 1,637
853
 358
 —
 —
 1,211
Total available-for-sale securities 34,075
 229,557
 3,726
 —
 267,358
23,781
 281,078
 3,505
 —
 308,364
Mortgages held for sale —
 12,457
 1,082
 —
 13,539
—
 21,057
 985
 —
 22,042
Loans —
 —
 5,316
 —
 5,316
—
 —
 758
 —
 758
Mortgage servicing rights (residential) —
 —
 12,415
 —
 12,415
—
 —
 12,959
 —
 12,959
Derivative assets:             
            
Interest rate contracts 16
 62,390
 319
 —
 62,725
44
 64,986
 238
 —
 65,268
Commodity contracts —
 4,623
 36
 —
 4,659
—
 3,020
 37
 —
 3,057
Equity contracts 3,726
 2,907
 966
 —
 7,599
1,314
 2,997
 1,047
 —
 5,358
Foreign exchange contracts 48
 8,899
 —
 —
 8,947
22
 10,843
 29
 —
 10,894
Credit contracts —
 375
 275
 —
 650
—
 280
 272
 —
 552
Netting —
 —
 —
 (66,924)(4)(66,924)—
 —
 —
 (70,631)(4)(70,631)
Total derivative assets (5)3,790
 79,194
 1,596
 (66,924) 17,656
1,380
 82,126
 1,623
 (70,631) 14,498
Other assets – excluding nonmarketable equity investments at NAV—
 —
 3,065
 —
 3,065
—
 16
 3,259
 —
 3,275
Total assets included in the fair value hierarchy$66,232
 357,215
 27,641
 (66,924) 384,164
$60,573
 422,888
 23,463
 (70,631) 436,293
Other assets – nonmarketable equity investments at NAV (6)(5)        23
        —
Total assets recorded at fair value

 

 

 

 $384,187


 

 

 

 $436,293
Derivative liabilities:             
            
Interest rate contracts $(41) (57,905) (31) —
 (57,977)$(45) (65,047) (117) —
 (65,209)
Commodity contracts —
 (5,495) (24) —
 (5,519)—
 (2,537) (14) —
 (2,551)
Equity contracts (704) (3,027) (1,077) —
 (4,808)(919) (3,879) (1,314) —
 (6,112)
Foreign exchange contracts (37) (10,896) —
 —
 (10,933)(109) (12,616) (17) —
 (12,742)
Credit contracts —
 (351) (278) —
 (629)—
 (332) (195) —
 (527)
Other derivative contracts —
 —
 (58) —
 (58)—
 —
 (47) —
 (47)
Netting —
 —
 —
 66,004
(4)66,004
—
 —
 —
 72,696
(4)72,696
Total derivative liabilities (5)(782) (77,674) (1,468) 66,004
 (13,920)(1,073) (84,411) (1,704) 72,696
 (14,492)
Short sale liabilities:             

            

Securities of U.S. Treasury and federal agencies (8,621) (1,074) —
 —
 (9,695)(9,722) (701) —
 —
 (10,423)
Corporate debt securities —
 (4,209) —
 —
 (4,209)—
 (4,063) —
 —
 (4,063)
Equity securities (1,692) (4) —
 —
 (1,696)(1,795) —
 —
 —
 (1,795)
Other securities —
 (70) —
 —
 (70)—
 (98) —
 —
 (98)
Total short sale liabilities (10,313) (5,357) —
 —
 (15,670)(11,517) (4,862) —
 —
 (16,379)
Other liabilities (excluding derivatives) —
 —
 (30) —
 (30)
Other liabilities —
 —
 (4) —
 (4)
Total liabilities recorded at fair value $(11,095) (83,031) (1,498) 66,004
 (29,620)$(12,590) (89,273) (1,708) 72,696
 (30,875)
(1)
Net gains (losses) from trading activities recognized in the income statement for the year ended December 31, 20152016, include $(1.0) billion820 million in net unrealized gains (losses) on trading securities held at December 31, 20152016.
(2)Balances consist of securities that are mostly investment grade based on ratings received from the ratings agencies or internal credit grades categorized as investment grade if external ratings are not available. The securities are classified as Level 3 due to limited market activity.
(3)
Includes collateralized debt obligations of $257847 million. 
(4)Represents balance sheet netting of derivative asset and liability balances and related cash collateral. See Note 12 (Derivatives) for additional information.
(5)Derivative assets and derivative liabilities include contracts qualifying for hedge accounting, economic hedges, and derivatives included in trading assets and trading liabilities, respectively.
(6)Consists of certain nonmarketable equity investments that are measured at fair value using NAV per share (or its equivalent) as a practical expedient and are excluded from the fair value hierarchy.



Note 13: Fair Values of Assets and Liabilities (continued)

Changes in Fair Value Levels
We monitor the availability of observable market data to assess the appropriate classification of financial instruments within the fair value hierarchy and transfer between Level 1, Level 2, and Level 3 accordingly. Observable market data includes but is not limited to quoted prices and market transactions. Changes in economic conditions or market liquidity generally will drive changes in availability of observable market data. Changes in availability of observable market data, which also may result in
 
changing the valuation technique used, are generally the cause of transfers between Level 1, Level 2, and Level 3.
Transfers into and out of Level 1, Level 2, and Level 3 are provided within Table 13.3 for the periods presented. The amounts reported as transfers represent the fair value as of the beginning of the quarter in which the transfer occurred.

Table 13.3: Transfers Between Fair Value Levels
Transfers Between Fair Value Levels   Transfers Between Fair Value Levels   
Level 1 Level 2 Level 3 (1)   Level 1 Level 2 Level 3 (1)   
(in millions)In Out In Out In Out Total  In Out In Out In Out Total  
Quarter ended September 30, 2016                    
Trading assets (excluding derivatives)$1
 (44) 44
 (2) 1
 —
 —
Quarter ended March 31, 2017                    
Trading assets$—
 —
 1
 (3) 3
 (1) —
Available-for-sale securities—
 —
 465
 —
 —
 (465) —
—
 —
 72
 (5) 5
 (72) —
Mortgages held for sale—
 —
 3
 (18) 18
 (3) —
—
 —
 1
 (42) 42
 (1) —
Net derivative assets and liabilities (2)—
 —
 79
 (14) 14
 (79) —
—
 —
 3
 22
 (22) (3) —
Short sale liabilities—
 1
 (1) —
 —
 —
 —
—
 —
 —
 —
 —
 —
 —
Total transfers$1
 (43) 590
 (34) 33
 (547) —
$—
 —
 77
 (28) 28
 (77) —
Quarter ended September 30, 2015                    
Trading assets (excluding derivatives)$—
 (8) 10
 (10) 10
 (2) —
Quarter ended March 31, 2016                    
Trading assets$4
 —
 11
 (4) —
 (11) —
Available-for-sale securities—
 —
 —
 —
 —
 —
 —
—
 —
 —
 (80) 80
 —
 —
Mortgages held for sale—
 —
 11
 (60) 60
 (11) —
—
 —
 2
 (29) 29
 (2) —
Net derivative assets and liabilities (2)—
 —
 (3) —
 —
 3
 —
—
 —
 62
 (25) 25
 (62) —
Short sale liabilities—
 1
 (1) —
 —
 —
 —
(1) —
 —
 1
 —
 —
 —
Total transfers$—
 (7) 17
 (70) 70
 (10) —
$3
 —
 75
 (137) 134
 (75) —
Nine months ended September 30, 2016                    
Trading assets (excluding derivatives)$5
 (48) 59
 (6) 1
 (11) —
Available-for-sale securities—
 —
 481
 (80) 80
 (481) —
Mortgages held for sale—
 —
 12
 (72) 72
 (12) —
Net derivative assets and liabilities (2)—
 —
 129
 (42) 42
 (129) —
Short sale liabilities(1) 1
 (1) 1
 —
 —
 —
Total transfers$4
 (47) 680
 (199) 195
 (633) —
Nine months ended September 30, 2015                    
Trading assets (excluding derivatives)$16
 (11) 103
 (26) 11
 (93) —
Available-for-sale securities (3)—
 —
 76
 —
 —
 (76) —
Mortgages held for sale—
 —
 464
 (155) 155
 (464) —
Net derivative assets and liabilities (2)—
 —
 49
 12
 (12) (49) —
Short sale liabilities(1) 1
 (1) 1
 —
 —
 —
Total transfers$15
 (10) 691
 (168) 154
 (682) —
(1)All transfers in and out of Level 3 are disclosed within the recurring Level 3 rollforward tables in this Note.
(2)Includes transfers of net derivative assets and net derivative liabilities between levels due to changes in observable market data.
(3)
Transfers out of Level 3 exclude $640 million in auction rate perpetual preferred equity securities that were transferred in second quarter 2015 from available-for-sale securities to nonmarketable equity investments in other assets.


The changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the quarter ended September 30, 2016,March 31, 2017, are presented in Table 13.4.
Table 13.4: Changes in Level 3 Fair Value Assets and Liabilities on a Recurring Basis – Quarter ended September 30, 2016March 31, 2017
  
 
Total net gains
(losses) included in
  
Purchases,
sales,
issuances
and
settlements,
net (1)

   
   
   
 
Net unrealized
gains (losses)
included in
income related
to assets and
liabilities held
at period end

    
 
Total net gains
(losses) included in
  
Purchases,
sales,
issuances
and
settlements,
net (1)

   
   
   
 
Net unrealized
gains (losses)
included in
income related
to assets and
liabilities held
at period end

  
(in millions)
Balance,
beginning
of period

 
Net
income

 
Other
compre-
hensive
income

 
Transfers
into
Level 3

 
Transfers
out of
Level 3

 
Balance,
end of
period

 (2)
Balance,
beginning
of period

 
Net
income

 
Other
compre-
hensive
income

 
Transfers
into
Level 3

 
Transfers
out of
Level 3

 
Balance,
end of
period

 (2)
Quarter ended September 30, 2016                        
Trading assets (excluding derivatives):                        
Quarter ended March 31, 2017                        
Trading assets:                        
Securities of U.S. states and
political subdivisions
$7
 —
 —
 (4) —
 —
 3
 —
  $3
 —
 —
 —
 —
 —
 3
 —
  
Collateralized loan obligations249
 —
 —
 39
 —
 —
 288
 (1)  309
 4
 —
 85
 —
 —
 398
 —
  
Corporate debt securities36
 1
 —
 9
 —
 —
 46
 1
  34
 —
 —
 1
 3
 (1) 37
 —
  
Mortgage-backed securities—
 —
 —
 —
 —
 —
 —
 —
  —
 —
 —
 —
 —
 —
 —
 —
  
Asset-backed securities—
 —
 —
 —
 —
 —
 —
 —
  —
 —
 —
 —
 —
 —
 —
 —
  
Equity securities—
 —
 —
 (1) 1
 —
 —
 —
  —
 —
 —
 —
 —
 —
 —
 —
  
Total trading securities292
 1
 —
 43
 1
 —
 337
 —
  346
 4
 —
 86
 3
 (1) 438
 —
  
Other trading assets33
 (3) —
 —
 —
 —
 30
 (2) 28
 (2) —
 —
 —
 —
 26
 (1) 
Total trading assets
(excluding derivatives)
325
 (2) —
 43
 1
 —
 367
 (2)(3)
Total trading assets374
 2
 —
 86
 3
 (1) 464
 (1)(3)
Available-for-sale securities:                                                  
Securities of U.S. states and
political subdivisions
1,793
 1
 (15) (114) —
 (465) 1,200
 —
  1,140
 —
 2
 285
 5
 (72) 1,360
 —
  
Mortgage-backed securities:                                                
Residential1
 —
 —
 —
 —
 —
 1
 —
  1
 —
 —
 —
 —
 —
 1
 —
  
Commercial94
 —
 1
 (2) —
 —
 93
 (1)  91
 (3) 4
 (3) —
 —
 89
 (4)  
Total mortgage-backed securities95
 —
 1
 (2) —
 —
 94
 (1) 92
 (3) 4
 (3) —
 —
 90
 (4) 
Corporate debt securities471
 3
 5
 (4) —
 —
 475
 —
  432
 (14) 8
 (35) —
 —
 391
 —
  
Collateralized loan and other
debt obligations
951
 19
 2
 (12) —
 —
 960
 —
  879
 5
 41
 39
 —
 —
 964
 —
  
Asset-backed securities:                                                
Automobile loans and leases—
 —
 —
 —
 —
 —
 —
 —
  —
 —
 —
 —
 —
 —
 —
 —
  
Other asset-backed securities1,117
 (1) —
 (70) —
 —
 1,046
 —
  962
 —
 2
 (119) —
 —
 845
 —
  
Total asset-backed securities1,117
 (1) —
 (70) —
 —
 1,046
 —
  962
 —
 2
 (119) —
 —
 845
 —
  
Total debt securities4,427
 22
 (7) (202) —
 (465) 3,775
 (1)(4)3,505
 (12) 57
 167
 5
 (72) 3,650
 (4)(4)
Marketable equity securities:                                                  
Perpetual preferred securities—
 —
 —
 —
 —
 —
 —
 —
  —
 —
 —
 —
 —
 —
 —
 —
  
Other marketable equity securities—
 —
 —
 —
 —
 —
 —
 —
  —
 —
 —
 —
 —
 —
 —
 —
  
Total marketable
equity securities
—
 —
 —
 —
 —
 —
 —
 —
(5)—
 —
 —
 —
 —
 —
 —
 —
(5)
Total available-for-sale
securities
4,427
 22
 (7) (202) —
 (465) 3,775
 (1)  3,505
 (12) 57
 167
 5
 (72) 3,650
 (4)  
Mortgages held for sale1,084
 (10) —
 18
 18
 (3) 1,107
 (11)(6)985
 (9) —
 (60) 42
 (1) 957
 (11)(6)
Loans5,032
 (25) —
 (219) —
 —
 4,788
 (26)(6)758
 (6) —
 (247) —
 —
 505
 (5)(6)
Mortgage servicing rights (residential) (7)10,396
 (594) —
 613
 —
 —
 10,415
 (8)(6)12,959
 (287) —
 536
 —
 —
 13,208
 174
(6)
Net derivative assets and liabilities:                                                
Interest rate contracts690
 504
 —
 (561) —
 —
 633
 186
  121
 209
 —
 (112) —
 —
 218
 85
  
Commodity contracts21
 (3) —
 —
 1
 1
 20
 (1)  23
 2
 —
 (6) —
 —
 19
 7
  
Equity contracts(252) (33) —
 (7) (3) (80) (375) (54)  (267) (44) —
 37
 (22) (3) (299) (57)  
Foreign exchange contracts—
 1
 —
 —
 16
 —
 17
 2
  12
 (9) —
 —
 —
 —
 3
 (5)  
Credit contracts61
 17
 —
 (8) —
 —
 70
 14
  77
 7
 —
 3
 —
 —
 87
 (14)  
Other derivative contracts(88) 15
 —
 —
 —
 —
 (73) 16
  (47) 11
 —
 —
 —
 —
 (36) 11
  
Total derivative contracts432
 501
 —
 (576) 14
 (79) 292
 163
(8)(81) 176
 —
 (78) (22) (3) (8) 27
(8)
Other assets3,038
 380
 —
 —
 —
 —
 3,418
 381
(5)3,259
 481
 —
 —
 —
 —
 3,740
 485
(5)
Short sale liabilities—
 —
 —
 —
 —
 —
 —
 —
(3)—
 —
 —
 —
 —
 —
 —
 —
(3)
Other liabilities (excluding derivatives)(5) 1
 —
 —
 —
 —
 (4) —
(6)
Other liabilities(4) —
 —
 —
 —
 —
 (4) —
(6)
(1)See Table 13.5 for detail.
(2)Represents only net gains (losses) that are due to changes in economic conditions and management’s estimates of fair value and excludes changes due to the collection/realization of cash flows over time.
(3)Included in net gains (losses) from trading activities and other noninterest income in the income statement.
(4)Included in net gains (losses) from debt securities in the income statement.
(5)Included in net gains (losses) from equity investments in the income statement.
(6)Included in mortgage banking and other noninterest income in the income statement.
(7)For more information on the changes in mortgage servicing rights, see Note 8 (Mortgage Banking Activities).
(8)Included in mortgage banking, trading activities, equity investments and other noninterest income in the income statement.
 

(continued on following page)



Note 13: Fair Values of Assets and Liabilities (continued)

(continued from previous page)
 
Table 13.5 presents gross purchases, sales, issuances and settlements related to the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the quarter ended September 30, 2016.March 31, 2017.
Table 13.5: Gross Purchases, Sales, Issuances and Settlements – Level 3 – Quarter ended September 30, 2016March 31, 2017
(in millions)Purchases
 Sales
 Issuances
 Settlements
 Net
Purchases
 Sales
 Issuances
 Settlements
 Net
Quarter ended September 30, 2016              
Trading assets (excluding derivatives):              
Quarter ended March 31, 2017              
Trading assets:              
Securities of U.S. states and political subdivisions$—
 —
 —
 (4) (4)$1
 (1) —
 —
 —
Collateralized loan obligations75
 (36) —
 —
 39
199
 (76) —
 (38) 85
Corporate debt securities19
 (10) —
 —
 9
6
 (5) —
 —
 1
Mortgage-backed securities—
 —
 —
 —
 —
—
 —
 —
 —
 —
Asset-backed securities—
 —
 —
 —
 —
—
 —
 —
 —
 —
Equity securities—
 (1) —
 —
 (1)—
 —
 —
 —
 —
Total trading securities94
 (47) —
 (4) 43
206
 (82) —
 (38) 86
Other trading assets—
 —
 —
 —
 —
—
 —
 —
 —
 —
Total trading assets (excluding derivatives)94
 (47) —
 (4) 43
Total trading assets206
 (82) —
 (38) 86
Available-for-sale securities:                            
Securities of U.S. states and political subdivisions—
 —
 —
 (114) (114)—
 —
 346
 (61) 285
Mortgage-backed securities:                            
Residential—
 —
 —
 —
 —
—
 —
 —
 —
 —
Commercial—
 —
 —
 (2) (2)—
 —
 —
 (3) (3)
Total mortgage-backed securities—
 —
 —
 (2) (2)—
 —
 —
 (3) (3)
Corporate debt securities1
 (4) —
 (1) (4)4
 —
 —
 (39) (35)
Collateralized loan and other debt obligations121
 (45) —
 (88) (12)72
 —
 —
 (33) 39
Asset-backed securities:                            
Automobile loans and leases—
 —
 —
 —
 —
—
 —
 —
 —
 —
Other asset-backed securities—
 —
 16
 (86) (70)—
 —
 21
 (140) (119)
Total asset-backed securities—
 —
 16
 (86) (70)—
 —
 21
 (140) (119)
Total debt securities122
 (49) 16
 (291) (202)76
 —
 367
 (276) 167
Marketable equity securities:                            
Perpetual preferred securities—
 —
 —
 —
 —
—
 —
 —
 —
 —
Other marketable equity securities—
 —
 —
 —
 —
—
 —
 —
 —
 —
Total marketable equity securities—
 —
 —
 —
 —
—
 —
 —
 —
 —
Total available-for-sale securities122
 (49) 16
 (291) (202)76
 —
 367
 (276) 167
Mortgages held for sale23
 (113) 161
 (53) 18
22
 (156) 106
 (32) (60)
Loans—
 —
 76
 (295) (219)1
 (129) 6
 (125) (247)
Mortgage servicing rights (residential) (1)—
 3
 609
 1
 613
—
 (47) 583
 —
 536
Net derivative assets and liabilities:                            
Interest rate contracts—
 —
 —
 (561) (561)—
 —
 —
 (112) (112)
Commodity contracts—
 —
 —
 —
 —
—
 —
 —
 (6) (6)
Equity contracts—
 —
 —
 (7) (7)—
 —
 —
 37
 37
Foreign exchange contracts—
 —
 —
 —
 —
—
 —
 —
 —
 —
Credit contracts2
 (1) —
 (9) (8)2
 (1) —
 2
 3
Other derivative contracts—
 —
 —
 —
 —
—
 —
 —
 —
 —
Total derivative contracts2
 (1) —
 (577) (576)2
 (1) —
 (79) (78)
Other assets—
 —
 —
 —
 —
—
 —
 —
 —
 —
Short sale liabilities—
 —
 —
 —
 —
—
 —
 —
 —
 —
Other liabilities (excluding derivatives)—
 —
 —
 —
 —
Other liabilities—
 —
 —
 —
 —
(1)For more information on the changes in mortgage servicing rights, see Note 8 (Mortgage Banking Activities).


The changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the quarter ended September 30, 2015,March 31, 2016, are presented in Table 13.6.

Table 13.6: Changes in Level 3 Fair Value Assets and Liabilities on a Recurring Basis – Quarter ended September 30, 2015March 31, 2016
Balance,
beginning
of period

 
Total net gains
(losses) included in
  
Purchases,
sales,
issuances
and
settlements,
net (1)

   
   
   
 
Net unrealized
gains (losses)
included in
income related
to assets and
liabilities held
at period end

  
Balance,
beginning
of period

 
Total net gains
(losses) included in
  
Purchases,
sales,
issuances
and
settlements,
net (1)

   
   
   
 
Net unrealized
gains (losses)
included in
income related
to assets and
liabilities held
at period end

  
(in millions) 
Net
income 

 
Other
compre-
hensive
income

 
Transfers
into
Level 3

 
Transfers
out of
Level 3

 
Balance,
end of
period

 (2) 
Net
income 

 
Other
compre-
hensive
income

 
Transfers
into
Level 3

 
Transfers
out of
Level 3

 
Balance,
end of
period

 (2)
Quarter ended September 30, 2015                         
Trading assets (excluding derivatives):                         
Quarter ended March 31, 2016                         
Trading assets:                         
Securities of U.S. states and
political subdivisions
$8
 —
 —
 1
 —
 —
 9
 —
  $8
 —
 —
 —
 —
 —
 8
 —
  
Collateralized loan obligations407
 (3) —
 (14) —
 —
 390
 —
  343
 (25) —
 (39) —
 (11) 268
 (23)  
Corporate debt securities33
 (1) —
 6
 10
 (2) 46
 (2)  56
 (5) —
 (18) —
 —
 33
 (4)  
Mortgage-backed securities—
 —
 —
 —
 —
 —
 —
 —
  —
 —
 —
 —
 —
 —
 —
 —
  
Asset-backed securities—
 —
 —
 —
 —
 —
 —
 —
  —
 —
 —
 —
 —
 —
 —
 —
  
Equity securities1
 —
 —
 —
 —
 —
 1
 —
  —
 —
 —
 —
 —
 —
 —
 —
  
Total trading securities449
 (4) —
 (7) 10
 (2) 446
 (2)  407
 (30) —
 (57) —
 (11) 309
 (27)  
Other trading assets62
 (1) —
 (27) —
 —
 34
 (25)  34
 (2) —
 —
 —
 —
 32
 —
  
Total trading assets
(excluding derivatives)
511
 (5) —
 (34) 10
 (2) 480
 (27)(3)
Total trading assets441
 (32) —
 (57) —
 (11) 341
 (27)(3)
Available-for-sale securities:                                                  
Securities of U.S. states and
political subdivisions
1,889
 1
 1
 26
 —
 —
 1,917
 —
  1,500
 1
 3
 (127) 80
 —
 1,457
 —
  
Mortgage-backed securities:                                                
Residential—
 —
 —
 —
 —
 —
 —
 —
  1
 —
 —
 —
 —
 —
 1
 —
  
Commercial103
 5
 (7) (17) —
 —
 84
 (2)  73
 —
 —
 —
 —
 —
 73
 —
  
Total mortgage-backed securities103
 5
 (7) (17) —
 —
 84
 (2)  74
 —
 —
 —
 —
 —
 74
 —
  
Corporate debt securities334
 4
 (9) 52
 —
 —
 381
 (4)  405
 2
 19
 27
 —
 —
 453
 —
  
Collateralized loan and other
debt obligations
924
 71
 (76) (194) —
 —
 725
 —
  565
 15
 (24) 257
 —
 —
 813
 —
  
Asset-backed securities:                       ��                       
Automobile loans and leases260
 —
 (12) —
 —
 —
 248
 —
  —
 —
 —
 —
 —
 —
 —
 —
  
Other asset-backed securities1,320
 —
 (6) (74) —
 —
 1,240
 —
  1,182
 —
 —
 58
 —
 —
 1,240
 —
  
Total asset-backed securities1,580
 —
 (18) (74) —
 —
 1,488
 —
  1,182
 —
 —
 58
 —
 —
 1,240
 —
  
Total debt securities4,830
 81
 (109) (207) —
 —
 4,595
 (6)(4)3,726
 18
 (2) 215
 80
 —
 4,037
 —
(4)
Marketable equity securities:                                                  
Perpetual preferred securities—
 —
 —
 —
 —
 —
 —
 —
  —
 —
 —
 —
 —
 —
 —
 —
  
Other marketable equity securities—
 —
 —
 —
 —
 —
 —
 —
  —
 —
 —
 —
 —
 —
 —
 —
  
Total marketable equity securities—
 —
 —
 —
 —
 —
 —
 —
(5)—
 —
 —
 —
 —
 —
 —
 —
(5)
Total available-for-sale
securities
4,830
 81
 (109) (207) —
 —
 4,595
 (6)  3,726
 18
 (2) 215
 80
 —
 4,037
 —
  
Mortgages held for sale1,623
 16
 —
 (226) 60
 (11) 1,462
 16
(6)1,082
 24
 —
 (62) 29
 (2) 1,071
 21
(6)
Loans5,651
 (4) —
 (118) —
 —
 5,529
 (2)(6)5,316
 (1) —
 (94) —
 —
 5,221
 (2)(6)
Mortgage servicing rights (residential) (7)12,661
 (1,337) —
 454
 —
 —
 11,778
 (833)(6)12,415
 (1,448) —
 366
 —
 —
 11,333
 (957)(6)
Net derivative assets and liabilities:                                                
Interest rate contracts252
 562
 —
 (371) —
 —
 443
 219
  288
 599
 —
 (379) —
 (7) 501
 270
  
Commodity contracts3
 1
 —
 —
 —
 —
 4
 2
  12
 2
 —
 (3) —
 —
 11
 3
  
Equity contracts(185) 15
 —
 63
 —
 3
 (104) 109
  (111) (2) —
 (140) 25
 (55) (283) (147)  
Foreign exchange contracts—
 —
 —
 —
 —
 —
 —
 —
  —
 —
 —
 —
 —
 —
 —
 —
  
Credit contracts(117) (5) —
 81
 —
 —
 (41) 7
  (3) 9
 —
 (6) —
 —
 —
 (1)  
Other derivative contracts(38) (32) —
 —
 —
 —
 (70) (32)  (58) (21) —
 2
 —
 —
 (77) (21)  
Total derivative contracts(85) 541
 —
 (227) —
 3
 232
 305
(8)128
 587
 —
 (526) 25
 (62) 152
 104
(8)
Other assets2,636
 108
 —
 1
 —
 —
 2,745
 —
(5)3,065
 (57) —
 89
 —
 —
 3,097
 (58)(5)
Short sale liabilities(1) —
 —
 1
 —
 —
 —
 —
(3)—
 —
 —
 —
 —
 —
 —
 —
(3)
Other liabilities (excluding derivatives)(30) —
 —
 10
 —
 —
 (20) —
(6)
Other liabilities(30) —
 —
 25
 —
 —
 (5) —
(6)
(1)See Table 13.7 for detail.
(2)Represents only net gains (losses) that are due to changes in economic conditions and management’s estimates of fair value and excludes changes due to the collection/realization of cash flows over time.
(3)Included in net gains (losses) from trading activities and other noninterest income in the income statement.
(4)Included in net gains (losses) from debt securities in the income statement.
(5)Included in net gains (losses) from equity investments in the income statement.
(6)Included in mortgage banking and other noninterest income in the income statement.
(7)For more information on the changes in mortgage servicing rights, see Note 8 (Mortgage Banking Activities).
(8)Included in mortgage banking, trading activities, equity investments and other noninterest income in the income statement.
(continued on following page)




Note 13: Fair Values of Assets and Liabilities (continued)

(continued from previous page)
Table 13.7 presents gross purchases, sales, issuances and settlements related to the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the quarter ended September 30, 2015.
Table 13.7:Gross Purchases, Sales, Issuances and Settlements – Level 3 – Quarter ended September 30, 2015
(in millions)Purchases
 Sales
 Issuances
 Settlements
 Net
Quarter ended September 30, 2015              
Trading assets (excluding derivatives):              
Securities of U.S. states and political subdivisions$1
 —
 —
 —
 1
Collateralized loan obligations152
 (166) —
 —
 (14)
Corporate debt securities9
 (3) —
 —
 6
Mortgage-backed securities—
 —
 —
 —
 —
Asset-backed securities—
 —
 —
 —
 —
Equity securities—
 —
 —
 —
 —
Total trading securities162
 (169) —
 —
 (7)
Other trading assets—
 (26) —
 (1) (27)
Total trading assets (excluding derivatives)162
 (195) —
 (1) (34)
Available-for-sale securities:              
Securities of U.S. states and political subdivisions—
 —
 261
 (235) 26
Mortgage-backed securities:             
Residential—
 —
 —
 —
 —
Commercial—
 —
 —
 (17) (17)
Total mortgage-backed securities—
 —
 —
 (17) (17)
Corporate debt securities57
 (3) —
 (2) 52
Collateralized loan and other debt obligations15
 (86) —
 (123) (194)
Asset-backed securities:             
Automobile loans and leases—
 —
 —
 —
 —
Other asset-backed securities30
 —
 30
 (134) (74)
Total asset-backed securities30
 —
 30
 (134) (74)
Total debt securities102
 (89) 291
 (511) (207)
Marketable equity securities:              
Perpetual preferred securities—
 —
 —
 —
 —
Other marketable equity securities—
 —
 —
 —
 —
Total marketable equity securities—
 —
 —
 —
 —
Total available-for-sale securities102
 (89) 291
 (511) (207)
Mortgages held for sale44
 (436) 246
 (80) (226)
Loans3
 —
 93
 (214) (118)
Mortgage servicing rights (residential) (1)—
 6
 448
 —
 454
Net derivative assets and liabilities:             
Interest rate contracts—
 —
 —
 (371) (371)
Commodity contracts—
 —
 —
 —
 —
Equity contracts—
 (32) —
 95
 63
Foreign exchange contracts—
 —
 —
 —
 —
Credit contracts4
 —
 —
 77
 81
Other derivative contracts—
 —
 —
 —
 —
Total derivative contracts4
 (32) —
 (199) (227)
Other assets1
 —
 —
 —
 1
Short sale liabilities1
 —
 —
 —
 1
Other liabilities (excluding derivatives)—
 —
 —
 10
 10
(1)For more information on the changes in mortgage servicing rights, see Note 8 (Mortgage Banking Activities).



The changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the first nine months of 2016, are presented in Table 13.8.
Table 13.8:Changes in Level 3 Fair Value Assets and Liabilities on a Recurring Basis – Nine months ended September 30, 2016
    
 
Total net gains
(losses) included in
  
Purchases,
sales,
issuances
and
settlements,
net (1)

   
   
   
 
Net unrealized
gains (losses)
included in
income related
to assets and
liabilities held
at period end

  
(in millions)
Balance,
beginning
of period

 
Net
income

 
Other
compre-
hensive
income

  
Transfers
into
Level 3

 
Transfers
out of
Level 3

 
Balance,
end of
period

 (2)
Nine months ended September 30, 2016                        
Trading assets (excluding derivatives):                        
Securities of U.S. states and
political subdivisions
$8
 —
 —
 (5) —
 —
 3
 —
  
Collateralized loan obligations343
 (24) —
 (20) —
 (11) 288
 (25)  
Corporate debt securities56
 (7) —
 (3) —
 —
 46
 (6)  
Mortgage-backed securities—
 —
 —
 —
 —
 —
 —
 —
  
Asset-backed securities—
 —
 —
 —
 —
 —
 —
 —
  
Equity securities—
 —
 —
 (1) 1
 —
 —
 —
  
Total trading securities407
 (31) —
 (29) 1
 (11) 337
 (31)  
Other trading assets34
 (4) —
 —
 —
 —
 30
 1
 
Total trading assets
(excluding derivatives)
441
 (35) —
 (29) 1
 (11) 367
 (30)(3)
Available-for-sale securities:                         
Securities of U.S. states and
political subdivisions
1,500
 5
 (11) 107
 80
 (481) 1,200
 —
  
Mortgage-backed securities:                        
Residential1
 —
 —
 —
 —
 —
 1
 —
  
Commercial73
 —
 1
 19
 —
 —
 93
 (1)  
Total mortgage-backed securities74
 —
 1
 19
 —
 —
 94
 (1) 
Corporate debt securities405
 8
 33
 29
 —
 —
 475
 —
  
Collateralized loan and other
debt obligations
565
 42
 (18) 371
 —
 —
 960
 —
  
Asset-backed securities:                        
Automobile loans and leases—
 —
 —
 —
 —
 —
 —
 —
  
Other asset-backed securities1,182
 1
 (7) (130) —
 —
 1,046
 (4)  
Total asset-backed securities1,182
 1
 (7) (130) —
 —
 1,046
 (4)  
Total debt securities3,726
 56
 (2) 396
 80
 (481) 3,775
 (5)(4)
Marketable equity securities:                         
Perpetual preferred securities—
 —
 —
 —
 —
 —
 —
 —
  
Other marketable equity securities—
 —
 —
 —
 —
 —
 —
 —
  
Total marketable
equity securities
—
 —
 —
 —
 —
 —
 —
 —
(5)
Total available-for-sale
securities
3,726
 56
 (2) 396
 80
 (481) 3,775
 (5)  
Mortgages held for sale1,082
 20
 —
 (55) 72
 (12) 1,107
 15
(6)
Loans5,316
 (29) —
 (499) —
 —
 4,788
 (30)(6)
Mortgage servicing rights (residential) (7)12,415
 (3,434) —
 1,434
 —
 —
 10,415
 (1,789)(6)
Net derivative assets and liabilities:                        
Interest rate contracts288
 1,763
 —
 (1,411) —
 (7) 633
 374
  
Commodity contracts12
 5
 —
 (2) 4
 1
 20
 13
  
Equity contracts(111) (26) —
 (137) 22
 (123) (375) (278)  
Foreign exchange contracts—
 1
 —
 —
 16
 —
 17
 16
  
Credit contracts(3) 25
 —
 48
 —
 —
 70
 16
  
Other derivative contracts(58) (15) —
 —
 —
 —
 (73) (15)  
Total derivative contracts128
 1,753
 —
 (1,502) 42
 (129) 292
 126
(8)
Other assets3,065
 142
 —
 211
 —
 —
 3,418
 142
(5)
Short sale liabilities—
 —
 —
 —
 —
 —
 —
 —
(3)
Other liabilities (excluding derivatives)(30) 1
 —
 25
 —
 —
 (4) —
(6)
(1)See Table 13.9 for detail.
(2)Represents only net gains (losses) that are due to changes in economic conditions and management’s estimates of fair value and excludes changes due to the collection/realization of cash flows over time.
(3)Included in net gains (losses) from trading activities and other noninterest income in the income statement.
(4)Included in net gains (losses) from debt securities in the income statement.
(5)Included in net gains (losses) from equity investments in the income statement.
(6)Included in mortgage banking and other noninterest income in the income statement.
(7)For more information on the changes in mortgage servicing rights, see Note 8 (Mortgage Banking Activities).
(8)Included in mortgage banking, trading activities, equity investments and other noninterest income in the income statement.

(continued on following page)

Note 13: Fair Values of Assets and Liabilities (continued)

(continued from previous page)
Table 13.9 presents gross purchases, sales, issuances and settlements related to the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the first nine months of 2016.
Table 13.9:Gross Purchases, Sales, Issuances and Settlements – Level 3 – Nine months ended September 30, 2016
(in millions)Purchases
 Sales
 Issuances
 Settlements
 Net
Nine months ended September 30, 2016              
Trading assets (excluding derivatives):              
Securities of U.S. states and political subdivisions$2
 (2) —
 (5) (5)
Collateralized loan obligations265
 (285) —
 —
 (20)
Corporate debt securities32
 (35) —
 —
 (3)
Mortgage-backed securities—
 —
 —
 —
 —
Asset-backed securities—
 —
 —
 —
 —
Equity securities—
 (1) —
 —
 (1)
Total trading securities299
 (323) —
 (5) (29)
Other trading assets—
 —
 —
 —
 —
Total trading assets (excluding derivatives)299
 (323) —
 (5) (29)
Available-for-sale securities:              
Securities of U.S. states and political subdivisions28
 (7) 475
 (389) 107
Mortgage-backed securities:              
Residential—
 —
 —
 —
 —
Commercial22
 —
 —
 (3) 19
Total mortgage-backed securities22
 —
 —
 (3) 19
Corporate debt securities35
 (4) —
 (2) 29
Collateralized loan and other debt obligations610
 (49) —
 (190) 371
Asset-backed securities:              
Automobile loans and leases—
 —
 —
 —
 —
Other asset-backed securities—
 (28) 214
 (316) (130)
Total asset-backed securities—
 (28) 214
 (316) (130)
Total debt securities695
 (88) 689
 (900) 396
Marketable equity securities:              
Perpetual preferred securities—
 —
 —
 —
 —
Other marketable equity securities—
 —
 —
 —
 —
Total marketable equity securities—
 —
 —
 —
 —
Total available-for-sale securities695
 (88) 689
 (900) 396
Mortgages held for sale67
 (424) 443
 (141) (55)
Loans12
 —
 248
 (759) (499)
Mortgage servicing rights (residential) (1)—
 (19) 1,452
 1
 1,434
Net derivative assets and liabilities:              
Interest rate contracts—
 —
 —
 (1,411) (1,411)
Commodity contracts—
 —
 —
 (2) (2)
Equity contracts29
 (146) —
 (20) (137)
Foreign exchange contracts—
 —
 —
 —
 —
Credit contracts5
 (2) —
 45
 48
Other derivative contracts—
 —
 —
 —
 —
Total derivative contracts34
 (148) —
 (1,388) (1,502)
Other assets211
 —
 —
 —
 211
Short sale liabilities—
 —
 —
 —
 —
Other liabilities (excluding derivatives)—
 —
 —
 25
 25
(1)For more information on the changes in mortgage servicing rights, see Note 8 (Mortgage Banking Activities).


The changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the first nine months of 2015, are presented in Table 13.10.

Table 13.10:Changes in Level 3 Fair Value Assets and Liabilities on a Recurring Basis – Nine months ended September 30, 2015
  
Balance,
beginning
of period

 
Total net gains
(losses) included in
  
Purchases,
sales,
issuances
and
settlements,
net (1)

   
   
   
 
Net unrealized
gains (losses)
included in
income related
to assets and
liabilities held
at period end

  
(in millions) 
Net
income 

 
Other
compre-
hensive
income

  
Transfers
into
Level 3

 
Transfers
out of
Level 3

 
Balance,
end of
period

 (2)
Nine months ended September 30, 2015                         
Trading assets (excluding derivatives):                         
Securities of U.S. states and
political subdivisions
$7
 —
 —
 2
 —
 —
 9
 —
  
Collateralized loan obligations445
 39
 —
 (94) —
 —
 390
 5
  
Corporate debt securities54
 1
 —
 (8) 10
 (11) 46
 (2)  
Mortgage-backed securities—
 —
 —
 —
 —
 —
 —
 —
  
Asset-backed securities79
 16
 —
 (14) —
 (81) —
 —
  
Equity securities10
 1
 —
 (10) —
 —
 1
 —
  
Total trading securities595
 57
 —
 (124) 10
 (92) 446
 3
  
Other trading assets55
 4
 —
 (25) 1
 (1) 34
 (15)  
Total trading assets
(excluding derivatives)
650
 61
 —
 (149) 11
 (93) 480
 (12)(3)
Available-for-sale securities:                         
Securities of U.S. states and
political subdivisions
2,277
 4
 (14) (274) —
 (76) 1,917
 (5)  
Mortgage-backed securities:                        
Residential24
 4
 (6) (22) —
 —
 —
 —
  
Commercial109
 6
 (9) (22) —
 —
 84
 (2)  
Total mortgage-backed securities133
 10
 (15) (44) —
 —
 84
 (2)  
Corporate debt securities252
 7
 (12) 134
 —
 —
 381
 (2)  
Collateralized loan and other
debt obligations
1,087
 132
 (87) (407) —
 —
 725
 —
  
Asset-backed securities:                        
Automobile loans and leases245
 —
 3
 —
 —
 —
 248
 —
  
Other asset-backed securities1,372
 2
 (15) (119) —
 —
 1,240
 —
  
Total asset-backed securities1,617
 2
 (12) (119) —
 —
 1,488
 —
  
Total debt securities5,366
 155
 (140) (710) —
 (76) 4,595
 (9)(4)
Marketable equity securities:                         
Perpetual preferred securities663
 3
 (2) (24) —
 (640) —
 —
  
Other marketable equity securities—
 —
 —
 —
 —
 —
 —
 —
  
Total marketable equity securities663
 3
 (2) (24) —
 (640) —
 —
(5)
Total available-for-sale
securities
6,029
 158
 (142) (734) —
 (716) 4,595
 (9)  
Mortgages held for sale2,313
 53
 —
 (595) 155
 (464) 1,462
 14
(6)
Loans5,788
 (51) —
 (208) —
 —
 5,529
 (37)(6)
Mortgage servicing rights (residential) (7)12,738
 (2,144) —
 1,184
 —
 —
 11,778
 (553)(6)
Net derivative assets and liabilities:                        
Interest rate contracts293
 987
 —
 (837) —
 —
 443
 240
  
Commodity contracts1
 3
 —
 2
 (2) —
 4
 4
  
Equity contracts(84) 65
 —
 (26) (10) (49) (104) 96
  
Foreign exchange contracts—
 —
 —
 —
 —
 —
 —
 —
  
Credit contracts(189) (4) —
 152
 —
 —
 (41) 2
  
Other derivative contracts(44) (26) —
 —
 —
 —
 (70) (26)  
Total derivative contracts(23) 1,025
 —
 (709) (12) (49) 232
 316
(8)
Other assets2,512
 136
 —
 97
 —
 —
 2,745
 —
(5)
Short sale liabilities(6) —
 —
 6
 —
 —
 —
 —
(3)
Other liabilities (excluding derivatives)(28) (2) —
 10
 —
 —
 (20) —
(6)
(1)See Table 13.11 for detail.
(2)Represents only net gains (losses) that are due to changes in economic conditions and management’s estimates of fair value and excludes changes due to the collection/realization of cash flows over time.
(3)Included in net gains (losses) from trading activities and other noninterest income in the income statement.
(4)Included in net gains (losses) from debt securities in the income statement.
(5)Included in net gains (losses) from equity investments in the income statement.
(6)Included in mortgage banking and other noninterest income in the income statement.
(7)For more information on the changes in mortgage servicing rights, see Note 8 (Mortgage Banking Activities).
(8)Included in mortgage banking, trading activities, equity investments and other noninterest income in the income statement.
 
(continued on following page)
Note 13: Fair Values of Assets and Liabilities (continued)

(continued from previous page)

Table 13.1113.7 presents gross purchases, sales, issuances and settlements related to the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the first nine months of 2015.quarter ended March 31, 2016.
Table 13.11:13.7: Gross Purchases, Sales, Issuances and Settlements – Level 3 – Nine monthsQuarter ended September 30, 2015March 31, 2016
(in millions)Purchases
 Sales
 Issuances
 Settlements
 Net
Purchases
 Sales
 Issuances
 Settlements
 Net
Nine months ended September 30, 2015              
Trading assets (excluding derivatives):              
Quarter ended March 31, 2016              
Trading assets:              
Securities of U.S. states and political subdivisions$4
 (2) —
 —
 2
$—
 —
 —
 —
 —
Collateralized loan obligations1,060
 (1,154) —
 —
 (94)56
 (95) —
 —
 (39)
Corporate debt securities36
 (44) —
 —
 (8)3
 (21) —
 —
 (18)
Mortgage-backed securities—
 —
 —
 —
 —
—
 —
 —
 —
 —
Asset-backed securities—
 (5) —
 (9) (14)—
 —
 —
 —
 —
Equity securities—
 —
 —
 (10) (10)—
 —
 —
 —
 —
Total trading securities1,100
 (1,205) —
 (19) (124)59
 (116) —
 —
 (57)
Other trading assets3
 (27) —
 (1) (25)—
 —
 —
 —
 —
Total trading assets (excluding derivatives)1,103
 (1,232) —
 (20) (149)
Total trading assets59
 (116) —
 —
 (57)
Available-for-sale securities:                            
Securities of U.S. states and political subdivisions—
 (41) 555
 (788) (274)28
 —
 16
 (171) (127)
Mortgage-backed securities:                          
Residential—
 (22) —
 —
 (22)—
 —
 —
 —
 —
Commercial—
 (5) —
 (17) (22)—
 —
 —
 —
 —
Total mortgage-backed securities—
 (27) —
 (17) (44)—
 —
 —
 —
 —
Corporate debt securities153
 (11) —
 (8) 134
28
 —
 —
 (1) 27
Collateralized loan and other debt obligations74
 (188) —
 (293) (407)301
 —
 —
 (44) 257
Asset-backed securities:                  
Automobile loans and leases—
 —
 —
 —
 —
—
 —
 —
 —
 —
Other asset-backed securities30
 (1) 268
 (416) (119)—
 —
 160
 (102) 58
Total asset-backed securities30
 (1) 268
 (416) (119)—
 —
 160
 (102) 58
Total debt securities257
 (268) 823
 (1,522) (710)357
 —
 176
 (318) 215
Marketable equity securities:                            
Perpetual preferred securities—
 —
 —
 (24) (24)—
 —
 —
 —
 —
Other marketable equity securities—
 —
 —
 —
 —
—
 —
 —
 —
 —
Total marketable equity securities—
 —
 —
 (24) (24)—
 —
 —
 —
 —
Total available-for-sale securities257
 (268) 823
 (1,546) (734)357
 —
 176
 (318) 215
Mortgages held for sale164
 (1,059) 592
 (292) (595)22
 (159) 118
 (43) (62)
Loans70
 —
 287
 (565) (208)4
 —
 88
 (186) (94)
Mortgage servicing rights (residential) (1)—
 5
 1,184
 (5) 1,184
—
 —
 366
 —
 366
Net derivative assets and liabilities:                          
Interest rate contracts—
 —
 —
 (837) (837)—
 —
 —
 (379) (379)
Commodity contracts—
 —
 —
 2
 2
—
 —
 —
 (3) (3)
Equity contracts15
 (103) —
 62
 (26)13
 (147) —
 (6) (140)
Foreign exchange contracts—
 —
 —
 —
 —
—
 —
 —
 —
 —
Credit contracts10
 (2) —
 144
 152
3
 —
 —
 (9) (6)
Other derivative contracts—
 —
 —
 —
 —
—
 —
 —
 2
 2
Total derivative contracts25
 (105) —
 (629) (709)16
 (147) —
 (395) (526)
Other assets97
 —
 —
 —
 97
89
 —
 —
 —
 89
Short sale liabilities21
 (15) —
 —
 6
—
 —
 —
 —
 —
Other liabilities (excluding derivatives)—
 —
 —
 10
 10
Other liabilities—
 —
 —
 25
 25
(1)For more information on the changes in mortgage servicing rights, see Note 8 (Mortgage Banking Activities).

Table 13.1213.8 and Table 13.1313.9 provide quantitative information about the valuation techniques and significant unobservable inputs used in the valuation of substantially all of our Level 3 assets and liabilities measured at fair value on a recurring basis for which we use an internal model.
The significant unobservable inputs for Level 3 assets and liabilities that are valued using fair values obtained from third party vendors are not included in the table, as the specific inputs applied are not provided by the vendor. In addition, the table excludes the valuation techniques and significant unobservable inputs for certain classes of Level 3 assets and liabilities measured using an internal model that we consider, both individually and in the aggregate, insignificant relative to our overall Level 3 assets and liabilities. We made this determination
 
based upon an evaluation of each class, which considered the magnitude of the positions, nature of the unobservable inputs and potential for significant changes in fair value due to changes in those inputs. For information on how changes in significant unobservable inputs affect the fair values of Level 3 assets and liabilities, see Note 17 (Fair Values of Assets and Liabilities) to Financial Statements in our 20152016 Form 10-K. 


Table 13.12:13.8: Valuation Techniques – Recurring Basis – September 30, 2016March 31, 2017

($ in millions, except cost to service amounts)
Fair Value
Level 3

  Valuation Technique(s) 
Significant
Unobservable Input
 Range of Inputs  
Weighted
Average (1)
 Fair Value Level 3
 Valuation Technique(s) Significant Unobservable Input Range of Inputs   
Weighted
Average (1)

September 30, 2016          
    
     
March 31, 2017       
Trading and available-for-sale securities:              
Securities of U.S. states and
political subdivisions:
              
Government, healthcare and
other revenue bonds
$951
 Discounted cash flow Discount rate 0.9
-4.8
% 1.7
$1,120
 Discounted cash flow Discount rate 1.2
-5.0
% 2.0
49
 Vendor priced   
   
   
Auction rate securities and other
municipal bonds
203
 Discounted cash flow Discount rate 1.5
-5.1
 3.0
29
 Discounted cash flow Discount rate 4.1
-4.6
 4.3
   Weighted average life 1.9
-17.7
yrs 9.2
214
 Vendor priced      
Collateralized loan and other debt
obligations (2)
288
 Market comparable pricing Comparability adjustment (21.3)-20.3
% 2.9
398
 Market comparable pricing Comparability adjustment (19.8)-20.3
 1.6
960
 Vendor priced   
   
   
964
 Vendor priced      
Asset-backed securities:     
   
   
       
Diversified payment rights (3)437
 Discounted cash flow Discount rate 1.4
-4.1
 2.8
401
 Discounted cash flow Discount rate 1.7
-4.3
 3.1
Other commercial and consumer603
(4)Discounted cash flow Discount rate 2.6
-5.4
 3.2
417
(4)Discounted cash flow Discount rate 3.3
-4.7
 4.2
   Weighted average life 0.9
-10.8
yrs 3.0
  Weighted average life 0.6
-4.0
yrs 2.8
6
 Vendor priced   
   
   
27
 Vendor priced      
Mortgages held for sale (residential)1,070
 Discounted cash flow Default rate 0.5
-8.9
% 2.1
928
 Discounted cash flow Default rate 0.5
-8.1
% 1.8
   Discount rate 2.0
-6.2
 4.4
  Discount rate 2.1
-7.0
 5.3
   Loss severity 0.1
-40.3
 21.3
  Loss severity 0.1
-45.9
 28.1
   Prepayment rate 7.7
-16.5
 10.6
  Prepayment rate 6.2
-17.2
 10.0
37
 Market comparable pricing Comparability adjustment (53.3)-0.0
 (32.9)29
 Market comparable pricing Comparability adjustment (53.3)-0.0
 (36.3)
Loans4,788
(5)Discounted cash flow Discount rate 0.0
-3.2
 2.7
505
(5)Discounted cash flow Discount rate 0.0
-7.2
 0.2
   Prepayment rate 0.4
-100.0
 18.2
    Utilization rate 0.0
-0.8
 0.3
   Prepayment rate 9.4
-100.0
 95.0
Mortgage servicing rights (residential)10,415
 Discounted cash flow Cost to service per loan (6) $70
-566
 161
13,208
 Discounted cash flow Cost to service per loan (6) $79
-562
 150
   Discount rate 5.9
-13.4
% 6.2
  Discount rate 6.6
-18.8
% 6.9
    Prepayment rate (7) 10.9
-23.2
 13.5
   Prepayment rate (7) 9.2
-21.2
 10.2
Net derivative assets and (liabilities):     
   
   
       
Interest rate contracts397
 Discounted cash flow Default rate 0.1
-6.8
 2.1
105
 Discounted cash flow Default rate 0.0
-6.8
 1.7
   Loss severity 50.0
-50.0
 50.0
  Loss severity 50.0
-50.0
 50.0
   Prepayment rate 2.8
-12.5
 9.7
   Prepayment rate 2.8
-12.5
 9.6
Interest rate contracts: derivative loan
commitments
236
 Discounted cash flow Fall-out factor 1.0
-99.0
 20.8
113
 Discounted cash flow Fall-out factor 1.0
-99.0
 21.0
    Initial-value servicing (21.7)-131.2
bps 71.5
   Initial-value servicing (23.8)-131.2
bps 61.0
Equity contracts90
 Discounted cash flow Conversion factor (10.5)-0.0
% (7.9)94
 Discounted cash flow Conversion factor (10.3)-0.0
% (7.9)
    Weighted average life 0.8
-3.3
yrs 2.2
   Weighted average life 0.8
-2.8
yrs 1.7
(465) Option model Correlation factor (77.0)-98.5
% 47.1
(393) Option model Correlation factor (77.0)-98.5
% 37.6
    Volatility factor 6.5
-100.0
 27.5
   Volatility factor 5.0
-100.0
 19.7
Credit contracts(31) Market comparable pricing Comparability adjustment (12.5)-25.7
% 1.4
0
(8)Market comparable pricing Comparability adjustment (23.8)-29.1
 1.0
101
 Option model Credit spread 0.0
-5.9
 1.2
87
 Option model Credit spread 0.0
-9.4
 1.1
    Loss severity 13.0
-60.0
 51.1
  Loss severity 12.0
-60.0
 48.4
Other assets: nonmarketable equity investments10
 Discounted cash flow Discount rate 5.0
-10.3
 6.2
17
 Discounted cash flow Discount rate 5.0
-10.3
 9.0
3,408
 Market comparable pricing Comparability adjustment (22.7)-(6.3) (17.0)  Volatility Factor 0.4
 2.8
 1.4
 
      3,723
 Market comparable pricing Comparability adjustment (21.0)-(4.8) (15.6)
       
Insignificant Level 3 assets, net of liabilities605
(8)      526
(9)      
Total level 3 assets, net of liabilities$24,158
(9)      $22,512
(10)      
(1)Weighted averages are calculated using outstanding unpaid principal balance for cash instruments, such as loans and securities, and notional amounts for derivative instruments.
(2)
Includes $832945 million of collateralized debt obligations.
(3)Securities backed by specified sources of current and future receivables generated from foreign originators.
(4)A significant portion of the balance consists of investments in asset-backed securities that are revolving in nature, for which the timing of advances and repayments of principal are uncertain.
(5)Consists of reverse mortgage loans.
(6)
The high end of the range of inputs is for servicing modified loans. For non-modified loans the range is $7079 - $315280.
(7)Includes a blend of prepayment speeds and expected defaults. Prepayment speeds are influenced by mortgage interest rates as well as our estimation of drivers of borrower behavior.
(8)
Consists of $15 million of derivative assets and $15 million derivative liabilities.
(9)Represents the aggregate amount of Level 3 assets and liabilities measured at fair value on a recurring basis that are individually and in the aggregate insignificant. The amount includes corporate debt securities, mortgage-backed securities, other trading assets, other liabilities and certain net derivative assets and liabilities, such as commodity contracts, foreign exchange contracts, and other derivative contracts.
(10)
Consists of total Level 3 assets of $24.3 billion and total Level 3 liabilities of $1.8 billion, before netting of derivative balances.

Note 13: Fair Values of Assets and Liabilities (continued)

Table 13.9:Valuation Techniques – Recurring Basis – December 31, 2016

($ in millions, except cost to service amounts)Fair Value Level 3
 Valuation Technique(s) Significant Unobservable Input Range of Inputs    
Weighted
Average (1)

December 31, 2016            
Trading and available-for-sale securities:            
Securities of U.S. states and
political subdivisions:
            
Government, healthcare and
other revenue bonds
$906
 Discounted cash flow Discount rate 1.1
-5.6
% 2.0
Auction rate securities and other
municipal bonds
29
 Discounted cash flow Discount rate 3.7
-4.9
  4.5
     Weighted average life 3.6
-3.6
yrs 3.6
 208
 Vendor priced         
Collateralized loan and other debt
obligations (2)
309
 Market comparable pricing Comparability adjustment (15.5)-20.3
% 2.9
 879
 Vendor priced         
Asset-backed securities:            
Diversified payment rights (3)443
 Discounted cash flow Discount rate 1.9
-4.8
  3.3
Other commercial and consumer492
(4)Discounted cash flow Discount rate 3.0
-4.6
  3.9
     Weighted average life 0.8
-4.2
yrs 2.9
 27
 Vendor priced         
Mortgages held for sale (residential)955
 Discounted cash flow Default rate 0.5
-7.9
% 1.9
     Discount rate 1.1
-6.9
  5.1
     Loss severity 0.1
-42.5
  26.9
     Prepayment rate 6.3
-17.1
  10.0
 30
 Market comparable pricing Comparability adjustment (53.3)-0.0
  (37.8)
Loans758
(5)Discounted cash flow Discount rate 0.0
-3.9
  0.6
     Prepayment rate 0.4
-100.0
  83.7
     Utilization rate 0.0
-0.8
  0.1
Mortgage servicing rights (residential)12,959
 Discounted cash flow Cost to service per loan (6) $79
-598
  155
     Discount rate 6.5
-18.4
% 6.8
     Prepayment rate (7) 9.4
-20.6
  10.3
Net derivative assets and (liabilities):            
Interest rate contracts127
 Discounted cash flow Default rate 0.1
-6.8
  2.1
     Loss severity 50.0
-50.0
  50.0
     Prepayment rate 2.8
-12.5
  9.6
Interest rate contracts: derivative loan
commitments
(6) Discounted cash flow Fall-out factor 1.0
-99.0
  15.0
     Initial-value servicing (23.0)-131.2
bps 56.8
Equity contracts79
 Discounted cash flow Conversion factor (10.6)-0.0
% (7.9)
     Weighted average life 1.0
-3.0
yrs 2.0
 (346) Option model Correlation factor (65.0)-98.5
% 39.9
     Volatility factor 6.5
-100.0
  20.7
Credit contracts(28) Market comparable pricing Comparability adjustment (27.7)-21.3
  0.02
 105
 Option model Credit spread 0.0
-11.6
  1.2
     Loss severity 12.0
-60.0
  50.4
Other assets: nonmarketable equity investments21
 Discounted cash flow Discount rate 5.0
-10.3
  8.7
     Volatility Factor 0.3
 2.4
  1.1
 3,238
 Market comparable pricing Comparability adjustment (22.1)-(5.5)  (16.4)
             
Insignificant Level 3 assets, net of liabilities570
(8)          
Total level 3 assets, net of liabilities$21,755
(9)          
(1)Weighted averages are calculated using outstanding unpaid principal balance for cash instruments, such as loans and securities, and notional amounts for derivative instruments.
(2)
Includes $847 million of collateralized debt obligations.
(3)Securities backed by specified sources of current and future receivables generated from foreign originators.
(4)A significant portion of the balance consists of investments in asset-backed securities that are revolving in nature, for which the timing of advances and repayments of principal are uncertain.
(5)Consists of reverse mortgage loans.
(6)
The high end of the range of inputs is for servicing modified loans. For non-modified loans the range is $79 - $293.
(7)Includes a blend of prepayment speeds and expected defaults. Prepayment speeds are influenced by mortgage interest rates as well as our estimation of drivers of borrower behavior.
(8)Represents the aggregate amount of Level 3 assets and liabilities measured at fair value on a recurring basis that are individually and in the aggregate insignificant. The amount includes corporate debt securities, mortgage-backed securities, other trading assets, other liabilities and certain net derivative assets and liabilities, such as commodity contracts, foreign exchange contracts, and other derivative contracts.
(9)
Consists of total Level 3 assets of $25.923.5 billion and total Level 3 liabilities of $1.8 billion, before netting of derivative balances.
Note 13: Fair Values of Assets and Liabilities (continued)

Table 13.13:Valuation Techniques – Recurring Basis – December 31, 2015
($ in millions, except cost to service amounts)  
Fair Value
Level 3

  Valuation Technique(s) 
Significant
Unobservable Input
 Range of Inputs  Weighted   
Average (1)		 
December 31, 2015            
    
    
Trading and available-for-sale securities:            
    
    
Securities of U.S. states and
political subdivisions:
            
    
    
Government, healthcare and
other revenue bonds
$1,213
  Discounted cash flow Discount rate 0.8
-5.6
% 1.9
 51
  Vendor priced      
    
     
Auction rate securities and other
municipal bonds
244
  Discounted cash flow Discount rate 0.8
-4.5
   2.0
        Weighted average life 1.0
-10.0
yrs 4.7
Collateralized loan and other debt
obligations (2)
343
  Market comparable pricing Comparability adjustment (20.0)-20.3
% 2.9
 565
  Vendor priced      
    
     
Asset-backed securities:            
    
     
Diversified payment rights (3)608
  Discounted cash flow Discount rate 1.0
-5.0
  3.2
Other commercial and consumer508
(4)Discounted cash flow Discount rate 2.5
-6.3
   3.8
        Weighted average life 1.0
-9.4
yrs 4.3
 66
  Vendor priced      
    
     
Mortgages held for sale (residential)1,033
  Discounted cash flow Default rate 0.5
-13.7
% 3.6
         Discount rate 1.1
-6.3
   4.7
         Loss severity 0.1
-22.7
   11.2
         Prepayment rate 2.6
-9.6
   6.4
 49
 Market comparable pricing Comparability adjustment (53.3)-0.0
  (32.6)
Loans5,316
(5)Discounted cash flow Discount rate 0.0
-3.9
   3.1
        Prepayment rate 0.2
-100.0
   14.6
        Utilization rate 0.0
-0.8
   0.3
Mortgage servicing rights (residential)12,415
  Discounted cash flow 
Cost to service per
loan (6)
 $70
-599
   168
        Discount rate 6.8
-11.8
% 7.3
        Prepayment rate (7) 10.1
-18.9
   11.4
Net derivative assets and (liabilities):            
    
     
Interest rate contracts230
  Discounted cash flow Default rate 0.1
-9.6
   2.6
         Loss severity 50.0
-50.0
   50.0
     Prepayment rate 0.3
-2.5
  2.2
Interest rate contracts: derivative loan
commitments
58
(8)Discounted cash flow Fall-out factor 1.0
-99.0
   18.8
        Initial-value servicing (30.6)-127.0
bps 41.5
Equity contracts72
  Discounted cash flow Conversion factor (10.6)-0.0
% (8.1)
        Weighted average life 0.5
-2.0
yrs 1.5
 (183)  Option model Correlation factor (77.0)-98.5
% 66.0
        Volatility factor 6.5
-91.3
   24.2
Credit contracts(9)  Market comparable pricing Comparability adjustment (53.6)-18.2
   (0.6)
 6
  Option model Credit spread 0.0
-19.9
   1.6
        Loss severity 13.0
-73.0
   49.6
             
Other assets: nonmarketable equity investments3,065
  Market comparable pricing Comparability adjustment (19.1)-(5.5)   (15.1)
             
Insignificant Level 3 assets, net of liabilities493
(9)        
    
    
Total level 3 assets, net of liabilities$26,143
(10)        
    
    
(1)Weighted averages are calculated using outstanding unpaid principal balance for cash instruments, such as loans and securities, and notional amounts for derivative instruments.
(2)
Includes $257 million of collateralized debt obligations.
(3)Securities backed by specified sources of current and future receivables generated from foreign originators.
(4)Consists largely of investments in asset-backed securities that are revolving in nature, for which the timing of advances and repayments of principal are uncertain.
(5)Consists of reverse mortgage loans.
(6)
The high end of the range of inputs is for servicing modified loans. For non-modified loans the range is $70 - $335.
(7)Includes a blend of prepayment speeds and expected defaults. Prepayment speeds are influenced by mortgage interest rates as well as our estimation of drivers of borrower behavior.
(8)
Total derivative loan commitments were a net asset of $56 million, of which a $2 million derivative liability was classified as level 2 at December 31, 2015.
(9)Represents the aggregate amount of Level 3 assets and liabilities measured at fair value on a recurring basis that are individually and in the aggregate insignificant. The amount includes corporate debt securities, mortgage-backed securities, other trading assets, other liabilities and certain net derivative assets and liabilities, such as commodity contracts and other derivative contracts. 
(10)
Consists of total Level 3 assets of $27.6 billion and total Level 3 liabilities of $1.51.7 billion, before netting of derivative balances.



The valuation techniquesused for our Level 3 assets and liabilities, as presented in the previous tables, are described as follows: 
Discounted cash flow– Discounted cash flow valuation techniques generally consist of developing an estimate of future cash flows that are expected to occur over the life of an instrument and then discounting those cash flows at a rate of return that results in the fair value amount.
Market comparable pricing– Market comparable pricing valuation techniques are used to determine the fair value of certain instruments by incorporating known inputs, such as recent transaction prices, pending transactions, or prices of other similar investments that require significant adjustment to reflect differences in instrument characteristics.
Option model– Option model valuation techniques are generally used for instruments in which the holder has a contingent right or obligation based on the occurrence of a future event, such as the price of a referenced asset going above or below a predetermined strike price. Option models estimate the likelihood of the specified event occurring by incorporating assumptions such as volatility estimates, price of the underlying instrument and expected rate of return.
Vendor-priced – Prices obtained from third party pricing vendors or brokers that are used to record the fair value of the asset or liability for which the related valuation technique and significant unobservable inputs are not provided.
 
Significant unobservable inputs presented in the previous tables are those we consider significant to the fair value of the Level 3 asset or liability. We consider unobservable inputs to be significant if by their exclusion the fair value of the Level 3 asset or liability would be impacted by a predetermined percentage change. We also consider qualitative factors, such as nature of the instrument, type of valuation technique used, and the significance of the unobservable inputs relative to other inputs used within the valuation. Following is a description of the significant unobservable inputs provided in the table.
 
Comparability adjustment– is an adjustment made to observed market data, such as a transaction price in order to reflect dissimilarities in underlying collateral, issuer, rating, or other factors used within a market valuation approach, expressed as a percentage of an observed price.
Conversion Factor– is the risk-adjusted rate in which a particular instrument may be exchanged for another instrument upon settlement, expressed as a percentage change from a specified rate.
Correlation factor– is the likelihood of one instrument changing in price relative to another based on an established relationship expressed as a percentage of relative change in price over a period over time.

 
Cost to service– is the expected cost per loan of servicing a portfolio of loans, which includes estimates for unreimbursed expenses (including delinquency and foreclosure costs) that may occur as a result of servicing such loan portfolios.
Credit spread– is the portion of the interest rate in excess of a benchmark interest rate, such as Overnight Index Swap (OIS), LIBOR or U.S. Treasury rates, that when applied to an investment captures changes in the obligor’s creditworthiness.
Default rate– is an estimate of the likelihood of not collecting contractual amounts owed expressed as a constant default rate (CDR).
Discount rate– is a rate of return used to calculate the present value of the future expected cash flow to arrive at the fair value of an instrument. The discount rate consists of a benchmark rate component and a risk premium component. The benchmark rate component, for example, OIS, LIBOR or U.S. Treasury rates, is generally observable within the market and is necessary to appropriately reflect the time value of money. The risk premium component reflects the amount of compensation market participants require due to the uncertainty inherent in the instruments’ cash flows resulting from risks such as credit and liquidity.
Fall-out factor– is the expected percentage of loans associated with our interest rate lock commitment portfolio that are likely of not funding.
Initial-value servicing– is the estimated value of the underlying loan, including the value attributable to the embedded servicing right, expressed in basis points of outstanding unpaid principal balance.
Loss severity– is the estimated percentage of contractual cash flows lost in the event of a default.
Prepayment rate– is the estimated rate at which forecasted prepayments of principal of the related loan or debt instrument are expected to occur, expressed as a constant prepayment rate (CPR).
Utilization rate– is the estimated rate in which incremental portions of existing reverse mortgage credit lines are expected to be drawn by borrowers, expressed as an annualized rate.
Volatility factor– is the extent of change in price an item is estimated to fluctuate over a specified period of time expressed as a percentage of relative change in price over a period over time.
Weighted average life– is the weighted average number of years an investment is expected to remain outstanding based on its expected cash flows reflecting the estimated date the issuer will call or extend the maturity of the instrument or otherwise reflecting an estimate of the timing of an instrument’s cash flows whose timing is not contractually fixed.


Note 13: Fair Values of Assets and Liabilities (continued)

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis
We may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from application of
 
LOCOM accounting or write-downs of individual assets. Table 13.14 provides the fair value hierarchy and carrying amount of all assets that were still held as of September 30, 2016,March 31, 2017, and December 31, 2015,2016, and for which a nonrecurring fair value adjustment was recorded during the periods presented.

Table 13.14: Fair Value on a Nonrecurring Basis
September 30, 2016  December 31, 2015 March 31, 2017  December 31, 2016 
(in millions)Level 1
 Level 2
 Level 3
 Total
 Level 1
 Level 2
 Level 3
 Total
Level 1
 Level 2
 Level 3
 Total
 Level 1
 Level 2
 Level 3
 Total
Mortgages held for sale (LOCOM) (1)$—
 2,069
 1,525
 3,594
 —
 4,667
 1,047
 5,714
$—
 1,624
 1,318
 2,942
 —
 2,312
 1,350
 3,662
Loans held for sale—
 183
 —
 183
 —
 279
 —
 279
—
 24
 —
 24
 —
 8
 —
 8
Loans:                                  
Commercial—
 440
 —
 440
 —
 191
 —
 191
—
 452
 —
 452
 —
 464
 —
 464
Consumer—
 758
 6
 764
 —
 1,406
 7
 1,413
—
 225
 5
 230
 —
 822
 7
 829
Total loans (2)—
 1,198
 6
 1,204
 —
 1,597
 7
 1,604
—
 677
 5
 682
 —
 1,286
 7
 1,293
Other assets - excluding nonmarketable equity investments at NAV (3)—
 226
 416
 642
 —
 280
 368
 648
—
 170
 147
 317
 —
 233
 412
 645
Total included in the fair value hierarchy$—
 3,676
 1,947
 5,623
 —
 6,823
 1,422
 8,245
$—
 2,495
 1,470
 3,965
 —
 3,839
 1,769
 5,608
Other assets - nonmarketable equity investments at NAV (4)

 

 

 24
 

 

 

 286


 

 

 —
 

 

 

 13
Total assets at fair value on a nonrecurring basis

 

 

 $5,647
 

 

 

 8,531


 

 

 $3,965
 

 

 

 5,621
(1)Consists of commercial mortgages and residential real estate 1-4 family first mortgage loans.
(2)Represents the carrying value of loans for which nonrecurring adjustments are based on the appraised value of the collateral.
(3)Includes the fair value of foreclosed real estate, other collateral owned, operating lease assets and nonmarketable equity investments.
(4)Consists of certain nonmarketable equity investments that are measured at fair value on a nonrecurring basis using NAV per share (or its equivalent) as a practical expedient and are excluded from the fair value hierarchy.

Table 13.15 presents the increase (decrease) in value of certain assets held at the end of the respective reporting periods presented for which a nonrecurring fair value adjustment was recognized during the reporting period.periods presented.
Table 13.15: Change in Value of Assets with Nonrecurring Fair Value Adjustment
Nine months ended September 30, Quarter ended March 31, 
(in millions)2016
 2015
2017
 2016
Mortgages held for sale (LOCOM)$26
 17
$21
 31
Loans held for sale(21) (3)
Loans:        
Commercial(736) (113)(127) (110)
Consumer(578) (816)(175) (260)
Total loans (1)
(1,314) (929)(302) (370)
Other assets (2)
(339) (223)(100) (99)
Total$(1,648) (1,138)$(381) (438)
(1)Represents write-downs of loans based on the appraised value of the collateral.
(2)Includes the losses on foreclosed real estate and other collateral owned that were measured at fair value subsequent to their initial classification as foreclosed assets. Also includes impairment losses on nonmarketable equity investments. 


Table 13.16 provides quantitative information about the valuation techniques and significant unobservable inputs used in the valuation of substantially all of our Level 3 assets that are measured at fair value on a nonrecurring basis using an internal model. The table is limited to financial instruments that had nonrecurring fair value adjustments during the periods presented.

We have excluded from the table valuation techniques and significant unobservable inputs for certain classes of Level 3
assets measured using an internal model that we consider, both individually and in the aggregate, insignificant relative to our overall Level 3 nonrecurring measurements. We made this determination based upon an evaluation of each class that considered the magnitude of the positions, nature of the unobservable inputs and potential for significant changes in fair value due to changes in those inputs.

 
Table 13.16: Valuation Techniques – Nonrecurring Basis
($ in millions)
Fair Value
Level 3

 
Valuation Technique(s) (1)
 
Significant
Unobservable Inputs (1)
 Range of inputs 
Weighted
Average (2)

Fair Value
Level 3

 
Valuation Technique(s) (1)
 
Significant
Unobservable Inputs (1)
 Range of inputs 
Weighted
Average (2)

September 30, 2016     
March 31, 2017     
Residential mortgages held for sale (LOCOM)$1,525
(3)Discounted cash flow Default rate(4)0.2—7.3% 2.4%$1,318
(3)Discounted cash flow Default rate(4)0.1—8.6% 2.8%
  Discount rate 1.5—8.5
 3.5
  Discount rate 1.5—8.5
 3.8
  Loss severity 0.0—56.3
 2.0
  Loss severity 0.7—47.8
 2.4
  Prepayment rate(5)3.2—100.0
 62.4
  Prepayment rate(5)3.5—100.0
 49.9
Other assets: nonmarketable equity investments—
 Market comparable pricing Comparability adjustment 0.0—0.0
 0.0
3
 Discounted cash flow Discount rate 15.0—15.0
 15.0
170
 Discounted cash flow Discount rate 7.7—9.3
 8.2
Insignificant level 3 assets252
    149
    
Total$1,947
    $1,470
    
December 31, 2015     
December 31, 2016     
Residential mortgages held for sale (LOCOM)$1,047
(3)Discounted cash flow Default rate(4)0.5—5.0% 4.2%$1,350
(3)Discounted cash flow Default rate(4)0.2—4.3% 1.9%
  Discount rate 1.5—8.5
 3.5
  Discount rate 1.5—8.5
 3.8
  Loss severity 0.0—26.1
 2.9
  Loss severity 0.7—50.1
 2.4
  Prepayment rate(5)2.6—100.0
 65.4
  Prepayment rate(5)3.0—100.0
 50.7
Other assets: nonmarketable equity investments228
 Market comparable pricing Comparability adjustment 5.0—9.2
 8.5
220
 Discounted cash flow Discount rate 4.7—9.3
 7.3
—
 Discounted cash flow Discount rate 0.0—0.0
 0.0
Insignificant level 3 assets147
    199
    
Total$1,422
    $1,769
    
(1)Refer to the narrative following Table 13.13 of this Note13.9 for a definition of the valuation technique(s) and significant unobservable inputs.
(2)For residential MHFS, weighted averages are calculated using the outstanding unpaid principal balance of the loans.
(3)
Consists of approximately $1.5 billion and $1.01.3 billion of government insured/guaranteed loans purchased from GNMA-guaranteed mortgage securitizations at both September 30, 2016March 31, 2017, and December 31, 20152016, respectively, and $3532 million and $4133 million of other mortgage loans that are not government insured/guaranteed at September 30, 2016March 31, 2017 and December 31, 20152016, respectively.
(4)Applies only to non-government insured/guaranteed loans.
(5)Includes the impact on prepayment rate of expected defaults for government insured/guaranteed loans, which impact the frequency and timing of early resolution of loans.

Alternative Investments
We hold certain nonmarketable equity investments for which we use NAV per share (or its equivalent) as a practical expedient for fair value measurements, including estimated fair values for investments accounted for under the cost method. The funds predominantlyinvestments consist of private equity funds that invest in equity and debt securities issued by private and publicly-held companies in connection with leveraged buyouts, recapitalizations and expansion opportunities.companies. The fair values of these investments and related unfunded commitments totaled $67$16 million and $52$27 million, respectively, at September 30, 2016,March 31, 2017, and $642$48 million and $144$37 million, respectively, at December 31, 2015.2016. The investments do not allow redemptions. We receive distributions as the underlying assets of the funds liquidate, which we expect to occur over the next 12 months.through 2023. 


Note 13: Fair Values of Assets and Liabilities (continued)

Fair Value Option
The fair value option is an irrevocable election, generally only permitted upon initial recognition of financial assets or liabilities, to measure eligible financial instruments at fair value with changes in fair value reflected in earnings. We may elect the fair value option to align the measurement model with how the financial assets or liabilities are managed or to reduce complexity or accounting asymmetry. For more information, including the basis for our fair value option elections, see Note 17 (Fair Values of Assets and Liabilities) to Financial Statements in our 20152016 Form 10-K.
 

Table 13.17 reflects differences between the fair value carrying amount of certainthe assets for which we have elected the fair value option and the contractual aggregate unpaid principal amount at maturity.

 

Table 13.17: Fair Value Option
September 30, 2016  December 31, 2015 March 31, 2017  December 31, 2016 
(in millions)
Fair value
carrying
amount

 
Aggregate
unpaid
principal

 
Fair value
carrying
amount
less
aggregate
unpaid
principal

 
Fair value
carrying
amount

 
Aggregate
unpaid
principal

 
Fair value
carrying
amount
less
aggregate
unpaid
principal

Fair value
carrying
amount

 
Aggregate
unpaid
principal

 
Fair value
carrying
amount
less
aggregate
unpaid
principal

 
Fair value
carrying
amount

 
Aggregate
unpaid
principal

 
Fair value
carrying
amount
less
aggregate
unpaid
principal

Trading assets – loans:                      
Total loans$738
 788
 (50) 886
 935
 (49)$1,120
 1,168
 (48) 1,332
 1,418
 (86)
Nonaccrual loans49
 57
 (8) —
 —
 —
46
 49
 (3) 100
 115
 (15)
Mortgages held for sale:                      
Total loans22,647
 21,857
 790
 13,539
 13,265
 274
14,018
 13,695
 323
 22,042
 21,961
 81
Nonaccrual loans136
 179
 (43) 161
 228
 (67)130
 172
 (42) 136
 182
 (46)
Loans 90 days or more past due and still accruing14
 17
 (3) 19
 22
 (3)11
 15
 (4) 12
 16
 (4)
Loans held for sale:                      
Total loans—
 6
 (6) —
 5
 (5)—
 6
 (6) —
 6
 (6)
Nonaccrual loans—
 6
 (6) —
 5
 (5)—
 6
 (6) —
 6
 (6)
Loans:                      
Total loans4,788
 4,692
 96
 5,316
 5,184
 132
505
 529
 (24) 758
 775
 (17)
Nonaccrual loans277
 295
 (18) 305
 322
 (17)302
 325
 (23) 297
 318
 (21)
Other assets (1)3,441
 N/A
 N/A
 3,065
 N/A
 N/A
3,780
 N/A
 N/A
 3,275
 N/A
 N/A
(1)Consists of nonmarketable equity investments carried at fair value. See Note 6 (Other Assets) for more information.


The assets and liabilities accounted for under the fair value option are initially measured at fair value. Gains and losses from initial measurement and subsequent changes in fair value are recognized in earnings. The changes in fair value related to initial
 
measurement and subsequent changes in fair value included in earnings for these assets and liabilities measured at fair value are shown in Table 13.18 by income statement line item.

Table 13.18: Fair Value Option – Changes in Fair Value Included in Earnings
2016  2015 2017  2016 
(in millions)Mortgage banking noninterest income
 
Net gains
(losses)
from
trading
activities

 
Other
noninterest
income

 
Mortgage
banking
noninterest
income

 
Net gains
(losses)
from
trading
activities

 
Other
noninterest
income

Mortgage banking noninterest income
 
Net gains
(losses)
from
trading
activities

 
Other
noninterest
income

 
Mortgage
banking
noninterest
income

 
Net gains
(losses)
from
trading
activities

 
Other
noninterest
income

Quarter ended September 30,    
   
   
   
   
Quarter ended March 31,    
   
   
   
   
Trading assets - loans$—
 21
 1
 —
 (16) 1
$—
 25
 —
 —
 10
 —
Mortgages held for sale563
 —
 —
 662
 —
 —
279
 —
 —
 565
 —
 —
Loans—
 —
 (25) —
 —
 (2)—
 —
 —
 —
 —
 (1)
Other assets—
 —
 383
 —
 —
 109
—
 —
 490
 —
 —
 (58)
Other interests held (1)—
 (3) —
 —
 (3) —
—
 (2) —
 —
 (2) —
Nine months ended September 30,           
Trading assets – loans$—
 47
 2
 —
 3
 3
Mortgages held for sale1,739
 —
 —
 1,559
 —
 —
Loans—
 —
 (29) —
 —
 (45)
Other assets—
 —
 149
 —
 —
 137
Other interests held (1)—
 (4) —
 —
 (5) —
(1)Includes retained interests in securitizations.

For performing loans, instrument-specific credit risk gains or losses were derived principally by determining the change in fair value of the loans due to changes in the observable or implied credit spread. Credit spread is the market yield on the loans less the relevant risk-free benchmark interest rate. For
 
nonperforming loans, we attribute all changes in fair value to instrument-specific credit risk. Table 13.19 shows the estimated gains and losses from earnings attributable to instrument-specific credit risk related to assets accounted for under the fair value option.

Table 13.19: Fair Value Option – Gains/Losses Attributable to Instrument-Specific Credit Risk
Quarter ended September 30,  Nine months ended September 30,  Quarter ended March 31, 
(in millions)2016
 2015
 2016
 2015
 2017
 2016
Gains (losses) attributable to instrument-specific credit risk:  
   
        
Trading assets – loans$21
 (16) 47
 3
 $25
 10
Mortgages held for sale1
 (5) (4) 43
 (1) (4)
Total$22
 (21) 43
 46
 $24
 6

Disclosures about Fair Value of Financial Instruments
Table 13.20 is a summary of fair value estimates for financial instruments, excluding financial instruments recorded at fair value on a recurring basis, as they are included within Table 13.2 in this Note. The carrying amounts in the following table are recorded on the balance sheet under the indicated captions, except for nonmarketable equity investments, which are included in other assets.
We have not included assets and liabilities that are not financial instruments in our disclosure, such as the value of the long-term relationships with our deposit, credit card and trust customers, amortized MSRs, premises and equipment, goodwill and other intangibles, deferred taxes and other liabilities. The total of the fair value calculations presented does not represent, and should not be construed to represent, the underlying value of the Company.
 

Note 13: Fair Values of Assets and Liabilities (continued)

Table 13.20: Fair Value Estimates for Financial Instruments
  
 Estimated fair value   
 Estimated fair value 
(in millions)Carrying amount
 Level 1
 Level 2
 Level 3
 Total
Carrying amount
 Level 1
 Level 2
 Level 3
 Total
September 30, 2016         
March 31, 2017         
Financial assets                  
Cash and due from banks (1)$19,287
 19,287
 —
 —
 19,287
$19,698
 19,698
 —
 —
 19,698
Federal funds sold, securities purchased under resale agreements and other short-term investments (1)298,325
 17,043
 281,196
 86
 298,325
308,747
 26,189
 282,480
 78
 308,747
Held-to-maturity securities99,241
 46,891
 53,190
 2,466
 102,547
108,030
 45,154
 60,138
 2,337
 107,629
Mortgages held for sale (2)4,776
 —
 3,284
 1,525
 4,809
3,804
 —
 2,496
 1,318
 3,814
Loans held for sale183
 —
 183
 —
 183
253
 —
 255
 —
 255
Loans, net (3)926,262
 —
 61,422
 884,473
 945,895
927,812
 —
 58,461
 878,705
 937,166
Nonmarketable equity investments (cost method)                  
Excluding investments at NAV8,029
 —
 18
 8,591
 8,609
8,108
 —
 18
 8,637
 8,655
Total financial assets included in the fair value hierarchy1,356,103
 83,221
 399,293
 897,141
 1,379,655
1,376,452
 91,041
 403,848
 891,075
 1,385,964
Investments at NAV (4)48
       67
14
       16
Total financial assets$1,356,151









 1,379,722
$1,376,466









 1,385,980
Financial liabilities                  
Deposits$1,275,894
 —
 1,251,257
 24,873
 1,276,130
$1,325,444
 —
 1,302,614
 22,994
 1,325,608
Short-term borrowings (1)124,668
 —
 124,668
 —
 124,668
94,871
 —
 94,871
 —
 94,871
Long-term debt (5)254,827
 —
 242,172
 10,700
 252,872
256,461
 —
 248,256
 10,163
 258,419
Total financial liabilities$1,655,389

—

1,618,097

35,573
 1,653,670
$1,676,776

—

1,645,741

33,157
 1,678,898
December 31, 2015         
December 31, 2016         
Financial assets                  
Cash and due from banks (1)$19,111
 19,111
 —
 —
 19,111
$20,729
 20,729
 —
 —
 20,729
Federal funds sold, securities purchased under resale agreements and other short-term investments (1)270,130
 14,057
 255,911
 162
 270,130
266,038
 18,670
 247,286
 82
 266,038
Held-to-maturity securities80,197
 45,167
 32,052
 3,348
 80,567
99,583
 45,079
 51,706
 2,370
 99,155
Mortgages held for sale (2)6,064
 —
 5,019
 1,047
 6,066
4,267
 —
 2,927
 1,350
 4,277
Loans held for sale279
 —
 279
 —
 279
80
 —
 81
 —
 81
Loans, net (3)887,497
 —
 60,848
 839,816
 900,664
936,358
 —
 60,245
 887,589
 947,834
Nonmarketable equity investments (cost method)                  
Excluding investments at NAV6,659
 —
 14
 7,271
 7,285
8,362
 —
 18
 8,924
 8,942
Total financial assets included in the fair value hierarchy1,269,937
 78,335
 354,123
 851,644
 1,284,102
1,335,417
 84,478
 362,263
 900,315
 1,347,056
Investments at NAV (4)376









 619
35









 48
Total financial assets$1,270,313









 1,284,721
$1,335,452









 1,347,104
Financial liabilities                  
Deposits$1,223,312
 —
 1,194,781
 28,616
 1,223,397
$1,306,079
 —
 1,282,158
 23,995
 1,306,153
Short-term borrowings (1)97,528
 —
 97,528
 —
 97,528
96,781
 —
 96,781
 —
 96,781
Long-term debt (5)199,528
 —
 188,015
 10,468
 198,483
255,070
 —
 245,704
 10,075
 255,779
Total financial liabilities$1,520,368

—

1,480,324

39,084
 1,519,408
$1,657,930

—

1,624,643

34,070
 1,658,713
(1)Amounts consist of financial instruments for which carrying value approximates fair value.
(2)Excludes MHFS exclude balances for which we elected the fair value option.
(3)
Loans exclude balancesExcludes loans for which we elected the fair value option was elected and also exclude lease financing with a carrying amount of $18.919.2 billion and $12.419.3 billion at September 30, 2016March 31, 2017, and December 31, 20152016, respectively.
(4)Consists of certain nonmarketable equity investments for which estimated fair values are determined using NAV per share (or its equivalent) as a practical expedient and are excluded from the fair value hierarchy.
(5)
The carrying amount and fair value excludeExcludes capital lease obligations under capital leases of $87 million at both September 30, 2016March 31, 2017, and December 31, 20152016.
Loan commitments, standby letters of credit and commercial and similar letters of credit are not included in the table above. A reasonable estimate of the fair value of these instruments is the carrying value of deferred fees plus the allowance for unfunded credit commitments, which totaled $1.2 billion and $1.0 billion at September 30, 2016,both March 31, 2017, and December 31, 2015,2016, respectively.
 




Note 14:  Preferred Stock
We are authorized to issue 20 million shares of preferred stock and 4 million shares of preference stock, both without par value. Preferred shares outstanding rank senior to common shares both as to dividends and liquidation preference but have no general voting rights. We have not issued any preference shares under
 
this authorization. If issued, preference shares would be limited to one vote per share. Our total authorized, issued and outstanding preferred stock is presented in the following two tables along with the Employee Stock Ownership Plan (ESOP) Cumulative Convertible Preferred Stock.


Table 14.1: Preferred Stock Shares
September 30, 2016  December 31, 2015 March 31, 2017  December 31, 2016 
Liquidation
preference
per share

 
Shares
authorized
and designated

 
Liquidation
preference
per share

 
Shares
authorized
and designated

Liquidation
preference
per share

 
Shares
authorized
and designated

 
Liquidation
preference
per share

 
Shares
authorized
and designated

DEP Shares  
   
   
   
  
   
   
   
Dividend Equalization Preferred Shares (DEP)$10
 97,000
 $10
 97,000
$10
 97,000
 $10
 97,000
Series H              
Floating Class A Preferred Stock20,000
 50,000
 20,000
 50,000
Floating Class A Preferred Stock (1)—
 —
 20,000
 50,000
Series I              
Floating Class A Preferred Stock100,000
 25,010
 100,000
 25,010
100,000
 25,010
 100,000
 25,010
Series J              
8.00% Non-Cumulative Perpetual Class A Preferred Stock1,000
 2,300,000
 1,000
 2,300,000
1,000
 2,300,000
 1,000
 2,300,000
Series K              
7.98% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock1,000
 3,500,000
 1,000
 3,500,000
1,000
 3,500,000
 1,000
 3,500,000
Series L              
7.50% Non-Cumulative Perpetual Convertible Class A Preferred Stock1,000
 4,025,000
 1,000
 4,025,000
1,000
 4,025,000
 1,000
 4,025,000
Series N              
5.20% Non-Cumulative Perpetual Class A Preferred Stock25,000
 30,000
 25,000
 30,000
25,000
 30,000
 25,000
 30,000
Series O              
5.125% Non-Cumulative Perpetual Class A Preferred Stock25,000
 27,600
 25,000
 27,600
25,000
 27,600
 25,000
 27,600
Series P              
5.25% Non-Cumulative Perpetual Class A Preferred Stock25,000
 26,400
 25,000
 26,400
25,000
 26,400
 25,000
 26,400
Series Q              
5.85% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock25,000
 69,000
 25,000
 69,000
25,000
 69,000
 25,000
 69,000
Series R              
6.625% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock25,000
 34,500
 25,000
 34,500
25,000
 34,500
 25,000
 34,500
Series S              
5.90% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock25,000
 80,000
 25,000
 80,000
25,000
 80,000
 25,000
 80,000
Series T              
6.00% Non-Cumulative Perpetual Class A Preferred Stock25,000
 32,200
 25,000
 32,200
25,000
 32,200
 25,000
 32,200
Series U              
5.875% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock25,000
 80,000
 25,000
 80,000
25,000
 80,000
 25,000
 80,000
Series V              
6.00% Non-Cumulative Perpetual Class A Preferred Stock25,000
 40,000
 25,000
 40,000
25,000
 40,000
 25,000
 40,000
Series W              
5.70% Non-Cumulative Perpetual Class A Preferred Stock25,000
 40,000
 —
 —
25,000
 40,000
 25,000
 40,000
Series X              
5.50% Non-Cumulative Perpetual Class A Preferred Stock25,000
 46,000
 —
 —
25,000
 46,000
 25,000
 46,000
ESOP              
Cumulative Convertible Preferred Stock (1)(2)—
 1,482,072
 —
 1,252,386
—
 2,389,181
 —
 1,439,181
Total  11,984,782
   11,669,096
  12,841,891
   11,941,891
(1)On January 26, 2017, we filed with the Delaware Secretary of State a Certificate Eliminating the Certificate of Designations with respect to the Series H preferred stock.
(2)See the ESOP Cumulative Convertible Preferred Stock section in this Note for additional information about the liquidation preference for the ESOP Cumulative Convertible Preferred Stock.
Note 14: Preferred Stock (continued)

Table 14.2: Preferred Stock – Shares Issued and Carrying Value
September 30, 2016  December 31, 2015 March 31, 2017  December 31, 2016 
(in millions, except shares)
Shares
issued and
outstanding

 
Liquidation preference
value

 
Carrying
value

 Discount
 
Shares
issued and
outstanding

 
Liquidation preference
value

 
Carrying
value

 Discount
Shares
issued and
outstanding

 
Liquidation preference
value

 
Carrying
value

 Discount
 
Shares
issued and
outstanding

 
Liquidation preference
value

 
Carrying
value

 Discount
DEP Shares  
   
   
   
   
   
   
   
  
   
   
   
   
   
   
   
Dividend Equalization Preferred Shares (DEP)96,546
 $—
 —
 —
 96,546
 $—
 —
 —
96,546
 $—
 —
 —
 96,546
 $—
 —
 —
Series I (1)
                              
Floating Class A Preferred Stock25,010
 2,501
 2,501
 —
 25,010
 2,501
 2,501
 —
25,010
 2,501
 2,501
 —
 25,010
 2,501
 2,501
 —
Series J (1)
                              
8.00% Non-Cumulative Perpetual Class A Preferred Stock2,150,375
 2,150
 1,995
 155
 2,150,375
 2,150
 1,995
 155
2,150,375
 2,150
 1,995
 155
 2,150,375
 2,150
 1,995
 155
Series K (1)
                              
7.98% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock3,352,000
 3,352
 2,876
 476
 3,352,000
 3,352
 2,876
 476
3,352,000
 3,352
 2,876
 476
 3,352,000
 3,352
 2,876
 476
Series L (1)
                              
7.50% Non-Cumulative Perpetual Convertible Class A Preferred Stock3,968,000
 3,968
 3,200
 768
 3,968,000
 3,968
 3,200
 768
3,968,000
 3,968
 3,200
 768
 3,968,000
 3,968
 3,200
 768
Series N (1)
                              
5.20% Non-Cumulative Perpetual Class A Preferred Stock30,000
 750
 750
 —
 30,000
 750
 750
 —
30,000
 750
 750
 —
 30,000
 750
 750
 —
Series O (1)
                              
5.125% Non-Cumulative Perpetual Class A Preferred Stock26,000
 650
 650
 —
 26,000
 650
 650
 —
26,000
 650
 650
 —
 26,000
 650
 650
 —
Series P (1)
                              
5.25% Non-Cumulative Perpetual Class A Preferred Stock25,000
 625
 625
 —
 25,000
 625
 625
 —
25,000
 625
 625
 —
 25,000
 625
 625
 —
Series Q (1)
                              
5.85% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock69,000
 1,725
 1,725
 —
 69,000
 1,725
 1,725
 —
69,000
 1,725
 1,725
 —
 69,000
 1,725
 1,725
 —
Series R (1)
                              
6.625% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock33,600
 840
 840
 —
 33,600
 840
 840
 —
33,600
 840
 840
 —
 33,600
 840
 840
 —
Series S (1)
                              
5.90% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock80,000
 2,000
 2,000
 —
 80,000
 2,000
 2,000
 —
80,000
 2,000
 2,000
 —
 80,000
 2,000
 2,000
 —
Series T (1)
                              
6.00% Non-Cumulative Perpetual Class A Preferred Stock32,000
 800
 800
 —
 32,000
 800
 800
 —
32,000
 800
 800
 —
 32,000
 800
 800
 —
Series U (1)
                              
5.875% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock80,000
 2,000
 2,000
 —
 80,000
 2,000
 2,000
 —
80,000
 2,000
 2,000
 —
 80,000
 2,000
 2,000
 —
Series V (1)
                              
6.00% Non-Cumulative Perpetual Class A Preferred Stock40,000
 1,000
 1,000
 —
 40,000
 1,000
 1,000
 —
40,000
 1,000
 1,000
 —
 40,000
 1,000
 1,000
 —
Series W (1)
                              
5.70% Non-Cumulative Perpetual Class A Preferred Stock40,000
 1,000
 1,000
 —
 —
 —
 —
 —
40,000
 1,000
 1,000
 —
 40,000
 1,000
 1,000
 —
Series X (1)
                              
5.50% Non-Cumulative Perpetual Class A Preferred Stock46,000
 1,150
 1,150
 —
 —
 —
 —
 —
46,000
 1,150
 1,150
 —
 46,000
 1,150
 1,150
 —
ESOP                              
Cumulative Convertible Preferred Stock1,482,072
 1,482
 1,482
 —
 1,252,386
 1,252
 1,252
 —
2,389,181
 2,389
 2,389
 —
 1,439,181
 1,439
 1,439
 —
Total11,575,603
 $25,993
 24,594
 1,399
 11,259,917
 $23,613
 22,214
 1,399
12,482,712
 $26,900
 25,501
 1,399
 11,532,712
 $25,950
 24,551
 1,399
(1)Preferred shares qualify as Tier 1 capital.

In January 2016, we issued 40 million Depositary Shares, each representing a 1/1,000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series W, for an aggregate public offering price of $1.0 billion. In June 2016, we issued 46 million Depositary Shares, each representing a 1/1,000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series X, for an aggregate public offering price of $1.2 billion.
See Note 7 (Securitizations and Variable Interest Entities) for additional information on our trust preferred securities. We do not have a commitment to issue Series H preferred stock.


ESOP CUMULATIVE CONVERTIBLE PREFERRED STOCK All shares of our ESOP Cumulative Convertible Preferred Stock (ESOP Preferred Stock) were issued to a trustee acting on behalf of the Wells Fargo & Company 401(k) Plan (the 401(k) Plan). Dividends on the ESOP Preferred Stock are cumulative from the date of initial issuance and are payable quarterly at annual rates based upon the year of issuance. Each share of ESOP Preferred Stock released from the unallocated reserve of the 401(k) Plan is converted into shares of our common stock based on the stated
 
value of the ESOP Preferred Stock and the then current market price of our common stock. The ESOP Preferred Stock is also convertible at the option of the holder at any time, unless previously redeemed. We have the option to redeem the ESOP Preferred Stock at any time, in whole or in part, at a redemption price per share equal to the higher of (a) $1,000 per share plus accrued and unpaid dividends or (b) the fair market value, as defined in the Certificates of Designation for the ESOP Preferred Stock.

Table 14.3: ESOP Preferred Stock
Shares issued and outstanding  Carrying value  Adjustable dividend rateShares issued and outstanding  Carrying value  Adjustable dividend rate
(in millions, except shares)Sep 30,
2016
 Dec 31,
2015
 Sep 30,
2016
 Dec 31,
2015
 Minimum
 MaximumMar 31,
2017
 Dec 31,
2016
 Mar 31,
2017
 Dec 31,
2016
 Minimum
 Maximum
ESOP Preferred Stock                    
$1,000 liquidation preference per share                    
2017950,000
 —
 $950
 —
 7.00% 8.00
2016401,419
 —
 $401
 —
 9.30% 10.30358,528
 358,528
 358
 358
 9.30
 10.30
2015200,820
 220,408
 201
 220
 8.90
 9.90200,820
 200,820
 201
 201
 8.90
 9.90
2014255,413
 283,791
 255
 284
 8.70
 9.70255,413
 255,413
 255
 255
 8.70
 9.70
2013222,558
 251,304
 223
 251
 8.50
 9.50222,558
 222,558
 223
 223
 8.50
 9.50
2012144,072
 166,353
 144
 166
 10.00
 11.00144,072
 144,072
 144
 144
 10.00
 11.00
2011149,301
 177,614
 149
 178
 9.00
 10.00149,301
 149,301
 149
 149
 9.00
 10.00
201090,775
 113,234
 91
 113
 9.50
 10.5090,775
 90,775
 91
 91
 9.50
 10.50
200817,714
 28,972
 18
 29
 10.50
 11.5017,714
 17,714
 18
 18
 10.50
 11.50
2007—
 10,710
 —
 11
 10.75
 11.75
Total ESOP Preferred Stock (1)1,482,072
 1,252,386
 $1,482
 1,252
   2,389,181
 1,439,181
 $2,389
 1,439
   
Unearned ESOP shares (2)    $(1,612) (1,362)       $(2,546) (1,565)   
(1)
At September 30, 2016March 31, 2017 and December 31, 20152016, additional paid-in capital included $130157 million and $110126 million, respectively, related to ESOP preferred stock.
(2)We recorded a corresponding charge to unearned ESOP shares in connection with the issuance of the ESOP Preferred Stock. The unearned ESOP shares are reduced as shares of the ESOP Preferred Stock are committed to be released.



Note 15: Employee Benefits
We sponsor a frozen noncontributory qualified defined benefit retirement plan called the Wells Fargo & Company Cash Balance Plan (Cash Balance Plan), which covers eligible employees of Wells Fargo. The Cash Balance Plan was frozen on July 1, 2009, and no new benefits accrue after that date. Although not required, we made a $1.3 billion contribution to our Cash Balance Plan in August 2016, which decreased cash and our net Cash Balance Plan liability. The contribution also resulted in a re-measurement of the Cash Balance Plan obligation and plan assets as of August 31, 2016. We used a discount rate of 3.50% for the re-measurement based on our consistent methodology of
determining our discount rate based upon the yields on multiple portfolios of bonds with maturity dates that closely match the estimated timing and amounts of the expected benefit payments for our plans. The remeasurement resulted in an increase to the pension obligation of $958 million and an increase to the fair value of plan assets of $511 million. Cumulative other comprehensive income decreased by $447 million pre-tax ($279 million after tax) in third quarter 2016.
Table 15.1 presents the components of net periodic benefit cost.





Table 15.1: Net Periodic Benefit Cost
2016  2015 2017  2016 
Pension benefits    
 Pension benefits    
Pension benefits    
 Pension benefits    
(in millions)Qualified
 Non-qualified
 
Other
benefits

 Qualified
 Non-qualified
 
Other
benefits

Qualified
 Non-qualified
 
Other
benefits

 Qualified
 Non-qualified
 
Other
benefits

Quarter ended September 30,       
Quarter ended March 31,       
Service cost$—
 —
 —
 1
 —
 1
$1
 —
 —
 1
 —
 —
Interest cost105
 6
 11
 107
 5
 11
103
 6
 7
 109
 7
 10
Expected return on plan assets(152) —
 (8) (161) —
 (8)(163) —
 (7) (142) —
 (8)
Amortization of net actuarial loss (gain)37
 3
 (1) 27
 5
 (1)38
 2
 (2) 33
 3
 (1)
Amortization of prior service credit—
 —
 —
 —
 —
 (1)—
 —
 (3) —
 —
 —
Settlement loss—
 —
 —
 —
 —
 —
1
 2
 —
 —
 2
 —
Net periodic benefit cost (income)$(10) 9
 2
 (26) 10
 2
$(20) 10
 (5) 1
 12
 1
Nine months ended September 30,       
Service cost$2
 —
 —
 2
 —
 5
Interest cost323
 19
 31
 321
 18
 32
Expected return on plan assets(435) —
 (23) (483) —
 (26)
Amortization of net actuarial loss (gain)103
 9
 (3) 81
 14
 (3)
Amortization of prior service credit—
 —
 —
 —
 —
 (2)
Settlement loss4
 2
 —
 —
 13
 —
Net periodic benefit cost (income)$(3) 30
 5
 (79) 45
 6






Note 16:  Earnings Per Common Share
Table 16.1 shows earnings per common share and diluted earnings per common share and reconciles the numerator and denominator of both earnings per common share calculations.

Table 16.1: Earnings Per Common Share Calculations
Quarter ended September 30,  Nine months ended September 30, Quarter ended March 31, 
(in millions, except per share amounts)2016
 2015
 2016
 2015
2017
 2016
Wells Fargo net income$5,644
 5,796
 $16,664
 17,319
$5,457
 5,462
Less: Preferred stock dividends and other401
 353
 1,163
 1,052
401
 377
Wells Fargo net income applicable to common stock (numerator)$5,243
 5,443
 $15,501
 16,267
$5,056
 5,085
Earnings per common share                
Average common shares outstanding (denominator)5,043.4
 5,125.8
 5,061.9
 5,145.9
5,008.6
 5,075.7
Per share$1.04
 1.06
 $3.06
 3.16
$1.01
 1.00
Diluted earnings per common share                
Average common shares outstanding5,043.4
 5,125.8
 5,061.9
 5,145.9
5,008.6
 5,075.7
Add: Stock options18.1
 25.5
 19.6
 27.3
21.2
 21.2
Restricted share rights23.1
 29.0
 26.1
 33.0
28.0
 31.7
Warrants10.0
 13.5
 10.6
 14.1
12.6
 10.8
Diluted average common shares outstanding (denominator)5,094.6
 5,193.8
 5,118.2
 5,220.3
5,070.4
 5,139.4
Per share$1.03
 1.05
 $3.03
 3.12
$1.00
 0.99

Table 16.2 presents the outstanding options to purchase shares of common stock that were anti-dilutive (the exercise
price was higher than the weighted-average market price), and therefore not included in the calculation of diluted earnings per common share.
 

 

Table 16.2: Outstanding Anti-Dilutive Options
Weighted-average shares Weighted-average shares 
Quarter ended September 30,  Nine months ended September 30, Quarter ended March 31, 
(in millions)2016
 2015
 2016
 2015
2017
 2016
Options2.6
 5.0
 3.4
 5.9
2.2
 4.4

Note 17: Other Comprehensive Income (continued)


Note 17:  Other Comprehensive Income
Table 17.1 provides the components of other comprehensive income (OCI), reclassifications to net income by income statement line item, and the related tax effects.
Table 17.1: Summary of Other Comprehensive Income
Quarter ended September 30,  Nine months ended September 30, Quarter ended March 31, 
2016  2015  2016  2015 2017  2016 
(in millions)
Before
tax

 
Tax
effect

 
Net of
tax

 
Before
tax

 
Tax
effect

 
Net of
tax

 
Before
tax

 
Tax
effect

 
Net of
tax

 
Before
tax

 
Tax
effect

 
Net of
tax

Before
tax

 
Tax
effect

 
Net of
tax

 
Before
tax

 
Tax
effect

 
Net of
tax

Investment securities:                                              
Net unrealized gains (losses) arising during the period$112
 (32) 80
 (441) 148
 (293) 2,478
 (938) 1,540
 (2,017) 779
 (1,238)
Net unrealized gains arising during the period$369
 (133) 236
 795
 (310) 485
Reclassification of net (gains) losses to net income:          

                        

Interest income on investment securities (1)2
 (1) 1
 1
 (1) —
 5
 (2) 3
 (1) —
 (1)7
 (3) 4
 —
 —
 —
Net gains on debt securities(106) 40
 (66) (147) 52
 (95) (797) 299
 (498) (606) 225
 (381)(36) 13
 (23) (244) 91
 (153)
Net gains from equity investments(85) 32
 (53) (288) 107
 (181) (204) 77
 (127) (345) 128
 (217)(116) 44
 (72) (59) 22
 (37)
Other noninterest income(4) 2
 (2) (5) 2
 (3) (5) 2
 (3) (5) 2
 (3)—
 —
 —
 (1) —
 (1)
Subtotal reclassifications to net income(193)
73

(120) (439) 160
 (279) (1,001) 376
 (625) (957) 355
 (602)(145)
54

(91) (304) 113
 (191)
Net change(81)
41

(40) (880) 308
 (572) 1,477
 (562) 915
 (2,974) 1,134
 (1,840)224

(79)
145
 491
 (197) 294
Derivatives and hedging activities:                                           
Net unrealized gains (losses) arising during the period(445) 168
 (277) 1,769
 (667) 1,102
 2,611
 (984) 1,627
 2,233
 (842) 1,391
(133) 50
 (83) 1,999
 (753) 1,246
Reclassification of net (gains) losses to net income:            

                        

Interest income on investment securities—
 —
 —
 —
 —
 —
 —
 —
 —
 (2) 1
 (1)
Interest income on loans(266) 100
 (166) (297) 112
 (185) (794) 299
 (495) (806) 304
 (502)(205) 77
 (128) (260) 98
 (162)
Interest expense on long-term debt4
 (1) 3
 4
 (2) 2
 11
 (4) 7
 13
 (5) 8
3
 (1) 2
 4
 (2) 2
Subtotal reclassifications to net income(262)
99

(163)
(293)
110

(183)
(783)
295

(488)
(795)
300

(495)(202)
76

(126)
(256)
96

(160)
Net change(707)
267

(440) 1,476
 (557) 919
 1,828

(689)
1,139
 1,438

(542)
896
(335)
126

(209) 1,743
 (657) 1,086
Defined benefit plans adjustments:                                        
Net actuarial losses arising during the period(447) 168
 (279) —
 —
 —
 (474) 178
 (296) (11) 4
 (7)
Net actuarial and prior service losses arising during the period(7) 3
 (4) (8) 3
 (5)
Reclassification of amounts to net periodic benefit costs (2):                                    
Amortization of net actuarial loss39
 (14) 25
 31
 (12) 19
 109
 (41) 68
 92
 (35) 57
38
 (14) 24
 35
 (13) 22
Settlements and other—
 —
 —
 (1) 1
 —
 6
 (2) 4
 11
 (4) 7
—
 —
 —
 2
 (1) 1
Subtotal reclassifications to net periodic benefit costs39

(14)
25
 30
 (11) 19
 115
 (43) 72
 103
 (39) 64
38

(14)
24
 37
 (14) 23
Net change(408)
154

(254) 30
 (11) 19
 (359) 135
 (224) 92
 (35) 57
31

(11)
20
 29
 (11) 18
Foreign currency translation adjustments:                                           
Net unrealized gains (losses) arising during the period(10) (1) (11) (59) (8) (67) 27
 6
 33
 (104) (13) (117)
Net unrealized gains arising during the period16
 1
 17
 43
 8
 51
Net change(10)
(1)
(11) (59) (8) (67) 27
 6
 33
 (104) (13) (117)16

1

17
 43
 8
 51
Other comprehensive income (loss)$(1,206)
461

(745) 567

(268)
299
 2,973
 (1,110) 1,863
 (1,548) 544
 (1,004)$(64)
37

(27) 2,306

(857)
1,449
Less: Other comprehensive income (loss) from noncontrolling interests, net of tax    19
     (22)       (24)     125
    14
     (28)
Wells Fargo other comprehensive income (loss), net of tax    $(764)     321
       1,887
     (1,129)    $(41)     1,477
(1)Represents net unrealized gains and losses amortized over the remaining lives of securities that were transferred from the available-for-sale portfolio to the held-to-maturity portfolio.
(2)These items are included in the computation of net periodic benefit cost, which is recorded in employee benefits expense (see Note 15 (Employee Benefits) for additional details).

Table 17.2: Cumulative OCI Balances
(in millions)
Investment
securities

 
Derivatives
and
hedging
activities

 
Defined
benefit
plans
adjustments

 
Foreign
currency
translation
adjustments

 
Cumulative
other
compre-
hensive
income

Investment
securities

 
Derivatives
and
hedging
activities

 
Defined
benefit
plans
adjustments

 
Foreign
currency
translation
adjustments

 
Cumulative
other
compre-
hensive
income

Quarter ended September 30, 2016  
   
   
   
   
Quarter ended March 31, 2017         
Balance, beginning of period$2,812
 2,199
 (1,921) (142) 2,948
$(1,099) 89
 (1,943) (184) (3,137)
Net unrealized gains (losses) arising during the period80
 (277) (279) (11) (487)236
 (83) (4) 17
 166
Amounts reclassified from accumulated other comprehensive income(120) (163) 25
 —
 (258)(91) (126) 24
 —
 (193)
Net change(40) (440) (254) (11) (745)145
 (209) 20
 17
 (27)
Less: Other comprehensive income from noncontrolling interests19
 —
 —
 —
 19
13
 —
 —
 1
 14
Balance, end of period$2,753
 1,759
 (2,175) (153) 2,184
$(967) (120) (1,923) (168) (3,178)
Quarter ended September 30, 2015  
   
   
   
   
Balance, beginning of period$3,509
 310
 (1,665) (86) 2,068
Net unrealized gains (losses) arising during the period(293) 1,102
 —
 (67) 742
Amounts reclassified from accumulated other comprehensive income(279) (183) 19
 —
 (443)
Net change(572) 919
 19
 (67) 299
Less: Other comprehensive loss from noncontrolling interests(20) —
 —
 (2) (22)
Balance, end of period$2,957
 1,229
 (1,646) (151) 2,389
Nine months ended September 30, 2016  
   
   
   
   
Quarter ended March 31, 2016         
Balance, beginning of period$1,813
 620
 (1,951) (185) 297
$1,813
 620
 (1,951) (185) 297
Net unrealized gains (losses) arising during the period1,540
 1,627
 (296) 33
 2,904
485
 1,246
 (5) 51
 1,777
Amounts reclassified from accumulated other comprehensive income(625) (488) 72
 —
 (1,041)(191) (160) 23
 —
 (328)
Net change915
 1,139
 (224) 33
 1,863
294
 1,086
 18
 51
 1,449
Less: Other comprehensive income (loss) from noncontrolling interests(25) —
 —
 1
 (24)(30) —
 —
 2
 (28)
Balance, end of period$2,753
 1,759
 (2,175) (153) 2,184
$2,137
 1,706
 (1,933) (136) 1,774
Nine months ended September 30, 2015  
   
   
   
   
Balance, beginning of period$4,926
 333
 (1,703) (38) 3,518
Net unrealized gains (losses) arising during the period(1,238) 1,391
 (7) (117) 29
Amounts reclassified from accumulated other comprehensive income(602) (495) 64
 —
 (1,033)
Net change(1,840) 896
 57
 (117) (1,004)
Less: Other comprehensive income (loss) from noncontrolling interests129
 —
 —
 (4) 125
Balance, end of period$2,957
 1,229
 (1,646) (151) 2,389



Note 18:  Operating Segments
We have three reportable operating segments: Community Banking; Wholesale Banking; and Wealth and Investment Management.Management (WIM). We define our operating segments by product type and customer segment and their results are based on our management accounting process, for which there is no comprehensive, authoritative guidance equivalent to GAAP for financial accounting. The management accounting process measures the performance of the operating segments based on
 
our management structure and is not necessarily comparable with similar information for other financial services companies. If the management structure and/or the allocation process changes, allocations, transfers and assignments may change. For a description of our operating segments, including the underlying management accounting process, see Note 24 (Operating Segments) to Financial Statements in our 20152016 Form 10-K. Table 18.1 presents our results by operating segment.

Table 18.1: Operating Segments
Community
Banking 
  
Wholesale
Banking
  Wealth and Investment Management  Other (1)  
Consolidated
Company
 
Community
Banking 
  
Wholesale
Banking
  Wealth and Investment Management  Other (1)  
Consolidated
Company
 
(income/expense in millions, average balances in billions)2016
 2015
 2016
 2015
 2016
 2015
 2016
 2015
 2016
 2015
2017
 2016
 2017
 2016
 2017
 2016
 2017
 2016
 2017
 2016
Quarter ended Sep 30,  
   
   
   
   
   
   
   
   
   
Quarter ended March 31,                   
Net interest income (2)$7,430
 7,409
 4,062
 3,611
 977
 887
 (517) (450) 11,952
 11,457
$7,627
 7,468
 4,148
 3,748
 1,074
 943
 (549) (492) 12,300
 11,667
Provision (reversal of provision) for credit losses651
 668
 157
 36
 4
 (6) (7) 5
 805
 703
646
 720
 (43) 363
 (4) (14) 6
 17
 605
 1,086
Noninterest income4,957
 5,524
 3,085
 2,715
 3,122
 2,991
 (788) (812) 10,376
 10,418
4,466
 5,146
 2,890
 3,210
 3,119
 2,911
 (773) (739) 9,702
 10,528
Noninterest expense6,953
 6,778
 4,120
 3,503
 2,999
 2,909
 (804) (791) 13,268
 12,399
7,221
 6,836
 4,225
 3,968
 3,206
 3,042
 (860) (818) 13,792
 13,028
Income (loss) before income tax expense (benefit)4,783
 5,487
 2,870
 2,787
 1,096
 975
 (494) (476) 8,255
 8,773
4,226
 5,058
 2,856
 2,627
 991
 826
 (468) (430) 7,605
 8,081
Income tax expense (benefit)1,546
 1,785
 827
 815
 415
 371
 (187) (181) 2,601
 2,790
1,127
 1,697
 746
 719
 362
 314
 (178) (163) 2,057
 2,567
Net income (loss) before noncontrolling interests3,237
 3,702
 2,043
 1,972
 681
 604
 (307) (295) 5,654
 5,983
3,099
 3,361
 2,110
 1,908
 629
 512
 (290) (267) 5,548
 5,514
Less: Net income (loss) from noncontrolling interests10
 142
 (4) 47
 4
 (2) —
 —
 10
 187
90
 65
 (5) (13) 6
 —
 —
 —
 91
 52
Net income (loss) (3)$3,227
 3,560
 2,047
 1,925
 677
 606
 (307) (295) 5,644
 5,796
$3,009
 3,296
 2,115
 1,921
 623
 512
 (290) (267) 5,457
 5,462
Average loans$489.2
 477.0
 454.3
 405.6
 68.4
 61.1
 (54.4) (48.6) 957.5
 895.1
$482.7
 484.3
 466.3
 429.8
 70.7
 64.1
 (56.1) (51.0) 963.6
 927.2
Average assets993.6
 898.9
 794.2
 739.1
 212.1
 192.6
 (85.3) (84.2) 1,914.6
 1,746.4
990.7
 947.4
 807.8
 748.6
 221.9
 208.1
 (89.4) (84.2) 1,931.0
 1,819.9
Average deposits708.0
 655.6
 441.2
 442.0
 189.2
 172.6
 (76.9) (71.3) 1,261.5
 1,198.9
717.2
 683.0
 466.0
 428.0
 195.6
 184.5
 (79.6) (76.1) 1,299.2
 1,219.4
Nine months ended Sep 30,                   
Net interest income (2)$22,277
 21,833
 11,729
 10,639
 2,852
 2,545
 (1,506) (1,304) 35,352
 33,713
Provision (reversal of provision) for credit losses2,060
 1,723
 905
 (99) (8) (19) 8
 6
 2,965
 1,611
Noninterest income14,928
 15,178
 9,660
 8,706
 9,020
 9,285
 (2,275) (2,411) 31,333
 30,758
Noninterest expense20,437
 20,088
 12,124
 10,625
 9,017
 9,069
 (2,416) (2,407) 39,162
 37,375
Income (loss) before income tax expense (benefit)14,708
 15,200
 8,360
 8,819
 2,863
 2,780
 (1,373) (1,314) 24,558
 25,485
Income tax expense (benefit)4,910
 4,695
 2,341
 2,583
 1,087
 1,054
 (521) (500) 7,817
 7,832
Net income (loss) before noncontrolling interests9,798
 10,505
 6,019
 6,236
 1,776
 1,726
 (852) (814) 16,741
 17,653
Less: Net income (loss) from noncontrolling interests96
 183
 (22) 146
 3
 5
 —
 —
 77
 334
Net income (loss) (3)$9,702
 10,322
 6,041
 6,090
 1,773
 1,721
 (852) (814) 16,664
 17,319
Average loans$486.4
 473.9
 445.2
 390.7
 66.4
 59.1
 (52.8) (47.3) 945.2
 876.4
Average assets969.6
 906.2
 771.9
 714.6
 208.5
 191.1
 (84.3) (83.9) 1,865.7
 1,728.0
Average deposits698.3
 651.3
 431.7
 435.4
 185.4
 170.4
 (76.1) (70.7) 1,239.3
 1,186.4
(1)Includes the elimination of certain items that are included in more than one business segment, substantially all of which represents products and services for Wealth and Investment Management customers served through Community Banking distribution channels. 
(2)Net interest income is the difference between interest earned on assets and the cost of liabilities to fund those assets. Interest earned includes actual interest earned on segment assets and, if the segment has excess liabilities, interest credits for providing funding to other segments. The cost of liabilities includes interest expense on segment liabilities and, if the segment does not have enough liabilities to fund its assets, a funding charge based on the cost of excess liabilities from another segment.
(3)Represents segment net income (loss) for Community Banking; Wholesale Banking; and Wealth and Investment Management segments and Wells Fargo net income for the consolidated company.



Note 19:  Regulatory and Agency Capital Requirements
The Company and each of its subsidiary banks are subject to regulatory capital adequacy requirements promulgated by federal bank regulatory agencies. The Federal Reserve establishes capital requirements for the consolidated financial holding company, and the OCC has similar requirements for the Company’s national banks, including Wells Fargo Bank, N.A. (the Bank).
Table 19.1 presents regulatory capital information for Wells Fargo & Company and the Bank using Basel III, which increased minimum required capital ratios, and introduced a minimum Common Equity Tier 1 (CET1) ratio. We must report the lower of our CET1, tier 1 and total capital ratios calculated under the Standardized Approach and under the Advanced Approach in the assessment of our capital adequacy. The information presented reflects risk-weighted assets (RWAs) under the Standardized and Advanced Approaches with Transition Requirements. The Standardized Approach applies assigned risk weights to broad risk categories, while the calculation of RWAs under the
Advanced Approach differs by requiring applicable banks to
utilize a risk-sensitive methodology, which relies upon the use of internal credit models, and includes an operational risk component. The Basel III revised definition of capital, and changes are being phased-in effective January 1, 2014, through the end of 2021.
The Bank is an approved seller/servicer of mortgage loans and is required to maintain minimum levels of shareholders’ equity, as specified by various agencies, including the United States Department of Housing and Urban Development, GNMA, FHLMC and FNMA. At September 30, 2016,March 31, 2017, the Bank met these requirements. Other subsidiaries, including the Company’s insurance and broker-dealer subsidiaries, are also subject to various minimum capital levels, as defined by applicable industry regulations. The minimum capital levels for these subsidiaries, and related restrictions, are not significant to our consolidated operations.


Table 19.1: Regulatory Capital Information
Wells Fargo & Company Wells Fargo Bank, N.A.Wells Fargo & Company Wells Fargo Bank, N.A.
September 30, 2016   December 31, 2015   September 30, 2016 December 31, 2015March 31, 2017   December 31, 2016   March 31, 2017 December 31, 2016
(in millions, except ratios)Advanced Approach
 
Standardized
Approach

 Advanced Approach
 Standardized
Approach
 Advanced Approach
 Standardized
Approach
 Advanced Approach
 Standardized
Approach
 Advanced Approach
 
Standardized
Approach

 Advanced Approach
 Standardized
Approach
 Advanced Approach
 Standardized
Approach
 Advanced Approach
 Standardized
Approach
 
Regulatory capital:Regulatory capital:               Regulatory capital:               
Common equity tier 1$148,845
 148,845
 144,247
 144,247
 132,794
 132,794
 126,901
 126,901
 $149,860
 149,860
 148,785
 148,785
 133,362
 133,362
 132,225
 132,225
 
Tier 1171,491
 171,491
 164,584
 164,584
 132,794
 132,794
 126,901
 126,901
 172,543
 172,543
 171,364
 171,364
 133,362
 133,362
 132,225
 132,225
 
Total202,182
 213,408
 195,153
 205,529
 145,757
 156,142
 140,545
 149,969
 205,269
 215,158
 204,425
 214,877
 147,007
 156,150
 145,665
 155,281
 
Assets:                                
Risk-weighted$1,313,080
 1,361,405
 1,263,182
 1,303,148
 1,166,282
 1,236,842
 1,100,896
 1,197,648
 $1,250,630
 1,300,723
 1,274,589
 1,336,198
 1,123,251
 1,190,078
 1,143,681
 1,222,876
 
Adjusted average (1)1,883,305
 1,883,305
 1,757,107
 1,757,107
 1,699,270
 1,699,270
 1,584,297
 1,584,297
 1,901,719
 1,901,719
 1,914,802
 1,914,802
 1,705,841
 1,705,841
 1,714,524
 1,714,524
 
Regulatory capital ratios:                                
Common equity tier 1 capital11.34%
10.93
* 11.42
 11.07
* 11.39

10.74
* 11.53

10.60
*11.98%
11.52
* 11.67
 11.13
* 11.87

11.21
* 11.56

10.81
*
Tier 1 capital13.06

12.60
* 13.03
 12.63
* 11.39

10.74
* 11.53

10.60
*13.80

13.27
* 13.44
 12.82
* 11.87

11.21
* 11.56

10.81
*
Total capital15.40
*15.68

 15.45
*15.77
  12.50
*12.62

 12.77

12.52
*16.41
*16.54

 16.04
*16.08
  13.09
*13.12

 12.74

12.70
*
Tier 1 leverage (1)9.11
 9.11
 9.37
 9.37
 7.81
 7.81
 8.01
 8.01
 9.07
 9.07
 8.95
 8.95
 7.82
 7.82
 7.71
 7.71
 
*Denotes the lowest capital ratio as determined under the Advanced and Standardized Approaches.
(1)The leverage ratio consists of Tier 1 capital divided by quarterly average total assets, excluding goodwill and certain other items.
Table 19.2 presents the minimum required regulatory capital ratios under Transition Requirements to which the Company and the Bank were subject as of September 30, 2016March 31, 2017 and December 31, 2015.2016.
 


Table 19.2: Minimum Required Regulatory Capital Ratios – Transition Requirements (1)
Wells Fargo & Company Wells Fargo Bank, N.A.Wells Fargo & Company Wells Fargo Bank, N.A.
September 30, 2016
 December 31, 2015 September 30, 2016 December 31, 2015March 31, 2017
 December 31, 2016 March 31, 2017 December 31, 2016
Regulatory capital ratios:          
Common equity tier 1 capital5.625% 4.500 5.125 4.5006.750% 5.625 5.750 5.125
Tier 1 capital7.125
 6.000 6.625 6.0008.250
 7.125 7.250 6.625
Total capital9.125
 8.000 8.625 8.00010.250
 9.125 9.250 8.625
Tier 1 leverage4.000
 4.000 4.000 4.0004.000
 4.000 4.000 4.000
(1)
At September 30, 2016March 31, 2017, under transition requirements, the CET1, tier 1 and total capital minimum ratio requirements for Wells Fargo & Company include a capital conservation buffer of 0.625%1.250% and a global systemically important bank (G-SIB) surcharge of 0.5%1.000%. Only the 0.625%1.250% capital conservation buffer applies to the Bank at September 30, 2016March 31, 2017.



Glossary of Acronyms
        
ABSAsset-backed securityHAMPHome Affordability Modification Program
ACLAllowance for credit lossesHUDU.S. Department of Housing and Urban Development
ALCOAsset/Liability Management CommitteeLCRLiquidity coverage ratio
ARM 
Adjustable-rate mortgageLHFSLoans held for sale
ASC 
Accounting Standards CodificationLIBORLondon Interbank Offered Rate
ASUAccounting Standards UpdateLIHTCLow income housing tax credit
AUAAssets under administrationLOCOMLower of cost or market value
AUMAssets under managementLTVLoan-to-value
AVMAutomated valuation modelMBSMortgage-backed security
BCBSBasel Committee on Bank SupervisionMHAMaking Home Affordable programs
BHCBank holding companyMHFSMortgages held for sale
CCARComprehensive Capital Analysis and ReviewMSRMortgage servicing right
CDCertificate of depositMTNMedium-term note
CDOCollateralized debt obligationNAVNet asset value
CDSCredit default swapsNPANonperforming asset
CET1Common Equity Tier 1OCCOffice of the Comptroller of the Currency
CLOCFPBCollateralized loan obligationConsumer Financial Protection BureauOCIOther comprehensive income
CLOCollateralized loan obligationOTCOver-the-counter
CLTVCombined loan-to-valueOTCOTTIOver-the-counterOther-than-temporary impairment
CMBSCommercial mortgage-backed securitiesOTTIOther-than-temporary impairment
CPPCapital Purchase ProgramPCI LoansPurchased credit-impaired loans
CRECPPCommercial real estateCapital Purchase ProgramPTPPPre-tax pre-provision profit
CRECommercial real estateRBCRisk-based capital
DPDDays past dueRBCRMBSRisk-based capitalResidential mortgage-backed securities
ESOPEmployee Stock Ownership PlanRMBSResidential mortgage-backed securities
FASStatement of Financial Accounting StandardsROAWells Fargo net income to average total assets
FASBFASStatement of Financial Accounting Standards BoardROEWells Fargo net income applicable to common stock
FDICFASBFederal Deposit Insurance CorporationFinancial Accounting Standards Board  to average Wells Fargo common stockholders' equity
FFELPFDICFederal Family Education Loan ProgramDeposit Insurance CorporationROTCEReturn on average tangible common equity
FFELPFederal Family Education Loan ProgramRWAsRisk-weighted assets
FHAFederal Housing AdministrationRWAsSECRisk-weighted assetsSecurities and Exchange Commission
FHLBFederal Home Loan BankSECS&PSecurities and Exchange CommissionStandard & Poor’s Ratings Services
FHLMCFederal Home Loan Mortgage CorporationS&PSLRStandard & Poor’s Ratings ServicesSupplementary leverage ratio
FICOFair Isaac Corporation (credit rating)SPESpecial purpose entity
FNMAFederal National Mortgage AssociationTARPTroubled Asset Relief Program
FRBBoard of Governors of the Federal Reserve SystemTDRTroubled debt restructuring
GAAPGenerally accepted accounting principlesTLACTotal Loss Absorbing Capacity
GNMAGovernment National Mortgage AssociationVADepartment of Veterans Affairs
GSEGovernment-sponsored entityVaRValue-at-Risk
G-SIBGlobally systemic important bankVIEVariable interest entity


PART II – OTHER INFORMATION


Item 1.            Legal Proceedings
 
Information in response to this item can be found in Note 11 (Legal Actions) to Financial Statements in this Report which information is incorporated by reference into this item.

Item 1A.         Risk Factors
 
Information in response to this item can be found under the “Financial Review – Risk Factors” section in this Report which information is incorporated by reference into this item. 

Item 2.           Unregistered Sales of Equity Securities and Use of Proceeds
 
The following table shows Company repurchases of its common stock for each calendar month in the quarter ended September 30, 2016.March 31, 2017.
Calendar month
Total number
of shares
repurchased (1)

 
Weighted-average
price paid per share

 Maximum number of
shares that may yet
be repurchased under
the authorization
July4,285,238
 $48.20
 326,214,294
August12,032,209
 48.25
 314,182,085
September (2)21,990,586
 47.83
 292,191,499
Total38,308,033
    
      
Calendar month
Total number
of shares
repurchased (1)

 
Weighted-average
price paid per share

 Maximum number of
shares that may yet
be repurchased under
the authorization
January (2)20,383,453
 $51.91
 236,948,667
February6,503,317
 56.72
 240,445,350
March (2)26,187,454
 57.21
 214,357,896
Total53,074,224
    
      
(1)
All shares were repurchased under an authorization covering up to 350 million shares of common stock approved by the Board of Directors and publicly announced by the Company on January 26, 2016. Unless modified or revoked by the Board, this authorization does not expire.
(2)
SeptemberJanuary includes a private repurchase transaction of 15,667,66214,741,919 shares at a weighted-average price paid per share of $47.8750.88 and March includes a private repurchase transaction of 13,335,040 shares at a weighted-average price per share of $56.24.


The following table shows Company repurchases of the warrants for each calendar month in the quarter ended September 30, 2016.March 31, 2017.
Calendar month
Total number
of warrants
repurchased (1)

 
Average price
paid per warrant

 Maximum dollar value
of warrants that
may yet be repurchased
JulyJanuary—
 $—
 451,944,402
AugustFebruary—
 —
 451,944,402
SeptemberMarch—
 —
 451,944,402
Total—
    
      
(1)
Warrants are repurchased under the authorization covering up to $1 billion in warrants approved by the Board of Directors (ratified and approved on June 22, 2010). Unless modified or revoked by the Board, this authorization does not expire.


Item 6.Exhibits
 
A list of exhibits to this Form 10-Q is set forth on the Exhibit Index immediately preceding such exhibits and is incorporated herein by reference.
 
The Company’s SEC file number is 001-2979. On and before November 2, 1998, the Company filed documents with the SEC under the name Norwest Corporation. The former Wells Fargo & Company filed documents under SEC file number 001-6214.
 

SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
Dated: November 3, 2016May 5, 2017                                                            WELLS FARGO & COMPANY
 
 
By:      /s/ RICHARD D. LEVY                                   
Richard D. Levy
Executive Vice President and Controller
(Principal Accounting Officer)


EXHIBIT INDEX
 
Exhibit
Number
 Description  Location  Description  Location 
3(a) Restated Certificate of Incorporation, as amended and in effect on the date hereof. 
Incorporated by reference to Exhibit 3(a) to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016.

 Restated Certificate of Incorporation, as amended and in effect on the date hereof. Filed herewith.
3(b) By-Laws. Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed December 22, 2015. By-Laws. Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed December 1, 2016.
4(a) See Exhibits 3(a) and 3(b).   See Exhibits 3(a) and 3(b).  
4(b) The Company agrees to furnish upon request to the Commission a copy of each instrument defining the rights of holders of senior and subordinated debt of the Company.   The Company agrees to furnish upon request to the Commission a copy of each instrument defining the rights of holders of senior and subordinated debt of the Company.  
10(a) Letter Agreement, effective September 27, 2016, between the Company and Carrie Tolstedt. Incorporated by reference to Exhibit 10(a) to the Company’s Current Report on Form 8-K filed September 28, 2016. Letter Agreement, effective September 27, 2016, between the Company and Carrie Tolstedt. Incorporated by reference to Exhibit 10(a) to the Company's Current Report on Form 8-K filed September 28, 2016.
12(a) Computation of Ratios of Earnings to Fixed Charges: Filed herewith. Computation of Ratios of Earnings to Fixed Charges: Filed herewith.
    Quarter ended
September 30,		  Nine months ended September 30,        Quarter ended March 31,    
    2016
 2015
 2016
 2015
       2017
 2016
   
 Including interest on deposits 6.03
 8.88
 6.36
 8.81
    Including interest on deposits 4.70
 6.70
   
 Excluding interest on deposits 7.42
 11.02
 7.86
 11.06
    Excluding interest on deposits 6.03
 8.29
   
      
12(b) Computation of Ratios of Earnings to Fixed Charges and Preferred Dividends: Filed herewith. Computation of Ratios of Earnings to Fixed Charges and Preferred Dividends: Filed herewith.
    Quarter ended
September 30,		  Nine months ended September 30,        Quarter ended March 31,    
    2016
 2015
 2016
 2015
       2017
 2016
   
 Including interest on deposits 4.44
 5.99
 4.63
 5.97
    Including interest on deposits 3.70
 4.80
   
 Excluding interest on deposits 5.10
 6.82
 5.31
 6.86
    Excluding interest on deposits 4.40
 5.51
   
              
31(a) Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith. Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
31(b) Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith. Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
32(a) Certification of Periodic Financial Report by Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. § 1350. Furnished herewith. Certification of Periodic Financial Report by Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. § 1350. Furnished herewith.
32(b) Certification of Periodic Financial Report by Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. § 1350. Furnished herewith. Certification of Periodic Financial Report by Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. § 1350. Furnished herewith.
101.INS XBRL Instance Document Filed herewith. XBRL Instance Document Filed herewith.
101.SCH XBRL Taxonomy Extension Schema Document Filed herewith. XBRL Taxonomy Extension Schema Document Filed herewith.
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document Filed herewith. XBRL Taxonomy Extension Calculation Linkbase Document Filed herewith.
101.DEF XBRL Taxonomy Extension Definitions Linkbase Document Filed herewith. XBRL Taxonomy Extension Definitions Linkbase Document Filed herewith.
101.LAB XBRL Taxonomy Extension Label Linkbase Document Filed herewith. XBRL Taxonomy Extension Label Linkbase Document Filed herewith.
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document Filed herewith. XBRL Taxonomy Extension Presentation Linkbase Document Filed herewith.


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