UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017
March 31, 2019
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 ¨
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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ Accelerated filer ¨ |
| | | | |
| Large acceleratedNon-accelerated filer ¨Smaller reporting company ¨þ
| | Accelerated filer o
| |
| | | | |
| Non-accelerated filer o (Do not check if a smaller reporting company)
| | Smaller reporting company o
| |
| | | Emerging growth company o
| |
Emerging growth company ¨
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 ¨ No þ
Securities registered pursuant to Section 12(b) of the Act:
|
| | |
Yes o Title of Each Class | Trading Symbol | No þ Name of Each Exchange on Which Registered |
Common Stock, par value $1-2/3 | WFC | New York Stock Exchange (NYSE) |
7.5% Non-Cumulative Perpetual Convertible Class A Preferred Stock, Series L | WFC.PRL | NYSE |
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series N | WFC.PRN | NYSE |
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series O | WFC.PRO | NYSE |
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series P | WFC.PRP | NYSE |
Depositary Shares, each representing a 1/1000th interest in a share of 5.85% Fixed-to-Floating Rate Non-Cumulative Perpetual Class A Preferred Stock, Series Q | WFC.PRQ | NYSE |
Depositary Shares, each representing a 1/1000th interest in a share of 6.625% Fixed-to-Floating Rate Non-Cumulative Perpetual Class A Preferred Stock, Series R | WFC.PRR | NYSE |
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series T | WFC.PRT | NYSE |
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series V | WFC.PRV | NYSE |
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series W | WFC.PRW | NYSE |
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series X | WFC.PRX | NYSE |
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series Y | WFC.PRY | NYSE |
Guarantee of 5.80% Fixed-to-Floating Rate Normal Wachovia Income Trust Securities of Wachovia Capital Trust III | WBTP | NYSE |
Guarantee of Medium-Term Notes, Series A, due October 30, 2028 of Wells Fargo Finance LLC | WFC/28A | NYSE |
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, 2017April 24, 2019 |
Common stock, $1-2/3 par value | | 4,924,261,4494,494,342,882 |
| | FORM 10-Q | FORM 10-Q | | FORM 10-Q | |
CROSS-REFERENCE INDEX | CROSS-REFERENCE INDEX | | CROSS-REFERENCE INDEX | |
PART I | Financial Information | | Financial Information | |
Item 1. | Financial Statements | Page | Financial Statements | Page |
| | Consolidated Statement of Income | |
| | Consolidated Statement of Comprehensive Income | |
| | Consolidated Balance Sheet | |
| | Consolidated Statement of Changes in Equity | |
| Consolidated Statement of Income | | Consolidated Statement of Cash Flows | |
| Consolidated Statement of Comprehensive Income | | Notes to Financial Statements | |
| Consolidated Balance Sheet | | 1 |
| — | Summary of Significant Accounting Policies | |
| Consolidated Statement of Changes in Equity | | 2 |
| — | Business Combinations | |
| Consolidated Statement of Cash Flows | | 3 |
| — | Cash, Loan and Dividend Restrictions | |
| Notes to Financial Statements | | 4 |
| — | Trading Activities | |
| 1 |
| — | Summary of Significant Accounting Policies | | 5 |
| — | Available-for-Sale and Held-to-Maturity Debt Securities | |
| 2 |
| — | Business Combinations | | 6 |
| — | Loans and Allowance for Credit Losses | |
| 3 |
| — | Federal Funds Sold, Securities Purchased under Resale Agreements and Other Short-Term Investments | | 7 |
| — | Leasing Activity | |
| 4 |
| — | Investment Securities | | 8 |
| — | Equity Securities | |
| 5 |
| — | Loans and Allowance for Credit Losses | | 9 |
| — | Other Assets | |
| 6 |
| — | Other Assets | | 10 |
| — | Securitizations and Variable Interest Entities | |
| 7 |
| — | Securitizations and Variable Interest Entities | | 11 |
| — | Mortgage Banking Activities | |
| 8 |
| — | Mortgage Banking Activities | | 12 |
| — | Intangible Assets | |
| 9 |
| — | Intangible Assets | | 13 |
| — | Guarantees, Pledged Assets and Collateral, and Other Commitments | |
| 10 |
| — | Guarantees, Pledged Assets and Collateral | | 14 |
| — | Legal Actions | |
| 11 |
| — | Legal Actions | | 15 |
| — | Derivatives | |
| 12 |
| — | Derivatives | | 16 |
| — | Fair Values of Assets and Liabilities | |
| 13 |
| — | Fair Values of Assets and Liabilities | | 17 |
| — | Preferred Stock | |
| 14 |
| — | Preferred Stock | | 18 |
| — | Revenue from Contracts with Customers | |
| 15 |
| — | Employee Benefits | | 19 |
| — | Employee Benefits | |
| 16 |
| — | Earnings Per Common Share | | 20 |
| — | Earnings Per Common Share | |
| 17 |
| — | Other Comprehensive Income | | 21 |
| — | Other Comprehensive Income | |
| 18 |
| — | Operating Segments | | 22 |
| — | Operating Segments | |
| 19 |
| — | Regulatory and Agency Capital Requirements | | 23 |
| — | Regulatory and Agency Capital Requirements | |
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 | | Summary Financial Data | |
| Overview | | Overview | |
| Earnings Performance | | Earnings Performance | |
| Balance Sheet Analysis | | Balance Sheet Analysis | |
| Off-Balance Sheet Arrangements | | Off-Balance Sheet Arrangements | |
| Risk Management | | Risk Management | |
| Capital Management | | Capital Management | |
| Regulatory Matters | | Regulatory Matters | |
| Critical Accounting Policies | | Critical Accounting Policies | |
| Current Accounting Developments | | Current Accounting Developments | |
| Forward-Looking Statements | | Forward-Looking Statements | |
| Risk Factors | | Risk Factors | |
| Glossary of Acronyms | | Glossary of Acronyms | |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | | Quantitative and Qualitative Disclosures About Market Risk | |
Item 4. | Controls and Procedures | | Controls and Procedures | |
| | | | |
PART II | Other Information | | Other Information | |
Item 1. | Legal Proceedings | | Legal Proceedings | |
Item 1A. | Risk Factors | | Risk Factors | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | | Unregistered Sales of Equity Securities and Use of Proceeds | |
Item 6. | Exhibits | | Exhibits | |
| | | | |
Signature | Signature | | Signature | |
PART I - FINANCIAL INFORMATION
FINANCIAL REVIEW
| | Summary Financial Data | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | % Change | | | | | | | | | | | | | | % Change | |
| Quarter ended | | | Sep 30, 2017 from | | | Nine months ended | | | |
| Quarter ended | | | Mar 31, 2019 from | |
($ in millions, except per share amounts) | Sep 30, 2017 |
| | Jun 30, 2017 |
| | Sep 30, 2016 |
| | Jun 30, 2017 |
| | Sep 30, 2016 |
| | Sep 30, 2017 |
|
| Sep 30, 2016 |
| | % Change |
| Mar 31, 2019 |
| | Dec 31, 2018 |
| | Mar 31, 2018 |
| | Dec 31, 2018 |
| | Mar 31, 2018 |
|
For the Period | | | | | | | | | | | | | | | | | | | | | | | | |
Wells Fargo net income | $ | 4,596 |
| | 5,810 |
| | 5,644 |
| | (21 | )% | | (19 | ) | | $ | 15,863 |
| | 16,664 |
| | (5 | )% | $ | 5,860 |
| | 6,064 |
| | 5,136 |
| | (3 | )% | | 14 |
|
Wells Fargo net income applicable to common stock | 4,185 |
| | 5,404 |
| | 5,243 |
| | (23 | ) | | (20 | ) | | 14,645 |
| | 15,501 |
| | (6 | ) | 5,507 |
| | 5,711 |
| | 4,733 |
| | (4 | ) | | 16 |
|
Diluted earnings per common share | 0.84 |
| | 1.07 |
| | 1.03 |
| | (21 | ) | | (18 | ) | | 2.91 |
| | 3.03 |
| | (4 | ) | 1.20 |
| | 1.21 |
| | 0.96 |
| | (1 | ) | | 25 |
|
Profitability ratios (annualized): | | | | | | | | | | | | | | | | | | | | | | | | |
Wells Fargo net income to average assets (ROA) | 0.94 | % | | 1.21 |
| | 1.17 |
| | (22 | ) | | (20 | ) | | 1.10 | % | | 1.19 |
| | (8 | ) | 1.26 | % | | 1.28 |
| | 1.09 |
| | (2 | ) | | 16 |
|
Wells Fargo net income applicable to common stock to average Wells Fargo common stockholders' equity (ROE) | 9.06 |
| | 11.95 |
| | 11.60 |
| | (24 | ) | | (22 | ) | | 10.83 |
| | 11.68 |
| | (7 | ) | |
Wells Fargo net income applicable to common stock to average Wells Fargo common stockholders’ equity (ROE) | | 12.71 |
| | 12.89 |
| | 10.58 |
| | (1 | ) | | 20 |
|
Return on average tangible common equity (ROTCE) (1) | 10.79 |
| | 14.26 |
| | 13.96 |
| | (24 | ) | | (23 | ) | | 12.94 |
| | 14.08 |
| | (8 | ) | 15.16 |
| | 15.39 |
| | 12.62 |
| | (1 | ) | | 20 |
|
Efficiency ratio (2) | 65.5 |
| | 61.1 |
| | 59.4 |
| | 7 |
| | 10 |
| | 63.1 |
| | 58.7 |
| | 7 |
| 64.4 |
| | 63.6 |
| | 68.6 |
| | 1 |
| | (6 | ) |
Total revenue | $ | 21,926 |
| | 22,169 |
| | 22,328 |
| | (1 | ) | | (2 | ) | | $ | 66,097 |
| | 66,685 |
| | (1 | ) | $ | 21,609 |
| | 20,980 |
| | 21,934 |
| | 3 |
| | (1 | ) |
Pre-tax pre-provision profit (PTPP) (3) | 7,575 |
| | 8,628 |
| | 9,060 |
| | (12 | ) | | (16 | ) | | 24,413 |
| | 27,523 |
| | (11 | ) | 7,693 |
| | 7,641 |
| | 6,892 |
| | 1 |
| | 12 |
|
Dividends declared per common share | 0.390 |
| | 0.380 |
| | 0.380 |
| | 3 |
| | 3 |
| | 1.150 |
| | 1.135 |
| | 1 |
| 0.45 |
| | 0.43 |
| | 0.39 |
| | 5 |
| | 15 |
|
Average common shares outstanding | 4,948.6 |
| | 4,989.9 |
| | 5,043.4 |
| | (1 | ) | | (2 | ) | | 4,982.1 |
| | 5,061.9 |
| | (2 | ) | 4,551.5 |
| | 4,665.8 |
| | 4,885.7 |
| | (2 | ) | | (7 | ) |
Diluted average common shares outstanding | 4,996.8 |
| | 5,037.7 |
| | 5,094.6 |
| | (1 | ) | | (2 | ) | | 5,035.4 |
| | 5,118.2 |
| | (2 | ) | 4,584.0 |
| | 4,700.8 |
| | 4,930.7 |
| | (2 | ) | | (7 | ) |
Average loans | $ | 952,343 |
| | 956,879 |
| | 957,484 |
| | — |
| | (1 | ) | | $ | 957,581 |
| | 945,197 |
| | 1 |
| $ | 950,010 |
| | 946,336 |
| | 951,024 |
| | — |
| | — |
|
Average assets | 1,938,523 |
| | 1,927,079 |
| | 1,914,586 |
| | 1 |
| | 1 |
| | 1,932,242 |
| | 1,865,694 |
| | 4 |
| 1,883,091 |
| | 1,879,047 |
| | 1,915,896 |
| | — |
| | (2 | ) |
Average total deposits | 1,306,356 |
| | 1,301,195 |
| | 1,261,527 |
| | — |
| | 4 |
| | 1,302,273 |
| | 1,239,287 |
| | 5 |
| 1,262,062 |
| | 1,268,948 |
| | 1,297,178 |
| | (1 | ) | | (3 | ) |
Average consumer and small business banking deposits (4) | 755,094 |
| | 760,149 |
| | 739,066 |
| | (1 | ) | | 2 |
| | 758,443 |
| | 726,798 |
| | 4 |
| 739,654 |
| | 736,295 |
| | 755,483 |
| | — |
| | (2 | ) |
Net interest margin | 2.87 | % | | 2.90 |
| | 2.82 |
| | (1 | ) | | 2 |
| | 2.88 | % | | 2.86 |
| | 1 |
| 2.91 | % | | 2.94 |
| | 2.84 |
| | (1 | ) | | 2 |
|
At Period End | | | | | | | | | | | | | | | | | | | | | | | | |
Investment securities | $ | 414,633 |
| | 409,594 |
| | 390,832 |
| | 1 |
| | 6 |
| | $ | 414,633 |
| | 390,832 |
| | 6 |
| |
Debt securities | | $ | 483,467 |
| | 484,689 |
| | 472,968 |
| | — |
| | 2 |
|
Loans | 951,873 |
| | 957,423 |
| | 961,326 |
| | (1 | ) | | (1 | ) | | 951,873 |
| | 961,326 |
| | (1 | ) | 948,249 |
| | 953,110 |
| | 947,308 |
| | (1 | ) | | — |
|
Allowance for loan losses | 11,078 |
| | 11,073 |
| | 11,583 |
| | — |
| | (4 | ) | | 11,078 |
| | 11,583 |
| | (4 | ) | 9,900 |
| | 9,775 |
| | 10,373 |
| | 1 |
| | (5 | ) |
Goodwill | 26,581 |
| | 26,573 |
| | 26,688 |
| | — |
| | — |
| | 26,581 |
| | 26,688 |
| | — |
| 26,420 |
| | 26,418 |
| | 26,445 |
| | — |
| | — |
|
Equity securities | | 58,440 |
| | 55,148 |
| | 58,935 |
| | 6 |
| | (1 | ) |
Assets | 1,934,939 |
| | 1,930,871 |
| | 1,942,124 |
| | — |
| | — |
| | 1,934,939 |
| | 1,942,124 |
| | — |
| 1,887,792 |
| | 1,895,883 |
| | 1,915,388 |
| | — |
| | (1 | ) |
Deposits | 1,306,706 |
| | 1,305,830 |
| | 1,275,894 |
| | — |
| | 2 |
| | 1,306,706 |
| | 1,275,894 |
| | 2 |
| 1,264,013 |
| | 1,286,170 |
| | 1,303,689 |
| | (2 | ) | | (3 | ) |
Common stockholders' equity | 182,128 |
| | 181,428 |
| | 179,916 |
| | — |
| | 1 |
| | 182,128 |
| | 179,916 |
| | 1 |
| |
Wells Fargo stockholders' equity | 205,929 |
| | 205,230 |
| | 203,028 |
| | — |
| | 1 |
| | 205,929 |
| | 203,028 |
| | 1 |
| |
Common stockholders’ equity | | 176,025 |
| | 174,359 |
| | 181,150 |
| | 1 |
| | (3 | ) |
Wells Fargo stockholders’ equity | | 197,832 |
| | 196,166 |
| | 204,952 |
| | 1 |
| | (3 | ) |
Total equity | 206,824 |
| | 206,145 |
| | 203,958 |
| | — |
| | 1 |
| | 206,824 |
| | 203,958 |
| | 1 |
| 198,733 |
| | 197,066 |
| | 205,910 |
| | 1 |
| | (3 | ) |
Tangible common equity (1) | 152,901 |
| | 152,064 |
| | 149,829 |
| | 1 |
| | 2 |
| | 152,901 |
| | 149,829 |
| | 2 |
| 147,723 |
| | 145,980 |
| | 151,878 |
| | 1 |
| | (3 | ) |
Capital ratios (5)(6): | | | | | | | | | | | | | | | | |
Capital ratios (5): | | | | | | | | | | |
Total equity to assets | 10.69 | % | | 10.68 |
| | 10.50 |
| | — |
| | 2 |
| | 10.69 | % | | 10.50 |
| | 2 |
| 10.53 | % | | 10.39 |
| | 10.75 |
| | 1 |
| | (2 | ) |
Risk-based capital: | | | | | | | | |
|
| | | | | |
|
| | | | | | | | |
|
|
Common Equity Tier 1 | 12.10 |
| | 11.87 |
| | 10.93 |
| | 2 |
| | 11 |
| | 12.10 |
| | 10.93 |
| | 11 |
| 11.92 |
| | 11.74 |
| | 11.92 |
| | 2 |
| | — |
|
Tier 1 capital | 13.95 |
| | 13.68 |
| | 12.60 |
| | 2 |
| | 11 |
| | 13.95 |
| | 12.60 |
| | 11 |
| 13.64 |
| | 13.46 |
| | 13.76 |
| | 1 |
| | (1 | ) |
Total capital | 17.21 |
| | 16.91 |
| | 15.40 |
| | 2 |
| | 12 |
| | 17.21 |
| | 15.40 |
| | 12 |
| 16.74 |
| | 16.60 |
| | 16.92 |
| | 1 |
| | (1 | ) |
Tier 1 leverage | 9.27 |
| | 9.28 |
| | 9.11 |
| | — |
| | 2 |
| | 9.27 |
| | 9.11 |
| | 2 |
| 9.15 |
| | 9.07 |
| | 9.32 |
| | 1 |
| | (2 | ) |
Common shares outstanding | 4,927.9 |
| | 4,966.8 |
| | 5,023.9 |
| | (1 | ) | | (2 | ) | | 4,927.9 |
| | 5,023.9 |
| | (2 | ) | 4,511.9 |
| | 4,581.3 |
| | 4,873.9 |
| | (2 | ) | | (7 | ) |
Book value per common share (7) | $ | 36.96 |
| | 36.53 |
| | 35.81 |
| | 1 |
| | 3 |
| | $ | 36.96 |
| | 35.81 |
| | 3 |
| |
Tangible book value per common share (1) (7) | 31.03 |
| | 30.62 |
| | 29.82 |
| | 1 |
| | 4 |
| | 31.03 |
| | 29.82 | | 4 |
| |
Common stock price: | | | | | | | | | | | | | | | | |
High | 56.45 |
| | 56.60 |
| | 51.00 |
| | — |
| | 11 |
| | 59.99 |
| | 53.27 |
| | 13 |
| |
Low | 49.28 |
| | 50.84 |
| | 44.10 |
| | (3 | ) | | 12 |
| | 49.28 |
| | 44.10 |
| | 12 |
| |
Period end | 55.15 |
| | 55.41 |
| | 44.28 |
| | — |
| | 25 |
| | 55.15 |
| | 44.28 |
| | 25 |
| |
Book value per common share (6) | | $ | 39.01 |
| | 38.06 |
| | 37.17 |
| | 2 |
| | 5 |
|
Tangible book value per common share (1)(6) | | 32.74 |
| | 31.86 |
| | 31.16 |
| | 3 |
| | 5 |
|
Team members (active, full-time equivalent) | 268,000 |
| | 270,600 |
| | 268,800 |
| | (1 | ) | | — |
| | 268,000 |
| | 268,800 |
| | — |
| 262,100 |
| | 258,700 |
| | 265,700 |
| | 1 |
| | (1 | ) |
| |
(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 and held-for-sale assets,securities, 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'sCompany’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'sCompany’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 were calculated under the lower of Standardized or Advanced Approach determined pursuant to Basel IIIIII. Beginning January 1, 2018, the requirements for calculating common equity tier 1 and tier 1 capital, along with risk-weighted assets, became fully phased-in; accordingly, the information presented reflects fully phased-in common equity tier 1 capital, tier 1 capital and risk-weighted assets but reflects total capital still in accordance 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 presented. |
| |
(6) | See the “Capital Management” section and Note 1923 (Regulatory and Agency Capital Requirements) to Financial Statements in this Report for additional information. |
| |
(7)(6) | Book value per common share is common stockholders'stockholders’ equity divided by common shares outstanding. Tangible book value per common share is tangible common equity divided by common shares outstanding. |
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 in the “Risk Factors” and “Regulation and Supervision” sections of our Annual Report on Form 10-K for the year ended December 31, 2016 (20162018 (2018 Form 10-K).
When we refer to “Wells Fargo,” “the Company,” “we,” “our”“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 definitions of terms used throughout this Report.
Overview
Wells Fargo & Company is a diversified, community-based financial services company with $1.93$1.89 trillion in assets. Founded in 1852 and headquartered in San Francisco, we provide banking, insurance, investments,investment and mortgage products and services, as well as consumer and commercial finance, through 7,700 locations, more than 8,400 locations, 13,000 ATMs, digital (online, mobile and social), and contact centers (phone, email and correspondence), and we have offices in 4232 countries and territories to support customers who conduct business in the global economy. With approximately 268,000262,000 active, full-time equivalent team members, we serve one in three households in the United States and ranked No. 2526 on Fortune’s 20172018 rankings of America’s largest corporations. We ranked thirdfourth in assets and secondthird in the market value of our common stock among all U.S. banks at September 30, 2017.March 31, 2019.
We use our Vision, and Values & Goals to guide us toward growth and success. Our vision is to satisfy our customers’ financial needs and help them succeed financially, be recognized as the premier financial services company in our markets, and be one of America’s great companies.financially. We aspire to create deep and enduring relationships with our customers by providing them with an exceptional experience and by understanding their needs and delivering the most relevant products, services, advice, and guidance.
We have five primary values, which are based on our vision and provideguide the foundation foractions we take. First, we place customers at the center of everything we do. First,We want to exceed customer expectations and build relationships that last a lifetime. Second, we value and support our people as a competitive advantage and strive to attract, develop, motivate, and retain and motivate the most talented people we can find. Second,best team members. Third, we strive for the highest ethical standards with our team members, our customers, our communities,of integrity, transparency, and our shareholders. Third, with respect to our customers,principled performance. Fourth, we strive to base our decisionsvalue and actions on what is right for thempromote diversity and inclusion in everything we do. Fourth, for team members we strive to buildall aspects of business 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.at all levels. Fifth, we also look to each of our team members to be leadersa leader in establishing, sharing, and communicating our vision.vision for our customers, communities, team members, and shareholders. 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 announcedhave six long-term goals for the Company, in March 2017, which entail becoming the financial services leader in the following areas:
Customer service and advice – provide best-in-classexceptional service and guidance to our customers to help them reach their financial goals.succeed financially.
Team member engagement – be a company where people matter, teamworkfeel included, valued, and supported; everyone is rewarded, everyone feels respectedrespected; and empowered to speak up, diversity and inclusion are embraced, and “how” ourwe work gets done is just as important as getting the work done.a team.
Innovation – create new kinds of lasting value for our customers and businesses by usingincreased efficiency for our operations through innovative technologiesthinking, industry-leading technology, and moving quicklya willingness to bring about change.test and learn.
Risk management – desire to set the global standard in managing all forms of risk.
Corporate citizenship – make better every community in which we livea positive contribution to communities through philanthropy, advancing diversity and do business.inclusion, creating economic opportunity, and promoting environmental sustainability.
Shareholder value – earn the confidence of shareholders by maximizingdeliver long-term value.value for shareholders.
OverOn March 28, 2019, the past year, ourCompany announced that Timothy J. Sloan had informed the Company’s Board of Directors (Board) has takenof his decision to retire from the Company, effective June 30, 2019, and to step down as the Company’s Chief Executive Officer and President and as a seriesmember of actions to enhancethe Company’s Board oversighteffective March 28, 2019. The Board elected C. Allen Parker as interim CEO and governance. The actions the Board has taken to date, many of which reflect the feedback we received from our shareholdersPresident and other stakeholders, include separating the roles of Chairmanas a member of the Board effective March 28, 2019. The Board is conducting an external search for a permanent CEO. During the search period, the Board will work closely with Mr. Parker and Chief Executive Officer, amendingthe Company’s leadership team to continue to move forward on Wells Fargo’s By-Lawsgoals and commitments.
Federal Reserve Board Consent Order Regarding Governance Oversight and Compliance and Operational Risk Management
On February 2, 2018, the Company entered into a consent order with the Board of Governors of the Federal Reserve System (FRB). As required by the consent order, the Board submitted to require that the ChairmanFRB a plan to further enhance the Board’s governance and oversight of the Company, and the Company submitted to the FRB a plan to further improve the Company’s compliance and operational risk management program. The consent order also requires the Company, following the FRB’s acceptance and approval of the plans and the Company’s adoption and implementation of the plans, to complete an initial third-party review of the enhancements and improvements provided for in the plans. Until this third-party review is complete and the plans are approved and implemented to the satisfaction of the FRB, the Company’s total consolidated assets will be limited to the level as of December 31, 2017. Compliance with this asset cap will be measured on a two-quarter daily average basis to allow for
management of temporary fluctuations. As of the end of first quarter 2019, our total consolidated assets, as calculated pursuant to the requirements of the consent order, were below our level of total assets as of December 31, 2017. Additionally, after removal of the asset cap, a second third-party review must also be conducted to assess the efficacy and sustainability of the enhancements and improvements.
Consent Orders with the Consumer Financial Protection Bureau and Office of the Comptroller of the Currency Regarding Compliance Risk Management Program, Automobile Collateral Protection Insurance Policies, and Mortgage Interest Rate Lock Extensions
On April 20, 2018, the Company entered into consent orders with the Consumer Financial Protection Bureau (CFPB) and the Office of the Comptroller of the Currency (OCC) to pay an independent director, adding two new independent directorsaggregate of $1 billion in February 2017,civil money penalties to resolve matters regarding the Company’s compliance risk management program and amending Board committee charterspast practices involving certain automobile collateral protection insurance policies and certain mortgage interest rate lock extensions. As required by the consent orders, the Company submitted to the CFPB and OCC an enterprise-wide compliance risk management plan and a plan to enhance oversightthe Company’s internal audit program with respect to federal consumer financial law and the terms of conduct risk.the consent orders. In August 2017, the Board announced additional Board composition and governance changes that reflected a thoughtful and deliberate processaddition, as required by the Board that was informedconsent orders, the Company submitted for non-objection plans to remediate customers affected by the Company’s engagement with shareholdersautomobile collateral protection insurance and other stakeholders,mortgage interest rate lock matters, as well as a plan for the Board’s annual self-evaluation that wasmanagement of remediation activities conducted in advance of its typical year-end timing and facilitated by a third party. The Board’s composition and governance actions taken in third quarter 2017 included the following:
Elizabeth A. “Betsy” Duke was elected to serve as our new independent Board chair, effective January 1, 2018;
Juan A. Pujadas, a retired principal of PricewaterhouseCoopers LLP, was elected to the Board as a new independent director, effective September 1, 2017;
Changes to the leadership and composition of key Board committees were made, including appointing new chairs of the Board’s Risk Committee and Governance and Nominating Committee, effective September 1, 2017; and
To help facilitate Board refreshment and provide for an appropriate transition of committee membership, three long-serving directors, Cynthia H. Milligan, Stephen W. Sanger and Susan G. Swenson, will retire from the Board at year-end 2017.Company.
In addition, the Board announced that it expects to name up to three additional independent directors before the 2018 annual shareholders' meeting. As has been our practice, we will continue
our engagement efforts with our shareholders and other stakeholders.
Retail Sales Practices Matters
As we have previously reported, onin September 8, 2016 we announced settlements with the Consumer Financial Protection Bureau (CFPB),CFPB, the Office of the Comptroller of the Currency (OCC),OCC, and the Office of the Los Angeles City Attorney, and entered into consent orders with the CFPB and the OCC, in connection with allegations that some of our retail customers received products and services they did not request. As a result, it remains our top priority to rebuild trust through a comprehensive action plan that includes making things right for our customers, team members, and other stakeholders, and to buildbuilding a better Company for the future.
The job of rebuilding trust in Wells Fargo is a long-term effort – one requiring our commitment and perseverance. As we move forward, Wells Fargo has a specific action plan in place focused on reaching out to stakeholders who may have been affected by improper retail banking sales practices, including our communities, our customers, our regulators, our team members, and our investors.
Our priority of rebuilding trust has included the following additionalnumerous actions which have been focused on identifying potential financial harm and customer remediation:
Identifying Potential Financial Harm
In the fall of 2016, theremediation. The Board and management undertook an enterprise-wide revieware conducting company-wide reviews of sales practices issues. This review isThese reviews are ongoing.
A In August 2017, a third-party consulting firm performedcompleted an initialexpanded data-driven review of retail banking accounts opened from May 2011January 2009 to mid-2015September 2016 to identify financial harm stemming from potentially unauthorized accounts. The phrase “potentially unauthorized” does not mean that we are certain thatWe have completed financial remediation for the accounts are unauthorized, but rather describes the accounts that the third party analysiscustomers identified as showing patterns that could indicate a lack of authorization. Since the analysis was intentionally inclusive and erred on the side of the customer, the number of potentially unauthorized accounts likely includes a population of accounts that were in fact authorized by our customers. The initial account analysis reviewed 93.5 million current and former customer accounts and identified approximately 2.1 million potentially unauthorized accounts.
We expanded the time periods of this review to cover the entire consent order period of January 2011 through September 2016, and to perform a voluntary review of accounts from 2009 to 2010. The expanded analysis reviewed more than 165 million retail banking accounts opened over the nearly eight-year period and identified a new total of approximately 3.5 million potentially unauthorized consumer and small business accounts. The 3.5 million potentially unauthorized accounts total is composed of the following:
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◦ | The original time period, which was re-examined following refinements to the practices and methodologies previously used by the third party to determine potentially unauthorized accounts: 2.55 million accounts identified as potentially unauthorized; and |
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◦ | The additional periods back to January 2009 and forward to September 2016: 981,000 accounts identified as potentially unauthorized. |
In connection with these 3.5 million potentially unauthorized accounts, approximately 190,000 accounts incurred fees and charges, up from 130,000 previously identified accounts that incurred fees and charges.
In addition, the expanded analysis included a review of online bill pay services, as required by the consent orders. During the almost eight-year review period, the analysis identified approximately 528,000 potentially unauthorized online bill pay enrollments.
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▪ | For all periods of the expanded analysis (other than some periods in 2009 and 2010 for which we do not have sufficient information), the maximum impact of the 3.5 million potentially unauthorized accounts and 528,000 potentially unauthorized online bill pay enrollments on the originally reported Community Banking cross-sell metric was, in any one quarter, 0.03 products per household (or 0.5% of the originally reported metric). Due to our historical processes, which removed from the calculation of the cross-sell metric certain accounts and other products that were inactive over various time frames, not all of these potentially unauthorized accounts affected the cross-sell metric at any one time. |
Customer Remediation
We refunded $3.3 million to customers under the stipulated judgment with the Los Angeles City Attorney and under the CFPB and OCC consent orders, covering the period from May 2011 to mid-2015. In connection with the expanded account analysis, we will now provide a total of $2.9 million in additional refunds and credits on top of the $3.3 million previously refunded as a result of the initial account review. In addition, we will refund $910,000 to customers who incurred fees or charges as a result of potentially unauthorized online bill pay enrollments.
As of September 30, 2017, we had paid $5.45 million in additional payments to customers nationwide through our ongoing complaints process and free mediation services that were put in place in connection with the sales practices matters.
Customers also may receive compensationanalysis. Additionally, customer outreach under the $142 million class-action lawsuit settlement concerning improper retail sales practices (Jabbari v. Wells Fargo Bank, N.A.) into which the Company entered to provide further remediation to customers, concluded in June 2018 and the period for customers to submit claims dating back to 2002. After plaintiffs’ attorneys’ feesclosed on July 7, 2018. The settlement administrator will pay claims following the calculation of compensatory damages and costsfavorable resolution of administration, the class-action settlement will provide reimbursement of fees not already paid and compensation for increased borrowing costs due to credit-score impact associated with a potentially unauthorized account. Remaining funds will be distributed to the participantspending appeals in the class on a per account basis.
We are working to complete the requirements of our consent orders, which include the development of an action plan that addresses the findings of the independent review. The independent consultant's report, which is regulatory supervisory information that cannot be publicly disclosed, was received in August 2017.
case.
For additional information regarding sales practices matters, including related legal matters, see the “Risk Factors” section in our 20162018 Form 10-K and Note 1114 (Legal Actions) to Financial Statements in this Report.
Additional Efforts to Rebuild Trust
Our priority of rebuilding trust has also included an effort to identify other areas or instances where customers may have experienced financial harm. We are working with our regulatory agencies in this effort.effort, and we have accrued for the reasonably estimable remediation costs related to these matters, which amounts may change based on additional facts and information, as well as ongoing reviews and communications with our regulators. As part of this effort, we are focused on the following key areas:
Overview Automobile Lending Business(continued)
PracticesThe Company is reviewing practices concerning the origination, servicing, and/orand collection of consumer automobile loans, including matters related to certain insurance products. For example:
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◦ | In July 2017, the Company announced a plan to remediate customers who may have been financially harmed due to issues related to automobile collateral protection insurance (CPI) policies purchased through a third-party vendor on their behalf. Commencing in August 2017, the Company began sending letters and refund checks to affected customers for policies placed between January 1, 2012, and September 30, 2016. The practice of placing CPI was discontinued by the Company on September 30, 2016. The time period in which customers may be eligible to claim or otherwise receive remediation compensation for certain CPI placements has now been extended back to October 15, 2005. The Company currently estimates that it will provide approximately $100 million in cash remediation and $30 million in account adjustments under the plan. The amount of remediation may be affected as the Company continues to work with its regulators on the remediation plan. |
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◦ | The Company has identified certain issues related to the unused portion of guaranteed automobile protection waiver or insurance agreements between the dealer and, by assignment, the lender, which may result in refunds to customers in certain states. |
In October 2017, the Company announced plans to reach out to all home lendingit would remediate customers who paid fees for mortgage rate lock extensions requested from September 16, 2013,may have been financially harmed due to issues related to automobile collateral protection insurance (CPI) policies purchased through February 28, 2017, and to refund customers who believe they shoulda third-party vendor on their behalf (based on an understanding that the borrowers did not have paid those fees. physical damage insurance coverage on their automobiles as required during the term of their automobile loans). The planCompany is in the process of providing remediation to issue refunds follows an internal review that determined that a rate lock extension policy implemented inaffected customers and/or letters to affected customers through which they may claim or otherwise receive remediation compensation for policies placed between October 15, 2005, and September 2013 was, at times, not consistently applied, resulting in some borrowers being charged fees in cases where30, 2016. In addition, the Company was primarily responsiblehas identified certain issues related to the unused portion of guaranteed automobile protection waiver or insurance agreements between the customer and dealer and, by assignment, the lender, which will result in remediation to customers in certain states. The Company is in the process of providing remediation to affected customers. The Company has also identified certain issues related to its consumer automobile collections processes for the delays that made the extensions necessary. Effective March 1, 2017, the Company changed how it manages the mortgage rate lock extension process to ensure more consistency by establishing a centralized review team that reviews all rate lock extension requests for consistent applicationcustomers in default, including legal notice practices in certain states and expenses charged in connection with certain repossessions. We expect remediation of policy. A total of approximately $98 million in rate lock extension fees were assessed to about 110,000 borrowers during the period in question, although the Company believes a substantial number of those fees were appropriately charged under its policy. The amount ultimately refunded likelyaffected customers will be lower, as not all of the fees assessed were actually paid and some fees already have been refunded.required.
PracticesAdd-on ProductsThe Company is reviewingpractices related to certain consumer “add-on” products, (e.g.,including identity theft and debt protection), including thoseprotection products that arewere subject to an OCC consent order entered into in June 2015. Based on our ongoing2015, as well as home and automobile warranty products, and memberships in discount programs. The products were sold to customers through a number of distribution channels and, in some cases, were acquired by the Company in connection with the purchase of loans. Sales of certain of these products have been discontinued over the past few years primarily due to decisions made by the Company in the normal course of business, and by mid-2017, the Company had ceased selling any of these products to consumers. We are in the process of providing remediation where we identify affected customers, and are also providing refunds to customers who purchased certain products. The review of "add-on"the Company’s historical practices with respect to these products we expect remediation will be required.is ongoing, focusing on, among other topics, sales practices, adequacy of disclosures, customer servicing, and volume and type of customer complaints.
Procedures regardingConsumer Deposit Account Freezing/Closing The Company is reviewing certain historical practices associated with the freezing (and, in many cases, closing) of consumer deposit accounts after the Company detected suspected fraudulent activity (by third-parties or account holders) that affected those accounts. Based on our ongoing review, we expect remediation of affected customers will be required.
For more information, seeReview of Certain Activities Within Wealth and Investment ManagementA review of certain activities within Wealth and Investment Management (WIM) being conducted by the “Risk Factors” sectionBoard, in our 2016 Form 10-Kresponse to inquiries from federal government agencies, is assessing whether there have been inappropriate referrals or recommendations, including with respect to rollovers for 401(k) plan participants, certain alternative investments, or referrals of brokerage customers to the Company’s investment and Note 11 (Legal Actions)fiduciary services business. The Board’s review is substantially completed and has not, to Financial Statementsdate, uncovered evidence of systemic or widespread issues in these businesses. Federal government agencies continue to review this Report.matter.
Fiduciary and Custody Account Fee CalculationsThe Company is reviewing fee calculations within certain fiduciary and custody accounts in its investment and fiduciary services business, which is part of the wealth management business in WIM. The Company has determined that there have been instances of incorrect fees being applied to certain assets and accounts, resulting in both overcharges and undercharges to customers. These issues included the incorrect set-up and maintenance in the system of record of the values associated with certain assets. Systems, operations, and account-level reviews are underway to determine the extent of any assets and accounts affected, and root cause analyses are being performed with the assistance of third parties. These reviews are ongoing and, as a result of its reviews to date, the Company has suspended the charging of fees on some assets and accounts, has notified the affected customers, and is continuing its analysis of those assets and accounts. We have begun the process of providing remediation to affected customers and continue to review customer accounts to determine the extent of any necessary remediation, including with respect to additional accounts not yet reviewed, which may lead to additional accruals and fee suspensions.
Foreign Exchange BusinessThe Company has completed an assessment, with the assistance of a third party, of its policies, practices, and procedures in its foreign exchange (FX) business. The FX business continues to revise and implement new policies, practices, and procedures, including those related to pricing. The Company has begun providing remediation to customers that may have received pricing inconsistent with commitments made to those customers, and rebates to customers where historic pricing, while consistent with contracts entered into with those customers, does not conform to recently implemented pricing review standards for prior periods. The Company’s review of affected customers is ongoing.
Mortgage Loan Modifications An internal review of the Company’s use of a mortgage loan modification underwriting tool identified a calculation error regarding foreclosure attorneys’ fees affecting certain accounts that were in the foreclosure process between April 13, 2010, and October 2, 2015, when the error was corrected. A subsequent expanded review identified related errors regarding the maximum allowable foreclosure attorneys’ fees permitted for certain accounts that were in the foreclosure process between March 15, 2010, and April 30, 2018, when new controls were implemented. Similar to the initial calculation error, these errors caused an overstatement of the attorneys’ fees that were included for purposes of determining whether a customer qualified for a mortgage loan modification or repayment plan pursuant to the requirements of government-sponsored enterprises (such as Fannie Mae and
Freddie Mac), the Federal Housing Administration (FHA), and the U.S. Department of Treasury’s Home Affordable Modification Program. Customers were not actually charged the incorrect attorneys’ fees. As previously disclosed, the Company has identified customers who, as a result of these errors, were incorrectly denied a loan modification or were not offered a loan modification or repayment plan in cases where they otherwise would have qualified, as well as instances where a foreclosure was completed after the loan modification was denied or the customer was deemed ineligible to be offered a loan modification or repayment plan. The number of previously disclosed customers affected by these errors may change as a result of ongoing validation, but is not expected to change materially upon completion of this validation. The Company has contacted substantially all of the identified customers affected by these errors and has provided remediation as well as the option to pursue no-cost mediation with an independent mediator. The Company’s review of its mortgage loan modification practices is ongoing, and we are providing remediation to the extent we identify additional affected customers as a result of this review.
Consumer Deposit Account DisclosuresThe Company is reviewing certain past disclosures to customers regarding the minimum qualifying debit card usage required to waive monthly service fees on certain consumer deposit accounts. Based on the possibility of confusion by some customers regarding the types of transactions that counted toward the waiver, we expect to refund certain monthly service and related fees to affected customers.
To the extent issues are identified, we will continue to assess any customer harm and provide remediation as appropriate. This effort to identify similarother instances in which customers may have experienced harm is ongoing, and it is possible that we may identify other areas of potential concern. For more information, including related legal and regulatory risk, see the “Risk Factors” section in our 2018 Form 10-K and Note 14 (Legal Actions) to Financial Statements in this Report.
Financial Performance
Wells Fargo net income was $4.6$5.9 billion in thirdfirst quarter 20172019 with diluted earnings per common share (EPS) of $0.84,$1.20, compared with $5.6$5.1 billion and $1.03,$0.96, respectively, a year ago. ThirdIn first quarter 2017 results included the impact of a $1.0 billion, or ($0.20) per share, discrete litigation accrual, which was not tax-deductible, for previously disclosed, pre-financial crisis mortgage-related regulatory investigations.
Other financial results in third quarter 2017 included:2019:
revenue was $21.921.6 billion, down $402325 million compared with a year ago, with net interest income up 4%$73 million and noninterest income down $398 million;
average loans were $950.0 billion, down $1.0 billion from a year ago;
average loans were $952.3 billion, down $5.1 billion, or 1%, from a year ago;
totalaverage deposits were $1.3 trillion, updown $30.835.1 billion, or 2%3%, from a year ago;
Wealthreturn on assets (ROA) of 1.26% and Investment Management (WIM) total client assets reachedreturn on equity (ROE) of 12.71%, were up from 1.09% and 10.58%, respectively, a record high of $1.9 trillion;year ago;
our credit results improvedremained strong with a net charge-off rate of 0.30% (annualized) of average loans in thirdfirst quarter 2017,2019, compared with 0.33%0.32% (annualized) a year ago;
nonaccrual loans of $6.9 billion were down $434 million, or 6%, from a year ago; and
we returned $4.0$6.0 billion to shareholders through common stock dividends and net share repurchases, which wasan increase of 49% from the ninth$4.0 billion we returned in first quarter 2018 and the 15th consecutive quarter of returning more than $3 billion.
Balance Sheet and Liquidity
Our balance sheet remained strong during thirdfirst quarter 20172019 with highstrong credit quality and solid levels of liquidity and capital. Our total assets were $1.93$1.89 trillion at September 30, 2017.March 31, 2019. Cash and other short-term investments increased $5.5decreased $5.9 billion from December 31, 2016,2018, reflecting lower loan balances and growthdeposit balances. Debt securities were $483.5 billion at March 31, 2019, a decrease of $1.2 billion from December 31, 2018, predominantly due to a decrease in deposits. Investment securities reached a record $414.6 billion, with approximately $31 billion of gross purchases during third quarter 2017, partially offset by runoff and the sale of approximately $13 billion of lower-yielding short-durationavailable-for-sale debt securities. Loans were down $15.7$4.9 billion, or 2%1%, from December 31, 2016, largely due to a decline2018, driven by declines in real estate 1-4 family junior lien mortgage, commercial and automobileindustrial, and other revolving credit and installment loans, partially offset by an increase in commercial real estate mortgage loans.
Average deposits in thirdfirst quarter 2017 reached a record $1.312019 were $1.3 trillion, up $44.8down $35.1 billion or 4%, from thirdfirst quarter 2016.2018. The decline was driven by lower Wholesale Banking and Wealth and Investment Management deposits, partially offset by higher retail banking deposits. Our average deposit cost in thirdfirst quarter 20172019 was 2665 basis points, up 1531 basis points from a year ago, primarily driven by an increase in commercialWholesale Banking and WIMWealth and Investment Management deposit rates.
Credit Quality
Solid overall credit results continued in thirdfirst quarter 20172019 as losses remained low and we continued to originate high quality loans, reflecting our long-term risk focus. Net charge-offs were $717$695 million, or 0.30% (annualized) of average loans, in thirdfirst quarter 2017,2019, compared with $805$741 million a year ago (0.33%(0.32%) (annualized). The decrease in net charge-offs in thirdfirst quarter 2017,2019, compared with a year ago, was predominantly driven by lower losses in the automobile portfolio, partially offset by increases in the commercial and industrial loan portfolio including inand the oil and gascredit card portfolio. Our total oil and gas loan exposure, which includes unfunded commitments and loans outstanding, was down 8% from a year ago.
Our commercial portfolio net charge-offs were $113$145 million, or 911 basis points (annualized) of average commercial loans, in thirdfirst quarter 2017,2019, compared with net charge-offs of $215$78 million, or 176 basis points (annualized), a year ago. Net consumer credit losses increaseddecreased to 5351 basis points (annualized) of average consumer loans in thirdfirst quarter 20172019 from 5160 basis points (annualized) in thirdfirst quarter 2016. Our commercial real estate portfolios were in a net recovery position for the 19th consecutive quarter, reflecting our conservative risk discipline and improved market conditions. Net
losses on our consumer real estate portfolios improved by $84 million, or 122%, to a net recovery of $15 million from a year ago, reflecting the benefit of the continued improvement in the housing market and our continued focus on originating high quality loans. Approximately 77% of the consumer first mortgage portfolio outstanding at September 30, 2017, was originated after 2008, when more stringent underwriting standards were implemented.2018.
The allowance for credit losses as of September 30, 2017,March 31, 2019, decreased $585$492 million compared with a year ago and decreased $431increased $114 million from December 31, 2016. The2018. We had a $150 million build in the allowance for credit losses at September 30, 2017 included $450in first quarter 2019, compared with a $550 million for coverage of our preliminary estimate of potential hurricane-related losses from Hurricanes Harvey, Irma and Maria.release a year ago. The allowance coverage for total loans was 1.27%1.14% at September 30, 2017,March 31, 2019, compared with 1.32%1.19% a year ago and 1.30%1.12% at December 31, 2016.2018. The allowance covered 4.33.8 times annualized thirdfirst quarter net charge-offs, compared with 4.03.8 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 $717$845 million in thirdfirst quarter 2017, down2019, up from $805$191 million a year ago, primarilyago. The increase was predominantly due to an allowance build in first quarter 2019 reflecting a higher probability of slightly less favorable economic conditions, compared with an allowance release for the same period last year, reflecting improvement in our outlook for 2017 hurricane–related losses.
Nonperforming assets increased $394 million, or 6%, from December 31, 2018 and represented 0.77% of total loans. Nonaccrual loans increased $409 million from December 31, 2018, driven in part by a borrower in the utility sector, as well as increases in oil and gas portfolio.
Nonperforminggas. Foreclosed assets decreased $512 million, or 5%, from June 30, 2017, the sixth consecutive quarter of decreases, with improvement across our consumer and commercial portfolios and lower foreclosed assets. Nonperforming assets were only 0.98% of total loans, the lowest level since the merger with Wachovia in 2008. Nonaccrual loans decreased $437declined $15 million from the prior quarter primarily due to a $276 million decrease in commercial nonaccruals. In addition, foreclosed assets were down $75 million from the prior quarter.December 31, 2018.
Capital
Our financial performance in thirdfirst quarter 2017 resulted in strong2019 allowed us to maintain a solid capital generation, which increasedposition, with total equity to a record $206.8of $198.7 billion at September 30, 2017, up $6.3March 31, 2019, compared with $197.1 billion fromat December 31, 2016. Third quarter 2017 was the first quarter our 2017 Capital Plan was effective and we2018. We returned $4.0$6.0 billion to shareholders in thirdfirst quarter 20172019 through common stock dividends and net share repurchases, an increase of 24% from a year ago.which was 49% more than the $4.0 billion we returned in first quarter 2018. 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 95%, up from 63% in the prior quarter.109%. We continued to reduce our common shares outstanding through the repurchase of 49.097.4 million common shares in the quarter. We also entered into a $1 billion forward repurchase contract with an unrelated third party in October 2017 that is expected to settle in first quarter 2018 for approximately 19 million shares. We expect to reduce our common shares outstanding through share repurchases throughout the remainder of 2017.2019.
We believe an important measure of our capital strength is the Common Equity Tier 1 (CET1) ratio under Basel III, fully phased-in, which was 11.82%11.92% at September 30, 2017,March 31, 2019, up from 11.74% at December 31, 2018, but well above our internal target level of 10%. The growth inAs of March 31, 2019, our CET1 ratio reflected lowereligible external total loss absorbing capacity (TLAC) as a percentage of total risk-weighted assets (RWA)was 23.85%, driven by lower loan balances and commitments, as well as improved RWA efficiency.compared with the required minimum of 22.0%. 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 (continued)
Wells Fargo net income for thirdfirst quarter 20172019 was $4.6$5.9 billion ($0.841.20 diluted earnings per common share), compared with $5.6$5.1 billion ($1.030.96 diluted per share) for third quarter 2016. Net income for the first nine months of 2017 was $15.9 billion ($2.91), compared with $16.7 billion ($3.03) for the same period a year ago. Our financial performance in the first nine months of 2017, compared with the same period a year ago,quarter 2019 benefited from a $1.9 billion$73 million increase in net interest income, and a $1.1 billion decrease in our provision for credit losses,noninterest expense, and a $493 million decline in income tax expense, partially offset by a $2.5 billion$398 million decrease in noninterest income, and a $2.5 billion$654 million increase in noninterest expense. Inour provision for credit losses. Net income in first quarter 2019 included net discrete income tax benefits of $297 million related mostly to the first nine monthsresults of 2017, net interestU.S. federal and state income represented 56% of revenue, compared with 53%tax examinations and the accounting for the same period in 2016. Noninterest income was $28.8 billion in the first nine months of 2017, representing 44% of revenue, compared with $31.3 billion (47%) in the first nine months of 2016.stock compensation activity.
Revenue, the sum of net interest income and noninterest income, was $21.6 billion in first quarter 2019, compared with $21.9 billion in third quarter 2017, compared with $22.3 billion in third quarter 2016. Revenue for the first nine months of 2017 was $66.1 billion, compared with $66.7 billion for the first nine months of 2016.same period a year ago. The decrease in revenue for the thirdin first quarter and first nine months of 2017,2019, compared with the same periods in 2016,period a year ago, was due to a declinedecrease in noninterest income, partially offset by an increase in net interest income. Our diversified sources of revenue generated by our businesses continued to be balanced between net interest income from loans and investment securities.noninterest income. In first quarter 2019, net interest income represented 57% of revenue, compared with 56% for the same period a year ago. Noninterest income was $9.3 billion in first quarter 2019, representing 43% of revenue, compared with $9.7 billion (44%) in first quarter 2018.
Earnings Performance (continued)
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 debt and equity securities based on a 35%21% federal statutory tax rate.rate for the periods ending
While the Company believes that it has the ability to increase net interest income over time, netMarch 31, 2019 and 2018.
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, periodic dividends, and collection of interest on nonaccrual loans, can varyfluctuate 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 $12.8 billion and $38.2$12.5 billion in the thirdfirst quarter and first nine months of 2017, respectively,2019, compared with $12.3 billion and $36.3$12.4 billion for the same periodsperiod a year ago. The netNet interest margin on a taxable-equivalent basis was 2.87% and 2.88% for the third2.91% in first quarter and first nine months of 2017, respectively, up from 2.82% and 2.86%2019, compared with 2.84% for the same periodsperiod a year ago. The increase in net interest income and net interest margin in the thirdfirst quarter and first nine months of 2017 from the same periods a year ago resulted from an increase in interest income, partially offset by an increase in interest expense on funding sources. The increase in interest income was driven by balance growth in earning assets and the benefit of higher interest rates. Interest expense on funding sources increased in the third quarter and first nine months of 2017,2019, compared with the same periodsperiod a year ago, with a significant portion due to growth andwas driven by:
the repricing of long-term debt. Deposit interest expense was also higher, primarily due to an increase in wholesale pricing resultingbenefits from higher interest rates.
rates;favorable hedge ineffectiveness accounting results; and
The increasea reduction in netsecurities premium amortization driven by a refinement of our methodology to determine the remaining contractual life of our agency mortgage-backed securities portfolio;
partially offset by:
a smaller balance sheet and an unfavorable shift of yields on earnings assets compared with funding sources;
lower variable sources of interest marginincome, primarily driven by a decrease in interest income received on nonaccrual loans; and
lower loan swap income due to unwinding the thirdreceived-fixed loan swap portfolio.
Average earning assets decreased $30.0 billion in first quarter and first nine months of 2017,2019, compared with the same periods a year ago, was predominantly due to repricing benefits of earning assets from higher interest rates exceeding the repricing costs of deposits and market based funding sources.
Average earning assets increased $42.3 billion and $81.9 billion in the third quarter and first nine months of 2017, respectively, compared with the same periodsperiod a year ago. AverageThe change was driven by decreases in:
average interest-earning deposits of $31.5 billion;
average equity securities of $6.7 billion;
average mortgage loans decreased $5.1held for sale of $4.5 billion in the third quarter;
other earning assets of $1.6 billion and increased $12.4
average loans of $1.0 billion in the first nine months;
partially offset by increases in:
average debt securities of 2017, average investment securities increased $48.6$10.0 billion in third quarter 2017; and $61.9 billion in the first nine months of 2017, and average trading assets increased $14.8 billion in the third quarter and $14.9 billion in the first nine months of 2017, compared with the same periods a year ago. In addition,
average federal funds sold and other short-term investments decreased $23.2securities purchased under resale agreements of $5.4 billion and $12.2 billion in the third quarter and first nine months of 2017, respectively, compared with the same periods 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 $1.31 trillion and $1.30were $1.26 trillion in the thirdfirst quarter and first nine months of 2017, increased2019, compared with $1.26 trillion and $1.24$1.30 trillion for the same periodsperiod a year ago, and represented 137%133% of average loans in thirdfirst quarter 2017 (136% in the first nine months of 2017),2019, compared with 132%136% in thirdfirst quarter 2016 (131% in the first nine months of 2016).2018. Average deposits were 74% and 73% of average earning assets in the thirdfirst quarter and first nine months of 2017, respectively,2019, compared with 73%74% in both the thirdfirst quarter 2018. The average deposit cost for first quarter 2019 was 65 basis points, up 31 basis points from a year ago, driven by an increase in Wholesale Banking and first nine months of 2016.Wealth and Investment Management deposit rates.
Table 1: Average Balances, Yields and Rates Paid (Taxable-Equivalent Basis) (1)(2)
| | | Quarter ended September 30, | | Quarter ended March 31, | |
| | | | | 2017 |
| | | | | | 2016 |
| | | | | 2019 |
| | | | | | 2018 |
|
(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 | $ | 276,129 |
| | 1.20 | % | | $ | 832 |
| | 299,351 |
| | 0.50 | % | | $ | 373 |
| |
Trading assets | 103,589 |
| | 2.96 |
| | 767 |
| | 88,838 |
| | 2.72 |
| | 605 |
| |
Investment securities (3): | | | | | | | | | | | | |
Available-for-sale securities: | | | | | | | | | | | | |
Interest-earning deposits with banks | | $ | 140,784 |
| | 2.33 | % | | $ | 810 |
| | 172,291 |
| | 1.49 | % | | $ | 632 |
|
Federal funds sold and securities purchased under resale agreements | | 83,539 |
| | 2.40 |
| | 495 |
| | 78,135 |
| | 1.40 |
| | 271 |
|
Debt securities (3): | | | | | | | | | | | | |
Trading debt securities | | 89,378 |
| | 3.58 |
| | 798 |
| | 78,715 |
| | 3.24 |
| | 637 |
|
Available-for-sale debt securities: | | | | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | 14,529 |
| | 1.31 |
| | 48 |
| | 25,817 |
| | 1.52 |
| | 99 |
| 14,070 |
| | 2.14 |
| | 74 |
| | 6,426 |
| | 1.66 |
| | 26 |
|
Securities of U.S. states and political subdivisions | 52,500 |
| | 4.16 |
| | 546 |
| | 55,170 |
| | 4.28 |
| | 590 |
| 48,342 |
| | 4.02 |
| | 486 |
| | 49,956 |
| | 3.37 |
| | 421 |
|
Mortgage-backed securities: | | | | | | | | | | | | | | | | | | | | | | |
Federal agencies | 139,781 |
| | 2.58 |
| | 903 |
| | 105,780 |
| | 2.39 |
| | 631 |
| 151,494 |
| | 3.10 |
| | 1,173 |
| | 158,472 |
| | 2.72 |
| | 1,076 |
|
Residential and commercial | 11,013 |
| | 5.43 |
| | 149 |
| | 18,080 |
| | 5.54 |
| | 250 |
| 5,984 |
| | 4.31 |
| | 64 |
| | 8,871 |
| | 4.12 |
| | 91 |
|
Total mortgage-backed securities | 150,794 |
| | 2.79 |
| | 1,052 |
| | 123,860 |
| | 2.85 |
| | 881 |
| 157,478 |
| | 3.14 |
| | 1,237 |
| | 167,343 |
| | 2.79 |
| | 1,167 |
|
Other debt and equity securities | 48,082 |
| | 3.75 |
| | 453 |
| | 54,176 |
| | 3.37 |
| | 459 |
| |
Total available-for-sale securities | 265,905 |
| | 3.15 |
| | 2,099 |
| | 259,023 |
| | 3.13 |
| | 2,029 |
| |
Held-to-maturity securities: | | | | | | | | | | | | |
Other debt securities | | 46,788 |
| | 4.46 |
| | 517 |
| | 48,094 |
| | 3.73 |
| | 444 |
|
Total available-for-sale debt securities | | 266,678 |
| | 3.48 |
| | 2,314 |
| | 271,819 |
| | 3.04 |
| | 2,058 |
|
Held-to-maturity debt securities: | | | | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | 44,708 |
| | 2.18 |
| | 246 |
| | 44,678 |
| | 2.19 |
| | 246 |
| 44,754 |
| | 2.20 |
| | 243 |
| | 44,723 |
| | 2.20 |
| | 243 |
|
Securities of U.S. states and political subdivisions | 6,266 |
| | 5.44 |
| | 85 |
| | 2,507 |
| | 5.24 |
| | 33 |
| 6,158 |
| | 4.03 |
| | 62 |
| | 6,259 |
| | 4.34 |
| | 68 |
|
Federal agency and other mortgage-backed securities | 88,272 |
| | 2.26 |
| | 498 |
| | 47,971 |
| | 1.97 |
| | 236 |
| 96,004 |
| | 2.74 |
| | 656 |
| | 90,789 |
| | 2.38 |
| | 541 |
|
Other debt securities | 1,488 |
| | 3.05 |
| | 12 |
| | 3,909 |
| | 1.98 |
| | 19 |
| 61 |
| | 3.96 |
| | 1 |
| | 695 |
| | 3.23 |
| | 5 |
|
Total held-to-maturity securities | 140,734 |
| | 2.38 |
| | 841 |
| | 99,065 |
| | 2.15 |
| | 534 |
| |
Total investment securities | 406,639 |
| | 2.89 |
| | 2,940 |
| | 358,088 |
| | 2.86 |
| | 2,563 |
| |
Mortgages held for sale (4) | 22,923 |
| | 3.82 |
| | 219 |
| | 24,060 |
| | 3.44 |
| | 207 |
| |
Total held-to-maturity debt securities | | 146,977 |
| | 2.63 |
| | 962 |
| | 142,466 |
| | 2.42 |
| | 857 |
|
Total debt securities | | 503,033 |
| | 3.25 |
| | 4,074 |
| | 493,000 |
| | 2.89 |
| | 3,552 |
|
Mortgage loans held for sale (4) | | 13,898 |
| | 4.37 |
| | 152 |
| | 18,406 |
| | 3.89 |
| | 179 |
|
Loans held for sale (4) | 152 |
| | 13.35 |
| | 5 |
| | 199 |
| | 3.04 |
| | 2 |
| 1,862 |
| | 5.25 |
| | 24 |
| | 2,011 |
| | 4.92 |
| | 24 |
|
Loans: | | | | | | | | | | | | | | | | | | | | | | |
Commercial: | | | | | | | | | | | | |
Commercial loans: | | | | | | | | | | | | |
Commercial and industrial – U.S. | 270,091 |
| | 3.81 |
| | 2,590 |
| | 271,226 |
| | 3.48 |
| | 2,369 |
| 286,577 |
| | 4.48 |
| | 3,169 |
| | 272,040 |
| | 3.85 |
| | 2,584 |
|
Commercial and industrial – Non U.S. | 57,738 |
| | 2.90 |
| | 421 |
| | 51,261 |
| | 2.40 |
| | 309 |
| 62,821 |
| | 3.90 |
| | 604 |
| | 60,216 |
| | 3.23 |
| | 479 |
|
Real estate mortgage | 129,087 |
| | 3.83 |
| | 1,245 |
| | 128,809 |
| | 3.48 |
| | 1,127 |
| 121,417 |
| | 4.58 |
| | 1,373 |
| | 126,200 |
| | 4.05 |
| | 1,262 |
|
Real estate construction | 24,981 |
| | 4.18 |
| | 263 |
| | 23,212 |
| | 3.50 |
| | 205 |
| 22,435 |
| | 5.43 |
| | 301 |
| | 24,449 |
| | 4.54 |
| | 274 |
|
Lease financing | 19,155 |
| | 4.59 |
| | 220 |
| | 18,896 |
| | 4.70 |
| | 223 |
| 19,391 |
| | 4.61 |
| | 224 |
| | 19,265 |
| | 5.30 |
| | 255 |
|
Total commercial | 501,052 |
| | 3.76 |
| | 4,739 |
| | 493,404 |
| | 3.42 |
| | 4,233 |
| |
Consumer: | | | | | | | | | | | | |
Total commercial loans | | 512,641 |
| | 4.48 |
| | 5,671 |
| | 502,170 |
| | 3.91 |
| | 4,854 |
|
Consumer loans: | | | | | | | | | | | | |
Real estate 1-4 family first mortgage | 278,371 |
| | 4.03 |
| | 2,809 |
| | 278,509 |
| | 3.97 |
| | 2,764 |
| 285,214 |
| | 3.96 |
| | 2,821 |
| | 284,207 |
| | 4.02 |
| | 2,852 |
|
Real estate 1-4 family junior lien mortgage | 41,916 |
| | 4.95 |
| | 521 |
| | 48,927 |
| | 4.37 |
| | 537 |
| 33,791 |
| | 5.75 |
| | 481 |
| | 38,844 |
| | 5.13 |
| | 493 |
|
Credit card | 35,657 |
| | 12.41 |
| | 1,114 |
| | 34,578 |
| | 11.60 |
| | 1,008 |
| 38,182 |
| | 12.88 |
| | 1,212 |
| | 36,468 |
| | 12.75 |
| | 1,147 |
|
Automobile | 56,746 |
| | 5.34 |
| | 764 |
| | 62,461 |
| | 5.60 |
| | 880 |
| 44,833 |
| | 5.19 |
| | 574 |
| | 51,469 |
| | 5.16 |
| | 655 |
|
Other revolving credit and installment | 38,601 |
| | 6.31 |
| | 615 |
| | 39,605 |
| | 5.92 |
| | 590 |
| 35,349 |
| | 7.14 |
| | 623 |
| | 37,866 |
| | 6.46 |
| | 604 |
|
Total consumer | 451,291 |
| | 5.14 |
| | 5,823 |
| | 464,080 |
| | 4.97 |
| | 5,779 |
| |
Total consumer loans | | 437,369 |
| | 5.26 |
| | 5,711 |
| | 448,854 |
| | 5.16 |
| | 5,751 |
|
Total loans (4) | 952,343 |
| | 4.41 |
| | 10,562 |
| | 957,484 |
| | 4.17 |
| | 10,012 |
| 950,010 |
| | 4.84 |
| | 11,382 |
| | 951,024 |
| | 4.50 |
| | 10,605 |
|
Equity securities | | 33,080 |
| | 2.56 |
| | 211 |
| | 39,754 |
| | 2.35 |
| | 233 |
|
Other | 15,007 |
| | 1.69 |
| | 65 |
| | 6,488 |
| | 2.30 |
| | 36 |
| 4,416 |
| | 1.63 |
| | 18 |
| | 6,015 |
| | 1.21 |
| | 19 |
|
Total earning assets | $ | 1,776,782 |
| | 3.45 | % | | $ | 15,390 |
| | 1,734,508 |
| | 3.17 | % | | $ | 13,798 |
| $ | 1,730,622 |
| | 4.00 | % | | $ | 17,166 |
| | 1,760,636 |
| | 3.55 | % | | $ | 15,515 |
|
Funding sources | | | | | | | | | | | | | | | | | | | | | | |
Deposits: | | | | | | | | | | | | | | | | | | | | | | |
Interest-bearing checking | $ | 48,278 |
| | 0.57 | % | | $ | 69 |
| | 44,056 |
| | 0.15 | % | | $ | 17 |
| $ | 56,253 |
| | 1.42 | % | | $ | 197 |
| | 67,774 |
| | 0.77 | % | | $ | 129 |
|
Market rate and other savings | 681,187 |
| | 0.17 |
| | 293 |
| | 667,185 |
| | 0.07 |
| | 110 |
| 688,568 |
| | 0.50 |
| | 847 |
| | 679,068 |
| | 0.22 |
| | 368 |
|
Savings certificates | 21,806 |
| | 0.31 |
| | 16 |
| | 25,185 |
| | 0.30 |
| | 19 |
| 25,231 |
| | 1.26 |
| | 78 |
| | 20,018 |
| | 0.34 |
| | 17 |
|
Other time deposits | 66,046 |
| | 1.51 |
| | 252 |
| | 54,921 |
| | 0.93 |
| | 128 |
| 97,830 |
| | 2.67 |
| | 645 |
| | 76,589 |
| | 1.84 |
| | 347 |
|
Deposits in foreign offices | 124,746 |
| | 0.76 |
| | 240 |
| | 107,072 |
| | 0.30 |
| | 82 |
| 55,443 |
| | 1.89 |
| | 259 |
| | 94,810 |
| | 0.98 |
| | 229 |
|
Total interest-bearing deposits | 942,063 |
| | 0.37 |
| | 870 |
| | 898,419 |
| | 0.16 |
| | 356 |
| 923,325 |
| | 0.89 |
| | 2,026 |
| | 938,259 |
| | 0.47 |
| | 1,090 |
|
Short-term borrowings | 99,193 |
| | 0.91 |
| | 226 |
| | 116,228 |
| | 0.29 |
| | 86 |
| 108,651 |
| | 2.23 |
| | 597 |
| | 101,779 |
| | 1.24 |
| | 312 |
|
Long-term debt | 243,137 |
| | 2.26 |
| | 1,377 |
| | 252,400 |
| | 1.59 |
| | 1,006 |
| 233,172 |
| | 3.32 |
| | 1,927 |
| | 226,062 |
| | 2.80 |
| | 1,576 |
|
Other liabilities | 24,851 |
| | 1.74 |
| | 109 |
| | 16,771 |
| | 2.11 |
| | 88 |
| 25,292 |
| | 2.28 |
| | 143 |
| | 27,927 |
| | 1.92 |
| | 132 |
|
Total interest-bearing liabilities | 1,309,244 |
| | 0.79 |
| | 2,582 |
| | 1,283,818 |
| | 0.48 |
| | 1,536 |
| 1,290,440 |
| | 1.47 |
| | 4,693 |
| | 1,294,027 |
| | 0.97 |
| | 3,110 |
|
Portion of noninterest-bearing funding sources | 467,538 |
| | — |
| | — |
| | 450,690 |
| | — |
| | — |
| 440,182 |
| | — |
| | — |
| | 466,609 |
| | — |
| | — |
|
Total funding sources | $ | 1,776,782 |
| | 0.58 |
| | 2,582 |
| | 1,734,508 |
| | 0.35 |
| | 1,536 |
| $ | 1,730,622 |
| | 1.09 |
| | 4,693 |
| | 1,760,636 |
| | 0.71 |
| | 3,110 |
|
Net interest margin and net interest income on a taxable-equivalent basis (5) | | | 2.87 | % | | $ | 12,808 |
| | | | 2.82 | % | | $ | 12,262 |
| | | 2.91 | % | | $ | 12,473 |
| | | | 2.84 | % | | $ | 12,405 |
|
Noninterest-earning assets | | | | | | | | | | | | | | | | | | | | | | |
Cash and due from banks | $ | 18,456 |
| | | | | | 18,682 |
| | | | | $ | 19,614 |
| | | | | | 18,853 |
| | | | |
Goodwill | 26,600 |
| | | | | | 26,979 |
| | | | | 26,420 |
| | | | | | 26,516 |
| | | | |
Other | 116,685 |
| | | | | | 134,417 |
| | | | | 106,435 |
| | | | | | 109,891 |
| | | | |
Total noninterest-earning assets | $ | 161,741 |
| | | | | | 180,078 |
| | | | | $ | 152,469 |
| | | | | | 155,260 |
| | | | |
Noninterest-bearing funding sources | | | | | | | | | | | | | | | | | | | | | | |
Deposits | $ | 364,293 |
| | | | | | 363,108 |
| | | | | $ | 338,737 |
| | | | | | 358,919 |
| | | | |
Other liabilities | 57,052 |
| | | | | | 63,777 |
| | | | | 55,565 |
| | | | | | 56,770 |
| | | | |
Total equity | 207,934 |
| | | | | | 203,883 |
| | | | | 198,349 |
| | | | | | 206,180 |
| | | | |
Noninterest-bearing funding sources used to fund earning assets | (467,538 | ) | | | | | | (450,690 | ) | | | | | (440,182 | ) | | | | | | (466,609 | ) | | | | |
Net noninterest-bearing funding sources | $ | 161,741 |
| | | | | | 180,078 |
| | | | | $ | 152,469 |
| | | | | | 155,260 |
| | | | |
Total assets | $ | 1,938,523 |
| | | | | | 1,914,586 |
| | | | | $ | 1,883,091 |
| | | | | | 1,915,896 |
| | | | |
| | | | | | | | | | | | |
| |
(1) | Our average prime rate was 4.25%5.50% and 3.50%4.52% for the quarters ended September 30, 2017March 31, 2019 and 2016, respectively, and 4.03% and 3.50% for the first nine months of 2017 and 2016,2018, respectively. The average three-month London Interbank Offered Rate (LIBOR) was 1.31%2.69% and 0.79%1.93% for the quarters ended September 30, 2017March 31, 2019 and 2016, respectively, and 1.20% and 0.69% for the first nine months of 2017 and 2016,2018, 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 Yields/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 $332$162 million and $310$167 million for the quarters ended September 30, 2017March 31, 2019 and 2016, respectively, and $980 million and $909 million for the first nine months of 2017 and 2016,2018, respectively, predominantly related to tax-exempt income on certain loans and securities. The federal statutory tax rate utilized was 35%21% for the periods presented. |
Earnings Performance (continued)
|
| | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, | |
| | | | | 2017 |
| | | | | | 2016 |
|
(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 | $ | 280,477 |
| | 0.98 | % | | $ | 2,062 |
| | 292,635 |
| | 0.49 | % | | $ | 1,076 |
|
Trading assets | 98,516 |
| | 2.90 |
| | 2,144 |
| | 83,580 |
| | 2.86 |
| | 1,792 |
|
Investment securities (3): | | | | | | | | | | | |
Available-for-sale securities: | | | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | 19,182 |
| | 1.48 |
| | 212 |
| | 30,588 |
| | 1.56 |
| | 358 |
|
Securities of U.S. states and political subdivisions | 52,748 |
| | 4.07 |
| | 1,612 |
| | 52,637 |
| | 4.25 |
| | 1,678 |
|
Mortgage-backed securities: | | | | | | | | | | | |
Federal agencies | 142,748 |
| | 2.60 |
| | 2,782 |
| | 98,099 |
| | 2.57 |
| | 1,889 |
|
Residential and commercial | 12,671 |
| | 5.44 |
| | 516 |
| | 19,488 |
| | 5.39 |
| | 787 |
|
Total mortgage-backed securities | 155,419 |
| | 2.83 |
| | 3,298 |
| | 117,587 |
| | 3.03 |
| | 2,676 |
|
Other debt and equity securities | 49,212 |
| | 3.74 |
| | 1,377 |
| | 53,680 |
| | 3.36 |
| | 1,349 |
|
Total available-for-sale securities | 276,561 |
| | 3.13 |
| | 6,499 |
| | 254,492 |
| | 3.18 |
| | 6,061 |
|
Held-to-maturity securities: | | | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | 44,701 |
| | 2.19 |
| | 733 |
| | 44,671 |
| | 2.19 |
| | 733 |
|
Securities of U.S. states and political subdivisions | 6,270 |
| | 5.35 |
| | 251 |
| | 2,274 |
| | 5.34 |
| | 91 |
|
Federal agency and other mortgage-backed securities | 74,525 |
| | 2.38 |
| | 1,329 |
| | 37,087 |
| | 2.08 |
| | 577 |
|
Other debt securities | 2,531 |
| | 2.48 |
| | 47 |
| | 4,193 |
| | 1.94 |
| | 61 |
|
Total held-to-maturity securities | 128,027 |
| | 2.46 |
| | 2,360 |
| | 88,225 |
| | 2.21 |
| | 1,462 |
|
Total investment securities | 404,588 |
| | 2.92 |
| | 8,859 |
| | 342,717 |
| | 2.93 |
| | 7,523 |
|
Mortgages held for sale (4) | 20,869 |
| | 3.82 |
| | 598 |
| | 20,702 |
| | 3.53 |
| | 549 |
|
Loans held for sale (4) | 158 |
| | 8.44 |
| | 10 |
| | 240 |
| | 3.71 |
| | 7 |
|
Loans: | | | | | | | | | | | |
Commercial: | | | | | | | | | | | |
Commercial and industrial – U.S. | 272,621 |
| | 3.70 |
| | 7,547 |
| | 266,622 |
| | 3.44 |
| | 6,874 |
|
Commercial and industrial – Non U.S. | 56,512 |
| | 2.83 |
| | 1,196 |
| | 50,658 |
| | 2.29 |
| | 867 |
|
Real estate mortgage | 130,931 |
| | 3.69 |
| | 3,615 |
| | 125,902 |
| | 3.43 |
| | 3,236 |
|
Real estate construction | 24,949 |
| | 4.00 |
| | 747 |
| | 22,978 |
| | 3.53 |
| | 608 |
|
Lease financing | 19,094 |
| | 4.78 |
| | 685 |
| | 17,629 |
| | 4.86 |
| | 643 |
|
Total commercial | 504,107 |
| | 3.66 |
| | 13,790 |
| | 483,789 |
| | 3.38 |
| | 12,228 |
|
Consumer: | | | | | | | | | | | |
Real estate 1-4 family first mortgage | 276,330 |
| | 4.04 |
| | 8,380 |
| | 276,369 |
| | 4.01 |
| | 8,311 |
|
Real estate 1-4 family junior lien mortgage | 43,589 |
| | 4.77 |
| | 1,557 |
| | 50,585 |
| | 4.38 |
| | 1,659 |
|
Credit card | 35,322 |
| | 12.19 |
| | 3,219 |
| | 33,774 |
| | 11.58 |
| | 2,927 |
|
Automobile | 59,105 |
| | 5.41 |
| | 2,392 |
| | 61,246 |
| | 5.64 |
| | 2,588 |
|
Other revolving credit and installment | 39,128 |
| | 6.15 |
| | 1,801 |
| | 39,434 |
| | 5.94 |
| | 1,755 |
|
Total consumer | 453,474 |
| | 5.11 |
| | 17,349 |
| | 461,408 |
| | 4.99 |
| | 17,240 |
|
Total loans (4) | 957,581 |
| | 4.34 |
| | 31,139 |
| | 945,197 |
| | 4.16 |
| | 29,468 |
|
Other | 10,892 |
| | 2.06 |
| | 169 |
| | 6,104 |
| | 2.23 |
| | 101 |
|
Total earning assets | $ | 1,773,081 |
| | 3.39 | % | | $ | 44,981 |
| | 1,691,175 |
| | 3.20 | % | | $ | 40,516 |
|
Funding sources | | | | | | | | | | | |
Deposits: | | | | | | | | | | | |
Interest-bearing checking | $ | 49,134 |
| | 0.43 | % | | $ | 156 |
| | 40,858 |
| | 0.13 | % | | $ | 41 |
|
Market rate and other savings | 682,780 |
| | 0.13 |
| | 664 |
| | 659,257 |
| | 0.07 |
| | 327 |
|
Savings certificates | 22,618 |
| | 0.30 |
| | 50 |
| | 26,432 |
| | 0.37 |
| | 73 |
|
Other time deposits | 59,414 |
| | 1.42 |
| | 633 |
| | 58,087 |
| | 0.84 |
| | 364 |
|
Deposits in foreign offices | 123,553 |
| | 0.64 |
| | 587 |
| | 100,783 |
| | 0.25 |
| | 190 |
|
Total interest-bearing deposits | 937,499 |
| | 0.30 |
| | 2,090 |
| | 885,417 |
| | 0.15 |
| | 995 |
|
Short-term borrowings | 97,837 |
| | 0.69 |
| | 505 |
| | 111,993 |
| | 0.28 |
| | 231 |
|
Long-term debt | 250,755 |
| | 2.04 |
| | 3,838 |
| | 235,209 |
| | 1.57 |
| | 2,769 |
|
Other liabilities | 20,910 |
| | 1.97 |
| | 309 |
| | 16,534 |
| | 2.10 |
| | 260 |
|
Total interest-bearing liabilities | 1,307,001 |
| | 0.69 |
| | 6,742 |
| | 1,249,153 |
| | 0.45 |
| | 4,255 |
|
Portion of noninterest-bearing funding sources | 466,080 |
| | | | — |
| | 442,022 |
| | — |
| | — |
|
Total funding sources | $ | 1,773,081 |
| | 0.51 |
| | 6,742 |
| | 1,691,175 |
| | 0.34 |
| | 4,255 |
|
Net interest margin and net interest income on a taxable-equivalent basis (5) | | | 2.88 | % | | $ | 38,239 |
| | | | 2.86 | % | | $ | 36,261 |
|
Noninterest-earning assets | | | | | | | | | | | |
Cash and due from banks | $ | 18,443 |
| | | | | | 18,499 |
| | | | |
Goodwill | 26,645 |
| | | | | | 26,696 |
| | | | |
Other | 114,073 |
| | | | | | 129,324 |
| | | | |
Total noninterest-earning assets | $ | 159,161 |
| | | | | | 174,519 |
| | | | |
Noninterest-bearing funding sources | | | | | | | | | | | |
Deposits | $ | 364,774 |
| | | | | | 353,870 |
| | | | |
Other liabilities | 55,221 |
| | | | | | 62,169 |
| | | | |
Total equity | 205,246 |
| | | | | | 200,502 |
| | | | |
Noninterest-bearing funding sources used to fund earning assets | (466,080 | ) | | | | | | (442,022 | ) | | | | |
Net noninterest-bearing funding sources | $ | 159,161 |
| | | | | | 174,519 |
| | | | |
Total assets | $ | 1,932,242 |
| | | | | | 1,865,694 |
| | | | |
| | | | | | | | | | | |
Noninterest Income
Table 2: Noninterest Income
| | | Quarter ended Sep 30, | | | % |
| | Nine months ended Sep 30, | | | % |
| Quarter ended March 31, | | | % |
|
(in millions) | 2017 |
| | 2016 |
| | Change |
| | 2017 |
| | 2016 |
| | Change |
| 2019 |
| | 2018 |
| | Change |
|
Service charges on deposit accounts | $ | 1,276 |
| | 1,370 |
| | (7 | )% | | $ | 3,865 |
| | 4,015 |
| | (4 | )% | $ | 1,094 |
| | 1,173 |
| | (7 | )% |
Trust and investment fees: | | | | | | | | | | | | | | | | |
Brokerage advisory, commissions and other fees | 2,304 |
| | 2,344 |
| | (2 | ) | | 6,957 |
| | 6,874 |
| | 1 |
| 2,193 |
| | 2,403 |
| | (9 | ) |
Trust and investment management | 840 |
| | 849 |
| | (1 | ) | | 2,506 |
| | 2,499 |
| | — |
| 786 |
| | 850 |
| | (8 | ) |
Investment banking | 465 |
| | 420 |
| | 11 |
| | 1,345 |
| | 1,172 |
| | 15 |
| 394 |
| | 430 |
| | (8 | ) |
Total trust and investment fees | 3,609 |
| | 3,613 |
| | — |
| | 10,808 |
| | 10,545 |
| | 2 |
| 3,373 |
| | 3,683 |
| | (8 | ) |
Card fees | 1,000 |
| | 997 |
| | — |
| | 2,964 |
| | 2,935 |
| | 1 |
| 944 |
| | 908 |
| | 4 |
|
Other fees: | | | | | | | | | | |
| | | | |
|
Charges and fees on loans | 318 |
| | 306 |
| | 4 |
| | 950 |
| | 936 |
| | 1 |
| |
Lending related charges and fees (1) | | 347 |
| | 380 |
| | (9 | ) |
Cash network fees | 126 |
| | 138 |
| | (9 | ) | | 386 |
| | 407 |
| | (5 | ) | 109 |
| | 126 |
| | (13 | ) |
Commercial real estate brokerage commissions | 120 |
| | 119 |
| | 1 |
| | 303 |
| | 322 |
| | (6 | ) | 81 |
| | 85 |
| | (5 | ) |
Letters of credit fees | 77 |
| | 81 |
| | (5 | ) | | 227 |
| | 242 |
| | (6 | ) | |
Wire transfer and other remittance fees | 114 |
| | 103 |
| | 11 |
| | 333 |
| | 296 |
| | 13 |
| 113 |
| | 116 |
| | (3 | ) |
All other fees | 122 |
| | 179 |
| | (32 | ) | | 445 |
| | 562 |
| | (21 | ) | 120 |
| | 93 |
| | 29 |
|
Total other fees | 877 |
| | 926 |
| | (5 | ) | | 2,644 |
|
| 2,765 |
| | (4 | ) | 770 |
|
| 800 |
| | (4 | ) |
Mortgage banking: | | | | | | | | | | |
| | | | |
|
Servicing income, net | 309 |
| | 359 |
| | (14 | ) | | 1,165 |
| | 1,569 |
| | (26 | ) | 364 |
| | 468 |
| | (22 | ) |
Net gains on mortgage loan origination/sales activities | 737 |
| | 1,308 |
| | (44 | ) | | 2,257 |
| | 3,110 |
| | (27 | ) | 344 |
| | 466 |
| | (26 | ) |
Total mortgage banking | 1,046 |
| | 1,667 |
| | (37 | ) | | 3,422 |
|
| 4,679 |
| | (27 | ) | 708 |
|
| 934 |
| | (24 | ) |
Insurance | 269 |
| | 293 |
| | (8 | ) | | 826 |
| | 1,006 |
| | (18 | ) | 96 |
| | 114 |
| | (16 | ) |
Net gains from trading activities | 245 |
| | 415 |
| | (41 | ) | | 921 |
| | 943 |
| | (2 | ) | 357 |
| | 243 |
| | 47 |
|
Net gains on debt securities | 166 |
| | 106 |
| | 57 |
| | 322 |
| | 797 |
| | (60 | ) | 125 |
| | 1 |
| | NM |
|
Net gains from equity investments | 238 |
| | 140 |
| | 70 |
| | 829 |
| | 573 |
| | 45 |
| |
Net gains from equity securities | | 814 |
| | 783 |
| | 4 |
|
Lease income | 475 |
| | 534 |
| | (11 | ) | | 1,449 |
| | 1,404 |
| | 3 |
| 443 |
| | 455 |
| | (3 | ) |
Life insurance investment income | 152 |
| | 152 |
| | — |
| | 441 |
| | 455 |
| | (3 | ) | 159 |
| | 164 |
| | (3 | ) |
All other | 97 |
| | 163 |
| | (40 | ) | | 347 |
| | 1,216 |
| | (71 | ) | 415 |
| | 438 |
| | (5 | ) |
Total | $ | 9,450 |
| | 10,376 |
| | (9 | ) | | $ | 28,838 |
|
| 31,333 |
| | (8 | ) | $ | 9,298 |
|
| 9,696 |
| | (4 | ) |
NM – Not meaningful
| |
(1) | Represents combined amount of previously reported “Charges and fees on loans” and “Letters of credit fees”. |
Noninterest income was $9.5$9.3 billion and $28.8 billion for the thirdin first quarter and first nine months of 2017, respectively,2019, compared with $10.4 billion and $31.3$9.7 billion for the same periodsperiod a year ago. This income represented 43% of revenue for thirdfirst quarter 2017 and2019, compared with 44% for the first nine months of 2017, compared with 46% and 47% for the same periodsperiod a year ago.
The decline in noninterest income in the thirdfirst quarter and first nine months of 2017,2019, compared with the same periodsperiod a year ago, was predominantly due to lower trust and investment fees, mortgage banking income, net gains on nonmarketable equity securities, and service charges on deposit accounts. These decreases were partially offset by higher deferred compensation gains (offset in employee benefits expense) and higher gains from trading and debt securities. For more information on our performance obligations and the nature of services performed for certain of our revenues discussed below, see Note 18 (Revenue from Contracts with Customers) to Financial Statements in this Report.
Service charges on deposit accounts were $1.1 billion in first quarter 2019, compared with $1.2 billion for the same period a year ago. The decrease in first quarter 2019, compared with the same period a year ago, was due to lower mortgage banking income, lower net gains from trading activities,monthly service fees and lower service charges on deposit accounts. Noninterest income intreasury management fees. A significant portion of the first nine months of 2017 also reflected lower net gains on debt securities, insurance income, and all other noninterest incometreasury management fees were due to unfavorable net hedge ineffectiveness accounting results, but benefited from higher trust and investment fees, net gains on equity investments, and deferred compensation plan investment results (offset in employee benefits expense).
Service charges on deposit accounts were $1.3 billion and $3.9 billion in the third quarter and first nine monthsimpact of 2017, respectively, compared with $1.4 billion and $4.0 billion for the same periods in 2016. The decrease in the third quarter and first nine months of 2017, compared with the same periods a year ago, was driven by lower consumer and business checking account service charges, lower overdraft fees, and a higher earnings credit rate applied to commercial accounts due to increased interest rates. The decrease in service charges on deposit accounts also reflected $35 million in fee waivers and reversals for customers including those affected by our data
center system outage in February 2019, and the government shutdown in first quarter 2019.
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 were $2.30 billion and $6.96$2.2 billion in the thirdfirst quarter and first nine months of 2017, respectively,2019, compared with $2.34 billion and $6.87$2.4 billion for the same periodsperiod in 2016.2018. The decrease in thirdfirst quarter 2017,2019, compared with the same period in 2016,a year ago, was driven by lower transactional commission revenue, partially offset by higher asset-based fees. The increase for the first nine months of 2017, compared with the same period in 2016, waspredominantly due to higherlower asset-based fees partially offset byas well as lower transactional commission revenue. Retail brokerage client assets totaled $1.6 trillion at September 30, 2017, compared with $1.5 trillion at September 30, 2016, with allboth March 31, 2019 and 2018. All retail brokerage services are provided by our Wealth and Investment Management (WIM)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,
Earnings Performance (continued)
employee benefit trust and agency assets. Trust and investment management fee income is primarilylargely 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, and client assets under administration (AUA), for which we havefees are generally based on the extent of services to administer the assets. Trust and investment management discretion.fees declined to $786 million in first quarter 2019, from $850 million for the same period a year ago, due to decreases in trust fees, investment management fees, and mutual fund asset fees, driven by lower average assets under management. Our AUM totaled $678.7$661.1 billion at September 30, 2017,March 31, 2019, compared with $667.5$680.4 billion at September 30, 2016,March 31, 2018, 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 extent of the services provided to administer the account. Our AUA totaled $1.7 trillion at September 30, 2017, compared with $1.6 trillion at September 30, 2016. Trustboth March 31, 2019 and investment management fees were $840 million and $2.5 billion in the third quarter and first nine months of 2017, respectively, compared with $849 million and $2.5 billion for the same periods in 2016.2018.
We earn investment banking fees from underwriting debt and equity securities, arranging loan syndications, and performing other related advisory services. Investment banking fees increaseddeclined to $465$394 million and $1.3 billion in the thirdfirst quarter and first nine months of 2017, respectively,2019, from $420$430 million and $1.2 billion for the same periods in 2016. The increase in third quarter 2017, compared with the same period in 2016, was2018, predominantly drivendue to lower equity and debt originations, partially offset by higher loan syndications. The increase for theadvisory fees.
Card fees were $944 million in first nine months of 2017,quarter 2019, compared with $908 million for the same period in 2016, was2018, predominantly due to growth in equity originations, loan syndications, and advisory services.
Cardhigher interchange fees were $1.0 billion and $3.0 billion in the third quarter and first nine months of 2017, respectively, compared with $997 million and $2.9 billion for the same periods a year ago.driven by increased purchase activity, partially offset by higher rewards costs.
Other fees decreased to $877 million and $2.6 billion in the third quarter and first nine months of 2017, respectively, from $926 million and $2.8 billion for the same periods in 2016, driven by lower all other fees. All other fees were $122 million and $445$770 million in the thirdfirst quarter and first nine months of 2017, respectively, compared with $179 million and $5622019, from $800 million for the same periodsperiod in 2016,2018, driven by lower lending related charges and fees and lower cash network fees, partially offset by an increase in all other fees from discontinued products and the impact of the sale of our global fund services business in fourth quarter 2016.fees.
Mortgage banking noninterest income consisting ofdecreased to $708 million in first quarter 2019, from $934 million for the same period a year ago, driven by decreases in both net servicing income and net gains on mortgage loan origination/sales activities, totaled $1.0 billion and $3.4 billion in the third quarter and first nine months of 2017, respectively, compared with $1.7 billion and $4.7 billion for the same periods a year ago.activities.
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 $309$364 million for thirdfirst quarter 20172019 included a $98$71 million net MSR valuation gain ($142891 million decrease in the fair value of the MSRs and a $240$962 million hedge gain). Net servicing income of $359$468 million for thirdfirst quarter 20162018 included a $134$110 million net MSR valuation gain ($8 million decrease1.3 billion increase in the fair value of the MSRs and a $142 million hedge gain). For the first nine months of 2017, net servicing income of $1.2 billion included a $271 million net MSR valuation gain ($328 million decrease in the fair value of the MSRs and a $599 million hedge gain), and for the same period in 2016 net servicing income of
loss).$1.6 billion included a $786 million net MSR valuation gain ($1.8 billion decrease in the fair value of the MSRs and a $2.6 billion hedge gain). Net servicing income decreased for the first nine months of 2017, compared with the same period a year ago, due to lower net MSR valuation gains. The decrease in net MSR valuation gains in the first nine months of 2017, compared with the same period in 2016, was primarily attributable to MSR valuation adjustments in the first quarter of 2016 that reflected a reduction in forecasted prepayments due to updated economic, customer data attributes, and mortgage market rate inputs as well as higher actual prepayments experienced in 2017.
Our portfolio of mortgage loans serviced for others was $1.70$1.68 trillion at September 30, 2017March 31, 2019, and $1.68$1.71 trillion at December 31, 2016.2018. At September 30, 2017,March 31, 2019, the ratio of combined residential and commercial MSRs to related loans serviced for others was 0.87%0.88%, compared with 0.85%0.94% at December 31, 2016.2018. 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 were $737$344 million and $2.3 billion in the thirdfirst quarter and first nine months of 2017, respectively,2019, compared with $1.3 billion and $3.1 billion$466 million for the same periodsperiod a year ago. The decrease in the thirdfirst quarter and first nine months of 2017,2019, compared with the same periodsperiod a year ago, was primarilywas predominantly due to lower held for sale funding volume and production margins.mortgage loan originations. Total mortgage loan originations were $59 billion and $159$33 billion for the thirdfirst quarter and first nine months of 2017, respectively,2019, compared with $70 billion and $177$43 billion for the same periodsperiod a year ago. The production margin on residential held-for-sale mortgage loan originations, which represents net gains on residential mortgage loan origination/sales activities divided by total residential held-for-sale mortgage loan 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 March 31, | |
| | 2017 |
| 2016 |
| | 2017 |
| 2016 |
| | 2019 |
| 2018 |
|
Net gains on mortgage loan origination/sales activities (in millions): | | | | | | | | |
Residential | (A) | $ | 546 |
| 953 |
| | 1,636 |
| 2,229 |
| (A) | $ | 232 |
| 324 |
|
Commercial | | 81 |
| 167 |
| | 263 |
| 310 |
| | 47 |
| 76 |
|
Residential pipeline and unsold/repurchased loan management (1) | | 110 |
| 188 |
| | 358 |
| 571 |
| | 65 |
| 66 |
|
Total | | $ | 737 |
| 1,308 |
| | 2,257 |
| 3,110 |
| | $ | 344 |
| 466 |
|
Residential real estate originations (in billions): | | | | | | | | |
Held-for-sale | (B) | $ | 44 |
| 53 |
| | 120 |
| 130 |
| (B) | $ | 22 |
| 34 |
|
Held-for-investment | | 15 |
| 17 |
| | 39 |
| 47 |
| | 11 |
| 9 |
|
Total | | $ | 59 |
| 70 |
| | 159 |
| 177 |
| | $ | 33 |
| 43 |
|
Production margin on residential held-for-sale mortgage originations | (A)/(B) | 1.24 | % | 1.81 |
| | 1.37 |
| 1.72 |
| |
Production margin on residential held-for-sale mortgage loan originations | | (A)/(B) | 1.05 | % | 0.94 |
|
| |
(1) | LargelyPredominantly includes the results of GNMAGovernment National Mortgage Association (GNMA) loss mitigation activities, interest rate management activities and changes in estimate to the liability for mortgage loan repurchase losses. |
The production margin was 1.24% and 1.37%1.05% for the thirdfirst quarter and first nine months of 2017, respectively,2019, compared with 1.81% and 1.72%0.94% for the same periodsperiod in 2016.2018. The declineincrease in the production margin in first quarter 2019, compared with the third quarter and first nine months of 2017 wassame period in 2018, was largely attributable to lower margins in both our retail and correspondent production channels as well as a shift to more correspondentretail origination volume, which has a lowerhigher production margin. Mortgage applications were $73 billion and $215$64 billion for the thirdfirst quarter and first nine months of 2017, respectively,2019, compared with $100 billion and $272$58 billion for the same periodsperiod a year ago. The 1-4 family first mortgage unclosed application pipeline was $29$32 billion at September 30, 2017,March 31, 2019, compared with $50$24 billion at September 30, 2016.March 31, 2018. 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 811 (Mortgage Banking Activities) and Note 1316 (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 2017, we had a net $45 million release to the repurchase liability, compared with a net $106 million release for the first nine months of 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 $269$96 million and $826in first quarter 2019, compared with $114 million in the third quarter and first nine months of 2017, respectively, compared with $293 million and $1.0 billion in the same periodsperiod a year ago. The decrease in the first nine months of 2017,quarter 2019, compared with the same period a year ago, was primarily driven by reduced commission income related to the divestituresale of our cropcertain personal insurance businessagency relationships in firstsecond quarter 2016.2018.
Net gains from trading activities, which reflect unrealized changes in fair value of our trading positions and realized gains and losses, were $245 million and $921$357 million in the thirdfirst quarter and first nine months of 2017, respectively,2019, compared with $415 million and $943$243 million in the same periodsperiod a year ago. The decreaseincrease in the thirdfirst quarter and first nine months of 2017,2019, compared with the same periodsperiod a year ago, was predominantlydue to growth in asset-backed securities trading driven by lower customer accommodationhigher residential mortgage-backed securities (RMBS) trading activity. The decrease in customer accommodation trading activity in the first nine months of 2017 was partially offset byvolumes, as well as higher deferred compensation plan investment results (offset in employee benefits expense).credit trading. 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 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 $404 million and $1.2 billion in the third quarter and first nine months of 2017, respectively, compared with $246 million and $1.4 billion in the third quarter and first nine months of 2016, after other-than-temporary impairment (OTTI) write-downs of $91 million and $293 million for the third quarter and first nine months of 2017, respectively, compared with $136 million and $464 million for the same periods in 2016. The increase in net gains on debt and equity securities in third quarter 2017, compared with the same period a year ago, primarily reflected higher net gains from venture capital equity investments. The decrease in net gains on debt and equity securities in the first nine months of 2017, compared with the same period a year ago, was driven by lower net gains on debt securities, partially offset by higher net gains from equity investments.
Lease income was $475 million and $1.4 billion in the third quarter and first nine months of 2017, respectively, compared with $534 million and $1.4 billion for the same periods a year ago. The decrease in third quarter 2017, compared with the same period a year ago, was driven by lower equipment lease income and the impact of gains on early leveraged lease terminations in third quarter 2016.
All other income was $97 million and $347 million in the third quarter and first nine months of 2017, respectively, compared with $163 million and $1.2 billion for the same periods a year ago. 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 decrease in other income in the third quarter and first nine months of 2017, compared with the same periods a year ago, was largely due to net hedge ineffectiveness results. All other income in the first nine months of 2017 also reflected the impact of a gain from the sale of our crop insurance business in first quarter 2016, and a gain from the sale of our health benefits services business in second quarter 2016, partially offset by a $309 million gain from the sale of a Pick-a-Pay PCI loan portfolio in second quarter 2017 and higher income from equity method investments. Hedge ineffectiveness was driven by changes 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. The portion of the hedge ineffectiveness recognized was partially offset by the results of certain economic hedges and, accordingly, we recognized a net hedge benefit of $93 million for third quarter 2017 and a net hedge loss of $79 million for the first nine months of 2017, compared with a net hedge benefit of $142 million and $577 million for the same periods a year ago. For additional information about derivatives used as part of our asset/liability management, see Note 12 (Derivatives)4 (Trading Activities) to Financial Statements in this Report.
Earnings Performance (continued)
Net gains on debt and equity securities totaled $939 million in first quarter 2019, compared with $784 million for the same period in 2018, after other-than-temporary impairment (OTTI) write-downs of $81 million for first quarter 2019, compared with$30 million for the same period in 2018. The increase in net gains on debt and equity securities in first quarter 2019, compared with the same period a year ago, was predominantly due to higher deferred compensation plan investment results (offset in employee benefits expense – see Table 3a in this Report for more information) and higher net gains on debt securities, partially offset by lower net gains from nonmarketable equity securities. The increase in OTTI in first quarter 2019, compared with the same period a year ago, was predominantly driven by higher write-downs in municipal debt securities and commercial mortgage-backed securities.
Lease income was $443 million in first quarter 2019, compared with $455 million for the same period a year ago. The decrease was driven by lower equipment lease income.
All other income was $415 million in first quarter 2019, compared with $438 million for the same period a year ago. All other income includes losses on low income housing tax credit investments, foreign currency adjustments, income from investments accounted for under the equity method, hedge accounting results related to hedges of foreign currency risk, and the results of certain economic hedges, any of which can cause lower net gains or increased net losses, resulting in a decrease to all other income. The decrease in all other income in first quarter 2019, compared with the same period a year ago, reflected a pre-tax gain from the sale of Wells Fargo Shareowner Services in first quarter 2018 and a lower benefit from hedge ineffectiveness accounting results in first quarter 2019, partially offset by a $148 million pre-tax gain from the sale of Business Payroll Services in first quarter 2019 and a loss related to the sale of certain assets and liabilities of Reliable Financial Services, Inc. (a subsidiary of Wells Fargo’s automobile financing business) in first quarter 2018. All other income also included a $608 million and a $643 million gain from the sales of purchased credit-impaired Pick-a-Pay loans for first quarter 2019 and 2018, respectively.
Noninterest Expense
Table 3: Noninterest Expense
| | | Quarter ended Sep 30, | | | % |
| | Nine months ended Sep 30, | | | % |
| Quarter ended Mar 31, | | | % |
|
(in millions) | 2017 |
| | 2016 |
| | Change |
| | 2017 |
| | 2016 |
| | Change |
| 2019 |
| | 2018 |
| | Change |
|
Salaries | $ | 4,356 |
| | 4,224 |
| | 3 | % | | $ | 12,960 |
| | 12,359 |
| | 5 | % | $ | 4,425 |
| | 4,363 |
| | 1 | % |
Commission and incentive compensation | 2,553 |
| | 2,520 |
| | 1 |
| | 7,777 |
| | 7,769 |
| | — |
| 2,845 |
| | 2,768 |
| | 3 |
|
Employee benefits | 1,279 |
| | 1,223 |
| | 5 |
| | 4,273 |
| | 3,993 |
| | 7 |
| 1,938 |
| | 1,598 |
| | 21 |
|
Equipment | 523 |
| | 491 |
| | 7 |
| | 1,629 |
| | 1,512 |
| | 8 |
| 661 |
| | 617 |
| | 7 |
|
Net occupancy(1) | 716 |
| | 718 |
| | — |
| | 2,134 |
| | 2,145 |
| | (1 | ) | 717 |
| | 713 |
| | 1 |
|
Core deposit and other intangibles | 288 |
| | 299 |
| | (4 | ) | | 864 |
| | 891 |
| | (3 | ) | 28 |
| | 265 |
| | (89 | ) |
FDIC and other deposit assessments | 314 |
| | 310 |
| | 1 |
| | 975 |
| | 815 |
| | 20 |
| 159 |
| | 324 |
| | (51 | ) |
Outside professional services | 955 |
| | 802 |
| | 19 |
| | 2,788 |
| | 2,154 |
| | 29 |
| 678 |
| | 821 |
| | (17 | ) |
Contract services | | 563 |
| | 447 |
| | 26 |
|
Operating losses | 1,329 |
| | 577 |
| | 130 |
| | 1,961 |
| | 1,365 |
| | 44 |
| 238 |
| | 1,468 |
| | (84 | ) |
Operating leases | 347 |
| | 363 |
| | (4 | ) | | 1,026 |
| | 950 |
| | 8 |
| |
Contract services | 351 |
| | 313 |
| | 12 |
| | 1,025 |
| | 878 |
| | 17 |
| |
Operating leases (2) | | 286 |
| | 320 |
| | (11 | ) |
Advertising and promotion | | 237 |
| | 153 |
| | 55 |
|
Outside data processing | 227 |
| | 233 |
| | (3 | ) | | 683 |
| | 666 |
| | 3 |
| 167 |
| | 162 |
| | 3 |
|
Travel and entertainment | 154 |
| | 144 |
| | 7 |
| | 504 |
| | 509 |
| | (1 | ) | 147 |
| | 152 |
| | (3 | ) |
Postage, stationery and supplies | 128 |
| | 150 |
| | (15 | ) | | 407 |
| | 466 |
| | (13 | ) | 122 |
| | 142 |
| | (14 | ) |
Advertising and promotion | 137 |
| | 117 |
| | 17 |
| | 414 |
| | 417 |
| | (1 | ) | |
Telecommunications | 90 |
| | 101 |
| | (11 | ) | | 272 |
| | 287 |
| | (5 | ) | 91 |
| | 92 |
| | (1 | ) |
Foreclosed assets | 66 |
| | (17 | ) | | NM |
| | 204 |
| | 127 |
| | 61 |
| 37 |
| | 38 |
| | (3 | ) |
Insurance | 24 |
| | 23 |
| | 4 |
| | 72 |
| | 156 |
| | (54 | ) | 25 |
| | 26 |
| | (4 | ) |
All other | 514 |
| | 677 |
| | (24 | ) | | 1,716 |
| | 1,703 |
| | 1 |
| 552 |
| | 573 |
| | (4 | ) |
Total | $ | 14,351 |
| | 13,268 |
| | 8 |
| | $ | 41,684 |
| | 39,162 |
| | 6 |
| $ | 13,916 |
| | 15,042 |
| | (7 | ) |
| |
(1) | Represents expenses for both leased and owned properties. |
| |
(2) | Represents expenses for assets we lease to customers. |
NM - Not meaningful
Noninterest expense was $14.4$13.9 billion in thirdfirst quarter 2017, up 8%2019, down 7% from $13.3$15.0 billion a year ago, driven by higher operating losses, personnel expenses, outside professional and contract services, and foreclosed assets expense, partially offset by lower other expense. In theago. The decrease in first nine months of 2017, noninterest expense was $41.7 billion, up 6% fromquarter 2019, compared with the same period a year ago, was substantially due to higher personnel expenses, outside professional and contract services,lower operating losses, FDIC expense, and foreclosed assets expense, partially offset by lower insurance expense and postage, stationery and supplies expense.losses.
Personnel expenses, which include salaries, commissions, incentive compensation, and employee benefits, were up $221$479 million, or 3%5%, in thirdfirst quarter 20172019, compared with the
same quarter lastperiod a year ago. The increase was due to higher deferred compensation costs (offset in net gains from equity securities), higher stock incentive compensation expense, and annual salary increases, partially offset by lower revenue-related incentive compensation. Table 3a presents deferred compensation plan investment results.
Table 3a:Deferred Compensation Plan Investment Results
|
| | | | | | |
| Quarter ended | |
(in millions) | Mar 31, 2019 |
| | Mar 31, 2018 |
|
Net interest income | $ | 13 |
| | 10 |
|
Net gains (losses) from equity securities | 345 |
| | (6 | ) |
Total revenue from deferred compensation plan investments | 358 |
| | 4 |
|
Employee benefits expense | 357 |
| | 4 |
|
Income before income tax expense | $ | 1 |
| | — |
|
Equipment expense was up $889$44 million, or 4%7%, in the first nine months of 2017quarter 2019, compared with the same period a year ago. The increase in both periods wasago, due to annual salary increaseshigher computer software licensing and higher benefitsmaintenance and depreciation expense.
Core deposit and other intangibles expense partially offset by one fewer payroll day. The increasewas down $237 million, or 89%, in first quarter 2019, compared with the first nine monthssame period a year ago, due to lower amortization expense reflecting the end of 2017 was also driven by higher deferred compensation costs (offset in trading revenue).the 10-year amortization period on Wachovia intangibles.
FDICFederal Deposit Insurance Corporation (FDIC) and other deposit assessments were up 1% and 20%down $165 million, or 51%, in the thirdfirst quarter and first nine months of 2017,2019, compared with the same periodsperiod a year ago. The increase in the first nine months of 2017 wasago, due to an increase in deposit assessments as a resultthe completion of athe FDIC temporary surcharge which became effective on July 1, 2016. The FDIC expects the surcharge to be in effect for approximately two years.ended September 30, 2018.
Outside professional and contract services expense was up 17% and 26%down $27 million, or 2%, in the thirdfirst quarter and first nine months of 2017,2019, compared with the same periodsperiod a year ago. The increaseago, reflecting a reduction in both periods reflected higherremediation-related project and technology spending on regulatory and compliance related initiatives, as well as higher legal expense related to sales practices matters.spending.
Operating losses were up 130% and 44%down $1.2 billion, or 84%, in the thirdfirst quarter and first nine months of 2017,2019, compared with the same periods in 2016, predominantly due to higherperiod a year ago, driven by lower litigation accruals for various legal matters, including a non tax-deductible $1 billionaccruals. First quarter 2018 included an $800 million discrete litigation accrual in third quarter 2017 for previously disclosed mortgage-related regulatory investigations.connection with entering into the consent orders with the CFPB and OCC on April 20, 2018.
Foreclosed assetsAdvertising and promotion expense was up $83$84 million, and $77 millionor 55%, in the thirdfirst quarter and first nine months of 2017,2019, compared with the same periods a year ago, predominantly due to lower gains on sale of foreclosed properties.
Insurance expense was up 4% in third quarter 2017 and down 54% in the first nine months of 2017, compared with the same periods a year ago. The decrease in the first nine months of 2017 was predominantly driven by the sale of our crop insurance business in first quarter 2016.
Postage, stationary, and supplies expense was down 15% and 13% in the third quarter and first nine months of 2017, compared with the same periodsperiod a year ago, due to lower mail servicesincreases in marketing and supplies expense.branding campaign volumes.
All other noninterest expense was down 24% in third quarter 2017 and up 1% in the first nine months of 2017, compared with the same periods a year ago. The decrease in the third quarter was primarily driven by lower donations expense. All other noninterest expense in third quarter 2016 included a $107 million contribution to the Wells Fargo Foundation.Earnings Performance (continued)
Our efficiency ratio was 65.5%64.4% in thirdfirst quarter 2017,2019, compared with 59.4%68.6% in thirdfirst quarter 2016. The third quarter 2017 efficiency ratio included a 456 basis point impact from the $1 billion discrete litigation accrual.2018.
Income Tax Expense
Our effective income tax rate was 32.4%13.1% and 31.5%21.1% for thirdfirst quarter 20172019 and 2016,2018, respectively. Our effectiveThe lower rate in first quarter 2019 was related to net discrete income tax rate was 29.0% inbenefits of $297 million related mostly to the first nine monthsresults of 2017, down from 31.9% in
the first nine months of 2016. The increase in the effectiveU.S. federal and state income tax examinations and the accounting for stock compensation activity. The first quarter 2018 rate for third quarter 2017 was primarily fromreflected the non-deductiblenon-tax deductible treatment of the $1.0 billionan $800 million discrete litigation accrual partially offset by net discrete tax benefits arising from favorable resolutions of prior period mattersin connection with state taxing authorities. The effective income tax rate forentering into the first nine months of 2017 also included net discrete tax benefits associatedconsent orders with stock compensation activity subject to ASU 2016-09 accounting guidance adopted in first quarter 2017,the CFPB and tax benefits associated with our agreement to sell Wells Fargo Insurance Services USA (and related businesses) in second quarter 2017. See Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report for additional information about ASU 2016-09.OCC on April 20, 2018.
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 1822 (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) | | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
| | 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
|
Quarter ended Sep 30, | | | | | | | | | | | | | | | | | | | | | |
Quarter ended March 31, | | | | | | | | | | | | | | | | | | | | | |
Revenue | | $ | 12,060 |
| | 12,387 |
| | 7,085 |
| | 7,147 |
| | 4,246 |
| | 4,099 |
| | (1,465 | ) | | (1,305 | ) | | 21,926 |
| | 22,328 |
| | $ | 11,750 |
| | 11,830 |
| | 7,111 |
| | 7,279 |
| | 4,079 |
| | 4,242 |
| | (1,331 | ) | | (1,417 | ) | | 21,609 |
| | 21,934 |
|
Provision (reversal of provision) for credit losses | | 650 |
| | 651 |
| | 69 |
| | 157 |
| | (1 | ) | | 4 |
| | (1 | ) | | (7 | ) | | 717 |
| | 805 |
| | 710 |
| | 218 |
| | 134 |
| | (20 | ) | | 4 |
| | (6 | ) | | (3 | ) | | (1 | ) | | 845 |
| | 191 |
|
Noninterest expense | | 7,834 |
| | 6,953 |
| | 4,248 |
| | 4,120 |
| | 3,106 |
| | 2,999 |
| | (837 | ) | | (804 | ) | | 14,351 |
| | 13,268 |
| | 7,689 |
| | 8,702 |
| | 3,838 |
| | 3,978 |
| | 3,303 |
| | 3,290 |
| | (914 | ) | | (928 | ) | | 13,916 |
| | 15,042 |
|
Net income (loss) | | 2,229 |
| | 3,227 |
| | 2,046 |
| | 2,047 |
| | 710 |
| | 677 |
| | (389 | ) | | (307 | ) | | 4,596 |
| | 5,644 |
| | 2,823 |
| | 1,913 |
| | 2,770 |
| | 2,875 |
| | 577 |
| | 714 |
| | (310 | ) | | (366 | ) | | 5,860 |
| | 5,136 |
|
Average loans | | $ | 473.5 |
| | 489.2 |
| | 463.8 |
| | 454.3 |
| | 72.4 |
| | 68.4 |
| | (57.4 | ) | | (54.4 | ) | | 952.3 |
| | 957.5 |
| | $ | 458.2 |
| | 470.5 |
| | 476.4 |
| | 465.1 |
| | 74.4 |
| | 73.9 |
| | (59.0 | ) | | (58.5 | ) | | 950.0 |
| | 951.0 |
|
Average deposits | | 734.5 |
| | 708.0 |
| | 463.4 |
| | 441.2 |
| | 188.1 |
| | 189.2 |
| | (79.6 | ) | | (76.9 | ) | | 1,306.4 |
| | 1,261.5 |
| | 765.6 |
| | 747.5 |
| | 409.8 |
| | 446.0 |
| | 153.2 |
| | 177.9 |
| | (66.5 | ) | | (74.2 | ) | | 1,262.1 |
| | 1,297.2 |
|
Nine months ended Sep 30, | | | | | | | | | | | | | | | | | | | | | |
Revenue | | $ | 36,442 |
| | 37,205 |
| | 21,074 |
| | 21,389 |
| | 12,621 |
| | 11,872 |
| | (4,040 | ) | | (3,781 | ) | | 66,097 |
| | 66,685 |
| |
Provision (reversal of provision) for credit losses | | 1,919 |
| | 2,060 |
| | (39 | ) | | 905 |
| | 2 |
| | (8 | ) | | (5 | ) | | 8 |
| | 1,877 |
| | 2,965 |
| |
Noninterest expense | | 22,278 |
| | 20,437 |
| | 12,551 |
| | 12,124 |
| | 9,387 |
| | 9,017 |
| | (2,532 | ) | | (2,416 | ) | | 41,684 |
| | 39,162 |
| |
Net income (loss) | | 8,231 |
| | 9,702 |
| | 6,549 |
| | 6,041 |
| | 2,015 |
| | 1,773 |
| | (932 | ) | | (852 | ) | | 15,863 |
| | 16,664 |
| |
Average loans | | $ | 477.8 |
| | 486.4 |
| | 465.0 |
| | 445.2 |
| | 71.6 |
| | 66.4 |
| | (56.8 | ) | | (52.8 | ) | | 957.6 |
| | 945.2 |
| |
Average deposits | | 726.4 |
| | 698.3 |
| | 464.1 |
| | 431.7 |
| | 190.6 |
| | 185.4 |
| | (78.8 | ) | | (76.1 | ) | | 1,302.3 |
| | 1,239.3 |
| |
| |
(1) | Includes the elimination of certain items that are included in more than one business segment, most of which predominantly represents products and services for WIM customers served through Community Banking distribution channels. |
Earnings Performance (continued)
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, mortgage, home equity and small business lending, as well as referrals to Wholesale Banking and WIM business partners. The Community Banking segment
also includes the results of our Corporate Treasury activities net of allocations (including funds transfer pricing, capital, liquidity
and certain corporate expenses) in support of the other operating segments and results of investments in our affiliated venture capital and private equity partnerships. We continue to wind down the personal insurance business and expect to substantially complete these activities in the first half of 2019. 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) | 2017 |
| | 2016 |
| | % Change | | 2017 |
| | 2016 |
| | % Change |
| 2019 |
| | 2018 |
| | % Change |
|
Net interest income | $ | 7,645 |
| | 7,430 |
| | 3 | % | | $ | 22,820 |
| | 22,277 |
| | 2 | % | $ | 7,248 |
| | 7,195 |
| | 1 | % |
Noninterest income: | | | | | | | | | | | | | | | | |
Service charges on deposit accounts | 738 |
| | 821 |
| | (10 | ) | | 2,203 |
| | 2,347 |
| | (6 | ) | 610 |
| | 639 |
| | (5 | ) |
Trust and investment fees: | | | | | | | | | | |
| | | | |
|
Brokerage advisory, commissions and other fees (1) | 460 |
| | 479 |
| | (4 | ) | | 1,356 |
| | 1,384 |
| | (2 | ) | 449 |
| | 478 |
| | (6 | ) |
Trust and investment management (1) | 225 |
| | 222 |
| | 1 |
| | 659 |
| | 631 |
| | 4 |
| 210 |
| | 233 |
| | (10 | ) |
Investment banking (2) | (13 | ) | | (23 | ) | | 43 |
| | (60 | ) | | (92 | ) | | 35 |
| (20 | ) | | (10 | ) | | (100 | ) |
Total trust and investment fees | 672 |
| | 678 |
| | (1 | ) | | 1,955 |
| | 1,923 |
| | 2 |
| 639 |
| | 701 |
| | (9 | ) |
Card fees | 910 |
| | 911 |
| | — |
| | 2,703 |
| | 2,670 |
| | 1 |
| 858 |
| | 821 |
| | 5 |
|
Other fees | 362 |
| | 362 |
| | — |
| | 1,152 |
| | 1,100 |
| | 5 |
| 332 |
| | 327 |
| | 2 |
|
Mortgage banking | 936 |
| | 1,481 |
| | (37 | ) | | 3,081 |
| | 4,314 |
| | (29 | ) | 641 |
| | 842 |
| | (24 | ) |
Insurance | 36 |
| | 2 |
| | NM |
| | 64 |
| | 4 |
| | NM |
| 11 |
| | 28 |
| | (61 | ) |
Net gains (losses) from trading activities | 18 |
| | 33 |
| | (45 | ) | | 87 |
| | (54 | ) | | 261 |
| 5 |
| | (1 | ) | | 600 |
|
Net gains on debt securities | 169 |
| | 131 |
| | 29 |
| | 455 |
| | 744 |
| | (39 | ) | 37 |
| | — |
| | NM |
|
Net gains from equity investments (3) | 195 |
| | 109 |
| | 79 |
| | 731 |
| | 448 |
| | 63 |
| |
Net gains from equity securities (3) | | 601 |
| | 684 |
| | (12 | ) |
Other income of the segment | 379 |
| | 429 |
| | (12 | ) | | 1,191 |
| | 1,432 |
| | (17 | ) | 768 |
| | 594 |
| | 29 |
|
Total noninterest income | 4,415 |
| | 4,957 |
| | (11 | ) | | 13,622 |
| | 14,928 |
| | (9 | ) | 4,502 |
| | 4,635 |
| | (3 | ) |
| | | | | | | | | | |
| | | | |
|
Total revenue | 12,060 |
| | 12,387 |
| | (3 | ) | | 36,442 |
| | 37,205 |
| | (2 | ) | 11,750 |
| | 11,830 |
| | (1 | ) |
| | | | | | | | | | |
| | | | |
|
Provision for credit losses | 650 |
| | 651 |
| | — |
| | 1,919 |
| | 2,060 |
| | (7 | ) | 710 |
| | 218 |
| | 226 |
|
Noninterest expense: | | | | | | | | | | |
| | | | |
|
Personnel expense | 5,027 |
| | 4,606 |
| | 9 |
| | 15,193 |
| | 13,886 |
| | 9 |
| 5,981 |
| | 5,511 |
| | 9 |
|
Equipment | 511 |
| | 462 |
| | 11 |
| | 1,569 |
| | 1,421 |
| | 10 |
| 641 |
| | 596 |
| | 8 |
|
Net occupancy | 532 |
| | 520 |
| | 2 |
| | 1,573 |
| | 1,551 |
| | 1 |
| 542 |
| | 534 |
| | 1 |
|
Core deposit and other intangibles | 112 |
| | 123 |
| | (9 | ) | | 335 |
| | 380 |
| | (12 | ) | 1 |
| | 101 |
| | (99 | ) |
FDIC and other deposit assessments | 171 |
| | 159 |
| | 8 |
| | 547 |
| | 453 |
| | 21 |
| 106 |
| | 181 |
| | (41 | ) |
Outside professional services | 464 |
| | 300 |
| | 55 |
| | 1,355 |
| | 749 |
| | 81 |
| 316 |
| | 397 |
| | (20 | ) |
Operating losses | 1,294 |
| | 525 |
| | 146 |
| | 1,853 |
| | 1,224 |
| | 51 |
| 219 |
| | 1,440 |
| | (85 | ) |
Other expense of the segment | (277 | ) | | 258 |
| | NM |
| | (147 | ) | | 773 |
| | NM |
| (117 | ) | | (58 | ) | | NM |
|
Total noninterest expense | 7,834 |
| | 6,953 |
| | 13 |
| | 22,278 |
| | 20,437 |
| | 9 |
| 7,689 |
| | 8,702 |
| | (12 | ) |
Income before income tax expense and noncontrolling interests | 3,576 |
| | 4,783 |
| | (25 | ) | | 12,245 |
| | 14,708 |
| | (17 | ) | 3,351 |
| | 2,910 |
| | 15 |
|
Income tax expense | 1,286 |
| | 1,546 |
| | (17 | ) | | 3,817 |
| | 4,910 |
| | (22 | ) | 424 |
| | 809 |
| | (48 | ) |
Net income from noncontrolling interests (4) | 61 |
| | 10 |
| | 510 |
| | 197 |
| | 96 |
| | 105 |
| 104 |
| | 188 |
| | (45 | ) |
Net income | $ | 2,229 |
| | 3,227 |
| | (31 | ) | | $ | 8,231 |
| | 9,702 |
| | (15 | ) | $ | 2,823 |
| | 1,913 |
| | 48 |
|
Average loans | $ | 473.5 |
| | 489.2 |
| | (3 | ) | | $ | 477.8 |
| | 486.4 |
| | (2 | ) | $ | 458.2 |
| | 470.5 |
| | (3 | ) |
Average deposits | 734.5 |
| | 708.0 |
| | 4 |
| | 726.4 |
| | 698.3 |
| | 4 |
| 765.6 |
| | 747.5 |
| | 2 |
|
NM -– Not meaningful
| |
(1) | Represents income on products and services for WIM customers served through Community Banking distribution channels which is offset in our WIM segment and is eliminated in consolidation. |
| |
(2) | Includes syndication and underwriting fees paid to Wells Fargo Securities which are offset in our Wholesale Banking segment.segment and eliminated in consolidation. |
| |
(3) | PredominantlyPrimarily represents gains resulting from venture capital investments. |
| |
(4) | Reflects results attributable to noncontrolling interests predominantly associated with the Company’s consolidated venture capital investments. |
Community Banking reported net income of $2.2$2.8 billion down $998for first quarter 2019, up $910 million, or 31%, from third quarter 2016, and $8.2 billion for the first nine months of 2017, down $1.5 billion, or 15%48%, compared with the same period a year ago. ThirdRevenue was $11.8 billion for first quarter 2017 results included a $1 billion discrete litigation accrual (not tax deductible) for previously disclosed mortgage-related regulatory investigations. Revenue of $12.1 billion decreased $3272019, down $80 million, or 3%1%, from third quarter 2016, and was $36.4 billion for the first nine months of 2017, a decrease of $763 million, or 2%, compared with the same period last year.a year ago. The decrease in revenue from thirdfirst quarter 20162018 was predominantly due to lower mortgage banking income, trust and investment fees, and market sensitive revenue (consists of net gains from trading activities, debt securities and deposit service charges,equity securities), partially offset by higher card fees, other income and net interest income and gains on equity investments. The decrease from the first nine months of 2016 was predominantly due to lower mortgage banking revenue, gains on sales of debt securities, and other income driven by net hedge ineffectiveness accounting related to our long-term debt hedging results, partially offset by higher net interest income and gains on
equity investments. . Average loans of $473.5$458.2 billion in thirdfirst quarter 20172019 decreased $15.7$12.3 billion, or 3%, from thirdfirst quarter 2016,2018, as growth in nonconforming mortgage loan originations and averageconsumer credit card loans was more than offset by declines in automobile loans and legacy consumer real estate portfolios, including purchased credit-impaired (PCI) Pick-a-Pay and junior lien mortgage loans due to run-off and sales. Average deposits of $477.8$765.6 billion in the
first nine months of 2017 decreased $8.6quarter 2019 increased $18.1 billion, or 2%, from the first nine months of 2016. The declinequarter 2018.
Noninterest expense was $7.7 billion in average loans wasfirst quarter 2019, down $1.0 billion, or 12%, from first quarter 2018, predominantly due to lower loan origination in the consumer lending portfolio. Average deposits of $734.5 billion increased $26.5 billion, or 4%, from third quarter 2016 and average deposits of $726.4 billion in the first nine months of 2017 increased $28.1 billion, or 4%, from the first nine months of 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 2017 were down 0.2% from August 2016. Noninterest expense increased 13% from third quarter 2016 and 9% from the first nine months of 2016. The increase from third quarter 2016 was driven by higher operating losses, (including the $1 billion discrete litigation accrual in third quarter 2017)core deposit and higher personnel expenses mainly due to the
impact of annual salary increases and higherother intangibles amortization expense, outside professional services, driven by increased project spending,and FDIC expense, partially offset by higher expenses allocated to the Wholesale Banking and Wealth and Investment Management operating segments related to increased project and technology spending on regulatory and compliance related initiatives. The increase from the first nine months of 2016 was predominantly due to higher personnel expenses, including deferred compensation plan expense (offset in trading revenue), and higher operating losses and professional services, partially offset by lower other expense. The provision for credit losses was flat compared with third quarter 2016 and decreased $141increased $492 million from the first nine months of 2016quarter 2018, predominantly due to an allowance build in first quarter 2019, reflecting a higher probability of slightly less favorable economic conditions, compared with an allowance release in first quarter 2018 primarily due to improvement in our outlook for 2017 hurricane–related losses. The allowance build was partially offset by lower net charge-offs in the consumer lendingautomobile portfolio. Income tax expense decreased $385 million from first quarter 2018, and included net discrete income tax benefits
Earnings Performance (continued)
portfolio, primarily consumer real estate, compared withrelated mostly to the same periods a year ago.results of U.S. federal and state income tax examinations and the accounting for stock compensation activity.
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
Commercial Banking, Commercial Real Estate, Corporate and Investment Banking, Financial Institutions Group, Government and Institutional Banking, Insurance, Middle Market Banking, Principal Investments,Credit Investment Portfolio, Treasury Management, Wells Fargoand Commercial Capital, and Wells Fargo Securities.Capital. 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) | 2017 |
| | 2016 |
| | % Change | | 2017 |
| | 2016 |
| | % Change |
| 2019 |
| | 2018 |
| | % Change |
|
Net interest income | $ | 4,353 |
| | 4,062 |
| | 7 | % | | $ | 12,779 |
| | 11,729 |
| | 9 | % | $ | 4,534 |
| | 4,532 |
| | — | % |
Noninterest income: | | | | | | | | | | | | | | | | |
Service charges on deposit accounts | 539 |
| | 549 |
| | (2 | ) | | 1,662 |
| | 1,667 |
| | — |
| 483 |
| | 534 |
| | (10 | ) |
Trust and investment fees: | | | | | | | | | | |
| | | | |
|
Brokerage advisory, commissions and other fees | 65 |
| | 91 |
| | (29 | ) | | 231 |
| | 276 |
| | (16 | ) | 78 |
| | 67 |
| | 16 |
|
Trust and investment management | 130 |
| | 117 |
| | 11 |
| | 390 |
| | 351 |
| | 11 |
| 114 |
| | 113 |
| | 1 |
|
Investment banking | 478 |
| | 444 |
| | 8 |
| | 1,407 |
| | 1,265 |
| | 11 |
| 412 |
| | 440 |
| | (6 | ) |
Total trust and investment fees | 673 |
| | 652 |
| | 3 |
| | 2,028 |
| | 1,892 |
| | 7 |
| 604 |
| | 620 |
| | (3 | ) |
Card fees | 90 |
| | 85 |
| | 6 |
| | 260 |
| | 263 |
| | (1 | ) | 86 |
| | 87 |
| | (1 | ) |
Other fees | 513 |
| | 562 |
| | (9 | ) | | 1,487 |
| | 1,660 |
| | (10 | ) | 437 |
| | 472 |
| | (7 | ) |
Mortgage banking | 110 |
| | 186 |
| | (41 | ) | | 343 |
| | 367 |
| | (7 | ) | 68 |
| | 93 |
| | (27 | ) |
Insurance | 224 |
| | 291 |
| | (23 | ) | | 736 |
| | 1,002 |
| | (27 | ) | 78 |
| | 79 |
| | (1 | ) |
Net gains from trading activities | 156 |
| | 302 |
| | (48 | ) | | 614 |
| | 853 |
| | (28 | ) | 333 |
| | 225 |
| | 48 |
|
Net gains (losses) on debt securities | (5 | ) | | (25 | ) | | 80 |
| | (135 | ) | | 52 |
| | NM |
| |
Net gains from equity investments | 40 |
| | 26 |
| | 54 |
| | 92 |
| | 118 |
| | (22 | ) | |
Net gains on debt securities | | 88 |
| | 1 |
| | NM |
|
Net gains from equity securities | | 77 |
| | 93 |
| | (17 | ) |
Other income of the segment | 392 |
| | 457 |
| | (14 | ) | | 1,208 |
| | 1,786 |
| | (32 | ) | 323 |
| | 543 |
| | (41 | ) |
Total noninterest income | 2,732 |
| | 3,085 |
| | (11 | ) | | 8,295 |
| | 9,660 |
| | (14 | ) | 2,577 |
| | 2,747 |
| | (6 | ) |
| | | | | | | | | | |
| | | | |
|
Total revenue | 7,085 |
| | 7,147 |
| | (1 | ) | | 21,074 |
| | 21,389 |
| | (1 | ) | 7,111 |
| | 7,279 |
| | (2 | ) |
| | | | | | | | | | |
| | | | |
|
Provision (reversal of provision) for credit losses | 69 |
| | 157 |
| | (56 | ) | | (39 | ) | | 905 |
| | NM |
| 134 |
| | (20 | ) | | 770 |
|
Noninterest expense: | | | | | | | | | | |
| | | | |
|
Personnel expense | 1,607 |
| | 1,806 |
| | (11 | ) | | 5,048 |
| | 5,563 |
| | (9 | ) | 1,510 |
| | 1,536 |
| | (2 | ) |
Equipment | 12 |
| | 18 |
| | (33 | ) | | 42 |
| | 55 |
| | (24 | ) | 9 |
| | 12 |
| | (25 | ) |
Net occupancy | 106 |
| | 116 |
| | (9 | ) | | 326 |
| | 350 |
| | (7 | ) | 95 |
| | 100 |
| | (5 | ) |
Core deposit and other intangibles | 102 |
| | 101 |
| | 1 |
| | 310 |
| | 286 |
| | 8 |
| 24 |
| | 95 |
| | (75 | ) |
FDIC and other deposit assessments | 120 |
| | 125 |
| | (4 | ) | | 358 |
| | 299 |
| | 20 |
| 45 |
| | 122 |
| | (63 | ) |
Outside professional services | 301 |
| | 269 |
| | 12 |
| | 842 |
| | 759 |
| | 11 |
| 184 |
| | 233 |
| | (21 | ) |
Operating losses | 22 |
| | 55 |
| | (60 | ) | | 34 |
| | 130 |
| | (74 | ) | 1 |
| | 8 |
| | (88 | ) |
Other expense of the segment | 1,978 |
| | 1,630 |
| | 21 |
| | 5,591 |
| | 4,682 |
| | 19 |
| 1,970 |
| | 1,872 |
| | 5 |
|
Total noninterest expense | 4,248 |
| | 4,120 |
| | 3 |
| | 12,551 |
| | 12,124 |
| | 4 |
| 3,838 |
| | 3,978 |
| | (4 | ) |
Income before income tax expense and noncontrolling interests | 2,768 |
| | 2,870 |
| | (4 | ) | | 8,562 |
| | 8,360 |
| | 2 |
| 3,139 |
| | 3,321 |
| | (5 | ) |
Income tax expense | 729 |
| | 827 |
| | (12 | ) | | 2,034 |
| | 2,341 |
| | (13 | ) | 369 |
| | 448 |
| | (18 | ) |
Net loss from noncontrolling interests | (7 | ) | | (4 | ) | | (75 | ) | | (21 | ) | | (22 | ) | | 5 |
| — |
| | (2 | ) | | 100 |
|
Net income | $ | 2,046 |
| | 2,047 |
| | — |
| | $ | 6,549 |
| | 6,041 |
| | 8 |
| $ | 2,770 |
| | 2,875 |
| | (4 | ) |
Average loans | $ | 463.8 |
| | 454.3 |
| | 2 |
| | $ | 465.0 |
| | 445.2 |
| | 4 |
| $ | 476.4 |
| | 465.1 |
| | 2 |
|
Average deposits | 463.4 |
| | 441.2 |
| | 5 |
| | 464.1 |
| | 431.7 |
| | 8 |
| 409.8 |
| | 446.0 |
| | (8 | ) |
NM – Not meaningful
Wholesale Banking reported net income of $2.0$2.8 billion in thirdfirst quarter 2017,2019, down $1 million from third quarter 2016. In the first nine months of 2017, net income of $6.5 billion increased $508$105 million, or 8%4%, from the same period a year ago. Net income results for the first nine months of 2017 included a tax benefit resulting from our agreement to sell Wells Fargo Insurance Services USA and related businesses. Revenue decreased $62$168 million, or 1%2%, from thirdfirst quarter 2016 and $315 million, or 1%, from the first nine months of 2016 as an increase in net interest income was more than offset by lower noninterest income. Net interest income increased $291 million, or 7%, from third quarter 2016 and $1.1 billion, or 9%, from the first nine months of 2016 driven by strong loan growth, which
included the benefit from the GE Capital business acquisitions in 2016, and rising interest rates. Noninterest income decreased $353 million, or 11%, from third quarter 2016 due predominantly to lower customer accommodation trading, mortgage banking fees, and insurance income. Noninterest income decreased $1.4 billion, or 14%, from the first nine months of 20162018, largely due to the first quarter 2016 sale of our crop insurance business, which resulted in lower insurance and gain on sale income, and the second quarter 2016 gain onrelated to the sale of our health benefits services business, as well as lower gains on debt securities and customer accommodation trading. TheWells Fargo Shareowner Services in first quarter 2018, a decrease in noninterestservice charges on deposit accounts driven by lower treasury management fees, and lower mortgage banking income, partially offset by higher market sensitive revenue. Net interest income of $4.5 billion in first quarter 2019 was relatively stable compared with the same period a year ago. Average loans of $476.4 billion in first quarter 2019, increased $11.3 billion, or 2%, from first quarter 2018, as growth in commercial and industrial loans in Corporate and Investment Banking and Commercial Capital were partially offset by lower commercial real estate lending. Average deposits of $409.8 billion in first quarter 2019 decreased $36.2 billion, or 8%, from first quarter 2018. The decline in average deposits in first quarter 2019, compared with the same period a year ago, was driven by actions taken in the first nine monthshalf of 20162018 in response to the asset cap included in the FRB consent order on February 2, 2018, and declines across many businesses as commercial customers allocated more cash to higher-rate
alternatives. Noninterest expense decreased $140 million, or 4%, from first quarter 2018, mostly due to lower FDIC assessments, core deposit and other intangibles amortization, personnel expenses and operating lease expense. This decrease was partially offset by higher investment banking fees as well as higher lease income
Earnings Performance (continued)
related to the GE Capital business acquisitions. Average loans of $463.8 billion in third quarter 2017 increased $9.5 billion, or 2%, from third quarter 2016, and average loans of $465.0 billion in the first nine months of 2017 increased $19.8 billion, or 4%, from the first nine months of 2016. Average loan growth was driven by growth in asset backed finance, capital finance, government and institutional banking, middle market banking, and structured real estate, as well as the GE Capital business acquisitions in 2016. Average deposits of $463.4 billion increased $22.2 billion, or 5%, from third quarter 2016 and $32.4 billion, or 8%, from the first nine months of 2016 reflecting growth in corporate banking, commercial real estate, corporate trust, financial institutions and structured real estate. Noninterest expense increased $128 million, or 3%, from third quarter 2016 and $427 million, or 4%, from the first nine months of 2016, due to higher expenses allocated from Community Banking related to increased projectregulatory, risk, and technology spending on regulatory and compliance related initiatives, and higher expense related to growth initiatives.expenses. The provision for credit losses decreased $88increased $154 million from third
first quarter 2016 and $944 million from the2018 predominately due to an allowance build in first nine months of 2016 driven by improvementquarter 2019, reflecting higher nonaccrual loans, compared with an allowance release in the oil and gas portfolio.first quarter 2018, as well as lower recoveries in first quarter 2019.
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. On April 9, 2019, we announced an agreement to sell our Institutional Retirement and Trust
business. The transaction is expected to close in third quarter 2019. 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) | 2017 |
| | 2016 |
| | % Change | | 2017 |
| | 2016 |
| | % Change |
| 2019 |
| | 2018 |
| | % Change |
|
Net interest income | $ | 1,159 |
| | 977 |
| | 19 | % | | $ | 3,360 |
| | 2,852 |
| | 18 | % | $ | 1,101 |
| | 1,112 |
| | (1 | )% |
Noninterest income: | | | | | | | | | | | | | | | | |
Service charges on deposit accounts | 2 |
| | 5 |
| | (60 | ) | | 12 |
| | 15 |
| | (20 | ) | 4 |
| | 4 |
| | — |
|
Trust and investment fees: | | | | | | | | | | | | | | | | |
Brokerage advisory, commissions and other fees | 2,241 |
| | 2,256 |
| | (1 | ) | | 6,741 |
| | 6,618 |
| | 2 |
| 2,124 |
| | 2,344 |
| | (9 | ) |
Trust and investment management | 718 |
| | 738 |
| | (3 | ) | | 2,138 |
| | 2,168 |
| | (1 | ) | 676 |
| | 743 |
| | (9 | ) |
Investment banking (1) | (1 | ) | | — |
| | NM |
| | (3 | ) | | (1 | ) | | NM |
| 5 |
| | — |
| | NM |
|
Total trust and investment fees | 2,958 |
| | 2,994 |
| | (1 | ) | | 8,876 |
| | 8,785 |
| | 1 |
| 2,805 |
| | 3,087 |
| | (9 | ) |
Card fees | 1 |
| | 2 |
| | (50 | ) | | 4 |
| | 5 |
| | (20 | ) | 1 |
| | 1 |
| | — |
|
Other fees | 5 |
| | 4 |
| | 25 |
| | 14 |
| | 13 |
| | 8 |
| 4 |
| | 4 |
| | — |
|
Mortgage banking | (2 | ) | | (2 | ) | | — |
| | (7 | ) | | (6 | ) | | (17 | ) | (3 | ) | | (3 | ) | | — |
|
Insurance | 21 |
| | — |
| | NM |
| | 63 |
| | — |
| | NM |
| 17 |
| | 18 |
| | (6 | ) |
Net gains from trading activities | 71 |
| | 80 |
| | (11 | ) | | 220 |
| | 144 |
| | 53 |
| 19 |
| | 19 |
| | — |
|
Net gains on debt securities | 2 |
| | — |
| | NM |
| | 2 |
| | 1 |
| | NM |
| — |
| | — |
| | NM |
|
Net gains from equity investments | 3 |
| | 5 |
| | (40 | ) | | 6 |
| | 7 |
| | (14 | ) | |
Net gains from equity securities | | 136 |
| | 6 |
| | NM |
|
Other income of the segment | 26 |
| | 34 |
| | (24 | ) | | 71 |
| | 56 |
| | 27 |
| (5 | ) | | (6 | ) | | 17 |
|
Total noninterest income | 3,087 |
| | 3,122 |
| | (1 | ) | | 9,261 |
| | 9,020 |
| | 3 |
| 2,978 |
| | 3,130 |
| | (5 | ) |
| | | | | | | | | | | | | | | | |
Total revenue | 4,246 |
| | 4,099 |
| | 4 |
| | 12,621 |
| | 11,872 |
| | 6 |
| 4,079 |
| | 4,242 |
| | (4 | ) |
| | | | | | | | | | | | | | | | |
Provision (reversal of provision) for credit losses | (1 | ) | | 4 |
| | NM |
| | 2 |
| | (8 | ) | | 125 |
| 4 |
| | (6 | ) | | 167 |
|
Noninterest expense: | | | | | | | | | | | | | | | | |
Personnel expense | 1,983 |
| | 1,966 |
| | 1 |
| | 6,068 |
| | 5,902 |
| | 3 |
| 2,197 |
| | 2,165 |
| | 1 |
|
Equipment | — |
| | 12 |
| | (100 | ) | | 20 |
| | 40 |
| | (50 | ) | 11 |
| | 10 |
| | 10 |
|
Net occupancy | 108 |
| | 111 |
| | (3 | ) | | 323 |
| | 332 |
| | (3 | ) | 112 |
| | 109 |
| | 3 |
|
Core deposit and other intangibles | 74 |
| | 75 |
| | (1 | ) | | 219 |
| | 225 |
| | (3 | ) | 3 |
| | 69 |
| | (96 | ) |
FDIC and other deposit assessments | 39 |
| | 44 |
| | (11 | ) | | 118 |
| | 106 |
| | 11 |
| 14 |
| | 36 |
| | (61 | ) |
Outside professional services | 198 |
| | 241 |
| | (18 | ) | | 613 |
| | 668 |
| | (8 | ) | 184 |
| | 198 |
| | (7 | ) |
Operating losses | 16 |
| | (1 | ) | | NM |
| | 81 |
| | 17 |
| | 376 |
| 21 |
| | 22 |
| | (5 | ) |
Other expense of the segment | 688 |
| | 551 |
| | 25 |
| | 1,945 |
| | 1,727 |
| | 13 |
| 761 |
| | 681 |
| | 12 |
|
Total noninterest expense | 3,106 |
| | 2,999 |
| | 4 |
| | 9,387 |
| | 9,017 |
| | 4 |
| 3,303 |
| | 3,290 |
| | — |
|
Income before income tax expense and noncontrolling interests | 1,141 |
| | 1,096 |
| | 4 |
| | 3,232 |
| | 2,863 |
| | 13 |
| 772 |
| | 958 |
| | (19 | ) |
Income tax expense | 427 |
| | 415 |
| | 3 |
| | 1,206 |
| | 1,087 |
| | 11 |
| 192 |
| | 239 |
| | (20 | ) |
Net income from noncontrolling interests | 4 |
| | 4 |
| | — |
| | 11 |
| | 3 |
| | 267 |
| 3 |
| | 5 |
| | (40 | ) |
Net income | $ | 710 |
| | 677 |
| | 5 |
| | $ | 2,015 |
| | 1,773 |
| | 14 |
| $ | 577 |
| | 714 |
| | (19 | ) |
Average loans | $ | 72.4 |
| | 68.4 |
| | 6 |
| | $ | 71.6 |
| | 66.4 |
| | 8 |
| $ | 74.4 |
| | 73.9 |
| | 1 |
|
Average deposits | 188.1 |
| | 189.2 |
| | (1 | ) | | 190.6 |
| | 185.4 |
| | 3 |
| 153.2 |
| | 177.9 |
| | (14 | ) |
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 $710$577 million in thirdfirst quarter 2017, up $33 million from third quarter 2016. Net income for the first nine months of 2017 was $2.0 billion, up $2422019, down $137 million, or 14%19%, compared withfrom the same period a year ago. Revenue was up $147declined $163 million, or 4%, from thirdfirst quarter 2016,2018, predominantly due to an increase in net interest income,lower asset-based fees and up $749 million, or 6%, from the first nine months of 2016, resulting from increases in both net interest
income and noninterest income. Net interest income increased 19% from third quarter 2016 and 18% from the first nine months of 2016, due to higher interest rates and growth in investment securities and loan balances. Noninterest income decreased 1% from third quarter 2016 substantially driven by lower brokerage transaction revenue, and increased 3%partially offset by net gains from the first nine months of 2016 substantially driven byequity securities on higher asset-based fees and
deferred compensation plan investmentsinvestment results (offset in employee benefits expense), partially offset by lower brokerage transaction revenue.. Asset-based fees were up predominantlydecreased largely due to higherlower retail brokerage advisory account client assets driven by higher market valuations and positive net flows.fees . Average loans of $72.4$74.4 billion in thirdfirst quarter 20172019 increased 6% from third quarter 2016. Average loans in the first nine months of 2017 increased 8%1% from the same period a year ago. Average loan growth wasago, driven by growth in non-conformingnonconforming mortgage loans. Average deposits in thirdfirst quarter 2017 of $188.12019 decreased $24.7 billion, decreased 1% from third quarter 2016. Average deposits in the first nine months of 2017 increased 3%or 14%, from the same period a year ago.ago, as customers continued to allocate more cash into higher yielding liquid alternatives. Noninterest expense of $3.3 billion was up 4% from both the thirdrelatively stable in first quarter and2019, compared with first nine months of 2016, due toquarter 2018, as higher expenses allocated from Community Banking related to increased project and technology spending on regulatory and compliance related initiatives, and higher broker commissions mainly due to higher brokerage revenue. The increase in noninterestemployee benefits expense from the first nine months of 2016 was also affected by higher deferred compensation plan expense (offset in trading revenue). Totalnet gains from equity securities) and higher regulatory, risk, and technology expense was partially offset by lower broker commissions and core deposit and other intangibles amortization expense. The provision for credit losses decreased $5 million from third quarter 2016 driven by lower net charge-offs, and increased $10 million from the first nine months of 2016 driven by higherquarter 2018.
net charge-offs.
The following discussions provide additional information for client assets we oversee in our retail brokerage advisory and trust and investment management business lines.
Retail Brokerage Client Assets Brokerage advisory, commissions and other fees are received for providing full-service and discount brokerage services predominantly to retail brokerage clients. Offering advisory account relationships to our brokerage clients is an important component of our broader strategy of meeting their financial needs. Although a majority of our retail brokerage client assets are in accounts that earn brokerage commissions, the fees from those accounts generally represent transactional commissions based on the number and size of transactions executed at the client’s direction. Fees earned from advisory accounts are asset-based, are priced at the beginning of the quarter and depend on changes in the value of the client’s assets as well as the level of assets resulting from inflows and outflows. A majority of our brokerage advisory, commissions and other fee income is earned from advisory accounts. Table 4d shows advisory account client assets as a percentage of total retail brokerage client assets at September 30, 2017March 31, 2019 and 2016.2018.
Earnings Performance (continued)
Table 4d: Retail Brokerage Client Assets
| | | September 30, | | March 31, | |
(in billions) | 2017 |
| | 2016 |
| |
($ in billions) | | 2019 |
| | 2018 |
|
Retail brokerage client assets | $ | 1,612.1 |
| | 1,483.3 |
| $ | 1,600.6 |
| | 1,623.0 |
|
Advisory account client assets | 521.8 |
| | 458.3 |
| 546.7 |
| | 540.4 |
|
Advisory account client assets as a percentage of total client assets | 32 | % | | 31 |
| 34 | % | | 33 |
|
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 as of the beginning of the quarter, 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 2019 and first nine months of 2017 and 2016,2018, 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 2019 and first nine months of 2017 and 2016.2018.
Table 4e: Retail Brokerage Advisory Account Client Assets
| | | Quarter ended | | | Nine months ended | | Quarter ended | |
(in billions) | Balance, beginning of period |
| Inflows (1) |
| Outflows (2) |
| Market impact (3) |
| Balance, end of period |
| | Balance, beginning of period |
| Inflows (1) |
| Outflows (2) |
| Market impact (3) |
| Balance, end of period |
| Balance, beginning of period |
| Inflows (1) |
| Outflows (2) |
| Market impact (3) |
| Balance, end of period |
|
September 30, 2017 | | | | | |
March 31, 2019 | | | |
Client directed (4) | $ | 163.8 |
| 8.2 |
| (8.9 | ) | 3.7 |
| 166.8 |
| | 159.1 |
| 28.5 |
| (30.1 | ) | 9.3 |
| 166.8 |
| $ | 151.5 |
| 7.9 |
| (9.3 | ) | 13.5 |
| 163.6 |
|
Financial advisor directed (5) | 131.7 |
| 6.7 |
| (5.2 | ) | 6.0 |
| 139.2 |
| | 115.7 |
| 23.0 |
| (17.4 | ) | 17.9 |
| 139.2 |
| 141.9 |
| 7.5 |
| (7.7 | ) | 15.2 |
| 156.9 |
|
Separate accounts (6) | 137.7 |
| 5.6 |
| (5.0 | ) | 4.7 |
| 143.0 |
| | 125.7 |
| 20.1 |
| (17.2 | ) | 14.4 |
| 143.0 |
| 136.4 |
| 5.6 |
| (6.9 | ) | 13.2 |
| 148.3 |
|
Mutual fund advisory (7) | 69.3 |
| 3.2 |
| (2.3 | ) | 2.6 |
| 72.8 |
| | 63.3 |
| 9.9 |
| (8.0 | ) | 7.6 |
| 72.8 |
| 71.3 |
| 2.8 |
| (3.2 | ) | 7.0 |
| 77.9 |
|
Total advisory client assets | $ | 502.5 |
| 23.7 |
| (21.4 | ) | 17.0 |
| 521.8 |
| | 463.8 |
| 81.5 |
| (72.7 | ) | 49.2 |
| 521.8 |
| $ | 501.1 |
| 23.8 |
| (27.1 | ) | 48.9 |
| 546.7 |
|
September 30, 2016 | | | | | |
March 31, 2018 | | | |
Client directed (4) | $ | 158.5 |
| 9.2 |
| (9.5 | ) | 3.1 |
| 161.3 |
| | 154.7 |
| 27.4 |
| (27.7 | ) | 6.9 |
| 161.3 |
| $ | 170.9 |
| 9.4 |
| (9.2 | ) | (2.7 | ) | 168.4 |
|
Financial advisor directed (5) | 104.2 |
| 6.3 |
| (4.7 | ) | 4.7 |
| 110.5 |
| | 91.9 |
| 21.4 |
| (13.5 | ) | 10.7 |
| 110.5 |
| 147.0 |
| 8.1 |
| (7.0 | ) | 0.5 |
| 148.6 |
|
Separate accounts (6) | 118.9 |
| 6.0 |
| (5.6 | ) | 3.5 |
| 122.8 |
| | 110.4 |
| 19.0 |
| (15.6 | ) | 9.0 |
| 122.8 |
| 149.1 |
| 6.8 |
| (7.3 | ) | (2.0 | ) | 146.6 |
|
Mutual fund advisory (7) | 62.1 |
| 2.2 |
| (2.6 | ) | 2.0 |
| 63.7 |
| | 62.9 |
| 6.1 |
| (8.5 | ) | 3.2 |
| 63.7 |
| 75.8 |
| 4.0 |
| (3.0 | ) | — |
| 76.8 |
|
Total advisory client assets | $ | 443.7 |
| 23.7 |
| (22.4 | ) | 13.3 |
| 458.3 |
| | 419.9 |
| 73.9 |
| (65.3 | ) | 29.8 |
| 458.3 |
| $ | 542.8 |
| 28.3 |
| (26.5 | ) | (4.2 | ) | 540.4 |
|
| |
(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. |
| |
(5) | Professionally managed portfolios with fees earned based on respective strategies and as a percentage of certain client assets. |
| |
(6) | Professional advisory portfolios managed by Wells Fargo Asset Management advisors or third-party asset managers. Fees are earned based on a percentage of certain client assets. |
| |
(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. |
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. On April 9, 2019, we announced an agreement to sell our Institutional Retirement and Trust business. The transaction is expected to close in third quarter 2019. Table 4f presents AUM activity for the thirdfirst quarter of 2019 and first nine months of 2017 and 2016.2018.
Table 4f: WIM Trust and Investment – Assets Under Management
| | | Quarter ended | |
| Nine months ended | | Quarter ended | |
(in billions) | Balance, beginning of period |
| Inflows (1) |
| Outflows (2) |
| Market impact (3) |
| Balance, end of period |
| | Balance, beginning of period |
| Inflows (1) |
| Outflows (2) |
| Market impact (3) |
| Balance, end of period |
| Balance, beginning of period |
| Inflows (1) |
| Outflows (2) |
| Market impact (3) |
| Balance, end of period |
|
September 30, 2017 | | | | | |
March 31, 2019 | | | |
Assets managed by WFAM (4): | | |
|
| | | | |
Money market funds (5) | $ | 94.7 |
| 7.7 |
| — |
| — |
| 102.4 |
| | 102.6 |
| — |
| (0.2 | ) | — |
| 102.4 |
| $ | 112.4 |
| — |
| (2.9 | ) | — |
| 109.5 |
|
Other assets managed | 392.5 |
| 25.4 |
| (31.2 | ) | 7.3 |
| 394.0 |
| | 379.6 |
| 89.0 |
| (98.8 | ) | 24.2 |
| 394.0 |
| 353.5 |
| 19.3 |
| (21.9 | ) | 16.1 |
| 367.0 |
|
Assets managed by Wealth and Retirement (6) | 175.6 |
| 10.1 |
| (8.7 | ) | 4.0 |
| 181.0 |
| | 168.5 |
| 29.5 |
| (29.1 | ) | 12.1 |
| 181.0 |
| 170.7 |
| 9.2 |
| (10.4 | ) | 11.9 |
| 181.4 |
|
Total assets under management | $ | 662.8 |
| 43.2 |
| (39.9 | ) | 11.3 |
| 677.4 |
| | 650.7 |
| 118.5 |
| (128.1 | ) | 36.3 |
| 677.4 |
| $ | 636.6 |
| 28.5 |
| (35.2 | ) | 28.0 |
| 657.9 |
|
September 30, 2016 | | | | | |
March 31, 2018 | | | |
Assets managed by WFAM (4): |
| |
| |
| | | | |
Money market funds (5) | $ | 108.9 |
| 7.4 |
| — |
| — |
| 116.3 |
| | 123.6 |
| — |
| (7.3 | ) | — |
| 116.3 |
| $ | 108.2 |
| — |
| (3.2 | ) | — |
| 105.0 |
|
Other assets managed | 374.9 |
| 31.0 |
| (30.3 | ) | 6.2 |
| 381.8 |
| | 366.1 |
| 86.9 |
| (85.2 | ) | 14.0 |
| 381.8 |
| 395.7 |
| 25.7 |
| (29.2 | ) | (0.4 | ) | 391.8 |
|
Assets managed by Wealth and Retirement (6) | 164.6 |
| 8.4 |
| (7.4 | ) | 3.1 |
| 168.7 |
| | 162.1 |
| 25.7 |
| (25.4 | ) | 6.3 |
| 168.7 |
| 186.2 |
| 10.4 |
| (11.4 | ) | (1.9 | ) | 183.3 |
|
Total assets under management | $ | 648.4 |
| 46.8 |
| (37.7 | ) | 9.3 |
| 666.8 |
| | 651.8 |
| 112.6 |
| (117.9 | ) | 20.3 |
| 666.8 |
| $ | 690.1 |
| 36.1 |
| (43.8 | ) | (2.3 | ) | 680.1 |
|
| |
(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 WFAM 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. |
| |
(5) | Money Market funds 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. |
| |
(6) | Includes $5.7$4.8 billion and $7.7$5.7 billion as of September 30, 2017March 31, 2019 and 2016,2018, respectively, of client assets invested in proprietary funds managed by WFAM. |
Balance Sheet Analysis (continued)
At September 30, 2017,March 31, 2019, our assets totaled $1.93$1.89 trillion, up $4.8down $8.1 billion from December 31, 2016.2018. Asset growthdecline was predominantly driven by growthdeclines in trading assetscash and investmentdue from banks, interest-earning deposits with banks, available-for-sale debt securities, loans, and mortgage servicing rights (MSRs), which increased $14.0decreased by $2.9 billion, $21.4 billion, $1.8 billion, $4.9 billion, and $6.7$1.3 billion, respectively, from December 31, 2016,2018. Liabilities totaled $1.69 trillion, down $9.8 billion from December 31, 2018. The decline in liabilities was due to declines in total deposits, which decreased by $22.2 billion from December 31, 2018. Total equity increased by $1.7 billion from December 31, 2018,
predominantly due to a $2.7 billion increase in cumulative other comprehensive income, and a $2.6 billion increase in retained earnings, net of dividends paid, partially offset by a $15.7$3.3 billion decreaseincrease in loans. Total equity growth of $6.3 billion from December 31, 2016, was the predominant source that funded our asset growth from December 31, 2016. Equity growth benefited from $8.7 billion in earnings net of dividends paid.treasury stock.
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 1923 (Regulatory and Agency Capital Requirements) to Financial Statements in this Report.
InvestmentAvailable-for-Sale and Held-to-Maturity Debt Securities
Table 5: InvestmentAvailable-for-Sale and Held-to-Maturity Debt Securities – Summary
|
| | | | | | | | | | | | | | | | | | |
| September 30, 2017 | | | December 31, 2016 | |
(in millions) | Amortized Cost |
| | Net unrealized gain (loss) |
| | Fair value |
| | Amortized Cost |
| | Net unrealized gain (loss) |
| | Fair value |
|
Available-for-sale securities: | | |
|
|
|
|
| | | | | | |
Debt securities | $ | 269,779 |
| | 1,538 |
| | 271,317 |
| | 309,447 |
| | (2,294 | ) | | 307,153 |
|
Marketable equity securities | 606 |
| | 287 |
| | 893 |
| | 706 |
| | 505 |
| | 1,211 |
|
Total available-for-sale securities | 270,385 |
| | 1,825 |
| | 272,210 |
| | 310,153 |
| | (1,789 | ) | | 308,364 |
|
Held-to-maturity debt securities | 142,423 |
| | 395 |
| | 142,818 |
| | 99,583 |
| | (428 | ) | | 99,155 |
|
Total investment securities (1) | $ | 412,808 |
| | 2,220 |
| | 415,028 |
| | 409,736 |
| | (2,217 | ) | | 407,519 |
|
|
| | | | | | | | | | | | | | | | | | |
| March 31, 2019 | | | December 31, 2018 | |
(in millions) | Amortized cost |
| | Net unrealized gain (loss) |
| | Fair value |
| | Amortized cost |
| | Net unrealized gain (loss) |
| | Fair value |
|
Available-for-sale | 267,246 |
| | 853 |
| | 268,099 |
| | 272,471 |
| | (2,559 | ) | | 269,912 |
|
Held-to-maturity | 144,990 |
| | (291 | ) | | 144,699 |
| | 144,788 |
| | (2,673 | ) | | 142,115 |
|
Total (1) | $ | 412,236 |
| | 562 |
| | 412,798 |
| | 417,259 |
| | (5,232 | ) | | 412,027 |
|
| |
(1) | Available-for-sale debt securities are carried on the balance sheet at fair value. Held-to-maturity debt securities are carried on the balance sheet at amortized cost. |
Table 5 presents a summary of our investmentavailable-for-sale and held-to-maturity debt securities, portfolio, which increased $6.7decreased $1.6 billion in balance sheet carrying value from December 31, 2016, predominantly2018, largely due to purchases ofnet declines in federal agency mortgage-backed securities and residential mortgage-backed securities, partially offset by sales and paydowns on other security classes including securitiesnet purchases of U.S. treasuryTreasury and federal agencies and mortgage-backedagency debt securities.
The total net unrealized gains on available-for-sale debt securities were $1.8 billion$853 million at September 30, 2017,March 31, 2019, up from net unrealized losses of $1.8$2.6 billion at December 31, 2016,2018, primarily due to lower long-termU.S. interest rates and tighter credit spreads and the transfer of available-for-sale securities to held-to-maturity.mortgage spreads. For a discussion of our investment management objectives and practices, see the “Balance Sheet Analysis” section in our 20162018 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 debt securities for other-than-temporary impairment (OTTI)OTTI quarterly or more often if a potential loss-triggering event occurs. Of the $293In first quarter 2019, we recognized $45 million inof OTTI write-downs recognized in earnings in the first nine months of 2017, $107 million related toon debt securities, $5 million related to marketable equity securities, which are included in available-for-sale securities, and $181 million related to nonmarketable equity investments, which are included in other assets. OTTI write-downs recognized in earnings related to oil and gas investments totaled $77 million in the first nine months of 2017, of which $24 million related to investment securities and $53 million related to nonmarketable equity investments.securities. 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 20162018 Form 10-K and Note 4 (Investment5 (Available-for-Sale and Held-to-Maturity Debt Securities) to Financial Statements in this Report.
At September 30, 2017, investmentMarch 31, 2019, debt securities included $59.1$55.9 billion of municipal bonds, of which 95.9%93.3% were rated “A-” or better based largelypredominantly on external and, in some cases, internal ratings. Additionally, some of the debt 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 6.85.6 years at September 30, 2017.March 31, 2019. The expected remaining maturity is shorter than the remaining contractual maturity for the 59%58% of this portfolio that is MBSmortgage-backed securities (MBS) 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, 2017 | | | | | | |
At March 31, 2019 | | | | | |
Actual | $ | 161.2 |
| | 0.8 |
| | 6.5 |
| $ | 156.5 |
| | (0.5 | ) | | 5.1 |
Assuming a 200 basis point: | | | | | | | | | |
Increase in interest rates | 143.9 |
| | (16.5 | ) | | 8.5 |
| 141.0 |
| | (16.0 | ) | | 7.3 |
Decrease in interest rates | 167.4 |
| | 7.0 |
| | 2.6 |
| 166.7 |
| | 9.7 |
| | 3.3 |
The weighted-average expected maturity of debt securities held-to-maturity (HTM) was 6.55.1 years at September 30, 2017.March 31, 2019. HTM debt securities are measured at amortized cost and, therefore, changes in the fair value of our held-to-maturity MBS resulting from changes in interest rates are not recognized in our financial results. See Note 4 (Investment5 (Available-for-Sale and Held-to-Maturity Debt Securities) to Financial Statements in this Report for a summary of investmentdebt securities by security type.
Balance Sheet Analysis (continued)
Loan Portfolios
Table 7 provides a summary of total outstanding loans by portfolio segment. Total loans decreased $15.7$4.9 billion from December 31, 2016, reflecting paydowns,2018, with a decline in both commercial and consumer loans. Consumer loans were down $3.7 billion from December 31, 2018, and included sales of $1.6 billion of 1-4 family first mortgage PCI Pick-a-Pay loans, a continued decline in
junior lien mortgage loans, and an expecteda decline in automobileother revolving credit and installment loans asreflecting higher short-term rates and market volatility. Commercial loans were down $1.2 billion, reflecting declines in corporate and investment banking, government and institutional banking, and business banking loans, partially offset by growth in the effect of tighter underwriting standards implemented last year resulted in lower origination volume.commercial real estate, commercial capital finance and credit investment portfolios.
Table 7: Loan Portfolios
| | (in millions) | September 30, 2017 |
| | December 31, 2016 |
| March 31, 2019 |
| | December 31, 2018 |
|
Commercial | $ | 500,150 |
| | 506,536 |
| $ | 512,226 |
| | 513,405 |
|
Consumer | 451,723 |
| | 461,068 |
| 436,023 |
| | 439,705 |
|
Total loans | $ | 951,873 |
| | 967,604 |
| $ | 948,249 |
| | 953,110 |
|
Change from prior year-end | $ | (15,731 | ) | | 51,045 |
| $ | (4,861 | ) | | (3,660 | ) |
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 56 (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, 2017 | | | December 31, 2016 | | | March 31, 2019 | | | December 31, 2018 | |
(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 | | $ | 98,776 |
| | 203,785 |
| | 25,383 |
| | 327,944 |
| | 105,421 |
| | 199,211 |
| | 26,208 |
| | 330,840 |
| | $ | 104,906 |
| | 217,761 |
| | 26,467 |
| | 349,134 |
| | 109,566 |
| | 213,425 |
| | 27,208 |
| | 350,199 |
|
Real estate mortgage | | 19,720 |
| | 66,245 |
| | 42,510 |
| | 128,475 |
| | 22,713 |
| | 68,928 |
| | 40,850 |
| | 132,491 |
| | 16,871 |
| | 63,534 |
| | 41,708 |
| | 122,113 |
| | 16,413 |
| | 63,648 |
| | 40,953 |
| | 121,014 |
|
Real estate construction | | 10,431 |
| | 12,801 |
| | 1,288 |
| | 24,520 |
| | 9,576 |
| | 13,102 |
| | 1,238 |
| | 23,916 |
| | 9,867 |
| | 10,901 |
| | 1,089 |
| | 21,857 |
| | 9,958 |
| | 11,343 |
| | 1,195 |
| | 22,496 |
|
Total selected loans | | $ | 128,927 |
| | 282,831 |
| | 69,181 |
| | 480,939 |
| | 137,710 |
| | 281,241 |
| | 68,296 |
| | 487,247 |
| | $ | 131,644 |
| | 292,196 |
| | 69,264 |
| | 493,104 |
| | 135,937 |
| | 288,416 |
| | 69,356 |
| | 493,709 |
|
Distribution of loans to changes in interest rates: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loans at fixed interest rates | | $ | 18,405 |
| | 28,261 |
| | 26,234 |
| | 72,900 |
| | 19,389 |
| | 29,748 |
| | 26,859 |
| | 75,996 |
| | $ | 16,694 |
| | 28,117 |
| | 28,527 |
| | 73,338 |
| | 17,619 |
| | 28,545 |
| | 28,163 |
| | 74,327 |
|
Loans at floating/variable interest rates | | 110,522 |
| | 254,570 |
| | 42,947 |
| | 408,039 |
| | 118,321 |
| | 251,493 |
| | 41,437 |
| | 411,251 |
| | 114,950 |
| | 264,079 |
| | 40,737 |
| | 419,766 |
| | 118,318 |
| | 259,871 |
| | 41,193 |
| | 419,382 |
|
Total selected loans | | $ | 128,927 |
| | 282,831 |
| | 69,181 |
| | 480,939 |
| | 137,710 |
| | 281,241 |
| | 68,296 |
| | 487,247 |
| | $ | 131,644 |
| | 292,196 |
| | 69,264 |
| | 493,104 |
| | 135,937 |
| | 288,416 |
| | 69,356 |
| | 493,709 |
|
Balance Sheet Analysis (continued)
Deposits
Deposits were $1.3 trillion at September 30, 2017, up $627 millionMarch 31, 2019, down $22.2 billion from December 31, 2016,2018, due to a decrease in commercial deposits primarily reflecting growth in retail deposits and Treasury institutional certificates of deposit,seasonality from typically higher fourth quarter levels, partially offset by lower wealthan increase in consumer and commercialsmall business banking deposits. Table 9The increase in consumer and small business banking deposits was due to higher retail banking deposits reflecting seasonality as well as growth in
certificates of deposit (CDs) and high-yield savings, partially offset by higher balance customers moving a portion of those balances to other higher rate liquid alternatives. Table 9 provides additional information regarding deposits. Information regarding the impact of deposits on net interest income and a comparison of average deposit balances is provided in the “Earnings Performance – Net Interest Income” section and Table 1 earlier in this Report.
Table 9: Deposits
| | ($ in millions) | Sep 30, 2017 |
| | % of total deposits |
| | Dec 31, 2016 |
| | % of total deposits |
| |
% Change |
| Mar 31, 2019 |
| | % of total deposits |
| | Dec 31, 2018 |
| | % of total deposits |
| |
% Change |
|
Noninterest-bearing | $ | 366,528 |
| | 28 | % | | $ | 375,967 |
| | 29 | % | | (3 | ) | $ | 341,399 |
| | 27 | % | | $ | 349,534 |
| | 27 | % | | (2 | ) |
Interest-bearing checking | 47,366 |
| | 4 |
| | 49,403 |
| | 4 |
| | (4 | ) | 56,372 |
| | 4 |
| | 56,797 |
| | 4 |
| | (1 | ) |
Market rate and other savings | 687,323 |
| | 52 |
| | 687,846 |
| | 52 |
| | — |
| 691,117 |
| | 55 |
| | 703,338 |
| | 55 |
| | (2 | ) |
Savings certificates | 21,396 |
| | 2 |
| | 23,968 |
| | 2 |
| | (11 | ) | 28,313 |
| | 2 |
| | 22,648 |
| | 2 |
| | 25 |
|
Other time deposits | 66,884 |
| | 5 |
| | 52,649 |
| | 4 |
| | 27 |
| 99,401 |
| | 8 |
| | 95,602 |
| | 7 |
| | 4 |
|
Deposits in foreign offices (1) | 117,209 |
| | 9 |
| | 116,246 |
| | 9 |
| | 1 |
| 47,411 |
| | 4 |
| | 58,251 |
| | 5 |
| | (19 | ) |
Total deposits | $ | 1,306,706 |
| | 100 | % | | $ | 1,306,079 |
| | 100 | % | | — |
| $ | 1,264,013 |
| | 100 | % | | $ | 1,286,170 |
| | 100 | % | | (2 | ) |
| |
(1) | Includes Eurodollar sweep balances of $72.8$25.6 billion and $74.8$31.8 billion at September 30, 2017,March 31, 2019, and December 31, 2016,2018, respectively. |
Fair Value of Financial Instruments
We use fair value measurements to record fair value adjustments to certain financial instruments and to determine fair value disclosures. See the “Critical Accounting Policies” section in our 20162018 Form 10-K and Note 16 (Fair Values of Assets and Liabilities) to Financial Statements in this Report for a description of our critical accounting policy related to fair value of financial instruments and a discussion of our fair value measurement techniques.
Table 10 presents the summary of the fair value of financial instruments recorded at fair value on a recurring basis, and the amounts measured using significant Level 3 inputs (before derivative netting adjustments). The fair value of the remaining assets and liabilities were measured using valuation methodologies involving market-based or market-derived information (collectively Level 1 and 2 measurements).
Table 10: Fair Value Level 3 Summary
| | | September 30, 2017 | | | December 31, 2016 | | March 31, 2019 | | | December 31, 2018 | |
($ 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 | $ | 407.9 |
| | 24.1 |
| | 436.3 |
| | 23.5 |
| $ | 408.0 |
| | 25.2 |
| | 408.4 |
| | 25.3 |
|
As a percentage of total assets | 21 | % | | 1 |
| | 23 |
| | 1 |
| 22 | % | | 1 |
| | 22 |
| | 1 |
|
Liabilities carried at fair value | $ | 28.6 |
| | 2.0 |
| | 30.9 |
| | 1.7 |
| $ | 29.0 |
| | 1.9 |
| | 28.2 |
| | 1.6 |
|
As a percentage of total liabilities | 2 | % | | * |
| | 2 |
| | * |
| 2 | % | | * |
| | 2 |
| | * |
|
* Less than 1%.
| |
(1) | Before derivative netting adjustments. |
See Note 1316 (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 $206.8$198.7 billion at September 30, 2017,March 31, 2019, compared with $200.5$197.1 billion at December 31, 2016.2018. The increase was predominantly driven by a $8.7$2.7 billion increase in cumulative other comprehensive income primarily due to a decrease in long-term yields along with tightening credit spreads resulting in an increase in the value of available-for-sale debt securities, and a $2.6 billion increase in retained earnings from earnings net of dividends paid, partially offset by a net reduction$3.3 billion increase in common stock due to repurchases.
treasury stock.
|
|
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 debt and equity 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 Debt and Equity 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 56 (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 Agreements13 (Guarantees, Pledged Assets and Collateral, and Other Short-Term Investments)Commitments) to Financial Statements in this Report. We also may enter into commitments to purchase debt and equity securities to provide capital for customers’ funding, liquidity or other future needs. For more information, see the “Off-Balance Sheet Arrangements – Contractual Cash Obligations” section in our 2018 Form 10-K and Note 13 (Guarantees, Pledged Assets and Collateral, and Other Commitments) 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 710 (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 similar arrangements. For more information on guarantees and certain contingent arrangements, see Note 1013 (Guarantees, Pledged Assets and Collateral)Collateral, and Other Commitments) 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 1215 (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 2016 Form 10-K. For more information on commitments to purchase debt and equity securities, see the “Off-Balance Sheet Arrangements – Contractual Cash Obligations” section in our 2016 Form 10-K.
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,shareholders, regulators and other stakeholders. Among the risks that we manage are conduct risk, operational risk, credit risk, and asset/liability management related risks, which include interest rate risk, market risk, liquidity risk, and funding related risks. We operate under a Board-levelBoard approved risk management framework which outlines our company-wide approach to risk management 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,risk, see the “Risk Management” section in our 20162018 Form 10-K. The discussion that follows provides an update regarding these risks.
Conduct Risk Management
Our Board oversees the alignmentsupplements our discussion 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 oversight, complaints oversight, and ethics oversight. These management-level committees have escalation and informational reporting paths to the relevant Board committee.
Our Conduct Management Office, 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, 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 cybersecuritycertain risks is a priority for Wells Fargo, and we continue to develop and enhance our controls, processes and systemscontained 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”Management” section in our 20162018 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.
10-K.
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 Board’s Credit Committee has primary oversight responsibility for credit risk. At the management level, the Corporate Credit function, which is part of Corporate Risk, has primary oversight responsibility for credit risk. The Corporate Credit function reports to the CRO and also provides periodic reporting related to credit risk to the Board’s Credit Committee. In addition, the Risk & Control Committee for each business group and enterprise function reports credit risk matters to the Enterprise Risk & Control Committee.
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, 2017 |
| | Dec 31, 2016 |
| Mar 31, 2019 |
| | Dec 31, 2018 |
|
Commercial: | | | | | | |
Commercial and industrial | $ | 327,944 |
| | 330,840 |
| $ | 349,134 |
| | 350,199 |
|
Real estate mortgage | 128,475 |
| | 132,491 |
| 122,113 |
| | 121,014 |
|
Real estate construction | 24,520 |
| | 23,916 |
| 21,857 |
| | 22,496 |
|
Lease financing | 19,211 |
| | 19,289 |
| 19,122 |
| | 19,696 |
|
Total commercial | 500,150 |
| | 506,536 |
| 512,226 |
| | 513,405 |
|
Consumer: | | | | | | |
Real estate 1-4 family first mortgage | 280,173 |
| | 275,579 |
| 284,545 |
| | 285,065 |
|
Real estate 1-4 family junior lien mortgage | 41,152 |
| | 46,237 |
| 33,099 |
| | 34,398 |
|
Credit card | 36,249 |
| | 36,700 |
| 38,279 |
| | 39,025 |
|
Automobile | 55,455 |
| | 62,286 |
| 44,913 |
| | 45,069 |
|
Other revolving credit and installment | 38,694 |
| | 40,266 |
| 35,187 |
| | 36,148 |
|
Total consumer | 451,723 |
| | 461,068 |
| 436,023 |
| | 439,705 |
|
Total loans | $ | 951,873 |
| | 967,604 |
| $ | 948,249 |
| | 953,110 |
|
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 Solid credit quality continued in thirdfirst quarter 2017,2019, as our net charge-off rate remained low at 0.30% (annualized) of average total loans. We continued to benefit from improvements in the performance of our residential real estate portfolio as well as reduced losses in our oil and gas portfolio. In particular:First quarter 2019 results reflected:
Nonaccrual loans were $8.66.9 billion at September 30, 2017March 31, 2019, downup from $10.46.5 billion at December 31, 20162018. Commercial nonaccrual loans declinedincreased to $3.12.8 billion at September 30, 2017March 31, 2019, compared with $4.12.2 billion at December 31, 20162018, and consumer nonaccrual loans declined to $5.54.1 billion at September 30, 2017March 31, 2019, compared with $6.34.3 billion at December 31, 20162018. The declineoverall increase in consumer nonaccrual loans reflected an improved housing market, while the declineincrease in commercial nonaccrual loans was predominantly driven in part by loansa customer in ourthe utilities industry, as well as increases in the oil, gas and gaspipelines portfolio. Nonaccrual loans represented 0.91%0.73% of total loans at September 30, 2017March 31, 2019, compared with 1.07%0.68% at December 31, 20162018.
Net charge-offs (annualized) as a percentage of average total loans decreased to 0.30% in both the third quarter and first nine months of 2017quarter 2019, compared with 0.33%0.32% and 0.37% in the same periods a year ago.Net charge-offs (annualized) as a percentage of our average commercial and consumer portfolios were 0.09% and 0.53% in the third quarter and 0.09% and 0.54% in the first nine months of 2017, respectively, compared with 0.17%0.11% and 0.51%, respectively, in the thirdfirst quarter 2019 quarter and, compared with 0.22%0.06% and 0.52%0.60% in the first nine months of 2016quarter 2018.
Loans that are not government insured/guaranteed and 90 days or more past due and still accruing were$3867 million and $923807 million in our commercial and consumer portfolios, respectively, at September 30, 2017March 31, 2019, compared with $6494 million and $908885 million at December 31, 20162018.
Our provision for credit losses was $717845 million and $1.9 billionin the third quarter and first nine months of 2017quarter 2019, respectively, compared with $805191 million andin $3.0 billionfirst quarter 2018. The increase in provision for the same periodscredit losses was due to an allowance build in first quarter 2019 reflecting a year ago.higher probability of slightly less favorable economic conditions, compared with an allowance release in first quarter 2018, reflecting improvement in our outlook for 2017 hurricane-related losses.
The allowance for credit losses totaled $12.110.8 billion, or 1.27%1.14% of total loans, at September 30, 2017March 31, 2019, downup from $12.510.7 billion, or 1.30%1.12%, at December 31, 20162018.
During third quarter 2017, Hurricanes Harvey, Irma and Maria caused considerable damage in several geographic markets where the Company has significant lending exposure. The impact was in both our commercial and consumer lending portfolios. Based on our analysis to date of the level of insurance coverage, types of loans, location, and potential damage to collateral, we believe the ultimate collectability of these loans will be impacted. Our allowance for credit losses at September 30, 2017 included $450 million for coverage of our preliminary estimate of potential hurricane-related losses. We will continue to assess the impact to our customers and our business as a result of the hurricanes and refine our estimates as more information becomes available. However, in light of the ongoing recovery challenges in Puerto Rico after Hurricane Maria, it may take longer to assess the hurricane’s impact on our portfolios there.
We are still evaluating the impact on our portfolio from the California wildfires that occurred in October 2017.
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, 2017, totaled $13.6 billion, compared with $16.7 billion at December 31, 2016, and $58.8 billion at December 31, 2008. The decrease from December 31, 2016, was due in part to higher prepayment trends observed in our Pick-a-Pay PCI portfolio, as home price appreciation and the resulting reduction in loan to collateral value ratios enabled more borrowers to qualify for refinancing options, as well as the sale of $569 million of Pick-a-Pay PCI loans in second quarter 2017. 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, 2017, was $9.2 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.loans. 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 $13.6 billion in nonaccretable difference, including $11.6 billion transferred from the nonaccretable difference to the accretable yield due to decreases in our initial estimate of loss on contractual amounts, and $2.0 billion released to income through loan resolutions. Also, we have provided $1.7 billion for losses on certain PCI loans or poolsThe carrying value of PCI loans that have had credit-related decreases to cash flows expected to be collected. The net result is an $11.9at March 31, 2019, totaled $3.2 billion, reduction fromcompared with $5.0 billion at December 31, 2008, through September 30, 2017,2018. The decline in our initial projected lossescarrying value was due to the sale of $41.0$1.6 billion on allof Pick-a-Pay PCI loans acquired in the Wachovia acquisition. At September 30, 2017, $454 million in nonaccretable difference remained to absorb losses on PCI loans.first quarter 2019 and paydowns.
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 20162018 Form 10-K, and Note 56 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.
Significant Loan Portfolio Reviews Measuring and monitoring our credit risk is an ongoing process that tracks delinquencies, collateral values, FICOFair Isaac Corporation (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 56 (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 betweensegmented among special mention, substandard, doubtful and loss categories.
The commercial and industrial loans and lease financing portfolio totaled $347.2$368.3 billion, or 36%39% of total loans, at September 30, 2017.March 31, 2019. The annualized net charge-off rate (annualized) for this portfolio was 0.15%0.16% in both the thirdfirst quarter and first nine months of 2017,2019, compared with 0.30% and 0.36% for the same periods a year ago.0.11% in first quarter 2018. At September 30, 2017, 0.71%March 31, 2019, 0.56% of this portfolio was nonaccruing, compared with 0.95%0.43% at December 31, 2016,2018, reflecting a decreasean increase of $853$486 million in nonaccrual loans, predominantly due to improvementa customer in the utilities industry, as well as increases in the oil, gas and gaspipelines portfolio. Also, $20.0$16.6 billion of the commercial and industrial loan and lease financing portfolio was internally classified as criticized in accordance with regulatory guidance at September 30, 2017,March 31, 2019, compared with $24.0$15.8 billion at December 31, 2016.2018. The decreaseincrease in criticized loans, which also includes the decreaseincrease in nonaccrual loans, was primarilymostly due to improvementincreases in the oil, gas and gas portfolio.pipelines, and entertainment and recreation portfolios.
Most of our commercial and industrial loans and lease financing portfolio is secured by short-term assets, such as accounts receivable, inventory and debt 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 $59.7foreign loans of $64.3 billion and $63.7 billion at March 31, 2019, and December 31, 2018, respectively. Significant industry concentrations of foreign loans at September 30, 2017. Foreign loans totaled $19.4include $26.3 billion withinand $25.6 billion in the investorfinancials except banks category, $16.2$17.0 billion withinand $18.1 billion in the financial institutionsbanks category, and $1.4 billion withinand $1.2 billion in the oil, gas and gas category.pipelines category at March 31, 2019, and December 31, 2018, respectively. The industry categories were updated in first quarter 2019, to align with industry groupings that our regulators use to monitor industry concentration risks.
The investorsLoans in the financials except banks category, includeswhich include investment firms and financial vehicles, non-bank creditors and other financial companies, were $103.6 billion, or 11% of total outstanding loans, at March 31, 2019. A significant portion of this industry category consists of 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 our 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 productsOil, gas and services, includingpipelines loans supporting short-term trade finance and working capital needs. The $16.2 billion of foreign loans in the financial institutions category were predominantly originated by our Financial Institutions business.
The oil and gas loan portfolio totaled $12.8$13.3 billion, or 1% of total outstanding loans, at September 30, 2017,March 31, 2019, compared with $14.8$12.2 billion, or 2%1% of total outstanding loans, at December 31, 2016. Unfunded loan commitments in the oil2018. Oil, gas and gas loan portfolio totaled $22.6 billion at September 30, 2017. Approximately 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 gaspipelines nonaccrual loans decreasedincreased to $1.6 billion$701 million at September 30, 2017,March 31, 2019, compared with $2.4 billion$416 million at December 31, 2016, due to improved portfolio performance.2018.
Risk Management - Credit Risk Management (continued)
Table 12: Commercial and Industrial Loans and Lease Financing by Industry (1)
|
| | | | | | | | | | | |
| September 30, 2017 | |
(in millions) | Nonaccrual loans |
| | Total portfolio |
| | (2) | | % of total loans |
|
Investors | $ | 6 |
| | 60,929 |
| | | | 6 | % |
Financial institutions | 2 |
| | 37,951 |
| | | | 4 |
|
Cyclical retailers | 92 |
| | 25,919 |
| | | | 3 |
|
Food and beverage | 10 |
| | 16,876 |
| | | | 2 |
|
Healthcare | 27 |
| | 15,969 |
| | | | 2 |
|
Industrial equipment | 175 |
| | 15,177 |
| | | | 2 |
|
Real estate lessor | 10 |
| | 14,391 |
| | | | 2 |
|
Technology | 33 |
| | 13,737 |
| | | | 1 |
|
Oil and gas | 1,559 |
| | 12,825 |
| | | | 1 |
|
Transportation | 130 |
| | 9,109 |
| | | | 1 |
|
Public administration | 28 |
| | 9,101 |
| | | | 1 |
|
Business services | 23 |
| | 8,474 |
| | | | 1 |
|
Other | 383 |
| | 106,697 |
| | (3) | | 10 |
|
Total | $ | 2,478 |
| | 347,155 |
| | | | 36 | % |
|
| | | | | | | | | | | | | | | | | | | | |
| March 31, 2019 | | | December 31, 2018 | |
(in millions) | Nonaccrual loans |
| | Total portfolio |
| | % of total loans |
| | Nonaccrual loans |
| | Total portfolio |
| | % of total loans |
|
Financials except banks | $ | 207 |
| | 103,567 |
| | 11 | % | | $ | 305 |
| | 105,925 |
| | 11 | % |
Technology, telecom and media | 76 |
| | 25,580 |
| | 3 |
| | 26 |
| | 25,681 |
| | 3 |
|
Real estate and construction | 36 |
| | 22,932 |
| | 2 |
| | 31 |
| | 23,380 |
| | 2 |
|
Equipment, machinery and parts manufacturing | 56 |
| | 21,500 |
| | 2 |
| | 47 |
| | 20,850 |
| | 2 |
|
Materials and commodities | 156 |
| | 20,345 |
| | 2 |
| | 136 |
| | 18,688 |
| | 2 |
|
Retail | 65 |
| | 20,107 |
| | 2 |
| | 87 |
| | 19,541 |
| | 2 |
|
Banks | — |
| | 17,123 |
| | 2 |
| | — |
| | 18,407 |
| | 2 |
|
Automobile related | 22 |
| | 16,934 |
| | 2 |
| | 16 |
| | 16,801 |
| | 2 |
|
Food and beverage manufacturing | 48 |
| | 15,216 |
| | 2 |
| | 48 |
| | 15,448 |
| | 2 |
|
Health care and pharmaceuticals | 105 |
| | 15,123 |
| | 2 |
| | 124 |
| | 15,529 |
| | 2 |
|
Entertainment and recreation | 32 |
| | 14,460 |
| | 2 |
| | 33 |
| | 14,045 |
| | 1 |
|
Oil, gas and pipelines | 701 |
| | 13,349 |
| | 1 |
| | 417 |
| | 12,840 |
| | 1 |
|
Transportation services | 160 |
| | 12,118 |
| | 1 |
| | 176 |
| | 12,029 |
| | 1 |
|
Commercial services | 51 |
| | 10,378 |
| | 1 |
| | 48 |
| | 10,591 |
| | 1 |
|
Agribusiness | 57 |
| | 7,360 |
| | 1 |
| | 46 |
| | 7,996 |
| | 1 |
|
Government and education | 2 |
| | 6,410 |
| | 1 |
| | 3 |
| | 6,160 |
| | 1 |
|
Utilities | 247 |
| | 5,587 |
| | 1 |
| | 6 |
| | 5,756 |
| | 1 |
|
Other (2) | 41 |
| | 20,167 |
| | 1 |
| | 27 |
| | 20,228 |
| | 2 |
|
Total | $ | 2,062 |
| | 368,256 |
| | 39 | % | | $ | 1,576 |
| | $ | 369,895 |
| | 39 | % |
| |
(1) | Industry categories are based on the North American Industry Classification System and the amounts reported include foreign loans. See Note 5 (Loans and AllowanceThe industry categories were updated in first quarter 2019 to align with industry groupings that our regulators use to monitor industry concentration risks. The amounts for Credit Losses)December 31, 2018, have been reclassified to Financial Statements in this Report for a breakout of commercial foreign loans.conform with the current period presentation. |
| |
(2) | Includes $116 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 $6.8$4.7 billion. and $4.5 billion at March 31, 2019 and December 31, 2018, respectively. |
Risk Management - Credit Risk Management (continued)
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 dividedsegmented among special mention, substandard, doubtful and loss categories. The CRE portfolio, which included $8.7$8.2 billion of foreign CRE loans, totaled $153.0$144.0 billion, or 16%15% of total loans, at September 30, 2017,March 31, 2019, and consisted of $128.5$122.1 billion of mortgage loans and $24.5$21.9 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
Florida and Florida,Texas, which combined represented 49%50% of the total CRE portfolio. By property type, the largest concentrations are office buildings at 28%27% and apartments at 16%17% of the portfolio. CRE nonaccrual loans totaled 0.4%0.5% of the CRE outstanding balance at September 30, 2017,March 31, 2019, compared with 0.5%0.4% at December 31, 2016.2018. At September 30, 2017,March 31, 2019, we had $4.8 billion of criticized CRE mortgage loans, compared with $5.4$4.5 billion at December 31, 2016,2018, and $327$245 million of criticized CRE construction loans, compared with $461$289 million at December 31, 2016.2018.
At September 30, 2017, the recorded investment in PCI CRE loans totaled $118 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, 2017 | | March 31, 2019 | |
| 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 |
| | Nonaccrual loans |
| | Total portfolio |
| | Nonaccrual loans |
| | Total portfolio |
| | % of total loans |
|
By state: | | | | | | | | | | | | | | | | | | | | | | | | | | |
California | $ | 127 |
| | 36,398 |
| | 2 |
| | 4,245 |
| | 129 |
| | 40,643 |
| | 4 | % | $ | 140 |
| | 33,978 |
| | 8 |
| | 4,601 |
| | 148 |
| | 38,579 |
| | 4 | % |
New York | 12 |
| | 10,366 |
| | — |
| | 2,869 |
| | 12 |
| | 13,235 |
| | 1 |
| 24 |
| | 11,559 |
| | 1 |
| | 2,593 |
| | 25 |
| | 14,152 |
| | 1 |
|
Florida | | 28 |
| | 8,209 |
| | 3 |
| | 1,746 |
| | 31 |
| | 9,955 |
| | 1 |
|
Texas | 102 |
| | 9,245 |
| | — |
| | 2,160 |
| | 102 |
| | 11,405 |
| | 1 |
| 67 |
| | 7,859 |
| | 4 |
| | 1,518 |
| | 71 |
| | 9,377 |
| | 1 |
|
Florida | 33 |
| | 8,016 |
| | — |
| | 1,830 |
| | 33 |
| | 9,846 |
| | 1 |
| |
North Carolina | 31 |
| | 4,100 |
| | 6 |
| | 785 |
| | 37 |
| | 4,885 |
| | 1 |
| 24 |
| | 3,706 |
| | 5 |
| | 859 |
| | 29 |
| | 4,565 |
| | * |
|
Arizona | 27 |
| | 3,944 |
| | — |
| | 643 |
| | 27 |
| | 4,587 |
| | * |
| 44 |
| | 4,180 |
| | — |
| | 273 |
| | 44 |
| | 4,453 |
| | * |
|
Washington | | 21 |
| | 3,402 |
| | — |
| | 632 |
| | 21 |
| | 4,034 |
| | * |
|
Georgia | 17 |
| | 3,356 |
| | 1 |
| | 852 |
| | 18 |
| | 4,208 |
| | * |
| 12 |
| | 3,401 |
| | — |
| | 564 |
| | 12 |
| | 3,965 |
| | * |
|
Virginia | 11 |
| | 3,230 |
| | — |
| | 893 |
| | 11 |
| | 4,123 |
| | * |
| 8 |
| | 2,733 |
| | — |
| | 1,003 |
| | 8 |
| | 3,736 |
| | * |
|
Washington | 15 |
| | 3,381 |
| | — |
| | 619 |
| | 15 |
| | 4,000 |
| | * |
| |
Illinois | 5 |
| | 3,263 |
| | — |
| | 590 |
| | 5 |
| | 3,853 |
| | * |
| |
Colorado | | 10 |
| | 2,889 |
| | — |
| | 457 |
| | 10 |
| | 3,346 |
| | * |
|
Other | 213 |
| | 43,176 |
| | 29 |
| | 9,034 |
| | 242 |
| | 52,210 |
| | (2) | | 5 |
| 321 |
| | 40,197 |
| | 15 |
| | 7,611 |
| | 336 |
| | 47,808 |
| | (1) | | 5 |
|
Total | $ | 593 |
| | 128,475 |
| | 38 |
| | 24,520 |
| | 631 |
| | 152,995 |
| | 16 | % | $ | 699 |
| | 122,113 |
| | 36 |
| | 21,857 |
| | 735 |
| | 143,970 |
| | 15 | % |
By property: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Office buildings | $ | 130 |
| | 39,959 |
| | 2 |
| | 3,187 |
| | 132 |
| | 43,146 |
| | 5 | % | $ | 180 |
| | 35,510 |
| | 4 |
| | 3,155 |
| | 184 |
| | 38,665 |
| | 4 | % |
Apartments | 24 |
| | 15,417 |
| | — |
| | 8,857 |
| | 24 |
| | 24,274 |
| | 3 |
| 14 |
| | 16,535 |
| | — |
| | 7,248 |
| | 14 |
| | 23,783 |
| | 2 |
|
Industrial/warehouse | 142 |
| | 15,801 |
| | 2 |
| | 1,847 |
| | 144 |
| | 17,648 |
| | 2 |
| 89 |
| | 15,358 |
| | 2 |
| | 1,281 |
| | 91 |
| | 16,639 |
| | 2 |
|
Retail (excluding shopping center) | 66 |
| | 16,873 |
| | — |
| | 617 |
| | 66 |
| | 17,490 |
| | 2 |
| 103 |
| | 14,549 |
| | 8 |
| | 508 |
| | 111 |
| | 15,057 |
| | 2 |
|
Shopping center | 16 |
| | 11,835 |
| | — |
| | 1,158 |
| | 16 |
| | 12,993 |
| | 1 |
| 85 |
| | 11,037 |
| | — |
| | 1,251 |
| | 85 |
| | 12,288 |
| | 1 |
|
Hotel/motel | 8 |
| | 9,685 |
| | 4 |
| | 1,716 |
| | 12 |
| | 11,401 |
| | 1 |
| 20 |
| | 9,998 |
| | — |
| | 1,554 |
| | 20 |
| | 11,552 |
| | 1 |
|
Real estate - other | 90 |
| | 6,849 |
| | — |
| | 170 |
| | 90 |
| | 7,019 |
| | 1 |
| |
Mixed use properties (2) | | 83 |
| | 6,365 |
| | 2 |
| | 377 |
| | 85 |
| | 6,742 |
| | 1 |
|
Institutional | 36 |
| | 3,247 |
| | — |
| | 1,564 |
| | 36 |
| | 4,811 |
| | 1 |
| 48 |
| | 3,607 |
| | — |
| | 1,858 |
| | 48 |
| | 5,465 |
| | 1 |
|
Agriculture | 30 |
| | 2,613 |
| | — |
| | 19 |
| | 30 |
| | 2,632 |
| | * |
| 48 |
| | 2,411 |
| | — |
| | 9 |
| | 48 |
| | 2,420 |
| | * |
|
1-4 family structure | — |
| | 10 |
| | 7 |
| | 2,460 |
| | 7 |
| | 2,470 |
| | * |
| |
Collateral pool | | — |
| | 2,300 |
| | — |
| | 4 |
| | — |
| | 2,304 |
| | * |
|
Other | 51 |
| | 6,186 |
| | 23 |
| | 2,925 |
| | 74 |
| | 9,111 |
| | 1 |
| 29 |
| | 4,443 |
| | 20 |
| | 4,612 |
| | 49 |
| | 9,055 |
| | 1 |
|
Total | $ | 593 |
| | 128,475 |
| | 38 |
| | 24,520 |
| | 631 |
| | 152,995 |
| | 16 | % | $ | 699 |
| | 122,113 |
| | 36 |
| | 21,857 |
| | 735 |
| | 143,970 |
| | 15 | % |
| |
(1) | Includes a total of $118 million PCI loans, consisting of $108 million of real estate mortgage and $10 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.(1)Includes 40 states; no state had loans in excess of $3.4 billion. |
| |
(2) | Includes 40 states; no state had loans in excess of $3.6 billion. Mixed use properties are primarily owner occupied real estate, including data centers, flexible space leased to multiple tenants, light manufacturing and other specialized uses. |
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, 2017,March 31, 2019, foreign loans totaled $68.8$72.9 billion, representing approximately 7%8% of our total consolidated loans outstanding, compared with $65.7$71.9 billion, or approximately 7%8% of total consolidated loans outstanding, at December 31, 2016.2018. Foreign loans were approximately 4% of our consolidated total assets at September 30, 2017both March 31, 2019 and 3% at December 31, 2016.2018.
Our 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 the borrower’s ability to repay, which gives consideration for allowable transfers of risk such as guarantees and collateral and may be different from the reporting based on the borrower’s primary address. Our largest single foreign country exposure based on our assessment of risk at September 30, 2017,March 31, 2019, was the United Kingdom, which totaled $29.6$28.4 billion, or approximately 2% of our total assets, and included $7.1$3.5 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. The United Kingdom officially announced its intention to leave the European Union (Brexit) on March 29, 2017, startingand the two-year negotiation process leading to its departure.departure has been extended to October 31, 2019. We continue to conduct assessments and are executing our implementationimplement plans for Brexit. Our primary goal is to ensure we can continue to prudently serve our customers post-Brexit.
We conduct periodic stress testsexisting clients in the United Kingdom and the European Union as well as to continue to meet the needs of our significant country risk exposures, analyzingdomestic clients as they do business in the directUnited Kingdom and indirect impactsthe European Union. We have an existing authorized bank in Ireland and an asset management entity in Luxembourg. We are also in the process of obtaining regulatory approvals to establish a broker dealer in France. We plan to leverage these entities in order to continue to serve clients in the European Union. In addition, we are implementing actions where possible to mitigate the impact of Brexit on our supplier contracts, staffing and business operations in the risk of loss from various macroeconomic and capital markets scenarios. We do not have significant exposure to foreign countryEuropean Union. For additional information on risks because our foreign credit exposure is relatively small. However, we have identified exposure to increased loss from U.S. borrowers associated with Brexit, see the potential impact of a regional or worldwide economic downturn on the U.S. economy. We seek to mitigate these potential impacts on the risk of loss through“Risk Factors” section in our normal risk management processes which include active monitoring and, if necessary, the application of aggressive loss mitigation strategies.2018 Form 10-K.
Table 14 provides information regarding our top 20 exposures by country (excluding the U.S.) and our Eurozone exposure, based on our assessment of risk, 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 exposure. For information on potential credit impacts from recent hurricanes, see the “Risk Management – Credit Risk Management – Credit Quality Overview” section and Note 5 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.
Risk Management - Credit Risk Management (continued)
Table 14: Select Country Exposures-
| | | September 30, 2017 | | March 31, 2019 | |
| 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 | $ | 7,079 |
| | 20,200 |
| | — |
| | 1,852 |
| | — |
| | 473 |
| | 7,079 |
| | 22,525 |
| | 29,604 |
| $ | 3,460 |
| | 23,132 |
| | — |
| | 1,592 |
| | 2 |
| | 224 |
| | 3,462 |
| | 24,948 |
| | 28,410 |
|
Canada | 29 |
| | 18,240 |
| | 61 |
| | 189 |
| | — |
| | 507 |
| | 90 |
| | 18,936 |
| | 19,026 |
| 32 |
| | 17,288 |
| | (24 | ) | | 225 |
| | — |
| | 158 |
| | 8 |
| | 17,671 |
| | 17,679 |
|
Cayman Islands | — |
| | 6,723 |
| | — |
| | — |
| | — |
| | 151 |
| | — |
| | 6,874 |
| | 6,874 |
| — |
| | 6,382 |
| | — |
| | 7 |
| | — |
| | 195 |
| | — |
| | 6,584 |
| | 6,584 |
|
Ireland | | 49 |
| | 4,384 |
| | — |
| | 241 |
| | — |
| | 153 |
| | 49 |
| | 4,778 |
| | 4,827 |
|
Germany | 3,349 |
| | 1,664 |
| | 5 |
| | 162 |
| | 3 |
| | 392 |
| | 3,357 |
| | 2,218 |
| | 5,575 |
| 1,830 |
| | 1,929 |
| | (1 | ) | | 36 |
| | — |
| | 275 |
| | 1,829 |
| | 2,240 |
| | 4,069 |
|
Ireland | — |
| | 3,528 |
| | — |
| | 118 |
| | — |
| | 140 |
| | — |
| | 3,786 |
| | 3,786 |
| |
Bermuda | — |
| | 2,827 |
| | — |
| | 112 |
| | — |
| | 196 |
| | — |
| | 3,135 |
| | 3,135 |
| — |
| | 3,691 |
| | — |
| | 76 |
| | — |
| | 44 |
| | — |
| | 3,811 |
| | 3,811 |
|
Netherlands | | — |
| | 3,051 |
| | 57 |
| | 307 |
| | — |
| | 18 |
| | 57 |
| | 3,376 |
| | 3,433 |
|
Guernsey | | — |
| | 2,533 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2,533 |
| | 2,533 |
|
Luxembourg | | — |
| | 1,855 |
| | — |
| | 604 |
| | — |
| | 33 |
| | — |
| | 2,492 |
| | 2,492 |
|
China | — |
| | 2,761 |
| | (2 | ) | | 182 |
| | 32 |
| | 30 |
| | 30 |
| | 2,973 |
| | 3,003 |
| — |
| | 2,442 |
| | (2 | ) | | (214 | ) | | 46 |
| | 15 |
| | 44 |
| | 2,243 |
| | 2,287 |
|
Netherlands | — |
| | 2,278 |
| | 22 |
| | 285 |
| | 2 |
| | 247 |
| | 24 |
| | 2,810 |
| | 2,834 |
| |
India | — |
| | 2,092 |
| | — |
| | 112 |
| | — |
| | — |
| | — |
| | 2,204 |
| | 2,204 |
| — |
| | 1,940 |
| | — |
| | 142 |
| | — |
| | — |
| | — |
| | 2,082 |
| | 2,082 |
|
Luxembourg | — |
| | 1,258 |
| | — |
| | 656 |
| | — |
| | 120 |
| | — |
| | 2,034 |
| | 2,034 |
| |
Guernsey | — |
| | 1,971 |
| | — |
| | 3 |
| | — |
| | 3 |
| | — |
| | 1,977 |
| | 1,977 |
| |
Australia | — |
| | 1,581 |
| | — |
| | 282 |
| | — |
| | 78 |
| | — |
| | 1,941 |
| | 1,941 |
| |
Brazil | — |
| | 1,689 |
| | — |
| | 17 |
| | — |
| | — |
| | — |
| | 1,706 |
| | 1,706 |
| — |
| | 2,008 |
| | 1 |
| | — |
| | — |
| | — |
| | 1 |
| | 2,008 |
| | 2,009 |
|
Chile | — |
| | 1,485 |
| | — |
| | 21 |
| | — |
| | — |
| | — |
| | 1,506 |
| | 1,506 |
| 1 |
| | 1,754 |
| | — |
| | (3 | ) | | — |
| | 62 |
| | 1 |
| | 1,813 |
| | 1,814 |
|
France | | — |
| | 1,583 |
| | — |
| | 49 |
| | 1 |
| | 2 |
| | 1 |
| | 1,634 |
| | 1,635 |
|
Japan | | 530 |
| | 1,091 |
| | 3 |
| | (60 | ) | | — |
| | 32 |
| | 533 |
| | 1,063 |
| | 1,596 |
|
Australia | | — |
| | 1,422 |
| | — |
| | 71 |
| | — |
| | 6 |
| | — |
| | 1,499 |
| | 1,499 |
|
South Korea | — |
| | 1,352 |
| | 2 |
| | 85 |
| | 2 |
| | 8 |
| | 4 |
| | 1,445 |
| | 1,449 |
| — |
| | 1,210 |
| | (8 | ) | | 86 |
| | 1 |
| | 7 |
| | (7 | ) | | 1,303 |
| | 1,296 |
|
United Arab Emirates | | — |
| | 1,259 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,259 |
| | 1,259 |
|
Mexico | | — |
| | 1,201 |
| | (1 | ) | | 6 |
| | ��� |
| | 4 |
| | (1 | ) | | 1,211 |
| | 1,210 |
|
Switzerland | — |
| | 1,210 |
| | — |
| | (2 | ) | | — |
| | 35 |
| | — |
| | 1,243 |
| | 1,243 |
| — |
| | 1,157 |
| | — |
| | (36 | ) | | — |
| | 21 |
| | — |
| | 1,142 |
| | 1,142 |
|
Jersey, Channel lslands | — |
| | 645 |
| | — |
| | 469 |
| | — |
| | 14 |
| | — |
| | 1,128 |
| | 1,128 |
| |
Japan | 285 |
| | 710 |
| | 6 |
| | 42 |
| | — |
| | 63 |
| | 291 |
| | 815 |
| | 1,106 |
| |
France | — |
| | 798 |
| | — |
| | 205 |
| | — |
| | 67 |
| | — |
| | 1,070 |
| | 1,070 |
| |
Mexico | 56 |
| | 925 |
| | — |
| | 4 |
| | — |
| | 4 |
| | 56 |
| | 933 |
| | 989 |
| |
Total top 20 country exposures | $ | 10,798 |
| | 73,937 |
| | 94 |
| | 4,794 |
| | 39 |
| | 2,528 |
| | 10,931 |
| | 81,259 |
| | 92,190 |
| $ | 5,902 |
| | 81,312 |
| | 25 |
| | 3,129 |
| | 50 |
| | 1,249 |
| | 5,977 |
| | 85,690 |
| | 91,667 |
|
Eurozone exposure: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Eurozone countries included in Top 20 above (5) | $ | 3,349 |
| | 9,526 |
| | 27 |
| | 1,426 |
| | 5 |
| | 966 |
| | 3,381 |
| | 11,918 |
| | 15,299 |
| $ | 1,879 |
| | 12,802 |
| | 56 |
| | 1,237 |
| | 1 |
| | 481 |
| | 1,936 |
| | 14,520 |
| | 16,456 |
|
Austria | — |
| | 590 |
| | — |
| | 3 |
| | — |
| | 3 |
| | — |
| | 596 |
| | 596 |
| |
Spain | — |
| | 362 |
| | — |
| | 54 |
| | — |
| | 19 |
| | — |
| | 435 |
| | 435 |
| — |
| | 394 |
| | — |
| | 13 |
| | — |
| | 1 |
| | — |
| | 408 |
| | 408 |
|
Belgium | — |
| | 274 |
| | — |
| | (45 | ) | | — |
| | 5 |
| | — |
| | 234 |
| | 234 |
| — |
| | 332 |
| | — |
| | (75 | ) | | — |
| | 2 |
| | — |
| | 259 |
| | 259 |
|
Austria | | — |
| | 225 |
| | — |
| | (1 | ) | | — |
| | — |
| | — |
| | 224 |
| | 224 |
|
Other Eurozone exposure (6) | 24 |
| | 211 |
| | — |
| | 47 |
| | — |
| | — |
| | 24 |
| | 258 |
| | 282 |
| 22 |
| | 208 |
| | — |
| | 59 |
| | — |
| | — |
| | 22 |
| | 267 |
| | 289 |
|
Total Eurozone exposure | $ | 3,373 |
| | 10,963 |
| | 27 |
| | 1,485 |
| | 5 |
| | 993 |
| | 3,405 |
| | 13,441 |
| | 16,846 |
| $ | 1,901 |
| | 13,961 |
| | 56 |
| | 1,233 |
| | 1 |
| | 484 |
| | 1,958 |
| | 15,678 |
| | 17,636 |
|
| |
(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 $17 million in PCI loans to customers in Germany and the Netherlands, and $680 million in defeased leases secured primarily by U.S. Treasury and government agency 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 for market making activities in the U.S. and London based trading businesses, which sometimes results in selling and purchasing protection on the identical reference entities. 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 businessesbusinesses. At September 30, 2017,March 31, 2019, the gross notional amount of our CDS sold that reference assets in the Top 20 or Eurozone countries that contain non-sovereign debt was $348$366 million,, which was offset by the notional amount of CDS purchased of $469 million. We$511 million. On a net basis 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 $39.9$42.8 billion exposure to financial institutions and $42.9$44.0 billion to non-financial corporations at September 30, 2017. March 31, 2019. |
| |
(5) | Consists of exposure to Ireland, Germany, Ireland, Netherlands, Luxembourg and France included in Top 20. |
| |
(6) | Includes non-sovereign exposure to Italy, Portugal, and Greece in the amount of $133$139 million,, $17 $18 million and $1$6 million,, respectively. We had no sovereign debt exposure to Portugal and Greece, and the exposure to Italy was immaterialin these countries at September 30, 2017. March 31, 2019. |
REAL ESTATE 1-4 FAMILY FIRST AND JUNIOR LIEN MORTGAGE LOANS Our real estate 1-4 family first and junior lien mortgage loans asare 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 from15.
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, 2017 | | | December 31, 2016 | | March 31, 2019 | | | December 31, 2018 | |
(in millions) | Balance |
| | % of portfolio |
| | Balance |
| | % of portfolio |
| Balance |
| | % of portfolio |
| | Balance |
| | % of portfolio |
|
Real estate 1-4 family first mortgage | $ | 280,173 |
| | 87 | % | | $ | 275,579 |
| | 86 | % | $ | 284,545 |
| | 90 | % | | $ | 285,065 |
| | 89 | % |
Real estate 1-4 family junior lien mortgage | 41,152 |
| | 13 |
| | 46,237 |
| | 14 |
| 33,099 |
| | 10 |
| | 34,398 |
| | 11 |
|
Total real estate 1-4 family mortgage loans | $ | 321,325 |
| | 100 | % | | $ | 321,816 |
| | 100 | % | $ | 317,644 |
| | 100 | % | | $ | 319,463 |
| | 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 5%3% and 7%4% of total loans at September 30, 2017,March 31, 2019, and December 31, 2016,2018, 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 36% at September 30, 2017, as a result of our modification and loss mitigation efforts. For more information, see the “Pick-a-Pay“Risk Management – Credit Risk Management – Real Estate 1-4 Family First and Junior Lien Mortgage Loans – 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 modification programs, see the “Risk Management – Credit Risk Management – Real Estate 1-4 Family First and Junior Lien Mortgage Loans” section in our 20162018 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 20172019 on the non-PCI mortgage portfolio. Loans 30 days or more delinquent at September 30, 2017,March 31, 2019, totaled $5.3$3.8 billion, or 2%1% of total non-PCI mortgages, compared with $5.9$4.0 billion, or 2%1%, at December 31, 2016.2018. Loans with FICO scores lower than 640 totaled $12.2$9.3 billion, or 4%3% of total non-PCI mortgages at September 30, 2017,March 31, 2019, compared with $16.6$9.7 billion, or 5%3%, at December 31, 2016.2018. Mortgages with a LTV/CLTV greater than 100% totaled $6.7$3.7 billion at September 30, 2017,March 31, 2019, or 2%1% of total non-PCI mortgages, compared with $8.9$3.9 billion, or 3%1%, at December 31, 2016.2018. Information regarding credit quality indicators, including PCI credit quality indicators can be found in Note 56 (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 non-PCI mortgage loans (including PCI loans) to borrowers in California represented approximately 13% of total loans at September 30, 2017,March 31, 2019, located mostlypredominantly 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 first and junior lien mortgage portfolioportfolios as part of
our credit risk management process. Our underwriting and periodic review of loans and lines 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 56 (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 20162018 Form 10-K.
Table 16: Real Estate 1-4 Family First and Junior Lien Mortgage Loans by State
| | | September 30, 2017 | | March 31, 2019 | |
(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 | $ | 99,380 |
| | 11,006 |
| | 110,386 |
| | 12 | % | $ | 110,551 |
| | 9,042 |
| | 119,593 |
| | 13 | % |
New York | 26,008 |
| | 1,989 |
| | 27,997 |
| | 3 |
| 29,251 |
| | 1,647 |
| | 30,898 |
| | 3 |
|
New Jersey | | 13,828 |
| | 3,039 |
| | 16,867 |
| | 2 |
|
Florida | 13,278 |
| | 3,824 |
| | 17,102 |
| | 2 |
| 12,212 |
| | 2,992 |
| | 15,204 |
| | 1 |
|
New Jersey | 13,116 |
| | 3,704 |
| | 16,820 |
| | 2 |
| |
Washington | | 9,946 |
| | 739 |
| | 10,685 |
| | 1 |
|
Virginia | 7,899 |
| | 2,442 |
| | 10,341 |
| | 1 |
| 8,489 |
| | 1,930 |
| | 10,419 |
| | 1 |
|
Washington | 8,589 |
| | 900 |
| | 9,489 |
| | 1 |
| |
Texas | 8,732 |
| | 746 |
| | 9,478 |
| | 1 |
| 8,556 |
| | 638 |
| | 9,194 |
| | 1 |
|
North Carolina | 6,053 |
| | 1,930 |
| | 7,983 |
| | 1 |
| 5,869 |
| | 1,539 |
| | 7,408 |
| | 1 |
|
Pennsylvania | 5,681 |
| | 2,275 |
| | 7,956 |
| | 1 |
| 5,372 |
| | 1,855 |
| | 7,227 |
| | 1 |
|
Other (1) | 64,530 |
| | 12,307 |
| | 76,837 |
| | 8 |
| 65,096 |
| | 9,662 |
| | 74,758 |
| | 8 |
|
Government insured/ guaranteed loans (2) | 13,606 |
| | — |
| | 13,606 |
| | 1 |
| 12,191 |
| | — |
| | 12,191 |
| | 1 |
|
Real estate 1-4 family loans (excluding PCI) | 266,872 |
| | 41,123 |
| | 307,995 |
| | 33 |
| 281,361 |
| | 33,083 |
| | 314,444 |
| | 33 |
|
Real estate 1-4 family PCI loans (3) | 13,301 |
| | 29 |
| | 13,330 |
| | 1 |
| 3,184 |
| | 16 |
| | 3,200 |
| | — |
|
Total | $ | 280,173 |
| | 41,152 |
| | 321,325 |
| | 34 | % | $ | 284,545 |
| | 33,099 |
| | 317,644 |
| | 33 | % |
| |
(1) | Consists of 41 states; no state had loans in excess of $6.9 billion. $6.8 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 $9.1 billion in real estate 1-4 family mortgage PCI loans in California.
|
Risk Management - Credit Risk Management (continued)(continued)
First Lien Mortgage Portfolio Our total real estate 1-4 family first lien mortgage portfolio increased $3.6decreased $520 million in first quarter 2019, as paydowns and Pick-a-Pay PCI loan sales of $1.6 billion in third quarter 2017 and $4.6 billion in the first nine months of 2017, as non-conforming loan growth waswere partially offset by a declinegrowth in Pick-a-Paynonconforming mortgage loans. In addition, $776 million of nonconforming mortgage loan balances.originations that would have otherwise been included in this portfolio, were designated as held for sale in first quarter 2019 in anticipation of the future issuance of residential mortgage-backed securities. We retained $14.2 billion and $36.6$10.5 billion in non-conformingnonconforming originations, consisting of loans that exceed conventional conforming loan amount limits established by federal government-sponsored entities (GSEs) in the thirdfirst quarter and first nine months of 2017, respectively.2019.
The credit performance associated with our real estate 1-4 family first lien mortgage portfolio continued to improvewas stable in thirdfirst quarter 2017,
2019, 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
towas a net recovery of 0.02% and 0.01% in the thirdfirst quarter and first nine months of 2017, respectively,2019, compared with a net charge-offrecovery of 0.03% and 0.04% for the same periodsperiod a year ago. Nonaccrual loans were $4.2$3.0 billion at September 30, 2017, compared with $5.0 billion atMarch 31, 2019, down $157 million from December 31, 2016. Improvement2018. The decrease in the credit performancenonaccrual loans from December 31, 2018, was driven by nonaccrual loan sales and 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 77% of our total real estate 1-4 family first lien mortgage portfolio as of September 30, 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, 2017 |
| Dec 31, 2016 |
| | Sep 30, 2017 |
| Dec 31, 2016 | | Sep 30, 2017 |
| Jun 30, 2017 |
| Mar 31, 2017 |
| Dec 31, 2016 |
| Sep 30, 2016 |
| Mar 31, 2019 |
| Dec 31, 2018 |
| | Mar 31, 2019 |
| Dec 31, 2018 | | Mar 31, 2019 |
| Dec 31, 2018 |
| Sep 30, 2018 |
| Jun 30, 2018 |
| Mar 31, 2018 |
|
California | $ | 99,380 |
| 94,015 |
| | 0.97 | % | 1.21 | | (0.09 | ) | (0.08 | ) | (0.05 | ) | (0.08 | ) | (0.08 | ) | $ | 110,551 |
| 109,092 |
| | 0.63 | % | 0.68 | | (0.03 | ) | (0.04 | ) | (0.05 | ) | (0.07 | ) | (0.07 | ) |
New York | 26,008 |
| 23,815 |
| | 1.75 |
| 1.97 | | 0.05 |
| 0.02 |
| 0.06 |
| 0.04 |
| 0.07 |
| 29,251 |
| 28,954 |
| | 1.11 |
| 1.12 | | 0.02 |
| 0.02 |
| 0.04 |
| 0.09 |
| (0.01 | ) |
New Jersey | | 13,828 |
| 13,811 |
| | 1.75 |
| 1.91 | | 0.08 |
| 0.05 |
| (0.02 | ) | 0.02 |
| 0.08 |
|
Florida | 13,278 |
| 13,737 |
| | 4.17 |
| 3.62 | | (0.22 | ) | (0.18 | ) | (0.08 | ) | (0.18 | ) | (0.04 | ) | 12,212 |
| 12,350 |
| | 2.50 |
| 2.58 | | (0.10 | ) | (0.18 | ) | (0.22 | ) | (0.15 | ) | (0.14 | ) |
New Jersey | 13,116 |
| 12,669 |
| | 2.83 |
| 3.66 | | 0.15 |
| 0.17 |
| 0.22 |
| 0.21 |
| 0.37 |
| |
Texas | 8,732 |
| 8,584 |
| | 2.60 |
| 2.19 | | — |
| — |
| (0.01 | ) | (0.01 | ) | 0.06 |
| |
Washington | | 9,946 |
| 9,677 |
| | 0.49 |
| 0.57 | | (0.04 | ) | (0.06 | ) | (0.06 | ) | (0.06 | ) | (0.06 | ) |
Other | 92,752 |
| 91,136 |
| | 2.11 |
| 2.51 | | 0.02 |
| 0.01 |
| 0.05 |
| 0.06 |
| 0.10 |
| 93,382 |
| 93,261 |
| | 1.57 |
| 1.70 | | (0.02 | ) | (0.03 | ) | (0.03 | ) | (0.03 | ) | 0.01 |
|
Total | 253,266 |
| 243,956 |
| | 1.79 |
| 2.07 | | (0.03 | ) | (0.03 | ) | 0.01 |
| — |
| 0.03 |
| 269,170 |
| 267,145 |
| | 1.15 |
| 1.23 | | (0.02 | ) | (0.03 | ) | (0.04 | ) | (0.04 | ) | (0.03 | ) |
Government insured/guaranteed loans | 13,606 |
| 15,605 |
| | | | | 12,191 |
| 12,932 |
| | | | |
PCI | 13,301 |
| 16,018 |
| | | | | 3,184 |
| 4,988 |
| | | | |
Total first lien mortgages | $ | 280,173 |
| 275,579 |
| | | | | $ | 284,545 |
| 285,065 |
| | | | |
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. Pick-a-Pay option payment loans may have fixed or adjustable rates with payment options that include a minimum payment, an interest-only payment or fully amortizing payment (both 15 and 30 year options). Table 18 provides balances by types of loans as of September 30, 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 $17.3 billion at September 30, 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, 2017, compared with 51% at acquisition.March 31, 2019.
Table 18: Pick-a-Pay Portfolio – Comparison to Acquisition Date
| | | | | December 31, | | | | | | | | | | |
| September 30, 2017 | | | 2016 | | | 2008 | | March 31, 2019 | | | December 31, 2018 | |
(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 |
|
Option payment loans | $ | 11,460 |
| | 36 | % | | $ | 13,618 |
| | 37 | % | | $ | 99,937 |
| | 86 | % | $ | 8,084 |
| | 54 | % | | $ | 8,813 |
| | 50 | % |
Non-option payment adjustable-rate and fixed-rate loans | 3,951 |
| | 13 |
| | 4,630 |
| | 13 |
| | 15,763 |
| | 14 |
| 2,626 |
| | 18 |
| | 2,848 |
| | 16 |
|
Full-term loan modifications | 15,958 |
| | 51 |
| | 18,598 |
| | 50 |
| | — |
| | — |
| 4,126 |
| | 28 |
| | 6,080 |
| | 34 |
|
Total adjusted unpaid principal balance | $ | 31,369 |
| | 100 | % | | $ | 36,846 |
| | 100 | % | | $ | 115,700 |
| | 100 | % | $ | 14,836 |
| | 100 | % | | $ | 17,741 |
| | 100 | % |
Total carrying value | $ | 27,295 |
| | | | 32,292 |
| | | | 95,315 |
| | | $ | 13,834 |
| | | | 16,115 |
| | |
| |
(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. |
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, 2017 | |
| 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) |
|
California | $ | 11,753 |
| | 61 | % | | $ | 9,033 |
| | 47 | % | | $ | 6,703 |
| | 44 | % |
Florida | 1,481 |
| | 69 |
| | 1,076 |
| | 49 |
| �� | 1,439 |
| | 54 |
|
New Jersey | 586 |
| | 76 |
| | 429 |
| | 55 |
| | 953 |
| | 62 |
|
New York | 446 |
| | 69 |
| | 363 |
| | 52 |
| | 477 |
| | 59 |
|
Texas | 135 |
| | 48 |
| | 102 |
| | 36 |
| | 570 |
| | 37 |
|
Other | 2,928 |
| | 68 |
| | 2,208 |
| | 51 |
| | 3,942 |
| | 56 |
|
Total Pick-a-Pay loans | $ | 17,329 |
| | 64 |
| | $ | 13,211 |
| | 48 |
| | $ | 14,084 |
| | 50 |
|
| | | | | | | | | | | |
| |
(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 2017.
|
| |
(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 137,800 proprietary and Home Affordability Modification Program (HAMP) Pick-a-Pay loan modifications, including over 200 modifications in third quarter 2017. Pick-a-Pay loan modifications have resulted in over $6.1 billion of principal forgiveness since December 31, 2008. We have also provided interest rate reductions and loan term extensions to enable sustainable homeownership for our Pick-a-Pay customers. As a result of these loss mitigation programs, approximately 71% of our Pick-a-Pay PCI adjusted unpaid principal balance as of September 30, 2017 has been modified.
The predominant portion of our remaining PCI loans is included in the Pick-a-Pay portfolio. We regularly evaluate our estimatesTotal carrying value 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 abilitywas $3.1 billion at March 31, 2019, compared with $4.9 billion at December 31, 2018. During first quarter 2019, we sold $1.6 billion of these borrowers to prepay their loans, thus increasing the future expected weighted-average life of the portfolio since acquisition. However, the higher prepayment trend that emerged in our Pick-a-Pay PCI loans portfoliothat resulted in a gain of $608 million. We also expect to close on the prior year, which we attribute to the benefitssale of home price appreciation has continued to result in more loan (unpaid principal balance) to value ratios reaching an important industry refinancing inflection pointapproximately $2.0 billion of below 80%. As a result, we have continued to experience an increased level of borrowers qualifying for products to refinance their loans which may not have previously been available to them. Therefore, during first quarter 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 higher prepayments over the remainder of
its life. The increaseloans in expected prepayments in the firstsecond quarter and passage of time lowered our estimated weighted-average life to approximately 6.8 years at September 30, 2017, from 7.4 years at December 31, 2016.2019. The accretable yield balance related toof our Pick-a-Pay PCI loan portfolio declined $104 millionwas $1.5 billion ($126 million1.7 billion for all PCI loans) during third quarter 2017, driven by realized accretion of $315 millionat March 31, 2019, compared with $2.8 billion ($340 million3.0 billion for all PCI loans), $233 million reclassification from nonaccretable difference for loans with improving cash flows at December 31, 2018. The estimated weighted-average life was approximately 5.3 years and a $22 million reduction in expected interest cash flows resulting from improved cash flow timing.5.5 years at March 31, 2019 and December 31, 2018, respectively. The accretable yield percentage for Pick-a-Pay PCI loans for thirdfirst quarter 20172019 was 9.32%11.49%, up from 8.22% for fourth quarter 2016, due to an increase in the amount of accretable yield relative to the shortened weighted-average life. Due to the improving cash flow timing,and we expect the accretable yield percentage to be 9.83%increase to approximately 11.56% for fourthsecond quarter 2017.
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 $8.9 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.2019.
For furtheradditional 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 20162018 Form 10-K.
Risk Management - Credit Risk Management (continued)(continued)
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 2016 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. Junior lien loan products are mostly 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 seniorfirst 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 2019 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, 2016,2018, predominantly reflects loan paydowns. As of September 30, 2017, 10%March 31, 2019, 6% 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%, 2.96%2.76% 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 3%2% of the junior lien mortgage portfolio at September 30, 2017.March 31, 2019. For additional information on consumer loans by LTV/CLTV, see Table 5.126.12 in Note 56 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.
Table 20:19: Junior 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, 2017 |
| | Dec 31, 2016 |
| | Sep 30, 2017 |
| | Dec 31, 2016 | | Sep 30, 2017 |
| | Jun 30, 2017 |
| | Mar 31, 2017 |
| | Dec 31, 2016 |
| | Sep 30, 2016 |
| Mar 31, 2019 |
| | Dec 31, 2018 |
| | Mar 31, 2019 |
| | Dec 31, 2018 | | Mar 31, 2019 |
| | Dec 31, 2018 |
| | Sep 30, 2018 |
| | Jun 30, 2018 |
| | Mar 31, 2018 |
|
California | $ | 11,006 |
| | 12,539 |
| | 1.89 | % | | 1.86 | | (0.46 | ) | | (0.42 | ) | | (0.37 | ) | | (0.18 | ) | | (0.13 | ) | $ | 9,042 |
| | 9,338 |
| | 1.74 | % | | 1.67 | | (0.39 | ) | | (0.33 | ) | | (0.51 | ) | | (0.56 | ) | | (0.42 | ) |
New Jersey | | 3,039 |
| | 3,152 |
| | 2.59 |
| | 2.57 | | 0.12 |
| | 0.03 |
| | 0.24 |
| | 0.28 |
| | 0.44 |
|
Florida | 3,824 |
| | 4,252 |
| | 2.78 |
| | 2.17 | | 0.06 |
| | (0.10 | ) | | 0.30 |
| | 0.47 |
| | 0.56 |
| 2,992 |
| | 3,140 |
| | 2.80 |
| | 2.73 | | (0.05 | ) | | 0.07 |
| | 0.12 |
| | (0.05 | ) | | (0.12 | ) |
New Jersey | 3,704 |
| | 4,031 |
| | 2.79 |
| | 2.79 | | 0.58 |
| | 0.44 |
| | 1.06 |
| | 1.36 |
| | 0.96 |
| |
Virginia | 2,442 |
| | 2,696 |
| | 1.93 |
| | 1.97 | | 0.33 |
| | 0.17 |
| | 0.48 |
| | 0.67 |
| | 0.55 |
| 1,930 |
| | 2,020 |
| | 1.96 |
| | 1.91 | | 0.14 |
| | 0.04 |
| | 0.16 |
| | 0.30 |
| | 0.25 |
|
Pennsylvania | 2,275 |
| | 2,494 |
| | 2.07 |
| | 2.07 | | 0.47 |
| | 0.29 |
| | 0.67 |
| | 1.01 |
| | 0.75 |
| 1,855 |
| | 1,929 |
| | 2.18 |
| | 2.10 | | 0.04 |
| | 0.25 |
| | 0.18 |
| | 0.13 |
| | 0.06 |
|
Other | 17,872 |
| | 20,189 |
| | 2.11 |
| | 2.09 | | 0.06 |
| | 0.05 |
| | 0.28 |
| | 0.39 |
| | 0.51 |
| 14,225 |
| | 14,802 |
| | 2.04 |
| | 2.12 | | (0.03 | ) | | (0.11 | ) | | (0.05 | ) | | (0.06 | ) | | (0.05 | ) |
Total | 41,123 |
|
| 46,201 |
| | 2.16 |
| | 2.09 | | — |
| | (0.03 | ) | | 0.21 |
| | 0.38 |
| | 0.40 |
| 33,083 |
|
| 34,381 |
| | 2.08 |
| | 2.08 | | (0.10 | ) | | (0.11 | ) | | (0.10 | ) | | (0.13 | ) | | (0.09 | ) |
PCI | 29 |
| | 36 |
| | | | | | | | | | | | | 16 |
| | 17 |
| | | | | | | | | | | | |
Total junior lien mortgages | $ | 41,152 |
| | 46,237 |
| | | | | | | | | | | | | $ | 33,099 |
| | 34,398 |
| | | | | | | | | | | | |
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 first and junior lien portfolio.lines of credit portfolios. In September 2017,March 2019, approximately 48%43% of these borrowers paid only the minimum amount due and approximately 46%52% 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
with an interest only payment feature, approximately 33%29% paid only the minimum amount due and approximately 62%65% 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 2120 reflects the outstanding balance of our portfolio of junior lien mortgages, including lines and loans, and seniorfirst 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 $144$105 million, because they are predominantly insured by the FHA, and it excludes PCI loans, which total $51$32 million, because their losses were generally reflected in our nonaccretable difference established at the date of acquisition.
Table 21:20: Junior Lien Mortgage Line and Loan and SeniorFirst Lien Mortgage Line Portfolios Payment Schedule
| | | | | | | Scheduled end of draw / term | | | | | | | | Scheduled end of draw / term | | | |
(in millions) | Outstanding balance September 30, 2017 |
| | Remainder of 2017 |
| | 2018 |
| | 2019 |
| | 2020 |
| | 2021 |
| | 2022 and thereafter (1) |
| | Amortizing |
| Outstanding balance March 31, 2019 |
| | Remainder of 2019 |
| | 2020 |
| | 2021 |
| | 2022 |
| | 2023 |
| | 2024 and thereafter (1) |
| | Amortizing (3) |
|
Junior lien lines and loans | $ | 41,123 |
| | 538 |
| | 1,771 |
| | 770 |
| | 703 |
| | 1,410 |
| | 22,562 |
| | 13,369 |
| $ | 33,083 |
| | 295 |
| | 450 |
| | 1,039 |
| | 3,788 |
| | 2,622 |
| | 14,030 |
| | 10,859 |
|
First lien lines | 13,809 |
| | 89 |
| | 578 |
| | 284 |
| | 263 |
| | 616 |
| | 9,899 |
| | 2,080 |
| 11,376 |
| | 103 |
| | 180 |
| | 488 |
| | 1,821 |
| | 1,369 |
| | 5,472 |
| | 1,943 |
|
Total (3)(2) | $ | 54,932 |
| | 627 |
| | 2,349 |
| | 1,054 |
| | 966 |
| | 2,026 |
| | 32,461 |
| | 15,449 |
| $ | 44,459 |
| | 398 |
| | 630 |
| | 1,527 |
| | 5,609 |
| | 3,991 |
| | 19,502 |
| | 12,802 |
|
% of portfolios | 100 | % | | 1 |
| | 4 |
| | 2 |
| | 2 |
| | 4 |
| | 59 |
| | 28 |
| 100 | % | | 1 |
| | 1 |
| | 3 |
| | 13 |
| | 9 |
| | 44 |
| | 29 |
|
End-of-term balloon payments included in Total | | $ | 877 |
| | 130 |
| | 206 |
| | 343 |
| | 163 |
| | 7 |
| | 28 |
| | |
| |
(1) | Substantially all lines and loans are scheduled to convert to amortizing loans by the end of 2026,2028, with annual scheduled amounts through that date2028 ranging from $4.2$2.2 billion to $7.2$5.5 billion and averaging $6.1$3.8 billion per year. |
| |
(2) | Junior and first lien lines are mostlyprimarily interest-only during their draw period. The unfunded credit commitments for junior and first lien lines totaled $63.1$60.2 billion at September 30, 2017. March 31, 2019. |
| |
(3) | Includes scheduled end-of-term balloon payments for lines and loans totaling $52 million, $257 million, $278 million, $304 million, $479 million and $279 million for 2017, 2018, 2019, 2020, 2021, and 2022 and thereafter, respectively. Amortizing lines and loans include $100$52 million of end-of-term balloon payments, which are past due. At September 30, 2017, $533March 31, 2019, $456 million,, or 4% of outstanding lines of credit that are amortizing, are 30 days or more past due compared to $649$537 million, or 2%, for lines in their draw period.
|
CREDIT CARDS Our credit card portfolio totaled $36.2$38.3 billion at September 30, 2017,March 31, 2019, which represented 4% of our total outstanding loans. The net charge-off rate (annualized) for our credit card portfolio was 3.08%3.73% for thirdfirst quarter 2017,2019, compared with 2.82%3.69% for thirdfirst quarter 2016 and 3.43% and 3.07% for the first nine months of 2017 and 2016, respectively, principally from seasoning of newer vintages.2018.
AUTOMOBILE Our automobile portfolio, predominantly composed of indirect loans, totaled $55.5$44.9 billion at September 30, 2017.March 31, 2019. The net charge-off rate (annualized) for our automobile portfolio was 1.41%0.82% for thirdfirst quarter 2017,2019, compared with 0.87%1.64% for thirdfirst quarter 2016 and 1.12% and 0.77% for2018. The decrease in the net charge-off rate in first nine months of 2017 and 2016, respectively. The increase in net charge-offs in 2017,quarter 2019, compared with 2016,the same period in 2018, was due to increased loss severities resultingdriven by lower early losses from a temporary moratorium on certain repossessions for customers who have had collateral protection insurance (CPI) policies purchased on their behalf while we remediate the previously disclosed CPI issues, as well as updated industry regulatory guidance regarding the timing of loss recognition for automobile loans in bankruptcy, and also reflected the current trend of increased charge-offs in the automobile lending industry.higher quality originations.
OTHER REVOLVING CREDIT AND INSTALLMENT Other revolving credit and installment loans totaled $38.7$35.2 billion at September 30, 2017,March 31, 2019, and primarily included student and securities-based loans. Our private student loan portfolio totaled $12.2$11.1 billion at September 30, 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, 2017.2019. The net charge-off rate (annualized) for other revolving credit and installment loans was 1.44%1.47% for thirdfirst quarter 2017,2019, compared with 1.40%1.60% for thirdfirst quarter 2016 and 1.54% and 1.38% for the first nine months of 2017 and 2016, respectively.2018.
Risk Management - Credit Risk Management (continued)(continued)
NONPERFORMING ASSETS (NONACCRUAL LOANS AND FORECLOSED ASSETS) Table 2221 summarizes nonperforming assets (NPAs) for each of the last four quarters. Total NPAs decreased $512increased $394 million from secondfourth quarter 20172018 to $9.3 billion with improvement across our consumer and commercial portfolios.$7.3 billion. Nonaccrual loans decreased $437increased $409 million from secondfourth quarter 20172018 to $8.6$6.9 billion, reflecting declineshigher commercial nonaccruals predominantly in commercialthe oil, gas and industrial nonaccruals, as well as continued lower consumer real estate nonaccruals.pipelines, and utilities portfolios. Foreclosed assets of $706$436 million were down $75
$15 million from secondfourth quarter 2017.
We2018. For information about when we generally place loans on nonaccrual status, when:
the full and timely collectionsee Note 1 (Summary of interest or principal becomes uncertain (generally based on an assessment of the borrower’s financial condition and the adequacy of collateral, if any);
they are 90 days (120 days with respectSignificant Accounting Policies) to real estate 1-4 family first and junior lien mortgages) past due for interest
or principal, unless both well-secured andFinancial Statements in the process of collection;
part of the principal balance has been charged off;
for junior lien mortgages, we have evidence that the related first lien mortgage may be 120 days past due or in the process of foreclosure regardless of the junior lien delinquency status; or
consumer real estate and automobile loans receive notification of bankruptcy, regardless of their delinquency status.
our 2018 Form 10-K. Credit card loans are not placed on nonaccrual status, but are generally fully charged off when the loan reaches 180 days past due.
Table 22:21: Nonperforming Assets (Nonaccrual Loans and Foreclosed Assets)
| | | | September 30, 2017 | | | June 30, 2017 | | | March 31, 2017 | | | December 31, 2016 | | | March 31, 2019 | | | December 31, 2018 | | | September 30, 2018 | | | June 30, 2018 | |
($ 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 | | $ | 2,397 |
| | 0.73 | % | | $ | 2,632 |
| | 0.79 | % | | $ | 2,898 |
| | 0.88 | % | | $ | 3,216 |
| | 0.97 | % | | $ | 1,986 |
| | 0.57 | % | | $ | 1,486 |
| | 0.42 | % | | $ | 1,555 |
| | 0.46 | % | | $ | 1,559 |
| | 0.46 | % |
Real estate mortgage | | 593 |
| | 0.46 |
| | 630 |
| | 0.48 |
| | 672 |
| | 0.51 |
| | 685 |
| | 0.52 |
| | 699 |
| | 0.57 |
| | 580 |
| | 0.48 |
| | 603 |
| | 0.50 |
| | 765 |
| | 0.62 |
|
Real estate construction | | 38 |
| | 0.15 |
| | 34 |
| | 0.13 |
| | 40 |
| | 0.16 |
| | 43 |
| | 0.18 |
| | 36 |
| | 0.16 |
| | 32 |
| | 0.14 |
| | 44 |
| | 0.19 |
| | 51 |
| | 0.22 |
|
Lease financing | | 81 |
| | 0.42 |
| | 89 |
| | 0.46 |
| | 96 |
| | 0.50 |
| | 115 |
| | 0.60 |
| | 76 |
| | 0.40 |
| | 90 |
| | 0.46 |
| | 96 |
| | 0.49 |
| | 80 |
| | 0.41 |
|
Total commercial | | 3,109 |
| | 0.62 |
| | 3,385 |
| | 0.67 |
| | 3,706 |
| | 0.73 |
| | 4,059 |
| | 0.80 |
| | 2,797 |
| | 0.55 |
| | 2,188 |
| | 0.43 |
| | 2,298 |
| | 0.46 |
| | 2,455 |
| | 0.49 |
|
Consumer: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Real estate 1-4 family first mortgage (1) | | 4,213 |
| | 1.50 |
| | 4,413 |
| | 1.60 |
| | 4,743 |
| | 1.73 |
| | 4,962 |
| | 1.80 |
| | 3,026 |
| | 1.06 |
| | 3,183 |
| | 1.12 |
| | 3,267 |
| | 1.15 |
| | 3,469 |
| | 1.23 |
|
Real estate 1-4 family junior lien mortgage | | 1,101 |
| | 2.68 |
| | 1,095 |
| | 2.56 |
| | 1,153 |
| | 2.60 |
| | 1,206 |
| | 2.61 |
| | 916 |
| | 2.77 |
| | 945 |
| | 2.75 |
| | 983 |
| | 2.78 |
| | 1,029 |
| | 2.82 |
|
Automobile | | 137 |
| | 0.25 |
| | 104 |
| | 0.18 |
| | 101 |
| | 0.17 |
| | 106 |
| | 0.17 |
| | 116 |
| | 0.26 |
| | 130 |
| | 0.29 |
| | 118 |
| | 0.26 |
| | 119 |
| | 0.25 |
|
Other revolving credit and installment | | 59 |
| | 0.15 |
| | 59 |
| | 0.15 |
| | 56 |
| | 0.14 |
| | 51 |
| | 0.13 |
| | 50 |
| | 0.14 |
| | 50 |
| | 0.14 |
| | 48 |
| | 0.13 |
| | 54 |
| | 0.14 |
|
Total consumer (2) | | 5,510 |
| | 1.22 |
| | 5,671 |
| | 1.26 |
| | 6,053 |
| | 1.34 |
| | 6,325 |
| | 1.37 |
| | 4,108 |
| | 0.94 |
| | 4,308 |
| | 0.98 |
| | 4,416 |
| | 1.00 |
| | 4,671 |
| | 1.06 |
|
Total nonaccrual loans (5)(3) | | 8,619 |
| | 0.91 |
| | 9,056 |
| | 0.95 |
| | 9,759 |
| | 1.02 |
| | 10,384 |
| | 1.07 |
| | 6,905 |
| | 0.73 |
| | 6,496 |
| | 0.68 |
| | 6,714 |
| | 0.71 |
| | 7,126 |
| | 0.75 |
|
Foreclosed assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Government insured/guaranteed (6)(4) | | 137 |
| | | | 149 |
| | | | 179 |
| | | | 197 |
| | | | 75 |
| | | | 88 |
| | | | 87 |
| | | | 90 |
| | |
Non-government insured/guaranteed | | 569 |
| | | | 632 |
| | | | 726 |
| | | | 781 |
| | | | 361 |
| | | | 363 |
| | | | 435 |
| | | | 409 |
| | |
Total foreclosed assets | | 706 |
| | | | 781 |
| | | | 905 |
| | | | 978 |
| | | | 436 |
| | | | 451 |
| | | | 522 |
| | | | 499 |
| | |
Total nonperforming assets | | $ | 9,325 |
| | 0.98 | % | | $ | 9,837 |
| | 1.03 | % | | $ | 10,664 |
| | 1.11 | % | | $ | 11,362 |
| | 1.17 | % | | $ | 7,341 |
| | 0.77 | % | | $ | 6,947 |
| | 0.73 | % | | $ | 7,236 |
| | 0.77 | % | | $ | 7,625 |
| | 0.81 | % |
Change in NPAs from prior quarter | | $ | (512 | ) | | | | (827 | ) | | | | (698 | ) | | | | (644 | ) | | | | $ | 394 |
| | | | (289 | ) | | | | (389 | ) | | | | (285 | ) | | |
| |
(1) | Includes MHFS of $133 million, $140 million, $145 million, and $149 million at September 30, June 30, and March 31, 2017 and December 31, 2016, respectively.
|
| |
(2) | Includes an incremental $171 million of nonaccrual loans at September 30, 2017, reflecting updated industry regulatory guidance related to loans in bankruptcy. |
| |
(3) | Excludes PCI loans because they continue to earn interest income from accretable yield, independent of performance in accordance with their contractual terms. |
| |
(4)(2) | Real estate 1-4 family mortgage loans predominantly insured by the FHA or guaranteed by the VA and student loans largely guaranteed by agencies on behalf of the U.S. Department of Education under the FFELP 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. |
| |
(5)(3) | See Note 56 (Loans and Allowance for Credit Losses) to Financial Statements in this Report for further information on impaired loans. |
| |
(6)(4) | Consistent with regulatory reporting requirements, foreclosed real estate resulting from government insured/guaranteed loans are classified as nonperforming. However, 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 estateclassification of certain government-guaranteed mortgage loans upon foreclosure, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 20162018 Form 10-K. |
Table 2322 provides an analysis of the changes in nonaccrual loans.
Table 23:22: Analysis of Changes in Nonaccrual Loans
|
| | | | | | | | | | | | | | | |
| Quarter ended | |
(in millions) | Sep 30, 2017 |
| | Jun 30, 2017 |
| | Mar 31, 2017 |
| | Dec 31, 2016 |
| | Sep 30, 2016 |
|
Commercial nonaccrual loans | | | | | | | | | |
Balance, beginning of period | $ | 3,385 |
| | 3,706 |
| | 4,059 |
| | 4,262 |
| | 4,507 |
|
Inflows | 627 |
| | 704 |
| | 945 |
| | 951 |
| | 1,180 |
|
Outflows: | | | | | | | | | |
Returned to accruing | (97 | ) | | (61 | ) | | (133 | ) | | (59 | ) | | (80 | ) |
Foreclosures | (3 | ) | | (15 | ) | | (1 | ) | | (15 | ) | | (1 | ) |
Charge-offs | (173 | ) | | (116 | ) | | (202 | ) | | (292 | ) | | (290 | ) |
Payments, sales and other | (630 | ) | | (833 | ) | | (962 | ) | | (788 | ) | | (1,054 | ) |
Total outflows | (903 | ) | | (1,025 | ) | | (1,298 | ) | | (1,154 | ) | | (1,425 | ) |
Balance, end of period | 3,109 |
|
| 3,385 |
|
| 3,706 |
|
| 4,059 |
|
| 4,262 |
|
Consumer nonaccrual loans | | | | | | | | | |
Balance, beginning of period | 5,671 |
| | 6,053 |
| | 6,325 |
| | 6,724 |
| | 7,456 |
|
Inflows (1) | 887 |
| | 676 |
| | 814 |
| | 863 |
| | 868 |
|
Outflows: | | | | | | | | | |
Returned to accruing | (397 | ) | | (425 | ) | | (428 | ) | | (410 | ) | | (597 | ) |
Foreclosures | (56 | ) | | (72 | ) | | (81 | ) | | (59 | ) | | (85 | ) |
Charge-offs | (109 | ) | | (117 | ) | | (151 | ) | | (158 | ) | | (192 | ) |
Payments, sales and other | (486 | ) | | (444 | ) | | (426 | ) | | (635 | ) | | (726 | ) |
Total outflows | (1,048 | ) | | (1,058 | ) | | (1,086 | ) | | (1,262 | ) | | (1,600 | ) |
Balance, end of period | 5,510 |
|
| 5,671 |
|
| 6,053 |
|
| 6,325 |
|
| 6,724 |
|
Total nonaccrual loans | $ | 8,619 |
| | 9,056 |
| | 9,759 |
| | 10,384 |
| | 10,986 |
|
| |
(1) | Quarter ended September 30, 2017, includes an incremental $171 million of nonaccrual loans, reflecting updated industry regulatory guidance related to loans in bankruptcy. |
|
| | | | | | | | | | | | | | | |
| Quarter ended | |
(in millions) | Mar 31, 2019 |
| | Dec 31, 2018 |
| | Sep 30, 2018 |
| | Jun 30, 2018 |
| | Mar 31, 2018 |
|
Commercial nonaccrual loans | | | | | | | | | |
Balance, beginning of period | $ | 2,188 |
| | 2,298 |
| | 2,455 |
| | 2,409 |
| | 2,640 |
|
Inflows | 1,238 |
| | 662 |
| | 774 |
| | 726 |
| | 605 |
|
Outflows: | | | | | | | | | |
Returned to accruing | (43 | ) | | (45 | ) | | (122 | ) | | (43 | ) | | (113 | ) |
Foreclosures | (15 | ) | | (12 | ) | | — |
| | — |
| | — |
|
Charge-offs | (158 | ) | | (193 | ) | | (191 | ) | | (133 | ) | | (119 | ) |
Payments, sales and other | (413 | ) | | (522 | ) | | (618 | ) | | (504 | ) | | (604 | ) |
Total outflows | (629 | ) | | (772 | ) | | (931 | ) | | (680 | ) | | (836 | ) |
Balance, end of period | 2,797 |
|
| 2,188 |
|
| 2,298 |
|
| 2,455 |
|
| 2,409 |
|
Consumer nonaccrual loans | | | | | | | | | |
Balance, beginning of period | 4,308 |
| | 4,416 |
| | 4,671 |
| | 4,930 |
| | 5,006 |
|
Inflows | 552 |
| | 569 |
| | 572 |
| | 578 |
| | 714 |
|
Outflows: | | | | | | | | | |
Returned to accruing | (248 | ) | | (269 | ) | | (319 | ) | | (342 | ) | | (374 | ) |
Foreclosures | (42 | ) | | (35 | ) | | (41 | ) | | (40 | ) | | (50 | ) |
Charge-offs | (49 | ) | | (57 | ) | | (65 | ) | | (84 | ) | | (86 | ) |
Payments, sales and other | (413 | ) | | (316 | ) | | (402 | ) | | (371 | ) | | (280 | ) |
Total outflows | (752 | ) | | (677 | ) | | (827 | ) | | (837 | ) | | (790 | ) |
Balance, end of period | 4,108 |
|
| 4,308 |
|
| 4,416 |
|
| 4,671 |
|
| 4,930 |
|
Total nonaccrual loans | $ | 6,905 |
| | 6,496 |
| | 6,714 |
| | 7,126 |
| | 7,339 |
|
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, 2017:March 31, 2019:
98%over 87% of total commercial nonaccrual loans and 99% of total consumer nonaccrual loans are secured. Of the consumer nonaccrual loans, 96% are secured by real estate and 81%87% have a combined LTV (CLTV) ratio of 80% or less.
losses of $380304 million and $1.91.4 billion have already been recognized on 16%15% of commercial nonaccrual loans and 45%44% 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),respectively, in accordance with our charge-off policies. Once we transfer itwrite down loans 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 reevaluatere-evaluate each loan regularly and record additional write-downs if needed.
88%75% of commercial nonaccrual loans were current on interest and 68% were current on both principal and interest, but were on nonaccrual status because the full or timely collection of interest or principal had become uncertain.
82% of commercial nonaccrual loans were current on both principal and interest, and will remain on nonaccrual until the full and timely collection of principal and interest becomes certain.
the remaining risk of loss of all nonaccrual loans has been considered and we believe is adequately covered by the allowance for loan losses.
of $2.41.8 billion of consumer loans in bankruptcy or discharged in bankruptcy, and classified as nonaccrual, $1.51.3 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 Making 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.
Risk Management - Credit Risk Management (continued)(continued)
Table 2423 provides a summary of foreclosed assets and an analysis of changes in foreclosed assets.
Table 24:23: Foreclosed Assets
| | (in millions) | Sep 30, 2017 |
| | Jun 30, 2017 |
| | Mar 31, 2017 |
| | Dec 31, 2016 |
| | Sep 30, 2016 |
| Mar 31, 2019 |
| | Dec 31, 2018 |
| | Sep 30, 2018 |
| | Jun 30, 2018 |
| | Mar 31, 2018 |
|
Summary by loan segment | | | | | | | | | | | | | | | | | | |
Government insured/guaranteed | $ | 137 |
| | 149 |
| | 179 |
| | 197 |
| | 282 |
| $ | 75 |
| | 88 |
| | 87 |
| | 90 |
| | 103 |
|
PCI loans: | | | | | | | | | | |
Commercial | 67 |
| | 79 |
| | 84 |
| | 91 |
| | 98 |
| 124 |
| | 127 |
| | 201 |
| | 176 |
| | 221 |
|
Consumer | 72 |
| | 67 |
| | 80 |
| | 75 |
| | 88 |
| 237 |
| | 236 |
| | 234 |
| | 233 |
| | 247 |
|
Total PCI loans | 139 |
| | 146 |
| | 164 |
| | 166 |
| | 186 |
| |
All other loans: | | | | | | | | | | |
Commercial | 226 |
| | 259 |
| | 275 |
| | 287 |
| | 298 |
| |
Consumer | 204 |
| | 227 |
| | 287 |
| | 328 |
| | 254 |
| |
Total all other loans | 430 |
| | 486 |
| | 562 |
| | 615 |
| | 552 |
| |
Total foreclosed assets | $ | 706 |
| | 781 |
| | 905 |
| | 978 |
| | 1,020 |
| $ | 436 |
| | 451 |
| | 522 |
| | 499 |
| | 571 |
|
Analysis of changes in foreclosed assets (1) | | | | | | | | | | |
Analysis of changes in foreclosed assets | | | | | | | | | | |
Balance, beginning of period | $ | 781 |
| | 905 |
| | 978 |
| | 1,020 |
| | 1,117 |
| $ | 451 |
| | 522 |
| | 499 |
| | 571 |
| | 642 |
|
Net change in government insured/guaranteed (2) | (12 | ) | | (30 | ) | | (18 | ) | | (85 | ) | | (39 | ) | |
Additions to foreclosed assets (3) | 198 |
| | 233 |
| | 288 |
| | 405 |
| | 261 |
| |
Net change in government insured/guaranteed (1) | | (13 | ) | | 1 |
| | (3 | ) | | (13 | ) | | (17 | ) |
Additions to foreclosed assets (2) | | 193 |
| | 193 |
| | 209 |
| | 191 |
| | 185 |
|
Reductions: | | | | | | | | | | | | | | | | | | |
Sales | (257 | ) | | (330 | ) | | (307 | ) | | (296 | ) | | (421 | ) | (205 | ) | | (274 | ) | | (181 | ) | | (257 | ) | | (245 | ) |
Write-downs and gains (losses) on sales | (4 | ) | | 3 |
| | (36 | ) | | (66 | ) | | 102 |
| 10 |
| | 9 |
| | (2 | ) | | 7 |
| | 6 |
|
Total reductions | (261 | ) | | (327 | ) | | (343 | ) | | (362 | ) | | (319 | ) | (195 | ) | | (265 | ) | | (183 | ) | | (250 | ) | | (239 | ) |
Balance, end of period | $ | 706 |
| | 781 |
| | 905 |
| | 978 |
| | 1,020 |
| $ | 436 |
| | 451 |
| | 522 |
| | 499 |
| | 571 |
|
| |
(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,MLHFS, and outflows when we are reimbursed by FHA/VA. |
| |
(3)(2) | Includes loans moved into foreclosureforeclosed assets from nonaccrual status, PCI loans transitioned directly to foreclosed assets and repossessed automobiles. |
Foreclosed assets at September 30, 2017,March 31, 2019, included $398$304 million of foreclosed residential real estate, of which 34%25% is predominantly FHA insured or VA guaranteed and expected to have minimal or no loss content. The remaining amount of foreclosed assets balance of $308 million has been written down to estimated net realizable value. Of the $706$436 million in foreclosed assets at September 30, 2017, 56%March 31, 2019, 69% have been in the foreclosed assets portfolio one year or less.
TROUBLED DEBT RESTRUCTURINGS (TDRs)
Table 25:24: Troubled Debt Restructurings (TDRs)
| | (in millions) | Sep 30, 2017 |
|
| Jun 30, 2017 |
|
| Mar 31, 2017 |
|
| Dec 31, 2016 |
|
| Sep 30, 2016 |
| Mar 31, 2019 |
|
| Dec 31, 2018 |
|
| Sep 30, 2018 |
|
| Jun 30, 2018 |
|
| Mar 31, 2018 |
|
Commercial: | | | | | | | | | | | | | | | | | | |
Commercial and industrial | $ | 2,424 |
| | 2,629 |
| | 2,484 |
| | 2,584 |
| | 2,445 |
| $ | 1,740 |
| | 1,623 |
| | 1,837 |
| | 1,792 |
| | 1,703 |
|
Real estate mortgage | 953 |
| | 1,024 |
| | 1,090 |
| | 1,119 |
| | 1,256 |
| 681 |
| | 704 |
| | 782 |
| | 904 |
| | 939 |
|
Real estate construction | 48 |
| | 62 |
| | 73 |
| | 91 |
| | 95 |
| 45 |
| | 39 |
| | 49 |
| | 40 |
| | 45 |
|
Lease financing | 39 |
| | 21 |
| | 8 |
| | 6 |
| | 8 |
| 46 |
| | 56 |
| | 65 |
| | 50 |
| | 53 |
|
Total commercial TDRs | 3,464 |
| | 3,736 |
| | 3,655 |
| | 3,800 |
| | 3,804 |
| 2,512 |
| | 2,422 |
| | 2,733 |
| | 2,786 |
| | 2,740 |
|
Consumer: | | | | | | | | | | | | | | | | | | |
Real estate 1-4 family first mortgage | 12,617 |
| | 13,141 |
| | 13,680 |
| | 14,134 |
| | 14,761 |
| 10,343 |
| | 10,629 |
| | 10,967 |
| | 11,387 |
| | 11,782 |
|
Real estate 1-4 family junior lien mortgage | 1,919 |
| | 1,975 |
| | 2,027 |
| | 2,074 |
| | 2,144 |
| 1,604 |
| | 1,639 |
| | 1,689 |
| | 1,735 |
| | 1,794 |
|
Credit Card | 340 |
| | 316 |
| | 308 |
| | 300 |
| | 294 |
| 473 |
| | 449 |
| | 431 |
| | 410 |
| | 386 |
|
Automobile | 88 |
| | 85 |
| | 80 |
| | 85 |
| | 89 |
| 85 |
| | 89 |
| | 91 |
| | 81 |
| | 83 |
|
Other revolving credit and installment | 124 |
| | 118 |
| | 107 |
| | 101 |
| | 93 |
| 156 |
| | 154 |
| | 146 |
| | 141 |
| | 137 |
|
Trial modifications | 183 |
| | 215 |
| | 261 |
| | 299 |
| | 348 |
| 136 |
| | 149 |
| | 163 |
| | 200 |
| | 198 |
|
Total consumer TDRs (1) | 15,271 |
| | 15,850 |
| | 16,463 |
| | 16,993 |
| | 17,729 |
| 12,797 |
| | 13,109 |
| | 13,487 |
| | 13,954 |
| | 14,380 |
|
Total TDRs | $ | 18,735 |
| | 19,586 |
| | 20,118 |
| | 20,793 |
| | 21,533 |
| $ | 15,309 |
| | 15,531 |
| | 16,220 |
| | 16,740 |
| | 17,120 |
|
TDRs on nonaccrual status | $ | 5,218 |
| | 5,637 |
| | 5,819 |
| | 6,193 |
| | 6,429 |
| $ | 4,037 |
| | 4,058 |
| | 4,298 |
| | 4,454 |
| | 4,428 |
|
TDRs on accrual status (1) | 13,517 |
| | 13,949 |
| | 14,299 |
| | 14,600 |
| | 15,104 |
| |
TDRs on accrual status: | | | | | | | | | | |
Government insured/guaranteed | | 1,275 |
| | 1,299 |
| | 1,308 |
| | 1,368 |
| | 1,375 |
|
Non-government insured/guaranteed | | 9,997 |
| | 10,174 |
| | 10,614 |
| | 10,918 |
| | 11,317 |
|
Total TDRs | $ | 18,735 |
| | 19,586 |
| | 20,118 |
| | 20,793 |
| | 21,533 |
| $ | 15,309 |
| | 15,531 |
| | 16,220 |
| | 16,740 |
| | 17,120 |
|
| |
(1) | TDR loans include $1.4 billion, $1.4 billion, $1.5 billion, $1.5 billion, and $1.6 billion at September 30, June 30 and March 31,2017, and December 31 and September 30,2016, respectively, of government insured/guaranteed loans that are predominantly insured by the FHA or guaranteed by the VA and accruing.
|
Table 2524 provides information regarding the recorded investment of loans modified in TDRs. The allowance for loan losses for TDRs was $1.6 billion and $2.2$1.2 billion at September 30, 2017,both March 31, 2019, and December 31, 2016, respectively.2018. See Note 56 (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.off. When we delay the timing on the repayment of a portion of principal (principal forbearance), 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 20162018 Form 10-K.
Table 2625 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.loans.
Risk Management - Credit Risk Management (continued)(continued)
Table 26:25: Analysis of Changes in TDRs
| | | | | | | Quarter ended | | | | | | Quarter ended | |
(in millions) | Sep 30, 2017 |
| | Jun 30, 2017 |
| | Mar 31, 2017 |
| | Dec 31, 2016 |
| | Sep 30, 2016 |
| Mar 31, 2019 |
| | Dec 31, 2018 |
| | Sep 30, 2018 |
| | Jun 30, 2018 |
| | Mar 31, 2018 |
|
Commercial: | | | | | | | | | | |
Commercial TDRs | | | | | | | | | | |
Balance, beginning of quarter | $ | 3,736 |
| | 3,655 |
| | 3,800 |
| | 3,804 |
| | 3,386 |
| $ | 2,422 |
| | 2,733 |
| | 2,786 |
| | 2,740 |
| | 3,076 |
|
Inflows (1) | 333 |
| | 730 |
| | 642 |
| | 615 |
| | 914 |
| |
Inflows (1)(2) | | 539 |
| | 374 |
| | 588 |
| | 481 |
| | 321 |
|
Outflows | | | | | | | | | | | | | | | | | | |
Charge-offs | (74 | ) | | (59 | ) | | (108 | ) | | (120 | ) | | (76 | ) | (44 | ) | | (88 | ) | | (92 | ) | | (41 | ) | | (63 | ) |
Foreclosures | (2 | ) | | (12 | ) | | — |
| | (13 | ) | | (2 | ) | — |
| | (2 | ) | | (13 | ) | | — |
| | — |
|
Payments, sales and other (2)(3) | (529 | ) | | (578 | ) | | (679 | ) | | (486 | ) | | (418 | ) | (405 | ) | | (595 | ) | | (536 | ) | | (394 | ) | | (594 | ) |
Balance, end of quarter | 3,464 |
| | 3,736 |
| | 3,655 |
| | 3,800 |
| | 3,804 |
| 2,512 |
| | 2,422 |
| | 2,733 |
| | 2,786 |
| | 2,740 |
|
Consumer: | | | | | | | | | | |
Consumer TDRs | | | | | | | | | | |
Balance, beginning of quarter | 15,850 |
| | 16,463 |
| | 16,993 |
| | 17,729 |
| | 18,565 |
| 13,109 |
| | 13,487 |
| | 13,954 |
| | 14,380 |
| | 14,692 |
|
Inflows (1) | 461 |
| | 444 |
| | 517 |
| | 513 |
| | 542 |
| 439 |
| | 379 |
| | 414 |
| | 467 |
| | 487 |
|
Outflows | | | | | | | | | | | | | | | | | | |
Charge-offs | (51 | ) | | (51 | ) | | (51 | ) | | (48 | ) | | (65 | ) | (60 | ) | | (57 | ) | | (56 | ) | | (56 | ) | | (54 | ) |
Foreclosures | (146 | ) | | (159 | ) | | (179 | ) | | (166 | ) | | (230 | ) | (86 | ) | | (90 | ) | | (116 | ) | | (133 | ) | | (131 | ) |
Payments, sales and other (2)(3) | (811 | ) | | (801 | ) | | (779 | ) | | (987 | ) | | (1,067 | ) | (593 | ) | | (595 | ) | | (672 | ) | | (706 | ) | | (618 | ) |
Net change in trial modifications (3)(4) | (32 | ) | | (46 | ) | | (38 | ) | | (48 | ) | | (16 | ) | (12 | ) | | (15 | ) | | (37 | ) | | 2 |
| | 4 |
|
Balance, end of quarter | 15,271 |
| | 15,850 |
| | 16,463 |
| | 16,993 |
| | 17,729 |
| 12,797 |
| | 13,109 |
| | 13,487 |
| | 13,954 |
| | 14,380 |
|
Total TDRs | $ | 18,735 |
| | 19,586 |
| | 20,118 |
| | 20,793 |
| | 21,533 |
| $ | 15,309 |
| | 15,531 |
| | 16,220 |
| | 16,740 |
| | 17,120 |
|
| |
(1) | Inflows include loans that modify, even if they resolve within the period, as well as gross advances on term loans that modified in a prior period and net advances on revolving commercial TDRs that modified in a prior period. |
| |
(2) | Information for the quarter ended June 30, 2018 has been revised to offset payments and advances (i.e. inflows) on revolving commercial TDRs, for consistent presentation of this activity for all periods. |
| |
(3) | Other outflows includeconsist of normal amortization/accretion of loan basis adjustments and loans transferred to held-for-sale. It also includes $6 million and $4 million ofOccasionally, loans that have been refinanced or restructured at market terms and qualifyingqualify as new loans, and removed from TDR classification for the quarters ended September 30, 2017 and December 31, 2016, respectively, while no loans were removed from TDR classification for the quarters ended June 30 and March 31, 2017, and September 30, 2016.which are also included as other outflows. |
| |
(3)(4) | 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. |
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 when 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, 2017,March 31, 2019, were down $11$105 million, or 1%11%, from December 31, 2016,2018, due to payoffs modifications and other loss mitigation activities and credit
overall 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 $9.3$7.0 billion at September 30, 2017,March 31, 2019, down from $10.9$7.7 billion at December 31, 2016,2018, due to improving credit trends. All remaining student loans guaranteed by agencies on behalf ofan improvement in delinquencies as well as a reduction in the U.S. Department of Education under the FFELP were sold as of March 31, 2017.portfolio.
Table 2726 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 56 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.
Table 27:26: Loans 90 Days or More Past Due and Still Accruing
| | (in millions) | Sep 30, 2017 |
| | Jun 30, 2017 |
| | Mar 31, 2017 |
| | Dec 31, 2016 |
| | Sep 30, 2016 |
| Mar 31, 2019 |
| | Dec 31, 2018 |
| | Sep 30, 2018 |
| | Jun 30, 2018 |
| | Mar 31, 2018 |
|
Total (excluding PCI (1)): | $ | 10,227 |
| | 9,716 |
| | 10,525 |
| | 11,858 |
| | 12,068 |
| $ | 7,870 |
| | 8,704 |
| | 8,838 |
| | 9,087 |
| | 10,351 |
|
Less: FHA insured/VA guaranteed (3)(2) | 9,266 |
| | 8,873 |
| | 9,585 |
| | 10,883 |
| | 11,198 |
| 6,996 |
| | 7,725 |
| | 7,906 |
| | 8,246 |
| | 9,385 |
|
Less: Student loans guaranteed under the FFELP (4) | — |
| | — |
| | — |
| | 3 |
| | 17 |
| |
Total, not government insured/guaranteed | $ | 961 |
| | 843 |
| | 940 |
| | 972 |
| | 853 |
| $ | 874 |
| | 979 |
| | 932 |
| | 841 |
| | 966 |
|
By segment and class, not government insured/guaranteed: Commercial: | | | | | | | | | | | | | | | | | | |
Commercial and industrial | $ | 27 |
| | 42 |
| | 88 |
| | 28 |
| | 47 |
| $ | 42 |
| | 43 |
| | 42 |
| | 23 |
| | 40 |
|
Real estate mortgage | 11 |
| | 2 |
| | 11 |
| | 36 |
| | 4 |
| 20 |
| | 51 |
| | 56 |
| | 26 |
| | 23 |
|
Real estate construction | — |
| | 10 |
| | 3 |
| | — |
| | — |
| 5 |
| | — |
| | — |
| | — |
| | 1 |
|
Total commercial | 38 |
|
| 54 |
|
| 102 |
|
| 64 |
|
| 51 |
| 67 |
|
| 94 |
|
| 98 |
|
| 49 |
|
| 64 |
|
Consumer: | | | | | | | | | | | | | | | | | | |
Real estate 1-4 family first mortgage (3) | 190 |
| | 145 |
| | 149 |
| | 175 |
| | 171 |
| |
Real estate 1-4 family junior lien mortgage (3) | 49 |
| | 44 |
| | 42 |
| | 56 |
| | 54 |
| |
Real estate 1-4 family first mortgage | | 117 |
| | 124 |
| | 128 |
| | 132 |
| | 163 |
|
Real estate 1-4 family junior lien mortgage | | 28 |
| | 32 |
| | 32 |
| | 33 |
| | 48 |
|
Credit card | 475 |
| | 411 |
| | 453 |
| | 452 |
| | 392 |
| 502 |
| | 513 |
| | 460 |
| | 429 |
| | 473 |
|
Automobile | 111 |
| | 91 |
| | 79 |
| | 112 |
| | 81 |
| 68 |
| | 114 |
| | 108 |
| | 105 |
| | 113 |
|
Other revolving credit and installment | 98 |
| | 98 |
| | 115 |
| | 113 |
| | 104 |
| 92 |
| | 102 |
| | 106 |
| | 93 |
| | 105 |
|
Total consumer | 923 |
| | 789 |
|
| 838 |
|
| 908 |
|
| 802 |
| 807 |
| | 885 |
|
| 834 |
|
| 792 |
|
| 902 |
|
Total, not government insured/guaranteed | $ | 961 |
| | 843 |
|
| 940 |
|
| 972 |
|
| 853 |
| $ | 874 |
| | 979 |
|
| 932 |
|
| 841 |
|
| 966 |
|
| |
(1) | PCI loans totaled $1.4$243 million, $370 million, $567 million, $811 million, and $1.0 billion, $1.5 billion, $1.8 billion, $2.0 billion, at March 31, 2019, and $2.2 billion at December 31, September 30,, June 30, and March 31,, 2017 and December 31 and September 30,2016, 2018, respectively. |
| |
(2) | Represents loans whose repayments are predominantly insured by the FHA or guaranteed by the VA. |
| |
(3) | Includes mortgages held for sale 90 days or more past due and still accruing. |
| |
(4) | Represents loans whose repayments are largely guaranteed by agencies on behalf of the U.S. Department of Education under the FFELP. All remaining student loans guaranteed under the FFELP were sold as of March 31, 2017. |
Risk Management - Credit Risk Management (continued)(continued)
NET CHARGE-OFFS
Table 28:27: Net Charge-offs
| | | | | | | | | | | | | | | | | Quarter ended | | | | | | | | | | | | | | | | Quarter ended | |
| Sep 30, 2017 | | | Jun 30, 2017 | | | Mar 31, 2017 | | | Dec 31, 2016 | | | Sep 30, 2016 | | Mar 31, 2019 | | | Dec 31, 2018 | | | Sep 30, 2018 | | | Jun 30, 2018 | | | Mar 31, 2018 | |
($ 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 | $ | 125 |
| | 0.15 | % | | $ | 78 |
| | 0.10 | % | | $ | 171 |
| | 0.21 | % | | $ | 256 |
| | 0.31 | % | | $ | 259 |
| | 0.32 | % | $ | 133 |
| | 0.15 | % | | $ | 132 |
| | 0.15 | % | | $ | 148 |
| | 0.18 | % | | $ | 58 |
| | 0.07 | % | | $ | 85 |
| | 0.10 | % |
Real estate mortgage | (3 | ) | | (0.01 | ) | | (6 | ) | | (0.02 | ) | | (25 | ) | | (0.08 | ) | | (12 | ) | | (0.04 | ) | | (28 | ) | | (0.09 | ) | 6 |
| | 0.02 |
| | (12 | ) | | (0.04 | ) | | (1 | ) | | — |
| | — |
| | — |
| | (15 | ) | | (0.05 | ) |
Real estate construction | (15 | ) | | (0.24 | ) | | (4 | ) | | (0.05 | ) | | (8 | ) | | (0.15 | ) | | (8 | ) | | (0.13 | ) | | (18 | ) | | (0.32 | ) | (2 | ) | | (0.04 | ) | | (1 | ) | | (0.01 | ) | | (2 | ) | | (0.04 | ) | | (6 | ) | | (0.09 | ) | | (4 | ) | | (0.07 | ) |
Lease financing | 6 |
| | 0.12 |
| | 7 |
| | 0.15 |
| | 5 |
| | 0.11 |
| | 15 |
| | 0.32 |
| | 2 |
| | 0.04 |
| 8 |
| | 0.17 |
| | 13 |
| | 0.26 |
| | 7 |
| | 0.14 |
| | 15 |
| | 0.32 |
| | 12 |
| | 0.25 |
|
Total commercial | 113 |
| | 0.09 |
| | 75 |
| | 0.06 |
| | 143 |
| | 0.11 |
| | 251 |
| | 0.20 |
| | 215 |
| | 0.17 |
| 145 |
| | 0.11 |
| | 132 |
| | 0.10 |
| | 152 |
| | 0.12 |
| | 67 |
| | 0.05 |
| | 78 |
| | 0.06 |
|
Consumer: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Real estate 1-4 family first mortgage | (16 | ) | | (0.02 | ) | | (16 | ) | | (0.02 | ) | | 7 |
| | 0.01 |
| | (3 | ) | | — |
| | 20 |
| | 0.03 |
| (12 | ) | | (0.02 | ) | | (22 | ) | | (0.03 | ) | | (25 | ) | | (0.04 | ) | | (23 | ) | | (0.03 | ) | | (18 | ) | | (0.03 | ) |
Real estate 1-4 family junior lien mortgage | 1 |
| | — |
| | (4 | ) | | (0.03 | ) | | 23 |
| | 0.21 |
| | 44 |
| | 0.38 |
| | 49 |
| | 0.40 |
| (9 | ) | | (0.10 | ) | | (10 | ) | | (0.11 | ) | | (9 | ) | | (0.10 | ) | | (13 | ) | | (0.13 | ) | | (8 | ) | | (0.09 | ) |
Credit card | 277 |
| | 3.08 |
| | 320 |
| | 3.67 |
| | 309 |
| | 3.54 |
| | 275 |
| | 3.09 |
| | 245 |
| | 2.82 |
| 352 |
| | 3.73 |
| | 338 |
| | 3.54 |
| | 299 |
| | 3.22 |
| | 323 |
| | 3.61 |
| | 332 |
| | 3.69 |
|
Automobile | 202 |
| | 1.41 |
| | 126 |
| | 0.86 |
| | 167 |
| | 1.10 |
| | 166 |
| | 1.05 |
| | 137 |
| | 0.87 |
| 91 |
| | 0.82 |
| | 133 |
| | 1.16 |
| | 130 |
| | 1.10 |
| | 113 |
| | 0.93 |
| | 208 |
| | 1.64 |
|
Other revolving credit and installment | 140 |
| | 1.44 |
| | 154 |
| | 1.58 |
| | 156 |
| | 1.60 |
| | 172 |
| | 1.70 |
| | 139 |
| | 1.40 |
| 128 |
| | 1.47 |
| | 150 |
| | 1.64 |
| | 133 |
| | 1.44 |
| | 135 |
| | 1.44 |
| | 149 |
| | 1.60 |
|
Total consumer (2) | 604 |
| | 0.53 |
| | 580 |
| | 0.51 |
| | 662 |
| | 0.59 |
| | 654 |
| | 0.56 |
| | 590 |
| | 0.51 |
| 550 |
| | 0.51 |
| | 589 |
| | 0.53 |
| | 528 |
| | 0.47 |
| | 535 |
| | 0.49 |
| | 663 |
| | 0.60 |
|
Total | $ | 717 |
| | 0.30 | % | | $ | 655 |
| | 0.27 | % | | $ | 805 |
| | 0.34 | % | | $ | 905 |
| | 0.37 | % | | $ | 805 |
| | 0.33 | % | $ | 695 |
| | 0.30 | % | | $ | 721 |
| | 0.30 | % | | $ | 680 |
| | 0.29 | % | | $ | 602 |
| | 0.26 | % | | $ | 741 |
| | 0.32 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
(1) | Quarterly net charge-offs (recoveries) as a percentage of average respective loans are annualized. |
| |
(2) | Quarter ended September 30, 2017, includes an incremental $29 million of charge-offs in accordance with updated industry regulatory guidance regarding the timing of loss recognition for real estate 1-4 family mortgage and automobile loans in bankruptcy.
|
Table 2827 presents net charge-offs for thirdfirst quarter 20172019 and the previous four quarters. Net charge-offs in thirdfirst quarter 20172019 were $717$695 million (0.30% of average total loans outstanding), compared with $805$741 million (0.33%(0.32%) in thirdfirst quarter 2016.2018.
The decreaseincrease in commercial net charge-offs from first quarter 2018 was due to higher commercial and industrial loan charge-offs and lower recoveries in the commercial and industrial portfolio. Consumer net charge-offs from third quarter 2016 reflected continued improvement in our oil and gas portfolio. Our commercial real estate portfolios were in a net recovery position. Total consumer net charge-offs increased slightlydecreased from the prior year predominantly due to an increasea decrease in credit card and automobile net charge-offs, partially offset by a decreasean increase in residential real estatecredit card 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 56 (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 20162018 Form 10-K and Note 56 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.
Table 2928 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.
Table 29:28: Allocation of the Allowance for Credit Losses (ACL)
| | | Sep 30, 2017 | | | Dec 31, 2016 | | | Dec 31, 2015 | | | Dec 31, 2014 | | | Dec 31, 2013 | | Mar 31, 2019 | | | Dec 31, 2018 | | | Dec 31, 2017 | | | Dec 31, 2016 | | | Dec 31, 2015 | |
(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 | $ | 4,076 |
| | 34 | % | | $ | 4,560 |
| | 34 | % | | $ | 4,231 |
| | 33 | % | | $ | 3,506 |
| | 32 | % | | $ | 3,040 |
| | 29 | % | $ | 3,650 |
| | 37 | % | | $ | 3,628 |
| | 37 | % | | $ | 3,752 |
| | 35 | % | | $ | 4,560 |
| | 34 | % | | $ | 4,231 |
| | 33 | % |
Real estate mortgage | 1,248 |
| | 14 |
| | 1,320 |
| | 14 |
| | 1,264 |
| | 13 |
| | 1,576 |
| | 13 |
| | 2,157 |
| | 14 |
| 1,307 |
| | 13 |
| | 1,282 |
| | 13 |
| | 1,374 |
| | 13 |
| | 1,320 |
| | 14 |
| | 1,264 |
| | 13 |
|
Real estate construction | 1,262 |
| | 3 |
| | 1,294 |
| | 2 |
| | 1,210 |
| | 3 |
| | 1,097 |
| | 2 |
| | 775 |
| | 2 |
| 1,165 |
| | 2 |
| | 1,200 |
| | 2 |
| | 1,238 |
| | 3 |
| | 1,294 |
| | 2 |
| | 1,210 |
| | 3 |
|
Lease financing | 246 |
| | 2 |
| | 220 |
| | 2 |
| | 167 |
| | 1 |
| | 198 |
| | 1 |
| | 131 |
| | 1 |
| 306 |
| | 2 |
| | 307 |
| | 2 |
| | 268 |
| | 2 |
| | 220 |
| | 2 |
| | 167 |
| | 1 |
|
Total commercial | 6,832 |
| | 53 |
| | 7,394 |
| | 52 |
| | 6,872 |
| | 50 |
| | 6,377 |
| | 48 |
| | 6,103 |
| | 46 |
| 6,428 |
| | 54 |
| | 6,417 |
| | 54 |
| | 6,632 |
| | 53 |
| | 7,394 |
| | 52 |
| | 6,872 |
| | 50 |
|
Consumer: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Real estate 1-4 family first mortgage | 1,173 |
| | 29 |
| | 1,270 |
| | 29 |
| | 1,895 |
| | 30 |
| | 2,878 |
| | 31 |
| | 4,087 |
| | 32 |
| 780 |
| | 30 |
| | 750 |
| | 30 |
| | 1,085 |
| | 30 |
| | 1,270 |
| | 29 |
| | 1,895 |
| | 30 |
|
Real estate 1-4 family junior lien mortgage | 672 |
| | 4 |
| | 815 |
| | 5 |
| | 1,223 |
| | 6 |
| | 1,566 |
| | 7 |
| | 2,534 |
| | 8 |
| 317 |
| | 3 |
| | 431 |
| | 3 |
| | 608 |
| | 4 |
| | 815 |
| | 5 |
| | 1,223 |
| | 6 |
|
Credit card | 1,900 |
| | 4 |
| | 1,605 |
| | 4 |
| | 1,412 |
| | 4 |
| | 1,271 |
| | 4 |
| | 1,224 |
| | 3 |
| 2,201 |
| | 4 |
| | 2,064 |
| | 4 |
| | 1,944 |
| | 4 |
| | 1,605 |
| | 4 |
| | 1,412 |
| | 4 |
|
Automobile | 853 |
| | 6 |
| | 817 |
| | 6 |
| | 529 |
| | 6 |
| | 516 |
| | 6 |
| | 475 |
| | 6 |
| 514 |
| | 5 |
| | 475 |
| | 5 |
| | 1,039 |
| | 5 |
| | 817 |
| | 6 |
| | 529 |
| | 6 |
|
Other revolving credit and installment | 679 |
| | 4 |
| | 639 |
| | 4 |
| | 581 |
| | 4 |
| | 561 |
| | 4 |
| | 548 |
| | 5 |
| 581 |
| | 4 |
| | 570 |
| | 4 |
| | 652 |
| | 4 |
| | 639 |
| | 4 |
| | 581 |
| | 4 |
|
Total consumer | 5,277 |
| | 47 |
| | 5,146 |
| | 48 |
| | 5,640 |
| | 50 |
| | 6,792 |
| | 52 |
| | 8,868 |
| | 54 |
| 4,393 |
| | 46 |
| | 4,290 |
| | 46 |
| | 5,328 |
| | 47 |
| | 5,146 |
| | 48 |
| | 5,640 |
| | 50 |
|
Total | $ | 12,109 |
| | 100 | % | | $ | 12,540 |
| | 100 | % | | $ | 12,512 |
| | 100 | % | | $ | 13,169 |
| | 100 | % | | $ | 14,971 |
| | 100 | % | $ | 10,821 |
| | 100 | % | | $ | 10,707 |
| | 100 | % | | $ | 11,960 |
| | 100 | % | | $ | 12,540 |
| | 100 | % | | $ | 12,512 |
| | 100 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Sep 30, 2017 | | | Dec 31, 2016 | | | Dec 31, 2015 | | | Dec 31, 2014 | | | Dec 31, 2013 | | Mar 31, 2019 | | | Dec 31, 2018 | | | Dec 31, 2017 | | | Dec 31, 2016 | | | Dec 31, 2015 | |
Components: | | | | | | | | | | | | | | | | | | |
Allowance for loan losses | $ | 11,078 | | | 11,419 | | | 11,545 | | | 12,319 | | | 14,502 | | $ | 9,900 | | | 9,775 | | | 11,004 | | | 11,419 | | | 11,545 | |
Allowance for unfunded credit commitments | 1,031 | | | 1,121 | | | 967 | | | 850 | | | 469 | | 921 | | | 932 | | | 956 | | | 1,121 | | | 967 | |
Allowance for credit losses | $ | 12,109 | | | 12,540 | | | 12,512 | | | 13,169 | | | 14,971 | | $ | 10,821 | | | 10,707 | | | 11,960 | | | 12,540 | | | 12,512 | |
Allowance for loan losses as a percentage of total loans | 1.16 | % | | 1.18 | | | 1.26 | | | 1.43 | | | 1.76 | | 1.04 | % | | 1.03 | | | 1.15 | | | 1.18 | | | 1.26 | |
Allowance for loan losses as a percentage of total net charge-offs (1) | 390 | | | 324 | | | 399 | | | 418 | | | 322 | | 351 | | | 356 | | | 376 | | | 324 | | | 399 | |
Allowance for credit losses as a percentage of total loans | 1.27 | | | 1.30 | | | 1.37 | | | 1.53 | | | 1.82 | | 1.14 | | | 1.12 | | | 1.25 | | | 1.30 | | | 1.37 | |
Allowance for credit losses as a percentage of total nonaccrual loans | 141 | | | 121 | | | 110 | | | 103 | | | 96 | | 157 | | | 165 | | | 156 | | | 126 | | | 115 | |
| |
(1) | Total net charge-offs are annualized for quarter ended September 30, 2017. March 31, 2019. |
In addition to the allowance for credit losses, there was $454$518 million at September 30, 2017,March 31, 2019, and $954$480 million at December 31, 20162018, of nonaccretable difference to absorb losses foron PCI loans which totaled $13.6of $3.2 billion at September 30, 2017.March 31, 2019 and $5.0 billion at December 31, 2018. 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 56 (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, 2017.
The allowance for credit losses decreased$431increased $114 million, or 3%1%, from December 31, 2016,2018, primarily due to a decrease in our commercial allowance reflecting credit quality improvement, including in the oil and gas portfolio, as well as improvement in our residential real estate portfolios, partially offset by increased allowance in the credit card, automobile and other revolving credit and installment portfolios.higher probability of slightly less favorable economic conditions. Total provision for credit losses was $717$845 million in thirdfirst quarter 2017,2019, compared with $805$191 million in thirdfirst quarter 2016, reflecting2018. The increase in the same changes mentioned above for the allowanceprovision for credit losses of $654 million was due to an
allowance increase in first quarter 2019, reflecting a higher probability of slightly less favorable economic conditions, compared with an allowance decrease in first quarter 2018, predominantly due to improvement in our outlook for 2017 hurricane-related losses.
We believe the allowance for credit losses of $12.1$10.8 billion at September 30, 2017,March 31, 2019, was appropriate to cover credit losses inherent in the loan portfolio, including unfunded credit commitments, at that date. Approximately $797 million of the allowance at September 30, 2017, was allocated to our oil and gas portfolio, compared with $1.3 billion at December 31, 2016. This represented 6.2% and 8.5% of total oil and gas loans outstanding at September 30, 2017, and December 31, 2016, respectively. The allowance for credit losses at September 30, 2017 also included
Risk Management - Credit Risk Management (continued)
$450 million for coverage of our preliminary estimate of potential hurricane-related losses from Hurricanes Harvey, Irma and Maria. 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 20162018 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 trillion in the residential mortgage loan servicing portfolio at September 30, 2017, 95% was current and less than 1% was subprime at origination. Our combined delinquency and foreclosure rate on this portfolio was 4.83% at September 30, 2017, and at December 31, 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, 2017, was $120 million, representing 549 loans, up from a year ago both in number of outstanding loans and in total dollar balances. The increase was largely due to private investor demands we expect to 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 $179 million at September 30, 2017, and $229 million at December 31, 2016. In third quarter 2017, we released $6 million due to re-estimation of our liability based on recently observed trends, which increased net gains on mortgage loan origination/sales activities, compared with a release of $13 million in third quarter 2016. Additionally, in third quarter 2017, we recognized a $10 million reserve build for an MSR acquisition. We incurred net losses on repurchased loans and investor reimbursements totaling $3 million in third quarter 2017 and in third quarter 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 $180 million at September 30, 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 20162018 Form 10-K and Note 8 (Mortgage Banking Activities) to Financial Statements in this Report.10-K.
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 settlementscould become subject to consent orders and settlement agreements with federal and state regulators to resolve certainfor alleged servicing issues and practices. In general, these settlements requiredcan require us to provide customers with loan modification relief, refinancing relief, and foreclosure prevention and assistance, as well as imposedcan impose 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 20162018 Form 10-K.
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. As discussed in more detail for tradingmarket risk 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,rising, earnings will initially decline)increase);
assets and liabilities may reprice at the same time but by different amounts (for example, when the general level of interest rates is falling,rising, we may reduceincrease rates paid on checking and savings deposit accounts by an amount that is less than the general declinerise 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 declineincrease sharply, MBS held in the investmentdebt securities portfolio may prepay significantly earlierpay down slower than anticipated, which could reduceimpact 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 net 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 drivers of earnings and balance sheet composition such as loan originations, prepayment speeds on loans and investmentdebt securities, deposit flows and mix, as well as pricing strategies.
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, while in the case of lower interest rates, our assets would reprice downward and to a greater degree than our liabilities.
As of September 30, 2017, ourOur 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 (instantaneous changes) are summarized in Table 30,29, indicating net interest income sensitivity relative to the Company'sCompany’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 30:29:
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 interest rate scenarios, customer activity that shifts balances into higher-yielding products could reduce expected net interest income.
We hold the size of the projected investmentdebt and equity securities portfolioportfolios constant across scenarios.
Table 30:29: Net Interest Income Sensitivity Over Next Two-Year Horizon Relative to Base Expectation | | | | Lower Rates | | Higher Rates | | | Lower Rates | | Higher Rates |
($ in billions) | Base | 100 bps Ramp Parallel Decrease | | 100 bps Instantaneous Parallel Increase | | 200 bps Ramp Parallel Increase | 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 | | (0.7) - (0.2) | | 1.1 - 1.6 | | 0.9 - 1.4 | | $ | (1.2) - (0.7) | | 1.0 - 1.5 | | 0.8 - 1.3 |
Key Rates at Horizon End | | |
Fed Funds Target | 2.09 | 1.09 | | 3.09 | | 4.09 | 2.75 | % | 1.75 | | 3.75 | | 4.75 |
10-year CMT (1) | 2.97 | 1.97 | | 3.97 | | 4.97 | 3.02 | | 2.02 | | 4.02 | | 5.02 |
Second Year of Forecasting Horizon | | |
Net Interest Income Sensitivity to Base Scenario | | (1.1) - (0.6) | | 1.5 - 2.0 | | 2.1 - 2.6 | | $ | (2.9) - (2.4) | | 1.4 - 1.9 | | 2.1 - 2.6 |
Key Rates at Horizon End | | |
Fed Funds Target | 2.50 | 1.50 | | 3.50 | | 4.50 | 2.75 | % | 1.75 | | 3.75 | | 4.75 |
10-year CMT (1) | 3.59 | 2.59 | | 4.59 | | 5.59 | 3.28 | | 2.28 | | 4.28 | | 5.28 |
| |
(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 significantlyprimarily driven by mortgage activity, and may move in the opposite direction of our net interest income. Typically, in response to higher interest rates, mortgage activity, primarily refinancing activity, generally declines. And in response to lower interest rates, mortgage activity generally increases. Mortgage results 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.
Interest rate sensitive noninterest income also results from changes in earnings credit for non-interest bearing deposits that reduce treasury management deposit service fees. Furthermore, for the trading portfolio, interest rate changes may result in net interest income compression (generally as interest rates rise) or expansion (generally as interest rates fall) that does not reflect the offsetting effects of certain economic hedges. Instead, as a result of GAAP requirements, the effects of such economic hedges are recorded in noninterest income.
Asset/Liability Management (continued)
We use the investmentdebt securities portfolio and exchange-traded and over-the-counter (OTC) interest rate derivatives to hedge our interest rate exposures. See the “Balance Sheet Analysis – InvestmentAvailable-for-Sale and Held-to-Maturity Debt Securities” section in this Report for more information on the use of the available-for-sale and held-to-
Asset/Liability Management (continued)
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, 2017,March 31, 2019, and December 31, 2016,2018, are presented in Note 1215 (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 20162018 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 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 interest rates decreases, the overall level of hedges changes as interest rates change, 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 $14.7$14.8 billion at September 30, 2017,March 31, 2019, and $14.4$16.1 billion at December 31, 2016.2018. The weighted-average note rate on our portfolio of loans serviced for others was 4.23%4.34% at September 30, 2017,March 31, 2019, and 4.26%4.32% at December 31, 2016.2018. The carrying value of our total MSRs represented 0.87%0.88% of mortgage loans serviced for others at September 30, 2017,March 31, 2019, and 0.85%0.94% of mortgage loans serviced for others at December 31, 2016.2018.
MARKET RISK – TRADING ACTIVITIESThe 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 generally comprises a subset of the transactions 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 primarily 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 securities, foreign exchange transactions, and commodity transactions) 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 from trading activity is reflected in the interest income and interest expense components of our income statement. Changes in fair value related 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) from Trading Activities
|
| | | | | | | | | | | | | | |
| Quarter ended September 30, | | | Nine months ended September 30, | |
(in millions) | | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
|
Interest income (1) | | $ | 754 |
| | 593 |
| | $ | 2,107 |
| | 1,761 |
|
Less: Interest expense (2) | | 109 |
| | 88 |
| | 309 |
| | 260 |
|
Net interest income | | 645 |
| | 505 |
| | 1,798 |
| | 1,501 |
|
Noninterest income: | | | | | | | | |
Net gains (losses) from trading activities (3): | | | | | | | | |
Customer accommodation | | 188 |
| | 348 |
| | 720 |
| | 947 |
|
Economic hedges and other (4) | | 57 |
| | 67 |
| | 201 |
| | (4 | ) |
Total net gains from trading activities | | 245 |
| | 415 |
| | 921 |
| | 943 |
|
Total trading-related net interest and noninterest income | | $ | 890 |
| | 920 |
| | $ | 2,719 |
| | 2,444 |
|
| |
(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.
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.
Table 32:Distribution of Daily Trading-Related Revenues
Market Risk 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 and commodity prices, mortgage rates,and the risk of possible loss due to counterparty risk. This includes implied volatility risk, basis risk, and market liquidity.liquidity risk. Market risk is intrinsicalso includes counterparty credit risk, price risk in the trading book, mortgage servicing rights and the associated hedge effectiveness risk associated with the mortgage book, and impairment on private equity investments.
The Board’s Finance Committee has primary oversight responsibility for market risk and oversees the Company’s market risk exposure and market risk management strategies. In addition, the Board’s Risk Committee has certain oversight responsibilities with respect to market risk, including adjusting the Company’s market risk appetite with input from the Finance Committee. The Finance Committee also reports key market risk matters to the Company’s salesRisk Committee.
At the management level, the Market and Counterparty Risk Management function, which is part of Corporate Risk, has primary oversight responsibility for market risk. The Market and Counterparty Risk Management function reports into the CRO and also provides periodic reporting related to market risk to the Board’s Finance Committee. In addition, the Risk & Control Committee for each business group and enterprise function reports market risk matters to the Enterprise Risk & Control Committee.
MARKET RISK – TRADING ACTIVITIESWe engage in trading market making, investing,activities to accommodate the investment and risk management activities.activities of our customers and to execute economic hedging to manage certain balance sheet risks. These trading activities predominantly occur within our Wholesale Banking businesses and to a lesser extent other divisions of the Company. Debt securities held for trading, equity securities held for trading, trading loans and trading derivatives are financial instruments used in our trading activities, and all are carried at fair value. Income earned on the financial instruments used in our trading activities include net interest income, changes in fair value and realized gains and losses. Net interest income earned from our trading activities is reflected in the interest income and interest expense components of our income statement. Changes in fair value of the financial instruments used in our trading activities are reflected in net gains on trading activities, a component of noninterest income in our income statement. For more information on the financial instruments used in our trading activities and the income from these trading activities, see Note 4 (Trading Activities) to Financial Statements in this Report.
The Company uses value-at-riskValue-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. The Company uses VaR metrics complemented with sensitivity analysis and stress testing in measuring and monitoring market risk. For more information, on VaR,including information regarding our monitoring activities, sensitivity analysis and stress testing, see the “Risk Management – Asset/Liability Management – Market Risk – Trading Activities” section in our 20162018 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 other liabilities, derivative assets or derivative liabilities on our balance sheet.
Asset/Liability Management (continued)
Table 3330 shows the Company’s Trading General VaR by risk category. As presented in the table,Table 30, average Company Trading General VaR was $15 million for the quarter ended September 30, 2017,March 31, 2019, compared with $29$16 million for the quarter ended December 31, 2018, and $17 million for the quarter ended
ended June 30, 2017.March 31, 2018. The decrease in average Company Trading General VaR for the quarter ended March 31, 2019, compared with the quarter ended March 31, 2018, was mainly driven by changes in historical VaR dates dropping out of the 1-year time horizon.portfolio composition.
Table 33:30: Trading 1-Day 99% General VaR by Risk Category
| | | | | Quarter ended | | | | Quarter ended | |
| September 30, 2017 | | | June 30, 2017 | | March 31, 2019 | | | December 31, 2018 | | | March 31, 2018 | |
(in millions) | Period end |
| | Average |
| | Low |
| | High |
| | 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 | $ | 18 |
| | 26 |
| | 18 |
| | 35 |
| | 23 |
| | 29 |
| | 23 |
| | 36 |
| $ | 15 |
| | 15 |
| | 11 |
| | 19 |
| | 18 |
| | 16 |
| | 13 |
| | 24 |
| | 14 |
| | 14 |
| | 10 |
| | 18 |
|
Interest rate | 7 |
| | 13 |
| | 7 |
| | 20 |
| | 10 |
| | 20 |
| | 10 |
| | 27 |
| 42 |
| | 34 |
| | 22 |
| | 44 |
| | 28 |
| | 20 |
| | 14 |
| | 28 |
| | 15 |
| | 13 |
| | 7 |
| | 21 |
|
Equity | 13 |
| | 11 |
| | 9 |
| | 14 |
| | 10 |
| | 11 |
| | 9 |
| | 14 |
| 5 |
| | 5 |
| | 4 |
| | 7 |
| | 5 |
| | 5 |
| | 2 |
| | 7 |
| | 14 |
| | 13 |
| | 10 |
| | 16 |
|
Commodity | 2 |
| | 1 |
| | 1 |
| | 2 |
| | 1 |
| | 1 |
| | 1 |
| | 2 |
| 2 |
| | 2 |
| | 1 |
| | 4 |
| | 2 |
| | 2 |
| | 1 |
| | 4 |
| | 1 |
| | 1 |
| | 1 |
| | 1 |
|
Foreign exchange | 0 |
| | 1 |
| | 0 |
| | 1 |
| | 1 |
| | 1 |
| | 0 |
| | 1 |
| 1 |
| | 1 |
| | 1 |
| | 1 |
| | 1 |
| | 1 |
| | 0 |
| | 2 |
| | 0 |
| | 1 |
| | 0 |
| | 3 |
|
Diversification benefit (1) | (22 | ) | | (37 | ) | | | | | | (29 | ) | | (33 | ) | | | | | (46 | ) | | (42 | ) | |
|
| | | | (33 | ) | | (28 | ) | | | | | | (22 | ) | | (25 | ) | | | | |
Company Trading General VaR | $ | 18 |
| | 15 |
| | | | | | 16 |
| | 29 |
| | | | | $ | 19 |
| | 15 |
| | | | | | 21 |
| | 16 |
| | | | | | 22 |
| | 17 |
| | | | |
| |
(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 derivative 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 mostly concentrated in the trading assets, and derivative assets and liabilities 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.
Table 34 shows the General VaR measure categorized by major risk categories. Average 10-day Company Regulatory General VaR was $31 million for the quarter ended September 30, 2017, compared with $30 million for the quarter
ended June 30, 2017. The increase was primarily driven by changes in portfolio composition.
Table 34:Regulatory 10-Day 99% General VaR by Risk Category
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Quarter ended | |
| September 30, 2017 | | | June 30, 2017 | |
(in millions) | Period end |
| | Average |
| | Low |
| | High |
| | Period end |
| | Average |
| | Low |
| | High |
|
Wholesale Regulatory General VaR Risk Categories | | | | | | | | | | | | | | |
Credit | $ | 51 |
| | 66 |
| | 45 |
| | 86 |
| | 60 |
| | 72 |
| | 57 |
| | 93 |
|
Interest rate | 14 |
| | 23 |
| | 14 |
| | 38 |
| | 17 |
| | 39 |
| | 17 |
| | 71 |
|
Equity (1) | 7 |
| | 12 |
| | 4 |
| | 23 |
| | 6 |
| | 4 |
| | 2 |
| | 7 |
|
Commodity | 6 |
| | 8 |
| | 4 |
| | 21 |
| | 11 |
| | 4 |
| | 3 |
| | 11 |
|
Foreign exchange | 3 |
| | 6 |
| | 2 |
| | 16 |
| | 8 |
| | 6 |
| | 3 |
| | 29 |
|
Diversification benefit (2) | (57 | ) | | (86 | ) | | | | | | (71 | ) | | (96 | ) | | | | |
Wholesale Regulatory General VaR | $ | 24 |
| | 29 |
| | 20 |
| | 36 |
| | 31 |
| | 29 |
| | 24 |
| | 37 |
|
Company Regulatory General VaR | 26 |
| | 31 |
| | 22 |
| | 39 |
| | 35 |
| | 30 |
| | 25 |
| | 40 |
|
| |
(1) | 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 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, 2017. Incremental Risk Charge uses the higher of the quarterly average or the quarter end result. For third quarter 2017, the required capital for market risk equals the quarter end results.
Table 35:Market Risk Regulatory Capital Modeled Components
|
| | | | | | | | | | | | | | | | | | |
| Quarter ended September 30, 2017 | | | September 30, 2017 | |
(in millions) | Average |
| | Low |
| | High |
| | Period end |
| | Risk- based capital (1) |
| | Risk- weighted assets (1) |
|
Total VaR | $ | 54 |
| | 47 |
| | 65 |
| | 62 |
| | 163 |
| | 2,039 |
|
Total Stressed VaR | 279 |
| | 232 |
| | 321 |
| | 292 |
| | 837 |
| | 10,461 |
|
Incremental Risk Charge | 32 |
| | 26 |
| | 38 |
| | 34 |
| | 34 |
| | 423 |
|
| |
(1) | Results represent the risk-based capital and RWAs based on the VaR and Incremental Risk Charge models. |
Securitized Products ChargeBasel 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
Asset/Liability Management (continued)
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 atSeptember 30, 2017, and December 31, 2016.
Table 36:Covered Securitization Positions by Exposure Type (Net Market Value)
|
| | | | | | | | | | | | |
(in millions) | ABS |
| | CMBS |
| | RMBS |
| | CLO/CDO |
|
September 30, 2017 | | | | | | | |
Securitization exposure: | | | | | | | |
Securities | $ | 559 |
| | 220 |
| | 744 |
| | 738 |
|
Derivatives | 3 |
| | (4 | ) | | 1 |
| | (2 | ) |
Total | $ | 562 |
| | 216 |
| | 745 |
| | 736 |
|
December 31, 2016 | | | | | | | |
Securitization exposure: | | | | | | | |
Securities | $ | 801 |
| | 397 |
| | 911 |
| | 791 |
|
Derivatives | 3 |
| | 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 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 ChargeFor 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 TradingThe 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, 2017, and December 31, 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, 2017 | | | December 31, 2016 | |
(in millions) | Risk- based capital |
| | Risk- weighted assets |
| | Risk- based capital |
| | Risk- weighted assets |
|
Total VaR | $ | 163 |
| | 2,039 |
| | 247 |
| | 3,091 |
|
Total Stressed VaR | 837 |
| | 10,461 |
| | 1,135 |
| | 14,183 |
|
Incremental Risk Charge | 34 |
| | 423 |
| | 217 |
| | 2,710 |
|
Securitized Products Charge | 678 |
| | 8,469 |
| | 561 |
| | 7,007 |
|
Standardized Specific Risk Charge | 1,248 |
| | 15,606 |
| | 1,357 |
| | 16,962 |
|
De minimis Charges (positions not included in models) | 10 |
| | 132 |
| | 11 |
| | 147 |
|
Total | $ | 2,970 |
| | 37,130 |
| | 3,528 |
| | 44,100 |
|
RWA RollforwardTable 38depicts the changes in the market risk regulatory capital and RWAs under Basel III for the first nine months and third quarter of 2017.
Table 38:Analysis of Changes in Market Risk Regulatory Capital and RWAs
|
| | | | | | |
(in millions) | Risk- based capital |
| | Risk- weighted assets |
|
Balance, December 31, 2016 | $ | 3,528 |
| | 44,100 |
|
Total VaR | (84 | ) | | (1,052 | ) |
Total Stressed VaR | (298 | ) | | (3,722 | ) |
Incremental Risk Charge | (183 | ) | | (2,288 | ) |
Securitized Products Charge | 117 |
| | 1,461 |
|
Standardized Specific Risk Charge | (108 | ) | | (1,356 | ) |
De minimis Charges | (2 | ) | | (13 | ) |
Balance, September 30, 2017 | $ | 2,970 |
| | 37,130 |
|
| | | |
Balance, June 30, 2017 | $ | 3,026 |
| | 37,827 |
|
Total VaR | 11 |
| | 141 |
|
Total Stressed VaR | (62 | ) | | (774 | ) |
Incremental Risk Charge | 4 |
| | 47 |
|
Securitized Products Charge | 55 |
| | 689 |
|
Standardized Specific Risk Charge | (66 | ) | | (831 | ) |
De minimis Charges | 2 |
| | 31 |
|
Balance, September 30, 2017 | $ | 2,970 |
| | 37,130 |
|
The largest contributor to the changes to market risk regulatory capital and RWAs in the first nine months of 2017 was associated with changes in positions due to normal trading activity.
VaRBacktestingThe 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 line 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, 2017. The Company’s average Total VaR for third quarter 2017 was $19 million with a low of $17 million and a high of $21 million. The decrease in Total 1-day VaR in second quarter 2017 was attributable to a decline in modeled Specific Risk.
Asset/Liability Management (continued)
Table 39: Daily Total 1-Day 99% VaR Measure (Rolling 12 Months)
Market Risk Governance,Measurement, Monitoring and Model Risk ManagementWe 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 2016 Form 10-K.
MARKET RISK – EQUITY INVESTMENTSSECURITIES 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.OTTI and observable price changes. For nonmarketable investments,equity securities, 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 investmentsstrategy, and observable price changes that are similar to the investment held. Investments in nonmarketable equity securities include private equity investments accounted for under the cost method, equity method, and fair value option.through net income, and the measurement alternative.
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 1114 (Legal Actions) to Financial Statements in this Report.
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 securitiesthat include investments relating to our venture capital activities. We manage these investmentsmarketable equity securities within capital risk limits approved by management and the Board and monitored by Corporate ALCO and the Corporate Market Risk Committee. Gains and losses onThe fair value changes in these marketable equity securities are recognized in net income when realized and periodically include OTTI charges.income. For more information, see Note 8 (Equity Securities) to Financial Statements in this Report.
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, 2017, and December 31, 2016.
Asset/Liability Management (continued)
Table 40:Nonmarketable and Marketable Equity Investments
|
| | | | | | |
(in millions) | Sep 30, 2017 |
| | Dec 31, 2016 |
|
Nonmarketable equity investments: | | | |
Cost method: | | | |
Federal bank stock | $ | 5,839 |
| | 6,407 |
|
Private equity | 1,428 |
| | 1,465 |
|
Auction rate securities | 400 |
| | 525 |
|
Total cost method | 7,667 |
| | 8,397 |
|
Equity method: | | | |
LIHTC (1) | 9,884 |
| | 9,714 |
|
Private equity | 3,758 |
| | 3,635 |
|
Tax-advantaged renewable energy | 1,954 |
| | 2,054 |
|
New market tax credit and other | 291 |
| | 305 |
|
Total equity method | 15,887 |
| | 15,708 |
|
Fair value (2) | 4,523 |
| | 3,275 |
|
Total nonmarketable equity investments (3) | $ | 28,077 |
| | 27,380 |
|
Marketable equity securities: | | | |
Cost | $ | 606 |
| | 706 |
|
Net unrealized gains | 287 |
| | 505 |
|
Total marketable equity securities (4) | $ | 893 |
| | 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,We are subject to a rule, issued by the FRB, OCC and FDIC, issued a final rule that implementsimplemented 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 (HQLA), 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. The 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, rules issued by the FRB finalized rules imposingimpose enhanced liquidity management standards on large bank holding companies (BHC) such as Wells Fargo, and finalized a rule that requires large bank holding companies to publicly disclose on a quarterly basis beginningFargo.
April 1, 2017, certain quantitative and qualitative information regarding their LCR calculations.
The FRB, OCC and FDIC have 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 Coverage Ratio As of September 30, 2017,March 31, 2019, the consolidated Company and Wells Fargo Bank, N.A. were above the minimum LCR requirement of 100%, which is calculated as
HQLA divided by projected net cash outflows, as each is defined under the LCR rule. Table 4131 presents the Company’s quarterly average values for the daily-calculated LCR and its components calculated pursuant to the LCR rule requirements.
Table 41:31: Liquidity Coverage Ratio
| | (in millions) | Average for Quarter ended September 30, 2017 |
| |
(in millions, except ratio) | | Average for Quarter ended March 31, 2019 |
|
HQLA (1)(2) | $ | 398,381 |
| $ | 358,190 |
|
Projected net cash outflows | 311,592 |
| 290,651 |
|
LCR | 128 | % | 123 | % |
HQLA in excess of projected net cash outflows | $ | 86,789 |
| |
(1) Excludes excess HQLA at Wells Fargo Bank, N.A.
(2) Net of applicable haircuts required under the LCR rule.
Liquidity Sources We maintain liquidity in the form of cash, cash equivalents and unencumbered high-quality, liquid debt securities. These assets make up our primary sources of liquidity which are presented in Table 42.32. Our primary sources of liquidity are substantially the same in composition as HQLA under the LCR rule; however, our primary sources of liquidity will generally exceed HQLA calculated under the LCR rule due to the applicable haircuts to HQLA and the exclusion of excess HQLA at our subsidiary insured depository institutions required under the LCR rule.
Our cash is predominantly on deposit with the Federal Reserve. SecuritiesDebt 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 investmentdebt securities portfolio. We believe these debt securities provide quick sources of liquidity through sales or by pledging to obtain financing, regardless of market conditions. Some of these debt securities are within the held-to-maturity portion of our investmentdebt 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.
Asset/Liability Management (continued)
Table 42:32: Primary Sources of Liquidity
| | | September 30, 2017 | | | December 31, 2016 | | March 31, 2019 | | | December 31, 2018 | |
(in millions) | Total |
| | Encumbered |
| | Unencumbered |
| | Total |
| | Encumbered |
| | Unencumbered |
| Total |
| | Encumbered |
| | Unencumbered |
| | Total |
| | Encumbered |
| | Unencumbered |
|
Interest-earning deposits | $ | 205,648 |
| | — |
| | 205,648 |
| | $ | 200,671 |
| | — |
| | 200,671 |
| |
Securities of U.S. Treasury and federal agencies | 51,632 |
| | 1,101 |
| | 50,531 |
| | 70,898 |
| | 1,160 |
| | 69,738 |
| |
Interest-earning deposits with banks | | $ | 128,318 |
| | — |
| | 128,318 |
| | 149,736 |
| | — |
| | 149,736 |
|
Debt securities of U.S. Treasury and federal agencies | | 59,799 |
| | 2,160 |
| | 57,639 |
| | 57,688 |
| | 1,504 |
| | 56,184 |
|
Mortgage-backed securities of federal agencies (1) | 239,798 |
| | 46,137 |
| | 193,661 |
| | 205,655 |
| | 52,672 |
| | 152,983 |
| 243,827 |
| | 30,001 |
| | 213,826 |
| | 244,211 |
| | 35,656 |
| | 208,555 |
|
Total | $ | 497,078 |
| | 47,238 |
| | 449,840 |
| | $ | 477,224 |
| | 53,832 |
| | 423,392 |
| $ | 431,944 |
| | 32,161 |
| | 399,783 |
| | 451,635 |
| | 37,160 |
| | 414,475 |
|
| |
(1) | Included in encumbered securities at September 30, 2017, were securities with a fair value of $8.0 billion which were purchased in September 2017, but settled in October 2017.
|
In addition to our primary sources of liquidity shown in Table 42,32, liquidity is also available through the sale or financing of other debt securities including trading and/or available-for-sale debt securities, as well as through the sale, securitization or financing of loans, to the extent such debt securities and loans are not encumbered. In addition, other debt securities in our held-to-maturity portfolio, to the extent not encumbered, may be pledged to obtain financing.
Deposits have historically provided a sizable source of relatively low-cost funds. Deposits were 137%133% of total loans at September 30, 2017March 31, 2019, and 135% at December 31, 2016.2018.
Additional funding is provided by long-term debt and short-term borrowings. 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.
Table 4333 shows selected information for short-term borrowings, which generally mature in less than 30 days.
Table 43:33: Short-Term Borrowings
| | | Quarter ended | | Quarter ended | |
(in millions) | Sep 30 2017 |
| | Jun 30, 2017 |
| | Mar 31, 2017 |
| | Dec 31, 2016 |
| | Sep 30, 2016 |
| Mar 31 2019 |
| | Dec 31, 2018 |
| | Sep 30, 2018 |
| | Jun 30, 2018 |
| | Mar 31, 2018 |
|
Balance, period end | | | | | | | | | | | | | | | | | | |
Federal funds purchased and securities sold under agreements to repurchase | $ | 79,824 |
| | 78,683 |
| | 76,366 |
| | 78,124 |
| | 108,468 |
| $ | 93,896 |
| | 92,430 |
| | 92,418 |
| | 89,307 |
| | 80,916 |
|
Commercial paper | — |
| | 11 |
| | 10 |
| | 120 |
| | 123 |
| |
Other short-term borrowings | 13,987 |
| | 16,662 |
| | 18,495 |
| | 18,537 |
| | 16,077 |
| 12,701 |
| | 13,357 |
| | 13,033 |
| | 15,189 |
| | 16,291 |
|
Total | $ | 93,811 |
| | 95,356 |
| | 94,871 |
| | 96,781 |
| | 124,668 |
| $ | 106,597 |
| | 105,787 |
| | 105,451 |
| | 104,496 |
| | 97,207 |
|
Average daily balance for period | | | | | | | | | | | | | | | | | | |
Federal funds purchased and securities sold under agreements to repurchase | $ | 81,980 |
| | 79,826 |
| | 79,942 |
| | 107,271 |
| | 101,252 |
| $ | 95,721 |
| | 93,483 |
| | 92,141 |
| | 89,138 |
| | 86,535 |
|
Commercial paper | 4 |
| | 10 |
| | 51 |
| | 121 |
| | 137 |
| |
Other short-term borrowings | 17,209 |
| | 15,927 |
| | 18,556 |
| | 17,306 |
| | 14,839 |
| 12,930 |
| | 12,479 |
| | 13,331 |
| | 14,657 |
| | 15,244 |
|
Total | $ | 99,193 |
| | 95,763 |
| | 98,549 |
| | 124,698 |
| | 116,228 |
| $ | 108,651 |
| | 105,962 |
| | 105,472 |
| | 103,795 |
| | 101,779 |
|
Maximum month-end balance for period | | | | | | | | | | | | | | | | | | |
Federal funds purchased and securities sold under agreements to repurchase (1) | $ | 83,260 |
| | 78,683 |
| | 81,284 |
| | 109,645 |
| | 108,468 |
| $ | 97,650 |
| | 93,918 |
| | 92,531 |
| | 92,103 |
| | 88,121 |
|
Commercial paper (2) | 11 |
| | 11 |
| | 78 |
| | 121 |
| | 138 |
| |
Other short-term borrowings (3) | 18,301 |
| | 18,281 |
| | 19,439 |
| | 18,537 |
| | 16,077 |
| |
Other short-term borrowings (2) | | 14,129 |
| | 13,357 |
| | 14,270 |
| | 15,272 |
| | 16,924 |
|
| |
(1) | Highest month-end balance in each of the last five quarters was in August, JuneJanuary 2019, and February 2017, OctoberNovember, July, May and September 2016. January 2018. |
| |
(2) | Highest month-end balance in each of the last five quarters was in February 2019, and December, July,, June May and January 2017, November and July 2016. |
| |
(3) | Highest month-end balance in each of the last five quarters was in July, April and February 2017, December and September 2016. 2018. |
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 $238.9$236.3 billion at September 30, 2017, decreased $16.2March 31, 2019, increased $7.3 billion from December 31, 2016.2018. We issued $10.4 billion and $38.4$17.3 billion of long-term debt in the third
first quarter and first nine months of 2017, respectively.2019. Table 4434 provides the aggregate carrying value of long-term debt maturities (based on contractual payment dates) for the remainder of 20172019 and the following years thereafter, as of September 30, 2017.March 31, 2019.
Table 44:34: Maturity of Long-Term Debt
| | | September 30, 2017 | | March 31, 2019 | |
(in millions) | Remaining 2017 |
| | 2018 |
| | 2019 |
| | 2020 |
| | 2021 |
| | Thereafter |
| | Total |
| Remaining 2019 |
| | 2020 |
| | 2021 |
| | 2022 |
| | 2023 |
| | Thereafter |
| | Total |
|
Wells Fargo & Company (Parent Only) | | | | | | | | | | | | | | | | | | | | | | | | | | |
Senior notes | $ | 3,084 |
| | 8,002 |
| | 6,791 |
| | 13,300 |
| | 18,036 |
| | 71,083 |
| | 120,296 |
| $ | 4,679 |
| | 13,451 |
| | 17,972 |
| | 17,848 |
| | 10,970 |
| | 48,761 |
| | 113,681 |
|
Subordinated notes | — |
| | 608 |
| | — |
| | — |
| | — |
| | 26,380 |
| | 26,988 |
| — |
| | — |
| | — |
| | — |
| | 3,583 |
| | 22,583 |
| | 26,166 |
|
Junior subordinated notes | — |
| | — |
| | — |
| | — |
| | — |
| | 1,658 |
| | 1,658 |
| — |
| | — |
| | — |
| | — |
| | — |
| | 1,662 |
| | 1,662 |
|
Total long-term debt - Parent | $ | 3,084 |
| | 8,610 |
| | 6,791 |
| | 13,300 |
| | 18,036 |
| | 99,121 |
| | 148,942 |
| $ | 4,679 |
| | 13,451 |
| | 17,972 |
| | 17,848 |
| | 14,553 |
| | 73,006 |
| | 141,509 |
|
Wells Fargo Bank, N.A. and other bank entities (Bank) | | | | | | | | | | | | | | | | | | | | | | | | | | |
Senior notes | $ | 4,512 |
| | 31,622 |
| | 18,888 |
| | 5,511 |
| | 10,238 |
| | 240 |
| | 71,011 |
| $ | 27,595 |
| | 25,786 |
| | 23,471 |
| | 39 |
| | 2,836 |
| | 180 |
| | 79,907 |
|
Subordinated notes | 1,026 |
| | — |
| | — |
| | — |
| | — |
| | 5,406 |
| | 6,432 |
| — |
| | — |
| | — |
| | — |
| | 1,071 |
| | 4,232 |
| | 5,303 |
|
Junior subordinated notes | — |
| | — |
| | — |
| | — |
| | — |
| | 340 |
| | 340 |
| — |
| | — |
| | — |
| | — |
| | — |
| | 355 |
| | 355 |
|
Securitizations and other bank debt | 1,732 |
| | 1,803 |
| | 728 |
| | 649 |
| | 117 |
| | 3,639 |
| | 8,668 |
| 1,677 |
| | 1,666 |
| | 727 |
| | 281 |
| | 83 |
| | 2,140 |
| | 6,574 |
|
Total long-term debt - Bank | $ | 7,270 |
| | 33,425 |
| | 19,616 |
| | 6,160 |
| | 10,355 |
| | 9,625 |
| | 86,451 |
| $ | 29,272 |
| | 27,452 |
| | 24,198 |
| | 320 |
| | 3,990 |
| | 6,907 |
| | 92,139 |
|
Other consolidated subsidiaries | | | | | | | | | | | | | | | | | | | | | | | | | | |
Senior notes | $ | — |
| | 807 |
| | 1,200 |
| | — |
| | 1,016 |
| | 404 |
| | 3,427 |
| $ | 1,121 |
| | 11 |
| | 997 |
| | — |
| | 410 |
| | 120 |
| | 2,659 |
|
Junior subordinated notes | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
Securitizations and other bank debt | — |
| | 73 |
| | — |
| | — |
| | — |
| | — |
| | 73 |
| — |
| | — |
| | — |
| | — |
| | — |
| | 32 |
| | 32 |
|
Total long-term debt - Other consolidated subsidiaries | $ | — |
| | 880 |
| | 1,200 |
| | — |
| | 1,016 |
| | 404 |
| | 3,500 |
| $ | 1,121 |
| | 11 |
| | 997 |
| | — |
| | 410 |
| | 152 |
| | 2,691 |
|
Total long-term debt | $ | 10,354 |
| | 42,915 |
| | 27,607 |
| | 19,460 |
| | 29,407 |
| | 109,150 |
| | 238,893 |
| $ | 35,072 |
| | 40,914 |
| | 43,167 |
| | 18,168 |
| | 18,953 |
| | 80,065 |
| | 236,339 |
|
Parent In February 2017,March 2019, the Parent filed aSecurities and Exchange Commission (SEC) declared effective the Parent’s registration statement with the SEC for the issuance of up to $50 billion of senior and subordinated notes, preferred stock and other securities. At March 31, 2019, the Parent’s remaining authorized issuance capacity under this registration statement was $50 billion. The Parent’s overall 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, 2017,March 31, 2019, the Parent was authorized by the Board to issue up to $50 billion in outstanding short-term debt and $180 billion in outstanding long-term debt. In April 2019, the Board increased this authority to $200 billion. The Parent’s short-term debt issuance authority granted by the Board is limited to debt issued to affiliates, while the Parent’s long-termlong-
term debt issuance authority granted by the Board includes debt issued to affiliates and others. At September 30, 2017,March 31, 2019, the Parent had available $50.0 billion in short-term debt issuance authority and $26.9$33.5 billion in long-term debt issuance authority.authority, net of debt issued to affiliates. During the first ninethree months of 2017,2019, the Parent issued $21.9$6.6 billion of senior notes, substantially all of which $16.1 billion were registered with the SEC. In April 2019, the Parent issued EUR €1.0 billion and GDP £600 million of senior notes. The Parent’s short-term debt issuance authority granted by the Board was limited to debt issued to affiliates, and was revoked by the Board at management’s request in January 2018.
Asset/Liability Management (continued)
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 September 30, 2017,March 31, 2019, Wells Fargo Bank, N.A. was authorized by its board of directors to issue $100 billion in outstanding short-term debt and $175 billion in outstanding long-term debt and had available $97.4$99.1 billion in short-term debt issuance authority and $98.2$97.9 billion in long-term debt issuance authority. In April 2015,2018, Wells Fargo Bank, N.A. established a new $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, 2017,March 31, 2019, Wells Fargo Bank, N.A. had remaining issuance capacity under the new bank note program of $50.0 billion
in short-term senior notes and $38.0$39.8 billion in long-term senior or subordinated notes. During the first ninethree months of 2017,2019, Wells Fargo Bank, N.A. issued $1.0 billion$270 million of unregistered senior notes, none of which were issued under the bank note program. In addition, duringnotes.
During the first ninethree months of 2017,2019, Wells Fargo Bank, N.A. executed advances of $20.4borrowed $6.3 billion withfrom the Federal Home Loan Bank of Des Moines, and as of September 30, 2017,March 31, 2019, Wells Fargo Bank, N.A. had outstanding advances of $60.0$48.6 billion across the Federal Home Loan Bank System. In addition, in April 2019, Wells Fargo Bank, N.A. borrowed $250 million from the Federal Home Loan Bank of Des Moines. Federal Home Loan Bank advances are reflected as short-term borrowings or long-term debt on the Company’s balance sheet.
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.
There were no actions undertaken by the rating agencies with regard to our credit ratings during first quarter 2019. On September 18, 2017,April 1, 2019, S&P Global Ratings affirmed all of the Company’scredit ratings for both the Parent and maintained its negative ratings outlook. On September 20, 2017, DBRS, Inc. (DBRS) downgraded the Company’s long-term ratings by one notch and affirmed the Company’s short-term ratings. DBRS revised the trend on the Company's long-term ratings from negative to stable. On October 3, 2017, Fitch Ratings, Inc. downgraded certain of the Company’s ratings by one notch andWells Fargo Bank, N.A., but revised the ratings outlook fromfor the Parent to negative tofrom stable. Both the Parent and Wells Fargo Bank, N.A. remain among the top-ratedhighest-rated financial firms in the U.S.
See the “Risk Factors” section in our 20162018 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 1215 (Derivatives) to Financial Statements in this Report for information regarding additional collateral and funding obligations required for certain
Asset/Liability Management (continued)
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, 2017,March 31, 2019, are presented in Table 45.
Table 45:35: Credit Ratings as of September 30, 2017March 31, 2019
|
| | | | | | | |
| Wells Fargo & Company | | Wells Fargo Bank, N.A. |
| Senior debt | | Short-term borrowings | | Long-term deposits | | Short-term borrowings |
Moody'sMoody’s | A2 | | P-1 | | Aa1 | | P-1 |
S&P Global Ratings | AA- | | A-1A-2 | | AA-A+ | | A-1+A-1 |
Fitch Ratings, Inc. | A+ | | F1 | | AA | | F1+ |
DBRS | AA(low)AA (low) | | R-1(middle)R-1 (middle) | | AA | | R-1(high)R-1 (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 the Federal Housing Finance Board.Agency. 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.
LIBOR TRANSITION During the first three months of 2019, the Company did not issue any debt securities with an interest rate indexed to the new Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. SOFR is an alternative to LIBOR and is a broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities. Due to the uncertainty surrounding the future of LIBOR, it is expected that a transition away from the widespread use of LIBOR to alternative benchmark rates will occur by the end of 2021. See the “Asset/Liability Management – Liquidity and Funding” section in our 2018 Form 10-K for additional information regarding our strategy to transition products and exposures away from LIBOR, and the “Risk Factors” section in our 2018 Form 10-K for additional information regarding the potential impact of a benchmark rate, such as LIBOR, or other referenced financial metric being significantly changed, replaced or discontinued.
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 working 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 $8.7$2.6 billion from December 31, 2016,2018, predominantly from Wells Fargo net income of $15.9$5.9 billion, less common and preferred stock dividends of $7.0$2.4 billion. During thirdfirst quarter 2017,2019, we issued 10.128.1 million shares of common stock. During thirdfirst quarter 2017,2019, we repurchased 49.097.4 million shares of common stock in open market transactions, private transactions and from employee benefit plans, at a cost of $2.6$4.8 billion. We also entered into a $1 billion forward repurchase contract with an unrelated third partyThe amount of our repurchases are subject to various factors as discussed in October 2017 that is expected to settle in first quarter 2018 for approximately 19 million shares.the “Securities Repurchases” section below. For additional information about our forward repurchase agreements,share repurchases, 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).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 20152017 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).BHCs.
We were required to comply with the final Basel III capital rules beginning January 2014, with certain provisions subject to
phase-in periods. Beginning January 1, 2018, the requirements for calculating CET1 and tier 1 capital, along with risk-weighted assets (RWAs), became fully phased-in. However, the requirements for calculating tier 2 and total capital are still in accordance with Transition Requirements. The entire 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.
On April 10, 2018, the FRB issued a proposed rule that would add a stress capital buffer and a stress leverage buffer to the minimum capital and tier 1 leverage ratio requirements. The buffers would be calculated based on the decrease in a financial institution’s risk-based capital and tier 1 leverage ratios under the supervisory severely adverse scenario in the Comprehensive Capital Analysis and Review (CCAR), plus four quarters of planned common stock dividends. The stress capital buffer would replace the 2.5% capital conservation buffer under the Standardized Approach, whereas the stress leverage buffer would be added to the current 4% minimum tier 1 leverage ratio.
Because the Company has been designated as a G-SIB, we willare 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 considerconsiders our size, interconnectedness, cross-jurisdictional activity, substitutability, and complexity, consistent with athe methodology developed by the BCBS and the Financial Stability Board (FSB). The second (method two) will useuses similar inputs, but will replacereplaces 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 becomebecame fully effective on January 1, 2019. Based on year-end 20152017 data, our 20172019 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 (fully phased-in) of 11.82%11.92% exceeded the minimum of 9.0% by 282292 basis points at September 30, 2017.March 31, 2019.
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 continue to report our tier 2 and total 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 1923 (Regulatory and Agency Capital Requirements) to Financial Statements in this Report.
Capital Management (continued)
Table 4636 summarizes our CET1, tier 1 capital, total capital, risk-weighted assets and capital ratios on a fully phased-in basis at September 30, 2017March 31, 2019 and December 31, 2016.2018. As of September 30, 2017,March 31, 2019, our CET1, and tier 1, and total capital ratios were lower using RWAs calculated under the Standardized Approach.
Table 46:36: Capital Components and Ratios (Fully Phased-In) (1)
| | | | September 30, 2017 | | | December 31, 2016 | | | | March 31, 2019 | | | December 31, 2018 | | |
(in millions) | | Advanced Approach |
| | Standardized Approach |
| | | Advanced Approach |
| | Standardized Approach |
| | |
(in millions, except ratios) | | | Advanced Approach |
| | Standardized Approach |
| | | Advanced Approach |
| | Standardized Approach |
| |
Common Equity Tier 1 | (A) | $ | 152,808 |
| | 152,808 |
| | 146,424 |
| | 146,424 |
| | (A) | $ | 148,124 |
| | 148,124 |
| | 146,363 |
| | 146,363 |
| |
Tier 1 Capital | (B) | 176,263 |
| | 176,263 |
| | 169,063 |
| | 169,063 |
| | (B) | 169,611 |
| | 169,611 |
| | 167,866 |
| | 167,866 |
| |
Total Capital | (C) | 207,593 |
| | 217,279 |
| | 200,344 |
| | 210,796 |
| | (C) | 199,331 |
| | 207,522 |
| | 198,103 |
| | 206,346 |
| |
Risk-Weighted Assets | (D) | 1,243,355 |
| | 1,292,841 |
| | 1,298,688 |
| | 1,358,933 |
| | (D) | 1,176,360 |
| | 1,243,125 |
| | 1,177,350 |
| | 1,247,210 |
| |
Common Equity Tier 1 Capital Ratio | (A)/(D) | 12.29 | % | | 11.82 |
| * | | 11.27 |
| | 10.77 |
| * | (A)/(D) | 12.59 | % | | 11.92 |
| * | | 12.43 |
| | 11.74 |
| * |
Tier 1 Capital Ratio | (B)/(D) | 14.18 |
| | 13.63 |
| * | | 13.02 |
| | 12.44 |
| * | (B)/(D) | 14.42 |
| | 13.64 |
| * | | 14.26 |
| | 13.46 |
| * |
Total Capital Ratio | (C)/(D) | 16.70 |
| * | 16.81 |
| | 15.43 |
| * | 15.51 |
| | (C)/(D) | 16.94 |
|
| 16.69 |
| * | | 16.83 |
| | 16.54 |
| * |
*Denotes the lowest capital ratio as determined under the Advanced and Standardized Approaches.
| |
(1) | FullyBeginning January 1, 2018, the requirements for calculating CET1 and tier 1 capital, along with RWAs, became fully phased-in. However, the requirements for calculating tier 2 and total capital are still in accordance with Transition Requirements. Accordingly, fully phased-in regulatorytotal capital amounts ratios and RWAsratios 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 4737 for information regarding the calculation and components of CET1, tier 1 capital, total capital and RWAs, as well as the corresponding reconciliation of our fully phased-in regulatory capital amounts to GAAP financial measures.
|
Table 4737 provides information regarding the calculation and composition of our risk-based capital under the Advanced and Standardized Approaches at September 30, 2017March 31, 2019 and December 31, 2016.
Table 47:37: Risk-Based Capital Calculation and Components
| | | | September 30, 2017 | | | December 31, 2016 | | | March 31, 2019 | | | December 31, 2018 | |
(in millions) | | Advanced Approach |
| | Standardized Approach |
| | Advanced Approach |
| | Standardized Approach |
| | Advanced Approach |
| | Standardized Approach |
| | Advanced Approach |
| | Standardized Approach |
|
Total equity | | $ | 206,824 |
| | 206,824 |
| | 200,497 |
| | 200,497 |
| | $ | 198,733 |
|
| 198,733 |
| | 197,066 |
| | 197,066 |
|
Adjustments: | | | | | | | | | |
|
|
| | | | |
Preferred stock | | (25,576 | ) | | (25,576 | ) | | (24,551 | ) | | (24,551 | ) | | (23,214 | ) |
| (23,214 | ) | | (23,214 | ) | | (23,214 | ) |
Additional paid-in capital on ESOP preferred stock | | (130 | ) | | (130 | ) | | (126 | ) | | (126 | ) | | (95 | ) |
| (95 | ) | | (95 | ) | | (95 | ) |
Unearned ESOP shares | | 1,904 |
| | 1,904 |
| | 1,565 |
| | 1,565 |
| | 1,502 |
|
| 1,502 |
| | 1,502 |
| | 1,502 |
|
Noncontrolling interests | | (895 | ) | | (895 | ) | | (916 | ) | | (916 | ) | | (901 | ) |
| (901 | ) | | (900 | ) | | (900 | ) |
Total common stockholders' equity |
| 182,127 |
| | 182,127 |
| | 176,469 |
| | 176,469 |
| |
Total common stockholders’ equity | |
| 176,025 |
|
| 176,025 |
| | 174,359 |
| | 174,359 |
|
Adjustments: | | | | | | | | | | | | | | | | |
Goodwill | | (26,581 | ) | | (26,581 | ) | | (26,693 | ) | | (26,693 | ) | | (26,420 | ) |
| (26,420 | ) | | (26,418 | ) | | (26,418 | ) |
Certain identifiable intangible assets (other than MSRs) | | (1,913 | ) | | (1,913 | ) | | (2,723 | ) | | (2,723 | ) | | (522 | ) |
| (522 | ) | | (559 | ) | | (559 | ) |
Other assets (1) | | (2,282 | ) | | (2,282 | ) | | (2,088 | ) | | (2,088 | ) | | (2,131 | ) |
| (2,131 | ) | | (2,187 | ) | | (2,187 | ) |
Applicable deferred taxes (2) | | 1,550 |
| | 1,550 |
| | 1,772 |
| | 1,772 |
| | 771 |
|
| 771 |
| | 785 |
| | 785 |
|
Investment in certain subsidiaries and other | | (93 | ) | | (93 | ) | | (313 | ) | | (313 | ) | | 401 |
|
| 401 |
| | 383 |
| | 383 |
|
Common Equity Tier 1 (Fully Phased-In) |
| 152,808 |
| | 152,808 |
| | 146,424 |
| | 146,424 |
|
| 148,124 |
|
| 148,124 |
| | 146,363 |
| | 146,363 |
|
Effect of Transition Requirements | | 740 |
| | 740 |
|
| 2,361 |
| | 2,361 |
| |
Common Equity Tier 1 (Transition Requirements) | | $ | 153,548 |
| | 153,548 |
| | 148,785 |
| | 148,785 |
| |
| | | | | | | | | | | | | | | | |
Common Equity Tier 1 (Fully Phased-In) | | $ | 152,808 |
| | 152,808 |
| | 146,424 |
| | 146,424 |
| | $ | 148,124 |
| | 148,124 |
| | 146,363 |
| | 146,363 |
|
Preferred stock | | 25,576 |
| | 25,576 |
| | 24,551 |
| | 24,551 |
| | 23,214 |
|
| 23,214 |
| | 23,214 |
| | 23,214 |
|
Additional paid-in capital on ESOP preferred stock | | 130 |
| | 130 |
| | 126 |
| | 126 |
| | 95 |
|
| 95 |
| | 95 |
| | 95 |
|
Unearned ESOP shares | | (1,904 | ) | | (1,904 | ) | | (1,565 | ) | | (1,565 | ) | | (1,502 | ) |
| (1,502 | ) | | (1,502 | ) | | (1,502 | ) |
Other | | (347 | ) | | (347 | ) | | (473 | ) | | (473 | ) | | (320 | ) |
| (320 | ) | | (304 | ) | | (304 | ) |
Total Tier 1 capital (Fully Phased-In) | (A) | 176,263 |
| | 176,263 |
| | 169,063 |
| | 169,063 |
| (A) | 169,611 |
|
| 169,611 |
| | 167,866 |
| | 167,866 |
|
Effect of Transition Requirements | | 733 |
| | 733 |
| | 2,301 |
| | 2,301 |
| |
Total Tier 1 capital (Transition Requirements) | | $ | 176,996 |
| | 176,996 |
| | 171,364 |
| | 171,364 |
| |
| | | | | | | | | | | | | | | | |
Total Tier 1 capital (Fully Phased-In) | | $ | 176,263 |
| | 176,263 |
| | 169,063 |
| | 169,063 |
| | $ | 169,611 |
| | 169,611 |
| | 167,866 |
| | 167,866 |
|
Long-term debt and other instruments qualifying as Tier 2 | | 29,183 |
| | 29,183 |
| | 29,465 |
| | 29,465 |
| | 27,283 |
|
| 27,283 |
| | 27,946 |
| | 27,946 |
|
Qualifying allowance for credit losses (3) | | 2,423 |
| | 12,109 |
| | 2,088 |
| | 12,540 |
| | 2,630 |
|
| 10,821 |
| | 2,463 |
| | 10,706 |
|
Other | | (276 | ) | | (276 | ) | | (272 | ) | | (272 | ) | | (193 | ) |
| (193 | ) | | (172 | ) | | (172 | ) |
Total Tier 2 capital (Fully Phased-In) | (B) | 31,330 |
| | 41,016 |
| | 31,281 |
| | 41,733 |
| (B) | 29,720 |
|
| 37,911 |
| | 30,237 |
| | 38,480 |
|
Effect of Transition Requirements | | 1,196 |
| | 1,196 |
| | 1,780 |
| | 1,780 |
| | 520 |
| | 520 |
| | 695 |
| | 695 |
|
Total Tier 2 capital (Transition Requirements) | | $ | 32,526 |
| | 42,212 |
| | 33,061 |
| | 43,513 |
| | $ | 30,240 |
| | 38,431 |
| | 30,932 |
| | 39,175 |
|
| | | | | | | | | | | | | | | | |
Total qualifying capital (Fully Phased-In) | (A)+(B) | $ | 207,593 |
| | 217,279 |
| | 200,344 |
| | 210,796 |
| (A)+(B) | $ | 199,331 |
| | 207,522 |
| | 198,103 |
| | 206,346 |
|
Total Effect of Transition Requirements | | 1,929 |
| | 1,929 |
| | 4,081 |
| | 4,081 |
| | 520 |
| | 520 |
| | 695 |
| | 695 |
|
Total qualifying capital (Transition Requirements) | | $ | 209,522 |
| | 219,208 |
| | 204,425 |
| | 214,877 |
| | $ | 199,851 |
| | 208,042 |
| | 198,798 |
| | 207,041 |
|
| | | | | | | | | | | | | | | | |
Risk-Weighted Assets (RWAs) (4)(5): | | | | | | | | | | | | | | | | |
Credit risk | | $ | 910,562 |
| | 1,255,711 |
| | 960,763 |
| | 1,314,833 |
| | $ | 799,801 |
| | 1,200,379 |
| | 803,273 |
| | 1,201,246 |
|
Market risk | | 37,130 |
| | 37,130 |
| | 44,100 |
| | 44,100 |
| | 42,746 |
| | 42,746 |
| | 45,964 |
| | 45,964 |
|
Operational risk | | 295,663 |
| | N/A |
| | 293,825 |
| | N/A |
| | 333,813 |
| | N/A |
| | 328,113 |
| | N/A |
|
Total RWAs (Fully Phased-In) | | $ | 1,243,355 |
| | 1,292,841 |
| | 1,298,688 |
| | 1,358,933 |
| | $ | 1,176,360 |
|
| 1,243,125 |
| | 1,177,350 |
| | 1,247,210 |
|
Credit risk | | $ | 884,907 |
| | 1,231,508 |
| | 936,664 |
| | 1,292,098 |
| |
Market risk | | 37,130 |
| | 37,130 |
| | 44,100 |
| | 44,100 |
| |
Operational risk | | 295,663 |
| | N/A |
| | 293,825 |
| | N/A |
| |
Total RWAs (Transition Requirements) | | $ | 1,217,700 |
| | 1,268,638 |
| | 1,274,589 |
| | 1,336,198 |
| |
| |
(1) | Represents goodwill and other intangibles on nonmarketable equity investments and on held-for-sale assets,securities, 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 4838 presents the changes in Common Equity Tier 1 under the Advanced Approach for the ninethree months ended September 30, 2017.March 31, 2019.
Table 48:38: Analysis of Changes in Common Equity Tier 1
| | (in millions) | | | | |
Common Equity Tier 1 (Fully Phased-In) at December 31, 2016 | | $ | 146,424 |
| |
Net income | | 14,645 |
| |
Common Equity Tier 1 (Fully Phased-In) at December 31, 2018 | | | $ | 146,363 |
|
Net income applicable to common stock | | | 5,507 |
|
Common stock dividends | | (5,738 | ) | | (2,054 | ) |
Common stock issued, repurchased, and stock compensation-related items | | (4,750 | ) | | (3,949 | ) |
Goodwill | | 112 |
| | (2 | ) |
Certain identifiable intangible assets (other than MSRs) | | 811 |
| | 37 |
|
Other assets (1) | | (195 | ) | | 56 |
|
Applicable deferred taxes (2) | | (221 | ) | | (14 | ) |
Investment in certain subsidiaries and other | | 1,720 |
| | 2,180 |
|
Change in Common Equity Tier 1 | | 6,384 |
| | 1,761 |
|
Common Equity Tier 1 (Fully Phased-In) at September 30, 2017 | | $ | 152,808 |
| |
Common Equity Tier 1 (Fully Phased-In) at March 31, 2019 | | | $ | 148,124 |
|
| |
(1) | Represents goodwill and other intangibles on nonmarketable equity investments and on held-for-sale assets,securities, 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 4939 presents net changes in the components of RWAs under the Advanced and Standardized Approaches for the ninethree months ended September 30, 2017.March 31, 2019.
Table 49:39: Analysis of Changes in RWAs
| | (in millions) | Advanced Approach |
| Standardized Approach |
| Advanced Approach |
| Standardized Approach |
|
RWAs (Fully Phased-In) at December 31, 2016 | $ | 1,298,688 |
| 1,358,933 |
| |
RWAs (Fully Phased-In) at December 31, 2018 | | $ | 1,177,350 |
| 1,247,210 |
|
Net change in credit risk RWAs | (50,201 | ) | (59,122 | ) | (3,472 | ) | (867 | ) |
Net change in market risk RWAs | (6,970 | ) | (6,970 | ) | (3,218 | ) | (3,218 | ) |
Net change in operational risk RWAs | 1,838 |
| N/A |
| 5,700 |
| — |
|
Total change in RWAs | (55,333 | ) | (66,092 | ) | (990 | ) | (4,085 | ) |
RWAs (Fully Phased-In) at September 30, 2017 | 1,243,355 |
| 1,292,841 |
| |
Effect of Transition Requirements | (25,655 | ) | (24,203 | ) | |
RWAs (Transition Requirements) at September 30, 2017 | $ | 1,217,700 |
| 1,268,638 |
| |
RWAs (Fully Phased-In) at March 31, 2019 | | $ | 1,176,360 |
| 1,243,125 |
|
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 investmentssecurities, 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'sCompany’s use of equity.
Table 5040 provides a reconciliation of these non-GAAP financial measures to GAAP financial measures.
Table 50:40: 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, 2017 |
| Jun 30, 2017 |
| Sep 30, 2016 |
| | Sep 30, 2017 |
| | Jun 30, 2017 |
| Sep 30, 2016 |
| | Sep 30, 2017 |
| Sep 30, 2016 |
| | Mar 31, 2019 |
| Dec 31, 2018 |
| Mar 31, 2018 |
| | Mar 31, 2019 |
| Dec 31, 2018 |
| Mar 31, 2018 |
|
Total equity | | $ | 206,824 |
| 206,145 |
| 203,958 |
| | 207,934 |
| | 205,968 |
| 203,883 |
| | 205,246 |
| 200,502 |
| | $ | 198,733 |
| 197,066 |
| 205,910 |
| | 198,349 |
| 198,442 |
| 206,180 |
|
Adjustments: | | | | | | | | | | | | | | | |
Preferred stock | | (25,576 | ) | (25,785 | ) | (24,594 | ) | | (25,780 | ) | | (25,849 | ) | (24,813 | ) | | (25,600 | ) | (24,291 | ) | | (23,214 | ) | (23,214 | ) | (26,227 | ) | | (23,214 | ) | (23,463 | ) | (26,157 | ) |
Additional paid-in capital on ESOP preferred stock | | (130 | ) | (136 | ) | (130 | ) | | (136 | ) | | (144 | ) | (148 | ) | | (142 | ) | (172 | ) | | (95 | ) | (95 | ) | (146 | ) | | (95 | ) | (105 | ) | (153 | ) |
Unearned ESOP shares | | 1,904 |
| 2,119 |
| 1,612 |
| | 2,114 |
| | 2,366 |
| 1,850 |
| | 2,226 |
| 2,150 |
| | 1,502 |
| 1,502 |
| 2,571 |
| | 1,502 |
| 1,761 |
| 2,508 |
|
Noncontrolling interests | | (895 | ) | (915 | ) | (930 | ) | | (926 | ) | | (910 | ) | (927 | ) | | (931 | ) | (938 | ) | | (901 | ) | (900 | ) | (958 | ) | | (899 | ) | (910 | ) | (997 | ) |
Total common stockholders' equity | (A) | | 182,127 |
| 181,428 |
| 179,916 |
| | 183,206 |
| | 181,431 |
| 179,845 |
| | 180,799 |
| 177,251 |
| |
Total common stockholders’ equity | | (A) | | 176,025 |
| 174,359 |
| 181,150 |
| | 175,643 |
| 175,725 |
| 181,381 |
|
Adjustments: | | | | | | | | | | | | | |
| |
|
Goodwill | | (26,581 | ) | (26,573 | ) | (26,688 | ) | | (26,600 | ) | | (26,664 | ) | (26,979 | ) | | (26,645 | ) | (26,696 | ) | | (26,420 | ) | (26,418 | ) | (26,445 | ) | | (26,420 | ) | (26,423 | ) | (26,516 | ) |
Certain identifiable intangible assets (other than MSRs) | | (1,913 | ) | (2,147 | ) | (3,001 | ) | | (2,056 | ) | | (2,303 | ) | (3,145 | ) | | (2,314 | ) | (3,383 | ) | | (522 | ) | (559 | ) | (1,357 | ) | | (543 | ) | (693 | ) | (1,489 | ) |
Other assets (1) | | (2,282 | ) | (2,268 | ) | (2,230 | ) | | (2,231 | ) | | (2,160 | ) | (2,131 | ) | | (2,163 | ) | (2,097 | ) | | (2,131 | ) | (2,187 | ) | (2,388 | ) | | (2,159 | ) | (2,204 | ) | (2,233 | ) |
Applicable deferred taxes (2) | | 1,550 |
| 1,624 |
| 1,832 |
| | 1,579 |
| | 1,648 |
| 1,855 |
| | 1,650 |
| 1,973 |
| | 771 |
| 785 |
| 918 |
| | 784 |
| 800 |
| 933 |
|
Tangible common equity | (B) | | $ | 152,901 |
| 152,064 |
| 149,829 |
| | 153,898 |
| | 151,952 |
| 149,445 |
| | 151,327 |
| 147,048 |
| (B) | | $ | 147,723 |
| 145,980 |
| 151,878 |
| | 147,305 |
| 147,205 |
| 152,076 |
|
Common shares outstanding | (C) | | 4,927.9 |
| 4,966.8 |
| 5,023.9 |
| | N/A |
| | N/A |
| N/A |
| | N/A |
| N/A |
| (C) | | 4,511.9 |
| 4,581.3 |
| 4,873.9 |
| | N/A |
| N/A |
| N/A |
|
Net income applicable to common stock (3) | (D) | | N/A |
| N/A |
| N/A |
| | $ | 4,185 |
| | 5,404 |
| 5,243 |
| | 14,645 |
| 15,501 |
| (D) | | N/A |
| N/A |
| N/A |
| | $ | 5,507 |
| 5,711 |
| 4,733 |
|
Book value per common share | (A)/(C) | | $ | 36.96 |
| 36.53 |
| 35.81 |
| | N/A |
| | N/A |
| N/A |
| | N/A |
| N/A |
| (A)/(C) | | $ | 39.01 |
| 38.06 |
| 37.17 |
| | N/A |
| N/A |
| N/A |
|
Tangible book value per common share | (B)/(C) | | 31.03 |
| 30.62 |
| 29.82 |
| | N/A |
| | N/A |
| N/A |
| | N/A |
| N/A |
| (B)/(C) | | 32.74 |
| 31.86 |
| 31.16 |
| | N/A |
| N/A |
| N/A |
|
Return on average common stockholders’ equity (ROE) (annualized) | (D)/(A) | | N/A |
| N/A |
| N/A |
| | 9.06 |
| % | 11.95 |
| 11.60 |
| | 10.83 |
| 11.68 |
| (D)/(A) | | N/A |
| N/A |
| N/A |
| | 12.71 | % | 12.89 |
| 10.58 |
|
Return on average tangible common equity (ROTCE) (annualized) | (D)/(B) | | N/A |
| N/A |
| N/A |
| | 10.79 |
| | 14.26 |
| 13.96 |
| | 12.94 |
| 14.08 |
| (D)/(B) | | N/A |
| N/A |
| N/A |
| | 15.16 |
| 15.39 |
| 12.62 |
|
| |
(1) | Represents goodwill and other intangibles on nonmarketable equity investments and on held-for-sale assets,securities, 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 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 becomesbecame effective on January 1, 2018, will requirerequires 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 requirerequires 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 changesApril 2018, the FRB and OCC proposed rules (the “Proposed SLR Rules”) that would replace the 2% supplementary leverage buffer with a buffer equal 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 denominatorone-half of the firm’s G-SIB capital surcharge. The Proposed SLR and will become effective on January 1, 2018.Rules would similarly tailor the current 6% SLR requirement for our insured depository institutions. At September 30, 2017,March 31, 2019, our SLR for the Company was 7.9% assuming full phase-in of7.8% calculated under 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 5141 for information regarding the calculation and components of the SLR.
Table 51:41: Fully Phased-In SLRSupplementary Leverage Ratio
| | (in millions, except ratio) | September 30, 2017 |
| Quarter ended March 31, 2019 |
|
Tier 1 capital | $ | 176,263 |
| $ | 169,611 |
|
Total average assets | 1,938,522 |
| 1,883,091 |
|
Less: deductions from Tier 1 capital(1) | 29,705 |
| 28,724 |
|
Total adjusted average assets | 1,908,817 |
| 1,854,367 |
|
Adjustments: | | |
Derivative exposures(2) | 73,681 |
| 68,724 |
|
Repo-style transactions(3) | 3,055 |
| 4,819 |
|
Other off-balance sheet exposures(4) | 243,339 |
| 252,704 |
|
Total adjustments | 320,075 |
| 326,247 |
|
Total leverage exposure | $ | 2,228,892 |
| $ | 2,180,614 |
|
Supplementary leverage ratio | 7.9 | % | 7.8 | % |
| |
(1) | Amounts permitted to be deducted from Tier 1 capital primarily include goodwill and other intangible assets, net of associated deferred tax liabilities. |
| |
(2) | Represents adjustments for off balance sheet derivative exposures, and derivative collateral netting as defined for supplementary leverage ratio determination purposes. |
| |
(3) | Adjustments for repo-style transactions represent counterparty credit risk for all repo-style transactions where Wells Fargo & Company is the principal (i.e., principal counterparty facing the client). |
| |
(4) | Adjustments for other off-balance sheet exposures represent the notional amounts of all off-balance sheet exposures (excluding off balance sheet exposures associated with derivative and repo-style transactions) less the adjustments for conversion to credit equivalent amounts under the regulatory capital rule. |
OTHER REGULATORY CAPITAL MATTERS In December 2016, the FRB finalized 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 rules, which becomebecame effective on January 1, 2019, U.S. G-SIBs will beare 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) 7.5% of total leverage exposure (the denominator of the SLR calculation). Additionally, U.S. G-SIBs will beare 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 willto be added to the 18% minimum and (ii) an external
TLAC leverage buffer equal to 2.0% of total leverage exposure that willto be added to the 7.5% minimum, in order to avoid restrictions on capital distributions and discretionary bonus payments. The rules will 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 rules will 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. While the rules permit 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 eligibility requirements of the rules in order to count toward the minimum TLAC amount. As a result of the rules, we will need to issue additional long-term debt to remain compliant with the requirements.Under the Proposed SLR Rules, the 2% external TLAC leverage buffer would be replaced with a buffer equal to one-half of the firm’s G-SIB capital surcharge. Additionally, the Proposed SLR Rules would modify the leverage component for calculating the minimum amount of eligible unsecured long-term debt from 4.5% of total leverage exposure to 2.5% of total leverage exposure plus one-half of the firm’s G-SIB capital surcharge. As of March 31, 2019, our eligible external TLAC as a percentage of total risk-weighted assets was 23.85% compared with a required minimum of 22.0%. Similar to the risk-based capital requirements, we determine minimum required TLAC based on the greater of RWAs determined under the Standardized and Advanced approaches.
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’ 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. As discussed above in the “Capital Management – Regulatory Capital Guidelines – Risk-Based Capital and Risk-Weighted Assets” section of this Report, the FRB has proposed including a stress capital buffer to replace the current 2.5% capital conservation buffer. Under the proposal, it is expected that the adoption of CECL accounting would be included in the calculation of the stress capital buffer. We expect that
implementation of the stress capital buffer may increase the level and volatility of minimum capital ratio requirements, which may cause our current long-term CET1 capital ratio target of 10% to increase.
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, among other things, the overall financial condition, risk profile, and capital adequacy of BHCs while considering both quantitative and qualitative factors when evaluating capital plans.
Our 20172019 capital plan, which was submitted on April 4, 2017,2019, as part of CCAR, included a comprehensive capital outlook supported by an assessment of expected sources and uses of capital over a given planning horizon under a range of expected and stress scenarios. As part of the 20172019 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 22, 2017. On June 28, 2017, the FRB notified us that it did not object to our capital plan included in the 2017 CCAR.30, 2019.
Federal banking regulators require stress tests to evaluate whether an institution has sufficient capital to continue to operate during periods of adverse economic 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 October 2017.2018. In October 2018, the FRB proposed a rule that would, among other things, eliminate the mid-cycle stress test requirement for banks beginning in 2020.
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 repurchase 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. Due to the various factors impacting the amount of our share repurchases and the fact that we tend to be in the market regularly to satisfy repurchase considerations under our capital plan, our share repurchases occur at various price levels. We may suspend share repurchase activity at any time.
In January 2016,2018, the Board authorized the repurchase of 350 million shares of our common stock. In October 2018, the Board authorized the repurchase of an additional 350 million shares of our common stock. At September 30, 2017,March 31, 2019, we had remaining authority to repurchase approximately 122298 million shares, subject to regulatory and legal conditions. For more information about share repurchases during thirdfirst quarter 2017,2019, 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, 2017, there were 26,560,862 warrants outstanding, exercisable at $33.731 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 Matters (continued)
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 ourFor a discussion of certain consent orders applicable to the Company, see the “Overview” section in this Report. For a discussion of other significant regulations and regulatory oversight initiatives that have affected or may affect our business, contained insee the “Regulatory Matters” and “Risk Factors” sections in our 20162018 Form 10-K and the “Regulatory Matters” section in our 2017 First and Second Quarter Reports on Form 10-Q.10-K.
REGULATION OF CONSUMER FINANCIAL PRODUCTS The 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 implementing new origination, notification, disclosure and other requirements, as 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 April 1, 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. In July 2017, the CFPB finalized a rule, which became effective on September 18, 2017, prohibiting covered providers of certain consumer financial products and services, such as Wells Fargo, from using arbitration agreements that prevent consumers from filing or participating in class action litigation. However, Congress subsequently used its powers under the Congressional Review Act to overturn the CFPB's arbitration rule and prohibited the CFPB from writing a “substantially similar” rule in the future without congressional action.
In addition to these rulemaking activities, the CFPB is continuing its on-going supervisory examination activities of the financial services industry with respect to a number of consumer businesses and products, including mortgage lending and servicing, fair lending requirements, student lending activities, and automobile finance. At this time, the Company cannot predict the 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. We submitted our 2017 resolution plan to the FRB and FDIC on June 30, 2017, but have not yet received regulatory feedback on the plan. 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 adequately remedy the deficiencies. If the FRB and FDIC ultimately determine that we have been unable to remedy any deficiencies, they could require us to divest certain assets or operations.
We must also prepare and submit to the FRB 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. (the “Bank”), 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, restrictions on our 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.
The strategy described in our most recent resolution plan submission is a multiple point of entry strategy; however, we have made a decision to move to a single point of entry strategy for our next resolution plan submission. We are not obligated to maintain either a single point of entry or multiple point of entry strategy, and the strategies reflected in our resolution plan submissions are not binding in the event of an actual resolution
of Wells Fargo, whether conducted under the U.S. Bankruptcy Code or by the FDIC under the orderly liquidation authority.
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 orderly resolution of the Company using either a single point of entry or multiple point of entry resolution strategy, on June 28, 2017, the Parent entered into a support agreement (the “Support Agreement”) with WFC Holdings, LLC, an intermediate holding company and subsidiary of the Parent (the “IHC”), and the Bank, Wells Fargo Securities, LLC (“WFS”), and Wells Fargo Clearing Services, LLC (“WFCS”), each an indirect subsidiary of the Parent. Pursuant to the Support Agreement, the Parent transferred a significant amount of its assets, including the majority of its cash, deposits, liquid securities and intercompany loans (but excluding its equity interests in its subsidiaries and certain other assets), to the IHC
and will continue to transfer those types of assets to the IHC from time to time. In the event of our material financial distress or failure, the IHC will be obligated to use the transferred assets to provide capital and/or liquidity to the Bank pursuant to the Support Agreement and to WFS and WFCS through repurchase facilities entered into in connection with the Support Agreement. Under the Support Agreement, the IHC will also provide funding and liquidity to the Parent through subordinated notes and a committed line of credit, which, together with the issuance of dividends, is expected to provide the Parent, during business as usual operating conditions, with the same access to cash necessary to service its debts, pay dividends, repurchase its shares, and perform its other obligations as it would have had if it had not entered into these arrangements and transferred any assets. If certain liquidity and/or capital metrics fall below defined triggers, the subordinated notes 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 Parent's and the IHC's respective obligations under the Support Agreement are secured pursuant to a related security agreement.
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Critical Accounting Policies |
Our significant accounting policies (see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 20162018 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. SixFive 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;
income taxes; and
liability for contingent litigation losses.
Starting second quarter 2017,Management and the liability for contingent litigation losses has been designated as one of ourBoard’s Audit and Examination Committee have reviewed and approved these critical accounting policies. The remaining five of theseThese 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 20162018 Form 10-K.
Liability for Contingent Litigation Losses
The Company is involved in a number of judicial, regulatory, arbitration and other proceedings concerning matters arising from the conduct of its business activities, and many of those proceedings expose the Company to potential financial loss. We establish accruals for these legal actions when potential losses associated with the actions become probable and the costs can be reasonably estimated. For such accruals, we record the amount we consider to be the best estimate within a range of potential losses that are both probable and estimable; however, if we
cannot determine a best estimate, then we record the low end of the range of those potential losses. The actual costs of resolving legal actions may be substantially higher or lower than the amounts accrued for those actions.
We apply judgment when establishing an accrual for potential losses associated with legal actions and in establishing the range of reasonably possible losses in excess of the accrual. Our judgment in establishing accruals and the range of reasonably possible losses in excess of the Company's accrual for probable and estimable losses is influenced by our understanding of information currently available related to the legal evaluation and potential outcome of actions, including input and advice on these matters from our internal counsel, external counsel and senior management. These matters may be in various stages of investigation, discovery or proceedings. They may also involve a wide variety of claims across our businesses, legal entities and jurisdictions. The eventual outcome may be a scenario that was not considered or was considered remote in anticipated occurrence. Accordingly, our estimate of potential losses will change over time and the actual losses may vary significantly.
The outcomes of legal actions are unpredictable and subject to significant uncertainties, and it is inherently difficult to determine whether any loss is probable or even possible. It is also inherently difficult to estimate the amount of any loss and there may be matters for which a loss is probable or reasonably possible but not currently estimable. Accordingly, actual losses may be in excess of the established accrual or the range of reasonably possible loss.
See Note 11 (Legal Actions) to Financial Statements in this Report for further information.
Management and the Board's Audit and Examination Committee have reviewed and approved these critical accounting policies.
Current Accounting Developments (continued)
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Current Accounting Developments |
Table 5242 provides the significant accounting pronouncementsupdates applicable to us that have been issued by the FASB but are not yet effective.
Table 52:42: Current Accounting Developments – Issued Standards
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Standard | | Description | | Effective date and financial statement impact |
Accounting StandardsStandard Update (ASU or Update) 2017-12 - Derivatives and Hedging2018-12 – Financial Services – Insurance (Topic 815)944): Targeted Improvements to the Accounting for Hedging ActivitiesLong-Duration Contracts | | The Update requires all features in long-duration insurance contracts that meet the definition of a market risk benefit to be measured at fair value through earnings with changes in fair value attributable to own credit risk recognized in other comprehensive income. Currently, two measurement models exist for these features, fair value and insurance accrual. The Update requires the use of a standardized discount rate and routine updates for insurance assumptions used in valuing the liability for future policy benefits for traditional long-duration contracts. The Update also simplifies the amortization of deferred acquisition costs.
| | The Update makes targetedguidance becomes effective on January 1, 2021. Certain of our variable annuity reinsurance products meet the definition of market risk benefits and will be measured at fair value as of the earliest period presented. The cumulative effect of changes in own credit risk will be recognized in the beginning balance of accumulated other comprehensive income. The cumulative effect of the difference between fair value and carrying value, excluding the effect of own credit, will be recognized in the opening balance of retained earnings. As of March 31, 2019, we held $993 million in insurance-related reserves of which $414 million was in scope of the Update. A total of $359 million was associated with products that meet the definition of market risk benefits, and of this amount, $17 million was measured at fair value under current accounting standards. The market risk benefits are largely indexed to U.S. equity and fixed income markets. Upon adoption, we may incur periodic earnings volatility from changes in the fair value of market risk benefits primarily due to the long duration of these contracts. We plan to economically hedge accounting model intended to facilitate financial reporting that more closely reflects an entity’sthis volatility, where feasible. The ultimate impact of these changes will depend on the composition of our market risk management activities and to simplify applicationbenefits portfolio at the date of hedge accounting.adoption. Changes include expanding the types of risk management strategies eligible for hedge accounting, easing the documentation and effectiveness assessment requirements, changing how ineffectiveness is measured and changing the presentation and disclosure requirements for hedge accounting activities. | | We adopted the Update in fourth quarter 2017. Our financial statements for the year ended December 31, 2017, will include a cumulative-effect adjustment to opening retained earnings and adjustments to our 2017 earnings to reflect application of the new guidance effective January 1, 2017. The new guidance significantly reduces but does not eliminate interest-rate and foreign-currency related hedge ineffectiveness. However, we may continue to experience hedge ineffectiveness volatility related to certain hedges of foreign-currency denominated debt liabilities. The adjustment as of January 1, 2017, reduced retained earnings by approximately $381 million and increased other comprehensive income by approximately $168 million. Through September 30, 2017, year-to-date net income will increase approximately $169 million ($242 million pre-tax) and other comprehensive income will decrease by $163 million upon application of the new guidance. |
ASU 2017-08 – Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities
| | The Update changes the accounting for certain purchased callable debt securities held at a premium to shorten the amortization period for the premium to the earliest call date rather thanliability for future policy benefits for traditional long-duration contracts and deferred acquisition costs will be applied to all outstanding long-duration contracts on the maturity date. Accounting for purchased callable debt securities heldbasis of their existing carrying amounts at a discount does not change. The discount would continue to amortize to the maturity date. | | We expect to adopt the guidance in first quarter 2019 using the modified retrospective method with a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. Our investment securities portfolio includes holdings of available-for-sale (AFS)earliest period presented, and held-to-maturity (HTM) callable debt securities held at a premium. At adoption, the guidance isare not expected to result in a cumulative effect adjustment which will be primarily offset with a corresponding adjustment to other comprehensive income related to AFS securities. After adoption, the guidance will reduce interest income prior to the call date because the premium will be amortized over a shorter time period. Our implementation effort includes identifying the population of debt securities subject to the new guidance, which are primarily obligations of U.S. states and political subdivisions, and quantifying the expected impacts. The impact of the Update on our consolidated financial statements will be affected by our portfolio composition at the time of adoption, which may change between September 30, 2017 and the adoption date.material. |
Current Accounting Developments (continued)
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Standard | | Description | | Effective date and financial statement impact |
ASU 2016-13 – Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and subsequent related Updates | | The Update changes the accounting for credit losses measurement on loans and debt securities. For loans and held-to-maturity debt securities, the Update requires a current expected credit loss (CECL) approachmeasurement to determineestimate the allowance for credit losses. CECL requires loss estimateslosses (ACL) for the remaining estimated life of the financial asset (including off-balance sheet credit exposures) using historical experience, current conditions, and reasonable and supportable forecasts. Also, theThe 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 in first quarter 2020 with a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. While early adoption is permitted beginning in first quarter 2019, we do not expect to elect that option. We are evaluating the impact of the Update on our consolidated financial statements. 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 addition of 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 2016-02 – 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 activities are largely unchanged from existing lease accounting. The Update also eliminates leveraged lease accounting but allows existing leveraged leases to continue their current accounting until maturity, termination or modification. | | We expect to adopt the guidance in first quarter 2019 using the modified retrospective method2020. Our implementation process includes loss forecasting model development, evaluation of technical accounting topics, updates to our allowance documentation, reporting processes and practical expedients for transition. The practical expedients allow us to largely accountrelated internal controls, and overall operational readiness for our existing leases consistent with current guidance except for the incremental balance sheet recognition for lessees. We have started our implementationadoption of the Update, which has included an initial evaluationwill continue throughout 2019, including parallel runs for CECL alongside our current allowance process. We are in the process of developing, validating, and implementing models used to estimate credit losses under CECL. We have completed substantially all of our leasing contractsloss forecasting models, and activities. As a lessee we are developingexpect to complete the validation process for our methodology to estimateloan models during 2019. Our current planned approach for estimating expected life-time credit losses for loans and debt securities includes the right-of use assetsfollowing key components: • An initial forecast period of one year for all portfolio segments and lease liabilities, which isclasses of financing receivables and off-balance-sheet credit exposures. This period reflects management’s expectation of losses based on forward-looking economic scenarios over that time.• A historical loss forecast period covering the remaining contractual life, adjusted for prepayments, by portfolio segment and class of financing receivables based on the presentchange in key historical economic variables during representative historical expansionary and recessionary periods.• A reversion period of up to 2 years connecting the initial loss forecast to the historical loss forecast based on economic conditions at the measurement date.• We will utilize discounted cash flow (DCF) methods to measure credit impairment for loans modified in a TDR, unless they are collateral dependent and measured at the fair value of lease payments (the Decembercollateral. The DCF methods would obtain estimated life-time credit losses using the conceptual components described above.• For available-for-sale debt securities and certain beneficial interests classified as held-to-maturity, we plan to utilize the DCF methods to measure the ACL, which will incorporate expected credit losses using the conceptual components described above. Based on our portfolio composition as of March 31, 2016 future minimum lease payments2019, and the current economic environment, we currently estimate an overall decrease in our ACL for loans in the range of $0 to $1 billion. The reduction reflects an expected decrease for commercial loans, given their short contractual maturities, partially offset by an expected increase for longer duration consumer loans. This expected reduction to our ACL does not include the impact of recently issued FASB guidance to consider subsequent increases in fair value of collateral for collateral dependent loans. Application of this guidance is expected to result in a further reduction to our ACL of approximately $1.5 billion, substantially all of which relates to residential mortgage loans that were $6.9 billion).previously written down below current recovery value estimates. We do not expectwill continue to evaluate and refine the results of our loss estimates throughout 2019. We will recognize an ACL for held-to-maturity and available-for-sale debt securities. The ACL on available-for-sale debt securities will be subject to a material change tolimitation based on the timingfair value of expense recognition. Given the limited changes to lessor accounting,debt securities. Based on the credit quality of our existing debt securities portfolio, we do not expect material changesthe ACL for held-to-maturity and available-for-sale debt securities to recognition or measurement, but we are early inbe significant. The ultimate effect of CECL on our ACL will depend on the implementation processsize and will continue to evaluatecomposition of our portfolio, the impact. We are evaluating our existing disclosuresportfolio’s credit quality and may need to provide additional information as a resulteconomic conditions at the time of adoption, of the Update. |
Current Accounting Developments (continued)
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Standard | | Description | | Effective dateas well as any refinements to our models, methodology and financial statement impact |
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.
| | Weother key assumptions. At adoption, we will adopt the guidance in first quarter 2018 withhave a cumulative-effect adjustment to retained earnings as offor our change in the beginning of the year of adoption, except for changes related to nonmarketable equity investments,ACL, which are applied prospectively.
Our investmentswill impact our capital. A decrease in marketable equity securities classified as available-for-sale as of the adoption dateour ACL will be accounted for at fair value with unrealized gains or losses reflectedresult in earnings. As of September 30, 2017, the carrying value of these securities was $893 million, which included a $287 million net unrealized pre-tax gain reflected in other comprehensive income. Upon adoption, the amount of net unrealized gain or loss relatedan increase to our available-for-sale equity securities portfolio as of December 31, 2017 will be reclassified from other comprehensive income to retained earnings.
Our investments in nonmarketable equity instruments accountedregulatory capital amounts and ratios. Federal banking regulatory agencies have provided relief for under the cost method of accounting, except for Federal bank stock, will be measured either at fair value with unrealized gains and losses reflected in earnings or the measurement alternative. The measurement alternative is similar to the cost method of accounting, except the carrying value is adjusted, through earnings, for subsequent observable transactions in the same or similar investment. We expect to account for substantially all of our private equity cost method investments using the measurement alternative and our auction rate securities portfolio at fair value with unrealized gains and losses reflected in earnings. Upon adoption, we do not expect a significant transition adjustment for the accounting change related to our nonmarketable cost method equity investments.
Additionally, for purposes of disclosing the fair value of loans carried at amortized cost, we are evaluating our valuation methods to determine the necessary changes to present fair value disclosures based on “exit price” as required by the Update. Accordingly, the fair value amounts disclosed for such loans may change upon adoption.
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Standard | | Description | | Effective date and financial statement impact |
ASU 2014-09 – Revenue from Contracts With Customers (Topic 606) and subsequent related Updates | | The Update modifies the guidance used 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 guidance. The Update also requires new qualitative and quantitative disclosures, including disaggregation of revenues and descriptions of performance obligations. | | We will adopt the guidance in first quarter 2018 using the modified retrospective method with a cumulative-effect adjustment to opening retained earnings. Our revenue is the sum of net interest income and noninterest income. The scope of the guidance explicitly excludes net interest income as well as many other revenues for financial assets and liabilities including 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. Our accounting policies will not change materially since the principles of revenue recognitioninitial capital decrease from the Update 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. Basedallowing a phased adoption over four years, 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 will provide qualitative disclosures of our performance obligations related to our revenue recognition and we continue to evaluate disaggregation for significant categories of revenue in the scope of the guidance. straight-line basis.
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In addition to the list above, the following updatesUpdates 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 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); 2019-04 – Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain , and Topic 825, Financial Instruments with Down Round Features, (Part II) Replacement. This Update includes guidance on recoveries of financial assets, which has been included in the Indefinite Deferraldiscussion for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope ExceptionASU 2016-13, above.
ASU 2017-092018-17 – Compensation – Stock Compensation (Topic718)Consolidation (Topic 810): ScopeTargeted Improvements to Related Party Guidance for Variable Interest Entities
ASU 2018-15 – Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of Modification Accountingthe FASB Emerging Issues Task Force)
ASU 2018-13 – Fair Value Measurement (Topic 820):Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. This Update has been partially adopted; however, the remainder of this Update will be adopted at the effective date of January 1, 2020.
ASU 2017-04 – Intangibles – 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 – Extinguishment 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)
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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 or liquidity 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, return on equity, and return on tangible common 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 overallany 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;
developments in our mortgage banking business, including the extent of the success of our success in ourmortgage loan modification efforts, as well as the effects of regulatory requirements or guidance regarding loan modifications;
efforts, 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, andloan modification or foreclosure practices, as well as changes in industry standards or practices,and the effects of regulatory or judicial requirements penalties or fines, increased servicingguidance impacting our mortgage banking business and other costs or obligations, including loan modification requirements, or delays or moratoriums on foreclosures;any changes in industry standards;
our ability to realize ourany efficiency ratio or expense 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;
losses related to recent hurricanes, which primarily affected Texas, Florida and Puerto Rico, and related to recent California wildfires, in each case including from damage or loss to our collateral for loans in our consumer and commercial loan portfolios and from the impact on the ability of our borrowers to repay their loans;
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 mortgagesmortgage loans 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 investmentdebt securities portfolio;and equity securities portfolios;
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 and from other instances where customers may have experienced financial harm, 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,resolution of regulatory matters, litigation, or other legal actions, which may result in, among other things, additional costs, fines, penalties, andrestrictions on our business activities, reputational harm, or other negative consequences from regulatory violations and legal actions;adverse consequences;
a failure in or breach of our operational or security systems or infrastructure, or those of our third partythird-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, 20162018.
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 Board of Directors, and may be subject to regulatory approval or conditions.
Forward-Looking Statements (continued)
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, 2016,2018, 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.
Forward-looking Non-GAAP Financial Measures. From time to time management may discuss forward-looking non-GAAP financial measures, such as forward-looking estimates or targets for return on average tangible common equity. We are unable to provide a reconciliation of forward-looking non-GAAP financial measures to their most directly comparable GAAP financial measures because we are unable to provide, without unreasonable effort, a meaningful or accurate calculation or estimation of amounts that would be necessary for the reconciliation due to the complexity and inherent difficulty in forecasting and quantifying future amounts or when they may occur. Such unavailable information could be significant to future results.
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 20162018 Form 10-K.
Controls and Procedures
|
|
Disclosure Controls and Procedures |
The Company’s management evaluated the effectiveness, as of September 30, 2017,March 31, 2019, 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, 2017.March 31, 2019.
|
|
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 20172019 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
| | Wells Fargo & Company and Subsidiaries | Consolidated Statement of Income (Unaudited) | | Quarter ended September 30, | | | Nine months ended September 30, | | Quarter ended March 31, | |
(in millions, except per share amounts) | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
| 2019 |
| | 2018 |
|
Interest income | | | | | | | | | | |
Trading assets | $ | 754 |
| | 593 |
| | 2,107 |
| | 1,761 |
| |
Investment securities | 2,662 |
| | 2,298 |
| | 8,035 |
| | 6,736 |
| |
Mortgages held for sale | 219 |
| | 207 |
| | 598 |
| | 549 |
| |
Debt securities | | $ | 3,941 |
| | 3,414 |
|
Mortgage loans held for sale | | 152 |
| | 179 |
|
Loans held for sale | 5 |
| | 2 |
| | 10 |
| | 7 |
| 24 |
| | 24 |
|
Loans | 10,522 |
| | 9,978 |
| | 31,021 |
| | 29,377 |
| 11,354 |
| | 10,579 |
|
Equity securities | | 210 |
| | 231 |
|
Other interest income | 896 |
| | 409 |
| | 2,228 |
| | 1,175 |
| 1,322 |
| | 920 |
|
Total interest income | 15,058 |
| | 13,487 |
| | 43,999 |
| | 39,605 |
| 17,003 |
| | 15,347 |
|
Interest expense | | | | | | | | | | |
Deposits | 870 |
| | 356 |
| | 2,090 |
| | 995 |
| 2,026 |
| | 1,090 |
|
Short-term borrowings | 226 |
| | 85 |
| | 503 |
| | 229 |
| 596 |
| | 311 |
|
Long-term debt | 1,377 |
| | 1,006 |
| | 3,838 |
| | 2,769 |
| 1,927 |
| | 1,576 |
|
Other interest expense | 109 |
| | 88 |
| | 309 |
| | 260 |
| 143 |
| | 132 |
|
Total interest expense | 2,582 |
| | 1,535 |
| | 6,740 |
| | 4,253 |
| 4,692 |
| | 3,109 |
|
Net interest income | 12,476 |
| | 11,952 |
| | 37,259 |
|
| 35,352 |
| 12,311 |
|
| 12,238 |
|
Provision for credit losses | 717 |
| | 805 |
| | 1,877 |
| | 2,965 |
| 845 |
| | 191 |
|
Net interest income after provision for credit losses | 11,759 |
| | 11,147 |
| | 35,382 |
| | 32,387 |
| 11,466 |
| | 12,047 |
|
Noninterest income | | | | | | | | | | |
Service charges on deposit accounts | 1,276 |
| | 1,370 |
| | 3,865 |
| | 4,015 |
| 1,094 |
| | 1,173 |
|
Trust and investment fees | 3,609 |
| | 3,613 |
| | 10,808 |
| | 10,545 |
| 3,373 |
| | 3,683 |
|
Card fees | 1,000 |
| | 997 |
| | 2,964 |
| | 2,935 |
| 944 |
| | 908 |
|
Other fees | 877 |
| | 926 |
| | 2,644 |
| | 2,765 |
| 770 |
| | 800 |
|
Mortgage banking | 1,046 |
| | 1,667 |
| | 3,422 |
| | 4,679 |
| 708 |
| | 934 |
|
Insurance | 269 |
| | 293 |
| | 826 |
| | 1,006 |
| 96 |
| | 114 |
|
Net gains from trading activities | 245 |
| | 415 |
| | 921 |
| | 943 |
| 357 |
| | 243 |
|
Net gains on debt securities (1) | 166 |
| | 106 |
| | 322 |
| | 797 |
| 125 |
| | 1 |
|
Net gains from equity investments (2) | 238 |
| | 140 |
| | 829 |
| | 573 |
| |
Net gains from equity securities(2) | | 814 |
| | 783 |
|
Lease income | 475 |
| | 534 |
| | 1,449 |
| | 1,404 |
| 443 |
| | 455 |
|
Other | 249 |
| | 315 |
| | 788 |
| | 1,671 |
| 574 |
| | 602 |
|
Total noninterest income | 9,450 |
| | 10,376 |
| | 28,838 |
| | 31,333 |
| 9,298 |
| | 9,696 |
|
Noninterest expense | | | | | | | | | | |
Salaries | 4,356 |
| | 4,224 |
| | 12,960 |
| | 12,359 |
| 4,425 |
| | 4,363 |
|
Commission and incentive compensation | 2,553 |
| | 2,520 |
| | 7,777 |
| | 7,769 |
| 2,845 |
| | 2,768 |
|
Employee benefits | 1,279 |
| | 1,223 |
| | 4,273 |
| | 3,993 |
| 1,938 |
| | 1,598 |
|
Equipment | 523 |
| | 491 |
| | 1,629 |
| | 1,512 |
| 661 |
| | 617 |
|
Net occupancy | 716 |
| | 718 |
| | 2,134 |
| | 2,145 |
| 717 |
| | 713 |
|
Core deposit and other intangibles | 288 |
| | 299 |
| | 864 |
| | 891 |
| 28 |
| | 265 |
|
FDIC and other deposit assessments | 314 |
| | 310 |
| | 975 |
| | 815 |
| 159 |
| | 324 |
|
Other | 4,322 |
| | 3,483 |
| | 11,072 |
| | 9,678 |
| 3,143 |
| | 4,394 |
|
Total noninterest expense | 14,351 |
| | 13,268 |
| | 41,684 |
| | 39,162 |
| 13,916 |
| | 15,042 |
|
Income before income tax expense | 6,858 |
| | 8,255 |
| | 22,536 |
|
| 24,558 |
| 6,848 |
|
| 6,701 |
|
Income tax expense | 2,204 |
| | 2,601 |
| | 6,486 |
| | 7,817 |
| 881 |
| | 1,374 |
|
Net income before noncontrolling interests | 4,654 |
| | 5,654 |
| | 16,050 |
|
| 16,741 |
| 5,967 |
|
| 5,327 |
|
Less: Net income from noncontrolling interests | 58 |
| | 10 |
| | 187 |
| | 77 |
| 107 |
| | 191 |
|
Wells Fargo net income | $ | 4,596 |
| | 5,644 |
| | 15,863 |
|
| 16,664 |
| $ | 5,860 |
|
| 5,136 |
|
Less: Preferred stock dividends and other | 411 |
| | 401 |
| | 1,218 |
| | 1,163 |
| 353 |
| | 403 |
|
Wells Fargo net income applicable to common stock | $ | 4,185 |
| | 5,243 |
| | 14,645 |
| | 15,501 |
| $ | 5,507 |
| | 4,733 |
|
Per share information | | | | | | | | | | |
Earnings per common share | $ | 0.85 |
| | 1.04 |
| | 2.94 |
| | 3.06 |
| $ | 1.21 |
| | 0.97 |
|
Diluted earnings per common share | 0.84 |
| | 1.03 |
| | 2.91 |
| | 3.03 |
| 1.20 |
| | 0.96 |
|
Dividends declared per common share | 0.390 |
| | 0.380 |
| | 1.150 |
| | 1.135 |
| |
Average common shares outstanding | 4,948.6 |
| | 5,043.4 |
| | 4,982.1 |
| | 5,061.9 |
| 4,551.5 |
| | 4,885.7 |
|
Diluted average common shares outstanding | 4,996.8 |
| | 5,094.6 |
| | 5,035.4 |
| | 5,118.2 |
| 4,584.0 |
| | 4,930.7 |
|
| |
(1) | Total other-than-temporary impairment (OTTI) losses were $5$45 million and $36$17 million for thirdfirst quarter 20172019 and 2016,2018, respectively. Of total OTTI, losses of $7$45 million and $51$10 million were recognized in earnings, and reversal of losses of $(2)$0 million and $(15)$7 million were recognized as non-credit-related OTTI in other comprehensive income for thirdfirst quarter 20172019 and 2016,2018, respectively. Total OTTI losses were $54 million and $123 million for the first nine months of 2017 and 2016, respectively. Of total OTTI, losses of $107 million and $142 million were recognized in earnings, and reversal of losses of $(53) million and $(19) million were recognized as non-credit-related OTTI in other comprehensive income for the first nine months of 2017 and 2016, respectively. |
| |
(2) | Includes OTTI losses of $84$36 million and $85$20 million for thirdfirst quarter 20172019 and 2016, respectively, and $186 million and $322 million for the first nine months of 2017 and 2016,2018, respectively. |
The accompanying notes are an integral part of these statements.
|
| | | | | | | |
Wells Fargo & Company and Subsidiaries | | | | |
Consolidated Statement of Comprehensive Income (Unaudited) | | | |
| | Quarter ended March 31, | |
(in millions) | | 2019 |
| | 2018 |
|
Wells Fargo net income | | $ | 5,860 |
| | 5,136 |
|
Other comprehensive income (loss), before tax: | | | | |
Debt securities: | | | | |
Net unrealized gains (losses) arising during the period | | 2,831 |
| | (3,443 | ) |
Reclassification of net (gains) losses to net income | | (81 | ) | | 68 |
|
Derivatives and hedging activities: | | | | |
Net unrealized losses arising during the period | | (35 | ) | | (242 | ) |
Reclassification of net losses to net income | | 79 |
| | 60 |
|
Defined benefit plans adjustments: | | | | |
Net actuarial and prior service gains (losses) arising during the period | | (4 | ) | | 6 |
|
Amortization of net actuarial loss, settlements and other to net income | | 35 |
| | 32 |
|
Foreign currency translation adjustments: | | | | |
Net unrealized gains (losses) arising during the period | | 42 |
| | (2 | ) |
Other comprehensive income (loss), before tax | | 2,867 |
| | (3,521 | ) |
Income tax (expense) benefit related to other comprehensive income | | (694 | ) | | 862 |
|
Other comprehensive income (loss), net of tax | | 2,173 |
| | (2,659 | ) |
Less: Other comprehensive income from noncontrolling interests | | — |
| | — |
|
Wells Fargo other comprehensive income (loss), net of tax | | 2,173 |
| | (2,659 | ) |
Wells Fargo comprehensive income | | 8,033 |
| | 2,477 |
|
Comprehensive income from noncontrolling interests | | 107 |
| | 191 |
|
Total comprehensive income | | $ | 8,140 |
| | 2,668 |
|
The accompanying notes are an integral part of these statements.
|
| | | | | | | | | | | | | |
Wells Fargo & Company and Subsidiaries | | | | | | | | |
Consolidated Statement of Comprehensive Income (Unaudited) | | | | |
| | Quarter ended September 30, | | | Nine months ended September 30, | |
(in millions) | | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
|
Wells Fargo net income | | $ | 4,596 |
| | 5,644 |
| | 15,863 |
| | 16,664 |
|
Other comprehensive income (loss), before tax: | | | | | | | | |
Investment securities: | | | | | | | | |
Net unrealized gains arising during the period | | 891 |
| | 112 |
| | 2,825 |
| | 2,478 |
|
Reclassification of net gains to net income | | (200 | ) | | (193 | ) | | (522 | ) | | (1,001 | ) |
Derivatives and hedging activities: | | | | | | | | |
Net unrealized gains (losses) arising during the period | | 36 |
| | (445 | ) | | 279 |
| | 2,611 |
|
Reclassification of net gains on cash flow hedges to net income | | (105 | ) | | (262 | ) | | (460 | ) | | (783 | ) |
Defined benefit plans adjustments: | | | | | | | | |
Net actuarial and prior service gains (losses) arising during the period | | 11 |
| | (447 | ) | | 4 |
| | (474 | ) |
Amortization of net actuarial loss, settlements and other to net income | | 41 |
| | 39 |
| | 120 |
| | 115 |
|
Foreign currency translation adjustments: | | | | | | | | |
Net unrealized gains (losses) arising during the period | | 40 |
| | (10 | ) | | 87 |
| | 27 |
|
Other comprehensive income (loss), before tax | | 714 |
| | (1,206 | ) | | 2,333 |
| | 2,973 |
|
Income tax benefit (expense) related to other comprehensive income | | (265 | ) | | 461 |
| | (852 | ) | | (1,110 | ) |
Other comprehensive income (loss), net of tax | | 449 |
| | (745 | ) | | 1,481 |
| | 1,863 |
|
Less: Other comprehensive income (loss) from noncontrolling interests | | (34 | ) | | 19 |
| | (29 | ) | | (24 | ) |
Wells Fargo other comprehensive income (loss), net of tax | | 483 |
| | (764 | ) | | 1,510 |
| | 1,887 |
|
Wells Fargo comprehensive income | | 5,079 |
| | 4,880 |
| | 17,373 |
| | 18,551 |
|
Comprehensive income from noncontrolling interests | | 24 |
| | 29 |
| | 158 |
| | 53 |
|
Total comprehensive income | | $ | 5,103 |
| | 4,909 |
| | 17,531 |
| | 18,604 |
|
The accompanying notes are an integral part of these statements.
| | Wells Fargo & Company and Subsidiaries | | | | | | |
Consolidated Balance Sheet | | | | | | |
(in millions, except shares) | Sep 30, 2017 |
| | Dec 31, 2016 |
| Mar 31, 2019 |
| | Dec 31, 2018 |
|
Assets | (Unaudited) |
| | | (Unaudited) |
| | |
Cash and due from banks | $ | 19,206 |
| | 20,729 |
| $ | 20,650 |
| | 23,551 |
|
Federal funds sold, securities purchased under resale agreements and other short-term investments | 273,105 |
| | 266,038 |
| |
Trading assets | 88,404 |
| | 74,397 |
| |
Investment securities: | | | | |
Interest-earning deposits with banks | | 128,318 |
| | 149,736 |
|
Total cash, cash equivalents, and restricted cash | | 148,968 |
| | 173,287 |
|
Federal funds sold and securities purchased under resale agreements | | 98,621 |
| | 80,207 |
|
Debt securities: | | | | |
Trading, at fair value | | 70,378 |
| | 69,989 |
|
Available-for-sale, at fair value | 272,210 |
| | 308,364 |
| 268,099 |
| | 269,912 |
|
Held-to-maturity, at cost (fair value $142,818 and $99,155) | 142,423 |
| | 99,583 |
| |
Mortgages held for sale (includes $16,484 and $22,042 carried at fair value) (1) | 20,009 |
| | 26,309 |
| |
Loans held for sale | 157 |
| | 80 |
| |
Loans (includes $410 and $758 carried at fair value) (1) | 951,873 |
| | 967,604 |
| |
Held-to-maturity, at cost (fair value $144,699 and $142,115) | | 144,990 |
| | 144,788 |
|
Mortgage loans held for sale (includes $11,091 and $11,771 carried at fair value) (1) | | 15,016 |
| | 15,126 |
|
Loans held for sale (includes $998 and $1,469 carried at fair value) (1) | | 1,018 |
| | 2,041 |
|
Loans (includes $225 and $244 carried at fair value) (1) | | 948,249 |
| | 953,110 |
|
Allowance for loan losses | (11,078 | ) | | (11,419 | ) | (9,900 | ) | | (9,775 | ) |
Net loans | 940,795 |
| | 956,185 |
| 938,349 |
| | 943,335 |
|
Mortgage servicing rights: | | | | | | |
Measured at fair value | 13,338 |
| | 12,959 |
| 13,336 |
| | 14,649 |
|
Amortized | 1,406 |
| | 1,406 |
| 1,427 |
| | 1,443 |
|
Premises and equipment, net | 8,449 |
| | 8,333 |
| 8,825 |
| | 8,920 |
|
Goodwill | 26,581 |
| | 26,693 |
| 26,420 |
| | 26,418 |
|
Derivative assets | 12,580 |
| | 14,498 |
| 11,238 |
| | 10,770 |
|
Other assets (includes $4,523 and $3,275 carried at fair value) (1) | 116,276 |
| | 114,541 |
| |
Equity securities (includes $32,586 and $29,556 carried at fair value) (1) | | 58,440 |
| | 55,148 |
|
Other assets | | 82,667 |
| | 79,850 |
|
Total assets (2) | $ | 1,934,939 |
| | 1,930,115 |
| $ | 1,887,792 |
| | 1,895,883 |
|
Liabilities | | | | | | |
Noninterest-bearing deposits | $ | 366,528 |
| | 375,967 |
| $ | 341,399 |
| | 349,534 |
|
Interest-bearing deposits | 940,178 |
| | 930,112 |
| 922,614 |
| | 936,636 |
|
Total deposits | 1,306,706 |
| | 1,306,079 |
| 1,264,013 |
| | 1,286,170 |
|
Short-term borrowings | 93,811 |
| | 96,781 |
| 106,597 |
| | 105,787 |
|
Derivative liabilities | 9,497 |
| | 14,492 |
| 7,393 |
| | 8,499 |
|
Accrued expenses and other liabilities | 79,208 |
| | 57,189 |
| 74,717 |
| | 69,317 |
|
Long-term debt | 238,893 |
| | 255,077 |
| 236,339 |
| | 229,044 |
|
Total liabilities (3) | 1,728,115 |
| | 1,729,618 |
| 1,689,059 |
| | 1,698,817 |
|
Equity | | | | | | |
Wells Fargo stockholders' equity: | | | | |
Wells Fargo stockholders’ equity: | | | | |
Preferred stock | 25,576 |
| | 24,551 |
| 23,214 |
| | 23,214 |
|
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 | 60,759 |
| | 60,234 |
| 60,409 |
| | 60,685 |
|
Retained earnings | 141,761 |
| | 133,075 |
| 160,776 |
| | 158,163 |
|
Cumulative other comprehensive income (loss) | (1,627 | ) | | (3,137 | ) | (3,682 | ) | | (6,336 | ) |
Treasury stock – 553,940,326 shares and 465,702,148 shares | (27,772 | ) | | (22,713 | ) | |
Treasury stock – 969,863,644 shares and 900,557,866 shares | | (50,519 | ) | | (47,194 | ) |
Unearned ESOP shares | (1,904 | ) | | (1,565 | ) | (1,502 | ) | | (1,502 | ) |
Total Wells Fargo stockholders' equity | 205,929 |
| | 199,581 |
| |
Total Wells Fargo stockholders’ equity | | 197,832 |
| | 196,166 |
|
Noncontrolling interests | 895 |
| | 916 |
| 901 |
| | 900 |
|
Total equity | 206,824 |
| | 200,497 |
| 198,733 |
| | 197,066 |
|
Total liabilities and equity | $ | 1,934,939 |
| | 1,930,115 |
| $ | 1,887,792 |
| | 1,895,883 |
|
| |
(1) | Parenthetical amounts represent assets and liabilities for whichthat we are required to carry at fair value or have elected the fair value option. |
| |
(2) | Our consolidated assets at September 30, 2017,March 31, 2019, and December 31, 2016,2018, 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, $115$16 million and $168$139 million; Interest-earning deposits with banks, $8 million; Federal funds sold, and $8 million; Debt securities, purchased under resale agreements$55 million and other short-term investments, $402 million and $74 million; Trading assets, $130 million at both period ends; Investment securities, $0 million at both period ends;$45 million; Net loans, $11.9$14.4 billion and $12.6 billion; Derivative assets, $0$13.6 billion; Equity securities, $112 million and $1 million;$85 million; Other assets, $352$252 million and $452 million;$221 million; and Total assets, $12.9$14.8 billion and $13.4$14.1 billion,, respectively. |
| |
(3) | Our consolidated liabilities at September 30, 2017,March 31, 2019, and December 31, 2016,2018, include the following VIE liabilities for which the VIE creditors do not have recourse to Wells Fargo: Derivative liabilities, $26 million and $33 million; Accrued expenses and other liabilities, $141$205 million and $107 million;$191 million; Long-term debt, $2.1 billion$775 million and $3.7 billion;$816 million; and Total liabilities, $2.3$980 million and $1.0 billion, and $3.8 billion, 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 December 31, 2015 | 11,259,917 |
| | $ | 22,214 |
| | 5,092,128,810 |
| | $ | 9,136 |
| |
Cumulative effect from change in consolidation accounting (1) | | | | | | | | |
Balance January 1, 2016 | 11,259,917 |
| | $ | 22,214 |
| | 5,092,128,810 |
| | $ | 9,136 |
| |
Balance December 31, 2018 | | 9,377,216 |
| | $ | 23,214 |
| | 4,581,253,608 |
| | $ | 9,136 |
|
Cumulative effect from change in accounting policies (1) | | | | | | | | |
Balance January 1, 2019 | | 9,377,216 |
| | $ | 23,214 |
| | 4,581,253,608 |
| | $ | 9,136 |
|
Net income | | | | | | | | | | | | | | |
Other comprehensive income (loss), net of tax | | | | | | | | | | | | | | |
Noncontrolling interests | | | | | | | | | | | | | | |
Common stock issued | | | | | 47,151,609 |
| | | | | | | 28,057,901 |
| | |
Common stock repurchased | | | | | (134,787,773 | ) | | | | | | | (97,363,710 | ) | | |
Preferred stock issued to ESOP | 1,150,000 |
| | 1,150 |
| | | | | — |
| | — |
| | | | |
Preferred stock released by ESOP | | | | | | | | | | | | | | |
Preferred stock converted to common shares | (920,314 | ) | | (920 | ) | | 19,396,555 |
| | | (5 | ) | | — |
| | 31 |
| | |
Common stock warrants repurchased/exercised | | | | | | | | | | | | | | |
Preferred stock issued | 86,000 |
| | 2,150 |
| | | | | — |
| | — |
| | | | |
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 change | 315,686 |
|
| 2,380 |
|
| (68,239,609 | ) |
| — |
| (5 | ) |
| — |
|
| (69,305,778 | ) | Balance | — |
|
Balance September 30, 2016 | 11,575,603 |
|
| $ | 24,594 |
|
| 5,023,889,201 |
|
| $ | 9,136 |
| |
Balance January 1, 2017 | 11,532,712 |
| | $ | 24,551 |
| | 5,016,109,326 |
| | $ | 9,136 |
| |
Balance March 31, 2019 | | 9,377,211 |
|
| $ | 23,214 |
|
| 4,511,947,830 |
|
| $ | 9,136 |
|
Balance December 31, 2017 | | 11,677,235 |
| | $ | 25,358 |
| | 4,891,616,628 |
| | $ | 9,136 |
|
Cumulative effect from change in accounting policies (2) | | | | | | | | |
Balance January 1, 2018 | | 11,677,235 |
| | $ | 25,358 |
| | 4,891,616,628 |
| | $ | 9,136 |
|
Net income | | | | | | | | | | | | | | |
Other comprehensive income, net of tax | | | | | | | | |
Other comprehensive income (loss), net of tax | | | | | | | | |
Noncontrolling interests | | | | | | | | | | | | | | |
Common stock issued | | | | | 45,738,310 |
| | | | | | | 28,425,759 |
| | |
Common stock repurchased | | | | | (145,143,692 | ) | | | | | | | (50,567,457 | ) | | |
Preferred stock issued to ESOP | 950,000 |
| | 950 |
| | | | | 1,100,000 |
| | 1,100 |
| | | | |
Preferred stock released by ESOP | | | | | | | | | | | | | | |
Preferred stock converted to common shares | (614,529 | ) | | (615 | ) | | 11,167,204 |
| | | (231,000 | ) | | (231 | ) | | 4,407,551 |
| | |
Common stock warrants repurchased/exercised | | | | | | | | | | | | | | |
Preferred stock issued | 27,600 |
| | 690 |
| | | | | — |
| | — |
| | | | |
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 change | 363,071 |
|
| 1,025 |
|
| (88,238,178 | ) |
| — |
| 869,000 |
|
| 869 |
|
| (17,734,147 | ) |
| — |
|
Balance September 30, 2017 | 11,895,783 |
|
| $ | 25,576 |
|
| 4,927,871,148 |
|
| $ | 9,136 |
| |
Balance March 31, 2018 | | 12,546,235 |
|
| $ | 26,227 |
|
| 4,873,882,481 |
|
| $ | 9,136 |
|
| |
(1) | Effective January 1, 2016,2019, we adopted changes in consolidation accounting pursuant to ASU 2015-02 (2016-02 – Leases (Topic 842) and subsequent related Updates, ASU 2017-08 – Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Amendments to the Consolidation AnalysisPremium Amortization on Purchased Callable Debt Securities). Accordingly, we recorded a $121 million increase to beginning noncontrolling interests as a cumulative-effect adjustment.See Note 1 (Summary of Significant Accounting Policies) for more information. |
| |
(2) | Effective January 1, 2017,2018, we adopted Accounting Standards Update 2016-09 (ASU 2016-04 – Liabilities – Extinguishments of Liabilities (Subtopic 405-20): Improvements to Employee Share-Based Payment Accounting).Recognition of Breakage for Certain Prepaid Stored-Value Products, ASU 2016-01 –Financial Instruments – Overall (Subtopic 825-10): Accordingly, tax benefitRecognition and Measurement of Financial Assets and Financial Liabilities, and ASU 2014-09 – Revenue from stock incentive compensation is reportedContracts With Customers (Topic 606) and subsequent related Updates. See Note 1 (Summary of Significant Accounting Policies) in income tax expense in the consolidated statement of income.this Report for more information. |
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 |
|
60,714 |
| | 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 |
|
60,234 |
| | 133,075 |
| | (3,137 | ) | | (22,713 | ) | | (1,565 | ) | | 199,581 |
| | 916 |
| | 200,497 |
|
| | 15,863 |
| | | | | | | | 15,863 |
| | 187 |
| | 16,050 |
|
| | | | 1,510 |
| | | | | | 1,510 |
| | (29 | ) | | 1,481 |
|
1 |
| | | | | | | | | | 1 |
| | (179 | ) | | (178 | ) |
(87 | ) | | (184 | ) | | | | 2,183 |
| | | | 1,912 |
| | | | 1,912 |
|
750 |
| | | | | | (7,813 | ) | | | | (7,063 | ) | | | | (7,063 | ) |
31 |
| | | | | | | | (981 | ) | | — |
| | | | — |
|
(27 | ) | | | | | | | | 642 |
| | 615 |
| | | | 615 |
|
61 |
| | | | | | 554 |
| | | | — |
| | | | — |
|
(87 | ) | | | | | | | | | | (87 | ) | | | | (87 | ) |
(13 | ) | | | | | | | | | | 677 |
| | | | 677 |
|
37 |
| | (5,775 | ) | | | | | | | | (5,738 | ) | | | | (5,738 | ) |
| | (1,218 | ) | | | | | | | | (1,218 | ) | | | | (1,218 | ) |
— |
| | | | | | | | | | — |
| | | | — |
|
669 |
| | | | | | | | | | 669 |
| | | | 669 |
|
(810 | ) | | | | | | 17 |
| | | | (793 | ) | | | | (793 | ) |
525 |
|
| 8,686 |
|
| 1,510 |
|
| (5,059 | ) |
| (339 | ) |
| 6,348 |
|
| (21 | ) |
| 6,327 |
|
60,759 |
|
| 141,761 |
|
| (1,627 | ) |
| (27,772 | ) |
| (1,904 | ) |
| 205,929 |
|
| 895 |
|
| 206,824 |
|
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | Quarter ended March 31, | |
| | | | | | 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 |
|
60,685 |
| | 158,163 |
| | (6,336 | ) | | (47,194 | ) | | (1,502 | ) | | 196,166 |
| | 900 |
| | 197,066 |
|
| | (492 | ) | | 481 |
| | | | | | (11 | ) | | | | (11 | ) |
60,685 |
| | 157,671 |
| | (5,855 | ) | | (47,194 | ) | | (1,502 | ) | | 196,155 |
| | 900 |
| | 197,055 |
|
| | 5,860 |
| | | | | | | | 5,860 |
| | 107 |
| | 5,967 |
|
| | | | 2,173 |
| | | | | | 2,173 |
| | — |
| | 2,173 |
|
— |
| | | | | | | | | | — |
| | (106 | ) | | (106 | ) |
— |
| | (329 | ) | | | | 1,468 |
| | | | 1,139 |
| | | | 1,139 |
|
— |
| | | | | | (4,820 | ) | | | | (4,820 | ) | | | | (4,820 | ) |
— |
| | | | | | | | — |
| | — |
| | | | — |
|
— |
| | | | | | | | — |
| | — |
| | | | — |
|
— |
| | | | | | — |
| | | | — |
| | | | — |
|
— |
| | | | | | | | | | — |
| | | | — |
|
— |
| | | | | | | | | | — |
| | | | — |
|
19 |
| | (2,073 | ) | | | | | | | | (2,054 | ) | | | | (2,054 | ) |
| | (353 | ) | | | | | | | | (353 | ) | | | | (353 | ) |
544 |
| | | | | | | | | | 544 |
| | | | 544 |
|
(839 | ) | | | | | | 27 |
| | | | (812 | ) | | | | (812 | ) |
(276 | ) |
| 3,105 |
|
| 2,173 |
|
| (3,325 | ) |
| — |
|
| 1,677 |
|
| 1 |
|
| 1,678 |
|
60,409 |
|
| 160,776 |
|
| (3,682 | ) |
| (50,519 | ) |
| (1,502 | ) |
| 197,832 |
|
| 901 |
|
| 198,733 |
|
60,893 |
| | 145,263 |
| | (2,144 | ) | | (29,892 | ) | | (1,678 | ) | | 206,936 |
| | 1,143 |
| | 208,079 |
|
| | 94 |
| | (118 | ) | | | | | | (24 | ) | | | | (24 | ) |
60,893 |
| | 145,357 |
| | (2,262 | ) | | (29,892 | ) | | (1,678 | ) | | 206,912 |
| | 1,143 |
| | 208,055 |
|
| | 5,136 |
| | | | | | | | 5,136 |
| | 191 |
| | 5,327 |
|
| | | | (2,659 | ) | | | | | | (2,659 | ) | | — |
| | (2,659 | ) |
7 |
| | |
| | | | | | | | 7 |
| | (376 | ) | | (369 | ) |
25 |
| | (231 | ) | | | | 1,414 |
| | | | 1,208 |
| | | | 1,208 |
|
— |
| | | | | | (3,029 | ) | | | | (3,029 | ) | | | | (3,029 | ) |
43 |
| | | | | | | | (1,143 | ) | | — |
| | | | — |
|
(19 | ) | | | | | | | | 250 |
| | 231 |
| | | | 231 |
|
5 |
| | | | | | 226 |
| | | | — |
| | | | — |
|
(157 | ) | | | | | | | | | | (157 | ) | | | | (157 | ) |
— |
| | | | | | | | | | — |
| | | | — |
|
13 |
| | (1,924 | ) | | | | | | | | (1,911 | ) | | | | (1,911 | ) |
| | (410 | ) | | | | | | | | (410 | ) | | | | (410 | ) |
437 |
| | | | | | | | | | 437 |
| | | | 437 |
|
(848 | ) | | | | | | 35 |
| | | | (813 | ) | | | | (813 | ) |
(494 | ) |
| 2,571 |
|
| (2,659 | ) |
| (1,354 | ) |
| (893 | ) |
| (1,960 | ) |
| (185 | ) |
| (2,145 | ) |
60,399 |
|
| 147,928 |
|
| (4,921 | ) |
| (31,246 | ) |
| (2,571 | ) |
| 204,952 |
|
| 958 |
|
| 205,910 |
|
| | Wells Fargo & Company and Subsidiaries | | | | | | |
Consolidated Statement of Cash Flows (Unaudited) | | | | | | |
| Nine months ended September 30, | | Quarter ended March 31, | |
(in millions) | 2017 |
| | 2016 |
| 2019 |
| | 2018 |
|
Cash flows from operating activities: | | | | | | |
Net income before noncontrolling interests | $ | 16,050 |
| | 16,741 |
| $ | 5,967 |
| | 5,327 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Provision for credit losses | 1,877 |
| | 2,965 |
| 845 |
| | 191 |
|
Changes in fair value of MSRs, MHFS and LHFS carried at fair value | 828 |
| | 1,695 |
| |
Changes in fair value of MSRs, MLHFS and LHFS carried at fair value | | 1,144 |
| | (788 | ) |
Depreciation, amortization and accretion | 3,794 |
| | 3,598 |
| 1,449 |
| | 1,431 |
|
Other net (gains) losses | 659 |
| | (74 | ) | |
Other net (gains) | | (1,418 | ) | | (2,309 | ) |
Stock-based compensation | 1,595 |
| | 1,474 |
| 902 |
| | 792 |
|
Originations and purchases of MHFS and LHFS (1) | (134,363 | ) | | (144,022 | ) | |
Proceeds from sales of and paydowns on mortgages originated for sale and LHFS (1) | 97,116 |
| | 91,877 |
| |
Originations and purchases of mortgage loans held for sale | | (25,098 | ) | | (38,460 | ) |
Proceeds from sales of and paydowns on mortgage loans held for sale | | 17,148 |
| | 31,236 |
|
Net change in: | | | | | | |
Trading assets (1) | 28,463 |
| | 30,774 |
| |
Debt and equity securities, held for trading | | 6,969 |
| | 10,861 |
|
Loans held for sale | | 728 |
| | (602 | ) |
Deferred income taxes | 1,748 |
| | (1,617 | ) | 312 |
| | 484 |
|
Derivative assets and liabilities (1) | (3,777 | ) | | (836 | ) | |
Other assets (1) | 2,115 |
| | (7,895 | ) | |
Other accrued expenses and liabilities (1) | 2,375 |
| | 1,502 |
| |
Net cash provided (used) by operating activities | 18,480 |
| | (3,818 | ) | |
Derivative assets and liabilities | | (1,586 | ) | | (20 | ) |
Other assets | | 1,130 |
| | 3,331 |
|
Other accrued expenses and liabilities | | (541 | ) | | 3,756 |
|
Net cash provided by operating activities | | 7,951 |
| | 15,230 |
|
Cash flows from investing activities: | | | | | | |
Net change in: | | | | | | |
Federal funds sold, securities purchased under resale agreements and other short-term investments | (13,896 | ) | | (28,296 | ) | |
Available-for-sale securities: | | | | |
Sales proceeds | 37,520 |
| | 28,147 |
| |
Federal funds sold and securities purchased under resale agreements | | (18,414 | ) | | 4,566 |
|
Available-for-sale debt securities: | | | | |
Proceeds from sales | | 1,680 |
| | 3,458 |
|
Prepayments and maturities | 35,392 |
| | 27,768 |
| 6,001 |
| | 6,909 |
|
Purchases | (74,260 | ) | | (66,685 | ) | (4,937 | ) | | (14,179 | ) |
Held-to-maturity securities: | | | | |
Held-to-maturity debt securities: | | | | |
Paydowns and maturities | 7,557 |
| | 5,085 |
| 2,123 |
| | 2,304 |
|
Purchases | — |
| | (23,593 | ) | |
Nonmarketable equity investments: | | | | |
Sales proceeds | 2,838 |
| | 1,298 |
| |
Equity securities, not held for trading: | | | | |
Proceeds from sales and capital returns | | 1,180 |
| | 1,920 |
|
Purchases | (2,027 | ) | | (3,001 | ) | (1,352 | ) | | (1,234 | ) |
Loans: | | | | | | |
Loans originated by banking subsidiaries, net of principal collected | 5,665 |
| | (28,155 | ) | 669 |
| | 1,238 |
|
Proceeds from sales (including participations) of loans held for investment | 8,473 |
| | 6,958 |
| 3,410 |
| | 3,803 |
|
Purchases (including participations) of loans | (2,436 | ) | | (4,007 | ) | (331 | ) | | (268 | ) |
Principal collected on nonbank entities’ loans | 9,072 |
| | 8,736 |
| 899 |
| | 2,210 |
|
Loans originated by nonbank entities | (7,400 | ) | | (9,091 | ) | (1,318 | ) | | (1,655 | ) |
Net cash paid for acquisitions | (23 | ) | | (29,797 | ) | |
Proceeds from sales of foreclosed assets and short sales | 4,175 |
| | 5,560 |
| 707 |
| | 935 |
|
Other, net (1) | (1,336 | ) | | (115 | ) | |
Other, net | | 657 |
| | 154 |
|
Net cash provided (used) by investing activities | 9,314 |
| | (109,188 | ) | (9,026 | ) | | 10,161 |
|
Cash flows from financing activities: | | | | | | |
Net change in: | | | | | | |
Deposits | 627 |
| | 52,582 |
| (22,161 | ) | | (32,276 | ) |
Short-term borrowings | 4,655 |
| | 26,882 |
| 810 |
| | (5,165 | ) |
Long-term debt: | | | | | | |
Proceeds from issuance | 38,358 |
| | 67,677 |
| 17,338 |
| | 15,517 |
|
Repayment | (60,103 | ) | | (23,505 | ) | (11,898 | ) | | (11,625 | ) |
Preferred stock: | | | | | | |
Proceeds from issuance | 677 |
| | 2,101 |
| |
Cash dividends paid | (1,226 | ) | | (1,173 | ) | (294 | ) | | (418 | ) |
Common stock: | | | | | | |
Proceeds from issuance | 905 |
| | 1,024 |
| 181 |
| | 382 |
|
Stock tendered for payment of withholding taxes (1) | (376 | ) | | (486 | ) | |
Stock tendered for payment of withholding taxes | | (264 | ) | | (307 | ) |
Repurchased | (7,063 | ) | | (6,082 | ) | (4,820 | ) | | (3,029 | ) |
Cash dividends paid | (5,605 | ) | | (5,609 | ) | (1,997 | ) | | (1,867 | ) |
Net change in noncontrolling interests | (72 | ) | | (159 | ) | (83 | ) | | (113 | ) |
Other, net | (94 | ) | | (70 | ) | (56 | ) | | (42 | ) |
Net cash provided (used) by financing activities | (29,317 | ) | | 113,182 |
| |
Net change in cash and due from banks | (1,523 | ) | | 176 |
| |
Cash and due from banks at beginning of period | 20,729 |
| | 19,111 |
| |
Cash and due from banks at end of period | $ | 19,206 |
| | 19,287 |
| |
Net cash used by financing activities | | (23,244 | ) | | (38,943 | ) |
Net change in cash, cash equivalents, and restricted cash | | (24,319 | ) | | (13,552 | ) |
Cash, cash equivalents, and restricted cash at beginning of period | | 173,287 |
| | 215,947 |
|
Cash, cash equivalents, and restricted cash at end of period | | $ | 148,968 |
| | 202,395 |
|
Supplemental cash flow disclosures: | | | | | | |
Cash paid for interest | $ | 6,514 |
| | 3,920 |
| $ | 4,401 |
| | 3,002 |
|
Cash paid for income taxes | 4,687 |
| | 7,158 |
| 126 |
| | 158 |
|
| |
(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.
Note 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,banking locations, 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, 2016 (20162018 (2018 Form 10-K). 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 significantly differentworse 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 56 (Loans and Allowance for Credit Losses));
valuations of residential mortgage servicing rights (MSRs) (Note 710 (Securitizations and Variable Interest Entities) and Note 811 (Mortgage Banking Activities)) and;
valuations of financial instruments (Note 1315 (Derivatives) and Note 16 (Fair Values of Assets and Liabilities));
income taxes; and
liabilities for contingent litigation losses (Note 1114 (Legal Actions)).; 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 20162018 Form 10-K.
Accounting Standards Adopted in 20172019
In first quarter 2017,2019, we adopted the following new accounting guidance:
Accounting Standards Update (ASU or Update) 2016-092018-16 – Compensation – Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment Accounting;
ASU 2016-07 - Investments - Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting;
ASU 2016-06 - Derivatives and Hedging (Topic 815): Contingent Put Inclusion of the
Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes
ASU 2017-08 – Receivables – Nonrefundable Fees and Call Options inOther Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Instruments; andSecurities
ASU 2016-05 -2016-02 – Leases (Topic 842) and subsequent related Updates, including early adoption of ASU 2019-01 – Leases (Topic 842): Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships.Codification Improvements
ASU 2016-092018-16Simplifies expands the accounting for share-based payment awards issued to employees. We have income tax effectslist of U.S. benchmark interest rates permitted in the application of hedge accounting. The Update adds the OIS rate based on SOFR as a U.S. benchmark interest rate to facilitate the LIBOR to SOFR transition and provide sufficient lead time for entities to prepare for changes in our stock price from the grant date to the vesting date of the employee stock compensation.interest rate risk hedging strategies for both risk management and hedge accounting purposes. 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 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 guidance, the equity method should beis applied prospectively in the period in which the ownership changes occur. We adopted this change in first quarter 2017. The Update did not impact our consolidated financial statements, as the standard is appliedfor qualifying new or re-designated hedging relationships entered into on a prospective basis.or after adoption date.
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 2016-05 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 adopted the guidance in first quarter 2017.2019. The Updateadoption did not have an impact as we did not designate SOFR OIS as a material impact onbenchmark interest rate in any hedging relationships.
ASU 2017-08 changes the interest income recognition model for purchased callable debt securities carried at a premium, as the premium will be amortized to the earliest call date rather than to the contractual maturity date. Accounting for purchased callable debt securities held at a discount does not change, as the discount will continue to accrete to the contractual maturity date. The Update impacted our consolidatedinvestments in purchased callable debt securities classified as available-for-sale (AFS) and held-to-maturity (HTM), which primarily consist of debt securities of U.S. states and political subdivisions.
We adopted the Update in first quarter 2019 and recorded a cumulative-effect adjustment as of January 1, 2019, that decreased total stockholders’ equity by $111 million. Retained earnings was reduced by $592 million which reflects both the incremental premium amortization under the new guidance from the acquisition date of our impacted AFS and HTM debt securities through the date of adoption and the fact that the incremental premium amortization is not deductible for federal income tax purposes. Other comprehensive income (OCI) was increased by $481 million which reflects the corresponding adjustment to the adoption date unrealized gain or loss of impacted AFS debt securities. Going forward, interest income recognized prior to the call date will be reduced because the premium will be amortized over a shorter period.
ASU 2016-02 modifies the guidance used by lessors and lessees to account for leasing transactions. For our transition to the new guidance, we elected several available practical expedients, including to not reassess the classification of our existing leases, any initial direct costs associated with our leases, or whether any existing contracts are or contain leases. In addition, we elected not to provide a comparative presentation for 2018 and 2017 financial statements.
We adopted the Update in first quarter 2019 and recorded a cumulative-effect adjustment that increased retained earnings by $100 million related to deferred gains on our prior sale-leaseback transactions. We also recognized operating lease right-of-use
Accounting Standards with Retrospective Application(ROU) assets and liabilities, substantially all of which relate to our leasing of real estate as a lessee, of $4.9 billion and $5.6 billion, respectively.
Leasing Activity
AS LESSOR We lease equipment to our customers under financing or operating leases.
Financing leases are presented in loans and are recorded at the discounted amounts of lease payments receivable plus the estimated residual value of the leased asset. Leveraged leases, which are a form of financing leases, are reduced by related non-recourse debt from third-party investors. Lease payments receivable reflect contractual lease payments adjusted for renewal or termination options that we believe the customer is reasonably certain to exercise. The following accounting pronouncements have been issuedresidual value reflects our best estimate of the expected sales price for the equipment at lease termination based on sales history adjusted for recent trends in the expected exit markets. Many of our leases allow the customer to extend the lease at prevailing market terms or purchase the asset for fair value at lease termination.
Our allowance for loan losses for financing leases considers both the collectability of the lease payments receivable as well as the estimated residual value of the leased asset. We typically purchase residual value insurance on our financing leases so that our risk of loss at lease termination will be less than 10% of the initial value of the lease. Our risk to declines in residual values is further mitigated by the FASB butdiversity of leased assets in our lease portfolio. In addition, we have several channels for re-leasing or marketing those assets.
In connection with a lease, we may finance the customer’s purchase of other products or services from the equipment vendor and allocate the contract consideration between the use of the asset and the purchase of those products or services based on information obtained from the vendor. Amounts allocated to financing of vendor products or services are reported in loans as commercial and industrial loans, rather than as lease financing.
Our primary income from financing leases is interest income recognized using the effective interest method. Variable lease revenues, such as reimbursement for property taxes associated with the leased asset, are included in lease income within noninterest income.
Operating lease assets are presented in other assets, net of accumulated depreciation. Periodic depreciation expense is recorded on a straight-line basis to the estimated residual value over the estimated useful life of the leased asset. On a periodic basis, operating lease assets are reviewed for impairment and impairment loss is recognized if the carrying amount of operating lease assets exceeds fair value and is not yet effective:recoverable. The carrying amount of leased assets is deemed not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the lease payments and the estimated residual value upon the eventual disposition of the equipment. Depreciation of leased assets and impairment loss are presented in operating leases expense within other noninterest expense.
ASU 2016-15 – StatementOperating lease rental income for leased assets is recognized in lease income within noninterest income on a straight-line basis over the lease term. For leases of Cash Flows (Topic 230): Classificationrailcars, revenue for maintenance services provided under the lease is recognized in lease income.
We elected to exclude from revenues and expenses any sales tax incurred on lease payments which are reimbursed by the lessee. Substantially all of Certain Cash Receiptsour leased assets are protected against casualty loss through third party insurance.
AS LESSEEWe enter into lease agreements to obtain the right to use assets for our business operations, substantially all of which are real estate. Lease liabilities and Cash PaymentsROU assets are recognized when we enter into operating or financing leases and represent our obligations and rights to use these assets over the period of the leases and may be re-measured for certain modifications, resolution of certain contingencies involving variable consideration, or our exercise of options (renewal, extension, or termination) under the lease.
Operating lease liabilities include fixed and in-substance fixed payments for the contractual duration of the lease, adjusted for renewals or terminations which were deemed probable of exercise when measured. The lease payments are discounted using a rate determined when the lease is recognized. As we typically do not know the discount rate implicit in the lease, we estimate a discount rate that we believe approximates a collateralized borrowing rate for the estimated duration of the lease. The discount rate is updated when re-measurement events occur. The related operating lease ROU assets may differ from operating lease liabilities due to initial direct costs, deferred or prepaid lease payments and lease incentives.
We present operating lease liabilities in accrued expenses and other liabilities and the related operating lease ROU assets in other assets. The amortization of operating lease ROU assets and the accretion of operating lease liabilities are reported together as fixed lease expense and are included in net occupancy expense within noninterest expense. The fixed lease expense is recognized on a straight-line basis over the life of the lease.
Some of our operating leases include variable lease payments which are periodic adjustments of our payments for the use of the asset based on changes in factors such as consumer price indices, fair market value, tax rates imposed by taxing authorities, or lessor cost of insurance. To the extent not included in operating lease liabilities and operating lease ROU assets, these variable lease payments are recognized as incurred in net occupancy expense within noninterest expense.
We account for amounts paid for maintenance or other services as lease payments. In addition, for certain asset classes, we have elected to exclude leases with original terms of less than one year from the operating lease ROU assets and lease liabilities. The related short-term lease expense is included in net occupancy expense.
Finance lease (formerly capital lease) liabilities are presented in long-term debt and the associated finance ROU assets are presented in premises and equipment.
Note 1: Summary of Significant Accounting Policies (continued)
ASU 2016-18 – Statement of Cash Flows (Topic 230): Restricted Cash
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. Subject to completion of our assessment, we are not expecting this Update to have a material impact on our financial statements.
ASU 2016-18 requires that amounts described as restricted cash and cash equivalents be included with cash and cash equivalents in the statement of cash flows. In addition, we will be required to disclose information in our footnotes about the nature of the restriction on cash and cash equivalents. The Update is effective for us in first quarter 2018 with retrospective application. Subject to completion of our assessment, we are not expecting this Update to have a material impact on our financial statements.
Private Share Repurchases
From time to time we may enter into private forward repurchase transactions with unrelated third partiescontracts, written repurchase plans pursuant to Rule 10b5-1 of the Securities Exchange Act of 1934, or a combination of the two to complement our open-market common stock repurchase strategies, tostrategies. The stock repurchase transactions 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 thesethe private forward repurchase 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 the Board of Governors of the Federal Reserve BoardSystem (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 did not enter into any private forward repurchase contracts in first quarter 2019 and we had no unsettled private share repurchase contracts at both September 30, 2017March 31, 2019.
Under a Rule 10b5-1 repurchase plan, payments and September 30, 2016.receipt of repurchased shares settle on the same day and the shares repurchased reduce the total number of outstanding shares of common stock upon the settlement of each trade under the plan.
Supplemental Cash Flow Information
Significant noncash activities are presented below.in Table 1.1.
Table 1.1: Supplemental Cash Flow Information
|
| | | | | | |
| Nine months ended September 30, | |
(in millions) | 2017 |
| | 2016 |
|
Trading assets retained from securitization of MHFS | $ | 43,394 |
| | 47,291 |
|
Transfers from loans to MHFS | 4,015 |
| | 5,257 |
|
Transfers from available-for-sale to held-to-maturity securities | 50,405 |
| | 816 |
|
|
| | | | | | |
| Quarter ended March 31, | |
(in millions) | 2019 |
| | 2018 |
|
Trading debt securities retained from securitization of MLHFS | $ | 8,875 |
| | 8,776 |
|
Transfers from loans to MLHFS | 1,292 |
| | 1,297 |
|
Transfers from loans to LHFS | 3 |
| | 1,973 |
|
Transfers from available-for-sale debt securities to held-to-maturity debt securities | 2,407 |
| | 4,451 |
|
Operating lease ROU assets acquired with operating lease liabilities (1) | 5,127 |
| | — |
|
| |
(1) | First quarter 2019 includes $4.9 billion from adoption of ASU 2016-02 – Leases (Topic 842) and $227 million attributable to new leases and changes from modified leases. |
Subsequent Events
We have evaluated the effects of events that have occurred subsequent to September 30, 2017,March 31, 2019, and, except as disclosed elsewhere in the footnotes, there have been no material events that would
require recognition in our thirdfirst quarter 20172019 consolidated financial statements or disclosure in the Notes to the consolidated financial statements.
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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
We completed no acquisitions which is considered to be a guarantee, see Note 10 (Guarantees, Pledged Assetsduring first quarter 2019 and Collateral).
On July 1, 2017, we completed a step acquisition involving an investment management firm with approximately $10 billion of
assets under management. We had previously been the majority owner.
At September 30, 2017, we had no business combinations pending business combinations.as of March 31, 2019.
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Note 3: Federal Funds Sold, Securities Purchased under Resale AgreementsCash, Loan and OtherDividend Restrictions |
Cash and cash equivalents may be restricted as to usage or withdrawal. FRB regulations require that each of our subsidiary banks maintain reserve balances on deposit with the Federal Reserve Banks. Table 3.1 provides a summary of restrictions on cash equivalents in addition to the FRB reserve cash balance requirements.
Table 3.1:Nature of Restrictions on Cash Equivalents
|
| | | | | | |
(in millions) | Mar 31, 2019 |
| | Dec 31, 2018 |
|
Average required reserve balance for FRB (1) | $ | 11,164 |
| | 12,428 |
|
Reserve balance for non-U.S. central banks | 746 |
| | 517 |
|
Segregated for benefit of brokerage customers under federal and other brokerage regulations | 913 |
| | 1,135 |
|
Related to consolidated variable interest entities (VIEs) that can only be used to settle liabilities of VIEs | 24 |
| | 147 |
|
| |
(1) | FRB required reserve balance represents average for first quarter 2019 and for the year ended December 31, 2018. |
We have a state-chartered subsidiary bank that is subject to state regulations that limit dividends. Under these provisions and regulatory limitations, our national and state-chartered subsidiary banks could have declared additional dividends of $7.3 billion at March 31, 2019, without obtaining prior regulatory approval. Our nonbank subsidiaries are also limited by certain federal and state statutory provisions and regulations covering the amount of dividends that may be paid in any given year. In addition, under a Support Agreement dated June 28, 2017, among Wells Fargo & Company, the parent holding company (the “Parent”), WFC Holdings, LLC, an intermediate holding company and subsidiary of the Parent (the “IHC”), and Wells Fargo Bank, N.A., Wells Fargo Securities, LLC, and Wells Fargo Clearing Services, LLC, each an indirect subsidiary of the Parent, the IHC may be restricted from making dividend payments to the Parent if certain liquidity and/or capital metrics fall below defined triggers. Based on retained earnings at March 31, 2019, our nonbank subsidiaries could have declared additional dividends of $24.9 billion at March 31, 2019, without obtaining prior regulatory approval. For additional information see Note 3 (Cash, Loan and Dividend Restrictions) in our 2018 Form 10-K.
The FRB’s Capital Plan Rule (codified at 12 CFR 225.8 of Regulation Y) establishes capital planning and prior notice and approval requirements for capital distributions including dividends by certain large bank holding companies. The FRB has also published guidance regarding its supervisory expectations for capital planning, including capital policies regarding the process relating to common stock dividend and repurchase decisions in the FRB’s SR Letter 15-18. The effect of this guidance is to require the approval of the FRB (or specifically under the Capital Plan Rule, a notice of non-objection) for the Company to repurchase or redeem common or perpetual preferred stock as well as to raise the per share quarterly dividend from its current level of $0.45 per share as declared by the Company’s Board of Directors on April 23, 2019, payable on June 1, 2019.
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Note 4: Short-Term Investments Trading Activities |
Table 3.14.1 presents a summary of our trading assets and liabilities measured at fair value through earnings.
Table 4.1: Trading Assets and Liabilities
|
| | | | | | |
| Mar 31, |
| | Dec 31, |
|
(in millions) | 2019 |
| | 2018 |
|
Trading assets: | | | |
Debt securities | $ | 70,378 |
| | 69,989 |
|
Equity securities | 20,933 |
| | 19,449 |
|
Loans held for sale | 998 |
| | 1,469 |
|
Gross trading derivative assets | 30,002 |
| | 29,216 |
|
Netting (1) | (20,809 | ) | | (19,807 | ) |
Total trading derivative assets | 9,193 |
| | 9,409 |
|
Total trading assets | 101,502 |
| | 100,316 |
|
Trading liabilities: | | | |
Short sale | 21,586 |
| | 19,720 |
|
Gross trading derivative liabilities | 28,994 |
| | 28,717 |
|
Netting (1) | (22,810 | ) | | (21,178 | ) |
Total trading derivative liabilities | 6,184 |
| | 7,539 |
|
Total trading liabilities | $ | 27,770 |
| | 27,259 |
|
| |
(1) | Represents balance sheet netting for trading derivative asset and liability balances, and trading portfolio level counterparty valuation adjustments. |
Table 4.2 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 alla summary of the interest-earning deposits at September 30, 2017,net interest income earned from trading securities, and December 31, 2016, were held at Federal Reserve Banks.net gains and losses due to the realized and unrealized gains and losses from trading activities.
Table 3.1:4.2: Fed Funds SoldNet Interest Income and Other Short-Term InvestmentsNet Gains (Losses) on Trading Activities
|
| | | | | | |
(in millions) | Sep 30, 2017 |
| | Dec 31, 2016 |
|
Federal funds sold and securities purchased under resale agreements | $ | 66,156 |
| | 58,215 |
|
Interest-earning deposits | 205,648 |
| | 200,671 |
|
Other short-term investments | 1,301 |
| | 7,152 |
|
Total | $ | 273,105 |
| | 266,038 |
|
|
| | | | | | |
| Quarter ended March 31, | |
(in millions) | 2019 |
| | 2018 |
|
Interest income (1): | | | |
Debt securities | $ | 793 |
| | 631 |
|
Equity securities | 115 |
| | 141 |
|
Loans held for sale | 23 |
| | 8 |
|
Total interest income | 931 |
| | 780 |
|
Less: Interest expense (2) | 136 |
| | 128 |
|
Net interest income | 795 |
| | 652 |
|
| | | |
Net gains (losses) from trading activities: | | | |
Debt securities | 688 |
| | (499 | ) |
Equity securities | 2,067 |
| | (469 | ) |
Loans held for sale | 14 |
| | 8 |
|
Derivatives (3) | (2,412 | ) | | 1,203 |
|
Total net gains from trading activities (4) | 357 |
| | 243 |
|
Total trading-related net interest and noninterest income | $ | 1,152 |
| | 895 |
|
| |
(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) | 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. |
| |
(4) | Represents realized gains (losses) from our trading activities and unrealized gains (losses) due to changes in fair value of our trading positions, attributable to the type of asset or liability. |
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 $1.5 billion and $2.9 billion as of September 30, 2017, and December 31, 2016, respectively.
We have classified securities purchased under long-term resale agreements (generally one year or more), which totaled $20.6 billion and $21.3 billion in loans at September 30, 2017, and December 31, 2016, respectively. 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).
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Note 4: Investment5: Available-for-Sale and Held-to-Maturity Debt Securities |
Table 4.15.1 provides the amortized cost and fair value by major categories of available-for-sale debt 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 debt securities are reported on an after-tax basis as a component of cumulative OCI. Information on debt securities held for trading is included in Note 4 (Trading Activities) to Financial Statements in this Report.
Table 4.1:5.1: Amortized Cost and Fair Value
|
| | | | | | | | | | | | |
(in millions) | Amortized Cost |
| | Gross unrealized gains |
| | Gross unrealized losses |
| | Fair value |
|
September 30, 2017 | | | | | | | |
Available-for-sale securities: | | | | | | | |
Securities of U.S. Treasury and federal agencies | $ | 6,408 |
| | 8 |
| | (66 | ) | | 6,350 |
|
Securities of U.S. states and political subdivisions | 52,854 |
| | 774 |
| | (854 | ) | | 52,774 |
|
Mortgage-backed securities: | | | | | | | |
Federal agencies | 149,872 |
| | 1,237 |
| | (928 | ) | | 150,181 |
|
Residential | 5,942 |
| | 455 |
| | (3 | ) | | 6,394 |
|
Commercial | 4,586 |
| | 74 |
| | (8 | ) | | 4,652 |
|
Total mortgage-backed securities | 160,400 |
| | 1,766 |
| | (939 | ) | | 161,227 |
|
Corporate debt securities | 8,962 |
| | 443 |
| | (65 | ) | | 9,340 |
|
Collateralized loan and other debt obligations (1) | 35,298 |
| | 317 |
| | (7 | ) | | 35,608 |
|
Other (2) | 5,857 |
| | 168 |
| | (7 | ) | | 6,018 |
|
Total debt securities | 269,779 |
| | 3,476 |
| | (1,938 | ) | | 271,317 |
|
Marketable equity securities: | | | | | | | |
Perpetual preferred securities | 412 |
| | 12 |
| | (5 | ) | | 419 |
|
Other marketable equity securities | 194 |
| | 282 |
| | (2 | ) | | 474 |
|
Total marketable equity securities | 606 |
| | 294 |
| | (7 | ) | | 893 |
|
Total available-for-sale securities | 270,385 |
| | 3,770 |
| | (1,945 | ) | | 272,210 |
|
Held-to-maturity securities: | | | | | | | |
Securities of U.S. Treasury and federal agencies | 44,712 |
| | 606 |
| | (36 | ) | | 45,282 |
|
Securities of U.S. states and political subdivisions | 6,321 |
| | 70 |
| | (45 | ) | | 6,346 |
|
Federal agency and other mortgage-backed securities (3) | 90,071 |
| | 305 |
| | (509 | ) | | 89,867 |
|
Collateralized loan obligations | 661 |
| | 3 |
| | — |
| | 664 |
|
Other (2) | 658 |
| | 1 |
| | — |
| | 659 |
|
Total held-to-maturity securities | 142,423 |
| | 985 |
| | (590 | ) | | 142,818 |
|
Total | $ | 412,808 |
| | 4,755 |
| | (2,535 | ) | | 415,028 |
|
December 31, 2016 | | | | | | | |
Available-for-sale securities: | | | | | | | |
Securities of U.S. Treasury and federal agencies | $ | 25,874 |
| | 54 |
| | (109 | ) | | 25,819 |
|
Securities of U.S. states and political subdivisions | 52,121 |
| | 551 |
| | (1,571 | ) | | 51,101 |
|
Mortgage-backed securities: | | | | | | | |
Federal agencies | 163,513 |
| | 1,175 |
| | (3,458 | ) | | 161,230 |
|
Residential | 7,375 |
| | 449 |
| | (8 | ) | | 7,816 |
|
Commercial | 8,475 |
| | 101 |
| | (74 | ) | | 8,502 |
|
Total mortgage-backed securities | 179,363 |
| | 1,725 |
| | (3,540 | ) | | 177,548 |
|
Corporate debt securities | 11,186 |
| | 381 |
| | (110 | ) | | 11,457 |
|
Collateralized loan and other debt obligations (1) | 34,764 |
| | 287 |
| | (31 | ) | | 35,020 |
|
Other (2) | 6,139 |
| | 104 |
| | (35 | ) | | 6,208 |
|
Total debt securities | 309,447 |
| | 3,102 |
| | (5,396 | ) | | 307,153 |
|
Marketable equity securities: | | | | | | | |
Perpetual preferred securities | 445 |
| | 35 |
| | (11 | ) | | 469 |
|
Other marketable equity securities | 261 |
| | 481 |
| | — |
| | 742 |
|
Total marketable equity securities | 706 |
| | 516 |
| | (11 | ) | | 1,211 |
|
Total available-for-sale securities | 310,153 |
| | 3,618 |
| | (5,407 | ) | | 308,364 |
|
Held-to-maturity securities: | | | | | | | |
Securities of U.S. Treasury and federal agencies | 44,690 |
| | 466 |
| | (77 | ) | | 45,079 |
|
Securities of U.S. states and political subdivisions | 6,336 |
| | 17 |
| | (144 | ) | | 6,209 |
|
Federal agency and other mortgage-backed securities (3) | 45,161 |
| | 100 |
| | (804 | ) | | 44,457 |
|
Collateralized loan obligations | 1,065 |
| | 6 |
| | (1 | ) | | 1,070 |
|
Other (2) | 2,331 |
| | 10 |
| | (1 | ) | | 2,340 |
|
Total held-to-maturity securities | 99,583 |
| | 599 |
| | (1,027 | ) | | 99,155 |
|
Total | $ | 409,736 |
| | 4,217 |
| | (6,434 | ) | | 407,519 |
|
|
| | | | | | | | | | | | |
(in millions) | Amortized Cost |
| | Gross unrealized gains |
| | Gross unrealized losses |
| | Fair value |
|
March 31, 2019 | | | | | | | |
Available-for-sale debt securities: | | | | | | | |
Securities of U.S. Treasury and federal agencies | $ | 15,168 |
| | 4 |
| | (66 | ) | | 15,106 |
|
Securities of U.S. states and political subdivisions (1) | 48,566 |
| | 1,194 |
| | (60 | ) | | 49,700 |
|
Mortgage-backed securities: | | | | | | | |
Federal agencies | 151,182 |
| | 749 |
| | (1,268 | ) | | 150,663 |
|
Residential | 1,432 |
| | 24 |
| | — |
| | 1,456 |
|
Commercial | 4,332 |
| | 50 |
| | (10 | ) | | 4,372 |
|
Total mortgage-backed securities | 156,946 |
| | 823 |
| | (1,278 | ) | | 156,491 |
|
Corporate debt securities | 6,188 |
| | 204 |
| | (38 | ) | | 6,354 |
|
Collateralized loan and other debt obligations (2) | 35,304 |
| | 169 |
| | (158 | ) | | 35,315 |
|
Other (3) | 5,074 |
| | 73 |
| | (14 | ) | | 5,133 |
|
Total available-for-sale debt securities | 267,246 |
| | 2,467 |
| | (1,614 | ) | | 268,099 |
|
Held-to-maturity debt securities: | | | | | | | |
Securities of U.S. Treasury and federal agencies | 44,758 |
| | 85 |
| | (150 | ) | | 44,693 |
|
Securities of U.S. states and political subdivisions | 6,163 |
| | 102 |
| | (15 | ) | | 6,250 |
|
Federal agency and other mortgage-backed securities (4) | 94,009 |
| | 419 |
| | (732 | ) | | 93,696 |
|
Collateralized loan obligations | 60 |
| | — |
| | — |
| | 60 |
|
Total held-to-maturity debt securities | 144,990 |
| | 606 |
| | (897 | ) | | 144,699 |
|
Total | $ | 412,236 |
| | 3,073 |
| | (2,511 | ) | | 412,798 |
|
December 31, 2018 | | | | | | | |
Available-for-sale debt securities: | | | | | | | |
Securities of U.S. Treasury and federal agencies | $ | 13,451 |
| | 3 |
| | (106 | ) | | 13,348 |
|
Securities of U.S. states and political subdivisions (1) | 48,994 |
| | 716 |
| | (446 | ) | | 49,264 |
|
Mortgage-backed securities: | | | | | | | |
Federal agencies | 155,974 |
| | 369 |
| | (3,140 | ) | | 153,203 |
|
Residential | 2,638 |
| | 142 |
| | (5 | ) | | 2,775 |
|
Commercial | 4,207 |
| | 40 |
| | (22 | ) | | 4,225 |
|
Total mortgage-backed securities | 162,819 |
| | 551 |
| | (3,167 | ) | | 160,203 |
|
Corporate debt securities | 6,230 |
| | 131 |
| | (90 | ) | | 6,271 |
|
Collateralized loan and other debt obligations (2) | 35,581 |
| | 158 |
| | (396 | ) | | 35,343 |
|
Other (3) | 5,396 |
| | 100 |
| | (13 | ) | | 5,483 |
|
Total available-for-sale debt securities | 272,471 |
| | 1,659 |
| | (4,218 | ) | | 269,912 |
|
Held-to-maturity debt securities: | | | | | | | |
Securities of U.S. Treasury and federal agencies | 44,751 |
| | 4 |
| | (415 | ) | | 44,340 |
|
Securities of U.S. states and political subdivisions | 6,286 |
| | 30 |
| | (116 | ) | | 6,200 |
|
Federal agency and other mortgage-backed securities (4) | 93,685 |
| | 112 |
| | (2,288 | ) | | 91,509 |
|
Collateralized loan obligations | 66 |
| | — |
| | — |
| | 66 |
|
Total held-to-maturity debt securities | 144,788 |
| | 146 |
| | (2,819 | ) | | 142,115 |
|
Total | $ | 417,259 |
| | 1,805 |
| | (7,037 | ) | | 412,027 |
|
| |
(1) | Includes investments in tax-exempt preferred debt securities issued by investment funds or trusts that predominantly invest in tax-exempt municipal securities. The available-for-sale portfolio includescost basis and fair value of these types of securities was $5.6 billion each at March 31, 2019, and $6.3 billion each at December 31, 2018. |
| |
(2) | Includes collateralized debt obligations (CDOs) with a cost basis and fair value of $914$621 million and $1.0 billion,$755 million, respectively, at September 30, 2017,March 31, 2019, and $819$662 million and $847$800 million,, respectively, at December 31, 2016. |
| |
(2) | The “Other” category of available-for-sale securities largely includes asset-backed securities collateralized by student 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 $158 million each at September 30, 2017, and $1.3 billion each at December 31, 2016. 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 $500 million and $501 million, respectively at September 30, 2017, and $1.1 billion each at December 31, 2016. 2018. |
| |
(3) | Primarily includes asset-backed securities collateralized by student loans. |
| |
(4) | Predominantly consists of federal agency mortgage-backed securities at both September 30, 2017March 31, 2019 and December 31, 2016.2018. |
Note 4: Investment5: Available-for-Sale and Held-to-Maturity Debt Securities (continued)
Gross Unrealized Losses and Fair Value
Table 4.25.2 shows the gross unrealized losses and fair value of available-for-sale and held-to-maturity debt securities in the investment securities portfolio by length of time thatthose individual securities in each category have been in a continuous loss position. Debt securities on which we have taken credit-related OTTI write-downsother-than-temporary impairment (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 4.2:5.2: Gross Unrealized Losses and Fair Value
| | | Less than 12 months | | | 12 months or more | | | Total | | 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 |
| Gross unrealized losses |
| | Fair value |
| | Gross unrealized losses |
| | Fair value |
| | Gross unrealized losses |
| | Fair value |
|
September 30, 2017 | | | | | | | | | | | | |
Available-for-sale securities: | | | | | | | | | | | | |
March 31, 2019 | | | | | | | | | | | | |
Available-for-sale debt securities: | | | | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | $ | (4 | ) | | 2,582 |
| | (62 | ) | | 1,968 |
| | (66 | ) | | 4,550 |
| $ | — |
| | — |
| | (66 | ) | | 6,220 |
| | (66 | ) | | 6,220 |
|
Securities of U.S. states and political subdivisions | (23 | ) | | 6,117 |
| | (831 | ) | | 19,188 |
| | (854 | ) | | 25,305 |
| (13 | ) | | 4,027 |
| | (47 | ) | | 3,612 |
| | (60 | ) | | 7,639 |
|
Mortgage-backed securities: | | | | | | | | | | |
| | | | | | | | | | |
|
Federal agencies | (383 | ) | | 50,708 |
| | (545 | ) | | 22,103 |
| | (928 | ) | | 72,811 |
| (5 | ) | | 1,392 |
| | (1,263 | ) | | 95,706 |
| | (1,268 | ) | | 97,098 |
|
Residential | (2 | ) | | 145 |
| | (1 | ) | | 64 |
| | (3 | ) | | 209 |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Commercial | (1 | ) | | 393 |
| | (7 | ) | | 348 |
| | (8 | ) | | 741 |
| (7 | ) | | 1,542 |
| | (3 | ) | | 105 |
| | (10 | ) | | 1,647 |
|
Total mortgage-backed securities | (386 | ) | | 51,246 |
| | (553 | ) | | 22,515 |
| | (939 | ) | | 73,761 |
| (12 | ) | | 2,934 |
| | (1,266 | ) | | 95,811 |
| | (1,278 | ) | | 98,745 |
|
Corporate debt securities | (5 | ) | | 305 |
| | (60 | ) | | 886 |
| | (65 | ) | | 1,191 |
| (17 | ) | | 736 |
| | (21 | ) | | 373 |
| | (38 | ) | | 1,109 |
|
Collateralized loan and other debt obligations | (1 | ) | | 3,171 |
| | (6 | ) | | 581 |
| | (7 | ) | | 3,752 |
| (131 | ) | | 19,572 |
| | (27 | ) | | 2,513 |
| | (158 | ) | | 22,085 |
|
Other | (1 | ) | | 494 |
| | (6 | ) | | 526 |
| | (7 | ) | | 1,020 |
| (7 | ) | | 1,034 |
| | (7 | ) | | 278 |
| | (14 | ) | | 1,312 |
|
Total debt securities | (420 | ) | | 63,915 |
| | (1,518 | ) | | 45,664 |
| | (1,938 | ) | | 109,579 |
| |
Marketable equity securities: | | | | | | | | |
| |
| |
Perpetual preferred securities | (1 | ) | | 21 |
| | (4 | ) | | 67 |
| | (5 | ) | | 88 |
| |
Other marketable equity securities | (2 | ) | | 10 |
| | — |
| | — |
| | (2 | ) | | 10 |
| |
Total marketable equity securities | (3 | ) | | 31 |
| | (4 | ) | | 67 |
| | (7 | ) | | 98 |
| |
Total available-for-sale securities | (423 | ) | | 63,946 |
| | (1,522 | ) | | 45,731 |
| | (1,945 | ) | | 109,677 |
| |
Held-to-maturity securities: | | | | | | | | |
| |
| |
Total available-for-sale debt securities | | (180 | ) | | 28,303 |
| | (1,434 | ) | | 108,807 |
| | (1,614 | ) | | 137,110 |
|
Held-to-maturity debt securities: | | | | | | | | | |
| |
|
Securities of U.S. Treasury and federal agencies | (36 | ) | | 3,345 |
| | — |
| | — |
| | (36 | ) | | 3,345 |
| — |
| | — |
| | (150 | ) | | 30,379 |
| | (150 | ) | | 30,379 |
|
Securities of U.S. states and political subdivisions | (19 | ) | | 2,016 |
| | (26 | ) | | 785 |
| | (45 | ) | | 2,801 |
| — |
| | — |
| | (15 | ) | | 1,663 |
| | (15 | ) | | 1,663 |
|
Federal agency and other mortgage-backed securities | (465 | ) | | 53,128 |
| | (44 | ) | | 5,212 |
| | (509 | ) | | 58,340 |
| — |
| | — |
| | (732 | ) | | 64,315 |
| | (732 | ) | | 64,315 |
|
Collateralized loan obligations | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Other | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
Total held-to-maturity securities | (520 | ) | | 58,489 |
| | (70 | ) | | 5,997 |
| | (590 | ) | | 64,486 |
| |
Total held-to-maturity debt securities | | — |
| | — |
| | (897 | ) | | 96,357 |
| | (897 | ) | | 96,357 |
|
Total | $ | (943 | ) | | 122,435 |
| | (1,592 | ) | | 51,728 |
| | (2,535 | ) | | 174,163 |
| $ | (180 | ) | | 28,303 |
| | (2,331 | ) | | 205,164 |
| | (2,511 | ) | | 233,467 |
|
December 31, 2016 | | | | | | | | | | | | |
Available-for-sale securities: | | | | | | | | | | | | |
December 31, 2018 | | | | | | | | | | | | |
Available-for-sale debt securities: | | | | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | $ | (109 | ) | | 10,816 |
| | — |
| | — |
| | (109 | ) | | 10,816 |
| $ | (1 | ) | | 498 |
| | (105 | ) | | 6,204 |
| | (106 | ) | | 6,702 |
|
Securities of U.S. states and political subdivisions | (341 | ) | | 17,412 |
| | (1,230 | ) | | 16,213 |
| | (1,571 | ) | | 33,625 |
| (73 | ) | | 9,746 |
| | (373 | ) | | 9,017 |
| | (446 | ) | | 18,763 |
|
Mortgage-backed securities: | | | | | | | | | | | | | | | | | | | | | | |
Federal agencies | (3,338 | ) | | 120,735 |
| | (120 | ) | | 3,481 |
| | (3,458 | ) | | 124,216 |
| (42 | ) | | 10,979 |
| | (3,098 | ) | | 112,252 |
| | (3,140 | ) | | 123,231 |
|
Residential | (4 | ) | | 527 |
| | (4 | ) | | 245 |
| | (8 | ) | | 772 |
| (3 | ) | | 398 |
| | (2 | ) | | 69 |
| | (5 | ) | | 467 |
|
Commercial | (43 | ) | | 1,459 |
| | (31 | ) | | 1,690 |
| | (74 | ) | | 3,149 |
| (20 | ) | | 1,972 |
| | (2 | ) | | 79 |
| | (22 | ) | | 2,051 |
|
Total mortgage-backed securities | (3,385 | ) | | 122,721 |
| | (155 | ) | | 5,416 |
| | (3,540 | ) | | 128,137 |
| (65 | ) | | 13,349 |
| | (3,102 | ) | | 112,400 |
| | (3,167 | ) | | 125,749 |
|
Corporate debt securities | (11 | ) | | 946 |
| | (99 | ) | | 1,229 |
| | (110 | ) | | 2,175 |
| (64 | ) | | 1,965 |
| | (26 | ) | | 298 |
| | (90 | ) | | 2,263 |
|
Collateralized loan and other debt obligations | (2 | ) | | 1,899 |
| | (29 | ) | | 3,197 |
| | (31 | ) | | 5,096 |
| (388 | ) | | 28,306 |
| | (8 | ) | | 553 |
| | (396 | ) | | 28,859 |
|
Other | (9 | ) | | 971 |
| | (26 | ) | | 1,262 |
| | (35 | ) | | 2,233 |
| (7 | ) | | 819 |
| | (6 | ) | | 159 |
| | (13 | ) | | 978 |
|
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: | | | | | | | | | | | | |
Total available-for-sale debt securities | | (598 | ) | | 54,683 |
| | (3,620 | ) | | 128,631 |
| | (4,218 | ) | | 183,314 |
|
Held-to-maturity debt securities: | | | | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | (77 | ) | | 6,351 |
| | — |
| | — |
| | (77 | ) | | 6,351 |
| (3 | ) | | 895 |
| | (412 | ) | | 41,083 |
| | (415 | ) | | 41,978 |
|
Securities of U.S. states and political subdivisions | (144 | ) | | 4,871 |
| | — |
| | — |
| | (144 | ) | | 4,871 |
| (4 | ) | | 598 |
| | (112 | ) | | 3,992 |
| | (116 | ) | | 4,590 |
|
Federal agency and other mortgage-backed securities | (804 | ) | | 40,095 |
| | — |
| | — |
| | (804 | ) | | 40,095 |
| (5 | ) | | 4,635 |
| | (2,283 | ) | | 77,741 |
| | (2,288 | ) | | 82,376 |
|
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 held-to-maturity debt securities | | (12 | ) | | 6,128 |
| | (2,807 | ) | | 122,816 |
| | (2,819 | ) | | 128,944 |
|
Total | $ | (4,885 | ) | | 206,123 |
| | (1,549 | ) | | 28,261 |
| | (6,434 | ) | | 234,384 |
| $ | (610 | ) | | 60,811 |
| | (6,427 | ) | | 251,447 |
| | (7,037 | ) | | 312,258 |
|
We have assessed each debt 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 debt 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, weWe evaluate, where necessary, whether credit impairment exists by comparing the present value of the expected cash flows to the debt 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 debt securities for impairment, see Note 1 (Summary of Significant Accounting Policies) and Note 5 (Investment(Available-for-Sale and Held-to-Maturity Debt Securities) to Financial Statements in our 20162018 Form 10-K. There were no material changes to our methodologies for assessing impairment in the first nine months of 2017.quarter 2019.
Table 4.35.3 shows the gross unrealized losses and fair value of debtthe available-for-sale and perpetual preferred investmentheld-to-maturity debt 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 debt security. SecuritiesDebt 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, debt securities rated below investment grade, labeled as “speculative grade” by the rating agencies, are considered to be distinctively higher credit risk than investment grade debt securities. We have also included debt securities not rated by S&P or Moody’s in the table below based on our internal credit grade of the debt 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 debt securities categorized as investment grade based on internal credit grades were $27$11 million and $5.7$4.0 billion, respectively, at September 30, 2017,March 31, 2019, and $54$20 million and $7.0$5.2 billion, respectively, at December 31, 2016.2018. If an internal credit grade was not assigned, we categorized the debt security as non-investment grade.
Table 4.3:5.3: 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, 2017 | | | | | | | | |
Available-for-sale securities: | | | | | | | | |
March 31, 2019 | | | | | | | | |
Available-for-sale debt securities: | | | | | | | | |
Securities of U.S. Treasury and federal agencies | $ | (66 | ) | | 4,550 |
| | — |
| | — |
| $ | (66 | ) | | 6,220 |
| | — |
| | — |
|
Securities of U.S. states and political subdivisions | (822 | ) | | 25,098 |
| | (32 | ) | | 207 |
| (48 | ) | | 7,412 |
| | (12 | ) | | 227 |
|
Mortgage-backed securities: | | | | | | | | | | | | | | |
Federal agencies | (928 | ) | | 72,811 |
| | — |
| | — |
| (1,268 | ) | | 97,098 |
| | — |
| | — |
|
Residential | (1 | ) | | 134 |
| | (2 | ) | | 75 |
| — |
| | — |
| | — |
| | — |
|
Commercial | (2 | ) | | 527 |
| | (6 | ) | | 214 |
| (8 | ) | | 1,636 |
| | (2 | ) | | 11 |
|
Total mortgage-backed securities | (931 | ) | | 73,472 |
| | (8 | ) | | 289 |
| (1,276 | ) | | 98,734 |
| | (2 | ) | | 11 |
|
Corporate debt securities | (14 | ) | | 674 |
| | (51 | ) | | 517 |
| (8 | ) | | 455 |
| | (30 | ) | | 654 |
|
Collateralized loan and other debt obligations | (7 | ) | | 3,752 |
| | — |
| | — |
| (158 | ) | | 22,085 |
| | — |
| | — |
|
Other | (5 | ) | | 781 |
| | (2 | ) | | 239 |
| (8 | ) | | 1,039 |
| | (6 | ) | | 273 |
|
Total debt securities | (1,845 | ) | | 108,327 |
| | (93 | ) | | 1,252 |
| |
Perpetual preferred securities | (4 | ) | | 70 |
| | (1 | ) | | 18 |
| |
Total available-for-sale securities | (1,849 | ) |
| 108,397 |
|
| (94 | ) |
| 1,270 |
| |
Held-to-maturity securities: | | | | | | | | |
Total available-for-sale debt securities | | (1,564 | ) | | 135,945 |
| | (50 | ) | | 1,165 |
|
Held-to-maturity debt securities: | | | | | | | | |
Securities of U.S. Treasury and federal agencies | (36 | ) | | 3,345 |
| | — |
| | — |
| (150 | ) | | 30,379 |
| | — |
| | — |
|
Securities of U.S. states and political subdivisions | (45 | ) | | 2,801 |
| | — |
| | — |
| (15 | ) | | 1,663 |
| | — |
| | — |
|
Federal agency and other mortgage-backed securities | (508 | ) | | 58,248 |
| | (1 | ) | | 92 |
| (731 | ) | | 64,185 |
| | (1 | ) | | 130 |
|
Collateralized loan obligations | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
|
Other | — |
| | — |
| | — |
| | — |
| |
Total held-to-maturity securities | (589 | ) | | 64,394 |
| | (1 | ) | | 92 |
| |
Total held-to-maturity debt securities | | (896 | ) | | 96,227 |
| | (1 | ) | | 130 |
|
Total | $ | (2,438 | ) | | 172,791 |
| | (95 | ) | | 1,362 |
| $ | (2,460 | ) | | 232,172 |
| | (51 | ) | | 1,295 |
|
December 31, 2016 | | |
| | | | | |
Available-for-sale securities: | | | | | | | | |
December 31, 2018 | | | |
| | | | |
Available-for-sale debt securities: | | | | | | | | |
Securities of U.S. Treasury and federal agencies | $ | (109 | ) | | 10,816 |
| | — |
| | — |
| $ | (106 | ) | | 6,702 |
| | — |
| | — |
|
Securities of U.S. states and political subdivisions | (1,517 | ) | | 33,271 |
| | (54 | ) | | 354 |
| (425 | ) | | 18,447 |
| | (21 | ) | | 316 |
|
Mortgage-backed securities: | | | | | | | | | | | | | | |
Federal agencies | (3,458 | ) | | 124,216 |
| | — |
| | — |
| (3,140 | ) | | 123,231 |
| | — |
| | — |
|
Residential | (1 | ) | | 176 |
| | (7 | ) | | 596 |
| (2 | ) | | 295 |
| | (3 | ) | | 172 |
|
Commercial | (15 | ) | | 2,585 |
| | (59 | ) | | 564 |
| (20 | ) | | 1,999 |
| | (2 | ) | | 52 |
|
Total mortgage-backed securities | (3,474 | ) | | 126,977 |
| | (66 | ) | | 1,160 |
| (3,162 | ) | | 125,525 |
| | (5 | ) | | 224 |
|
Corporate debt securities | (31 | ) | | 1,238 |
| | (79 | ) | | 937 |
| (17 | ) | | 791 |
| | (73 | ) | | 1,472 |
|
Collateralized loan and other debt obligations | (31 | ) | | 5,096 |
| | — |
| | — |
| (396 | ) | | 28,859 |
| | — |
| | — |
|
Other | (30 | ) | | 1,842 |
| | (5 | ) | | 391 |
| (7 | ) | | 726 |
| | (6 | ) | | 252 |
|
Total debt securities | (5,192 | ) | | 179,240 |
| | (204 | ) | | 2,842 |
| |
Perpetual preferred securities | (10 | ) | | 68 |
| | (1 | ) | | 18 |
| |
Total available-for-sale securities | (5,202 | ) | | 179,308 |
| | (205 | ) | | 2,860 |
| |
Held-to-maturity securities: | | | | | | | | |
Total available-for-sale debt securities | | (4,113 | ) | | 181,050 |
| | (105 | ) | | 2,264 |
|
Held-to-maturity debt securities: | | | | | | | | |
Securities of U.S. Treasury and federal agencies | (77 | ) | | 6,351 |
| | — |
| | — |
| (415 | ) | | 41,978 |
| | — |
| | — |
|
Securities of U.S. states and political subdivisions | (144 | ) | | 4,871 |
| | — |
| | — |
| (116 | ) | | 4,590 |
| | — |
| | — |
|
Federal agency and other mortgage-backed securities | (803 | ) | | 40,078 |
| | (1 | ) | | 17 |
| (2,278 | ) | | 81,977 |
| | (10 | ) | | 399 |
|
Collateralized loan obligations | (1 | ) | | 266 |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
|
Other | (1 | ) | | 633 |
|
| — |
| | — |
| |
Total held-to-maturity securities | (1,026 | ) | | 52,199 |
| | (1 | ) | | 17 |
| |
Total held-to-maturity debt securities | | (2,809 | ) | | 128,545 |
| | (10 | ) | | 399 |
|
Total | $ | (6,228 | ) | | 231,507 |
| | (206 | ) | | 2,877 |
| $ | (6,922 | ) | | 309,595 |
| | (115 | ) | | 2,663 |
|
Note 4: Investment5: Available-for-Sale and Held-to-Maturity Debt Securities (continued)
Contractual Maturities
Table 4.45.4 shows the remaining contractual maturitiesfair value and contractual weighted-average yields (taxable-equivalent basis) of available-for-sale debt securities.securities by contractual maturity. The remaining contractual principal maturities for MBSmortgage-backed securities (MBS) do not consider
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 4.4:5.4: Available-for Sale Debt Securities - Fair Value by Contractual MaturitiesMaturity
| | | | | 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, 2017 | | | | | | | | | | | | | | | | | | | | |
March 31, 2019 | | | | | | | | | | | | | | | | | | | | |
Available-for-sale debt securities (1): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fair value: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | $ | 6,350 |
| | 1.60 | % | | $ | 81 |
| | 1.36 | % | | $ | 6,221 |
| | 1.60 | % | | $ | 48 |
| | 1.88 | % | | $ | — |
| | — | % | $ | 15,106 |
| | 1.93 | % | | $ | 2,154 |
| | 1.63 | % | | $ | 12,903 |
| | 1.98 | % | | $ | 49 |
| | 1.89 | % | | $ | — |
| | — | % |
Securities of U.S. states and political subdivisions | 52,774 |
| | 5.77 |
| | 1,375 |
| | 2.32 |
| | 10,788 |
| | 2.93 |
| | 2,237 |
| | 4.65 |
| | 38,374 |
| | 6.76 |
| 49,700 |
| | 4.81 |
| | 3,665 |
| | 2.81 |
| | 5,986 |
| | 3.39 |
| | 4,274 |
| | 3.47 |
| | 35,775 |
| | 5.41 |
|
Mortgage-backed securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Federal agencies | 150,181 |
| | 3.24 |
| | 1 |
| | 5.03 |
| | 223 |
| | 2.78 |
| | 5,927 |
| | 2.83 |
| | 144,030 |
| | 3.26 |
| 150,663 |
| | 3.43 |
| | — |
| | — |
| | 152 |
| | 3.50 |
| | 1,819 |
| | 2.57 |
| | 148,692 |
| | 3.44 |
|
Residential | 6,394 |
| | 3.88 |
| | — |
| | — |
| | 27 |
| | 5.66 |
| | 11 |
| | 2.42 |
| | 6,356 |
| | 3.88 |
| 1,456 |
| | 2.97 |
| | — |
| | — |
| | 1 |
| | 5.17 |
| | — |
| | — |
| | 1,455 |
| | 2.96 |
|
Commercial | 4,652 |
| | 3.74 |
| | — |
| | — |
| | — |
| | — |
| | 64 |
| | 2.76 |
| | 4,588 |
| | 3.75 |
| 4,372 |
| | 3.72 |
| | — |
| | — |
| | — |
| | — |
| | 341 |
| | 3.60 |
| | 4,031 |
| | 3.73 |
|
Total mortgage-backed securities | 161,227 |
| | 3.28 |
| | 1 |
| | 5.03 |
| | 250 |
| | 3.09 |
| | 6,002 |
| | 2.83 |
| | 154,974 |
| | 3.30 |
| 156,491 |
| | 3.44 |
| | — |
| | — |
| | 153 |
| | 3.51 |
| | 2,160 |
| | 2.73 |
| | 154,178 |
| | 3.45 |
|
Corporate debt securities | 9,340 |
| | 4.94 |
| | 976 |
| | 4.08 |
| | 3,009 |
| | 5.57 |
| | 4,373 |
| | 4.61 |
| | 982 |
| | 5.28 |
| 6,354 |
| | 5.09 |
| | 430 |
| | 5.78 |
| | 2,509 |
| | 5.25 |
| | 2,795 |
| | 4.70 |
| | 620 |
| | 5.67 |
|
Collateralized loan and other debt obligations | 35,608 |
| | 2.97 |
| | — |
| | — |
| | 100 |
| | 1.83 |
| | 16,498 |
| | 2.95 |
| | 19,010 |
| | 3.00 |
| 35,315 |
| | 4.15 |
| | — |
| | — |
| | 18 |
| | 4.80 |
| | 10,889 |
| | 4.24 |
| | 24,408 |
| | 4.11 |
|
Other | 6,018 |
| | 2.29 |
| | 44 |
| | 3.42 |
| | 525 |
| | 2.69 |
| | 1,584 |
| | 1.97 |
| | 3,865 |
| | 2.35 |
| 5,133 |
| | 3.17 |
| | 8 |
| | 5.82 |
| | 751 |
| | 4.04 |
| | 1,482 |
| | 2.08 |
| | 2,892 |
| | 3.50 |
|
Total available-for-sale debt securities at fair value | $ | 271,317 |
| | 3.72 | % | | $ | 2,477 |
| | 3.00 | % | | $ | 20,893 |
| | 2.90 | % | | $ | 30,742 |
| | 3.23 | % | | $ | 217,205 |
| | 3.88 | % | $ | 268,099 |
| | 3.73 | % | | $ | 6,257 |
| | 2.61 | % | | $ | 22,320 |
| | 2.81 | % | | $ | 21,649 |
| | 3.85 | % | | $ | 217,873 |
| | 3.85 | % |
December 31, 2016 | | | | | | | | | | | | | | | | | | | | |
Available-for-sale debt securities (1): | | | | | | | | | ` | | | | | | | | | | | |
Fair value: | | | | | | | | | | | | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | $ | 25,819 |
| | 1.44 | % | | $ | 1,328 |
| | 0.92 | % | | $ | 23,477 |
| | 1.45 | % | | $ | 1,014 |
| | 1.80 | % | | $ | — |
| | — | % | |
Securities of U.S. states and political subdivisions | 51,101 |
| | 5.65 |
| | 2,990 |
| | 1.69 |
| | 9,299 |
| | 2.74 |
| | 2,391 |
| | 4.71 |
| | 36,421 |
| | 6.78 |
| |
Mortgage-backed securities: | | | | | | | | | | | | | | | | | | | | |
Federal agencies | 161,230 |
| | 3.09 |
| | — |
| | — |
| | 128 |
| | 2.98 |
| | 5,363 |
| | 3.16 |
| | 155,739 |
| | 3.09 |
| |
Residential | 7,816 |
| | 3.84 |
| | — |
| | — |
| | 25 |
| | 5.21 |
| | 35 |
| | 4.34 |
| | 7,756 |
| | 3.83 |
| |
Commercial | 8,502 |
| | 4.58 |
| | — |
| | — |
| | — |
| | — |
| | 30 |
| | 3.13 |
| | 8,472 |
| | 4.59 |
| |
Total mortgage-backed securities | 177,548 |
| | 3.19 |
| | — |
| | — |
| | 153 |
| | 3.34 |
| | 5,428 |
| | 3.16 |
| | 171,967 |
| | 3.19 |
| |
Corporate debt securities | 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 obligations | 35,020 |
| | 2.70 |
| | — |
| | — |
| | 168 |
| | 1.34 |
| | 16,482 |
| | 2.66 |
| | 18,370 |
| | 2.74 |
| |
Other | 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 | $ | 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. |
Table 4.55.5 shows the amortized cost and weighted-average yields of held-to-maturity debt securities by contractual maturity.
Table 4.5:5.5: Held-to-Maturity Debt Securities - 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, 2017 | | | | | | | | | | | | | | | | | | | | |
Held-to-maturity securities (1): | | | | | | | | | | | | | | | | | | | | |
March 31, 2019 | | | | | | | | | | | | | | | | | | | | |
Held-to-maturity debt securities (1): | | | | | | | | | | | | | | | | | | | | |
Amortized cost: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | $ | 44,712 |
| | 2.12 | % | | $ | — |
| | — | % | | $ | 32,323 |
| | 2.04 | % | | $ | 12,389 |
| | 2.32 | % | | $ | — |
| | — | % | $ | 44,758 |
| | 2.12 | % | | $ | — |
| | — | % | | $ | 32,362 |
| | 2.04 | % | | $ | 12,396 |
| | 2.32 | % | | $ | — |
| | — | % |
Securities of U.S. states and political subdivisions | 6,321 |
| | 6.04 |
| | — |
| | — |
| | 49 |
| | 7.71 |
| | 655 |
| | 6.44 |
| | 5,617 |
| | 5.98 |
| 6,163 |
| | 4.92 |
| | — |
| | — |
| | 70 |
| | 6.03 |
| | 1,366 |
| | 4.92 |
| | 4,727 |
| | 4.90 |
|
Federal agency and other mortgage-backed securities | 90,071 |
| | 3.11 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| — |
| | 90,071 |
| | 3.11 |
| 94,009 |
| | 3.11 |
| | — |
| | — |
| | 15 |
| | 3.82 |
| | — |
| | — |
| | 93,994 |
| | 3.11 |
|
Collateralized loan obligations | 661 |
| | 2.81 |
| | — |
| | — |
| | — |
| | — |
| | 661 |
| | 2.81 |
| | — |
| | — |
| 60 |
| | 3.97 |
| | — |
| | — |
| | — |
| | — |
| | 60 |
| | 3.97 |
| | — |
| | — |
|
Other | 658 |
| | 2.17 |
| | — |
| | — |
| | 658 |
| | 2.17 |
| | — |
| | — |
| | — |
| | — |
| |
Total held-to-maturity debt securities at amortized cost | $ | 142,423 |
| | 2.92 | % | | $ | — |
| | — | % | | $ | 33,030 |
| | 2.05 | % | | $ | 13,705 |
| | 2.54 | % | | $ | 95,688 |
| | 3.27 | % | $ | 144,990 |
| | 2.88 | % | | $ | — |
| | — | % | | $ | 32,447 |
| | 2.05 | % | | $ | 13,822 |
| | 2.58 | % | | $ | 98,721 |
| | 3.19 | % |
December 31, 2016 | | | | | | | | | | | | | | | | | | | | |
Held-to-maturity securities (1): | | | | | | | | | | | | | | | | | | | | |
Amortized cost: | | | | | | | | | | | | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | $ | 44,690 |
| | 2.12 | % | | $ | — |
| | — | % | | $ | 31,956 |
| | 2.05 | % | | $ | 12,734 |
| | 2.30 | % | | $ | — |
| | — | % | |
Securities of U.S. states and political subdivisions | 6,336 |
| | 6.04 |
| | — |
| | — |
| | 24 |
| | 8.20 |
| | 436 |
| | 6.76 |
| | 5,876 |
| | 5.98 |
| |
Federal agency and other mortgage-backed securities | 45,161 |
| | 3.23 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 45,161 |
| | 3.23 |
| |
Collateralized loan obligations | 1,065 |
| | 2.58 |
| | — |
| | — |
| | — |
| | — |
| | 1,065 |
| | 2.58 |
| | — |
| | — |
| |
Other | 2,331 |
| | 1.83 |
| | — |
| | — |
| | 1,683 |
| | 1.81 |
| | 648 |
| | 1.89 |
| | — |
| | — |
| |
Total held-to-maturity debt securities at amortized cost | $ | 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 4.65.6 shows the fair value of held-to-maturity debt securities by contractual maturity.
Table 4.6:5.6: Held-to-Maturity Debt Securities - Fair Value by Contractual Maturity
|
| | | | | | | | | | | | | | | |
| | | Remaining contractual maturity | |
| 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 |
|
September 30, 2017 | | | | | | | | | |
Held-to-maturity securities: | | | | | | | | | |
Fair value: | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | $ | 45,282 |
| | — |
| | 32,733 |
| | 12,549 |
| | — |
|
Securities of U.S. states and political subdivisions | 6,346 |
| | — |
| | 48 |
| | 664 |
| | 5,634 |
|
Federal agency and other mortgage-backed securities | 89,867 |
| | — |
| | — |
| | — |
| | 89,867 |
|
Collateralized loan obligations | 664 |
| | — |
| | — |
| | 664 |
| | — |
|
Other | 659 |
| | — |
| | 659 |
| | — |
| | — |
|
Total held-to-maturity debt securities at fair value | $ | 142,818 |
| | — |
| | 33,440 |
| | 13,877 |
| | 95,501 |
|
December 31, 2016 | | | | | | | | | |
Held-to-maturity securities: | | | | | | | | | |
Fair value: | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | $ | 45,079 |
| | — |
| | 32,313 |
| | 12,766 |
| | — |
|
Securities of U.S. states and political subdivisions | 6,209 |
| | — |
| | 24 |
| | 430 |
| | 5,755 |
|
Federal agency and other mortgage-backed securities | 44,457 |
| | — |
| | — |
| | — |
| | 44,457 |
|
Collateralized loan obligations | 1,070 |
| | — |
| | — |
| | 1,070 |
| | — |
|
Other | 2,340 |
| | — |
| | 1,688 |
| | 652 |
| | — |
|
Total held-to-maturity debt securities at fair value | $ | 99,155 |
| | — |
| | 34,025 |
| | 14,918 |
| | 50,212 |
|
Note 4: Investment Securities (continued)
|
| | | | | | | | | | | | | | | |
| | | Remaining contractual maturity | |
| 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 |
|
March 31, 2019 | | | | | | | | | |
Held-to-maturity debt securities: | | | | | | | | | |
Fair value: | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | $ | 44,693 |
| | — |
| | 32,245 |
| | 12,448 |
| | — |
|
Securities of U.S. states and political subdivisions | 6,250 |
| | — |
| | 70 |
| | 1,403 |
| | 4,777 |
|
Federal agency and other mortgage-backed securities | 93,696 |
| | — |
| | 15 |
| | — |
| | 93,681 |
|
Collateralized loan obligations | 60 |
| | — |
| | — |
| | 60 |
| | — |
|
Total held-to-maturity debt securities at fair value | $ | 144,699 |
| | — |
| | 32,330 |
| | 13,911 |
| | 98,458 |
|
Realized Gains and Losses
Table 4.75.7 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)).debt securities.
Table 4.7:5.7: Realized Gains and Losses
| | | Quarter ended September 30, | | | Nine months ended September 30, | | Quarter ended March 31, | |
(in millions) | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
| 2019 |
| | 2018 |
|
Gross realized gains | $ | 298 |
| | 266 |
| | 859 |
| | 1,215 |
| $ | 173 |
| | 21 |
|
Gross realized losses | (18 | ) | | (23 | ) | | (102 | ) | | (67 | ) | (3 | ) | | (10 | ) |
OTTI write-downs | (8 | ) | | (52 | ) | | (112 | ) | | (147 | ) | (45 | ) | | (10 | ) |
Net realized gains from available-for-sale securities | 272 |
| | 191 |
| | 645 |
| | 1,001 |
| |
Net realized gains from nonmarketable equity investments | 132 |
| | 55 |
| | 506 |
| | 369 |
| |
Net realized gains from debt securities and equity investments | $ | 404 |
| | 246 |
| | 1,151 |
| | 1,370 |
| |
Net realized gains from available-for-sale debt securities | | $ | 125 |
| | 1 |
|
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 of 2017 and 2016.
Table 4.8:OTTI Write-downs
|
| | | | | | | | | | | | |
| Quarter ended September 30, | | | Nine months ended September 30, | |
(in millions) | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
|
OTTI write-downs included in earnings | | | | | | | |
Debt securities: | | | | | | | |
Securities of U.S. states and political subdivisions | $ | 1 |
| | 30 |
| | 9 |
| | 40 |
|
Mortgage-backed securities: | | | | | | | |
Residential | 1 |
| | 4 |
| | 7 |
| | 28 |
|
Commercial | 4 |
| | 10 |
| | 70 |
| | 11 |
|
Corporate debt securities | 1 |
| | 7 |
| | 21 |
| | 57 |
|
Other debt securities | — |
| | — |
| | — |
| | 6 |
|
Total debt securities | 7 |
| | 51 |
| | 107 |
| | 142 |
|
Equity securities: | | | | | | | |
Marketable equity securities: | | | | | | | |
Other marketable equity securities | 1 |
| | 1 |
| | 5 |
| | 5 |
|
Total marketable equity securities | 1 |
| | 1 |
| | 5 |
| | 5 |
|
Total investment securities (1) | 8 |
| | 52 |
| | 112 |
| | 147 |
|
Nonmarketable equity investments (1) | 83 |
| | 84 |
| | 181 |
| | 317 |
|
Total OTTI write-downs included in earnings (1) | $ | 91 |
| | 136 |
| | 293 |
| | 464 |
|
| |
(1) | The quarters ended September 30, 2017 and 2016, include $19 million and $32 million, respectively, in OTTI write-downs of oil and gas investments, of which $2 million and $6 million, respectively, related to investment securities and $17 million and $26 million, respectively, related to nonmarketable equity investments. Oil and gas related OTTI for the first nine months of 2017 and 2016, totaled $77 million and $185 million, respectively, of which $24 million and $57 million, respectively, related to investment securities and $53 million and $128 million, respectively, related to nonmarketable equity investments.
|
Other-Than-Temporarily Impaired Debt Securities
Table 4.95.8 shows the detail of total OTTI write-downs included in earnings for available-for-sale debt securities. There were no
OTTI write-downs on held-to-maturity debt securities during first quarter 2019 and 2018.
Table 5.8:Detail of OTTI Write-downs
|
| | | | | | |
| Quarter ended March 31, | |
(in millions) | 2019 |
| | 2018 |
|
Debt securities OTTI write-downs included in earnings: | | | |
Securities of U.S. states and political subdivisions | $ | 29 |
| | 2 |
|
Mortgage-backed securities: | | | |
Residential | — |
| | 1 |
|
Commercial | 14 |
| | 7 |
|
Corporate debt securities | 2 |
| | — |
|
Total debt securities OTTI write-downs included in earnings | $ | 45 |
| | 10 |
|
Table 5.9 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 4.9:5.9: OTTI Write-downs Included in Earnings and the Related Changes in OCI
| | | Quarter ended September 30, | | | Nine months ended September 30, | | Quarter ended March 31, | |
(in millions) | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
| 2019 |
| | 2018 |
|
OTTI on debt securities | | | | | | | | | | |
Recorded as part of gross realized losses: | | | | | | | | | | |
Credit-related OTTI | $ | 6 |
| | 21 |
| | 105 |
| | 102 |
| $ | 16 |
| | 9 |
|
Intent-to-sell OTTI | 1 |
| | 30 |
| | 2 |
| | 40 |
| 29 |
| | 1 |
|
Total recorded as part of gross realized losses | 7 |
| | 51 |
| | 107 |
| | 142 |
| 45 |
| | 10 |
|
Changes to OCI for losses (reversal of losses) in non-credit-related OTTI (1): | | | | | | | | | | |
Securities of U.S. states and political subdivisions | — |
| | — |
| | (5 | ) | | — |
| — |
| | (2 | ) |
Residential mortgage-backed securities | (1 | ) | | (4 | ) | | (1 | ) | | 1 |
| (1 | ) | | (1 | ) |
Commercial mortgage-backed securities | — |
| | (11 | ) | | (47 | ) | | (9 | ) | 1 |
| | 10 |
|
Corporate debt securities | — |
| | — |
| | 1 |
| | (13 | ) | |
Other debt securities | (1 | ) | | — |
| | (1 | ) | | 2 |
| |
Total changes to OCI for non-credit-related OTTI | (2 | ) | | (15 | ) | | (53 | ) | | (19 | ) | — |
| | 7 |
|
Total OTTI losses recorded on debt securities | $ | 5 |
| | 36 |
| | 54 |
| | 123 |
| $ | 45 |
| | 17 |
|
| |
(1) | Represents amounts recorded to OCI for impairment of debt securities, 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 debt securities due to non-credit factors. |
Note 5: Available-for-Sale and Held-to-Maturity Debt Securities (continued)
Table 4.105.10 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 4.10:5.10: Rollforward of OTTI Credit Loss
| | | Quarter ended September 30, | | | Nine months ended September 30, | | Quarter ended March 31, | |
(in millions) | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
| 2019 |
| | 2018 |
|
Credit loss recognized, beginning of period | $ | 1,120 |
| | 1,080 |
| | 1,043 |
| | 1,092 |
| $ | 562 |
| | 742 |
|
Additions: | | | | | | | | | | |
For securities with initial credit impairments | — |
| | 16 |
| | 8 |
| | 54 |
| 2 |
| | — |
|
For securities with previous credit impairments | 6 |
| | 5 |
| | 97 |
| | 48 |
| 14 |
| | 9 |
|
Total additions | 6 |
| | 21 |
| | 105 |
| | 102 |
| 16 |
| | 9 |
|
Reductions: | | | | | | | | | | |
For securities sold, matured, or intended/required to be sold | (96 | ) | | (22 | ) | | (114 | ) | | (111 | ) | (346 | ) | | (101 | ) |
For recoveries of previous credit impairments (1) | (1 | ) | | (2 | ) | | (5 | ) | | (6 | ) | — |
| | (1 | ) |
Total reductions | (97 | ) | | (24 | ) | | (119 | ) | | (117 | ) | (346 | ) | | (102 | ) |
Credit loss recognized, end of period | $ | 1,029 |
| | 1,077 |
| | 1,029 |
| | 1,077 |
| $ | 232 |
| | 649 |
|
| |
(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 5:6: Loans and Allowance for Credit Losses |
Table 5.16.1 presents total loans outstanding by portfolio segment and class of financing receivable. Outstanding balances include a total net reduction of $3.7 billion$466 million and $4.4$1.3 billion at September 30, 2017,March 31, 2019, and December 31, 2016,2018, respectively, for unearned income,
unearned income, net deferred loan fees, and unamortized discounts and premiums.
Table 5.1:6.1: Loans Outstanding
| | (in millions) | Sep 30, 2017 |
| | Dec 31, 2016 |
| Mar 31, 2019 |
| | Dec 31, 2018 |
|
Commercial: | | | | | | |
Commercial and industrial | $ | 327,944 |
| | 330,840 |
| $ | 349,134 |
| | 350,199 |
|
Real estate mortgage | 128,475 |
| | 132,491 |
| 122,113 |
| | 121,014 |
|
Real estate construction | 24,520 |
| | 23,916 |
| 21,857 |
| | 22,496 |
|
Lease financing | 19,211 |
| | 19,289 |
| 19,122 |
| | 19,696 |
|
Total commercial | 500,150 |
| | 506,536 |
| 512,226 |
| | 513,405 |
|
Consumer: | | | | | | |
Real estate 1-4 family first mortgage | 280,173 |
| | 275,579 |
| 284,545 |
| | 285,065 |
|
Real estate 1-4 family junior lien mortgage | 41,152 |
| | 46,237 |
| 33,099 |
| | 34,398 |
|
Credit card | 36,249 |
| | 36,700 |
| 38,279 |
| | 39,025 |
|
Automobile | 55,455 |
| | 62,286 |
| 44,913 |
| | 45,069 |
|
Other revolving credit and installment | 38,694 |
| | 40,266 |
| 35,187 |
| | 36,148 |
|
Total consumer | 451,723 |
| | 461,068 |
| 436,023 |
| | 439,705 |
|
Total loans | $ | 951,873 |
| | 967,604 |
| $ | 948,249 |
| | 953,110 |
|
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 5.26.2 presents total commercial foreign loans outstanding by class of financing receivable.
Table 5.2:6.2: Commercial Foreign Loans Outstanding
| | (in millions) | Sep 30, 2017 |
| | Dec 31, 2016 |
| Mar 31, 2019 |
| | Dec 31, 2018 |
|
Commercial foreign loans: | | | | | | |
Commercial and industrial | $ | 58,570 |
| | 55,396 |
| $ | 63,158 |
| | 62,564 |
|
Real estate mortgage | 8,032 |
| | 8,541 |
| 7,049 |
| | 6,731 |
|
Real estate construction | 647 |
| | 375 |
| 1,138 |
| | 1,011 |
|
Lease financing | 1,141 |
| | 972 |
| 1,167 |
| | 1,159 |
|
Total commercial foreign loans | $ | 68,390 |
| | 65,284 |
| $ | 72,512 |
| | 71,465 |
|
Note 6: Loans and Allowance for Credit Losses (continued)
Loan Purchases, Sales, and Transfers
Table 5.36.3 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 5.3:6.3: Loan Purchases, Sales, and Transfers
| | | 2017 | | | 2016 | | 2019 | | | 2018 | |
(in millions) | Commercial |
| | Consumer (1) |
| | Total |
| | Commercial (2) |
| | Consumer (1) |
| | Total |
| Commercial |
| | Consumer (1) |
| | Total |
| | Commercial |
| | Consumer (1) |
| | Total |
|
Quarter ended September 30, | | | | | | | | | | | | |
Quarter ended March 31, | | | | | | | | | | | | |
Purchases | $ | 449 |
| | — |
| | 449 |
| | 1,902 |
| | — |
| | 1,902 |
| $ | 329 |
| | 3 |
| | 332 |
| | 256 |
| | — |
| | 256 |
|
Sales | (310 | ) | | (145 | ) | | (455 | ) | | (324 | ) | | (306 | ) | | (630 | ) | (421 | ) | | (179 | ) | | (600 | ) | | (460 | ) | | — |
| | (460 | ) |
Transfers to MHFS/LHFS | 374 |
| | — |
| | 374 |
| | (44 | ) | | (1 | ) | | (45 | ) | |
Nine months ended September 30, | | | | | | | | | | | | |
Purchases | $ | 2,418 |
| | 2 |
| | 2,420 |
| | 29,155 |
| | — |
| | 29,155 |
| |
Sales | (1,649 | ) | | (291 | ) | | (1,940 | ) | | (932 | ) | | (985 | ) | | (1,917 | ) | |
Transfers to MHFS/LHFS | (284 | ) | | (1 | ) | | (285 | ) | | (145 | ) | | (5 | ) | | (150 | ) | |
Transfers (to) from MLHFS/LHFS | | (3 | ) | | — |
| | (3 | ) | | (420 | ) | | (1,553 | ) | | (1,973 | ) |
| |
(1) | 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. TheseThe unfunded amount of these temporary advance arrangements totaled approximately $84 billion and $77$91.0 billion at September 30, 2017both March 31, 2019 and December 31, 2016, respectively.2018.
We issue commercial letters of credit to assist customers in purchasing goods or services, typically for international trade. At September 30, 2017,March 31, 2019, and December 31, 2016,2018, we had $1.2 billion and $1.1 billion,$919 million, respectively, 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 1013 (Guarantees, Pledged Assets and Collateral)Collateral, and Other Commitments) 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 5.4.6.4. The table excludes the issued standby and commercial letters of credit and temporary advance arrangements described above.
Table 5.4:6.4: Unfunded Credit Commitments
| | (in millions) | Sep 30, 2017 |
| | Dec 31, 2016 |
| Mar 31, 2019 |
| | Dec 31, 2018 |
|
Commercial: | | | | | | |
Commercial and industrial | $ | 321,797 |
| | 319,662 |
| $ | 328,156 |
| | 330,492 |
|
Real estate mortgage | 7,686 |
| | 7,833 |
| 7,453 |
| | 6,984 |
|
Real estate construction | 16,025 |
| | 18,840 |
| 15,748 |
| | 16,400 |
|
Lease financing | — |
| | 16 |
| |
Total commercial | 345,508 |
| | 346,351 |
| 351,357 |
| | 353,876 |
|
Consumer: | | | | | | |
Real estate 1-4 family first mortgage | 33,985 |
| | 33,498 |
| 39,915 |
| | 29,736 |
|
Real estate 1-4 family junior lien mortgage | 39,437 |
| | 41,431 |
| 37,854 |
| | 37,719 |
|
Credit card | 108,240 |
| | 101,895 |
| 112,238 |
| | 109,840 |
|
Other revolving credit and installment | 27,796 |
| | 28,349 |
| 27,123 |
| | 27,530 |
|
Total consumer | 209,458 |
| | 205,173 |
| 217,130 |
| | 204,825 |
|
Total unfunded credit commitments | $ | 554,966 |
| | 551,524 |
| $ | 568,487 |
| | 558,701 |
|
Note 5: Loans and Allowance for Credit Losses (continued)
Allowance for Credit Losses
During third quarter 2017, Hurricanes Harvey, Irma and Maria caused considerable damage in several geographic markets where the Company has significant lending exposure. The impact was in both our commercial and consumer lending portfolios. Based on our analysis to date of the level of insurance coverage, types of loans, location, and potential damage to collateral, we believe the ultimate collectability of these loans will be impacted. Our allowance for credit losses at September 30, 2017, included $450 million for coverage of our preliminary estimate of potential hurricane-related losses. We will continue to assess the
impact to our customers and our business as a result of the hurricanes and refine our estimates as more information becomes available. However, in light of the ongoing recovery challenges in Puerto Rico after Hurricane Maria, it may take longer to assess the hurricane’s impact on our portfolios there. We are still evaluating the impact on our portfolio from the California wildfires that occurred in October 2017.
Table 5.56.5 presents the allowance for credit losses, which consists of the allowance for loan losses and the allowance for unfunded credit commitments.
Table 5.5:6.5: Allowance for Credit Losses
| | | Quarter ended September 30, | | | Nine months ended September 30, | | | Quarter ended March 31, | |
(in millions) | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
| | 2019 |
| | 2018 |
|
Balance, beginning of period | $ | 12,146 |
| | 12,749 |
| | 12,540 |
| | 12,512 |
| | $ | 10,707 |
| | 11,960 |
|
Provision for credit losses | 717 |
| | 805 |
| | 1,877 |
| | 2,965 |
| | 845 |
| | 191 |
|
Interest income on certain impaired loans (1) | (43 | ) | | (54 | ) | | (137 | ) | | (153 | ) | | (39 | ) | | (43 | ) |
Loan charge-offs: | | | | | | | | | | | |
Commercial: | | | | | | | | | | | |
Commercial and industrial | (194 | ) | | (324 | ) | | (608 | ) | | (1,110 | ) | | (176 | ) | | (164 | ) |
Real estate mortgage | (21 | ) | | (7 | ) | | (34 | ) | | (13 | ) | | (12 | ) | | (2 | ) |
Real estate construction | — |
| | — |
| | — |
| | (1 | ) | | (1 | ) | | — |
|
Lease financing | (11 | ) | | (4 | ) | | (31 | ) | | (25 | ) | | (11 | ) | | (17 | ) |
Total commercial | (226 | ) | | (335 | ) | | (673 | ) | | (1,149 | ) | | (200 | ) | | (183 | ) |
Consumer: | | | | | | | | | | | |
Real estate 1-4 family first mortgage | (67 | ) | | (106 | ) | | (191 | ) | | (366 | ) | | (43 | ) | | (41 | ) |
Real estate 1-4 family junior lien mortgage | (70 | ) | | (119 | ) | | (225 | ) | | (385 | ) | | (34 | ) | | (47 | ) |
Credit card | (337 | ) | | (296 | ) | | (1,083 | ) | | (930 | ) | | (437 | ) | | (405 | ) |
Automobile | (274 | ) | | (215 | ) | | (741 | ) | | (602 | ) | | (187 | ) | | (300 | ) |
Other revolving credit and installment | (170 | ) | | (170 | ) | | (544 | ) | | (508 | ) | | (162 | ) | | (180 | ) |
Total consumer (2) | (918 | ) | | (906 | ) | | (2,784 | ) | | (2,791 | ) | | (863 | ) | | (973 | ) |
Total loan charge-offs | (1,144 | ) | | (1,241 | ) | | (3,457 | ) | | (3,940 | ) | | (1,063 | ) | | (1,156 | ) |
Loan recoveries: | | | | | | | | | | | |
Commercial: | | | | | | | | | | | |
Commercial and industrial | 69 |
| | 65 |
| | 234 |
| | 210 |
| | 43 |
| | 79 |
|
Real estate mortgage | 24 |
| | 35 |
| | 68 |
| | 90 |
| | 6 |
| | 17 |
|
Real estate construction | 15 |
| | 18 |
| | 27 |
| | 30 |
| | 3 |
| | 4 |
|
Lease financing | 5 |
| | 2 |
| | 13 |
| | 10 |
| | 3 |
| | 5 |
|
Total commercial | 113 |
| | 120 |
| | 342 |
| | 340 |
| | 55 |
| | 105 |
|
Consumer: | | | | | | | | | | | |
Real estate 1-4 family first mortgage | 83 |
| | 86 |
| | 216 |
| | 284 |
| | 55 |
| | 59 |
|
Real estate 1-4 family junior lien mortgage | 69 |
| | 70 |
| | 205 |
| | 200 |
| | 43 |
| | 55 |
|
Credit card | 60 |
| | 51 |
| | 177 |
| | 153 |
| | 85 |
| | 73 |
|
Automobile | 72 |
| | 78 |
| | 246 |
| | 248 |
| | 96 |
| | 92 |
|
Other revolving credit and installment | 30 |
| | 31 |
| | 94 |
| | 100 |
| | 34 |
| | 31 |
|
Total consumer | 314 |
| | 316 |
| | 938 |
| | 985 |
| | 313 |
| | 310 |
|
Total loan recoveries | 427 |
| | 436 |
| | 1,280 |
| | 1,325 |
| | 368 |
| | 415 |
|
Net loan charge-offs | (717 | ) | | (805 | ) | | (2,177 | ) | | (2,615 | ) | | (695 | ) | | (741 | ) |
Other | 6 |
| | (1 | ) | | 6 |
| | (15 | ) | | 3 |
| | (54 | ) |
Balance, end of period | $ | 12,109 |
| | 12,694 |
| | 12,109 |
| | 12,694 |
| | $ | 10,821 |
| | 11,313 |
|
Components: | | | | | | | | | | | |
Allowance for loan losses | $ | 11,078 |
| | 11,583 |
| | 11,078 |
| | 11,583 |
| | $ | 9,900 |
| | 10,373 |
|
Allowance for unfunded credit commitments | 1,031 |
| | 1,111 |
| | 1,031 |
| | 1,111 |
| | 921 |
| | 940 |
|
Allowance for credit losses | $ | 12,109 |
| | 12,694 |
| | 12,109 |
| | 12,694 |
| | $ | 10,821 |
| | 11,313 |
|
Net loan charge-offs (annualized) as a percentage of average total loans | 0.30 | % | | 0.33 |
| | 0.30 |
| | 0.37 |
| | 0.30 | % | | 0.32 |
|
Allowance for loan losses as a percentage of total loans | 1.16 |
| | 1.20 |
| | 1.16 |
| | 1.20 |
| | 1.04 |
| | 1.10 |
|
Allowance for credit losses as a percentage of total loans | 1.27 |
| | 1.32 |
| | 1.27 |
| | 1.32 |
| | 1.14 |
| | 1.19 |
|
| |
(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. |
| |
(2) | Quarter and nine months ended September 30, 2017, include an incremental $29 million of charge-offs in accordance with updated industry regulatory guidance regarding the timing of loss recognition for real estate 1-4 family mortgage and automobile loans in bankruptcy.
Note 6: Loans and Allowance for Credit Losses (continued) |
Table 5.66.6 summarizes the activity in the allowance for credit losses by our commercial and consumer portfolio segments.
Table 5.6:6.6: Allowance Activity by Portfolio Segment
| | | |
| | |
| | 2017 |
| | |
| | |
| | 2016 |
| | | | | 2019 |
| | | | | | 2018 |
|
(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 | $ | 6,961 |
| | 5,185 |
| | 12,146 |
| | 7,441 |
| | 5,308 |
| | 12,749 |
| $ | 6,417 |
| | 4,290 |
| | 10,707 |
| | 6,632 |
| | 5,328 |
| | 11,960 |
|
Provision (reversal of provision) for credit losses | (9 | ) | | 726 |
| | 717 |
| | 158 |
| | 647 |
| | 805 |
| |
Provision for credit losses | | 164 |
| | 681 |
| | 845 |
| | 169 |
| | 22 |
| | 191 |
|
Interest income on certain impaired loans | (13 | ) | | (30 | ) | | (43 | ) | | (14 | ) | | (40 | ) | | (54 | ) | (11 | ) | | (28 | ) | | (39 | ) | | (11 | ) | | (32 | ) | | (43 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
Loan charge-offs | (226 | ) | | (918 | ) | | (1,144 | ) | | (335 | ) | | (906 | ) | | (1,241 | ) | (200 | ) | | (863 | ) | | (1,063 | ) | | (183 | ) | | (973 | ) | | (1,156 | ) |
Loan recoveries | 113 |
| | 314 |
| | 427 |
| | 120 |
| | 316 |
| | 436 |
| 55 |
| | 313 |
| | 368 |
| | 105 |
| | 310 |
| | 415 |
|
Net loan charge-offs | (113 | ) | | (604 | ) | | (717 | ) | | (215 | ) | | (590 | ) | | (805 | ) | (145 | ) | | (550 | ) | | (695 | ) | | (78 | ) | | (663 | ) | | (741 | ) |
Other | 6 |
| | — |
| | 6 |
| | (1 | ) | | — |
| | (1 | ) | 3 |
| | — |
| | 3 |
| | (4 | ) | | (50 | ) | | (54 | ) |
Balance, end of period | $ | 6,832 |
| | 5,277 |
| | 12,109 |
| | 7,369 |
| | 5,325 |
| | 12,694 |
| $ | 6,428 |
| | 4,393 |
| | 10,821 |
| | 6,708 |
| | 4,605 |
| | 11,313 |
|
| | | | | | | | | | | | |
Nine months ended September 30, | | | | | | | | | | | | |
Balance, beginning of period | $ | 7,394 |
| | 5,146 |
| | 12,540 |
| | 6,872 |
| | 5,640 |
| | 12,512 |
| |
Provision (reversal of provision) for credit losses | (195 | ) | | 2,072 |
| | 1,877 |
| | 1,350 |
| | 1,615 |
| | 2,965 |
| |
Interest income on certain impaired loans | (42 | ) | | (95 | ) | | (137 | ) | | (29 | ) | | (124 | ) | | (153 | ) | |
| | | | | | | | | | | | |
Loan charge-offs | (673 | ) | | (2,784 | ) | | (3,457 | ) | | (1,149 | ) | | (2,791 | ) | | (3,940 | ) | |
Loan recoveries | 342 |
| | 938 |
| | 1,280 |
| | 340 |
| | 985 |
| | 1,325 |
| |
Net loan charge-offs | (331 | ) | | (1,846 | ) | | (2,177 | ) | | (809 | ) | | (1,806 | ) | | (2,615 | ) | |
Other | 6 |
| | — |
| | 6 |
| | (15 | ) | | — |
| | (15 | ) | |
Balance, end of period | $ | 6,832 |
| | 5,277 |
| | 12,109 |
| | 7,369 |
| | 5,325 |
| | 12,694 |
| |
Table 5.76.7 disaggregates our allowance for credit losses and recorded investment in loans by impairment methodology.
Table 5.7:6.7: 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, 2017 | | | | | | | | | | | | |
March 31, 2019 | | | | | | | | | | | | |
Collectively evaluated (1) | $ | 6,032 |
| | 4,094 |
| | 10,126 |
| | 495,395 |
| | 423,102 |
| | 918,497 |
| $ | 5,863 |
| | 3,448 |
| | 9,311 |
| | 508,379 |
| | 420,010 |
| | 928,389 |
|
Individually evaluated (2) | 786 |
| | 1,183 |
| | 1,969 |
| | 4,521 |
| | 15,291 |
| | 19,812 |
| 565 |
| | 945 |
| | 1,510 |
| | 3,847 |
| | 12,813 |
| | 16,660 |
|
PCI (3) | 14 |
| | — |
| | 14 |
| | 234 |
| | 13,330 |
| | 13,564 |
| — |
| | — |
| | — |
| | — |
| | 3,200 |
| | 3,200 |
|
Total | $ | 6,832 |
| | 5,277 |
| | 12,109 |
| | 500,150 |
| | 451,723 |
| | 951,873 |
| $ | 6,428 |
| | 4,393 |
| | 10,821 |
| | 512,226 |
| | 436,023 |
| | 948,249 |
|
December 31, 2016 | | |
December 31, 2018 | | |
Collectively evaluated (1) | $ | 6,392 |
| | 3,553 |
| | 9,945 |
| | 500,487 |
| | 428,009 |
| | 928,496 |
| $ | 5,903 |
| | 3,361 |
| | 9,264 |
| | 510,180 |
| | 421,574 |
| | 931,754 |
|
Individually evaluated (2) | 1,000 |
| | 1,593 |
| | 2,593 |
| | 5,372 |
| | 17,005 |
| | 22,377 |
| 514 |
| | 929 |
| | 1,443 |
| | 3,221 |
| | 13,126 |
| | 16,347 |
|
PCI (3) | 2 |
| | — |
| | 2 |
| | 677 |
| | 16,054 |
| | 16,731 |
| — |
| | — |
| | — |
| | 4 |
| | 5,005 |
| | 5,009 |
|
Total | $ | 7,394 |
| | 5,146 |
| | 12,540 |
| | 506,536 |
| | 461,068 |
| | 967,604 |
| $ | 6,417 |
| | 4,290 |
| | 10,707 |
| | 513,405 |
| | 439,705 |
| | 953,110 |
|
| |
(1) | Represents loans collectively evaluated for impairment in accordance with Accounting Standards Codification (ASC) 450-20, Loss Contingencies (formerly FASStatement of Financial Accounting Standards (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 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, 2017. See the “Purchased Credit-Impaired Loans” section in this Note for credit quality information on our PCI portfolio.
Note 5: Loans and Allowance for Credit Losses (continued)
December 31, 2018.
COMMERCIAL CREDIT QUALITY INDICATORS In addition to monitoring commercial loan concentration risk, we manage a consistent process for assessing commercial loan credit quality. Generally, commercial loans are subject to individual risk assessment using our internal borrower and collateral quality ratings. Our ratings are aligned to Pass and Criticized categories. The Criticized category includes Special Mention, Substandard, and Doubtful categories which are defined by bank regulatory agencies.
Table 5.86.8 provides a breakdown of outstanding commercial loans by risk category. Of the $18.7$15.6 billion in criticized commercial and industrial loans and $5.1$5.0 billion in criticized commercial real estate (CRE) loans at September 30, 2017, $2.4March 31, 2019, $2.0 billion and $631$735 million, respectively, have been placed on nonaccrual status and written down to net realizable collateral value.
Table 5.8:6.8: 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, 2017 | | | | | | | | | | |
March 31, 2019 | | | | | | | | | | |
By risk category: | | | | | | | | | | | | | | | | | | |
Pass | $ | 309,149 |
| | 123,547 |
| | 24,189 |
| | 18,004 |
| | 474,889 |
| $ | 333,502 |
| | 117,353 |
| | 21,612 |
| | 18,138 |
| | 490,605 |
|
Criticized | 18,679 |
| | 4,820 |
| | 321 |
| | 1,207 |
| | 25,027 |
| 15,632 |
| | 4,760 |
| | 245 |
| | 984 |
| | 21,621 |
|
Total commercial loans (excluding PCI) | 327,828 |
| | 128,367 |
| | 24,510 |
| | 19,211 |
| | 499,916 |
| 349,134 |
| | 122,113 |
| | 21,857 |
| | 19,122 |
| | 512,226 |
|
Total commercial PCI loans (carrying value) | 116 |
| | 108 |
| | 10 |
| | — |
| | 234 |
| — |
| | — |
| | — |
| | — |
| | — |
|
Total commercial loans | $ | 327,944 |
| | 128,475 |
| | 24,520 |
| | 19,211 |
| | 500,150 |
| $ | 349,134 |
| | 122,113 |
| | 21,857 |
| | 19,122 |
| | 512,226 |
|
December 31, 2016 | | | | | | | | | | |
December 31, 2018 | | | | | | | | | | |
By risk category: | | | | | | | | | | | | | | | | | | |
Pass | $ | 308,166 |
| | 126,793 |
| | 23,408 |
| | 17,899 |
| | 476,266 |
| $ | 335,412 |
| | 116,514 |
| | 22,207 |
| | 18,671 |
| | 492,804 |
|
Criticized | 22,437 |
| | 5,315 |
| | 451 |
| | 1,390 |
| | 29,593 |
| 14,783 |
| | 4,500 |
| | 289 |
| | 1,025 |
| | 20,597 |
|
Total commercial loans (excluding PCI) | 330,603 |
| | 132,108 |
| | 23,859 |
| | 19,289 |
| | 505,859 |
| 350,195 |
| | 121,014 |
| | 22,496 |
| | 19,696 |
| | 513,401 |
|
Total commercial PCI loans (carrying value) | 237 |
| | 383 |
| | 57 |
| | — |
| | 677 |
| 4 |
| | — |
| | — |
| | — |
| | 4 |
|
Total commercial loans | $ | 330,840 |
| | 132,491 |
| | 23,916 |
| | 19,289 |
| | 506,536 |
| $ | 350,199 |
| | 121,014 |
| | 22,496 |
| | 19,696 |
| | 513,405 |
|
Table 5.96.9 provides past due information for commercial loans, which we monitor as part of our credit risk management practices.
Table 5.9:6.9: 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, 2017 | | | | | | | | | | |
March 31, 2019 | | | | | | | | | | |
By delinquency status: | | | | | | | | | | | | | | | | | | |
Current-29 days past due (DPD) and still accruing | $ | 324,706 |
| | 127,438 |
| | 24,378 |
| | 18,993 |
| | 495,515 |
| $ | 346,696 |
| | 121,196 |
| | 21,591 |
| | 18,871 |
| | 508,354 |
|
30-89 DPD and still accruing | 698 |
| | 325 |
| | 94 |
| | 137 |
| | 1,254 |
| 410 |
| | 198 |
| | 225 |
| | 175 |
| | 1,008 |
|
90+ DPD and still accruing | 27 |
| | 11 |
| | — |
| | — |
| | 38 |
| 42 |
| | 20 |
| | 5 |
| | — |
| | 67 |
|
Nonaccrual loans | 2,397 |
| | 593 |
| | 38 |
| | 81 |
| | 3,109 |
| 1,986 |
| | 699 |
| | 36 |
| | 76 |
| | 2,797 |
|
Total commercial loans (excluding PCI) | 327,828 |
| | 128,367 |
| | 24,510 |
| | 19,211 |
| | 499,916 |
| 349,134 |
| | 122,113 |
| | 21,857 |
| | 19,122 |
| | 512,226 |
|
Total commercial PCI loans (carrying value) | 116 |
| | 108 |
| | 10 |
| | — |
| | 234 |
| — |
| | — |
| | — |
| | — |
| | — |
|
Total commercial loans | $ | 327,944 |
| | 128,475 |
| | 24,520 |
| | 19,211 |
| | 500,150 |
| $ | 349,134 |
| | 122,113 |
| | 21,857 |
| | 19,122 |
| | 512,226 |
|
December 31, 2016 | | | | | | | | | | |
December 31, 2018 | | | | | | | | | | |
By delinquency status: | | | | | | | | | | | | | | | | | | |
Current-29 DPD and still accruing | $ | 326,765 |
| | 131,165 |
| | 23,776 |
| | 19,042 |
| | 500,748 |
| $ | 348,158 |
| | 120,176 |
| | 22,411 |
| | 19,443 |
| | 510,188 |
|
30-89 DPD and still accruing | 594 |
| | 222 |
| | 40 |
| | 132 |
| | 988 |
| 508 |
| | 207 |
| | 53 |
| | 163 |
| | 931 |
|
90+ DPD and still accruing | 28 |
| | 36 |
| | — |
| | — |
| | 64 |
| 43 |
| | 51 |
| | — |
| | — |
| | 94 |
|
Nonaccrual loans | 3,216 |
| | 685 |
| | 43 |
| | 115 |
| | 4,059 |
| 1,486 |
| | 580 |
| | 32 |
| | 90 |
| | 2,188 |
|
Total commercial loans (excluding PCI) | 330,603 |
| | 132,108 |
| | 23,859 |
| | 19,289 |
| | 505,859 |
| 350,195 |
| | 121,014 |
| | 22,496 |
| | 19,696 |
| | 513,401 |
|
Total commercial PCI loans (carrying value) | 237 |
| | 383 |
| | 57 |
| | — |
| | 677 |
| 4 |
| | — |
| | — |
| | — |
| | 4 |
|
Total commercial loans | $ | 330,840 |
| | 132,491 |
| | 23,916 |
| | 19,289 |
| | 506,536 |
| $ | 350,199 |
| | 121,014 |
| | 22,496 |
| | 19,696 |
| | 513,405 |
|
Note 6: 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 5.106.10 provides the outstanding balances of our consumer portfolio by delinquency status.
Table 5.10:6.10: 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, 2017 | | | | | | | | | | | | |
March 31, 2019 | | | | | | | | | | | | |
By delinquency status: | | | | | | | | | | | | | | | | | | | | | | |
Current-29 DPD | $ | 248,896 |
| | 40,242 |
| | 35,297 |
| | 53,684 |
| | 38,316 |
| | 416,435 |
| $ | 266,098 |
| | 32,373 |
| | 37,334 |
| | 43,836 |
| | 34,869 |
| | 414,510 |
|
30-59 DPD | 1,895 |
| | 308 |
| | 282 |
| | 1,287 |
| | 146 |
| | 3,918 |
| 1,441 |
| | 243 |
| | 251 |
| | 777 |
| | 127 |
| | 2,839 |
|
60-89 DPD | 687 |
| | 147 |
| | 195 |
| | 349 |
| | 102 |
| | 1,480 |
| 494 |
| | 118 |
| | 193 |
| | 222 |
| | 78 |
| | 1,105 |
|
90-119 DPD | 339 |
| | 86 |
| | 168 |
| | 127 |
| | 79 |
| | 799 |
| 231 |
| | 70 |
| | 174 |
| | 74 |
| | 74 |
| | 623 |
|
120-179 DPD | 263 |
| | 94 |
| | 288 |
| | 7 |
| | 26 |
| | 678 |
| 223 |
| | 78 |
| | 327 |
| | 4 |
| | 24 |
| | 656 |
|
180+ DPD | 1,186 |
| | 246 |
| | 19 |
| | 1 |
| | 25 |
| | 1,477 |
| 683 |
| | 201 |
| | — |
| | — |
| | 15 |
| | 899 |
|
Government insured/guaranteed loans (1) | 13,606 |
| | — |
| | — |
| | — |
| | — |
| | 13,606 |
| 11,966 |
| | — |
| | — |
| | — |
| | — |
| | 11,966 |
|
Loans held at fair value | | 225 |
| | — |
| | — |
| | — |
| | — |
| | 225 |
|
Total consumer loans (excluding PCI) | 266,872 |
| | 41,123 |
| | 36,249 |
| | 55,455 |
| | 38,694 |
| | 438,393 |
| 281,361 |
| | 33,083 |
| | 38,279 |
| | 44,913 |
| | 35,187 |
| | 432,823 |
|
Total consumer PCI loans (carrying value) | 13,301 |
| | 29 |
| | — |
| | — |
| | — |
| | 13,330 |
| |
Total consumer PCI loans (carrying value) (2) | | 3,184 |
| | 16 |
| | — |
| | — |
| | — |
| | 3,200 |
|
Total consumer loans | $ | 280,173 |
| | 41,152 |
| | 36,249 |
| | 55,455 |
| | 38,694 |
| | 451,723 |
| $ | 284,545 |
| | 33,099 |
| | 38,279 |
| | 44,913 |
| | 35,187 |
| | 436,023 |
|
December 31, 2016 | | | | | | | | | | | | |
December 31, 2018 | | | | | | | | | | | | |
By delinquency status: | | | | | | | | | | | | | | | | | | | | | | |
Current-29 DPD | $ | 239,061 |
| | 45,238 |
| | 35,773 |
| | 60,572 |
| | 39,833 |
| | 420,477 |
| $ | 263,881 |
| | 33,644 |
| | 38,008 |
| | 43,604 |
| | 35,794 |
| | 414,931 |
|
30-59 DPD | 1,904 |
| | 296 |
| | 275 |
| | 1,262 |
| | 177 |
| | 3,914 |
| 1,411 |
| | 247 |
| | 292 |
| | 1,040 |
| | 140 |
| | 3,130 |
|
60-89 DPD | 700 |
| | 160 |
| | 200 |
| | 330 |
| | 111 |
| | 1,501 |
| 549 |
| | 126 |
| | 212 |
| | 314 |
| | 87 |
| | 1,288 |
|
90-119 DPD | 307 |
| | 102 |
| | 169 |
| | 116 |
| | 93 |
| | 787 |
| 257 |
| | 74 |
| | 192 |
| | 109 |
| | 80 |
| | 712 |
|
120-179 DPD | 323 |
| | 108 |
| | 279 |
| | 5 |
| | 30 |
| | 745 |
| 225 |
| | 77 |
| | 320 |
| | 2 |
| | 27 |
| | 651 |
|
180+ DPD | 1,661 |
| | 297 |
| | 4 |
| | 1 |
| | 22 |
| | 1,985 |
| 822 |
| | 213 |
| | 1 |
| | — |
| | 20 |
| | 1,056 |
|
Government insured/guaranteed loans (1) | 15,605 |
| | — |
| | — |
| | — |
| | — |
| | 15,605 |
| 12,688 |
| | — |
| | — |
| | — |
| | — |
| | 12,688 |
|
Loans held at fair value | | 244 |
| | — |
| | — |
| | — |
| | — |
| | 244 |
|
Total consumer loans (excluding PCI) | 259,561 |
| | 46,201 |
| | 36,700 |
| | 62,286 |
| | 40,266 |
| | 445,014 |
| 280,077 |
| | 34,381 |
| | 39,025 |
| | 45,069 |
| | 36,148 |
| | 434,700 |
|
Total consumer PCI loans (carrying value) | 16,018 |
| | 36 |
| | — |
| | — |
| | — |
| | 16,054 |
| |
Total consumer PCI loans (carrying value) (2) | | 4,988 |
| | 17 |
| | — |
| | — |
| | — |
| | 5,005 |
|
Total consumer loans | $ | 275,579 |
| | 46,237 |
| | 36,700 |
| | 62,286 |
| | 40,266 |
| | 461,068 |
| $ | 285,065 |
| | 34,398 |
| | 39,025 |
| | 45,069 |
| | 36,148 |
| | 439,705 |
|
| |
(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 $8.8$7.0 billion at September 30, 2017,March 31, 2019, compared with $10.1$7.7 billion at December 31, 2016. 2018. |
| |
(2) | 19% of the adjusted unpaid principal balance for consumer PCI loans are 30+ DPD at March 31, 2019, compared with 18% at December 31, 2018. |
Of the $3.0$2.2 billion of consumer loans not government insured/guaranteed that are 90 days or more past due at September 30, 2017, $923March 31, 2019, $807 million was accruing, compared with $3.5$2.4 billion past due and $908$885 million accruing at December 31, 2016.2018.
Real estate 1-4 family first mortgage loans 180 days or more past due totaled $1.2 billion,$683 million, or 0.4%0.2% of total first mortgages (excluding PCI), at September 30, 2017,March 31, 2019, compared with $1.7 billion,$822 million, or 0.6%0.3%, at December 31, 2016.2018.
Note 5: Loans and Allowance for Credit Losses (continued)
Table 5.116.11 provides a breakdown of our consumer portfolio by FICO. The September 30, 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, or may not be required if we deem it unnecessary due to strong collateral
and other borrower attributes. Substantially all loans not requiring a FICO score are securities-based loans originated through retail brokerage, and totaled $8.1$8.7 billion at September 30, 2017,March 31, 2019, and $8.0$8.9 billion at December 31, 2016.2018.
Table 5.11:6.11: Consumer Loans by FICO
| | (in millions) | 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 |
| 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, 2017 | | | | | | | | | | | | |
March 31, 2019 | | | | | | | | | | | | |
By FICO: | | | | | | | | | | | | | | | | | | | | | | |
< 600 | $ | 5,416 |
| | 1,842 |
| | 3,436 |
| | 9,245 |
| | 871 |
| | 20,810 |
| $ | 4,106 |
| | 1,410 |
| | 3,150 |
| | 6,907 |
| | 685 |
| | 16,258 |
|
600-639 | 3,630 |
| | 1,313 |
| | 2,970 |
| | 5,961 |
| | 919 |
| | 14,793 |
| 2,843 |
| | 979 |
| | 2,615 |
| | 4,412 |
| | 690 |
| | 11,539 |
|
640-679 | 7,123 |
| | 2,512 |
| | 5,468 |
| | 8,146 |
| | 1,994 |
| | 25,243 |
| 5,813 |
| | 1,829 |
| | 6,173 |
| | 6,209 |
| | 1,752 |
| | 21,776 |
|
680-719 | 15,039 |
| | 5,001 |
| | 7,300 |
| | 9,189 |
| | 3,696 |
| | 40,225 |
| 13,406 |
| | 3,775 |
| | 9,206 |
| | 7,279 |
| | 3,265 |
| | 36,931 |
|
720-759 | 28,453 |
| | 6,506 |
| | 7,721 |
| | 8,018 |
| | 5,203 |
| | 55,901 |
| 26,943 |
| | 5,130 |
| | 7,769 |
| | 6,795 |
| | 4,235 |
| | 50,872 |
|
760-799 | 54,885 |
| | 7,561 |
| | 6,108 |
| | 6,612 |
| | 6,493 |
| | 81,659 |
| 56,626 |
| | 5,967 |
| | 5,082 |
| | 5,958 |
| | 5,261 |
| | 78,894 |
|
800+ | 133,164 |
| | 15,574 |
| | 2,880 |
| | 7,987 |
| | 8,620 |
| | 168,225 |
| 154,956 |
| | 12,724 |
| | 3,759 |
| | 7,239 |
| | 8,242 |
| | 186,920 |
|
No FICO available | 5,556 |
| | 814 |
| | 366 |
| | 297 |
| | 2,761 |
| | 9,794 |
| 4,477 |
| | 1,269 |
| | 525 |
| | 114 |
| | 2,371 |
| | 8,756 |
|
FICO not required | — |
| | — |
| | — |
| | — |
| | 8,137 |
| | 8,137 |
| — |
| | — |
| | — |
| | — |
| | 8,686 |
| | 8,686 |
|
Government insured/guaranteed loans (2)(1) | 13,606 |
| | — |
| | — |
| | — |
| | — |
| | 13,606 |
| 12,191 |
| | — |
| | — |
| | — |
| | — |
| | 12,191 |
|
Total consumer loans (excluding PCI) | 266,872 |
| | 41,123 |
| | 36,249 |
| | 55,455 |
| | 38,694 |
| | 438,393 |
| 281,361 |
| | 33,083 |
| | 38,279 |
| | 44,913 |
| | 35,187 |
| | 432,823 |
|
Total consumer PCI loans (carrying value)(2) | 13,301 |
| | 29 |
| | — |
| | — |
| | — |
| | 13,330 |
| 3,184 |
| | 16 |
| | — |
| | — |
| | — |
| | 3,200 |
|
Total consumer loans | $ | 280,173 |
| | 41,152 |
| | 36,249 |
| | 55,455 |
| | 38,694 |
| | 451,723 |
| $ | 284,545 |
| | 33,099 |
| | 38,279 |
| | 44,913 |
| | 35,187 |
| | 436,023 |
|
December 31, 2016 | | | | | | | | | | |
|
| |
December 31, 2018 | | | | | | | | | | | |
|
|
By FICO: | | | | | | | | | | |
| | | | | | | | | | |
|
< 600 | $ | 6,720 |
| | 2,591 |
| | 3,475 |
| | 9,934 |
| | 976 |
| | 23,696 |
| $ | 4,273 |
| | 1,454 |
| | 3,292 |
| | 7,071 |
| | 697 |
| | 16,787 |
|
600-639 | 5,400 |
| | 1,917 |
| | 3,109 |
| | 6,705 |
| | 1,056 |
| | 18,187 |
| 2,974 |
| | 994 |
| | 2,777 |
| | 4,431 |
| | 725 |
| | 11,901 |
|
640-679 | 10,975 |
| | 3,747 |
| | 5,678 |
| | 10,204 |
| | 2,333 |
| | 32,937 |
| 5,810 |
| | 1,898 |
| | 6,464 |
| | 6,225 |
| | 1,822 |
| | 22,219 |
|
680-719 | 23,300 |
| | 6,432 |
| | 7,382 |
| | 11,233 |
| | 4,302 |
| | 52,649 |
| 13,568 |
| | 3,908 |
| | 9,445 |
| | 7,354 |
| | 3,384 |
| | 37,659 |
|
720-759 | 38,832 |
| | 9,413 |
| | 7,632 |
| | 8,769 |
| | 5,869 |
| | 70,515 |
| 27,258 |
| | 5,323 |
| | 7,949 |
| | 6,853 |
| | 4,395 |
| | 51,778 |
|
760-799 | 103,608 |
| | 14,929 |
| | 6,191 |
| | 8,164 |
| | 8,348 |
| | 141,240 |
| 57,193 |
| | 6,315 |
| | 5,227 |
| | 5,947 |
| | 5,322 |
| | 80,004 |
|
800+ | 49,508 |
| | 6,391 |
| | 2,868 |
| | 6,856 |
| | 6,434 |
| | 72,057 |
| 151,465 |
| | 13,190 |
| | 3,794 |
| | 7,099 |
| | 8,411 |
| | 183,959 |
|
No FICO available | 5,613 |
| | 781 |
| | 365 |
| | 421 |
| | 2,906 |
| | 10,086 |
| 4,604 |
| | 1,299 |
| | 77 |
| | 89 |
| | 2,507 |
| | 8,576 |
|
FICO not required | — |
| | — |
| | — |
| | — |
| | 8,042 |
| | 8,042 |
| — |
| | — |
| | — |
| | — |
| | 8,885 |
| | 8,885 |
|
Government insured/guaranteed loans (2)(1) | 15,605 |
| | — |
| | — |
| | — |
| | — |
| | 15,605 |
| 12,932 |
| | — |
| | — |
| | — |
| | — |
| | 12,932 |
|
Total consumer loans (excluding PCI) | 259,561 |
| | 46,201 |
| | 36,700 |
| | 62,286 |
| | 40,266 |
| | 445,014 |
| 280,077 |
| | 34,381 |
| | 39,025 |
| | 45,069 |
| | 36,148 |
| | 434,700 |
|
Total consumer PCI loans (carrying value)(2) | 16,018 |
| | 36 |
| | — |
| | — |
| | — |
| | 16,054 |
| 4,988 |
| | 17 |
| | — |
| | — |
| | — |
| | 5,005 |
|
Total consumer loans | $ | 275,579 |
| | 46,237 |
| | 36,700 |
| | 62,286 |
| | 40,266 |
| | 461,068 |
| $ | 285,065 |
| | 34,398 |
| | 39,025 |
| | 45,069 |
| | 36,148 |
| | 439,705 |
|
| |
(1) | The September 30, 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. |
| |
(2) | 43% of the adjusted unpaid principal balance for consumer PCI loans have FICO scores less than 680 and 13% where no FICO is available to us at March 31, 2019, compared with 45% and 15%, respectively, at December 31, 2018. |
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 5.126.12 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 6: Loans and Allowance for Credit Losses (continued)
Table 5.12:6.12: Consumer Loans by LTV/CLTV
| | | September 30, 2017 | | | December 31, 2016 | | March 31, 2019 | | | December 31, 2018 | |
(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% | $ | 130,463 |
| | 16,168 |
| | 146,631 |
| | 121,430 |
| | 16,464 |
| | 137,894 |
| $ | 145,143 |
| | 15,156 |
| | 160,299 |
| | 147,666 |
| | 15,753 |
| | 163,419 |
|
60.01-80% | 104,674 |
| | 13,447 |
| | 118,121 |
| | 101,726 |
| | 15,262 |
| | 116,988 |
| 105,991 |
| | 10,784 |
| | 116,775 |
| | 104,477 |
| | 11,183 |
| | 115,660 |
|
80.01-100% | 14,179 |
| | 7,136 |
| | 21,315 |
| | 15,795 |
| | 8,765 |
| | 24,560 |
| 15,477 |
| | 4,725 |
| | 20,202 |
| | 12,372 |
| | 4,874 |
| | 17,246 |
|
100.01-120% (1) | 2,000 |
| | 2,746 |
| | 4,746 |
| | 2,644 |
| | 3,589 |
| | 6,233 |
| 1,184 |
| | 1,482 |
| | 2,666 |
| | 1,211 |
| | 1,596 |
| | 2,807 |
|
> 120% (1) | 840 |
| | 1,154 |
| | 1,994 |
| | 1,066 |
| | 1,613 |
| | 2,679 |
| 472 |
| | 550 |
| | 1,022 |
| | 484 |
| | 578 |
| | 1,062 |
|
No LTV/CLTV available | 1,110 |
| | 472 |
| | 1,582 |
| | 1,295 |
| | 508 |
| | 1,803 |
| 903 |
| | 386 |
| | 1,289 |
| | 935 |
| | 397 |
| | 1,332 |
|
Government insured/guaranteed loans (2) | 13,606 |
| | — |
| | 13,606 |
| | 15,605 |
| | — |
| | 15,605 |
| 12,191 |
| | — |
| | 12,191 |
| | 12,932 |
| | — |
| | 12,932 |
|
Total consumer loans (excluding PCI) | 266,872 |
| | 41,123 |
| | 307,995 |
| | 259,561 |
| | 46,201 |
| | 305,762 |
| 281,361 |
| | 33,083 |
| | 314,444 |
| | 280,077 |
| | 34,381 |
| | 314,458 |
|
Total consumer PCI loans (carrying value)(3) | 13,301 |
| | 29 |
| | 13,330 |
| | 16,018 |
| | 36 |
| | 16,054 |
| 3,184 |
| | 16 |
| | 3,200 |
| | 4,988 |
| | 17 |
| | 5,005 |
|
Total consumer loans | $ | 280,173 |
| | 41,152 |
| | 321,325 |
| | 275,579 |
| | 46,237 |
| | 321,816 |
| $ | 284,545 |
| | 33,099 |
| | 317,644 |
| | 285,065 |
| | 34,398 |
| | 319,463 |
|
| |
(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. |
| |
(3) | 10% of the adjusted unpaid principal balance for consumer PCI loans have LTV/CLTV amounts greater than 80% at both March 31, 2019 and December 31, 2018. |
NONACCRUAL LOANS Table 5.136.13 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 5.13:6.13: Nonaccrual Loans
| | (in millions) | Sep 30, 2017 |
| | Dec 31, 2016 |
| Mar 31, 2019 |
| | Dec 31, 2018 |
|
Commercial: | | | | | | |
Commercial and industrial | $ | 2,397 |
| | 3,216 |
| $ | 1,986 |
| | 1,486 |
|
Real estate mortgage | 593 |
| | 685 |
| 699 |
| | 580 |
|
Real estate construction | 38 |
| | 43 |
| 36 |
| | 32 |
|
Lease financing | 81 |
| | 115 |
| 76 |
| | 90 |
|
Total commercial | 3,109 |
| | 4,059 |
| 2,797 |
| | 2,188 |
|
Consumer: | | | | | | |
Real estate 1-4 family first mortgage (1) | 4,213 |
| | 4,962 |
| 3,026 |
| | 3,183 |
|
Real estate 1-4 family junior lien mortgage | 1,101 |
| | 1,206 |
| 916 |
| | 945 |
|
Automobile | 137 |
| | 106 |
| 116 |
| | 130 |
|
Other revolving credit and installment | 59 |
| | 51 |
| 50 |
| | 50 |
|
Total consumer (2) | 5,510 |
| | 6,325 |
| 4,108 |
| | 4,308 |
|
Total nonaccrual loans (excluding PCI) | $ | 8,619 |
| | 10,384 |
| $ | 6,905 |
| | 6,496 |
|
| |
(1) | Includes MHFS of $133 million and $149 million at September 30, 2017, and December 31, 2016, respectively.
|
| |
(2) | Includes an incremental $171 million of nonaccrual loans at September 30, 2017, reflecting updated industry regulatory guidance related to loans in bankruptcy.
|
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 $6.7$4.2 billion and $8.1$4.6 billion at September 30, 2017March 31, 2019 and December 31, 2016,2018, respectively, which included $4.1$3.0 billion and $4.8$3.2 billion, respectively, of loans that are government insured/guaranteed. WeUnder the Consumer Financial Protection Bureau guidelines, we do not commence the foreclosure process on consumer real estate loans when a borrower becomesuntil after the loan is 120 days delinquent in accordance with Consumer Finance Protection Bureau Guidelines.delinquent. 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 $1.4 billion$243 million at September 30, 2017,March 31, 2019, and $2.0 billion$370 million at December 31, 2016,2018, are not included in these past due and still accruing loans even when 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 5.146.14 shows non-PCI loans 90 days or more past due and still accruing by class for loans not government insured/guaranteed.
Table 5.14:6.14: Loans 90 Days or More Past Due and Still Accruing (1)
| | (in millions) | Sep 30, 2017 |
| | Dec 31, 2016 |
| Mar 31, 2019 |
| | Dec 31, 2018 |
|
Total (excluding PCI): | $ | 10,227 |
| | 11,858 |
| $ | 7,870 |
| | 8,704 |
|
Less: FHA insured/guaranteed by the VA (1)(2) | 9,266 |
| | 10,883 |
| |
Less: Student loans guaranteed under the Federal Family Education Loan Program (FFELP) (3) | — |
| | 3 |
| |
Less: FHA insured/VA guaranteed (1) | | 6,996 |
| | 7,725 |
|
Total, not government insured/guaranteed | $ | 961 |
| | 972 |
| $ | 874 |
| | 979 |
|
By segment and class, not government insured/guaranteed: | | | | | | |
Commercial: | | | | | | |
Commercial and industrial | $ | 27 |
| | 28 |
| $ | 42 |
| | 43 |
|
Real estate mortgage | 11 |
| | 36 |
| 20 |
| | 51 |
|
Real estate construction | | 5 |
| | — |
|
Total commercial | 38 |
| | 64 |
| 67 |
| | 94 |
|
Consumer: | | | | | | |
Real estate 1-4 family first mortgage (2) | 190 |
| | 175 |
| 117 |
| | 124 |
|
Real estate 1-4 family junior lien mortgage (2) | 49 |
| | 56 |
| 28 |
| | 32 |
|
Credit card | 475 |
| | 452 |
| 502 |
| | 513 |
|
Automobile | 111 |
| | 112 |
| 68 |
| | 114 |
|
Other revolving credit and installment | 98 |
| | 113 |
| 92 |
| | 102 |
|
Total consumer | 923 |
| | 908 |
| 807 |
| | 885 |
|
Total, not government insured/guaranteed | $ | 961 |
| | 972 |
| $ | 874 |
| | 979 |
|
| |
(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 largely 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 6: Loans and Allowance for Credit Losses (continued)
IMPAIRED LOANS Table 5.156.15 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 5.156.15 includes trial modifications that totaled $183$136 million at September 30, 2017,March 31, 2019, and $299$149 million at December 31, 2016.2018.
For additional information on our impaired loans and allowance for credit losses, see Note 1 (Summary of Significant Accounting Policies) in our 20162018 Form 10-K.
Table 5.15:6.15: 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, 2017 | | | | | | | | |
March 31, 2019 | | | | | | | | |
Commercial: | | | | | | | | | | | | | | |
Commercial and industrial | $ | 4,259 |
| | 3,098 |
| | 2,779 |
| | 518 |
| $ | 3,493 |
| | 2,569 |
| | 2,271 |
| | 364 |
|
Real estate mortgage | 1,541 |
| | 1,263 |
| | 1,243 |
| | 230 |
| 1,310 |
| | 1,126 |
| | 1,071 |
| | 161 |
|
Real estate construction | 87 |
| | 53 |
| | 53 |
| | 11 |
| 87 |
| | 56 |
| | 56 |
| | 10 |
|
Lease financing | 143 |
| | 107 |
| | 107 |
| | 27 |
| 119 |
| | 96 |
| | 96 |
| | 30 |
|
Total commercial | 6,030 |
| | 4,521 |
| | 4,182 |
| | 786 |
| 5,009 |
| | 3,847 |
| | 3,494 |
| | 565 |
|
Consumer: | | | | | | | | | | | | | | |
Real estate 1-4 family first mortgage | 14,635 |
| | 12,756 |
| | 6,353 |
| | 781 |
| 11,953 |
| | 10,440 |
| | 4,354 |
| | 526 |
|
Real estate 1-4 family junior lien mortgage | 2,206 |
| | 1,981 |
| | 1,466 |
| | 237 |
| 1,843 |
| | 1,658 |
| | 1,093 |
| | 181 |
|
Credit card | 341 |
| | 340 |
| | 340 |
| | 129 |
| 474 |
| | 473 |
| | 473 |
| | 188 |
|
Automobile | 158 |
| | 88 |
| | 33 |
| | 5 |
| 145 |
| | 85 |
| | 42 |
| | 8 |
|
Other revolving credit and installment | 134 |
| | 126 |
| | 115 |
| | 31 |
| 164 |
| | 157 |
| | 138 |
| | 42 |
|
Total consumer (2) | 17,474 |
| | 15,291 |
| | 8,307 |
| | 1,183 |
| 14,579 |
| | 12,813 |
| | 6,100 |
| | 945 |
|
Total impaired loans (excluding PCI) | $ | 23,504 |
| | 19,812 |
| | 12,489 |
| | 1,969 |
| $ | 19,588 |
| | 16,660 |
| | 9,594 |
| | 1,510 |
|
December 31, 2016 | | | | | | | | |
December 31, 2018 | | | | | | | | |
Commercial: | | | | | | | | | | | | | | |
Commercial and industrial | $ | 5,058 |
| | 3,742 |
| | 3,418 |
| | 675 |
| $ | 3,057 |
| | 2,030 |
| | 1,730 |
| | 319 |
|
Real estate mortgage | 1,777 |
| | 1,418 |
| | 1,396 |
| | 280 |
| 1,228 |
| | 1,032 |
| | 1,009 |
| | 154 |
|
Real estate construction | 167 |
| | 93 |
| | 93 |
| | 22 |
| 74 |
| | 47 |
| | 46 |
| | 9 |
|
Lease financing | 146 |
| | 119 |
| | 119 |
| | 23 |
| 146 |
| | 112 |
| | 112 |
| | 32 |
|
Total commercial | 7,148 |
| | 5,372 |
| | 5,026 |
| | 1,000 |
| 4,505 |
| | 3,221 |
| | 2,897 |
| | 514 |
|
Consumer: | | | | | | | | | | | | | | |
Real estate 1-4 family first mortgage | 16,438 |
| | 14,362 |
| | 9,475 |
| | 1,117 |
| 12,309 |
| | 10,738 |
| | 4,420 |
| | 525 |
|
Real estate 1-4 family junior lien mortgage | 2,399 |
| | 2,156 |
| | 1,681 |
| | 350 |
| 1,886 |
| | 1,694 |
| | 1,133 |
| | 183 |
|
Credit card | 300 |
| | 300 |
| | 300 |
| | 104 |
| 449 |
| | 449 |
| | 449 |
| | 172 |
|
Automobile | 153 |
| | 85 |
| | 31 |
| | 5 |
| 153 |
| | 89 |
| | 43 |
| | 8 |
|
Other revolving credit and installment | 109 |
| | 102 |
| | 91 |
| | 17 |
| 162 |
| | 156 |
| | 136 |
| | 41 |
|
Total consumer (2) | 19,399 |
| | 17,005 |
| | 11,578 |
| | 1,593 |
| 14,959 |
| | 13,126 |
| | 6,181 |
| | 929 |
|
Total impaired loans (excluding PCI) | $ | 26,547 |
| | 22,377 |
| | 16,604 |
| | 2,593 |
| $ | 19,464 |
| | 16,347 |
| | 9,078 |
| | 1,443 |
|
| |
(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 $1.4$1.3 billion at both March 31, 2019 and $1.5 billion at September 30, 2017 and December 31, 2016, respectively,2018, 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 TDRamounted to $628$570 million and $403$513 million at September 30, 2017March 31, 2019 and December 31, 2016,2018, respectively.
Table 5.166.16 provides the average recorded investment in impaired loans and the amount of interest income recognized on impaired loans by portfolio segment and class.
Table 5.16:6.16: Average Recorded Investment in Impaired Loans
| | | Quarter ended September 30, | | | Nine months ended September 30, | | | Quarter ended March 31, | |
| 2017 | | | 2016 | | | 2017 | | | 2016 | | | 2019 | | | 2018 | |
(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 | $ | 3,208 |
| | 22 |
| | 3,961 |
| | 25 |
| | 3,460 |
| | 91 |
| | 3,350 |
| | 65 |
| | $ | 2,346 |
| | 23 |
| | 2,404 |
| | 36 |
|
Real estate mortgage | 1,293 |
| | 19 |
| | 1,644 |
| | 33 |
| | 1,351 |
| | 70 |
| | 1,699 |
| | 99 |
| | 1,055 |
| | 15 |
| | 1,244 |
| | 28 |
|
Real estate construction | 58 |
| | — |
| | 108 |
| | 3 |
| | 69 |
| | 3 |
| | 117 |
| | 8 |
| | 52 |
| | 2 |
| | 58 |
| | 1 |
|
Lease financing | 105 |
| | 1 |
| | 99 |
| | — |
| | 110 |
| | 1 |
| | 89 |
| | — |
| | 108 |
| | — |
| | 129 |
| | — |
|
Total commercial | 4,664 |
| | 42 |
| | 5,812 |
| | 61 |
| | 4,990 |
| | 165 |
| | 5,255 |
| | 172 |
| | 3,561 |
| | 40 |
| | 3,835 |
| | 65 |
|
Consumer: | | | | | | | | | | | | | | | | | | | | | | | |
Real estate 1-4 family first mortgage | 13,044 |
| | 180 |
| | 15,471 |
| | 203 |
| | 13,594 |
| | 555 |
| | 16,224 |
| | 635 |
| | 10,624 |
| | 153 |
| | 12,073 |
| | 172 |
|
Real estate 1-4 family junior lien mortgage | 2,009 |
| | 30 |
| | 2,268 |
| | 32 |
| | 2,072 |
| | 92 |
| | 2,327 |
| | 99 |
| | 1,679 |
| | 26 |
| | 1,889 |
| | 29 |
|
Credit card | 326 |
| | 9 |
| | 292 |
| | 9 |
| | 314 |
| | 26 |
| | 294 |
| | 26 |
| | 461 |
| | 15 |
| | 370 |
| | 10 |
|
Automobile | 86 |
| | 2 |
| | 90 |
| | 3 |
| | 84 |
| | 8 |
| | 95 |
| | 9 |
| | 87 |
| | 4 |
| | 85 |
| | 3 |
|
Other revolving credit and installment | 123 |
| | 2 |
| | 91 |
| | 2 |
| | 114 |
| | 6 |
| | 84 |
| | 5 |
| | 156 |
| | 4 |
| | 133 |
| | 2 |
|
Total consumer | 15,588 |
| | 223 |
| | 18,212 |
| | 249 |
| | 16,178 |
| | 687 |
| | 19,024 |
| | 774 |
| | 13,007 |
| | 202 |
| | 14,550 |
| | 216 |
|
Total impaired loans (excluding PCI) | $ | 20,252 |
| | 265 |
| | 24,024 |
| | 310 |
| | 21,168 |
| | 852 |
| | 24,279 |
| | 946 |
| | $ | 16,568 |
| | 242 |
| | 18,385 |
| | 281 |
|
Interest income: | | | | | | | | | | | | | | | | | | | | | | | |
Cash basis of accounting | | | $ | 64 |
| | | | 87 |
| | | | 219 |
| | | | 274 |
| | | | $ | 59 |
| | | | 81 |
|
Other (1) | | | 201 |
| | | | 223 |
| | | | 633 |
| | | | 672 |
| | | | 183 |
| | | | 200 |
|
Total interest income | | | $ | 265 |
| | | | 310 |
| | | | 852 |
| | | | 946 |
| | | | $ | 242 |
| | | | 281 |
|
| |
(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 $18.7$15.3 billion and $20.8$15.5 billion at September 30, 2017March 31, 2019 and December 31, 2016,2018, respectively. We do not consider loan resolutions 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.
Note 6: Loans and Allowance for Credit Losses (continued)
Table 5.176.17 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.
Table 5.17:6.17: 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, 2017 | | | | | | | | | | | | | |
Commercial: | | | | | | | | | | | | | |
Commercial and industrial | $ | — |
| | 19 |
| | 481 |
| | 500 |
| | 60 |
| | 0.34 | % | | $ | 18 |
|
Real estate mortgage | 1 |
| | 12 |
| | 98 |
| | 111 |
| | 7 |
| | 1.58 |
| | 13 |
|
Real estate construction | — |
| | — |
| | 1 |
| | 1 |
| | — |
| | 1.85 |
| | — |
|
Lease financing | — |
| | — |
| | 23 |
| | 23 |
| | — |
| | — |
| | — |
|
Total commercial | 1 |
| | 31 |
| | 603 |
| | 635 |
| | 67 |
| | 0.85 |
| | 31 |
|
Consumer: | | | | | | | | | | | | | |
Real estate 1-4 family first mortgage | 48 |
| | 15 |
| | 272 |
| | 335 |
| | 2 |
| | 2.62 |
| | 41 |
|
Real estate 1-4 family junior lien mortgage | 3 |
| | 23 |
| | 20 |
| | 46 |
| | 4 |
| | 3.97 |
| | 26 |
|
Credit card | — |
| | 74 |
| | — |
| | 74 |
| | — |
| | 12.00 |
| | 74 |
|
Automobile | 1 |
| | 4 |
| | 20 |
| | 25 |
| | 12 |
| | 5.53 |
| | 4 |
|
Other revolving credit and installment | — |
| | 11 |
| | 1 |
| | 12 |
| | — |
| | 7.72 |
| | 12 |
|
Trial modifications (6) | — |
| | — |
| | (10 | ) | | (10 | ) | | — |
| | — |
| | — |
|
Total consumer | 52 |
| | 127 |
| | 303 |
| | 482 |
| | 18 |
| | 7.68 |
| | 157 |
|
Total | $ | 53 |
| | 158 |
| | 906 |
| | 1,117 |
| | 85 |
| | 6.56 | % | | $ | 188 |
|
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 mortgage | 84 |
| | 79 |
| | 330 |
| | 493 |
| | 11 |
| | 2.56 |
| | 138 |
|
Real estate 1-4 family junior lien mortgage | 5 |
| | 25 |
| | 22 |
| | 52 |
| | 9 |
| | 3.08 |
| | 29 |
|
Credit card | — |
| | 46 |
| | — |
| | 46 |
| | — |
| | 12.13 |
| | 46 |
|
Automobile | 1 |
| | 4 |
| | 15 |
| | 20 |
| | 11 |
| | 6.42 |
| | 4 |
|
Other revolving credit and installment | — |
| | 9 |
| | 3 |
| | 12 |
| | — |
| | 6.86 |
| | 9 |
|
Trial modifications (6) | — |
| | — |
| | 15 |
| | 15 |
| | — |
| | — |
| | — |
|
Total consumer | 90 |
| | 163 |
| | 385 |
| | 638 |
| | 31 |
| | 4.82 |
| | 226 |
|
Total | $ | 90 |
| | 213 |
| | 1,589 |
| | 1,892 |
| | 93 |
| | 4.13 | % | | $ | 277 |
|
Note 5: Loans and Allowance for Credit Losses (continued)
| | | 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, 2017 | | | | | | | | | | | | | | |
Quarter ended March 31, 2019 | | | | | | | | | | | | | | |
Commercial: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | $ | 17 |
| | 38 |
| | 2,323 |
| | 2,378 |
| | 154 |
| | 0.61 | % | | $ | 37 |
| $ | — |
| | 11 |
| | 554 |
| | 565 |
| | 13 |
| | 0.68 | % | | $ | 11 |
|
Real estate mortgage | 5 |
| | 51 |
| | 416 |
| | 472 |
| | 20 |
| | 1.31 |
| | 52 |
| — |
| | 2 |
| | 73 |
| | 75 |
| | — |
| | 0.95 |
| | 2 |
|
Real estate construction | — |
| | 1 |
| | 24 |
| | 25 |
| | — |
| | 0.90 |
| | 1 |
| — |
| | — |
| | 3 |
| | 3 |
| | — |
| | — |
| | — |
|
Lease financing | — |
| | — |
| | 37 |
| | 37 |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total commercial | 22 |
| | 90 |
| | 2,800 |
| | 2,912 |
| | 174 |
| | 1.02 |
| | 90 |
| — |
| | 13 |
| | 630 |
| | 643 |
| | 13 |
| | 0.73 |
| | 13 |
|
Consumer: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Real estate 1-4 family first mortgage | 196 |
| | 132 |
| | 797 |
| | 1,125 |
| | 14 |
| | 2.59 |
| | 227 |
| 35 |
| | 3 |
| | 294 |
| | 332 |
| | 1 |
| | 1.95 |
| | 19 |
|
Real estate 1-4 family junior lien mortgage | 23 |
| | 70 |
| | 64 |
| | 157 |
| | 13 |
| | 3.26 |
| | 80 |
| 2 |
| | 11 |
| | 25 |
| | 38 |
| | 1 |
| | 2.29 |
| | 12 |
|
Credit card | — |
| | 188 |
| | — |
| | 188 |
| | — |
| | 12.21 |
| | 188 |
| — |
| | 97 |
| | — |
| | 97 |
| | — |
| | 13.20 |
| | 97 |
|
Automobile | 2 |
| | 11 |
| | 52 |
| | 65 |
| | 30 |
| | 5.92 |
| | 11 |
| 2 |
| | 1 |
| | 12 |
| | 15 |
| | 6 |
| | 5.38 |
| | 1 |
|
Other revolving credit and installment | — |
| | 38 |
| | 5 |
| | 43 |
| | 1 |
| | 7.41 |
| | 38 |
| — |
| | 11 |
| | 3 |
| | 14 |
| | — |
| | 7.58 |
| | 11 |
|
Trial modifications (6) | — |
| | — |
| | (54 | ) | | (54 | ) | | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total consumer | 221 |
| | 439 |
| | 864 |
| | 1,524 |
| | 58 |
| | 6.41 |
| | 544 |
| 39 |
| | 123 |
| | 334 |
| | 496 |
| | 8 |
| | 10.27 |
| | 140 |
|
Total | $ | 243 |
| | 529 |
| | 3,664 |
| | 4,436 |
| | 232 |
| | 5.64 | % | | $ | 634 |
| $ | 39 |
| | 136 |
| | 964 |
| | 1,139 |
| | 21 |
| | 9.44 | % | | $ | 153 |
|
Nine months ended September 30, 2016 | | | | | | | | | | | | | | |
Quarter ended March 31, 2018 | | | | | | | | | | | | | | |
Commercial: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | $ | 42 |
| | 123 |
| | 2,361 |
| | 2,526 |
| | 304 |
| | 1.95 | % | | $ | 123 |
| $ | — |
| | 9 |
| | 488 |
| | 497 |
| | 6 |
| | 1.07 | % | | $ | 9 |
|
Real estate mortgage | — |
| | 81 |
| | 462 |
| | 543 |
| | 1 |
| | 1.14 |
| | 81 |
| — |
| | 6 |
| | 98 |
| | 104 |
| | — |
| | 1.24 |
| | 6 |
|
Real estate construction | — |
| | 26 |
| | 62 |
| | 88 |
| | — |
| | 0.94 |
| | 26 |
| — |
| | — |
| | 3 |
| | 3 |
| | — |
| | — |
| | — |
|
Lease financing | — |
| | — |
| | 8 |
| | 8 |
| | — |
| | — |
| | — |
| — |
| | — |
| | 39 |
| | 39 |
| | — |
| | — |
| | — |
|
Total commercial | 42 |
| | 230 |
| | 2,893 |
| | 3,165 |
| | 305 |
| | 1.55 |
| | 230 |
| — |
| | 15 |
| | 628 |
| | 643 |
| | 6 |
| | 1.15 |
| | 15 |
|
Consumer: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Real estate 1-4 family first mortgage | 272 |
| | 222 |
| | 1,094 |
| | 1,588 |
| | 36 |
| | 2.66 |
| | 395 |
| 46 |
| | 10 |
| | 306 |
| | 362 |
| | 1 |
| | 2.40 |
| | 35 |
|
Real estate 1-4 family junior lien mortgage | 17 |
| | 81 |
| | 82 |
| | 180 |
| | 30 |
| | 3.03 |
| | 96 |
| 1 |
| | 8 |
| | 28 |
| | 37 |
| | 1 |
| | 2.22 |
| | 9 |
|
Credit card | — |
| | 131 |
| | — |
| | 131 |
| | — |
| | 12.02 |
| | 131 |
| — |
| | 86 |
| | — |
| | 86 |
| | — |
| | 11.32 |
| | 86 |
|
Automobile | 2 |
| | 11 |
| | 44 |
| | 57 |
| | 27 |
| | 6.45 |
| | 11 |
| 1 |
| | 4 |
| | 14 |
| | 19 |
| | 9 |
| | 6.48 |
| | 4 |
|
Other revolving credit and installment | — |
| | 25 |
| | 8 |
| | 33 |
| | 1 |
| | 6.64 |
| | 25 |
| — |
| | 15 |
| | 2 |
| | 17 |
| | — |
| | 7.94 |
| | 15 |
|
Trial modifications (6) | — |
| | — |
| | 47 |
| | 47 |
| | — |
| | — |
| | — |
| — |
| | — |
| | 15 |
| | 15 |
| | — |
| | — |
| | — |
|
Total consumer | 291 |
| | 470 |
| | 1,275 |
| | 2,036 |
| | 94 |
| | 4.80 |
| | 658 |
| 48 |
| | 123 |
| | 365 |
| | 536 |
| | 11 |
| | 8.20 |
| | 149 |
|
Total | $ | 333 |
| | 700 |
| | 4,168 |
| | 5,201 |
| | 399 |
| | 3.96 | % | | $ | 888 |
| $ | 48 |
| | 138 |
| | 993 |
| | 1,179 |
| | 17 |
| | 7.55 | % | | $ | 164 |
|
| |
(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 $394$360 million and $484$503 million for the quarters ended September 30, 2017March 31, 2019 and 2016, and $1.7 billion and $1.1 billion, for the first nine months of 2017 and 2016,2018, 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 $4$3 million and $16 million for both of the quarters ended September 30, 2017March 31, 2019 and 2016, and $23 million and $54 million for the first nine months of 2017 and 2016, respectively. 2018. |
| |
(5) | Reflects the effect of reduced interest rates on loans with an interest rate concession as one of theirits 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. |
Table 5.186.18 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 5.18:6.18: 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) | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
| | 2019 |
| | 2018 |
|
Commercial: | | | | | | | | | | | |
Commercial and industrial | $ | 14 |
| | 39 |
| | 106 |
| | 84 |
| | $ | 23 |
| | 86 |
|
Real estate mortgage | 16 |
| | 7 |
| | 47 |
| | 58 |
| | 28 |
| | 26 |
|
Real estate construction | 4 |
| | — |
| | 4 |
| | 3 |
| | 3 |
| | — |
|
Total commercial | 34 |
| | 46 |
| | 157 |
| | 145 |
| | 54 |
| | 112 |
|
Consumer: | | | | | | | | | | | |
Real estate 1-4 family first mortgage | 32 |
| | 36 |
| | 83 |
| | 97 |
| | 11 |
| | 18 |
|
Real estate 1-4 family junior lien mortgage | 5 |
| | 6 |
| | 14 |
| | 15 |
| | 5 |
| | 5 |
|
Credit card | 20 |
| | 15 |
| | 52 |
| | 41 |
| | 21 |
| | 13 |
|
Automobile | 4 |
| | 4 |
| | 11 |
| | 10 |
| | 3 |
| | 3 |
|
Other revolving credit and installment | 1 |
| | — |
| | 3 |
| | 2 |
| | 2 |
| | 1 |
|
Total consumer | 62 |
| | 61 |
| | 163 |
| | 165 |
| | 42 |
| | 40 |
|
Total | $ | 96 |
| | 107 |
| | 320 |
| | 310 |
| | $ | 96 |
| | 152 |
|
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 5.196.19 presents PCI loans net of any remaining purchase accounting adjustments. Real estate 1-4 family first mortgage PCI loans are predominantly Pick-a-Pay loans.
Table 5.19:6.19: PCI Loans
| | (in millions) | Sep 30, 2017 |
| | Dec 31, 2016 |
| Mar 31, 2019 |
| | Dec 31, 2018 |
|
Commercial: | | | | |
Commercial and industrial | $ | 116 |
| | 237 |
| |
Real estate mortgage | 108 |
| | 383 |
| |
Real estate construction | 10 |
| | 57 |
| |
Total commercial | 234 |
| | 677 |
| $ | — |
| | 4 |
|
Consumer: | | | | | | |
Real estate 1-4 family first mortgage | 13,301 |
| | 16,018 |
| 3,184 |
| | 4,988 |
|
Real estate 1-4 family junior lien mortgage | 29 |
| | 36 |
| 16 |
| | 17 |
|
Total consumer | 13,330 |
| | 16,054 |
| 3,200 |
| | 5,005 |
|
Total PCI loans (carrying value) | $ | 13,564 |
| | 16,731 |
| $ | 3,200 |
| | 5,009 |
|
Total PCI loans (unpaid principal balance) | $ | 20,023 |
| | 24,136 |
| $ | 4,765 |
| | 7,348 |
|
Note 5: Loans and Allowance for Credit Losses (continued)
ACCRETABLE YIELDThe 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 the first nine months of 2017 reflect an expectation, as a result of our quarterly evaluation of PCI cash flows, that prepayment of modified Pick-a-Pay loans will 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 in addition to improved cash flow timing. Changes during the first nine months of 2017 also reflect a $309 million gain on the sale of $569 million Pick-a-Pay PCI loans in second quarter 2017.
Table 5.20:Change in Accretable Yield
|
| | | | | | | | | |
(in millions) | Quarter ended Sep 30, 2017 |
| | Nine months ended Sep 30, 2017 |
| | 2009-2016 |
|
Balance, beginning of period | $ | 9,369 |
| | 11,216 |
| | 10,447 |
|
Change in accretable yield due to acquisitions | — |
| | 2 |
| | 159 |
|
Accretion into interest income (1) | (340 | ) | | (1,071 | ) | | (15,577 | ) |
Accretion into noninterest income due to sales (2) | — |
| | (334 | ) | | (467 | ) |
Reclassification from nonaccretable difference for loans with improving credit-related cash flows | 234 |
| | 640 |
| | 10,955 |
|
Changes in expected cash flows that do not affect nonaccretable difference (3) | (20 | ) | | (1,210 | ) | | 5,699 |
|
Balance, end of period | $ | 9,243 |
| | 9,243 |
| | 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 INDICATORSTable 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 |
|
September 30, 2017 | | | | | | | |
By risk category: | | | | | | | |
Pass | $ | 18 |
| | 81 |
| | 4 |
| | 103 |
|
Criticized | 98 |
| | 27 |
| | 6 |
| | 131 |
|
Total commercial PCI loans | $ | 116 |
| | 108 |
| | 10 |
| | 234 |
|
December 31, 2016 | | | | | | | |
By risk category: | | | | | | | |
Pass | $ | 92 |
| | 263 |
| | 47 |
| | 402 |
|
Criticized | 145 |
| | 120 |
| | 10 |
| | 275 |
|
Total commercial PCI loans | $ | 237 |
| | 383 |
| | 57 |
| | 677 |
|
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 |
|
September 30, 2017 | | | | | | | |
By delinquency status: | | | | | | | |
Current-29 DPD and still accruing | $ | 114 |
| | 87 |
| | 10 |
| | 211 |
|
30-89 DPD and still accruing | 2 |
| | — |
| | — |
| | 2 |
|
90+ DPD and still accruing | — |
| | 21 |
| | — |
| | 21 |
|
Total commercial PCI loans | $ | 116 |
| | 108 |
| | 10 |
| | 234 |
|
December 31, 2016 | | | | | | | |
By delinquency status: | | | | | | | |
Current-29 DPD and still accruing | $ | 235 |
| | 353 |
| | 48 |
| | 636 |
|
30-89 DPD and still accruing | 2 |
| | 10 |
| | — |
| | 12 |
|
90+ DPD and still accruing | — |
| | 20 |
| | 9 |
| | 29 |
|
Total commercial PCI loans | $ | 237 |
| | 383 |
| | 57 |
| | 677 |
|
CONSUMER PCI CREDIT QUALITY INDICATORSOur 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, 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 |
|
By delinquency status: | | | | | | | | | | | |
Current-29 DPD and still accruing | $ | 13,672 |
| | 149 |
| | 13,821 |
| | 16,095 |
| | 171 |
| | 16,266 |
|
30-59 DPD and still accruing | 1,410 |
| | 6 |
| | 1,416 |
| | 1,488 |
| | 7 |
| | 1,495 |
|
60-89 DPD and still accruing | 605 |
| | 3 |
| | 608 |
| | 668 |
| | 2 |
| | 670 |
|
90-119 DPD and still accruing | 257 |
| | 1 |
| | 258 |
| | 233 |
| | 2 |
| | 235 |
|
120-179 DPD and still accruing | 191 |
| | 1 |
| | 192 |
| | 238 |
| | 2 |
| | 240 |
|
180+ DPD and still accruing | 1,425 |
| | 5 |
| | 1,430 |
| | 2,081 |
| | 8 |
| | 2,089 |
|
Total consumer PCI loans (adjusted unpaid principal balance) | $ | 17,560 |
| | 165 |
| | 17,725 |
| | 20,803 |
| | 192 |
| | 20,995 |
|
Total consumer PCI loans (carrying value) | $ | 13,301 |
| | 29 |
| | 13,330 |
| | 16,018 |
| | 36 |
| | 16,054 |
|
Note 5: Loans and Allowance for Credit Losses (continued)
Table 5.24 provides FICO scores forconsumer PCI loans.
Table 5.24:Consumer PCI Loans by FICO
|
| | | | | | | | | | | | | | | | | | |
| September 30, 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 |
|
By FICO: | | | | | | | | | | | |
< 600 | $ | 4,175 |
| | 37 |
| | 4,212 |
| | 4,292 |
| | 46 |
| | 4,338 |
|
600-639 | 2,153 |
| | 21 |
| | 2,174 |
| | 3,001 |
| | 26 |
| | 3,027 |
|
640-679 | 2,496 |
| | 27 |
| | 2,523 |
| | 3,972 |
| | 35 |
| | 4,007 |
|
680-719 | 2,359 |
| | 32 |
| | 2,391 |
| | 3,170 |
| | 37 |
| | 3,207 |
|
720-759 | 1,840 |
| | 23 |
| | 1,863 |
| | 1,767 |
| | 24 |
| | 1,791 |
|
760-799 | 957 |
| | 13 |
| | 970 |
| | 962 |
| | 15 |
| | 977 |
|
800+ | 471 |
| | 7 |
| | 478 |
| | 254 |
| | 4 |
| | 258 |
|
No FICO available | 3,109 |
| | 5 |
| | 3,114 |
| | 3,385 |
| | 5 |
| | 3,390 |
|
Total consumer PCI loans (adjusted unpaid principal balance) | $ | 17,560 |
| | 165 |
| | 17,725 |
| | 20,803 |
| | 192 |
| | 20,995 |
|
Total consumer PCI loans (carrying value) | $ | 13,301 |
| | 29 |
| | 13,330 |
| | 16,018 |
| | 36 |
| | 16,054 |
|
| |
(1) | September 30, 2017 amounts reflect updated FICO score version implemented in first quarter 2017.
|
Table 5.25 shows the distribution of consumer PCIloans by LTV for real estate 1-4 family first mortgages and byCLTV for real estate 1-4 family junior lien mortgages.
Table 5.25:Consumer PCI Loans by LTV/CLTV
|
| | | | | | | | | | | | | | | | | | |
| September 30, 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 |
|
By LTV/CLTV: | | | | | | | | | | | |
0-60% | $ | 7,642 |
| | 41 |
| | 7,683 |
| | 7,513 |
| | 38 |
| | 7,551 |
|
60.01-80% | 7,079 |
| | 66 |
| | 7,145 |
| | 9,000 |
| | 76 |
| | 9,076 |
|
80.01-100% | 2,358 |
| | 42 |
| | 2,400 |
| | 3,458 |
| | 54 |
| | 3,512 |
|
100.01-120% (1) | 392 |
| | 12 |
| | 404 |
| | 669 |
| | 18 |
| | 687 |
|
> 120% (1) | 87 |
| | 3 |
| | 90 |
| | 161 |
| | 5 |
| | 166 |
|
No LTV/CLTV available | 2 |
| | 1 |
| | 3 |
| | 2 |
| | 1 |
| | 3 |
|
Total consumer PCI loans (adjusted unpaid principal balance) | $ | 17,560 |
| | 165 |
| | 17,725 |
| | 20,803 |
| | 192 |
| | 20,995 |
|
Total consumer PCI loans (carrying value) | $ | 13,301 |
| | 29 |
| | 13,330 |
| | 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 6:7: Other AssetsLeasing Activity |
The information below provides a summary of our leasing activities as a lessor and lessee.
As a Lessor
Table 6.17.1 presents the composition of our leasing revenue and Table 7.2 provides the components of other assets.our investment in lease financing.
Table 6.1:7.1: Other AssetsLeasing Revenue
|
| | | | | | |
(in millions) | Sep 30, 2017 |
| | Dec 31, 2016 |
|
Nonmarketable equity investments: | | | |
Cost method: | | | |
Federal bank stock | $ | 5,839 |
| | 6,407 |
|
Private equity | 1,428 |
| | 1,465 |
|
Auction rate securities | 400 |
| | 525 |
|
Total cost method | 7,667 |
| | 8,397 |
|
Equity method: | | | |
LIHTC (1) | 9,884 |
| | 9,714 |
|
Private equity | 3,758 |
| | 3,635 |
|
Tax-advantaged renewable energy | 1,954 |
| | 2,054 |
|
New market tax credit and other | 291 |
| | 305 |
|
Total equity method | 15,887 |
| | 15,708 |
|
Fair value (2) | 4,523 |
| | 3,275 |
|
Total nonmarketable equity investments | 28,077 |
| | 27,380 |
|
Corporate/bank-owned life insurance | 19,479 |
| | 19,325 |
|
Accounts receivable (3) | 38,284 |
| | 31,056 |
|
Interest receivable | 5,579 |
| | 5,339 |
|
Core deposit intangibles | 981 |
| | 1,620 |
|
Customer relationship and other amortized intangibles | 918 |
| | 1,089 |
|
Foreclosed assets: | | | |
Residential real estate: | | | |
Government insured/guaranteed (3) | 137 |
| | 197 |
|
Non-government insured/guaranteed | 261 |
| | 378 |
|
Non-residential real estate | 308 |
| | 403 |
|
Operating lease assets | 9,672 |
| | 10,089 |
|
Due from customers on acceptances | 228 |
| | 196 |
|
Other | 12,352 |
| | 17,469 |
|
Total other assets | $ | 116,276 |
| | 114,541 |
|
|
| | | |
(in millions) | Quarter ended March 31, 2019 |
|
Interest income on lease financing | $ | 223 |
|
Variable revenues on lease financing | 24 |
|
Total lease financing revenue | 247 |
|
Fixed revenues on operating leases | 373 |
|
Variable revenues on operating leases | 18 |
|
Total operating lease revenue | 391 |
|
Other lease-related revenues (1) | 28 |
|
Total lease revenue | $ | 666 |
|
| |
(1) | Represents lowPredominantly includes net gains on disposition of lease assets |
Table 7.2:Investment in Lease Financing
|
| | | |
(in millions) | Mar 31, 2019 |
|
Lease receivables | $ | 17,640 |
|
Residual asset values | 4,169 |
|
Unearned income | (2,687 | ) |
Lease financing | $ | 19,122 |
|
Our net investment in financing and sales-type leases includes $2.0 billion of leveraged leases at March 31, 2019.
As shown in Table 9.1, included in Note 9 (Other Assets), we had $8.8 billion in operating lease assets at March 31, 2019, which was net of $3.2 billion of accumulated depreciation. Depreciation expense for the lease assets was $229 million for first quarter 2019. Dispositions of operating lease assets for first quarter 2019, resulted in net gains of $14 million, included in lease income.
Table 7.3 presents future lease payments owed by our lessees.
Table 7.3:Maturities of Lease Receivables
|
| | | | | |
| March 31, 2019 | |
(in millions) | Direct financing and sales- type leases |
| Operating leases |
|
Remainder of 2019 | $ | 4,143 |
| 953 |
|
2020 | 4,866 |
| 862 |
|
2021 | 3,698 |
| 568 |
|
2022 | 1,857 |
| 385 |
|
2023 | 1,035 |
| 252 |
|
Thereafter | 2,041 |
| 581 |
|
Total lease receivables | $ | 17,640 |
| 3,601 |
|
As a Lessee
Substantially all of our leases are operating leases. Table 7.4 presents balances for our operating leases.
Table 7.4:Operating Lease Right of Use (ROU) Assets and Lease Liabilities
|
| | | |
(in millions) | Mar 31, 2019 |
|
ROU assets | $ | 4,869 |
|
Lease liabilities | 5,405 |
|
Table 7.5 provides the composition of our lease costs.
Table 7.5:Lease Costs
|
| | | |
(in millions) | Quarter ended March 31, 2019 |
|
Fixed lease expense - operating leases | 297 |
|
Variable lease expense | 73 |
|
Other (1) | (8 | ) |
Total lease costs | $ | 362 |
|
| |
(1) | Predominantly includes sublease rental income housing tax credit investments.and gains recognized from sale leaseback transactions |
Note 7: Leasing Activity (continued)
Tables 7.6 and 7.7 provide the future lease payments under operating leases as of December 31, 2018 and March 31, 2019, respectively. Table 7.7 also includes information on the remaining average lease term and discount rate.
Table 7.6:Lease Payments on Operating Leases Prior to Adoption of ASU 2016-02 - Leases
|
| | | |
(in millions) | December 31, 2018 |
|
2019 | $ | 1,174 |
|
2020 | 1,056 |
|
2021 | 880 |
|
2022 | 713 |
|
2023 | 577 |
|
Thereafter | 1,654 |
|
Total | $ | 6,054 |
|
Table 7.7:Lease Payments on Operating Leases Subsequent to Adoption of ASU 2016-02 - Leases
|
| | | |
(in millions, except for weighted averages) | March 31, 2019 |
|
Remainder of 2019 | $ | 777 |
|
2020 | 1,123 |
|
2021 | 942 |
|
2022 | 770 |
|
2023 | 628 |
|
Thereafter | 1,936 |
|
Total lease payments | 6,176 |
|
Less: imputed interest | 771 |
|
Total operating lease liabilities | $ | 5,405 |
|
Weighted average remaining lease term (in years) | 7.3 |
|
Weighted average discount rate | 3.2 | % |
Our operating leases predominantly expire within the next 15 years, with the longest lease expiring in 2105. We do not include renewal or termination options in the establishment of the lease term when we are not reasonably certain that we will exercise them. As of March 31, 2019, we had additional operating leases commitments of $164 million, predominantly for real estate, which leases had not yet commenced. These leases will commence by 2022 and have lease terms of 1 year to 11 years.
Note 8: Equity Securities (continued)
|
|
Note 8: Equity Securities |
Table 8.1 provides a summary of our equity securities by business purpose and accounting method, including equity securities with readily determinable fair values (marketable) and those without readily determinable fair values (nonmarketable).
Table 8.1: Equity Securities
|
| | | | | | |
| Mar 31, |
| | Dec 31, |
|
(in millions) | 2019 |
| | 2018 |
|
Held for trading at fair value: | | | |
Marketable equity securities | $ | 20,933 |
| | 19,449 |
|
Not held for trading: | | | |
Fair value: | | | |
Marketable equity securities (1) | 5,135 |
| | 4,513 |
|
Nonmarketable equity securities (2) | 6,518 |
| | 5,594 |
|
Total equity securities at fair value | 11,653 |
| | 10,107 |
|
Equity method: | | | |
Low-income housing tax credit investments | 10,925 |
| | 10,999 |
|
Private equity | 3,890 |
| | 3,832 |
|
Tax-advantaged renewable energy | 3,041 |
| | 3,073 |
|
New market tax credit and other | 305 |
| | 311 |
|
Total equity method | 18,161 |
|
| 18,215 |
|
Other: | | | |
Federal Reserve Bank stock and other at cost (3) | 5,732 |
| | 5,643 |
|
Private equity (4) | 1,961 |
| | 1,734 |
|
Total equity securities not held for trading | 37,507 |
| | 35,699 |
|
Total equity securities | $ | 58,440 |
| | 55,148 |
|
| |
(1) | Includes $3.5 billion and $3.2 billion at March 31, 2019, and December 31, 2018, respectively, related to securities held as economic hedges of our deferred compensation plan obligations. |
| |
(2) | Represents nonmarketable equityIncludes $6.4 billion and $5.5 billion at March 31, 2019, and December 31, 2018, respectively, related to investments for which we have elected the fair value option. See Note 1316 (Fair ValuesValue of Assets and Liabilities) for additional information. |
| |
(3) | Includes $5.7 billion and $5.6 billion at March 31, 2019 and December 31, 2018, respectively, related to investments in Federal Reserve Bank and Federal Home Loan Bank stock. |
| |
(4) | Represents nonmarketable equity securities for which we have elected to account for the security under the measurement alternative. |
Equity Securities Held for Trading
Equity securities held for trading purposes are marketable equity securities traded on organized exchanges. These securities are held as part of our customer accommodation trading activities. For more information on these activities, see Note 4 (Trading Activities).
Equity Securities Not Held for Trading
We also hold equity securities unrelated to trading activities. These securities include private equity and tax credit investments, securities held as economic hedges or to meet regulatory requirements (for example, Federal Reserve Bank and Federal Home Loan Bank stock). Equity securities not held for trading purposes are accounted for at either fair value, equity method, cost or the measurement alternative.
FAIR VALUEMarketable equity securities held for purposes other than trading primarily consist of exchange-traded equity funds held to economically hedge obligations related to our deferred compensation plans and to a lesser extent other holdings of publicly traded equity securities held for investment purposes. We have elected to account for certain nonmarketable equity securities under the fair value method, and substantially all of these securities are economically hedged with equity derivatives.
EQUITY METHODOur equity method investments consist of tax credit and private equity investments, the majority of which are our low-income housing tax credit (LIHTC) investments.
We invest in affordable housing projects that qualify for the LIHTC, which are designed to promote private development of low-income housing. These investments generate a return mostly through realization of federal tax credit and other tax benefits. In first quarter 2019, we recognized pre-tax losses of $273 million related to our LIHTC investments, compared with $280 million in first quarter 2018. These losses were recognized in other noninterest income. We also recognized total tax benefits of $370 million in first quarter 2019, which included tax credits recorded to income taxes of $302 million. In first quarter 2018, total tax benefits were $359 million, which included tax credits of $290 million. We are periodically required to provide additional financial support during the investment period. A liability is recognized for unfunded commitments that are both legally binding and probable of funding. These commitments are predominantly funded within three years of initial investment. Our liability for these unfunded commitments was $3.7 billion at March 31, 2019, and $3.6 billion at December 31, 2018. This liability for unfunded commitments is included in long-term debt.
OTHERThe remaining portion of our nonmarketable equity securities portfolio consists of securities accounted for using the cost or measurement alternative method.
Realized Gains and Losses
Table 8.2 provides a summary of the net gains and losses for equity securities not held for trading. Gains and losses for securities held for trading are reported in net gains from trading activities.
Table 8.2:Net Gains (Losses) from Equity Securities Not Held for Trading
|
| | | | | | |
| Quarter ended March 31, | |
(in millions) | 2019 |
| | 2018 |
|
Net gains (losses) from equity securities carried at fair value: | | | |
Marketable equity securities | $ | 377 |
| | 8 |
|
Nonmarketable equity securities | 936 |
| | 109 |
|
Total equity securities carried at fair value | 1,313 |
| | 117 |
|
Net gains (losses) from nonmarketable equity securities not carried at fair value: | | | |
Impairment write-downs | (36 | ) | | (20 | ) |
Net unrealized gains related to measurement alternative observable transactions | 185 |
| | 228 |
|
Net realized gains on sale | 237 |
| | 498 |
|
All other | — |
| | 18 |
|
Total nonmarketable equity securities not carried at fair value | 386 |
| | 724 |
|
Net losses from economic hedge derivatives (1) | (885 | ) | | (58 | ) |
Total net gains from equity securities | $ | 814 |
| | 783 |
|
| |
(1) | Includes net gains (losses) on derivatives not designated as hedging instruments. |
Measurement Alternative
Table 8.3 provides additional information about the impairment write-downs and observable price adjustments related to
nonmarketable equity securities accounted for under the measurement alternative. Gains and losses related to these adjustments are also included in Table 8.2.
Table 8.3:Net Gains (Losses) from Measurement Alternative Equity Securities
|
| | | | | | |
| Quarter ended March 31, | |
(in millions) | 2019 |
| | 2018 |
|
Net gains (losses) recognized in earnings during the period: | | | |
Gross unrealized gains due to observable price changes | $ | 185 |
| | 228 |
|
Impairment write-downs | (22 | ) | | (7 | ) |
Realized net gains from sale | 23 |
| | 75 |
|
Total net gains recognized during the period | $ | 186 |
| | 296 |
|
Table 8.4 presents cumulative carrying value adjustments to nonmarketable equity securities accounted for under the measurement alternative that were still held as of the balance sheet date.
Table 8.4:Measurement Alternative Cumulative Gains (Losses)
|
| | | | | | |
| Mar 31, |
| | Dec 31, |
|
(in millions) | 2019 |
| | 2018 |
|
Cumulative gains (losses): | | | |
Gross unrealized gains due to observable price changes | $ | 577 |
| | 415 |
|
Gross unrealized losses due to observable price changes | (25 | ) | | (25 | ) |
Impairment write-downs | (55 | ) | | (33 | ) |
Table 9.1 presents the components of other assets.
Table 9.1:Other Assets
|
| | | | | | |
(in millions) | Mar 31, 2019 |
| | Dec 31, 2018 |
|
Corporate/bank-owned life insurance | $ | 19,842 |
| | 19,751 |
|
Accounts receivable (1) | 32,405 |
| | 34,281 |
|
Interest receivable | 6,277 |
| | 6,084 |
|
Customer relationship and other amortized intangibles | 508 |
| | 545 |
|
Foreclosed assets: | | | |
Residential real estate: | | | |
Government insured/guaranteed (1) | 75 |
| | 88 |
|
Non-government insured/guaranteed | 229 |
| | 229 |
|
Non-residential real estate | 132 |
| | 134 |
|
Operating lease assets (lessor) | 8,793 |
| | 9,036 |
|
Operating lease ROU assets (lessee) (2) | 4,869 |
| | — |
|
Due from customers on acceptances | 243 |
| | 258 |
|
Other | 9,294 |
| | 9,444 |
|
Total other assets | $ | 82,667 |
| | 79,850 |
|
| |
(1) | 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 the classification of certain government-guaranteed mortgage loans upon foreclosure, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 20162018 Form 10-K. |
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, | |
(in millions) | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
|
Net realized gains from nonmarketable equity investments | $ | 132 |
| | 55 |
| | 506 |
| | 369 |
|
All other | (184 | ) | | (83 | ) | | (424 | ) | | (404 | ) |
Total | $ | (52 | ) | | (28 | ) | | 82 |
| | (35 | ) |
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 $9.9 billion and $9.7 billion at September 30, 2017 and December 31, 2016, respectively. In the third quarter and first nine months of 2017, we recognized pre-tax losses of $227 million and $684 million, respectively, related to our LIHTC investments, compared with $199 million and $600 million, respectively, for the same periods a year ago. We also recognized total tax benefits of $360 million and $1.1 billion in the third quarter and first nine months of 2017, which included tax credits recorded in income taxes of $275 million and$796 million for the same periods, respectively. In the third quarter and first nine months of 2016, total tax benefits were $308 million and $919 million, respectively, which included tax credits of $233 million and $693 million for the same periods, respectively. We are periodically required to provide additional financial support during the investment period. Our liability for these unfunded commitments was $3.1 billion at September 30, 2017 and $3.6 billion at December 31, 2016. Predominantly all of this liability is expected to be paid over the next three years. This liability is included in long-term debt.
| |
(2) | We recognized operating lease right of use (ROU) assets effective January 1, 2019, in connection with the adoption of ASU 2016-02 – Leases. For more information, see Note 1 (Summary of Significant Accounting Policies) in this Report. |
Note 7: Securitizations and Variable Interest Entities (continued)
|
|
Note 7:10: Securitizations and Variable Interest Entities |
Involvement with SPEsSpecial Purpose Entities (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 89 (Securitizations and Variable Interest Entities) to Financial Statements in our 20162018 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 7.110.1 provides the classifications of assets and liabilities in our balance sheet for our transactions with VIEs.
Table 7.1:10.1: 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, 2017 | | | | | | |
Cash | $ | — |
| | 115 |
| | — |
| | 115 |
| |
Federal funds sold, securities purchased under resale agreements and other short-term investments | — |
| | 402 |
| | — |
| | 402 |
| |
Trading assets | 1,150 |
| | 130 |
| | 201 |
| | 1,481 |
| |
Investment securities (1) | 4,944 |
| | — |
| | 364 |
| | 5,308 |
| |
March 31, 2019 | | | | | | |
Cash and due from banks | | $ | — |
| | 16 |
| | — |
| | 16 |
|
Interest-earning deposits with banks | | — |
| | 8 |
| | — |
| | 8 |
|
Debt securities: | | | | | | | | |
Trading debt securities | | 1,848 |
| | 55 |
| | 200 |
| | 2,103 |
|
Available-for-sale debt securities (1) | | 2,063 |
| | — |
| | 248 |
| | 2,311 |
|
Held-to-maturity debt securities | | 524 |
| | — |
| | — |
| | 524 |
|
Loans | 4,491 |
| | 11,905 |
| | 508 |
| | 16,904 |
| 1,398 |
| | 14,368 |
| | 91 |
| | 15,857 |
|
Mortgage servicing rights | 13,340 |
| | — |
| | — |
| | 13,340 |
| 13,515 |
| | — |
| | — |
| | 13,515 |
|
Derivative assets | 80 |
| | — |
| | — |
| | 80 |
| 74 |
| | — |
| | — |
| | 74 |
|
Equity securities | | 10,973 |
| | 112 |
| | — |
| | 11,085 |
|
Other assets | 10,355 |
| | 352 |
| | 7 |
| | 10,714 |
| — |
| | 252 |
| | 6 |
| | 258 |
|
Total assets | 34,360 |
| | 12,904 |
| | 1,080 |
| | 48,344 |
| 30,395 |
| | 14,811 |
| | 545 |
| | 45,751 |
|
Short-term borrowings | — |
| | — |
| | 523 |
| | 523 |
| — |
| | — |
| | 427 |
| | 427 |
|
Derivative liabilities | 101 |
| | 26 |
| (2) | — |
| | 127 |
| 6 |
| | — |
| (2) | — |
| | 6 |
|
Accrued expenses and other liabilities | 240 |
| | 141 |
| (2) | 32 |
| | 413 |
| 198 |
| | 205 |
| (2) | 7 |
| | 410 |
|
Long-term debt | 3,103 |
| | 2,103 |
| (2) | 489 |
| | 5,695 |
| 3,750 |
| | 775 |
| (2) | 90 |
| | 4,615 |
|
Total liabilities | 3,444 |
| | 2,270 |
| | 1,044 |
| | 6,758 |
| 3,954 |
| | 980 |
| | 524 |
| | 5,458 |
|
Noncontrolling interests | — |
| | 119 |
| | — |
| | 119 |
| — |
| | 31 |
| | — |
| | 31 |
|
Net assets | $ | 30,916 |
| | 10,515 |
| | 36 |
| | 41,467 |
| $ | 26,441 |
| | 13,800 |
| | 21 |
| | 40,262 |
|
December 31, 2016 | | | | | | | | |
Cash | $ | — |
| | 168 |
| | — |
| | 168 |
| |
Federal funds sold, securities purchased under resale agreements and other short-term investments | — |
| | 74 |
| | — |
| | 74 |
| |
Trading assets | 2,034 |
| | 130 |
| | 201 |
| | 2,365 |
| |
Investment securities (1) | 8,530 |
| | — |
| | 786 |
| | 9,316 |
| |
December 31, 2018 | | | | | | | | |
Cash and due from banks | | $ | — |
| | 139 |
| | — |
| | 139 |
|
Interest-earning deposits with banks | | — |
| | 8 |
| | — |
| | 8 |
|
Debt securities: | | | | | | | | |
Trading debt securities | | 2,110 |
| | 45 |
| | 200 |
| | 2,355 |
|
Available-for-sale debt securities (1) | | 2,686 |
| | — |
| | 317 |
| | 3,003 |
|
Held-to-maturity debt securities | | 510 |
| | — |
| | — |
| | 510 |
|
Loans | 6,698 |
| | 12,589 |
| | 138 |
| | 19,425 |
| 1,433 |
| | 13,564 |
| | 94 |
| | 15,091 |
|
Mortgage servicing rights | 13,386 |
| | — |
| | — |
| | 13,386 |
| 14,761 |
| | — |
| | — |
| | 14,761 |
|
Derivative assets | 91 |
| | 1 |
| | — |
| | 92 |
| 53 |
| | — |
| | — |
| | 53 |
|
Equity securities | | 11,041 |
| | 85 |
| | — |
| | 11,126 |
|
Other assets | 10,281 |
| | 452 |
| | 11 |
| | 10,744 |
| — |
| | 221 |
| | 6 |
| | 227 |
|
Total assets | 41,020 |
| | 13,414 |
| | 1,136 |
| | 55,570 |
| 32,594 |
| | 14,062 |
| | 617 |
| | 47,273 |
|
Short-term borrowings | — |
| | — |
| | 905 |
| | 905 |
| — |
| | — |
| | 493 |
| | 493 |
|
Derivative liabilities | 59 |
| | 33 |
| (2) | — |
| | 92 |
| 26 |
| | — |
| (2) | — |
| | 26 |
|
Accrued expenses and other liabilities | 306 |
| | 107 |
| (2) | 2 |
| | 415 |
| 231 |
| | 191 |
| (2) | 8 |
| | 430 |
|
Long-term debt | 3,598 |
| | 3,694 |
| (2) | 136 |
| | 7,428 |
| 3,870 |
| | 816 |
| (2) | 93 |
| | 4,779 |
|
Total liabilities | 3,963 |
| | 3,834 |
| | 1,043 |
| | 8,840 |
| 4,127 |
| | 1,007 |
| | 594 |
| | 5,728 |
|
Noncontrolling interests | — |
| | 138 |
| | — |
| | 138 |
| — |
| | 34 |
| | — |
| | 34 |
|
Net assets | $ | 37,057 |
| | 9,442 |
| | 93 |
| | 46,592 |
| $ | 28,467 |
| | 13,021 |
| | 23 |
| | 41,511 |
|
| |
(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 10: 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 unconsolidated VIEs are recorded on our balance sheet in trading assets, investmentdebt and equity securities, loans, MSRs, derivative assets and liabilities, other assets, other liabilities, and long-term debt, as appropriate.
Table 7.210.2 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 7.2:10.2: 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, 2017 | | | | | | | | | | | | |
March 31, 2019 | | | | | | | | | | | | |
Residential mortgage loan securitizations: | | | | | | | | | | | | | | | | | | | | | | |
Conforming (2) | $ | 1,172,135 |
| | 2,056 |
| | 12,387 |
| | — |
| | (188 | ) | | 14,255 |
| $ | 1,145,791 |
| | 2,146 |
| | 12,574 |
| | — |
| | (137 | ) | | 14,583 |
|
Other/nonconforming | 15,226 |
| | 774 |
| | 85 |
| | — |
| | — |
| | 859 |
| 9,582 |
| | 27 |
| | 60 |
| | — |
| | — |
| | 87 |
|
Commercial mortgage securitizations | 142,525 |
| | 2,535 |
| | 868 |
| | 70 |
| | (33 | ) | | 3,440 |
| 153,770 |
| | 2,193 |
| | 881 |
| | 17 |
| | (41 | ) | | 3,050 |
|
Collateralized debt obligations: | | | | | | | | | | | | | | | | | | | | | | |
Debt securities | 1,074 |
| | — |
| | — |
| | 5 |
| | (20 | ) | | (15 | ) | 641 |
| | — |
| | — |
| | 4 |
| | (20 | ) | | (16 | ) |
Loans (3) | 1,494 |
| | 1,457 |
| | — |
| | — |
| | — |
| | 1,457 |
| |
Asset-based finance structures | 3,569 |
| | 2,666 |
| | — |
| | — |
| | — |
| | 2,666 |
| 283 |
| | 173 |
| | — |
| | — |
| | — |
| | 173 |
|
Tax credit structures | 29,295 |
| | 10,820 |
| | — |
| | — |
| | (3,103 | ) | | 7,717 |
| 36,135 |
| | 12,009 |
| | — |
| | — |
| | (3,750 | ) | | 8,259 |
|
Collateralized loan obligations | 18 |
| | 4 |
| | — |
| | — |
| | — |
| | 4 |
| 203 |
| | 4 |
| | — |
| | — |
| | — |
| | 4 |
|
Investment funds | 216 |
| | 51 |
| | — |
| | — |
| | — |
| | 51 |
| 204 |
| | 47 |
| | — |
| | — |
| | — |
| | 47 |
|
Other (4) | 2,521 |
| | 577 |
| | — |
| | (95 | ) | | — |
| | 482 |
| |
Other (3) | | 1,648 |
| | 207 |
| | — |
| | 47 |
| | — |
| | 254 |
|
Total | $ | 1,368,073 |
| | 20,940 |
| | 13,340 |
| | (20 | ) | | (3,344 | ) | | 30,916 |
| $ | 1,348,257 |
| | 16,806 |
| | 13,515 |
| | 68 |
| | (3,948 | ) | | 26,441 |
|
| | | 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 | | | $ | 2,056 |
| | 12,387 |
| | — |
| | 976 |
| | 15,419 |
| | | $ | 2,146 |
| | 12,574 |
| | — |
| | 1,101 |
| | 15,821 |
|
Other/nonconforming | | | 774 |
| | 85 |
| | — |
| | — |
| | 859 |
| | | 27 |
| | 60 |
| | — |
| | — |
| | 87 |
|
Commercial mortgage securitizations | | | 2,535 |
| | 868 |
| | 73 |
| | 9,901 |
| | 13,377 |
| | | 2,193 |
| | 881 |
| | 27 |
| | 11,795 |
| | 14,896 |
|
Collateralized debt obligations: | | | | | | | | | | | | | | | | | | | | | | |
Debt securities | | | — |
| | — |
| | 5 |
| | 20 |
| | 25 |
| | | — |
| | — |
| | 4 |
| | 20 |
| | 24 |
|
Loans (3) | | | 1,457 |
| | — |
| | — |
| | — |
| | 1,457 |
| |
Asset-based finance structures | | | 2,666 |
| | — |
| | — |
| | 71 |
| | 2,737 |
| | | 173 |
| | — |
| | — |
| | 72 |
| | 245 |
|
Tax credit structures | | | 10,820 |
| | — |
| | — |
| | 947 |
| | 11,767 |
| | | 12,009 |
| | — |
| | — |
| | 1,426 |
| | 13,435 |
|
Collateralized loan obligations | | | 4 |
| | — |
| | — |
| | — |
| | 4 |
| | | 4 |
| | — |
| | — |
| | — |
| | 4 |
|
Investment funds | | | 51 |
| | — |
| | — |
| | — |
| | 51 |
| | | 47 |
| | — |
| | — |
| | — |
| | 47 |
|
Other (4) | | | 577 |
| | — |
| | 120 |
| | 157 |
| | 854 |
| |
Other (3) | | | | 207 |
| | — |
| | 48 |
| | 157 |
| | 412 |
|
Total | | | $ | 20,940 |
| | 13,340 |
| | 198 |
| | 12,072 |
| | 46,550 |
| | | $ | 16,806 |
| | 13,515 |
| | 79 |
| | 14,571 |
| | 44,971 |
|
(continued on following page)
Note 7: Securitizations and Variable Interest Entities (continued)
(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, 2016 | | | | | | | | | | | | |
December 31, 2018 | | | | | | | | | | | | |
Residential mortgage loan securitizations: | | | | | | | | | | | | | | | | | | | | | | |
Conforming (2) | $ | 1,166,296 |
| | 3,026 |
| | 12,434 |
| | — |
| | (232 | ) | | 15,228 |
| $ | 1,172,833 |
| | 2,377 |
| | 13,811 |
| | — |
| | (171 | ) | | 16,017 |
|
Other/nonconforming | 18,805 |
| | 873 |
| | 109 |
| | — |
| | (2 | ) | | 980 |
| 10,596 |
| | 453 |
| | 57 |
| | — |
| | — |
| | 510 |
|
Commercial mortgage securitizations | 166,596 |
| | 4,258 |
| | 843 |
| | 87 |
| | (35 | ) | | 5,153 |
| 153,350 |
| | 2,409 |
| | 893 |
| | (22 | ) | | (40 | ) | | 3,240 |
|
Collateralized debt obligations: | | | | | | | | | | | | | | | | | | | | | | |
Debt securities | 1,472 |
| | — |
| | — |
| | — |
| | (25 | ) | | (25 | ) | 659 |
| | — |
| | — |
| | 5 |
| | (20 | ) | | (15 | ) |
Loans (3) | 1,545 |
| | 1,507 |
| | — |
| | — |
| | — |
| | 1,507 |
| |
Asset-based finance structures | 9,152 |
| | 6,522 |
| | — |
| | — |
| | — |
| | 6,522 |
| 304 |
| | 205 |
| | — |
| | — |
| | — |
| | 205 |
|
Tax credit structures | 29,713 |
| | 10,669 |
| | — |
| | — |
| | (3,609 | ) | | 7,060 |
| 35,185 |
| | 12,087 |
| | — |
| | — |
| | (3,870 | ) | | 8,217 |
|
Collateralized loan obligations | 78 |
| | 10 |
| | — |
| | — |
| | — |
| | 10 |
| 2 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Investment funds | 214 |
| | 48 |
| | — |
| | — |
| | — |
| | 48 |
| 185 |
| | 42 |
| | — |
| | — |
| | — |
| | 42 |
|
Other (4) | 1,733 |
| | 630 |
| | — |
| | (56 | ) | | — |
| | 574 |
| |
Other (3) | | 1,688 |
| | 207 |
| | — |
| | 44 |
| | — |
| | 251 |
|
Total | $ | 1,395,604 |
| | 27,543 |
| | 13,386 |
| | 31 |
| | (3,903 | ) | | 37,057 |
| $ | 1,374,802 |
| | 17,780 |
| | 14,761 |
| | 27 |
| | (4,101 | ) | | 28,467 |
|
| | | 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 | | | $ | 3,026 |
| | 12,434 |
| | — |
| | 979 |
| | 16,439 |
| | | $ | 2,377 |
| | 13,811 |
| | — |
| | 1,183 |
| | 17,371 |
|
Other/nonconforming | | | 873 |
| | 109 |
| | — |
| | 2 |
| | 984 |
| | | 453 |
| | 57 |
| | — |
| | — |
| | 510 |
|
Commercial mortgage securitizations | | | 4,258 |
| | 843 |
| | 94 |
| | 9,566 |
| | 14,761 |
| | | 2,409 |
| | 893 |
| | 28 |
| | 11,563 |
| | 14,893 |
|
Collateralized debt obligations: | | | | | | | | | | | | | | | | | | | | | | |
Debt securities | | | — |
| | — |
| | — |
| | 25 |
| | 25 |
| | | — |
| | — |
| | 5 |
| | 20 |
| | 25 |
|
Loans (3) | | | 1,507 |
| | — |
| | — |
| | — |
| | 1,507 |
| |
Asset-based finance structures | | | 6,522 |
| | — |
| | — |
| | 72 |
| | 6,594 |
| | | 205 |
| | — |
| | — |
| | 71 |
| | 276 |
|
Tax credit structures | | | 10,669 |
| | — |
| | — |
| | 1,104 |
| | 11,773 |
| | | 12,087 |
| | — |
| | — |
| | 1,420 |
| | 13,507 |
|
Collateralized loan obligations | | | 10 |
| | — |
| | — |
| | — |
| | 10 |
| | | — |
| | — |
| | — |
| | — |
| | — |
|
Investment funds | | | 48 |
| | — |
| | — |
| | — |
| | 48 |
| | | 42 |
| | — |
| | — |
| | — |
| | 42 |
|
Other (4) | | | 630 |
| | — |
| | 93 |
| | — |
| | 723 |
| |
Other (3) | | | | 207 |
| | — |
| | 45 |
| | 158 |
| | 410 |
|
Total | | | $ | 27,543 |
| | 13,386 |
| | 187 |
| | 11,748 |
| | 52,864 |
| | | $ | 17,780 |
| | 14,761 |
| | 78 |
| | 14,415 |
| | 47,034 |
|
| |
(1) | Includes total equity interests of $10.4$11.0 billion at both March 31, 2019, and $10.3 billion at September 30, 2017, and December 31, 2016, respectively.2018. 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 $1.3$578 million and $1.2 billion at March 31, 2019, and $1.2 billion at September 30, 2017, and December 31, 2016,2018, 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 in senior tranches from a diversified pool of U.S. asset securitizations, of which all are current and 100% were rated as investment grade by the primary rating agencies at both September 30, 2017, and December 31, 2016. 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. |
In Table 7.2,10.2, “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
(Securitizations9 (Securitizations and Variable Interest Entities) to Financial Statements in our 20162018 Form 10-K.
INVESTMENT FUNDS Subsequent to adopting ASU 2015-02 (Amendments to the Consolidation Analysis) in 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 2017 was $12 million and $39 million, respectively, compared with $28$10 million and $84$13 million respectively, in the same periods of 2016.
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,first quarter 2019 and preferred equities with no maturity. At September 30, 2017, we held $400 million of ARS issued by VIEs compared with $453 million at December 31, 2016. 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.2018, respectively.
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, 2017, and December 31, 2016, we reported the debt securities issued to the VIEs as long-term junior subordinated debt with a carrying value of $2.0 billion and $2.1 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.March 31, 2019 and December 31, 2018. These amounts are in addition to the involvements in these VIEs included in the preceding table.
In the first nine months of 2017, we redeemed $150 million of trust preferred securities which were partially included in Tier 2 capital (50% credit in 2017) in the transitional framework and were not included under the fully-phased framework under the Basel III standards.
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
Note 10: Securitizations and Variable Interest Entities (continued)
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 7.310.3 presents the cash flows for our transfers accounted for as sales.sales in which we have continuing involvement with the transferred financial assets.
Table 7.3:10.3: Cash Flows From Sales and Securitization Activity
| | | 2017 | | | 2016 | | Mortgage loans | |
(in millions) | Mortgage loans |
| | Other financial assets |
| | Mortgage loans |
| | Other financial assets |
| 2019 |
| | 2018 |
|
Quarter ended September 30, | |
| | |
| | |
| | |
| |
Quarter ended March 31, | | | | |
Proceeds from securitizations and whole loan sales | $ | 61,756 |
| | — |
| | 66,830 |
| | 53 |
| $ | 36,507 |
| | 50,587 |
|
Fees from servicing rights retained | 826 |
| | — |
| | 891 |
| | — |
| 780 |
| | 845 |
|
Cash flows from other interests held (1) | 408 |
| | — |
| | 930 |
| | — |
| 111 |
| | 185 |
|
Repurchases of assets/loss reimbursements (2): | | | | | | | | | | |
Non-agency securitizations and whole loan transactions | 5 |
| | — |
| | 4 |
| | — |
| — |
| | 1 |
|
Agency securitizations (3) | 20 |
| | — |
| | 22 |
| | — |
| 17 |
| | 33 |
|
Servicing advances, net of repayments | (90 | ) | | — |
| | (52 | ) | | — |
| (39 | ) | | (36 | ) |
Nine months ended September 30, | | | | | | | | |
Proceeds from securitizations and whole loan sales | $ | 172,837 |
| | 25 |
| | 178,301 |
| | 186 |
| |
Fees from servicing rights retained | 2,520 |
| | — |
| | 2,636 |
| | — |
| |
Cash flows from other interests held (1) | 1,883 |
| | — |
| | 1,964 |
| | 1 |
| |
Repurchases of assets/loss reimbursements (2): | | | | | | | | |
Non-agency securitizations and whole loan transactions | 12 |
| | — |
| | 22 |
| | — |
| |
Agency securitizations (3) | 66 |
| | — |
| | 104 |
| | — |
| |
Servicing advances, net of repayments | (252 | ) | | — |
| | (159 | ) | | — |
| |
| |
(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 2019 and first nine months of 20172018 exclude $2.1$1.9 billion and $6.0$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 $2.4 billion and $7.3 billion, respectively, in the same periods of 2016.pools. These loans are predominantly insured by the FHA or guaranteed by the VA. |
In the thirdfirst quarter 2019 and first nine months of 2017,2018, we recognized net gains of $91$61 million and $616$58 million, respectively, from transfers accounted for as sales of financial assets, comparedin which we have continuing involvement with $141 million and $436 million, respectively, in the same periods of 2016.transferred assets. The first quarter 2018 net gain was revised from the amount previously reported to exclude transfers for which we do not have continuing involvement. These net gains largelypredominantly 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 2019 and first nine months of 2017 and 20162018 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 2019 and first nine months of 2017,2018, we transferred $57.8$34.1 billion and $163.0$47.3 billion, respectively, in fair value of residential mortgages to unconsolidated VIEs and third-party investors and recorded the transfers as sales, compared with $63.3 billion and $165.6 billion, respectively, in the same periods of 2016.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 2017,quarter 2019, we recorded a $1.5 billion$320 million servicing asset, measured at fair value using a Level 3 measurement technique, securities of $2.2 billion,$912 million, classified as Level 2, and a $20$3 million liability for repurchase losses which reflects management’s estimate of probable losses related to
Note 7: Securitizations and Variable Interest Entities (continued)
various representations and warranties for the loans transferred, initially measured at fair value. In the first nine months of 2016,quarter 2018, we recorded a $1.3 billion$533 million servicing asset, securities of $3.0$3.8 billion, and a $26$3 million liability.
Table 7.410.4 presents the key weighted-average assumptions we used to measure residential mortgage servicing rights at the date of securitization.
Table 7.4:10.4: Residential Mortgage Servicing Rights
| | | Residential mortgage servicing rights | | Residential mortgage servicing rights | |
| 2017 |
| | 2016 |
| 2019 |
| | 2018 |
|
Quarter ended September 30, | |
| | |
| |
Quarter ended March 31, | | | | |
Prepayment speed (1) | 12.1 | % | | 12.4 |
| 13.5 | % | | 9.6 |
|
Discount rate | 6.9 |
| | 6.2 |
| 8.1 |
| | 7.3 |
|
Cost to service ($ per loan) (2) | $ | 122 |
| | 124 |
| $ | 94 |
| | 117 |
|
Nine months ended September 30, | | | | |
Prepayment speed (1) | 11.7 | % | | 12.5 |
| |
Discount rate | 6.9 |
| | 6.5 |
| |
Cost to service ($ per loan) (2) | $ | 135 |
| | 136 |
| |
| |
(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 2019and first nine months of 2017,2018, we transferred $4.6 billion $2.7 billion and $11.2$3.1 billion, respectively, in carrying value of commercial mortgages to unconsolidated VIEs and third-party investors and recorded the transfers as sales, compared with $4.0 billion and $13.9 billion, respectively, in the same periods of 2016.sales. These transfers resulted in gains of $89$47 million and $265$69 million in the thirdfirst quarter 2019 and first nine months of 2017,2018, respectively, because the loans were carried at lower of cost or market value (LOCOM), compared with gains of $134 million and $327 million, respectively, in the same periods of 2016.LOCOM. In connection with these transfers, in the first nine months of 2017,quarter 2019, we recorded a servicing asset of $123$26 million, initially measured at fair value using a Level 3 measurement technique, and securities of $65 million, classified as Level 2.no securities. In the first nine months of 2016,quarter 2018, we recorded a servicing asset of $204$34 million and securities of $236 million.no securities.
Retained Interests from Unconsolidated VIEs
Table 7.510.5 provides key economic assumptions and the sensitivity of the current fair value of residential mortgage servicing rights and other interests held related to unconsolidated VIEs to immediate adverse changes in those assumptions. “Other interests held” relate to residential and commercial mortgage loan securitizations. Residential mortgage-backed securities retained in securitizations issued through GSEs, such as FNMA, FHLMC and GNMA, are excluded from the table because these securities have a remote risk of credit loss due to the GSE
the GSE guarantee. These securities also have economic characteristics similar to GSE mortgage-backed securities that we purchase, which are not included in the table. Subordinated interests include only those bonds whose credit rating was below AAA by a major rating agency at issuance. Senior interests include only those bonds whose credit rating was AAA by a major rating agency at issuance. The information presented excludes trading positions held in inventory.
Table 7.5:10.5: Retained Interests from Unconsolidated VIEs
| | | | | Other interests held | | | | Other interests held | |
| Residential mortgage servicing rights (1) |
| | Interest-only strips |
| | Consumer |
| | Commercial (2) | | Residential mortgage servicing rights (1) |
| | Interest-only strips |
| | Commercial (2) | |
($ in millions, except cost to service amounts) | | Subordinated bonds |
| | Subordinated bonds |
| | Senior bonds |
| | Subordinated bonds |
| | Senior bonds |
|
Fair value of interests held at September 30, 2017 | $ | 13,338 |
| | 23 |
| | — |
| | 561 |
| | 526 |
| |
Fair value of interests held at March 31, 2019 | | $ | 13,336 |
| | 15 |
| | 679 |
| | 295 |
|
Expected weighted-average life (in years) | 6.1 |
| | 3.8 |
| | 0.0 |
| | 5.7 |
| | 5.2 |
| 5.9 |
| | 3.5 |
| | 6.9 |
| | 5.5 |
|
Key economic assumptions: | | | | | | | | | | | | | | | | |
Prepayment speed assumption (3) | 10.8 | % | | 17.4 |
| | — |
| | | | | 11.3 | % | | 18.2 |
| | | | |
Decrease in fair value from: | | | | | | | | | | | | | | | | |
10% adverse change | $ | 575 |
| | 1 |
| | — |
| | | | | $ | 542 |
| | 1 |
| | | | |
25% adverse change | 1,359 |
| | 2 |
| | — |
| | | | | 1,280 |
| | 1 |
| | | | |
Discount rate assumption | 6.7 | % | | 12.7 |
| | — |
| | 3.0 |
| | 2.9 |
| 7.6 | % | | 14.2 |
| | 4.1 |
| | 3.4 |
|
Decrease in fair value from: | | | | | | | | | | | | | | | | |
100 basis point increase | $ | 647 |
| | — |
| | — |
| | 25 |
| | 22 |
| $ | 548 |
| | — |
| | 38 |
| | 14 |
|
200 basis point increase | 1,236 |
| | 1 |
| | — |
| | 47 |
| | 44 |
| 1,049 |
| | — |
| | 74 |
| | 26 |
|
Cost to service assumption ($ per loan) | 145 |
| | | | | | | | | 103 |
| | | | | | |
Decrease in fair value from: | | | | | | | | | | | | | | | | |
10% adverse change | 476 |
| | | | | | | | | 290 |
| | | | | | |
25% adverse change | 1,189 |
| | | | | | | | | 723 |
| | | | | | |
Credit loss assumption | | | | | — | % | | 2.0 |
| | — |
| | | | | 4.5 | % | | — |
|
Decrease in fair value from: | | | | | | | | | | | | | | | | |
10% higher losses | | | | | $ | — |
| | — |
| | — |
| | | | | $ | 2 |
| | — |
|
25% higher losses | | | | | — |
| | — |
| | — |
| | | | | 5 |
| | — |
|
Fair value of interests held at December 31, 2016 | $ | 12,959 |
| | 28 |
| | 1 |
| | 249 |
| | 552 |
| |
Fair value of interests held at December 31, 2018 | | $ | 14,649 |
| | 16 |
| | 668 |
| | 309 |
|
Expected weighted-average life (in years) | 6.3 |
| | 3.9 |
| | 8.3 |
| | 3.1 |
| | 5.1 |
| 6.5 |
| | 3.6 |
| | 7.0 |
| | 5.7 |
|
Key economic assumptions: | | | | | | | | | | | | | | | | |
Prepayment speed assumption (3) | 10.3 | % | | 17.4 |
| | 13.5 |
| | | | | 9.9 | % | | 17.7 |
| | | | |
Decrease in fair value from: | | | | | | | | | | | | | | | | |
10% adverse change | $ | 583 |
| | 1 |
| | — |
| | | | | $ | 530 |
| | 1 |
| | | | |
25% adverse change | 1,385 |
| | 2 |
| | — |
| | | | | 1,301 |
| | 1 |
| | | | |
Discount rate assumption | 6.8 | % | | 13.3 |
| | 10.7 |
| | 5.2 |
| | 2.7 |
| 8.1 | % | | 14.5 |
| | 4.3 |
| | 3.7 |
|
Decrease in fair value from: | | | | | | | | | | | | | | | | |
100 basis point increase | $ | 649 |
| | 1 |
| | — |
| | 7 |
| | 23 |
| $ | 615 |
| | — |
| | 37 |
| | 14 |
|
200 basis point increase | 1,239 |
| | 1 |
| | — |
| | 12 |
| | 45 |
| 1,176 |
| | 1 |
| | 72 |
| | 28 |
|
Cost to service assumption ($ per loan) | 155 |
| | | | | | | | | 106 |
| | | | | | |
Decrease in fair value from: | | | | | | | | | | | | | | | | |
10% adverse change | 515 |
| | | | | | | | | 316 |
| | | | | | |
25% adverse change | 1,282 |
| | | | | | | | | 787 |
| | | | | | |
Credit loss assumption | | | | | 3.0 | % | | 4.7 |
| | — |
| | | | | 5.1 | % | | — |
|
Decrease in fair value from: | | | | | | | | | | | | | | | | |
10% higher losses | | | | | $ | — |
| | — |
| | — |
| | | | | $ | 2 |
| | — |
|
25% higher losses | | | | | — |
| | — |
| | — |
| | | | | 5 |
| | — |
|
| |
(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)MSRs included in the previous table, we have a small portfolio of commercial MSRs with a fair value of $2.0$2.1 billion and $2.3 billion at both September 30, 2017,March 31, 2019, and December 31, 2016.2018, 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
Note 10: Securitizations and Variable Interest Entities (continued)
the current fair value to an immediate adverse 25% change in the assumption about interest earned on deposit balances at September 30, 2017,March 31, 2019, and December 31, 2016,2018, results in a decrease in fair value of $238$292 million and $259$320 million, respectively. See Note 811 (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, 2017, and December 31, 2016. The carrying amount of the loan at September 30, 2017, and December 31, 2016, was $1.3 billion and $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 $23 million and $154 million at September 30, 2017, and December 31, 2016, respectively.
The sensitivities in the preceding paragraphsparagraph 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 7.610.6 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 7.6:10.6: 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 March 31, | |
(in millions) | Sep 30, 2017 |
| | Dec 31, 2016 |
| | Sep 30, 2017 |
| | Dec 31, 2016 |
| | 2017 |
| | 2016 |
| Mar 31, 2019 |
| | Dec 31, 2018 |
| | Mar 31, 2019 |
| | Dec 31, 2018 |
| | 2019 |
| | 2018 |
|
Commercial: | | | | | | | | | | | | | | | | | | | | | | |
Real estate mortgage | $ | 98,350 |
| | 106,745 |
| | 2,879 |
| | 3,325 |
| | 718 |
| | 210 |
| $ | 106,087 |
| | 105,173 |
| | 976 |
| | 1,008 |
| | 79 |
| | 10 |
|
Total commercial | 98,350 |
| | 106,745 |
| | 2,879 |
| | 3,325 |
| | 718 |
| | 210 |
| 106,087 |
| | 105,173 |
| | 976 |
| | 1,008 |
| | 79 |
| | 10 |
|
Consumer: | | | | | | | | | | | | | | | | | | | | | | |
Real estate 1-4 family first mortgage | 1,135,409 |
| | 1,160,191 |
| | 12,434 |
| | 16,453 |
| | 546 |
| | 764 |
| 1,061,759 |
| | 1,097,128 |
| | 7,988 |
| | 8,947 |
| | 67 |
| | 116 |
|
Total consumer | 1,135,409 |
| | 1,160,191 |
| | 12,434 |
| | 16,453 |
| | 546 |
| | 764 |
| 1,061,759 |
| | 1,097,128 |
| | 7,988 |
| | 8,947 |
| | 67 |
| | 116 |
|
Total off-balance sheet sold or securitized loans (2) | $ | 1,233,759 |
| | 1,266,936 |
| | 15,313 |
| | 19,778 |
| | 1,264 |
| | 974 |
| $ | 1,167,846 |
| | 1,202,301 |
| | 8,964 |
| | 9,955 |
| | 146 |
| | 126 |
|
| |
(1) | Includes $1.4 billion$550 million and $1.7 billion$675 million of commercial foreclosed assets and $1.1 billion$575 million and $1.8 billion$582 million of consumer foreclosed assets at September 30, 2017,March 31, 2019, and December 31, 2016,2018, respectively. |
| |
(2) | At September 30, 2017,March 31, 2019, and December 31, 2016,2018, the table includes total loans of $1.2$1.1 trillion at both dates, delinquent loans of $7.6$5.8 billion and $9.8$6.4 billion,, and foreclosed assets of $730$451 million and $1.3 billion,$442 million, 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. |
Transactions with Consolidated VIEs and Secured Borrowings
Table 7.710.7 presents a summary of financial assets and liabilities for asset transfers accounted for as secured borrowings and involvements with consolidated VIEs. Carrying values of “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 7.7:10.7: 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, 2017 | | | | | | | | | | |
Secured borrowings: | | | | | | | | | | |
Municipal tender option bond securitizations | $ | 670 |
| | 572 |
| | (539 | ) | | — |
| | 33 |
| |
Commercial real estate loans | 392 |
| | 392 |
| | (388 | ) | | — |
| | 4 |
| |
Residential mortgage securitizations | 119 |
| | 116 |
| | (117 | ) | | — |
| | (1 | ) | |
Total secured borrowings | 1,181 |
| | 1,080 |
| | (1,044 | ) | | — |
| | 36 |
| |
Consolidated VIEs: | | | | | | | | | | |
Commercial and industrial loans and leases | 8,546 |
| | 8,051 |
| | (1,425 | ) | | (14 | ) | | 6,612 |
| |
Nonconforming residential mortgage loan securitizations | 2,812 |
| | 2,486 |
| | (837 | ) | | — |
| | 1,649 |
| |
Commercial real estate loans | 2,120 |
| | 2,120 |
| | — |
| | — |
| | 2,120 |
| |
Structured asset finance | 13 |
| | 8 |
| | (6 | ) | | — |
| | 2 |
| |
Investment funds | 135 |
| | 135 |
| | (1 | ) | | (72 | ) | | 62 |
| |
Other | 118 |
| | 104 |
| | (1 | ) | | (33 | ) | | 70 |
| |
Total consolidated VIEs | 13,744 |
| | 12,904 |
| | (2,270 | ) | | (119 | ) | | 10,515 |
| |
Total secured borrowings and consolidated VIEs | $ | 14,925 |
| | 13,984 |
| | (3,314 | ) | | (119 | ) | | 10,551 |
| |
December 31, 2016 | | | | | | | | | | |
March 31, 2019 | | | | | | | | | | |
Secured borrowings: | | | | | | | | | | | | | | | | | | |
Municipal tender option bond securitizations | $ | 1,473 |
| | 998 |
| | (907 | ) | | — |
| | 91 |
| $ | 562 |
| | 454 |
| | (434 | ) | | — |
| | 20 |
|
Residential mortgage securitizations | 139 |
| | 138 |
| | (136 | ) | | — |
| | 2 |
| 91 |
| | 91 |
| | (90 | ) | | — |
| | 1 |
|
Total secured borrowings | 1,612 |
| | 1,136 |
| | (1,043 | ) | | — |
| | 93 |
| 653 |
| | 545 |
| | (524 | ) | | — |
| | 21 |
|
Consolidated VIEs: | | | | | | | | | | | | | | | | | | |
Commercial and industrial loans and leases | 8,821 |
| | 8,623 |
| | (2,819 | ) | | (14 | ) | | 5,790 |
| 8,643 |
| | 8,629 |
| | (491 | ) | | (12 | ) | | 8,126 |
|
Nonconforming residential mortgage loan securitizations | 3,349 |
| | 2,974 |
| | (1,003 | ) | | — |
| | 1,971 |
| 1,556 |
| | 1,362 |
| | (479 | ) | | — |
| | 883 |
|
Commercial real estate loans | 1,516 |
| | 1,516 |
| | — |
| | — |
| | 1,516 |
| 4,622 |
| | 4,622 |
| | — |
| | — |
| | 4,622 |
|
Structured asset finance | 23 |
| | 13 |
| | (9 | ) | | — |
| | 4 |
| |
Investment funds | 142 |
| | 142 |
| | (2 | ) | | (67 | ) | | 73 |
| 185 |
| | 185 |
| | (7 | ) | | (15 | ) | | 163 |
|
Other | 166 |
| | 146 |
| | (1 | ) | | (57 | ) | | 88 |
| 13 |
| | 13 |
| | (3 | ) | | (4 | ) | | 6 |
|
Total consolidated VIEs | 14,017 |
| | 13,414 |
| | (3,834 | ) | | (138 | ) | | 9,442 |
| 15,019 |
| | 14,811 |
| | (980 | ) | | (31 | ) | | 13,800 |
|
Total secured borrowings and consolidated VIEs | $ | 15,629 |
| | 14,550 |
| | (4,877 | ) | | (138 | ) | | 9,535 |
| $ | 15,672 |
| | 15,356 |
| | (1,504 | ) | | (31 | ) | | 13,821 |
|
December 31, 2018 | | | | | | | | | | |
Secured borrowings: | | | | | | | | | | |
Municipal tender option bond securitizations | | $ | 627 |
| | 523 |
| | (501 | ) | | — |
| | 22 |
|
Residential mortgage securitizations | | 95 |
| | 94 |
| | (93 | ) | | — |
| | 1 |
|
Total secured borrowings | | 722 |
| | 617 |
| | (594 | ) | | — |
| | 23 |
|
Consolidated VIEs: | | | | | | | | | | |
Commercial and industrial loans and leases | | 8,215 |
| | 8,204 |
| | (477 | ) | | (14 | ) | | 7,713 |
|
Nonconforming residential mortgage loan securitizations | | 1,947 |
| | 1,732 |
| | (521 | ) | | — |
| | 1,211 |
|
Commercial real estate loans | | 3,957 |
| | 3,957 |
| | — |
| | — |
| | 3,957 |
|
Investment funds | | 155 |
| | 155 |
| | (5 | ) | | (15 | ) | | 135 |
|
Other | | 14 |
| | 14 |
| | (4 | ) | | (5 | ) | | 5 |
|
Total consolidated VIEs | | 14,288 |
| | 14,062 |
| | (1,007 | ) | | (34 | ) | | 13,021 |
|
Total secured borrowings and consolidated VIEs | | $ | 15,010 |
| | 14,679 |
| | (1,601 | ) | | (34 | ) | | 13,044 |
|
INVESTMENT FUNDS Subsequent to adopting ASU 2015-02 (Amendments to the Consolidation Analysis) in 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 STRUCTURESIn addition to the structure types included in the previous table, at December 31, 2016, we had approximately $6.0 billion of private placement debt financing issued through a consolidated VIE. The issuance was classified as long-term debt in our consolidated financial statements. At December 31, 2016, we pledged approximately $434 million in loans (principal and interest eligible to be capitalized) and $6.1 billion in available-for-sale securities to collateralize the VIE’s borrowings. These assets were not transferred to the VIE, and accordingly we excluded the VIE from the previous table. During second quarter 2017, the private
placement debt financing was repaid, and the entity was no longer considered a VIE.
For complete descriptions of our accounting for transfers accounted for as secured borrowings and involvements with consolidated VIEs, see Note 89 (Securitizations and Variable Interest Entities) to Financial Statements in our 20162018 Form 10-K.
Note 8:11: Mortgage Banking Activities (continued)
|
|
Note 8:11: 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 8.111.1 presents the changes in MSRs measured using the fair value method.
Table 8.1:11.1: Analysis of Changes in Fair Value MSRs
| | | Quarter ended Sep 30, | | | Nine months ended Sep 30, | | Quarter ended March 31, | |
(in millions) | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
| 2019 |
| | 2018 |
|
Fair value, beginning of period | $ | 12,789 |
| | 10,396 |
| | 12,959 |
| | 12,415 |
| $ | 14,649 |
| | 13,625 |
|
Purchases | 541 |
| | — |
| | 541 |
| | — |
| |
Servicing from securitizations or asset transfers (1) | 605 |
| | 609 |
| | 1,624 |
| | 1,452 |
| 341 |
| | 573 |
|
Sales and other (2) | 64 |
| | 4 |
| | 9 |
| | (18 | ) | (281 | ) | | (4 | ) |
Net additions | 1,210 |
| | 613 |
| | 2,174 |
| | 1,434 |
| 60 |
| | 569 |
|
Changes in fair value: | | | | | | | | | | |
Due to changes in valuation model inputs or assumptions: | | | | | | | | | | |
Mortgage interest rates (3) | (171 | ) | | 39 |
| | (324 | ) | | (1,824 | ) | (940 | ) | | 1,253 |
|
Servicing and foreclosure costs (4) | 60 |
| | (10 | ) | | 73 |
| | 13 |
| 12 |
| | 34 |
|
Discount rates (5) | | 100 |
| | — |
|
Prepayment estimates and other (5)(6) | (31 | ) | | (37 | ) | | (77 | ) | | 22 |
| (63 | ) | | 43 |
|
Net changes in valuation model inputs or assumptions | (142 | ) | | (8 | ) | | (328 | ) | | (1,789 | ) | (891 | ) | | 1,330 |
|
Changes due to collection/realization of expected cash flows over time | (519 | ) | | (586 | ) | | (1,467 | ) | | (1,645 | ) | (482 | ) | | (483 | ) |
Total changes in fair value | (661 | ) | | (594 | ) | | (1,795 | ) | | (3,434 | ) | (1,373 | ) | | 847 |
|
Fair value, end of period | $ | 13,338 |
| | 10,415 |
| | 13,338 |
| | 10,415 |
| $ | 13,336 |
| | 15,041 |
|
| |
(1) | Includes impacts associated with exercising our right to repurchase delinquent loans from GNMA loan securitization pools. Total reported MSRs may increase upon repurchase due to servicing liabilities associated with these loans. |
| |
(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 or portfolios with servicing liabilities. |
| |
(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) | Reflects discount rate assumption change, excluding portion attributable to changes in mortgage interest rates. |
| |
(6) | 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. |
Table 8.211.2 presents the changes in amortized MSRs.
Table 8.2:11.2: Analysis of Changes in Amortized MSRs
| | | Quarter ended Sep 30, | | | Nine months ended Sep 30, | | Quarter ended March 31, | |
(in millions) | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
| 2019 |
| | 2018 |
|
Balance, beginning of period | $ | 1,399 |
| | 1,353 |
| | 1,406 |
| | 1,308 |
| $ | 1,443 |
| | 1,424 |
|
Purchases | 31 |
| | 18 |
| | 75 |
| | 63 |
| 24 |
| | 18 |
|
Servicing from securitizations or asset transfers | 41 |
| | 69 |
| | 123 |
| | 204 |
| 26 |
| | 34 |
|
Amortization | (65 | ) | | (67 | ) | | (198 | ) | | (202 | ) | (66 | ) | | (65 | ) |
Balance, end of period (1) | $ | 1,406 |
| | 1,373 |
| | 1,406 |
| | 1,373 |
| $ | 1,427 |
| | 1,411 |
|
Fair value of amortized MSRs: | | | | | | | | | | |
Beginning of period | $ | 1,989 |
| | 1,620 |
| | 1,956 |
| | 1,680 |
| $ | 2,288 |
| | 2,025 |
|
End of period | 1,990 |
| | 1,627 |
| | 1,990 |
| | 1,627 |
| 2,149 |
| | 2,307 |
|
| |
(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. |
We present the components of our managed servicing portfolio in Table 8.311.3 at unpaid principal balance for loans serviced and subserviced for others and at book value for owned loans serviced.
Table 8.3:11.3: Managed Servicing Portfolio
| | (in billions) | Sep 30, 2017 |
| | Dec 31, 2016 |
| Mar 31, 2019 |
| | Dec 31, 2018 |
|
Residential mortgage servicing: | | | | | | |
Serviced for others | $ | 1,223 |
| | 1,205 |
| $ | 1,125 |
| | 1,164 |
|
Owned loans serviced | 340 |
| | 347 |
| 331 |
| | 334 |
|
Subserviced for others | 3 |
| | 8 |
| 26 |
| | 4 |
|
Total residential servicing | 1,566 |
| | 1,560 |
| 1,482 |
| | 1,502 |
|
Commercial mortgage servicing: | | | | | | |
Serviced for others | 480 |
| | 479 |
| 552 |
| | 543 |
|
Owned loans serviced | 128 |
| | 132 |
| 122 |
| | 121 |
|
Subserviced for others | 8 |
| | 8 |
| 9 |
| | 9 |
|
Total commercial servicing | 616 |
| | 619 |
| 683 |
| | 673 |
|
Total managed servicing portfolio | $ | 2,182 |
| | 2,179 |
| $ | 2,165 |
| | 2,175 |
|
Total serviced for others | $ | 1,703 |
| | 1,684 |
| $ | 1,677 |
| | 1,707 |
|
Ratio of MSRs to related loans serviced for others | 0.87 | % | | 0.85 |
| 0.88 | % | | 0.94 |
|
Table 8.411.4 presents the components of mortgage banking noninterest income.
Table 8.4:11.4: Mortgage Banking Noninterest Income
| |
| | Quarter ended Sep 30, | | | Nine months ended Sep 30, | | | Quarter ended March 31, | |
(in millions) | | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
| | 2019 |
| | 2018 |
|
Servicing income, net: | | | | | | | | | | | | |
Servicing fees: | | | | | | | | | | | | |
Contractually specified servicing fees | | $ | 889 |
| | 954 |
| | 2,696 |
| | 2,857 |
| | $ | 840 |
| | 916 |
|
Late charges | | 41 |
| | 45 |
| | 133 |
| | 135 |
| | 33 |
| | 44 |
|
Ancillary fees | | 51 |
| | 56 |
| | 160 |
| | 171 |
| | 38 |
| | 40 |
|
Unreimbursed direct servicing costs (1) | | (186 | ) | | (177 | ) | | (430 | ) | | (533 | ) | | (70 | ) | | (94 | ) |
Net servicing fees | | 795 |
| | 878 |
| | 2,559 |
| | 2,630 |
| | 841 |
| | 906 |
|
Changes in fair value of MSRs carried at fair value: | | | | | | | | | | | | |
Due to changes in valuation model inputs or assumptions (2) | (A) | (142 | ) | | (8 | ) | | (328 | ) | | (1,789 | ) | (A) | (891 | ) | | 1,330 |
|
Changes due to collection/realization of expected cash flows over time | | (519 | ) | | (586 | ) | | (1,467 | ) | | (1,645 | ) | | (482 | ) | | (483 | ) |
Total changes in fair value of MSRs carried at fair value | | (661 | ) | | (594 | ) | | (1,795 | ) | | (3,434 | ) | | (1,373 | ) | | 847 |
|
Amortization | | (65 | ) | | (67 | ) | | (198 | ) | | (202 | ) | | (66 | ) | | (65 | ) |
Net derivative gains from economic hedges (3) | (B) | 240 |
| | 142 |
| | 599 |
| | 2,575 |
| |
Net derivative gains (losses) from economic hedges (3) | | (B) | 962 |
| | (1,220 | ) |
Total servicing income, net | | 309 |
| | 359 |
| | 1,165 |
| | 1,569 |
| | 364 |
| | 468 |
|
Net gains on mortgage loan origination/sales activities(4) | | 737 |
| | 1,308 |
| | 2,257 |
| | 3,110 |
| | 344 |
| | 466 |
|
Total mortgage banking noninterest income | | $ | 1,046 |
| | 1,667 |
| | 3,422 |
| | 4,679 |
| | $ | 708 |
| | 934 |
|
Market-related valuation changes to MSRs, net of hedge results (2)(3) | (A)+(B) | $ | 98 |
| | 134 |
| | 271 |
| | 786 |
| (A)+(B) | $ | 71 |
| | 110 |
|
| |
(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 MSRs presented in Table 8.111.1 in this Note for more detail. |
| |
(3) | 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)15 (Derivatives) for additional discussion and detail. |
| |
(4) | Includes losses of $(151) million and gains of $625 million for first quarter 2019 and 2018, respectively, related to derivatives used as economic hedges of mortgage loans held for sale and |
derivative loan commitments.
Note 8: Mortgage Banking Activities12: Intangible Assets (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 repurchase liability 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 $180 million at September 30, 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, | |
(in millions) | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
|
Balance, beginning of period | $ | 178 |
| | 255 |
| | 229 |
| | 378 |
|
Assumed with MSR purchases (1) | 10 |
| | — |
| | 10 |
| | — |
|
Provision for repurchase losses: | | | | | | | |
Loan sales | 6 |
| | 11 |
| | 20 |
| | 26 |
|
Change in estimate (2) | (12 | ) | | (24 | ) | | (65 | ) | | (132 | ) |
Net reductions to provision | (6 | ) | | (13 | ) | | (45 | ) | | (106 | ) |
Losses | (3 | ) | | (3 | ) | | (15 | ) | | (33 | ) |
Balance, end of period | $ | 179 |
| | 239 |
| | 179 |
| | 239 |
|
| |
(1) | Represents repurchase liability associated with portfolio of loans underlying mortgage servicing rights acquired during the period. |
| |
(2) | Results from changes in investor demand and mortgage insurer practices, credit deterioration and changes in the financial stability of correspondent lenders. |
|
|
Note 9:12: Intangible Assets |
Table 9.112.1 presents the gross carrying value of intangible assets and accumulated amortization.
Table 9.1:12.1: Intangible Assets
| | | September 30, 2017 | | | December 31, 2016 | | March 31, 2019 | | | December 31, 2018 | |
(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) | $ | 3,793 |
| | (2,387 | ) | | 1,406 |
| | 3,595 |
| | (2,189 | ) | | 1,406 |
| $ | 4,211 |
| | (2,784 | ) | | 1,427 |
| | 4,161 |
| | (2,718 | ) | | 1,443 |
|
Core deposit intangibles | 12,834 |
| | (11,853 | ) | | 981 |
| | 12,834 |
| | (11,214 | ) | | 1,620 |
| — |
| | — |
| | — |
| | 12,834 |
| | (12,834 | ) | | — |
|
Customer relationship and other intangibles | 3,991 |
| | (3,073 | ) | | 918 |
| | 3,928 |
| | (2,839 | ) | | 1,089 |
| 3,937 |
| | (3,429 | ) | | 508 |
| | 3,994 |
| | (3,449 | ) | | 545 |
|
Total amortized intangible assets | $ | 20,618 |
| | (17,313 | ) | | 3,305 |
| | 20,357 |
| | (16,242 | ) | | 4,115 |
| $ | 8,148 |
| | (6,213 | ) | | 1,935 |
| | 20,989 |
| | (19,001 | ) | | 1,988 |
|
Unamortized intangible assets: | | | | | | | | | | | | | | | | | | | | | | |
MSRs (carried at fair value) (2) | $ | 13,338 |
| | | | | | 12,959 |
| | | | | $ | 13,336 |
| | | | | | 14,649 |
| | | | |
Goodwill | 26,581 |
| | | | | | 26,693 |
| | | | | 26,420 |
| | | | | | 26,418 |
| | | | |
Trademark | 14 |
| | | | | | 14 |
| | | | | 14 |
| | | | | | 14 |
| | | | |
| |
(1) | Excludes fully amortized intangible assets.Balances are excluded commencing in the period following full amortization. |
| |
(2) | See Note 811 (Mortgage Banking Activities) for additional information on MSRs. |
Table 9.212.2 provides the current year and estimated future amortization expense for amortized intangible assets. We based our projections of amortization expense shown below on existing
asset balances at September 30, 2017.March 31, 2019. Future amortization expense may vary from these projections.
Table 9.2:12.2: Amortization Expense for Intangible Assets
| | (in millions) | | Amortized MSRs |
| | Core deposit intangibles |
| | Customer relationship and other intangibles (1) |
| | Total |
| | Amortized MSRs |
| | Customer relationship and other intangibles |
| | Total |
|
Nine months ended September 30, 2017 (actual) | | $ | 198 |
| | 639 |
| | 235 |
| | 1,072 |
| |
Estimate for the remainder of 2017 | | $ | 64 |
| | 212 |
| | 76 |
| | 352 |
| |
Three months ended March 31, 2019 (actual) | | | $ | 66 |
| | 30 |
| | 96 |
|
Estimate for the remainder of 2019 | | | $ | 202 |
| | 85 |
| | 287 |
|
Estimate for year ended December 31, | Estimate for year ended December 31, | | | | | | | | Estimate for year ended December 31, | | | | | |
2018 | | 240 |
| | 769 |
| | 301 |
| | 1,310 |
| |
2019 | | 212 |
| | — |
| | 116 |
| | 328 |
| |
2020 | | 192 |
| | — |
| | 96 |
| | 288 |
| | 242 |
| | 95 |
| | 337 |
|
2021 | | 166 |
| | — |
| | 82 |
| | 248 |
| | 206 |
| | 81 |
| | 287 |
|
2022 | | 146 |
| | — |
| | 68 |
| | 214 |
| | 183 |
| | 68 |
| | 251 |
|
2023 | | | 154 |
| | 59 |
| | 213 |
|
2024 | | | 130 |
| | 48 |
| | 178 |
|
| |
(1) | The nine months endedSeptember 30, 2017 balance includes $11 million for lease intangible amortization.
|
Table 9.312.3 shows the allocation of goodwill to our reportable operating segments.
Table 9.3:12.3: Goodwill
|
| | | | | | | | | | | | |
(in millions) | Community Banking |
| | Wholesale Banking |
| | Wealth and Investment Management |
| | Consolidated Company |
|
December 31, 2015 | $ | 16,849 |
| | 7,475 |
| | 1,205 |
|
| 25,529 |
|
Reduction in goodwill related to divested businesses and other | — |
| | (84 | ) | | (2 | ) | | (86 | ) |
Goodwill from business combinations | — |
| | 1,245 |
| | — |
| | 1,245 |
|
September 30, 2016 | $ | 16,849 |
| | 8,636 |
| | 1,203 |
| | 26,688 |
|
December 31, 2016 | $ | 16,849 |
| | 8,585 |
| | 1,259 |
| | 26,693 |
|
Reclassification of goodwill held for sale to Other Assets (1) | — |
| | (116 | ) | | — |
| | (116 | ) |
Reduction in goodwill related to divested businesses and other | — |
| | (20 | ) | | — |
| | (20 | ) |
Goodwill from business combinations | — |
| | — |
| | 24 |
| | 24 |
|
September 30, 2017 (1) | $ | 16,849 |
| | 8,449 |
| | 1,283 |
| | 26,581 |
|
|
| | | | | | | | | | | | |
(in millions) | Community Banking |
| | Wholesale Banking |
| | Wealth and Investment Management |
| | Consolidated Company |
|
December 31, 2017 | $ | 16,849 |
| | 8,455 |
| | 1,283 |
|
| 26,587 |
|
Reduction in goodwill related to divested businesses and other | (142 | ) | | — |
| | — |
| | (142 | ) |
March 31, 2018 | $ | 16,707 |
| | 8,455 |
| | 1,283 |
| | 26,445 |
|
December 31, 2018 | $ | 16,685 |
| | 8,450 |
| | 1,283 |
| | 26,418 |
|
Foreign currency translation | — |
| | 2 |
| | — |
| | 2 |
|
March 31, 2019 | $ | 16,685 |
| | 8,452 |
| | 1,283 |
| | 26,420 |
|
| |
(1) | Goodwill reclassified to held-for-sale in other assets of $116 million for the nine months ended September 30, 2017 relates to the sales agreement for Wells Fargo Insurance Services USA (and related businesses) and Wells Fargo Shareowner Services. No goodwill was classified as held-for-sale in other assets at December 31, 2016 and 2015.
|
We assess goodwill for impairment at a reporting unit level, which is one level below the operating segments. See Note 1822 (Operating Segments) for further information on management reporting.
|
|
Note 10:13: Guarantees, Pledged Assets and Collateral, and Other Commitments |
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 similar arrangements. For complete
complete descriptions of our guarantees, see Note 1415 (Guarantees, Pledged Assets and Collateral)Collateral, and Other Commitments) to Financial Statements in our 20162018 Form 10-K. Table 10.113.1 shows carrying value, maximum exposure to loss on our guarantees and the related non-investment grade amounts.
Table 10.1:13.1: Guarantees – Carrying Value and Maximum Exposure to Loss
| | | | | Maximum exposure to loss | | | | Maximum exposure to loss | |
(in millions) | 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 |
| 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, 2017 | | | | | | | | | | | | | | |
March 31, 2019 | | | | | | | | | | | | | | |
Standby letters of credit (1) | $ | 37 |
| | 14,045 |
| | 8,621 |
| | 3,251 |
| | 689 |
| | 26,606 |
| | 8,325 |
| $ | 38 |
| | 14,919 |
| | 7,276 |
| | 3,609 |
| | 465 |
| | 26,269 |
| | 7,941 |
|
Securities lending and other indemnifications (2) | — |
| | — |
| | — |
| | 2 |
| | 929 |
| | 931 |
| | 2 |
| — |
| | — |
| | — |
| | — |
| | 865 |
| | 865 |
| | — |
|
Written put options (3) | (407 | ) | | 15,576 |
| | 11,921 |
| | 4,392 |
| | 1,260 |
| | 33,149 |
| | 19,817 |
| (394 | ) | | 12,392 |
| | 10,025 |
| | 3,119 |
| | 359 |
| | 25,895 |
| | 14,808 |
|
Loans and MHFS sold with recourse (4) | 51 |
| | 203 |
| | 508 |
| | 914 |
| | 9,160 |
| | 10,785 |
| | 7,964 |
| |
Loans and MLHFS sold with recourse (4) | | 53 |
| | 109 |
| | 660 |
| | 1,160 |
| | 10,420 |
| | 12,349 |
| | 9,168 |
|
Factoring guarantees (5) | — |
| | 775 |
| | — |
| | — |
| | — |
| | 775 |
| | 711 |
| — |
| | 584 |
| | — |
| | — |
| | — |
| | 584 |
| | 544 |
|
Other guarantees | 1 |
| | 4 |
| | 4 |
| | 2 |
| | 4,093 |
| | 4,103 |
| | 7 |
| 1 |
| | — |
| | — |
| | 3 |
| | 3,020 |
| | 3,023 |
| | 1 |
|
Total guarantees | $ | (318 | ) | | 30,603 |
| | 21,054 |
| | 8,561 |
| | 16,131 |
| | 76,349 |
| | 36,826 |
| $ | (302 | ) | | 28,004 |
| | 17,961 |
| | 7,891 |
| | 15,129 |
| | 68,985 |
| | 32,462 |
|
December 31, 2016 | | | | | | | | | | | | | | |
December 31, 2018 | | | | | | | | | | | | | | |
Standby letters of credit (1) | $ | 38 |
| | 16,050 |
| | 8,727 |
| | 3,194 |
| | 658 |
| | 28,629 |
| | 9,898 |
| $ | 40 |
| | 14,636 |
| | 7,897 |
| | 3,398 |
| | 497 |
| | 26,428 |
| | 8,027 |
|
Securities lending and other indemnifications (2) | — |
| | — |
| | — |
| | 1 |
| | 1,166 |
| | 1,167 |
| | 2 |
| — |
| | — |
| | 1 |
| | — |
| | 1,044 |
| | 1,045 |
| | 1 |
|
Written put options (3) | 37 |
| | 10,427 |
| | 10,805 |
| | 4,573 |
| | 1,216 |
| | 27,021 |
| | 15,915 |
| (185 | ) | | 17,243 |
| | 10,502 |
| | 3,066 |
| | 400 |
| | 31,211 |
| | 21,732 |
|
Loans and MHFS sold with recourse (4) | 55 |
| | 84 |
| | 637 |
| | 947 |
| | 8,592 |
| | 10,260 |
| | 7,228 |
| |
Loans and MLHFS sold with recourse (4) | | 54 |
| | 104 |
| | 653 |
| | 1,207 |
| | 10,163 |
| | 12,127 |
| | 9,079 |
|
Factoring guarantees (5) | — |
| | 1,109 |
| | — |
| | — |
| | — |
| | 1,109 |
| | 1,109 |
| — |
| | 889 |
| | — |
| | — |
| | — |
| | 889 |
| | 751 |
|
Other guarantees | 6 |
| | 19 |
| | 21 |
| | 17 |
| | 3,580 |
| | 3,637 |
| | 15 |
| 1 |
| | — |
| | — |
| | 3 |
| | 2,959 |
| | 2,962 |
| | 1 |
|
Total guarantees | $ | 136 |
| | 27,689 |
| | 20,190 |
| | 8,732 |
| | 15,212 |
| | 71,823 |
| | 34,167 |
| $ | (90 | ) | | 32,872 |
| | 19,053 |
| | 7,674 |
| | 15,063 |
| | 74,662 |
| | 39,591 |
|
| |
(1) | Total maximum exposure to loss includes direct pay letters of credit (DPLCs) of $8.6$7.2 billion and $9.2$7.5 billion at September 30, 2017,March 31, 2019, and December 31, 2016,2018, 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 $92$75 million and $175$70 million with related collateral of $837$790 million and $991$974 million at September 30, 2017,March 31, 2019, and December 31, 2016,2018, respectively. Estimated maximum exposure to loss was $929 million at September 30, 2017 and $1.2 billion at December 31, 2016. |
| |
(3) | Written put options, which are in the form of derivatives, are also included in the derivative disclosures in Note 1215 (Derivatives). Carrying value net asset position is a result of certain deferred premium option trades. |
| |
(4) | Represent recourse provided, predominantly to the GSEs, on loans sold under various programs and arrangements. Under these arrangements, we repurchased $1 million and $3 million respectively, of loans associated with these agreements in the third quarter and first nine months of 2017, and $2 million and $4 million in the same periods of 2016, 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 performperformance 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. Credit quality indicators we usually consider in evaluating risk of payments or performance are described in Note 56 (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 a remote possibility, where the value of our interests and any associated collateral declines to zero. Maximum exposure to loss estimates in Table 10.113.1 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 10:13: Guarantees, Pledged Assets and Collateral, and Other Commitments (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 FHLBFederal Home Loan Bank (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 10.213.2 provides the total carrying amount of pledged assets
by asset type and the fair value of pledged off-
balanceoff-balance sheet securities for securities financings. The table excludes pledged consolidated VIE assets of $12.9$14.8 billion and $13.4$14.1 billion at September 30, 2017,March 31, 2019, and December 31, 2016,2018, respectively, which can only be used to settle the liabilities of those entities. The table also excludes $1.1 billion$545 million and $617 million in assets pledged in transactions with VIE'sVIE’s accounted for as secured borrowings at both September 30, 2017,March 31, 2019, and December 31, 2016,2018, respectively. See Note 710 (Securitizations and Variable Interest Entities) for additional information on consolidated VIE assets and secured borrowings.
Table 10.2:13.2: Pledged Assets |
| | | | | | |
(in millions) | Sep 30, 2017 |
| | Dec 31, 2016 |
|
Trading assets and other (1) | $ | 100,160 |
| | 84,603 |
|
Investment securities (2) | 67,142 |
| | 90,946 |
|
Mortgages held for sale and loans (3) | 480,422 |
| | 516,112 |
|
Total pledged assets | $ | 647,724 |
| | 691,661 |
|
|
| | | | | | |
(in millions) | Mar 31, 2019 |
| | Dec 31, 2018 |
|
Related to trading activities: | | | |
Debt securities | $ | 102,951 |
| | 96,616 |
|
Equity securities | 10,349 |
| | 9,695 |
|
Total pledged assets related to trading activities (1) | 113,300 |
| | 106,311 |
|
Related to non-trading activities: | | | |
Debt securities and other (2) | 57,067 |
| | 62,438 |
|
Mortgage loans held for sale and loans (3) | 464,216 |
| | 453,894 |
|
Total pledged assets related to non-trading activities | 521,283 |
| | 516,332 |
|
Total pledged assets | $ | 634,583 |
| | 622,643 |
|
| |
(1) | Consists of pledged assets related to trading assetsactivities of $40.1$42.7 billion and $33.2$45.5 billion at September 30, 2017,March 31, 2019, and December 31, 2016,2018, respectively and off-balance sheet securities of $60.1$70.6 billion and $51.4$60.8 billion as of the same dates, respectively, that are pledged as collateral for repurchase agreements and other securities financings. Total pledged assets related to trading assetsactivities includes $113.2 billion and other includes $100.1$106.2 billion at March 31, 2019, and $84.2 billion at September 30, 2017, and December 31, 2016,2018, respectively, under agreements that permit the secured parties to sell or repledge the collateral. |
| |
(2) | Includes carrying value of $5.0$3.8 billion and $6.2$4.2 billion (fair value of $5.0$3.7 billion and $6.2 billion)$4.1 billion) in collateral for repurchase agreements at September 30, 2017,March 31, 2019, and December 31, 2016,2018, respectively, which are pledged under agreements that do not permit the secured parties to sell or repledge the collateral. Also includes $84$56 million and $617$68 million in collateral pledged under repurchase agreements at September 30, 2017,March 31, 2019, and December 31, 2016,2018, respectively, that permit the secured parties to sell or repledge the collateral. AllSubstantially all other pledged securities are pursuant to agreements that do not permit the secured party to sell or repledge the collateral. |
| |
(3) | Includes mortgagesmortgage loans held for sale of $1.3$1.0 billion and $15.8$7.4 billion at September 30, 2017,March 31, 2019, and December 31, 2016,2018, respectively. Substantially all of the total mortgagesmortgage loans held for sale and loans are pledged under agreements that do not permit the secured parties to sell or repledge the collateral. Amounts exclude $1.3$578 million and $1.2 billion at March 31, 2019, and $1.2 billion at September 30, 2017, and December 31, 2016,2018, respectively, of pledged loans recorded on our balance sheet representing certain delinquent loans that are eligible for repurchase from GNMA loan securitizations. |
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 dealerbroker-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 AGREEMENTSFINANCING ACTIVITIES Table 10.313.3 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 10.3,13.3, we also have balance sheet netting related to derivatives that is disclosed in Note 1215 (Derivatives).
Table 10.3:13.3: Offsetting – Resale and Repurchase AgreementsSecurities Financing Activities
| | (in millions) | Sep 30, 2017 |
| | Dec 31, 2016 |
| Mar 31, 2019 |
| | Dec 31, 2018 |
|
Assets: | | | | | | |
Resale and securities borrowing agreements | | | | | | |
Gross amounts recognized | $ | 109,529 |
| | 91,123 |
| $ | 135,549 |
| | 112,662 |
|
Gross amounts offset in consolidated balance sheet (1) | (22,954 | ) | | (11,680 | ) | (19,688 | ) | | (15,258 | ) |
Net amounts in consolidated balance sheet (2) | 86,575 |
| | 79,443 |
| 115,861 |
| | 97,404 |
|
Collateral not recognized in consolidated balance sheet (3) | (85,777 | ) | | (78,837 | ) | (115,063 | ) | | (96,734 | ) |
Net amount (4) | $ | 798 |
| | 606 |
| $ | 798 |
| | 670 |
|
Liabilities: | | | | | | |
Repurchase and securities lending agreements | | | | | | |
Gross amounts recognized (5) | $ | 102,281 |
| | 89,111 |
| $ | 112,993 |
| | 106,248 |
|
Gross amounts offset in consolidated balance sheet (1) | (22,954 | ) | | (11,680 | ) | (19,688 | ) | | (15,258 | ) |
Net amounts in consolidated balance sheet (6) | 79,327 |
| | 77,431 |
| 93,305 |
| | 90,990 |
|
Collateral pledged but not netted in consolidated balance sheet (7) | (79,060 | ) | | (77,184 | ) | (93,095 | ) | | (90,798 | ) |
Net amount (8) | $ | 267 |
| | 247 |
| $ | 210 |
| | 192 |
|
| |
(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, 2017,Includes $98.6 billion and December 31, 2016, includes $66.0$80.1 billion and $58.1 billion, respectively, classified on our consolidated balance sheet in federal funds sold and securities purchased under resale agreements at March 31, 2019, and other short-term investments and $20.6December 31, 2018, respectively. Also includes securities purchased under long-term resale agreements (generally one year or more) classified in loans, which totaled $17.3 billion at both March 31, 2019, and $21.3 billion, respectively, in loans.December 31, 2018.
|
| |
(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, 2017,March 31, 2019, and December 31, 2016,2018, we have received total collateral with a fair value of $120.5$146.2 billion and $102.3$123.1 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 $58.4$70.9 billion at September 30, 2017,March 31, 2019, and $50.0$60.8 billion at December 31, 2016. 2018. |
| |
(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, 2017,March 31, 2019, and December 31, 2016,2018, we have pledged total collateral with a fair value of $104.2$115.2 billion and $91.4$108.8 billion,, respectively, of which, the counterparty does not have the right to sell or repledge $5.0$3.8 billion as of September 30, 2017March 31, 2019 and $6.6$4.4 billion as of December 31, 2016. 2018. |
| |
(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'stransaction’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 mostin various ways. Most of our securities financing activities involvecollateral consists of highly liquid securities,securities. In addition, 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 10.413.4 provides the underlying collateral typesgross amounts recognized on the balance sheet (before the effects of offsetting) of our gross obligations underliabilities for repurchase and securities lending agreements.agreements disaggregated by underlying collateral type.
Note 13: Guarantees, Pledged Assets and Collateral, and Other Commitments (continued)
Table 10.4:13.4: Underlying Collateral Types of Gross Obligations
| | (in millions) | | Sep 30, 2017 |
| | Dec 31, 2016 |
| | Mar 31, 2019 |
| | Dec 31, 2018 |
|
Repurchase agreements: | | | | | | | | |
Securities of U.S. Treasury and federal agencies | | $ | 44,312 |
| | 34,335 |
| | $ | 46,186 |
| | 38,408 |
|
Securities of U.S. States and political subdivisions | | 120 |
| | 81 |
| | 61 |
| | 159 |
|
Federal agency mortgage-backed securities | | 33,456 |
| | 32,669 |
| | 44,672 |
| | 47,241 |
|
Non-agency mortgage-backed securities | | 1,548 |
| | 2,167 |
| | 1,767 |
| | 1,875 |
|
Corporate debt securities | | 7,381 |
| | 6,829 |
| | 6,989 |
| | 6,191 |
|
Asset-backed securities | | 1,873 |
| | 3,010 |
| | 2,337 |
| | 2,074 |
|
Equity securities | | 368 |
| | 1,309 |
| | 1,033 |
| | 992 |
|
Other | | 1,300 |
| | 1,704 |
| | 341 |
| | 340 |
|
Total repurchases | | 90,358 |
| | 82,104 |
| | 103,386 |
| | 97,280 |
|
Securities lending: | | | | | |
Securities lending arrangements: | | | | | |
Securities of U.S. Treasury and federal agencies | | 134 |
| | 152 |
| | 186 |
| | 222 |
|
Federal agency mortgage-backed securities | | 80 |
| | 104 |
| | — |
| | 2 |
|
Non-agency mortgage-backed securities | | — |
| | 1 |
| |
Corporate debt securities | | 592 |
| | 653 |
| | 390 |
| | 389 |
|
Equity securities (1) | | 11,117 |
| | 6,097 |
| | 9,011 |
| | 8,349 |
|
Other | | | 20 |
| | 6 |
|
Total securities lending | | 11,923 |
| | 7,007 |
| | 9,607 |
| | 8,968 |
|
Total repurchases and securities lending | | $ | 102,281 |
| | 89,111 |
| | $ | 112,993 |
| | 106,248 |
|
| |
(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 10.513.5 provides the contractual maturities of our gross obligations under repurchase and securities lending agreements.
Table 10.5:13.5: 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, 2017 | | | | | | | | | | |
March 31, 2019 | | | | | | | | | | |
Repurchase agreements | $ | 73,953 |
| | 8,212 |
| | 3,898 |
| | 4,295 |
| | 90,358 |
| $ | 93,042 |
| | 2,696 |
| | 2,844 |
| | 4,804 |
| | 103,386 |
|
Securities lending | 9,765 |
| | 405 |
| | 1,753 |
| | — |
| | 11,923 |
| |
Securities lending arrangements | | 9,308 |
| | — |
| | 299 |
| | — |
| | 9,607 |
|
Total repurchases and securities lending (1) | $ | 83,718 |
| | 8,617 |
| | 5,651 |
| | 4,295 |
| | 102,281 |
| $ | 102,350 |
| | 2,696 |
| | 3,143 |
| | 4,804 |
| | 112,993 |
|
December 31, 2016 | | |
December 31, 2018 | | |
Repurchase agreements | $ | 60,516 |
| | 9,598 |
| | 6,762 |
| | 5,228 |
| | 82,104 |
| $ | 86,574 |
| | 3,244 |
| | 2,153 |
| | 5,309 |
| | 97,280 |
|
Securities lending | 5,565 |
| | 167 |
| | 1,275 |
| | — |
| | 7,007 |
| |
Securities lending arrangements | | 8,669 |
| | — |
| | 299 |
| | — |
| | 8,968 |
|
Total repurchases and securities lending (1) | $ | 66,081 |
| | 9,765 |
| | 8,037 |
| | 5,228 |
| | 89,111 |
| $ | 95,243 |
| | 3,244 |
| | 2,452 |
| | 5,309 |
| | 106,248 |
|
| |
(1) | Securities lending is executed under agreements that allow either party to terminate the transaction without notice, while repurchase agreements have a 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 in securities lending. |
OTHER COMMITMENTS To meet the financing needs of our customers, we may enter into commitments to purchase debt and equity securities to provide capital for their funding, liquidity or other future needs. As of March 31, 2019, and December 31, 2018, we had commitments to purchase debt securities of $224 million and $335 million, respectively, and commitments to purchase equity securities of $2.5 billion for both periods.
As part of maintaining our memberships in certain clearing organizations, we are required to stand ready to provide liquidity to sustain market clearing activity in the event unforeseen events occur or are deemed likely to occur. Certain of these obligations are guarantees of other members’ performance and accordingly are included in Other guarantees in Table 13.1.
Also, we have commitments to purchase securities under resale agreements from central clearing organizations. We do not have any outstanding amounts funded, and the amount of our unfunded contractual commitments was $9.7 billion and $9.8 billion as of March 31, 2019, and December 31, 2018, respectively. Given the nature of these commitments, they are
excluded from Table 6.4 (Unfunded Credit Commitments) in Note 6 (Loans and Allowance for Credit Losses).
The Parent fully and unconditionally guarantees the payment of principal, interest, and any other amounts that may be due on securities that its 100% owned finance subsidiary, Wells Fargo Finance LLC, may issue. These guaranteed liabilities were $229 million and $5 million at March 31, 2019 and December 31, 2018, respectively. These guarantees rank on parity with all of the Parent’s other unsecured and unsubordinated indebtedness.
|
|
Note 11:14: Legal Actions |
Wells Fargo and certain of our subsidiaries are involved in a number of judicial, regulatory, governmental, arbitration, and other proceedings or investigations concerning matters arising from the conduct of our business activities, and many of those proceedings and investigations expose Wells Fargo to potential financial loss. These proceedings and investigations include actions brought against Wells Fargo and/or our subsidiaries with respect to corporate-related matters and transactions in which Wells Fargo and/or our subsidiaries were involved. In addition, Wells Fargo and our subsidiaries may be requested to provide information or otherwise cooperate with government authorities in the conduct of investigations of other persons or industry groups.
Although there can be no assurance as to the ultimate outcome, Wells Fargo and/or our subsidiaries have generally denied, or believe we have a meritorious defense and will deny, liability in all significant legal actions pending against us, including the matters described below, and we intend to defend vigorously each case, other than matters we describe as having settled. We establish accruals for legal actions when potential losses associated with the actions become probable and the costs can be reasonably estimated. For such accruals, we record the amount we consider to be the best estimate within a range of potential losses that are both probable and estimable; however, if we cannot determine a best estimate, then we record the low end of the range of those potential losses. The actual costs of resolving legal actions may be substantially higher or lower than the amounts accrued for those actions.
ATM ACCESS FEE LITIGATION In October 2011, plaintiffs filed a putative class action, Mackmin, et.et al. v. Visa, Inc. et.et al., against Wells Fargo & Company, Wells Fargo Bank, N.A., Visa, MasterCard, and several other banks in the United States District Court for the District of Columbia. Plaintiffs allege that the Visa and MasterCard requirement that if an ATM operator charges an access fee on Visa and MasterCard transactions, then that fee cannot be greater than the access fee charged for transactions on other networks, violates antitrust rules. Plaintiffs seek treble damages, restitution, injunctive relief, and attorneys’ fees where available under federal and state law. Two other antitrust cases whichthat make similar allegations were filed in the same court, but these cases did not name Wells Fargo as a defendant. On February 13, 2013, the district court granted defendants’ motions to dismiss the three actions. Plaintiffs appealed the dismissals and, on August 4, 2015, the United States Court of Appeals for the District of Columbia Circuit vacated the district court’s decisions and remanded the three cases to the district court for further proceedings. On June 28, 2016, the United States Supreme Court granted defendants’ petitions for writ of certiorari to review the decisions of the United States Court of Appeals for the District of Columbia. On November 17, 2016, the United States Supreme Court dismissed the petitions as improvidently granted, and the three cases returned to the district court for further proceedings.
AUTOMOBILE LENDING MATTERS AsOn April 20, 2018, the Company centralizes operations in its dealer services businessentered into consent orders with the Office of the Comptroller of the Currency (OCC) and tightens controls and oversight of third-partythe Consumer Financial Protection Bureau (CFPB) to resolve, among other things, investigations by the agencies into the Company’s compliance risk management program and its past practices involving certain automobile collateral protection insurance (CPI) policies and, as
discussed below, certain mortgage interest rate lock extensions. The consent orders require remediation to customers and the Company anticipates it will identify and remediate issues relatedpayment of a total of $1.0 billion in civil money penalties to historical practices concerning the origination, servicing, and/or collection of consumer automobile loans, including related insurance products. For example, inagencies. In July 2017, the Company announced a plan to remediate customers who may have been
financially harmed due to issues related to automobile collateral protection insurance (CPI)CPI policies purchased through a third-party vendor on their behalf. The Company determined that certain external vendor processes and operational controls were inadequate and, as a result, customers may have been charged premiums for CPI even if they were paying for their own vehicle insurance, as required, and in some cases the CPI premiums may have contributed to a default that led to their vehicle’s repossession. The Company discontinued the practice of placing CPI in September 2016. Multiple putative class action cases alleging, among other things, unfair and deceptive practices relating to these CPI policies, have been filed against the Company and consolidated into one multi-district litigation in the United States District Court for the Central District of California. Further,The Company has reached an agreement in principle to resolve the multi-district litigation pursuant to which the Company has agreed to pay, consistent with its remediation obligations under the consent orders, approximately $415 million in remediation to customers with CPI policies placed between October 15, 2005, and September 30, 2016. The settlement amount is not incremental to the Company’s remediation obligations under the consent orders, but instead encompasses those obligations, including remediation payments to date. The settlement amount is subject to change as the Company finalizes its remediation activity under the consent orders. In addition, the Company has agreed to contribute $1 million to a formercommon fund for the class. The district court has set a preliminary approval hearing for June 3, 2019. The $415 million amount of the agreement in principle was fully accrued as of March 31, 2019. A putative class of shareholders also filed a securities fraud class action against the Company and its executive officers alleging material misstatements and omissions of CPI-related information in the Company’s public disclosures. Former team member hasmembers have also alleged retaliation for raising concerns regarding automobile lending practices. In addition, the Company has identified certain issues related to the unused portion of guaranteed automobile protection (GAP) waiver or insurance agreements between the customer and dealer and, by assignment, the lender, which maywill result in refundsremediation to customers in certain states. The Company is subject to a class action lawsuit in the United States District Court for the Central District of California alleging that customers are entitled to refunds in all states. Allegations related to both the CPI and GAP programs are among the subjects of two shareholder derivative lawsuits pending in federal and state court in California. The court dismissed the state court action in September 2018, but plaintiffs filed an amended complaint in CaliforniaNovember 2018. Subject to court approval, the parties to the state court.court action have entered into an agreement to resolve the action pursuant to which the Company will pay plaintiffs’ attorneys’ fees and undertake certain business and governance practices. These and other issues related to the origination, servicing, and/orand collection of consumer automobile loans, including related insurance products, have also subjected the Company to formal or informal inquiries, investigations, or examinations from federal and state government agencies. In December 2018, the Company entered into an agreement with all 50 state Attorneys General and the District of Columbia to resolve an investigation into the Company’s retail sales practices, CPI and GAP, and mortgage interest rate lock matters, pursuant to which the Company paid $575 million.
CONSUMER DEPOSIT ACCOUNT RELATED REGULATORY INVESTIGATION The Consumer Financial Protection Bureau (the “CFPB”) has commencedCFPB is conducting an investigation into whether customers were unduly harmed by the Company’s procedures regardinghistorical practices associated with the freezing (and, in many
Note 14: Legal Actions (continued)
cases, closing) of consumer deposit accounts after the Company detected suspected fraudulent activity (by third-parties or account holders) that affected those accounts.
INADVERTENT CLIENT INFORMATION DISCLOSURE In July 2017, the Company inadvertently provided certain client information in response to A former team member has brought a third-party subpoena issued in a civil litigation. The Company obtained permanent injunctions in New Jersey and New York state courts requiring the electronic data and all copies to be delivered to the New Jersey state court action alleging retaliation for raising concerns about these practices.
FIDUCIARY AND CUSTODY ACCOUNT FEE CALCULATIONS Federal government agencies are conducting formal or informal inquiries, investigations, or examinations regarding fee calculations within certain fiduciary and custody accounts in the Company for safekeeping.Company’s investment and fiduciary services business, which is part of the wealth management business within the Wealth and Investment Management (WIM) operating segment. The Company has made voluntary self-disclosure to various state and federal regulatory agencies. Notificationsdetermined that there have been sentinstances of incorrect fees being applied to clients whose personal identifying data was containedcertain assets and accounts, resulting in both overcharges and undercharges to customers.
FOREIGN EXCHANGE BUSINESSFederal government agencies, including the United States Department of Justice (Department of Justice), are investigating or examining certain activities in the inadvertent production.Company’s foreign exchange business. The Company has begun providing remediation to customers that may have received pricing inconsistent with commitments made to those customers, and rebates to customers where historic pricing, while consistent with contracts entered into with those customers, does not conform to recently implemented pricing review standards for prior periods.
INTERCHANGE LITIGATION Plaintiffs representing a putative class of merchants have filed putative class actions, and individual merchants have filed individual actions, against Wells Fargo Bank, N.A., Wells Fargo & Company, Wachovia Bank, N.A., and Wachovia Corporation regarding the interchange fees associated with Visa and MasterCard payment card transactions. Visa, MasterCard, and several other banks and bank holding companies are also named as defendants in these actions. These actions have been consolidated in the United States District Court for the Eastern District of New York. 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
Note 11: Legal Actions (continued)
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 action 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 eight8 consecutive months. The district court granted final approval of the settlement, which was appealed to the United States Court of Appeals for the Second Circuit by settlement objector merchants. Other merchants opted out of the settlement and are pursuing several individual actions. On June 30, 2016, the
Second Circuit vacated the settlement agreement and reversed and remanded the consolidated action to the United States 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. The parties have entered into a settlement agreement to resolve the money damages class claims pursuant to which defendants will pay a total of approximately $6.2 billion, which includes approximately $5.3 billion of funds remaining from the 2012 settlement and $900 million in additional funding. The Company’s allocated responsibility for the additional funding is approximately $94.5 million. The court granted preliminary approval of the settlement in January 2019, and scheduled a final approval hearing for November 7, 2019. Several of the opt-out and direct action 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 remandedequitable relief class cases.case.
LOW INCOME HOUSING TAX CREDITSFederal government agencies have undertaken formal or informal inquiries or investigations regarding the manner in which the Company purchased, and negotiated the purchase of, certain federal low income housing tax credits in connection with the financing of low income housing developments.
MORTGAGE BANKRUPTCY LOAN MODIFICATION LITIGATION Plaintiffs, representing a putative class of mortgage borrowers who were debtors in Chapter 13 bankruptcy cases, filed a putative class action, Cotton, et al. v. Wells Fargo, et alal., against Wells Fargo & Company and Wells Fargo Bank, N.A. in the United States Bankruptcy Court for the Western District of North Carolina on June 7, 2017. The plaintiffsPlaintiffs allege that Wells Fargo improperly and unilaterally modified the mortgages of borrowers who were debtors in Chapter 13 bankruptcy cases. The plaintiffsPlaintiffs allege that Wells Fargo implemented these modifications by improperly filing mortgage payment change notices in Chapter 13 bankruptcy cases, in violation of bankruptcy rules and process. The amended complaint asserts claims based on, among other things, alleged fraud, violations of bankruptcy rules and laws, and unfair and deceptive trade practices. The amended complaint seeks monetary damages, attorneys’ fees, and declaratory and injunctive relief. The parties have entered into a settlement agreement pursuant to which the Company will pay $13.5 million to resolve the claims. The court granted final approval of the settlement on March 15, 2019.
MORTGAGE INTEREST RATE LOCK RELATED REGULATORY INVESTIGATIONMATTERS TheOn April 20, 2018, the Company entered into consent orders with the OCC and CFPB has commenced an investigationto resolve, among other things, investigations by the agencies into the Company’s compliance risk management program and its past practices involving certain automobile CPI policies and procedures regarding the circumstances in which the Company required customers to pay fees for the extension ofcertain mortgage interest rate lock periods for residential mortgages. On October 4, 2017,extensions. The consent orders require remediation to customers and the Company announced planspayment of a total of $1.0 billion in civil money penalties to reach out to all home lending customers who paid fees for mortgage rate lock extensions requested from September 16, 2013, through February 28, 2017, and to refund customers who believe they shouldn't have paid those fees.the agencies. The Company iswas named in twoa putative class actions,action, filed in the United States
District CourtsCourt for the Central District of California and the Northern District of California, alleging violations of federal and state consumer fraud statutes relating to mortgage rate lock extension fees. The Company filed a motion to dismiss and the court granted the motion. Subsequently, a putative class action was filed in the
United States District Court for the District of Oregon, raising similar allegations. The Company filed a motion to dismiss this action and the court granted the motion. In addition, former team members have asserted claims, including in pending litigation, that they were terminated for raising concerns regarding these policies and procedures.mortgage interest rate lock extension practices. Allegations related to mortgage interest rate lock extension fees are also among the subjects of two shareholder derivative lawsuits filed in California state court. Subject to court approval, the Company has entered into an agreement to resolve the derivative lawsuits pursuant to which the Company will pay plaintiffs’ attorneys’ fees and undertake certain business and governance practices. This matter has also subjected the Company to formal or informal inquiries, investigations or examinations from other federal and state government agencies. In December 2018, the Company entered into an agreement with all 50 state Attorneys General and the District of Columbia to resolve an investigation into the Company’s retail sales practices, CPI and GAP, and mortgage interest rate lock matters, pursuant to which the Company paid $575 million.
MORTGAGE RELATEDLOAN MODIFICATION LITIGATION Plaintiffs representing a putative class of mortgage borrowers have filed separate putative class actions, Hernandez v. Wells Fargo, et al., and Coordes v. Wells Fargo, et al., against Wells Fargo Bank, N.A. in the United States District Court for the Northern District of California and the United States District Court for the District of Washington, respectively. Plaintiffs allege that Wells Fargo improperly denied mortgage loan modifications or repayment plans to customers in the foreclosure process due to the overstatement of foreclosure attorneys’ fees that were included for purposes of determining whether a customer in the foreclosure process qualified for a mortgage loan modification or repayment plan.
MORTGAGE-RELATED REGULATORY INVESTIGATIONS Federal and state government agencies, including the United States Department of Justice, (the “Department of Justice”), continue investigationshave been investigating or examinations ofexamining certain mortgage related activities of Wells Fargo and predecessor institutions. Wells Fargo, for itself and for predecessor institutions, has responded, andor continues to respond, to requests from these agencies seeking information regarding the origination, underwriting, and securitization of residential mortgages, including sub-prime mortgages. These agencies have advanced theories of purported liability with respect to certain of these activities. The Department of Justice and Wells Fargo continueAn agreement, pursuant to discusswhich the matter, including potential settlement of the Department of Justice's concerns; however, litigation with these agencies, including withCompany paid $2.09 billion, was reached in August 2018 to resolve the Department of Justice remainsinvestigation, which related to certain 2005-2007 residential mortgage-backed securities activities. In addition, the Company reached an agreement with the Attorney General of the State of Illinois in November 2018 pursuant to which the Company paid $17 million in restitution to certain Illinois state pension funds to resolve a possibility.claim relating to certain residential mortgage-backed securities activities. Other financial institutions have entered into similar 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.
OFAC RELATED INVESTIGATION The Company has self-identified an issue whereby certain foreign banks utilized a Wells Fargo software-based solution to conduct import/export trade-related financing transactions with countries and entities prohibited by the Office of Foreign Assets Control (“OFAC”)(OFAC) of the United States Department of the Treasury. We do not believe any
funds related to these transactions flowed through accounts at Wells Fargo as a result of the aforementioned conduct. The Company has made voluntary self-disclosures to OFAC and is cooperating with an inquiry from the Department of Justice.
ORDER OF POSTING LITIGATION Plaintiffs filed a series of putative class actions against Wachovia Bank, N.A. and Wells Fargo Bank, N.A., as well as many other banks, challenging the “high to low” order in which the banks post debit card transactions to consumer deposit accounts. Most of these actions were consolidated in multi-district litigation proceedings (the “MDL proceedings”)(MDL proceedings) 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, and Wells Fargo moved to compel arbitration of the claims of unnamed class members. The court denied the motions to compel arbitration onin October 17, 2016.2016, and Wells Fargo has appealed this decision to the United States Court of Appeals for the Eleventh Circuit.
RMBS TRUSTEE LITIGATION In November 2014, a group of institutional investors (the “Institutional Investor Plaintiffs”), including funds affiliated with BlackRock, Inc.,May 2018, the Eleventh Circuit ruled in Wells Fargo’s favor and found that Wells Fargo had not waived its arbitration rights and remanded the case to the district court for further proceedings. Plaintiffs filed a putative class actionpetition for rehearing to the Eleventh Circuit, which was denied in August 2018. Plaintiffs petitioned for certiorari from the United States DistrictSupreme Court, for the Southern District of New York against Wells Fargo Bank, N.A., alleging claims against the Company in its capacity as trustee for a number of 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 (the “Related Federal Cases”), and the various cases pending against Wells Fargo are proceeding before the same judge. On January 19, 2016, the Southern District of New York entered an order in connection with the Federal Court Complaint dismissing claims related to certain of the trusts at issue (the “Dismissed Trusts”). The Company's motion to dismiss the Federal Court Complaint and the complaints for the Related Federal Casespetition was granted in part and denied in part in March 2017. In May 2017, the Company filed third-party complaints against certain investment advisors affiliated with the Institutional Investor Plaintiffs seeking contribution with respect to claims alleged in the Federal Court Complaint.
A complaint raising similar allegationsJanuary 2019. The case has returned to the Federal Court Complaint was filed in May 2016 in New York statedistrict 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 (the “State Court Action”). The Company has moved to dismiss the State Court Action.
In July 2017, certain of the plaintiffs from the State Court Action filed a civil complaint relating to Wells Fargo Bank, N.A.'s setting aside reserves for legal fees and expenses in connection with the liquidation of eleven RMBS trusts at issue in the State Court Action. The complaint seeks, among other relief, declarations that Wells Fargo Bank, N.A. is not entitled to indemnification, the advancement of funds or the taking of reserves from trust funds for legal fees and expenses it incurs in defending the claims in the State Court Action. In September 2017, one of the plaintiffs in the Related Federal Cases filed a similar complaint in the Southern District of New York seeking declaratory and injunctive relief and money damages on an individual and class action basis.
further proceedings.
RETAIL SALES PRACTICES MATTERS Federal, state, and local government agencies, including the Department of Justice, the United States Securities and Exchange Commission (SEC), and the United States Department of Labor, andLabor; state attorneys general, including the New York Attorney General; and prosecutors’ offices, as well as Congressional committees, have undertaken formal or informal inquiries, investigations or examinations arising out of certain retail sales practices of the Company that were the subject of settlements with the Consumer Financial Protection Bureau,CFPB, the Office of the Comptroller of the CurrencyOCC, and the Office of the Los Angeles City Attorney announced by the Company on September 8, 2016. These matters are at varying stages. The Company has responded, and
continues to respond, to requests from a number of the foregoing seeking information regarding theseforegoing. In October 2018, the Company entered into an agreement to resolve the New York Attorney General’s investigation pursuant to which the Company paid $65 million to the State of New York. In December 2018, the Company entered into an agreement with all 50 state Attorneys General and the District of Columbia to resolve an investigation into the Company’s retail sales practices, CPI and GAP, and mortgage interest rate lock matters, pursuant to which the Company paid $575 million. The Company has also engaged in preliminary and/or exploratory resolution discussions with the Department of Justice and the circumstancesSEC, although there can be no assurance as to the outcome of the settlements and related matters.these discussions.
In addition, a number of lawsuits have also been filed by non-governmental parties seeking damages or other remedies related to these retail 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 separate putative class actions 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 claims regarding certain products or services provided without authorization or consent for the time period May 1, 2002 to
Note 14: Legal Actions (continued)
April 20, 2017. Pursuant to the settlement, the Company will pay $142 million for remediation, attorneys’ fees, and settlement fund claims administration. In the unlikely event that the $142 million settlement total is not enough to provide remediation, pay attorneys'attorneys’ fees, pay settlement fund claims administration costs, and have at least $25 million left over to distribute to all class members, the Company will contribute additional funds to the settlement. In addition, in the unlikely event that the number of unauthorized accounts identified by settlement class members in the claims process and not disputed by the claims administrator exceeds plaintiffs’ 3.5 million account estimate, the Company will proportionately increase the $25 million reserve so that the ratio of reserve to unauthorized accounts is no less than what was implied by plaintiffs’ estimate at the time of the district court’s preliminary approval of the settlement in July 2017. AThe district court issued an order granting final approval hearing hasof the settlement on June 14, 2018. Several appeals of the district court’s order granting final approval of the settlement have been scheduledfiled with the United States Court of Appeals for the first quarter of 2018.Ninth Circuit. Second, Wells Fargo shareholders are pursuingbrought 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. The Company entered into a settlement agreement to resolve this matter pursuant to which the Company paid $480 million. The district court issued an order granting final approval of the settlement on December 20, 2018. Third, Wells Fargo shareholders have brought numerous shareholder derivative lawsuits asserting breach of fiduciary duty claims, among others, against current and former directors and officers for their alleged involvement with and failure to detect and prevent sales practices issues, which were consolidated into two separateissues. These actions are currently pending in the United States District Court for the Northern District of California and California state court as well as two separate actionsfor coordinated proceedings. An additional lawsuit asserting similar claims pending in Delaware state court.court has been stayed. Subject to court approval, the parties have entered into settlement agreements to resolve the shareholder derivative lawsuits pursuant to which insurance carriers will pay the Company approximately $240 million for alleged damage to the Company, and the Company will pay plaintiffs’ attorneys’ fees. Fourth, a range ofmultiple employment litigation hasmatters have been brought against Wells Fargo, including an Employee Retirement Income Security Act (ERISA) class action in the United States District Court for the District of Minnesota brought on behalf of 401(k) plan participants;participants that has been dismissed and is now on appeal; a class actions pendingaction in the United States District CourtsCourt for the Northern District of California and Eastern District of New York on behalf of employeesteam members who allege that they protested sales practice misconduct and/or were terminated for not meeting sales goals;goals that has now been dismissed, and we have entered into a framework with plaintiffs’ counsel to address individual claims that have been asserted; various wage and hour class actions brought in federal and state court in California (which have been settled), New Jersey, Florida, and Pennsylvania on behalf of non-exempt branch based employeesteam members alleging that sales pressure resulted in uncompensated overtime; and multiple single plaintiff Sarbanes-Oxley Act complaints and state law whistleblower actions filed with the United States Department of Labor or in various state courts alleging adverse employment actions for raising sales practice misconduct issues.
RMBS TRUSTEE LITIGATION In November 2014, a group of institutional investors (Institutional Investor Plaintiffs), including funds affiliated with BlackRock, Inc., filed a putative class action in the United States District Court for the Southern
District of New York against Wells Fargo Bank, N.A., alleging claims against the Company in its capacity as trustee for a number of residential mortgage-backed securities (RMBS) trusts (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 (Related Federal Cases), and the various cases pending against the Company are proceeding before the same judge. On January 19, 2016, the Southern District of New York entered an order in connection with the Federal Court Complaint dismissing claims related to certain of the trusts at issue (Dismissed Trusts). The Company’s motion to dismiss the Federal Court Complaint and the complaints for the Related Federal Cases was granted in part and denied in part in March 2017. In May 2017, the Company filed third-party complaints against certain investment advisors affiliated with the Institutional Investor Plaintiffs seeking contribution with respect to claims alleged in the Federal Court Complaint (Third-Party Claims). The investment advisors have moved to dismiss those complaints. On April 17, 2018, the Southern District of New York denied class certification in the Related Federal Case brought by Royal Park Investments SA/NV (Royal Park Action).
A complaint raising similar allegations to those in the Federal Court Complaint was filed in May 2016 in New York state court by a different plaintiff investor. 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 (State Court Action).
In July 2017, certain of the plaintiffs from the State Court Action filed a civil complaint relating to Wells Fargo Bank, N.A.’s setting aside reserves for legal fees and expenses in connection with the liquidation of eleven RMBS trusts at issue in the State Court Action (Declaratory Judgment Action). The complaint seeks, among other relief, declarations that the Company is not entitled to indemnification, the advancement of funds, or the taking of reserves from trust funds for legal fees and expenses it incurs in defending the claims in the State Court Action. In November 2017, the Company’s motion to dismiss the complaint was granted. Plaintiffs filed a notice of appeal in January 2018.
In November 2018, the Institutional Investor Plaintiffs and the Company entered into a settlement agreement pursuant to which, among other terms, the Company will pay $43 million to resolve the Federal Court Complaint and the State Court Action. The settlement will also resolve the Third Party Claims and the Declaratory Judgment Action. The New York state court has scheduled a fairness hearing on the settlement for May 6, 2019. In addition, Royal Park Investments SA/NV and the Company have reached an agreement resolving the Royal Park Action. Other than the Royal Park Action, the Related Federal Cases are not covered by these settlement agreements.
SEMINOLE TRIBE TRUSTEE LITIGATION The Seminole Tribe of Florida filed a complaint in Florida state court alleging that Wells Fargo, as trustee, charged excess fees in connection with the administration of a minor’s trust and failed to invest the assets of the trust prudently. The complaint was later amended to include three individual current and former beneficiaries as plaintiffs and to remove the Tribe as a party to the case. In December 2016, the Company filed a motion to dismiss the amended complaint on the grounds that the Tribe is a necessary party and that the individual beneficiaries lack standing to bring claims. The motion was denied in June 2018. Trial is scheduled for October 2019.
WHOLESALE BANKING CONSENT ORDER INVESTIGATIONOn November 19, 2015, the Company entered into a consent order with the OCC, pursuant to which the Wholesale Banking group was required to implement customer due diligence standards that include collection of current beneficial ownership information for certain business customers. The Company is responding to inquiries from various federal government agencies regarding potentially inappropriate conduct in connection with the collection of beneficial ownership information.
OUTLOOK As described above, the Company establishes accruals for legal actions when potential losses associated with the actions become probable and the costs can be reasonably estimated. The high end of the range of reasonably possible potential losses in excess of the Company’s accrual for probable
Note 11: Legal Actions (continued)
and estimable losses was approximately $3.3$3.1 billion as of September 30, 2017.March 31, 2019. The increase in the high end of the range as of September 30, 2017, remained unchanged from June 30, 2017, reflecting a decrease from the $1 billion discrete litigation accrual in third quarter 2017 for the Company's existing mortgage-related regulatory investigations, offset by the possibility of increased risk inDecember 31, 2018, was due to a variety of matters, including the Company's existing mortgage-related regulatory investigations.matters. The outcomes of legal actions are unpredictable and subject to significant uncertainties, and it is inherently difficult to determine whether any loss is probable or even possible. It is also inherently difficult to estimate the amount of any loss and there may be matters for which a loss is probable or reasonably possible but not currently estimable. Accordingly, actual losses may be in excess of the established accrual 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 theretail 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 15: Derivatives (continued)
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 1617 (Derivatives) to Financial Statements in our 20162018 Form 10-K.
Table 12.115.1 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.
Table 12.1:15.1: Notional or Contractual Amounts and Fair Values of Derivatives
| | | September 30, 2017 | | | December 31, 2016 | | March 31, 2019 | | | December 31, 2018 | |
| 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) | $ | 243,338 |
| | 2,589 |
| | 1,190 |
| | 235,222 |
| | 6,587 |
| | 2,710 |
| $ | 187,889 |
| | 2,195 |
| | 810 |
| | 177,511 |
| | 2,237 |
| | 636 |
|
Foreign exchange contracts (1) | 33,398 |
| | 1,219 |
| | 1,211 |
| | 25,861 |
| | 673 |
| | 2,779 |
| 33,647 |
| | 474 |
| | 1,575 |
| | 34,176 |
| | 573 |
| | 1,376 |
|
Total derivatives designated as qualifying hedging instruments | | | 3,808 |
| | 2,401 |
| | | | 7,260 |
| | 5,489 |
| | | 2,669 |
| | 2,385 |
| | | | 2,810 |
| | 2,012 |
|
Derivatives not designated as hedging instruments | | | | | | | | | | | | | | | | | | | | | | |
Economic hedges: | | | | | | | | | | | | | | | | | | | | | | |
Interest rate contracts (2) | 228,310 |
| | 219 |
| | 299 |
| | 228,051 |
| | 1,098 |
| | 1,441 |
| 216,847 |
| | 905 |
| | 495 |
| | 173,215 |
| | 849 |
| | 369 |
|
Equity contracts | 10,650 |
| | 640 |
| | 134 |
| | 7,964 |
| | 545 |
| | 83 |
| 16,267 |
| | 1,106 |
| | 450 |
| | 13,920 |
| | 1,362 |
| | 79 |
|
Foreign exchange contracts | 17,678 |
| | 66 |
| | 467 |
| | 20,435 |
| | 626 |
| | 165 |
| 16,590 |
| | 154 |
| | 92 |
| | 19,521 |
| | 225 |
| | 80 |
|
Credit contracts – protection purchased | 123 |
| | 52 |
| | — |
| | 482 |
| | 102 |
| | — |
| 200 |
| | 42 |
| | — |
| | 100 |
| | 27 |
| | — |
|
Subtotal | | | 977 |
| | 900 |
| | | | 2,371 |
| | 1,689 |
| | | 2,207 |
| | 1,037 |
| | | | 2,463 |
| | 528 |
|
Customer accommodation trading and | | | | | | | | | | | | |
other derivatives: | | | | | | | | | | | | |
Customer accommodation trading and other derivatives: | | | | | | | | | | | | |
Interest rate contracts | 6,717,492 |
| | 15,533 |
| | 14,144 |
| | 6,018,370 |
| | 57,583 |
| | 61,058 |
| 10,242,378 |
| | 17,349 |
| | 15,957 |
| | 9,162,821 |
| | 15,349 |
| | 15,303 |
|
Commodity contracts | 66,743 |
| | 1,574 |
| | 1,172 |
| | 65,532 |
| | 3,057 |
| | 2,551 |
| 62,763 |
| | 1,528 |
| | 1,160 |
| | 66,173 |
| | 1,588 |
| | 2,336 |
|
Equity contracts | 173,306 |
| | 6,156 |
| | 7,501 |
| | 151,675 |
| | 4,813 |
| | 6,029 |
| 227,993 |
| | 5,662 |
| | 7,510 |
| | 217,890 |
| | 6,183 |
| | 5,931 |
|
Foreign exchange contracts | 367,266 |
| | 7,487 |
| | 7,128 |
| | 318,999 |
| | 9,595 |
| | 9,798 |
| 331,020 |
| | 5,272 |
| | 5,045 |
| | 364,982 |
| | 5,916 |
| | 5,657 |
|
Credit contracts – protection sold | 9,754 |
| | 154 |
| | 219 |
| | 10,483 |
| | 85 |
| | 389 |
| 13,426 |
| | 135 |
| | 125 |
| | 11,741 |
| | 76 |
| | 182 |
|
Credit contracts – protection purchased | 20,263 |
| | 214 |
| | 257 |
| | 19,964 |
| | 365 |
| | 138 |
| 22,440 |
| | 127 |
| | 198 |
| | 20,880 |
| | 175 |
| | 98 |
|
Other contracts | 955 |
| | — |
| | 26 |
| | 961 |
| | — |
| | 47 |
| |
Subtotal | | | 31,118 |
| | 30,447 |
| | | | 75,498 |
| | 80,010 |
| | | 30,073 |
| | 29,995 |
| | | | 29,287 |
| | 29,507 |
|
Total derivatives not designated as hedging instruments | | | 32,095 |
| | 31,347 |
| | | | 77,869 |
| | 81,699 |
| | | 32,280 |
| | 31,032 |
| | | | 31,750 |
| | 30,035 |
|
Total derivatives before netting | | | 35,903 |
| | 33,748 |
| | | | 85,129 |
| | 87,188 |
| | | 34,949 |
| | 33,417 |
| | | | 34,560 |
| | 32,047 |
|
Netting (3) | | | (23,323 | ) | | (24,251 | ) | | | | (70,631 | ) | | (72,696 | ) | | | (23,711 | ) | | (26,024 | ) | | | | (23,790 | ) | | (23,548 | ) |
Total | | | $ | 12,580 |
| | 9,497 |
| | | | 14,498 |
| | 14,492 |
| | | $ | 11,238 |
| | 7,393 |
| | | | 10,770 |
| | 8,499 |
|
| |
(1) | Notional amounts presented exclude $500 million and $1.9 billion of interest rateThe notional amount for foreign exchange contracts at September 30, 2017,March 31, 2019, and December 31, 2016,2018, excludes $11.0 billion and $11.2 billion, respectively, 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, 2017, and December 31, 2016, excludes $13.3 billion and $9.6 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,MLHFS, 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 12.215.2 for further information. |
Note 12: Derivatives (continued)
Table 12.215.2 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 largelysubstantially all of our derivative transactions under master netting arrangements 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 $27.2$31.6 billion and $28.8$30.5 billion of gross derivative assets and liabilities, respectively, at September 30, 2017,March 31, 2019, and $74.4$30.9 billion and $78.4$28.4 billion, respectively, at December 31, 2016,2018, 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 $8.7$3.3 billion and $4.9$2.9 billion, respectively, at September 30, 2017,March 31, 2019, and $10.7$3.7 billion and $8.7$3.6 billion, respectively, at December 31, 2016,2018, 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.
We do not net non-cash collateral that we receive and 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 12.215.2 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 1013 (Guarantees, Pledged Assets and Collateral)Collateral, and Other Commitments).
Note 15: Derivatives (continued)
Table 12.2:15.2: Gross Fair Values of Derivative Assets and Liabilities
| | (in millions) | Gross amounts recognized (1) |
| | Gross amounts offset in consolidated balance sheet (1)(2) |
| | Net amounts in consolidated balance sheet |
| | Gross amounts not offset in consolidated balance sheet (Disclosure-only netting) (3) |
| | Net amounts |
| | Percent exchanged in over-the-counter market (1)(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, 2017 | | | | | | | | | | | | |
March 31, 2019 | | | | | | | | | | | | |
Derivative assets | | | | | | | | | | | | | | | | | | | | | | |
Interest rate contracts | $ | 18,341 |
| | (11,991 | ) | | 6,350 |
| | (313 | ) | | 6,037 |
| | 99 | % | $ | 20,449 |
| | (13,354 | ) | | 7,095 |
| | (123 | ) | | 6,972 |
| | 90 | % |
Commodity contracts | 1,574 |
| | (672 | ) | | 902 |
| | (5 | ) | | 897 |
| | 83 |
| 1,528 |
| | (846 | ) | | 682 |
| | — |
| | 682 |
| | 80 |
|
Equity contracts | 6,796 |
| | (4,149 | ) | | 2,647 |
| | (473 | ) | | 2,174 |
| | 75 |
| 6,768 |
| | (4,617 | ) | | 2,151 |
| | (65 | ) | | 2,086 |
| | 71 |
|
Foreign exchange contracts | 8,772 |
| | (6,306 | ) | | 2,466 |
| | (63 | ) | | 2,403 |
| | 100 |
| 5,900 |
| | (4,642 | ) | | 1,258 |
| | (17 | ) | | 1,241 |
| | 100 |
|
Credit contracts – protection sold | 154 |
| | (14 | ) | | 140 |
| | — |
| | 140 |
| | 10 |
| 135 |
| | (133 | ) | | 2 |
| | — |
| | 2 |
| | 8 |
|
Credit contracts – protection purchased | 266 |
| | (191 | ) | | 75 |
| | (1 | ) | | 74 |
| | 94 |
| 169 |
| | (119 | ) | | 50 |
| | (1 | ) | | 49 |
| | 82 |
|
Total derivative assets | $ | 35,903 |
| | (23,323 | ) | | 12,580 |
| | (855 | ) | | 11,725 |
| | | $ | 34,949 |
| | (23,711 | ) | | 11,238 |
| | (206 | ) | | 11,032 |
| | |
Derivative liabilities | | | | | | | | | | | | | | | | | | | | | | |
Interest rate contracts | $ | 15,633 |
| | (12,932 | ) | | 2,701 |
| | (1,567 | ) | | 1,134 |
| | 99 | % | $ | 17,262 |
| | (14,761 | ) | | 2,501 |
| | (576 | ) | | 1,925 |
| | 92 | % |
Commodity contracts | 1,172 |
| | (361 | ) | | 811 |
| | (13 | ) | | 798 |
| | 80 |
| 1,160 |
| | (663 | ) | | 497 |
| | (2 | ) | | 495 |
| | 72 |
|
Equity contracts | 7,635 |
| | (3,708 | ) | | 3,927 |
| | (365 | ) | | 3,562 |
| | 85 |
| 7,960 |
| | (5,154 | ) | | 2,806 |
| | (120 | ) | | 2,686 |
| | 83 |
|
Foreign exchange contracts | 8,806 |
| | (7,049 | ) | | 1,757 |
| | (429 | ) | | 1,328 |
| | 100 |
| 6,712 |
| | (5,135 | ) | | 1,577 |
| | (174 | ) | | 1,403 |
| | 100 |
|
Credit contracts – protection sold | 219 |
| | (196 | ) | | 23 |
| | (17 | ) | | 6 |
| | 89 |
| 125 |
| | (123 | ) | | 2 |
| | (2 | ) | | — |
| | 71 |
|
Credit contracts – protection purchased | 257 |
| | (5 | ) | | 252 |
| | — |
| | 252 |
| | 7 |
| 198 |
| | (188 | ) | | 10 |
| | — |
| | 10 |
| | 8 |
|
Other contracts | 26 |
| | — |
| | 26 |
| | — |
| | 26 |
| | 100 |
| |
Total derivative liabilities | $ | 33,748 |
| | (24,251 | ) | | 9,497 |
| | (2,391 | ) | | 7,106 |
| | | $ | 33,417 |
| | (26,024 | ) | | 7,393 |
| | (874 | ) | | 6,519 |
| | |
December 31, 2016 | | | | | | | | | | | | |
December 31, 2018 | | | | | | | | | | | | |
Derivative assets | | | | | | | | | | | | | | | | | | | | | | |
Interest rate contracts | $ | 65,268 |
| | (59,880 | ) | | 5,388 |
| | (987 | ) | | 4,401 |
| | 34 | % | $ | 18,435 |
| | (12,029 | ) | | 6,406 |
| | (80 | ) | | 6,326 |
| | 90 | % |
Commodity contracts | 3,057 |
| | (707 | ) | | 2,350 |
| | (30 | ) | | 2,320 |
| | 74 |
| 1,588 |
| | (849 | ) | | 739 |
| | (4 | ) | | 735 |
| | 57 |
|
Equity contracts | 5,358 |
| | (3,018 | ) | | 2,340 |
| | (365 | ) | | 1,975 |
| | 75 |
| 7,545 |
| | (5,318 | ) | | 2,227 |
| | (755 | ) | | 1,472 |
| | 78 |
|
Foreign exchange contracts | 10,894 |
| | (6,663 | ) | | 4,231 |
| | (362 | ) | | 3,869 |
| | 97 |
| 6,714 |
| | (5,355 | ) | | 1,359 |
| | (35 | ) | | 1,324 |
| | 100 |
|
Credit contracts – protection sold | 85 |
| | (48 | ) | | 37 |
| | — |
| | 37 |
| | 61 |
| 76 |
| | (73 | ) | | 3 |
| | — |
| | 3 |
| | 12 |
|
Credit contracts – protection purchased | 467 |
| | (315 | ) | | 152 |
| | (1 | ) | | 151 |
| | 98 |
| 202 |
| | (166 | ) | | 36 |
| | (1 | ) | | 35 |
| | 78 |
|
Total derivative assets | $ | 85,129 |
| | (70,631 | ) | | 14,498 |
| | (1,745 | ) | | 12,753 |
| | | $ | 34,560 |
| | (23,790 | ) | | 10,770 |
| | (875 | ) | | 9,895 |
| | |
Derivative liabilities | | | | | | | | | | | | | | | | | | | | | | |
Interest rate contracts | $ | 65,209 |
| | (58,956 | ) | | 6,253 |
| | (3,129 | ) | | 3,124 |
| | 30 | % | $ | 16,308 |
| | (13,152 | ) | | 3,156 |
| | (567 | ) | | 2,589 |
| | 92 | % |
Commodity contracts | 2,551 |
| | (402 | ) | | 2,149 |
| | (37 | ) | | 2,112 |
| | 38 |
| 2,336 |
| | (727 | ) | | 1,609 |
| | (8 | ) | | 1,601 |
| | 85 |
|
Equity contracts | 6,112 |
| | (2,433 | ) | | 3,679 |
| | (331 | ) | | 3,348 |
| | 85 |
| 6,010 |
| | (3,877 | ) | | 2,133 |
| | (110 | ) | | 2,023 |
| | 75 |
|
Foreign exchange contracts | 12,742 |
| | (10,572 | ) | | 2,170 |
| | (251 | ) | | 1,919 |
| | 100 |
| 7,113 |
| | (5,522 | ) | | 1,591 |
| | (188 | ) | | 1,403 |
| | 100 |
|
Credit contracts – protection sold | 389 |
| | (295 | ) | | 94 |
| | (44 | ) | | 50 |
| | 98 |
| 182 |
| | (180 | ) | | 2 |
| | (2 | ) | | — |
| | 67 |
|
Credit contracts – protection purchased | 138 |
| | (38 | ) | | 100 |
| | (2 | ) | | 98 |
| | 50 |
| 98 |
| | (90 | ) | | 8 |
| | — |
| | 8 |
| | 11 |
|
Other contracts | 47 |
| | — |
| | 47 |
| | — |
| | 47 |
| | 100 |
| |
Total derivative liabilities | $ | 87,188 |
| | (72,696 | ) | | 14,492 |
| | (3,794 | ) | | 10,698 |
| | | $ | 32,047 |
| | (23,548 | ) | | 8,499 |
| | (875 | ) | | 7,624 |
| | |
| |
(1) | Insecond quarter,2017, we adopted Settlement to Market treatment for the cash collateralizing our interest rate derivative contracts with certain centrally cleared counterparties.As a result of this adoption, the “gross amounts recognized” and “gross amounts offset in the consolidated balance sheet” columns do not include exposure with certain centrally cleared counterparties because the contracts are considered settled by the collateral. Likewise, what remains in these gross amount columns consists primarily of over-the-counter (OTC) market contracts for most of the contract types as reflected by the high percentage of OTC contracts in the “percent exchanged in over-the counter market” column as of September 30, 2017.
|
| |
(2) | 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 $273$290 million and $348$353 million related to derivative assets and $98$104 million and $114$152 million related to derivative liabilities at September 30, 2017,March 31, 2019, and December 31, 2016,2018, respectively. Cash collateral totaled $3.1$2.7 billion and $4.2$5.2 billion,, netted against derivative assets and liabilities, respectively, at September 30, 2017,March 31, 2019, and $4.8$3.7 billion and $7.1$3.6 billion,, respectively, at December 31, 2016. 2018. |
| |
(3)(2) | Represents the fair value of 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 and Cash Flow Hedges
For fair value hedges, we use interest rate swaps to convert certain of our fixed-rate long-term debt and time certificates of deposit to floating rates to hedge our exposure to interest rate risk. We also enter into cross-currency swaps, cross-currency interest rate swaps and forward contracts to hedge our exposure to foreign currency risk and interest rate risk associated with the issuance of non-U.S. dollar denominated long-term debt. In addition, we use derivativesinterest rate swaps, cross-currency swaps, cross-currency interest rate swaps and forward contracts to hedge against changes in fair value of certain financial instruments, includinginvestments in available-for-sale debt securities mortgagesdue to changes in interest rates, foreign currency rates, or both. We also use interest rate swaps to hedge
against changes in fair value for certain mortgage loans held for sale,sale.
For cash flow hedges, we use interest rate swaps to hedge the variability in interest payments received on certain floating-rate commercial loans and long-term debt.paid on certain floating-rate debt due to changes in the contractually specified interest rate.
We estimate $276 million pre-tax of deferred net losses related to cash flow hedges in OCI at March 31, 2019, will be reclassified into net interest income during the next twelve months. The deferred losses expected to be reclassified into net interest income are predominantly related to discontinued hedges of floating rate loans. For cash flow hedges as of March 31, 2019, we are hedging the variability of future cash flows for a
maximum of 8 years. For more information on fair valueour accounting hedges, see Note 1 (Summary of Significant Accounting Policies) and Note 16 (Derivatives) to Financial Statements in our 20162018 Form 10-K.
Table 12.315.3 shows the net gains (losses) recognized in the income statement related to derivatives in fair value and cash flow hedging relationships.
Table 12.3:15.3: DerivativesGains (Losses) Recognized in Consolidated Statement of Income on Fair Value and Cash Flow Hedging Relationships
|
| | | | | | | | | | | | | | | | | | |
| 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 |
| |
Quarter ended September 30, 2017 | |
| | |
| | |
| | |
| | |
| | |
Net interest income (expense) recognized on derivatives | $ | (110 | ) | | (1 | ) | | 271 |
| | 4 |
| | (60 | ) | | 104 |
|
Gains (losses) recorded in noninterest income | | | | | | | |
| | | | |
Recognized on derivatives | (6 | ) | | — |
| | (161 | ) | | (87 | ) | | 996 |
| | 742 |
|
Recognized on hedged item | (6 | ) | | (2 | ) | | 173 |
| | 86 |
| | (878 | ) | | (627 | ) |
Net recognized on fair value hedges (ineffective portion) (1) | $ | (12 | ) | | (2 | ) | | 12 |
| | (1 | ) | | 118 |
| | 115 |
|
Quarter ended September 30, 2016 | |
| | |
| | |
| | |
| | |
| | |
|
Net interest income (expense) recognized on derivatives | $ | (117 | ) | | (1 | ) | | 471 |
| | 2 |
| | 9 |
| | 364 |
|
Gains (losses) recorded in noninterest income | |
| | |
| | |
| | |
| | | | |
Recognized on derivatives | 21 |
| | 6 |
| | (271 | ) | | 30 |
| | 312 |
| | 98 |
|
Recognized on hedged item | (10 | ) | | (7 | ) | | 354 |
| | (32 | ) | | (234 | ) | | 71 |
|
Net recognized on fair value hedges (ineffective portion) (1) | $ | 11 |
| | (1 | ) | | 83 |
| | (2 | ) | | 78 |
| | 169 |
|
Nine months ended September 30, 2017 | |
| | |
| | |
| | |
| | |
| | |
Net interest income (expense) recognized on derivatives (1) | $ | (363 | ) | | (5 | ) | | 1,070 |
| | 10 |
| | (142 | ) | | 570 |
|
Gains (losses) recorded in noninterest income | | | | | | | |
| | | | |
Recognized on derivatives | (167 | ) | | (11 | ) | | (294 | ) | | (216 | ) | | 2,579 |
| | 1,891 |
|
Recognized on hedged item | 121 |
| | 4 |
| | 314 |
| | 216 |
| | (2,554 | ) | | (1,899 | ) |
Net recognized on fair value hedges (ineffective portion) | $ | (46 | ) |
| (7 | ) |
| 20 |
|
| — |
|
| 25 |
| | (8 | ) |
Nine months ended September 30, 2016 | |
| | |
| | |
| | |
| | |
| | |
|
Net interest income (expense) recognized on derivatives (1) | $ | (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 item | 2,699 |
| | 32 |
| | (4,215 | ) | | (106 | ) | | (1,242 | ) | | (2,832 | ) |
Net recognized on fair value hedges (ineffective portion) | $ | 25 |
| | (4 | ) | | 600 |
| | (8 | ) | | 233 |
| | 846 |
|
|
| | | | | | | | | | | | | | | | |
| Net interest income | | | Noninterest income |
| |
(in millions) | Debt securities |
| Loans |
| Mortgage loans held for sale |
| Deposits |
| Long-term debt |
| | Other |
| Total |
|
Quarter ended March 31, 2019 | | | | | | | | |
Total amounts presented in the consolidated statement of income | $ | 3,941 |
| 11,354 |
| 152 |
| (2,026 | ) | (1,927 | ) | | 574 |
| 12,068 |
|
Gains (losses) on fair value hedging relationships | | | | | | | | |
Interest contracts | | | | | | | | |
Amounts related to interest settlements on derivatives (1) | 16 |
| — |
| — |
| (23 | ) | (7 | ) | | — |
| (14 | ) |
Recognized on derivatives | (814 | ) | — |
| (8 | ) | 207 |
| 1,986 |
| | — |
| 1,371 |
|
Recognized on hedged items | 817 |
| — |
| 7 |
| (190 | ) | (1,947 | ) | | — |
| (1,313 | ) |
Foreign exchange contracts | | | | | | | | |
Amounts related to interest settlements on derivatives (1)(2) | 10 |
| — |
| — |
| — |
| (142 | ) | | — |
| (132 | ) |
Recognized on derivatives (3) | (4 | ) | — |
| — |
| — |
| 292 |
| | (402 | ) | (114 | ) |
Recognized on hedged items | 5 |
| — |
| — |
| — |
| (266 | ) | | 391 |
| 130 |
|
Net income (expense) recognized on fair value hedges | 30 |
| — |
| (1 | ) | (6 | ) | (84 | ) | | (11 | ) | (72 | ) |
| | | | | | | | |
Gains (losses) on cash flow hedging relationships | | | | | | | | |
Interest contracts | | | | | | | | |
Realized gains (losses) (pre-tax) reclassified from cumulative OCI into net income (4) | — |
| (78 | ) | — |
| — |
| — |
| | — |
| (78 | ) |
Foreign exchange contracts | | | | | | | | |
Realized gains (losses) (pre-tax) reclassified from cumulative OCI into net income (4) | — |
| — |
| — |
| — |
| (1 | ) | | — |
| (1 | ) |
Net income (expense) recognized on cash flow hedges | $ | — |
| (78 | ) | — |
| — |
| (1 | ) |
| — |
| (79 | ) |
(continued on following page)
Note 15: Derivatives (continued)
|
| | | | | | | | | | | | | | | | |
(continued from previous page) | | | | | | | | |
| Net interest income | | | Noninterest income |
| |
(in millions) | Debt securities |
| Loans |
| Mortgage loans held for sale |
| Deposits |
| Long-term debt |
| | Other |
| Total |
|
Quarter ended March 31, 2018 | | | | | | | | |
Total amounts presented in the consolidated statement of income | $ | 3,414 |
| 10,579 |
| 179 |
| (1,090 | ) | (1,576 | ) | | 602 |
| 12,108 |
|
| | | | | | | | |
Gains (losses) on fair value hedging relationships | | | | | | | | |
Interest contracts | | | | | | | | |
Amounts related to interest settlements on derivatives (1) | (82 | ) | — |
| (1 | ) | (5 | ) | 171 |
| | — |
| 83 |
|
Recognized on derivatives | 950 |
| 1 |
| 6 |
| (149 | ) | (2,393 | ) | | — |
| (1,585 | ) |
Recognized on hedged items | (968 | ) | (1 | ) | (8 | ) | 141 |
| 2,334 |
| | — |
| 1,498 |
|
Foreign exchange contracts | | | | | | | | |
Amounts related to interest settlements on derivatives (1)(2) | 5 |
| — |
| — |
| — |
| (80 | ) | | — |
| (75 | ) |
Recognized on derivatives (3) | 4 |
| — |
| — |
| — |
| (171 | ) | | 660 |
| 493 |
|
Recognized on hedged items | (3 | ) | — |
| — |
| — |
| 109 |
| | (627 | ) | (521 | ) |
Net income (expense) recognized on fair value hedges | (94 | ) | — |
| (3 | ) | (13 | ) | (30 | ) | | 33 |
| (107 | ) |
| | | | | | | | |
Gains (losses) on cash flow hedging relationships | | | | | | | | |
Interest contracts | | | | | | | | |
Realized gains (losses) (pre-tax) reclassified from cumulative OCI into net income (4) | — |
| (60 | ) | — |
| — |
| — |
| | — |
| (60 | ) |
Foreign exchange contracts | | | | | | | | |
Realized gains (losses) (pre-tax) reclassified from cumulative OCI into net income (4) | — |
| — |
| — |
| — |
| — |
| | — |
| — |
|
Net income (expense) recognized on cash flow hedges | $ | — |
| (60 | ) | — |
| — |
| — |
| | — |
| (60 | ) |
| |
(1) | The thirdIncludes changes in fair value due to the passage of time associated with the non-zero fair value amount at hedge inception.
|
| |
(2) | Includes $7 million and $0 million for first quarter 2019 and first nine months of 2017 included $(1) million and $(2) million, respectively, and the third quarter and first nine months of 2016 included $(3) million and $(10) million,2018, respectively, of the time value component recognized as net interest income (expense) on forward derivatives hedging foreign currency debt securities and long-term debt that were excluded from the assessment of hedge effectiveness. |
| |
(3) | For certain fair value hedges of foreign currency risk, changes in fair value of cross-currency swaps attributable to changes in cross-currency basis spreads are excluded from the assessment of hedge effectiveness and recorded in other comprehensive income. See Note 21 (Other Comprehensive Income) for the amounts recognized in other comprehensive income. |
| |
(4) | See Note 21 (Other Comprehensive Income) for details of amounts reclassified to net income. |
Cash Flow Hedges
We use derivativesTable 15.4 shows the carrying amount and associated cumulative basis adjustment related to the application of hedge certain financial instruments against future interest rate increases and to limit the variability of cash flows on certain financial instruments due to changesaccounting that is included in the benchmark interest rate. For more information on cash flow hedges, see Note 1 (Summarycarrying amount of Significant Accounting Policies)hedged assets and Note 16 (Derivatives) to Financial Statementsliabilities in our 2016 Form 10-K.
Based upon current interest rates, we estimate that $224 million (pre tax) of deferred net gains on derivatives in OCIfair value hedging relationships.
at September 30, 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 5 years.
Table 12.4 shows the net gains (losses) recognized related to derivatives in cash flow hedging relationships.
Table 12.4:15.4: DerivativesHedged Items in Cash FlowFair Value Hedging RelationshipsRelationship
|
| | | | | | | | | | | | |
| Quarter ended Sep 30, | | | Nine months ended Sep 30, | |
(in millions) | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
|
Gains (losses) (pre tax) recognized in OCI on derivatives | $ | 36 |
| | (445 | ) | | 279 |
| | 2,611 |
|
Gains (pre tax) reclassified from cumulative OCI into net income (1) | 105 |
| | 262 |
| | 460 |
| | 783 |
|
Gains (losses) (pre tax) recognized in noninterest income for hedge ineffectiveness (2) | (4 | ) | | — |
| | (7 | ) | | 1 |
|
|
| | | | | | | | | | |
| Hedged Items Currently Designated | | | Hedged Items No Longer Designated (1) | |
(in millions) | Carrying Amount of Assets/(Liabilities) (2)(4) |
| Hedge Accounting Basis Adjustment Assets/(Liabilities) (3) |
| | Carrying Amount of Assets/(Liabilities) (4) |
| Hedge Accounting Basis Adjustment Assets/(Liabilities) |
|
March 31, 2019 | | | | | |
Available-for-sale debt securities (5) | $ | 40,081 |
| 256 |
| | 4,596 |
| 110 |
|
Loans | — |
| — |
| | — |
| — |
|
Mortgage loans held for sale | 316 |
| 4 |
| | 228 |
| 2 |
|
Deposits | (59,921 | ) | (82 | ) | | — |
| — |
|
Long-term debt | (111,404 | ) | (2,935 | ) | | (25,588 | ) | 319 |
|
December 31, 2018 | | | | | |
Available-for-sale debt securities (5) | 37,857 |
| (157 | ) | | 4,938 |
| 238 |
|
Loans | — |
| — |
| | — |
| — |
|
Mortgage loans held for sale | 448 |
| 7 |
| | — |
| — |
|
Deposits | (56,535 | ) | 115 |
| | — |
| — |
|
Long-term debt | (104,341 | ) | (742 | ) | | (25,539 | ) | 366 |
|
| |
(1) | See Note 17 (Other Comprehensive Income)Represents hedged items no longer designated in qualifying fair value hedging relationships for detail on components of net income.which an associated basis adjustment exists at the balance sheet date. |
| |
(2) | NoneDoes not include the carrying amount of hedged items where only foreign currency risk is the designated hedged risk. The carrying amount excluded $1.6 billion for debt securities and $(6.2) billion for long-term debt as of March 31, 2019, and $1.6 billion for debt securities and $(6.3) billion for long-term debt as of December 31, 2018. |
| |
(3) | The balance includes $1.0 billion and $77 million of debt securities and long-term debt cumulative basis adjustments, respectively, as of March 31, 2019, and $1.4 billion and $66 million of debt securities and long-term debt cumulative basis adjustments,respectively, as of December 31, 2018, on terminated hedges whereby the hedged items have subsequently been re-designated into existing hedges. |
| |
(4) | Represents the full carrying amount of the change in valuehedged asset or liability item as of the derivativesbalance sheet date, except for circumstances in which only a portion of the asset or liability was excluded fromdesignated as the assessment of hedge effectiveness. hedged item in which case only the portion designated is presented. |
| |
(5) | Carrying amount represents the amortized cost. |
Derivatives Not Designated as Hedging Instruments
We use economic hedges primarilyhedge derivatives to hedge the risk of changes in the fair value of certain residential MHFS,MLHFS, residential MSRs measured at fair value, loans, derivative loan commitments and other interests held. We also use economic hedge derivatives to mitigate the periodic earnings volatility caused by ineffectivenessmismatches between the changes in fair value of the hedged item and hedging instrument 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 $240 million and $599$962 million in the thirdfirst quarter 2019, and first nine months of 2017, respectively, and $142 million and $2.6$(1.2) billion in the thirdfirst quarter and first nine months of 2016, respectively,2018, which are included in mortgage banking noninterest income. The aggregate fair value of these derivatives was a net liabilityasset of $9$663 million at September 30, 2017,March 31, 2019, and net liabilityasset of $617$757 million at December 31,
December 31, 2016.2018. 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 lockLoan 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 assetpositive fair value of $25$58 million and a net liabilitypositive fair value of $6$60 million at September 30, 2017,March 31, 2019, and December 31, 2016,2018, respectively, and is included in the caption “Interest rate contracts” under “Customer accommodation trading and other derivatives” in Table 12.115.1 in this Note.
For more information on economic hedges and other derivatives, see Note 16 (Derivatives) to Financial Statements in our 20162018 Form 10-K. Table 12.515.5 shows the net gains (losses) recognized in theby income statement lines, related to derivatives not designated as hedging instruments.
Table 12.5:15.5: Gains (Losses) on Derivatives Not Designated as Hedging Instruments
|
| | | | | | | | | | | | |
| Quarter ended Sep 30, | | | Nine months ended Sep 30, | |
(in millions) | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
|
Net gains (losses) recognized on economic hedges derivatives: | | | | | | | |
Interest rate contracts Recognized in noninterest income: | | | | | | | |
Mortgage banking (1) | $ | 138 |
| | 4 |
| | 480 |
| | 1,435 |
|
Other (2) | (19 | ) | | (56 | ) | | (64 | ) | | (308 | ) |
Equity contracts (3) | (489 | ) | | (372 | ) | | (1,175 | ) | | (84 | ) |
Foreign exchange contracts (2) | (300 | ) | | 175 |
| | (834 | ) | | 504 |
|
Credit contracts (2) | (6 | ) | | 12 |
| | 8 |
| | 12 |
|
Subtotal (4) | (676 | ) | | (237 | ) | | (1,585 | ) | | 1,559 |
|
Net gains (losses) recognized on customer accommodation trading and other derivatives: | | | | | | | |
Interest rate contracts Recognized in noninterest income: | | | | | | | |
Mortgage banking (5) | 152 |
| | 510 |
| | 599 |
| | 1,485 |
|
Other (6) | 17 |
| | 210 |
| | 80 |
| | (520 | ) |
Commodity contracts (6) | 63 |
| | 45 |
| | 138 |
| | 162 |
|
Equity contracts (6) | (851 | ) | | (982 | ) | | (2,525 | ) | | (1,277 | ) |
Foreign exchange contracts (6) | 155 |
| | 188 |
| | 356 |
| | 686 |
|
Credit contracts (6) | (31 | ) | | (25 | ) | | (59 | ) | | (66 | ) |
Other (2) | 8 |
| | 15 |
| | 22 |
| | (15 | ) |
Subtotal | (487 | ) | | (39 | ) | | (1,389 | ) | | 455 |
|
Net gains (losses) recognized related to derivatives not designated as hedging instruments | $ | (1,163 | ) | | (276 | ) | | (2,974 | ) | | 2,014 |
|
|
| | | | | | | | | | | |
| Noninterest income | |
(in millions) | Mortgage banking |
| Net gains (losses) from equity securities |
| Net gains (losses) from trading activities |
| Other |
| Total |
|
Quarter ended March 31, 2019 | | | | | |
Net gains (losses) recognized on economic hedges derivatives: | | | | | |
Interest contracts (1) | $ | 811 |
| — |
| — |
| 5 |
| 816 |
|
Equity contracts | — |
| (885 | ) | — |
| 7 |
| (878 | ) |
Foreign exchange contracts | — |
| — |
| — |
| (24 | ) | (24 | ) |
Credit contracts | — |
| — |
| — |
| 15 |
| 15 |
|
Subtotal (2) | 811 |
| (885 | ) | — |
| 3 |
| (71 | ) |
Net gains (losses) recognized on customer accommodation trading and other derivatives: | | | | | |
Interest contracts (3) | 118 |
| — |
| (284 | ) | — |
| (166 | ) |
Commodity contracts | — |
| — |
| 51 |
| — |
| 51 |
|
Equity contracts | — |
| — |
| (2,149 | ) | (273 | ) | (2,422 | ) |
Foreign exchange contracts | — |
| — |
| 14 |
| — |
| 14 |
|
Credit contracts | — |
| — |
| (44 | ) | — |
| (44 | ) |
Subtotal | 118 |
| — |
| (2,412 | ) | (273 | ) | (2,567 | ) |
Net gains (losses) recognized related to derivatives not designated as hedging instruments | $ | 929 |
| (885 | ) | (2,412 | ) | (270 | ) | (2,638 | ) |
(continued on following page)
Note 15: Derivatives (continued)
|
| | | | | | | | | | | |
(continued from previous page) | |
| Noninterest income | |
(in millions) | Mortgage banking |
| Net gains (losses) from equity securities |
| Net gains (losses) from trading activities |
| Other |
| Total |
|
Quarter ended March 31, 2018 | | | | | |
Net gains (losses) recognized on economic hedges derivatives: | | | | | |
Interest contracts (1) | $ | (595 | ) | — |
| — |
| 9 |
| (586 | ) |
Equity contracts | — |
| (58 | ) | — |
| — |
| (58 | ) |
Foreign exchange contracts | — |
| — |
| — |
| (159 | ) | (159 | ) |
Credit contracts | — |
| — |
| — |
| 4 |
| 4 |
|
Subtotal (2) | (595 | ) | (58 | ) | — |
| (146 | ) | (799 | ) |
Net gains (losses) recognized on customer accommodation trading and other derivatives: | | | | | |
Interest contracts (3) | (259 | ) | — |
| 385 |
| — |
| 126 |
|
Commodity contracts | — |
| — |
| 39 |
| — |
| 39 |
|
Equity contracts | — |
| — |
| 459 |
| (195 | ) | 264 |
|
Foreign exchange contracts | — |
| — |
| 310 |
| — |
| 310 |
|
Credit contracts | — |
| — |
| 10 |
| — |
| 10 |
|
Subtotal | (259 | ) | — |
| 1,203 |
| (195 | ) | 749 |
|
Net gains (losses) recognized related to derivatives not designated as hedging instruments | $ | (854 | ) | (58 | ) | 1,203 |
| (341 | ) | (50 | ) |
| |
(1) | Reflected in mortgageMortgage banking noninterest income includingamounts for first quarter 2019 are comprised of gains (losses) on theof $962 million related to derivatives used as economic hedges of MSRs measured at fair value interest rate lock commitments and mortgagesoffset by losses of $(151) million related to derivatives used as economic hedges of mortgage loans held for sale.sale and derivative loan commitments. The corresponding amounts for first quarter 2018 are comprised of losses of $(1.2) billion offset by gains of $625 million, respectively. |
| |
(2) | Included in other noninterest income.Includes hedging gains (losses) of $(18) million and $28 million for first quarter 2019 and 2018, respectively, which partially offset hedge accounting ineffectiveness. |
| |
(3) | Included in net gains from equity investments and other noninterest income. |
| |
(4) | Includes hedging gains (losses) of $(18) million and $(64) million for the third quarter and first nine months of 2017, respectively, and $(29) million and $(272) million for the third quarter and first nine months of 2016, respectively, which partially offset hedge accounting ineffectiveness.
|
| |
(5) | ReflectedAmounts presented in mortgage banking noninterest income includingare gains (losses) on interest rate lock commitments and net gains from trading activities in noninterest income.derivative loan commitments. |
| |
(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 12.615.6 provides details of sold and purchased credit derivatives.
Table 12.6:15.6: 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, 2017 | | | | | | | | | | | | | |
March 31, 2019 | | | | | | | | | | | | | |
Credit default swaps on: | | | | | | | | | | | | | | | | | | | | | | | | |
Corporate bonds | $ | 26 |
| | 1,932 |
| | 535 |
| | 1,255 |
| | 677 |
| | 1,379 |
| | 2017 - 2027 | $ | 36 |
| | 2,010 |
| | 483 |
| | 1,332 |
| | 678 |
| | 1,843 |
| | 2019 - 2027 |
Structured products | 91 |
| | 210 |
| | 205 |
| | 184 |
| | 26 |
| | 140 |
| | 2020 - 2047 | 37 |
| | 102 |
| | 97 |
| | 90 |
| | 12 |
| | 113 |
| | 2022 - 2047 |
Credit protection on: | | | | | | | | | | | | | | | | | | | | | | | | | |
Default swap index | — |
| | 3,553 |
| | 537 |
| | 62 |
| | 3,491 |
| | 5,665 |
| | 2017 - 2027 | — |
| | 4,916 |
| | 585 |
| | 2,773 |
| | 2,143 |
| | 3,690 |
| | 2019 - 2028 |
Commercial mortgage-backed securities index | 92 |
| | 441 |
| | — |
| | 410 |
| | 31 |
| | 146 |
| | 2047 - 2058 | 42 |
| | 352 |
| | 97 |
| | 326 |
| | 26 |
| | 50 |
| | 2047 - 2058 |
Asset-backed securities index | 9 |
| | 42 |
| | — |
| | 38 |
| | 4 |
| | 5 |
| | 2045 - 2046 | 8 |
| | 42 |
| | 42 |
| | 42 |
| | — |
| | 1 |
| | 2045 - 2046 |
Other | 1 |
| | 3,576 |
| | 3,576 |
| | — |
| | 3,576 |
| | 11,102 |
| | 2017 - 2028 | 2 |
| | 6,004 |
| | 5,809 |
| | — |
| | 6,004 |
| | 12,380 |
| | 2019 - 2048 |
Total credit derivatives | $ | 219 |
| | 9,754 |
| | 4,853 |
| | 1,949 |
| | 7,805 |
| | 18,437 |
| | $ | 125 |
| | 13,426 |
| | 7,113 |
| | 4,563 |
| | 8,863 |
| | 18,077 |
| |
December 31, 2016 | | | | | | | | | | | | | |
December 31, 2018 | | | | | | | | | | | | | |
Credit default swaps on: | | | | | | | | | | | | | | | | | | | | | | | | |
Corporate bonds | $ | 22 |
| | 4,324 |
| | 1,704 |
| | 3,060 |
| | 1,264 |
| | 1,804 |
| | 2017 - 2026 | $ | 59 |
| | 2,037 |
| | 441 |
| | 1,374 |
| | 663 |
| | 1,460 |
| | 2019 - 2027 |
Structured products | 193 |
| | 405 |
| | 333 |
| | 295 |
| | 110 |
| | 79 |
| | 2020 - 2047 | 62 |
| | 133 |
| | 128 |
| | 121 |
| | 12 |
| | 113 |
| | 2022 - 2047 |
Credit protection on: | | | | | | | | | | | | | | | | | | | | | | | | |
Default swap index | — |
| | 1,515 |
| | 257 |
| | 139 |
| | 1,376 |
| | 3,668 |
| | 2017 - 2021 | 1 |
| | 3,618 |
| | 582 |
| | 1,998 |
| | 1,620 |
| | 2,896 |
| | 2019 - 2028 |
Commercial mortgage-backed securities index | 156 |
| | 627 |
| | — |
| | 584 |
| | 43 |
| | 71 |
| | 2047 - 2058 | 49 |
| | 389 |
| | 109 |
| | 363 |
| | 26 |
| | 51 |
| | 2047 - 2058 |
Asset-backed securities index | 17 |
| | 45 |
| | — |
| | 40 |
| | 5 |
| | 187 |
| | 2045 - 2046 | 9 |
| | 42 |
| | 42 |
| | 42 |
| | — |
| | 1 |
| | 2045 - 2046 |
Other | 1 |
| | 3,567 |
| | 3,568 |
| | — |
| | 3,567 |
| | 10,519 |
| | 2017 - 2047 | 2 |
| | 5,522 |
| | 5,327 |
| | — |
| | 5,522 |
| | 12,561 |
| | 2018 - 2048 |
Total credit derivatives | $ | 389 |
| | 10,483 |
| | 5,862 |
| | 4,118 |
| | 6,365 |
| | 16,328 |
| | $ | 182 |
| | 11,741 |
| | 6,629 |
| | 3,898 |
| | 7,843 |
| | 17,082 |
| |
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 a 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.
Note 15: Derivatives (continued)
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 $9.2$8.7 billion at September 30, 2017,March 31, 2019, and $12.8$7.4 billion at December 31, 2016,2018, for which we posted $8.0$7.2 billion and $8.9$5.6 billion, respectively, in collateral in the normal course of business. A credit rating below investment grade is the credit-risk-related contingent feature that if triggered requires the maximum amount of collateral to be posted. If the credit rating of our debt had been downgraded below investment grade, on September 30, 2017,March 31, 2019, or December 31, 2016,2018, we would have been required to post additional collateral of $1.2$1.5 billion or $4.0$1.8 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 13:16: 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 13.216.2 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, measurement alternative accounting for nonmarketable equity securities or write-downs of individual assets. Assets recorded on a nonrecurring basis are presented in Table 13.1416.9 in this Note.
See Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 20162018 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 1718 (Fair Values of Assets and Liabilities) to Financial Statements in our 20162018 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, weWe do not classify an investmentequity security 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 investmentssecurities with published NAVs continue to be classified in the fair value hierarchy.
Note 16: Fair Values of Assets and Liabilities (continued)
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 1718 (Fair Values of Assets and Liabilities) to Financial Statements in our 20162018 Form 10-K. Table 13.1.16.1 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 13.1.16.1.
Table 13.1:16.1: Fair Value Measurements by Brokers or Third-Party Pricing Services
|
| | | | | | | | | | | | | | | | | | |
| Brokers | | | Third-party pricing services | |
(in millions) | Level 1 |
| | Level 2 |
| | Level 3 |
| | Level 1 |
| | Level 2 |
| | Level 3 |
|
September 30, 2017 | | | | | | | | | | | |
Trading assets | $ | — |
| | — |
| | — |
| | 674 |
| | 211 |
| | — |
|
Available-for-sale securities: | | | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | — |
| | — |
| | — |
| | 3,400 |
| | 2,950 |
| | — |
|
Securities of U.S. states and political subdivisions | — |
| | — |
| | — |
| | — |
| | 52,068 |
| | 50 |
|
Mortgage-backed securities | — |
| | 37 |
| | — |
| | — |
| | 160,628 |
| | 76 |
|
Other debt securities (1) | — |
| | 684 |
| | 1,146 |
| | — |
| | 46,098 |
| | 22 |
|
Total debt securities | — |
| | 721 |
| | 1,146 |
| | 3,400 |
| | 261,744 |
| | 148 |
|
Total marketable equity securities | — |
| | — |
| | — |
| | — |
| | 264 |
| | — |
|
Total available-for-sale securities | — |
| | 721 |
| | 1,146 |
| | 3,400 |
| | 262,008 |
| | 148 |
|
Derivatives assets | — |
| | — |
| | — |
| | 19 |
| | — |
| | — |
|
Derivatives liabilities | — |
| | — |
| | — |
| | (16 | ) | | — |
| | — |
|
Other liabilities (2) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
December 31, 2016 | | | | | | | | | | | |
Trading assets | $ | — |
| | — |
| | — |
| | 899 |
| | 60 |
| | — |
|
Available-for-sale securities: | | | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | — |
| | — |
| | — |
| | 22,870 |
| | 2,949 |
| | — |
|
Securities of U.S. states and political subdivisions | — |
| | — |
| | — |
| | — |
| | 49,837 |
| | 208 |
|
Mortgage-backed securities | — |
| | 171 |
| | — |
| | — |
| | 176,923 |
| | 92 |
|
Other debt securities (1) | — |
| | 450 |
| | 968 |
| | — |
| | 49,162 |
| | 54 |
|
Total debt securities | — |
| | 621 |
| | 968 |
| | 22,870 |
| | 278,871 |
| | 354 |
|
Total marketable equity securities | — |
| | — |
| | — |
| | — |
| | 358 |
| | — |
|
Total available-for-sale securities | — |
| | 621 |
| | 968 |
| | 22,870 |
| | 279,229 |
| | 354 |
|
Derivatives assets | — |
| | — |
| | — |
| | 22 |
| | — |
| | — |
|
Derivatives liabilities | — |
| | — |
| | — |
| | (109 | ) | | (1 | ) | | — |
|
Other liabilities (2) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
|
| | | | | | | | | | | | | | | | | | |
| Brokers | | | Third-party pricing services | |
(in millions) | Level 1 |
| | Level 2 |
| | Level 3 |
| | Level 1 |
| | Level 2 |
| | Level 3 |
|
March 31, 2019 | | | | | | | | | | | |
Trading debt securities | $ | — |
| | — |
| | — |
| | 485 |
| | 310 |
| | — |
|
Available-for-sale debt securities: | | | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | — |
| | — |
| | — |
| | 12,144 |
| | 2,962 |
| | — |
|
Securities of U.S. states and political subdivisions | — |
| | — |
| | — |
| | — |
| | 49,230 |
| | 43 |
|
Mortgage-backed securities | — |
| | — |
| | — |
| | — |
| | 156,450 |
| | 41 |
|
Other debt securities (1) | — |
| | 45 |
| | 130 |
| | — |
| | 44,292 |
| | 771 |
|
Total available-for-sale debt securities | — |
| | 45 |
| | 130 |
| | 12,144 |
| | 252,934 |
| | 855 |
|
Equity securities: | | | | | | | | | | | |
Marketable | — |
| | — |
| | — |
| | — |
| | 161 |
| | — |
|
Nonmarketable | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total equity securities | — |
| | — |
| | — |
| | — |
| | 161 |
| | — |
|
Derivative assets | — |
| | — |
| | — |
| | 17 |
| | — |
| | — |
|
Derivative liabilities | — |
| | — |
| | — |
| | (21 | ) | | (1 | ) | | — |
|
Other liabilities (2) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
December 31, 2018 | | | | | | | | | | | |
Trading debt securities | $ | — |
| | — |
| | — |
| | 899 |
| | 256 |
| | — |
|
Available-for-sale debt securities: | | | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | — |
| | — |
| | — |
| | 10,399 |
| | 2,949 |
| | — |
|
Securities of U.S. states and political subdivisions | — |
| | — |
| | — |
| | — |
| | 48,377 |
| | 43 |
|
Mortgage-backed securities | — |
| | — |
| | — |
| | — |
| | 160,162 |
| | 41 |
|
Other debt securities (1) | — |
| | 45 |
| | 129 |
| | — |
| | 44,292 |
| | 758 |
|
Total available-for-sale debt securities | — |
| | 45 |
| | 129 |
| | 10,399 |
| | 255,780 |
| | 842 |
|
Equity securities: | | | | | | | | | | | |
Marketable | — |
| | — |
| | — |
| | — |
| | 158 |
| | — |
|
Nonmarketable | — |
| | — |
| | — |
| | — |
| | 1 |
| | — |
|
Total equity securities | — |
| | — |
| | — |
| | — |
| | 159 |
| | — |
|
Derivative assets | — |
| | — |
| | — |
| | 17 |
| | — |
| | — |
|
Derivative liabilities | — |
| | — |
| | — |
| | (12 | ) | | — |
| | — |
|
Other liabilities (2) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| |
(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. |
Note 13: Fair Values of Assets and Liabilities (continued)
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
Table 13.216.2 presents the balances of assets and liabilities recorded at fair value on a recurring basis.
Table 13.2:16.2: Fair Value on a Recurring Basis | | (in millions) | Level 1 |
| | Level 2 |
| | Level 3 |
| | Netting |
| | Total |
| Level 1 |
| | Level 2 |
| | Level 3 |
| | Netting (1) |
| Total |
|
September 30, 2017 | | | | | | | | | | |
Trading assets | | | | | | | | | | |
March 31, 2019 | | | | | | | | |
Trading debt securities: | | | | | | | | |
Securities of U.S. Treasury and federal agencies | $ | 16,882 |
| | 3,012 |
| | — |
| | — |
| | 19,894 |
| $ | 17,584 |
| | 4,971 |
| | — |
| | — |
| 22,555 |
|
Securities of U.S. states and political subdivisions | — |
| | 4,401 |
| | 3 |
| | — |
| | 4,404 |
| — |
| | 3,385 |
| | — |
| | — |
| 3,385 |
|
Collateralized loan obligations | — |
| | 359 |
| | 383 |
| | — |
| | 742 |
| — |
| | 674 |
| | 275 |
| | — |
| 949 |
|
Corporate debt securities | — |
| | 11,098 |
| | 34 |
| | — |
| | 11,132 |
| — |
| | 11,073 |
| | 41 |
| | — |
| 11,114 |
|
Mortgage-backed securities | — |
| | 23,966 |
| | — |
| | — |
| | 23,966 |
| — |
| | 31,162 |
| | — |
| | — |
| 31,162 |
|
Asset-backed securities | — |
| | 799 |
| | — |
| | — |
| | 799 |
| — |
| | 1,187 |
| | — |
| | — |
| 1,187 |
|
Equity securities | 25,980 |
| | 270 |
| | — |
| | — |
| | 26,250 |
| |
Total trading securities (1) | 42,862 |
| | 43,905 |
| | 420 |
| | — |
| | 87,187 |
| |
Other trading assets | — |
| | 1,161 |
| | 56 |
| | — |
| | 1,217 |
| |
Total trading assets | 42,862 |
| | 45,066 |
| | 476 |
| | — |
| | 88,404 |
| |
Other trading debt securities | | — |
| | 11 |
| | 15 |
| | — |
| 26 |
|
Total trading debt securities | | 17,584 |
| | 52,463 |
| | 331 |
| | — |
| 70,378 |
|
Available-for-sale debt securities: | | | | | | | | |
Securities of U.S. Treasury and federal agencies | 3,400 |
| | 2,950 |
| | — |
| | — |
| | 6,350 |
| 12,144 |
| | 2,962 |
| | — |
| | — |
| 15,106 |
|
Securities of U.S. states and political subdivisions | — |
| | 52,068 |
| | 706 |
| (2) | — |
| | 52,774 |
| — |
| | 49,230 |
| | 470 |
| | — |
| 49,700 |
|
Mortgage-backed securities: | | | | | | | | |
| | | | | | | |
Federal agencies | — |
| | 150,181 |
| | — |
| | — |
| | 150,181 |
| — |
| | 150,663 |
| | — |
| | — |
| 150,663 |
|
Residential | — |
| | 6,393 |
| | 1 |
| | — |
| | 6,394 |
| — |
| | 1,456 |
| | — |
| | — |
| 1,456 |
|
Commercial | — |
| | 4,576 |
| | 76 |
| | — |
| | 4,652 |
| — |
| | 4,331 |
| | 41 |
| | — |
| 4,372 |
|
Total mortgage-backed securities | — |
| | 161,150 |
| | 77 |
| | — |
| | 161,227 |
| — |
| | 156,450 |
| | 41 |
| | — |
| 156,491 |
|
Corporate debt securities | 56 |
| | 8,904 |
| | 380 |
| | — |
| | 9,340 |
| 36 |
| | 5,941 |
| | 377 |
| | — |
| 6,354 |
|
Collateralized loan and other debt obligations (3) | — |
| | 34,594 |
| | 1,014 |
| (2) | — |
| | 35,608 |
| |
Collateralized loan and other debt obligations (2) | | — |
| | 34,560 |
| | 755 |
| | — |
| 35,315 |
|
Asset-backed securities: | | | | | | | | |
| | | | | | | |
Automobile loans and leases | — |
| | 544 |
| | — |
| | — |
| | 544 |
| — |
| | 945 |
| | — |
| | — |
| 945 |
|
Home equity loans | — |
| | 283 |
| | — |
| | — |
| | 283 |
| — |
| | 14 |
| | — |
| | — |
| 14 |
|
Other asset-backed securities | — |
| | 4,556 |
| | 635 |
| (2) | — |
| | 5,191 |
| — |
| | 3,811 |
| | 362 |
| | — |
| 4,173 |
|
Total asset-backed securities | — |
| | 5,383 |
| | 635 |
| | — |
| | 6,018 |
| — |
| | 4,770 |
| | 362 |
| | — |
| 5,132 |
|
Other debt securities | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | 1 |
| | — |
| | — |
| 1 |
|
Total debt securities | 3,456 |
| | 265,049 |
| | 2,812 |
| | — |
| | 271,317 |
| |
Marketable equity securities: | | | | | | | | |
| |
Perpetual preferred securities | 155 |
| | 264 |
| | — |
| | — |
| | 419 |
| |
Other marketable equity securities | 474 |
| | — |
| | — |
| | — |
| | 474 |
| |
Total marketable equity securities | 629 |
| | 264 |
| | — |
| | — |
| | 893 |
| |
Total available-for-sale securities | 4,085 |
| | 265,313 |
| | 2,812 |
| | — |
| | 272,210 |
| |
Mortgages held for sale | — |
| | 15,452 |
| | 1,032 |
| | — |
| | 16,484 |
| |
Total available-for-sale debt securities | | 12,180 |
| | 253,914 |
| | 2,005 |
| (3) | — |
| 268,099 |
|
Mortgage loans held for sale | | — |
| | 10,093 |
| | 998 |
| | — |
| 11,091 |
|
Loans held for sale | | — |
| | 927 |
| | 71 |
| | — |
| 998 |
|
Loans | — |
| | — |
| | 410 |
| | — |
| | 410 |
| — |
| | — |
| | 225 |
| | — |
| 225 |
|
Mortgage servicing rights (residential) | — |
| | — |
| | 13,338 |
| | — |
| | 13,338 |
| — |
| | — |
| | 13,336 |
| | — |
| 13,336 |
|
Derivative assets: | | | | | | | | |
| | | | | | | |
Interest rate contracts | 26 |
| | 18,143 |
| | 172 |
| | — |
| | 18,341 |
| 67 |
| | 20,254 |
| | 128 |
| | — |
| 20,449 |
|
Commodity contracts | — |
| | 1,546 |
| | 28 |
| | — |
| | 1,574 |
| — |
| | 1,503 |
| | 25 |
| | — |
| 1,528 |
|
Equity contracts | 1,708 |
| | 3,867 |
| | 1,221 |
| | — |
| | 6,796 |
| 1,936 |
| | 3,275 |
| | 1,557 |
| | — |
| 6,768 |
|
Foreign exchange contracts | 19 |
| | 8,733 |
| | 20 |
| | — |
| | 8,772 |
| 17 |
| | 5,872 |
| | 11 |
| | — |
| 5,900 |
|
Credit contracts | — |
| | 275 |
| | 145 |
| | — |
| | 420 |
| — |
| | 216 |
| | 88 |
| | — |
| 304 |
|
Netting | — |
| | — |
| | — |
| | (23,323 | ) | (4) | (23,323 | ) | — |
| | — |
| | — |
| | (23,711 | ) | (23,711 | ) |
Total derivative assets | 1,753 |
| | 32,564 |
| | 1,586 |
| | (23,323 | ) | | 12,580 |
| 2,020 |
| | 31,120 |
| | 1,809 |
| | (23,711 | ) | 11,238 |
|
Other assets – excluding nonmarketable equity investments at NAV | — |
| | 50 |
| | 4,473 |
| | — |
| | 4,523 |
| |
Equity securities - excluding securities at NAV: | | | | | | | | |
Marketable | | 25,168 |
| | 900 |
| | — |
| | — |
| 26,068 |
|
Nonmarketable | | — |
| | 20 |
| | 6,381 |
| | — |
| 6,401 |
|
Total equity securities | | 25,168 |
| | 920 |
| | 6,381 |
| | — |
| 32,469 |
|
Total assets included in the fair value hierarchy | $ | 48,700 |
| | 358,445 |
| | 24,127 |
| | (23,323 | ) | | 407,949 |
| $ | 56,952 |
|
| 349,437 |
|
| 25,156 |
|
| (23,711 | ) | 407,834 |
|
Other assets – nonmarketable equity investments at NAV (5) |
|
| | | | | | | | — |
| |
Equity securities at NAV (4) | | | | | | | | | 117 |
|
Total assets recorded at fair value |
|
| |
|
| | | |
|
| | $ | 407,949 |
| | | | | | | | 407,951 |
|
Derivative liabilities: | | | | | | | | |
| | | | | | | |
Interest rate contracts | $ | (18 | ) | | (15,557 | ) | | (58 | ) | | — |
| | (15,633 | ) | $ | (18 | ) | | (17,217 | ) | | (27 | ) | | — |
| (17,262 | ) |
Commodity contracts | — |
| | (1,156 | ) | | (16 | ) | | — |
| | (1,172 | ) | — |
| | (1,117 | ) | | (43 | ) | | — |
| (1,160 | ) |
Equity contracts | (1,125 | ) | | (4,698 | ) | | (1,812 | ) | | — |
| | (7,635 | ) | (1,382 | ) | | (4,859 | ) | | (1,719 | ) | | — |
| (7,960 | ) |
Foreign exchange contracts | (16 | ) | | (8,777 | ) | | (13 | ) | | — |
| | (8,806 | ) | (21 | ) | | (6,664 | ) | | (27 | ) | | — |
| (6,712 | ) |
Credit contracts | — |
| | (384 | ) | | (92 | ) | | — |
| | (476 | ) | — |
| | (284 | ) | | (39 | ) | | — |
| (323 | ) |
Other derivative contracts | — |
| | — |
| | (26 | ) | | — |
| | (26 | ) | |
Netting | — |
| | — |
| | — |
| | 24,251 |
| (4) | 24,251 |
| — |
| | — |
| | — |
| | 26,024 |
| 26,024 |
|
Total derivative liabilities | (1,159 | ) | | (30,572 | ) | | (2,017 | ) | | 24,251 |
| | (9,497 | ) | (1,421 | ) | | (30,141 | ) | | (1,855 | ) | | 26,024 |
| (7,393 | ) |
Short sale liabilities: | | | | | | | | |
| | | | | | | |
Securities of U.S. Treasury and federal agencies | (10,401 | ) | | (728 | ) | | — |
| | — |
| | (11,129 | ) | (12,562 | ) | | (219 | ) | | — |
| | — |
| (12,781 | ) |
Mortgage-backed securities | | — |
| | (404 | ) | | — |
| | — |
| (404 | ) |
Corporate debt securities | — |
| | (5,643 | ) | | — |
| | — |
| | (5,643 | ) | — |
| | (5,075 | ) | | — |
| | — |
| (5,075 | ) |
Equity securities | (2,283 | ) | | (7 | ) | | — |
| | — |
| | (2,290 | ) | (3,325 | ) | | (1 | ) | | — |
| | — |
| (3,326 | ) |
Other securities | — |
| | (34 | ) | | (3 | ) | | — |
| | (37 | ) | — |
| | — |
| | — |
| | — |
| — |
|
Total short sale liabilities | (12,684 | ) | | (6,412 | ) | | (3 | ) | | — |
| | (19,099 | ) | (15,887 | ) | | (5,699 | ) | | — |
| | — |
| (21,586 | ) |
Other liabilities | — |
| | — |
| | (3 | ) | | — |
| | (3 | ) | — |
| | — |
| | (2 | ) | | — |
| (2 | ) |
Total liabilities recorded at fair value | $ | (13,843 | ) | | (36,984 | ) | | (2,023 | ) | | 24,251 |
| | (28,599 | ) | $ | (17,308 | ) | | (35,840 | ) | | (1,857 | ) | | 26,024 |
| (28,981 | ) |
| |
(1) | Net gains (losses) from trading activities recognized in the income statementRepresents balance sheet netting of derivative asset and liability balances and related cash collateral. See Note 15 (Derivatives) for the first nine monthsSeptember 30,2017 and 2016 both include $1.4 billion in net unrealized gains (losses) on trading securities held at September 30, 2017 and 2016, respectively. additional information. |
| |
(2) | Balances consistIncludes collateralized debt obligations of $755 million. |
| |
(3) | A significant portion of the balance consists 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 $1.0 billion.
|
| |
(4) | Represents balance sheet netting of derivative asset and liability balances and related cash collateral. See Note 12 (Derivatives) for additional information. |
| |
(5) | Consists of certain nonmarketable equity investmentssecurities 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)
Note 16: Fair Values of Assets and Liabilities (continued)
(continued from previous page)
| | (in millions) | Level 1 |
| | Level 2 |
| | Level 3 |
| | Netting |
| | Total |
| Level 1 |
| | Level 2 |
| | Level 3 |
| | Netting (1) |
| Total |
|
December 31, 2016 | | | | | | | | | | |
Trading assets | | | | | | | | | | |
December 31, 2018 | | | | | | | | |
Trading debt securities: | | | | | | | | |
Securities of U.S. Treasury and federal agencies | $ | 14,950 |
| | 2,710 |
| | — |
| | — |
| | 17,660 |
| $ | 20,525 |
| | 2,892 |
| | — |
| | — |
| 23,417 |
|
Securities of U.S. states and political subdivisions | — |
| | 2,910 |
| | 3 |
| | — |
| | 2,913 |
| — |
| | 3,272 |
| | 3 |
| | — |
| 3,275 |
|
Collateralized loan obligations | — |
| | 501 |
| | 309 |
| | — |
| | 810 |
| — |
| | 673 |
| | 237 |
| | — |
| 910 |
|
Corporate debt securities | — |
| | 9,481 |
| | 34 |
| | — |
| | 9,515 |
| — |
| | 10,723 |
| | 34 |
| | — |
| 10,757 |
|
Mortgage-backed securities | — |
| | 20,254 |
| | — |
| | — |
| | 20,254 |
| — |
| | 30,715 |
| | — |
| | — |
| 30,715 |
|
Asset-backed securities | — |
| | 1,128 |
| | — |
| | — |
| | 1,128 |
| — |
| | 893 |
| | — |
| | — |
| 893 |
|
Equity securities | 20,462 |
| | 290 |
| | — |
| | — |
| | 20,752 |
| |
Total trading securities (1) | 35,412 |
| | 37,274 |
| | 346 |
| | — |
| | 73,032 |
| |
Other trading assets | — |
| | 1,337 |
| | 28 |
| | — |
| | 1,365 |
| |
Total trading assets | 35,412 |
| | 38,611 |
| | 374 |
| | — |
| | 74,397 |
| |
Other trading debt securities | | — |
| | 6 |
| | 16 |
| | — |
| 22 |
|
Total trading debt securities | | 20,525 |
| | 49,174 |
| | 290 |
| | — |
| 69,989 |
|
Available-for-sale debt securities: | | | | | | | | |
Securities of U.S. Treasury and federal agencies | 22,870 |
| | 2,949 |
| | — |
| | — |
| | 25,819 |
| 10,399 |
| | 2,949 |
| | — |
| | — |
| 13,348 |
|
Securities of U.S. states and political subdivisions | — |
| | 49,961 |
| | 1,140 |
| (2) | — |
| | 51,101 |
| — |
| | 48,820 |
| | 444 |
| | — |
| 49,264 |
|
Mortgage-backed securities: | | | | | | | | |
| | | | | | | |
|
Federal agencies | — |
| | 161,230 |
| | — |
| | — |
| | 161,230 |
| — |
| | 153,203 |
| | — |
| | — |
| 153,203 |
|
Residential | — |
| | 7,815 |
| | 1 |
| | — |
| | 7,816 |
| — |
| | 2,775 |
| | — |
| | — |
| 2,775 |
|
Commercial | — |
| | 8,411 |
| | 91 |
| | — |
| | 8,502 |
| — |
| | 4,184 |
| | 41 |
| | — |
| 4,225 |
|
Total mortgage-backed securities | — |
| | 177,456 |
| | 92 |
| | — |
| | 177,548 |
| — |
| | 160,162 |
| | 41 |
| | — |
| 160,203 |
|
Corporate debt securities | 58 |
| | 10,967 |
| | 432 |
| | — |
| | 11,457 |
| 34 |
| | 5,867 |
| | 370 |
| | — |
| 6,271 |
|
Collateralized loan and other debt obligations (3) | — |
| | 34,141 |
| | 879 |
| (2) | — |
| | 35,020 |
| |
Collateralized loan and other debt obligations (2) | | — |
| | 34,543 |
| | 800 |
| | — |
| 35,343 |
|
Asset-backed securities: | | | | | | | | |
| | | | | | | |
|
Automobile loans and leases | — |
| | 9 |
| | — |
| | — |
| | 9 |
| — |
| | 925 |
| | — |
| | — |
| 925 |
|
Home equity loans | — |
| | 327 |
| | — |
| | — |
| | 327 |
| — |
| | 112 |
| | — |
| | — |
| 112 |
|
Other asset-backed securities | — |
| | 4,909 |
| | 962 |
| (2) | — |
| | 5,871 |
| — |
| | 4,056 |
| | 389 |
| | — |
| 4,445 |
|
Total asset-backed securities | — |
| | 5,245 |
| | 962 |
| | — |
| | 6,207 |
| — |
| | 5,093 |
| | 389 |
| | — |
| 5,482 |
|
Other debt securities | — |
| | 1 |
| | — |
| | — |
| | 1 |
| — |
| | 1 |
| | — |
| | — |
| 1 |
|
Total debt securities | 22,928 |
| | 280,720 |
| | 3,505 |
| | — |
| | 307,153 |
| |
Marketable equity securities: | | | | | | | | |
| |
Perpetual preferred securities | 112 |
| | 357 |
| | — |
| | — |
| | 469 |
| |
Other marketable equity securities | 741 |
| | 1 |
| | — |
| | — |
| | 742 |
| |
Total marketable equity securities | 853 |
| | 358 |
| | — |
| | — |
| | 1,211 |
| |
Total available-for-sale securities | 23,781 |
| | 281,078 |
| | 3,505 |
| | — |
| | 308,364 |
| |
Mortgages held for sale | — |
| | 21,057 |
| | 985 |
| | — |
| | 22,042 |
| |
Total available-for-sale debt securities | | 10,433 |
| | 257,435 |
| | 2,044 |
| (3) | — |
| 269,912 |
|
Mortgage loans held for sale | | — |
| | 10,774 |
| | 997 |
| | — |
| 11,771 |
|
Loans held for sale | | — |
| | 1,409 |
| | 60 |
| | — |
| 1,469 |
|
Loans | — |
| | — |
| | 758 |
| | — |
| | 758 |
| — |
| | — |
| | 244 |
| | — |
| 244 |
|
Mortgage servicing rights (residential) | — |
| | — |
| | 12,959 |
| | — |
| | 12,959 |
| — |
| | — |
| | 14,649 |
| | — |
| 14,649 |
|
Derivative assets: | | | | | | | | |
| | | | | | | |
|
Interest rate contracts | 44 |
| | 64,986 |
| | 238 |
| | — |
| | 65,268 |
| 46 |
| | 18,294 |
| | 95 |
| | — |
| 18,435 |
|
Commodity contracts | — |
| | 3,020 |
| | 37 |
| | — |
| | 3,057 |
| — |
| | 1,535 |
| | 53 |
| | — |
| 1,588 |
|
Equity contracts | 1,314 |
| | 2,997 |
| | 1,047 |
| | — |
| | 5,358 |
| 1,648 |
| | 4,582 |
| | 1,315 |
| | — |
| 7,545 |
|
Foreign exchange contracts | 22 |
| | 10,843 |
| | 29 |
| | — |
| | 10,894 |
| 17 |
| | 6,689 |
| | 8 |
| | — |
| 6,714 |
|
Credit contracts | — |
| | 280 |
| | 272 |
| | — |
| | 552 |
| — |
| | 179 |
| | 99 |
| | — |
| 278 |
|
Netting | — |
| | — |
| | — |
| | (70,631 | ) | (4) | (70,631 | ) | — |
| | — |
| | — |
| | (23,790 | ) | (23,790 | ) |
Total derivative assets | 1,380 |
| | 82,126 |
| | 1,623 |
| | (70,631 | ) | | 14,498 |
| 1,711 |
| | 31,279 |
| | 1,570 |
| | (23,790 | ) | 10,770 |
|
Other assets – excluding nonmarketable equity investments at NAV | — |
| | 16 |
| | 3,259 |
| | — |
| | 3,275 |
| |
Equity securities - excluding securities at NAV: | | | | | | | | |
Marketable | | 23,205 |
| | 757 |
| | — |
| | — |
| 23,962 |
|
Nonmarketable | | — |
| | 24 |
| | 5,468 |
| | — |
| 5,492 |
|
Total equity securities | | 23,205 |
| | 781 |
| | 5,468 |
| | — |
| 29,454 |
|
Total assets included in the fair value hierarchy | $ | 60,573 |
| | 422,888 |
| | 23,463 |
| | (70,631 | ) | | 436,293 |
| $ | 55,874 |
| | 350,852 |
| | 25,322 |
| | (23,790 | ) | 408,258 |
|
Other assets – nonmarketable equity investments at NAV (5) | | | | | | | | | — |
| |
Equity securities at NAV (4) | | | | | | | | | 102 |
|
Total assets recorded at fair value |
|
| |
|
| |
|
| |
|
| | $ | 436,293 |
|
|
| |
|
| |
|
| |
|
| 408,360 |
|
Derivative liabilities: | | | | | | | | |
| | | | | | | |
|
Interest rate contracts | $ | (45 | ) | | (65,047 | ) | | (117 | ) | | — |
| | (65,209 | ) | $ | (21 | ) | | (16,217 | ) | | (70 | ) | | — |
| (16,308 | ) |
Commodity contracts | — |
| | (2,537 | ) | | (14 | ) | | — |
| | (2,551 | ) | — |
| | (2,287 | ) | | (49 | ) | | — |
| (2,336 | ) |
Equity contracts | (919 | ) | | (3,879 | ) | | (1,314 | ) | | — |
| | (6,112 | ) | (1,492 | ) | | (3,186 | ) | | (1,332 | ) | | — |
| (6,010 | ) |
Foreign exchange contracts | (109 | ) | | (12,616 | ) | | (17 | ) | | — |
| | (12,742 | ) | (12 | ) | | (7,067 | ) | | (34 | ) | | — |
| (7,113 | ) |
Credit contracts | — |
| | (332 | ) | | (195 | ) | | — |
| | (527 | ) | — |
| | (216 | ) | | (64 | ) | | — |
| (280 | ) |
Other derivative contracts | — |
| | — |
| | (47 | ) | | — |
| | (47 | ) | |
Netting | — |
| | — |
| | — |
| | 72,696 |
| (4) | 72,696 |
| — |
| | — |
| | — |
| | 23,548 |
| 23,548 |
|
Total derivative liabilities | (1,073 | ) | | (84,411 | ) | | (1,704 | ) | | 72,696 |
| | (14,492 | ) | (1,525 | ) | | (28,973 | ) | | (1,549 | ) | | 23,548 |
| (8,499 | ) |
Short sale liabilities: | | | | | | | | |
|
| | | | | | | |
|
|
Securities of U.S. Treasury and federal agencies | (9,722 | ) | | (701 | ) | | — |
| | — |
| | (10,423 | ) | (11,850 | ) | | (411 | ) | | — |
| | — |
| (12,261 | ) |
Mortgage-backed securities | | — |
| | (47 | ) | | — |
| | — |
| (47 | ) |
Corporate debt securities | — |
| | (4,063 | ) | | — |
| | — |
| | (4,063 | ) | — |
| | (4,505 | ) | | — |
| | — |
| (4,505 | ) |
Equity securities | (1,795 | ) | | — |
| | — |
| | — |
| | (1,795 | ) | (2,902 | ) | | (2 | ) | | — |
| | — |
| (2,904 | ) |
Other securities | — |
| | (98 | ) | | — |
| | — |
| | (98 | ) | — |
| | (3 | ) | | — |
| | — |
| (3 | ) |
Total short sale liabilities | (11,517 | ) | | (4,862 | ) | | — |
| | — |
| | (16,379 | ) | (14,752 | ) | | (4,968 | ) | | — |
| | — |
| (19,720 | ) |
Other liabilities | — |
| | — |
| | (4 | ) | | — |
| | (4 | ) | — |
| | — |
| | (2 | ) | | — |
| (2 | ) |
Total liabilities recorded at fair value | $ | (12,590 | ) | | (89,273 | ) | | (1,708 | ) | | 72,696 |
| | (30,875 | ) | $ | (16,277 | ) | | (33,941 | ) | | (1,551 | ) | | 23,548 |
| (28,221 | ) |
| |
(1) | Net gains (losses) from trading activities recognized in the income statementRepresents balance sheet netting of derivative asset and liability balances and related cash collateral. See Note 15 (Derivatives) for the year ended December 31, 2016, include $820 million in net unrealized gains (losses) on trading securities held at December 31, 2016. additional information. |
| |
(2) | Balances consistIncludes collateralized debt obligations of $800 million. |
| |
(3) | A significant portion of the balance consists 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 $847 million.
|
| |
(4) | Represents balance sheet netting of derivative asset and liability balances and related cash collateral. See Note 12 (Derivatives) for additional information. |
| |
(5) | Consists of certain nonmarketable equity investmentssecurities 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 | | |
| Level 1 | | Level 2 | | Level 3 (1) | | |
(in millions) | In | | Out | | In | | Out | | In | | Out | | Total |
Quarter ended September 30, 2017 | | | | | | | | | | | | | |
Trading assets | $ | — |
| | — |
| | — |
| | (20 | ) | | 20 |
| | — |
| | — |
|
Available-for-sale securities | — |
| | — |
| | 838 |
| | — |
| | — |
| | (838 | ) | | — |
|
Mortgages held for sale | — |
| | — |
| | 2 |
| | (55 | ) | | 55 |
| | (2 | ) | | — |
|
Other assets | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net derivative assets and liabilities (2) | — |
| | — |
| | 6 |
| | 15 |
| | (15 | ) | | (6 | ) | | — |
|
Short sale liabilities | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total transfers | $ | — |
| | — |
| | 846 |
| | (60 | ) | | 60 |
| | (846 | ) | | — |
|
Quarter ended September 30, 2016 | | | | | | | | | | | | | |
Trading assets | $ | 1 |
| | (44 | ) | | 44 |
| | (2 | ) | | 1 |
| | — |
| | — |
|
Available-for-sale securities | — |
| | — |
| | 465 |
| | — |
| | — |
| | (465 | ) | | — |
|
Mortgages held for sale | — |
| | — |
| | 3 |
| | (18 | ) | | 18 |
| | (3 | ) | | — |
|
Other assets | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net derivative assets and liabilities (2) | — |
| | — |
| | 79 |
| | (14 | ) | | 14 |
| | (79 | ) | | — |
|
Short sale liabilities | — |
| | 1 |
| | (1 | ) | | — |
| | — |
| | — |
| | — |
|
Total transfers | $ | 1 |
| | (43 | ) | | 590 |
| | (34 | ) | | 33 |
| | (547 | ) | | — |
|
Nine months ended September 30, 2017 | | | | | | | | | | | | | |
Trading assets | $ | — |
| | — |
| | 1 |
| | (39 | ) | | 39 |
| | (1 | ) | | — |
|
Available-for-sale securities | — |
| | — |
| | 1,334 |
| | (5 | ) | | 5 |
| | (1,334 | ) | | — |
|
Mortgages held for sale | — |
| | — |
| | 8 |
| | (116 | ) | | 116 |
| | (8 | ) | | — |
|
Other assets | — |
| | — |
| | — |
| | (1 | ) | | 1 |
| | — |
| �� | — |
|
Net derivative assets and liabilities (2) | — |
| | — |
| | 89 |
| | 37 |
| | (37 | ) | | (89 | ) | | — |
|
Short sale liabilities | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total transfers | $ | — |
| | — |
| | 1,432 |
| | (124 | ) | | 124 |
| | (1,432 | ) | | — |
|
Nine months ended September 30, 2016 | | | | | | | | | | | | | |
Trading assets | $ | 5 |
| | (48 | ) | | 59 |
| | (6 | ) | | 1 |
| | (11 | ) | | — |
|
Available-for-sale securities | — |
| | — |
| | 481 |
| | (80 | ) | | 80 |
| | (481 | ) | | — |
|
Mortgages held for sale | — |
| | — |
| | 12 |
| | (72 | ) | | 72 |
| | (12 | ) | | — |
|
Other assets | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
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 | ) | | — |
|
| |
(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. |
The changes in Level 3 assets and liabilities measured at fair value on a recurring basis for thefirst quarter ended September 30, 2017,2019, are presented in Table 13.4.16.3.
Table 13.4:16.3: Changes in Level 3 Fair Value Assets and Liabilities on a Recurring Basis – Quarter ended September 30, 2017March 31, 2019
| | | |
| | 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 (4) |
| |
(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 (2) |
| | Transfers out of Level 3 (3) |
| | Balance, end of period |
| | |
Quarter ended September 30, 2017 | | | | | | | | | | | | | | | | | |
Trading assets: | | | | | | | | | | | | | | | | | |
Quarter ended March 31, 2019 | | | | | | | | | | | | | | | | | |
Trading debt securities: | | | | | | | | | | | | | | | | | |
Securities of U.S. states and political subdivisions | $ | 9 |
| | — |
| | — |
| | (6 | ) | | — |
| | — |
| | 3 |
| | — |
| | $ | 3 |
| | — |
| | — |
| | (2 | ) | | — |
| | (1 | ) | | — |
| | — |
| |
Collateralized loan obligations | 403 |
| | — |
| | — |
| | (20 | ) | | — |
| | — |
| | 383 |
| | (4 | ) | | 237 |
| | (3 | ) | | — |
| | 41 |
| | — |
| | — |
| | 275 |
| | 1 |
| |
Corporate debt securities | 26 |
| | — |
| | — |
| | 6 |
| | 2 |
| | — |
| | 34 |
| | — |
| | 34 |
| | 2 |
| | — |
| | 4 |
| | 1 |
| | — |
| | 41 |
| | 2 |
| |
Mortgage-backed securities | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | |
Asset-backed securities | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | |
Equity securities | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | |
Total trading securities | 438 |
| | — |
| | — |
| | (20 | ) | | 2 |
| | — |
| | 420 |
| | (4 | ) | | |
Other trading assets | 39 |
| | — |
| | — |
| | (1 | ) | | 18 |
| | — |
| | 56 |
| | — |
| | |
Total trading assets | 477 |
| | — |
| | — |
| | (21 | ) | | 20 |
| | — |
| | 476 |
| | (4 | ) | (3) | |
Available-for-sale securities: | | | | | | | | | | | | | | | | | |
Other trading debt securities | | 16 |
| | (1 | ) | | — |
| | — |
| | — |
| | — |
| | 15 |
| | — |
| |
Total trading debt securities | | 290 |
| | (2 | ) | | — |
| | 43 |
| | 1 |
| | (1 | ) | | 331 |
| | 3 |
| (5) |
Available-for-sale debt securities: | | | | | | | | | | | | | | | | | |
Securities of U.S. states and political subdivisions | 1,557 |
| | 3 |
| | 3 |
| | (19 | ) | | — |
| | (838 | ) | | 706 |
| | — |
| | 444 |
| | — |
| | 3 |
| | 23 |
| | — |
| | — |
| | 470 |
| | — |
| |
Mortgage-backed securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
Commercial | 75 |
| | — |
| | 1 |
| | — |
| | — |
| | — |
| | 76 |
| | — |
| | 41 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 41 |
| | — |
| |
Total mortgage-backed securities | 76 |
| | — |
| | 1 |
| | — |
| | — |
| | — |
| | 77 |
| | — |
| | 41 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 41 |
| | — |
| |
Corporate debt securities | 376 |
| | 1 |
| | 4 |
| | (1 | ) | | — |
| | — |
| | 380 |
| | — |
| | 370 |
| | 1 |
| | 4 |
| | 2 |
| | — |
| | — |
| | 377 |
| | — |
| |
Collateralized loan and other debt obligations | 1,002 |
| | 7 |
| | 25 |
| | (20 | ) | | — |
| | — |
| | 1,014 |
| | — |
| | 800 |
| | 6 |
| | (4 | ) | | (47 | ) | | — |
| | — |
| | 755 |
| | — |
| |
Asset-backed securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Automobile loans and leases | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | |
Other asset-backed securities | 872 |
| | 1 |
| | 2 |
| | (240 | ) | | — |
| | — |
| | 635 |
| | — |
| | 389 |
| | — |
| | (1 | ) | | (26 | ) | | — |
| | — |
| | 362 |
| | — |
| |
Total asset-backed securities | 872 |
| | 1 |
| | 2 |
| | (240 | ) | | — |
| | — |
| | 635 |
| | — |
| | 389 |
| | — |
| | (1 | ) | | (26 | ) | | — |
| | — |
| | 362 |
| | — |
| |
Total debt securities | 3,883 |
| | 12 |
| | 35 |
| | (280 | ) | | — |
| | (838 | ) | | 2,812 |
| | — |
| (4) | |
Marketable equity securities: | | | | | | | | | | | | | | | | | |
Perpetual preferred securities | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | |
Other marketable equity securities | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | |
Total marketable equity securities | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| (5) | |
Total available-for-sale securities | 3,883 |
| | 12 |
| | 35 |
| | (280 | ) | | — |
| | (838 | ) | | 2,812 |
| | — |
| | |
Mortgages held for sale | 995 |
| | (10 | ) | | — |
| | (6 | ) | | 55 |
| | (2 | ) | | 1,032 |
| | (11 | ) | (6) | |
Total available-for-sale debt securities | | 2,044 |
| | 7 |
| | 2 |
| | (48 | ) | | — |
| | — |
| | 2,005 |
| | — |
| (6) |
Mortgage loans held for sale | | 997 |
| | 15 |
| | — |
| | (66 | ) | | 56 |
| | (4 | ) | | 998 |
| | 15 |
| (7) |
Loans held for sale | | 60 |
| | — |
| | — |
| | 11 |
| | 37 |
| | (37 | ) | | 71 |
| | — |
| |
Loans | 443 |
| | — |
| | — |
| | (33 | ) | | — |
| | — |
| | 410 |
| | (3 | ) | (6) | 244 |
| | — |
| | — |
| | (19 | ) | | — |
| | — |
| | 225 |
| | (2 | ) | (7) |
Mortgage servicing rights (residential) (7) | 12,789 |
| | (661 | ) | | — |
| | 1,210 |
| | — |
| | — |
| | 13,338 |
| | (142 | ) | (6) | |
Mortgage servicing rights (residential) (8) | | 14,649 |
| | (1,373 | ) | | — |
| | 60 |
| | — |
| | — |
| | 13,336 |
| | (891 | ) | (7) |
Net derivative assets and liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest rate contracts | 115 |
| | 158 |
| | — |
| | (159 | ) | | — |
| | — |
| | 114 |
| | 8 |
| | 25 |
| | 187 |
| | — |
| | (111 | ) | | — |
| | — |
| | 101 |
| | 132 |
| |
Commodity contracts | 17 |
| | (16 | ) | | — |
| | 9 |
| | 2 |
| �� | — |
| | 12 |
| | 7 |
| | 4 |
| | (51 | ) | | — |
| | 27 |
| | 2 |
| | — |
| | (18 | ) | | (15 | ) | |
Equity contracts | (471 | ) | | (70 | ) | | — |
| | (27 | ) | | (17 | ) | | (6 | ) | | (591 | ) | | (130 | ) | | (17 | ) | | (119 | ) | | — |
| | (3 | ) | | 9 |
| | (32 | ) | | (162 | ) | | (114 | ) | |
Foreign exchange contracts | 4 |
| | 3 |
| | — |
| | — |
| | — |
| | — |
| | 7 |
| | 1 |
| | (26 | ) | | 7 |
| | — |
| | 3 |
| | — |
| | — |
| | (16 | ) | | 11 |
| |
Credit contracts | 72 |
| | (6 | ) | | — |
| | (13 | ) | | — |
| | — |
| | 53 |
| | (6 | ) | | 35 |
| | 8 |
| | — |
| | 6 |
| | — |
| | — |
| | 49 |
| | 13 |
| |
Other derivative contracts | (34 | ) | | 8 |
| | — |
| | — |
| | — |
| | — |
| | (26 | ) | | 8 |
| | |
Total derivative contracts | (297 | ) | | 77 |
| | — |
| | (190 | ) | | (15 | ) | | (6 | ) | | (431 | ) | | (112 | ) | (8) | 21 |
| | 32 |
| | — |
| | (78 | ) | | 11 |
| | (32 | ) | | (46 | ) | | 27 |
| (9) |
Other assets | 3,960 |
| | 513 |
| | — |
| | — |
| | — |
| | — |
| | 4,473 |
| | 513 |
| (5) | |
Short sale liabilities | — |
| | — |
| | — |
| | (3 | ) | | — |
| | — |
| | (3 | ) | | — |
| (3) | |
Equity securities: | | | | | | | | | | | | | | | | | |
Nonmarketable | | 5,468 |
| | 926 |
| | — |
| | (1 | ) | | — |
| | (12 | ) | | 6,381 |
| | 926 |
| |
Total equity securities | | 5,468 |
| | 926 |
| | — |
| | (1 | ) | | — |
| | (12 | ) | | 6,381 |
| | 926 |
| (10) |
Other liabilities | (3 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (3 | ) | | — |
| (6) | (2 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (2 | ) | | — |
| (7) |
| |
(1) | See Table 13.516.4 for detail. |
| |
(2) | All assets and liabilities transferred into level 3 were previously classified within level 2. |
| |
(3) | All assets and liabilities transferred out of level 3 are classified as level 2. |
| |
(4) | 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)(5) | Included in net gains (losses) from trading activities and other noninterest income in the income statement. |
| |
(4)(6) | Included in net gains (losses) fromon debt securities in the income statement. |
| |
(5) | Included in net gains (losses) from equity investments in the income statement. |
| |
(6)(7) | Included in mortgage banking and other noninterest income in the income statement. |
| |
(7)(8) | For more information on the changes in mortgage servicing rights, see Note 811 (Mortgage Banking Activities). |
| |
(8)(9) | Included in mortgage banking, trading activities, equity investmentssecurities and other noninterest income in the income statement. |
| |
(10) | Included in net gains (losses) from equity securities in the income statement. |
(continued on following page)
Note 13:16: Fair Values of Assets and Liabilities (continued)
(continued from previous page)
Table 13.516.4 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 thefirst quarter ended September 30, 2017.2019.
Table 13.5:16.4: Gross Purchases, Sales, Issuances and Settlements – Level 3 – Quarter ended September 30, 2017March 31, 2019
| | (in millions) | Purchases |
| | Sales |
| | Issuances |
| | Settlements |
| | Net |
| Purchases |
| | Sales |
| | Issuances |
| | Settlements |
| | Net |
|
Quarter ended September 30, 2017 | | | | | | | | | | |
Trading assets: | | | | | | | | | | |
Quarter ended March 31, 2019 | | | | | | | | | | |
Trading debt securities: | | | | | | | | | | |
Securities of U.S. states and political subdivisions | $ | 30 |
| | (35 | ) | | — |
| | (1 | ) | | (6 | ) | $ | — |
| | — |
| | — |
| | (2 | ) | | (2 | ) |
Collateralized loan obligations | 51 |
| | (36 | ) | | — |
| | (35 | ) | | (20 | ) | 130 |
| | (87 | ) | | — |
| | (2 | ) | | 41 |
|
Corporate debt securities | 9 |
| | (3 | ) | | — |
| | — |
| | 6 |
| 5 |
| | (1 | ) | | — |
| | — |
| | 4 |
|
Mortgage-backed securities | — |
| | — |
| | — |
| | — |
| | — |
| |
Asset-backed securities | — |
| | — |
| | — |
| | — |
| | — |
| |
Equity securities | — |
| | — |
| | — |
| | — |
| | — |
| |
Total trading securities | 90 |
| | (74 | ) | | — |
| | (36 | ) | | (20 | ) | |
Other trading assets | — |
| | (1 | ) | | — |
| | — |
| | (1 | ) | |
Total trading assets | 90 |
| | (75 | ) | | — |
| | (36 | ) | | (21 | ) | |
Available-for-sale securities: | | | | | | | | | | |
Other trading debt securities | | — |
| | — |
| | — |
| | — |
| | — |
|
Total trading debt securities | | 135 |
| | (88 | ) | | — |
| | (4 | ) | | 43 |
|
Available-for-sale debt securities: | | | | | | | | | | |
Securities of U.S. states and political subdivisions | — |
| | (68 | ) | | 98 |
| | (49 | ) | | (19 | ) | — |
| | — |
| | 49 |
| | (26 | ) | | 23 |
|
Mortgage-backed securities: | | | | | | | | | | | | | | | | | | |
Residential | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
| | — |
|
Commercial | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
| | — |
|
Total mortgage-backed securities | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
| | — |
|
Corporate debt securities | — |
| | — |
| | — |
| | (1 | ) | | (1 | ) | 3 |
| | — |
| | — |
| | (1 | ) | | 2 |
|
Collateralized loan and other debt obligations | 6 |
| | — |
| | — |
| | (26 | ) | | (20 | ) | — |
| | — |
| | — |
| | (47 | ) | | (47 | ) |
Asset-backed securities: | | | | | | | | | | | | | | | | | | |
Automobile loans and leases | — |
| | — |
| | — |
| | — |
| | — |
| |
Other asset-backed securities | — |
| | — |
| | 16 |
| | (256 | ) | | (240 | ) | — |
| | (3 | ) | | 66 |
| | (89 | ) | | (26 | ) |
Total asset-backed securities | — |
| | — |
| | 16 |
| | (256 | ) | | (240 | ) | — |
| | (3 | ) | | 66 |
| | (89 | ) | | (26 | ) |
Total debt securities | 6 |
| | (68 | ) | | 114 |
| | (332 | ) | | (280 | ) | |
Marketable equity securities: | | | | | | | | | | |
Perpetual preferred securities | — |
| | — |
| | — |
| | — |
| | — |
| |
Other marketable equity securities | — |
| | — |
| | — |
| | — |
| | — |
| |
Total marketable equity securities | — |
| | — |
| | — |
| | — |
| | — |
| |
Total available-for-sale securities | 6 |
| | (68 | ) | | 114 |
| | (332 | ) | | (280 | ) | |
Mortgages held for sale | 17 |
| | (130 | ) | | 147 |
| | (40 | ) | | (6 | ) | |
Total available-for-sale debt securities | | 3 |
| | (3 | ) | | 115 |
| | (163 | ) | | (48 | ) |
Mortgage loans held for sale | | 16 |
| | (93 | ) | | 46 |
| | (35 | ) | | (66 | ) |
Loans held for sale | | 12 |
| | (1 | ) | | — |
| | — |
| | 11 |
|
Loans | 2 |
| | — |
| | 5 |
| | (40 | ) | | (33 | ) | 2 |
| | — |
| | 3 |
| | (24 | ) | | (19 | ) |
Mortgage servicing rights (residential) (1) | 541 |
| | 64 |
| | 605 |
| | — |
| | 1,210 |
| — |
| | (281 | ) | | 341 |
| | — |
| | 60 |
|
Net derivative assets and liabilities: | | | | | | | | | | | | | | | | | | |
Interest rate contracts | — |
| | — |
| | — |
| | (159 | ) | | (159 | ) | — |
| | — |
| | — |
| | (111 | ) | | (111 | ) |
Commodity contracts | — |
| | — |
| | — |
| | 9 |
| | 9 |
| — |
| | — |
| | — |
| | 27 |
| | 27 |
|
Equity contracts | — |
| | (48 | ) | | — |
| | 21 |
| | (27 | ) | — |
| | — |
| | — |
| | (3 | ) | | (3 | ) |
Foreign exchange contracts | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | 3 |
| | 3 |
|
Credit contracts | 1 |
| | — |
| | — |
| | (14 | ) | | (13 | ) | 6 |
| | — |
| | — |
| | — |
| | 6 |
|
Other derivative contracts | — |
| | — |
| | — |
| | — |
| | — |
| |
Total derivative contracts | 1 |
| | (48 | ) | | — |
| | (143 | ) | | (190 | ) | 6 |
| | — |
| | — |
| | (84 | ) | | (78 | ) |
Other assets | — |
| | — |
| | — |
| | — |
| | — |
| |
Short sale liabilities | — |
| | (3 | ) | | — |
| | — |
| | (3 | ) | |
Equity securities: | | | | | | | | | | |
Nonmarketable | | — |
| | (1 | ) | | — |
| | — |
| | (1 | ) |
Total equity securities | | — |
| | (1 | ) | | — |
| | — |
| | (1 | ) |
Other liabilities | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
| | — |
|
| |
(1) | For more information on the changes in mortgage servicing rights, see Note 811 (Mortgage Banking Activities). |
The changes in Level 3 assets and liabilities measured at fair value on a recurring basis for thefirst quarter ended September 30, 2016,2018, are presented in Table 13.6.16.5.
Table 13.6:16.5: Changes in Level 3 Fair Value Assets and Liabilities on a Recurring Basis – Quarter ended September 30, 2016March 31, 2018
| | | 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 (2) |
| | Transfers out of Level 3 (3) |
| | Balance, end of period |
| | (4) |
Quarter ended September 30, 2016 | | | | | | | | | | | | | | | | | |
Trading assets: | | | | | | | | | | | | | | | | | |
Quarter ended March 31, 2018 | | | | | | | | | | | | | | | | | |
Trading debt securities: | | | | | | | | | | | | | | | | | |
Securities of U.S. states and political subdivisions | $ | 7 |
| | — |
| | — |
| | (4 | ) | | — |
| | — |
| | 3 |
| | — |
| | $ | 3 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 3 |
| | — |
| |
Collateralized loan obligations | 249 |
| | — |
| | — |
| | 39 |
| | — |
| | — |
| | 288 |
| | (1 | ) | | 354 |
| | 2 |
| | — |
| | (40 | ) | | — |
| | — |
| | 316 |
| | 16 |
| |
Corporate debt securities | 36 |
| | 1 |
| | — |
| | 9 |
| | — |
| | — |
| | 46 |
| | 1 |
| | 31 |
| | — |
| | — |
| | 3 |
| | — |
| | — |
| | 34 |
| | — |
| |
Mortgage-backed securities | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | |
Asset-backed securities | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | |
Equity securities | — |
| | — |
| | — |
| | (1 | ) | | 1 |
| | — |
| | — |
| | — |
| | |
Total trading securities | 292 |
| | 1 |
| | — |
| | 43 |
| | 1 |
| | — |
| | 337 |
| | — |
| | |
Other trading assets | 33 |
| | (3 | ) | | — |
| | — |
| | — |
| | — |
| | 30 |
| | (2 | ) | | |
Total trading assets | 325 |
| | (2 | ) | | — |
| | 43 |
| | 1 |
| | — |
| | 367 |
| | (2 | ) | (3) | |
Available-for-sale securities: | | | | | | | | | | | | | | | | | |
Other trading debt securities | | 19 |
| | (1 | ) | | — |
| | — |
| | — |
| | — |
| | 18 |
| | — |
| |
Total trading debt securities | | 407 |
| | 1 |
| | — |
| | (37 | ) | | — |
| | — |
| | 371 |
| | 16 |
| (5) |
Available-for-sale debt securities: | | | | | | | | | | | | | | | | | |
Securities of U.S. states and political subdivisions | 1,793 |
| | 1 |
| | (15 | ) | | (114 | ) | | — |
| | (465 | ) | | 1,200 |
| | — |
| | 925 |
| | 4 |
| | (2 | ) | | (41 | ) | | — |
| | (269 | ) | | 617 |
| | — |
| |
Mortgage-backed securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| | — |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| | — |
| |
Commercial | 94 |
| | — |
| | 1 |
| | (2 | ) | | — |
| | — |
| | 93 |
| | (1 | ) | | 75 |
| | 1 |
| | (1 | ) | | (8 | ) | | — |
| | — |
| | 67 |
| | — |
| |
Total mortgage-backed securities | 95 |
| | — |
| | 1 |
| | (2 | ) | | — |
| | — |
| | 94 |
| | (1 | ) | | 76 |
| | 1 |
| | (1 | ) | | (8 | ) | | — |
| | — |
| | 68 |
| | — |
| |
Corporate debt securities | 471 |
| | 3 |
| | 5 |
| | (4 | ) | | — |
| | — |
| | 475 |
| | — |
| | 407 |
| | 1 |
| | 3 |
| | (1 | ) | | — |
| | — |
| | 410 |
| | — |
| |
Collateralized loan and other debt obligations | 951 |
| | 19 |
| | 2 |
| | (12 | ) | | — |
| | — |
| | 960 |
| | — |
| | 1,020 |
| | 5 |
| | 43 |
| | (23 | ) | | — |
| | — |
| | 1,045 |
| | — |
| |
Asset-backed securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Automobile loans and leases | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | |
Other asset-backed securities | 1,117 |
| | (1 | ) | | — |
| | (70 | ) | | — |
| | — |
| | 1,046 |
| | — |
| | 566 |
| | 8 |
| | (7 | ) | | (66 | ) | | — |
| | — |
| | 501 |
| | — |
| |
Total asset-backed securities | 1,117 |
| | (1 | ) | | — |
| | (70 | ) | | — |
| | — |
| | 1,046 |
| | — |
| | 566 |
| | 8 |
| | (7 | ) | | (66 | ) | | — |
| | — |
| | 501 |
| | — |
| |
Total debt securities | 4,427 |
| | 22 |
| | (7 | ) | | (202 | ) | | — |
| | (465 | ) | | 3,775 |
| | (1 | ) | (4) | |
Marketable equity securities: | | | | | | | | | | | | | | | | | |
Perpetual preferred securities | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | |
Other marketable equity securities | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | |
Total marketable equity securities | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| (5) | |
Total available-for-sale securities | 4,427 |
| | 22 |
| | (7 | ) | | (202 | ) | | — |
| | (465 | ) | | 3,775 |
| | (1 | ) | | |
Mortgages held for sale | 1,084 |
| | (10 | ) | | — |
| | 18 |
| | 18 |
| | (3 | ) | | 1,107 |
| | (11 | ) | (6) | |
Total available-for-sale debt securities | | 2,994 |
| | 19 |
| | 36 |
| | (139 | ) | | — |
| | (269 | ) | | 2,641 |
| | — |
| (6) |
Mortgage loans held for sale | | 998 |
| | (23 | ) | | — |
| | (37 | ) | | 15 |
| | (3 | ) | | 950 |
| | (23 | ) | (7) |
Loans held for sale | | 14 |
| | 2 |
| | — |
| | (16 | ) | | — |
| | — |
| | — |
| | — |
| |
Loans | 5,032 |
| | (25 | ) | | — |
| | (219 | ) | | — |
| | — |
| | 4,788 |
| | (26 | ) | (6) | 376 |
| | (1 | ) | | — |
| | (23 | ) | | — |
| | — |
| | 352 |
| | (4 | ) | (7) |
Mortgage servicing rights (residential) (7) | 10,396 |
| | (594 | ) | | — |
| | 613 |
| | — |
| | — |
| | 10,415 |
| | (8 | ) | (6) | |
Mortgage servicing rights (residential) (8) | | 13,625 |
| | 847 |
| | — |
| | 569 |
| | — |
| | — |
| | 15,041 |
| | 1,330 |
| (7) |
Net derivative assets and liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest rate contracts | 690 |
| | 504 |
| | — |
| | (561 | ) | | — |
| | — |
| | 633 |
| | 186 |
| | 71 |
| | (345 | ) | | — |
| | 266 |
| | — |
| | — |
| | (8 | ) | | (73 | ) | |
Commodity contracts | 21 |
| | (3 | ) | | — |
| | — |
| | 1 |
| | 1 |
| | 20 |
| | (1 | ) | | 19 |
| | 15 |
| | — |
| | (24 | ) | | — |
| | — |
| | 10 |
| | — |
| |
Equity contracts | (252 | ) | | (33 | ) | | — |
| | (7 | ) | | (3 | ) | | (80 | ) | | (375 | ) | | (54 | ) | | (511 | ) | | 69 |
| | — |
| | 71 |
| | — |
| | 49 |
| | (322 | ) | | 25 |
| |
Foreign exchange contracts | — |
| | 1 |
| | — |
| | — |
| | 16 |
| | — |
| | 17 |
| | 2 |
| | 7 |
| | (7 | ) | | — |
| | 1 |
| | — |
| | — |
| | 1 |
| | (3 | ) | |
Credit contracts | 61 |
| | 17 |
| | — |
| | (8 | ) | | — |
| | — |
| | 70 |
| | 14 |
| | 36 |
| | 8 |
| | — |
| | (3 | ) | | — |
| | — |
| | 41 |
| | 4 |
| |
Other derivative contracts | (88 | ) | | 15 |
| | — |
| | — |
| | — |
| | — |
| | (73 | ) | | 16 |
| | |
Total derivative contracts | 432 |
| | 501 |
| | — |
| | (576 | ) | | 14 |
| | (79 | ) | | 292 |
| | 163 |
| (8) | (378 | ) | | (260 | ) | | — |
| | 311 |
| | — |
| | 49 |
| | (278 | ) | | (47 | ) | (9) |
Other assets | 3,038 |
| | 380 |
| | — |
| | — |
| | — |
| | — |
| | 3,418 |
| | 381 |
| (5) | |
Short sale liabilities | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| (3) | |
Equity securities: | | | | | | | | | | | | | | | | | |
Nonmarketable | | 5,203 |
| | 108 |
| | — |
| | (96 | ) | | 4 |
| | — |
| | 5,219 |
| | 101 |
| |
Total equity securities | | 5,203 |
| | 108 |
| | — |
| | (96 | ) | | 4 |
| | — |
| | 5,219 |
| | 101 |
| (10) |
Other liabilities | (5 | ) | | 1 |
| | — |
| | — |
| | — |
| | — |
| | (4 | ) | | — |
| (6) | (3 | ) | | 1 |
| | — |
| | — |
| | — |
| | — |
| | (2 | ) | | — |
| (7) |
| |
(1) | See Table 13.716.6 for detail. |
| |
(2) | All assets and liabilities transferred into level 3 were previously classified within level 2. |
| |
(3) | All assets and liabilities transferred out of level 3 are classified as level 2. |
| |
(4) | 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)(5) | Included in net gains (losses) from trading activities and other noninterest income in the income statement. |
| |
(4)(6) | Included in net gains (losses) fromon debt securities in the income statement. |
| |
(5) | Included in net gains (losses) from equity investments in the income statement. |
| |
(6)(7) | Included in mortgage banking and other noninterest income in the income statement. |
| |
(7)(8) | For more information on the changes in mortgage servicing rights, see Note 811 (Mortgage Banking Activities). |
| |
(8)(9) | Included in mortgage banking, trading activities, equity investmentssecurities and other noninterest income in the income statement. |
| |
(10) | Included in net gains (losses) from equity securities in the income statement. |
(continued on following page)
Note 13:16: Fair Values of Assets and Liabilities (continued)
(continued from previous page)
Table 13.716.6 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 thefirst quarter ended September 30, 2016.2018.
Table 13.7:16.6: Gross Purchases, Sales, Issuances and Settlements – Level 3 – Quarter ended September 30, 2016March 31, 2018
| | (in millions) | Purchases |
| | Sales |
| | Issuances |
| | Settlements |
| | Net |
| Purchases |
| | Sales |
| | Issuances |
| | Settlements |
| | Net |
|
Quarter ended September 30, 2016 | | | | | | | | | | |
Trading assets: | | | | | | | | | | |
Quarter ended March 31, 2018 | | | | | | | | | | |
Trading debt securities: | | | | | | | | | | |
Securities of U.S. states and political subdivisions | $ | — |
| | — |
| | — |
| | (4 | ) | | (4 | ) | $ | — |
| | — |
| | — |
| | — |
| | — |
|
Collateralized loan obligations | 75 |
| | (36 | ) | | — |
| | — |
| | 39 |
| 182 |
| | (191 | ) | | — |
| | (31 | ) | | (40 | ) |
Corporate debt securities | 19 |
| | (10 | ) | | — |
| | — |
| | 9 |
| 4 |
| | (1 | ) | | — |
| | — |
| | 3 |
|
Mortgage-backed securities | — |
| | — |
| | — |
| | — |
| | — |
| |
Asset-backed securities | — |
| | — |
| | — |
| | — |
| | — |
| |
Equity securities | — |
| | (1 | ) | | — |
| | — |
| | (1 | ) | |
Total trading securities | 94 |
| | (47 | ) | | — |
| | (4 | ) | | 43 |
| |
Other trading assets | — |
| | — |
| | — |
| | — |
| | — |
| |
Total trading assets | 94 |
| | (47 | ) | | — |
| | (4 | ) | | 43 |
| |
Available-for-sale securities: | | | | | | | | | | |
Other trading debt securities | | — |
| | — |
| | — |
| | — |
| | — |
|
Total trading debt securities | | 186 |
| | (192 | ) | | — |
| | (31 | ) | | (37 | ) |
Available-for-sale debt securities: | | | | | | | | | | |
Securities of U.S. states and political subdivisions | — |
| | — |
| | — |
| | (114 | ) | | (114 | ) | — |
| | (4 | ) | | 10 |
| | (47 | ) | | (41 | ) |
Mortgage-backed securities: | | | | | | | | | | | | | | | | | | |
Residential | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
| | — |
|
Commercial | — |
| | — |
| | — |
| | (2 | ) | | (2 | ) | — |
| | — |
| | — |
| | (8 | ) | | (8 | ) |
Total mortgage-backed securities | — |
| | — |
| | — |
| | (2 | ) | | (2 | ) | — |
| | — |
| | — |
| | (8 | ) | | (8 | ) |
Corporate debt securities | 1 |
| | (4 | ) | | — |
| | (1 | ) | | (4 | ) | — |
| | — |
| | — |
| | (1 | ) | | (1 | ) |
Collateralized loan and other debt obligations | 121 |
| | (45 | ) | | — |
| | (88 | ) | | (12 | ) | — |
| | — |
| | — |
| | (23 | ) | | (23 | ) |
Asset-backed securities: | | | | | | | | | | | | | | | | | | |
Automobile loans and leases | — |
| | — |
| | — |
| | — |
| | — |
| |
Other asset-backed securities | — |
| | — |
| | 16 |
| | (86 | ) | | (70 | ) | — |
| | (8 | ) | | 49 |
| | (107 | ) | | (66 | ) |
Total asset-backed securities | — |
| | — |
| | 16 |
| | (86 | ) | | (70 | ) | — |
| | (8 | ) | | 49 |
| | (107 | ) | | (66 | ) |
Total debt securities | 122 |
| | (49 | ) | | 16 |
| | (291 | ) | | (202 | ) | |
Marketable equity securities: | | | | | | | | | | |
Perpetual preferred securities | — |
| | — |
| | — |
| | — |
| | — |
| |
Other marketable equity securities | — |
| | — |
| | — |
| | — |
| | — |
| |
Total marketable equity securities | — |
| | — |
| | — |
| | — |
| | — |
| |
Total available-for-sale securities | 122 |
| | (49 | ) | | 16 |
| | (291 | ) | | (202 | ) | |
Mortgages held for sale | 23 |
| | (113 | ) | | 161 |
| | (53 | ) | | 18 |
| |
Total available-for-sale debt securities | | — |
| | (12 | ) | | 59 |
| | (186 | ) | | (139 | ) |
Mortgage loans held for sale | | 27 |
| | (83 | ) | | 58 |
| | (39 | ) | | (37 | ) |
Loans held for sale | | — |
| | (16 | ) | | — |
| | — |
| | (16 | ) |
Loans | — |
| | — |
| | 76 |
| | (295 | ) | | (219 | ) | 1 |
| | — |
| | 4 |
| | (28 | ) | | (23 | ) |
Mortgage servicing rights (residential) (1) | — |
| | 3 |
| | 609 |
| | 1 |
| | 613 |
| — |
| | (4 | ) | | 573 |
| | — |
| | 569 |
|
Net derivative assets and liabilities: | | | | | | | | | | | | | | | | | | |
Interest rate contracts | — |
| | — |
| | — |
| | (561 | ) | | (561 | ) | — |
| | — |
| | — |
| | 266 |
| | 266 |
|
Commodity contracts | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | (24 | ) | | (24 | ) |
Equity contracts | — |
| | — |
| | — |
| | (7 | ) | | (7 | ) | — |
| | — |
| | — |
| | 71 |
| | 71 |
|
Foreign exchange contracts | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | 1 |
| �� | 1 |
|
Credit contracts | 2 |
| | (1 | ) | | — |
| | (9 | ) | | (8 | ) | 3 |
| | (2 | ) | | — |
| | (4 | ) | | (3 | ) |
Other derivative contracts | — |
| | — |
| | — |
| | — |
| | — |
| |
Total derivative contracts | 2 |
| | (1 | ) | | — |
| | (577 | ) | | (576 | ) | 3 |
| | (2 | ) | | — |
| | 310 |
| | 311 |
|
Other assets | — |
| | — |
| | — |
| | — |
| | — |
| |
Short sale liabilities | — |
| | — |
| | — |
| | — |
| | — |
| |
Equity securities: | | | | | | | | | | |
Nonmarketable | | — |
| | (17 | ) | | — |
| | (79 | ) | | (96 | ) |
Total equity securities | | — |
| | (17 | ) | | — |
| | (79 | ) | | (96 | ) |
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 first nine months of 2017, 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, 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 |
| |
(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, 2017 | | | | | | | | | | | | | | | | |
Trading assets: | | | | | | | | | | | | | | | | |
Securities of U.S. states and political subdivisions | $ | 3 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 3 |
| | — |
| |
Collateralized loan obligations | 309 |
| | (3 | ) | | — |
| | 77 |
| | — |
| | — |
| | 383 |
| | (12 | ) | |
Corporate debt securities | 34 |
| | 1 |
| | — |
| | (5 | ) | | 5 |
| | (1 | ) | | 34 |
| | — |
| |
Mortgage-backed securities | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
Asset-backed securities | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
Equity securities | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
Total trading securities | 346 |
| | (2 | ) | | — |
| | 72 |
| | 5 |
| | (1 | ) | | 420 |
| | (12 | ) | |
Other trading assets | 28 |
| | (3 | ) | | — |
| | (3 | ) | | 34 |
| | — |
| | 56 |
| | (2 | ) | |
Total trading assets | 374 |
| | (5 | ) | | — |
| | 69 |
| | 39 |
| | (1 | ) | | 476 |
| | (14 | ) | (3) |
Available-for-sale securities: | | | | | | | | | | | | | | | | |
Securities of U.S. states and political subdivisions | 1,140 |
| | 4 |
| | 7 |
| | 884 |
| | 5 |
| | (1,334 | ) | | 706 |
| | — |
| |
Mortgage-backed securities: | | | | | | | | | | | | | | | | |
Residential | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| | — |
| |
Commercial | 91 |
| | (6 | ) | | — |
| | (9 | ) | | — |
| | — |
| | 76 |
| | (11 | ) | |
Total mortgage-backed securities | 92 |
| | (6 | ) | | — |
| | (9 | ) | | — |
| | — |
| | 77 |
| | (11 | ) | |
Corporate debt securities | 432 |
| | (13 | ) | | 14 |
| | (53 | ) | | — |
| | — |
| | 380 |
| | — |
| |
Collateralized loan and other debt obligations | 879 |
| | 17 |
| | 70 |
| | 48 |
| | — |
| | — |
| | 1,014 |
| | — |
| |
Asset-backed securities: | | | | | | | | | | | | | | | | |
Automobile loans and leases | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
Other asset-backed securities | 962 |
| | 1 |
| | 5 |
| | (333 | ) | | — |
| | — |
| | 635 |
| | — |
| |
Total asset-backed securities | 962 |
| | 1 |
| | 5 |
| | (333 | ) | | — |
| | — |
| | 635 |
| | — |
| |
Total debt securities | 3,505 |
| | 3 |
| | 96 |
| | 537 |
| | 5 |
| | (1,334 | ) | | 2,812 |
| | (11 | ) | (4) |
Marketable equity securities: | | | | | | | | | | | | | | | | |
Perpetual preferred securities | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
Other marketable equity securities | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
Total marketable equity securities | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| (5) |
Total available-for-sale securities | 3,505 |
| | 3 |
| | 96 |
| | 537 |
| | 5 |
| | (1,334 | ) | | 2,812 |
| | (11 | ) | |
Mortgages held for sale | 985 |
| | (20 | ) | | — |
| | (41 | ) | | 116 |
| | (8 | ) | | 1,032 |
| | (21 | ) | (6) |
Loans | 758 |
| | (6 | ) | | — |
| | (342 | ) | | — |
| | — |
| | 410 |
| | (9 | ) | (6) |
Mortgage servicing rights (residential) (7) | 12,959 |
| | (1,795 | ) | | — |
| | 2,174 |
| | — |
| | — |
| | 13,338 |
| | (328 | ) | (6) |
Net derivative assets and liabilities: | | | | | | | | | | | | | | | | |
Interest rate contracts | 121 |
| | 625 |
| | — |
| | (632 | ) | | — |
| | — |
| | 114 |
| | (10 | ) | |
Commodity contracts | 23 |
| | (14 | ) | | — |
| | 3 |
| | 2 |
| | (2 | ) | | 12 |
| | 9 |
| |
Equity contracts | (267 | ) | | (128 | ) | | — |
| | (70 | ) | | (39 | ) | | (87 | ) | | (591 | ) | | (223 | ) | |
Foreign exchange contracts | 12 |
| | (5 | ) | | — |
| | — |
| | — |
| | — |
| | 7 |
| | (1 | ) | |
Credit contracts | 77 |
| | 29 |
| | — |
| | (53 | ) | | — |
| | — |
| | 53 |
| | (42 | ) | |
Other derivative contracts | (47 | ) | | 22 |
| | — |
| | (1 | ) | | — |
| | — |
| | (26 | ) | | 22 |
| |
Total derivative contracts | (81 | ) | | 529 |
| | — |
| | (753 | ) | | (37 | ) | | (89 | ) | | (431 | ) | | (245 | ) | (8) |
Other assets | 3,259 |
| | 1,214 |
| | — |
| | (1 | ) | | 1 |
| | — |
| | 4,473 |
| | 1,215 |
| (5) |
Short sale liabilities | — |
| | — |
| | — |
| | (3 | ) | | — |
| | — |
| | (3 | ) | | — |
| (3) |
Other liabilities | (4 | ) | | 1 |
| | — |
| | — |
| | — |
| | — |
| | (3 | ) | | — |
| (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 2017.
Table 13.9:Gross Purchases, Sales, Issuances and Settlements – Level 3 – Nine months ended September 30, 2017 |
| | | | | | | | | | | | | | | |
(in millions) | Purchases |
| | Sales |
| | Issuances |
| | Settlements |
| | Net |
|
Nine months ended September 30, 2017 | | | | | | | | | |
Trading assets: | | | | | | | | | |
Securities of U.S. states and political subdivisions | $ | 37 |
| | (36 | ) | | — |
| | (1 | ) | | — |
|
Collateralized loan obligations | 337 |
| | (165 | ) | | — |
| | (95 | ) | | 77 |
|
Corporate debt securities | 18 |
| | (23 | ) | | — |
| | — |
| | (5 | ) |
Mortgage-backed securities | — |
| | — |
| | — |
| | — |
| | — |
|
Asset-backed securities | — |
| | — |
| | — |
| | — |
| | — |
|
Equity securities | — |
| | — |
| | — |
| | — |
| | — |
|
Total trading securities | 392 |
| | (224 | ) | | — |
| | (96 | ) | | 72 |
|
Other trading assets | — |
| | (1 | ) | | — |
| | (2 | ) | | (3 | ) |
Total trading assets | 392 |
| | (225 | ) | | — |
| | (98 | ) | | 69 |
|
Available-for-sale securities: | | | | | | | | | |
Securities of U.S. states and political subdivisions | — |
| | (68 | ) | | 1,099 |
| | (147 | ) | | 884 |
|
Mortgage-backed securities: | | | | | | | | | |
Residential | — |
| | — |
| | — |
| | — |
| | — |
|
Commercial | — |
| | — |
| | — |
| | (9 | ) | | (9 | ) |
Total mortgage-backed securities | — |
| | — |
| | — |
| | (9 | ) | | (9 | ) |
Corporate debt securities | 4 |
| | — |
| | — |
| | (57 | ) | | (53 | ) |
Collateralized loan and other debt obligations | 135 |
| | — |
| | — |
| | (87 | ) | | 48 |
|
Asset-backed securities: | | | | | | | | | |
Automobile loans and leases | — |
| | — |
| | — |
| | — |
| | — |
|
Other asset-backed securities | — |
| | — |
| | 198 |
| | (531 | ) | | (333 | ) |
Total asset-backed securities | — |
| | — |
| | 198 |
| | (531 | ) | | (333 | ) |
Total debt securities | 139 |
| | (68 | ) | | 1,297 |
| | (831 | ) | | 537 |
|
Marketable equity securities: | | | | | | | | | |
Perpetual preferred securities | — |
| | — |
| | — |
| | — |
| | — |
|
Other marketable equity securities | — |
| | — |
| | — |
| | — |
| | — |
|
Total marketable equity securities | — |
| | — |
| | — |
| | — |
| | — |
|
Total available-for-sale securities | 139 |
| | (68 | ) | | 1,297 |
| | (831 | ) | | 537 |
|
Mortgages held for sale | 57 |
| | (374 | ) | | 386 |
| | (110 | ) | | (41 | ) |
Loans | 5 |
| | (129 | ) | | 14 |
| | (232 | ) | | (342 | ) |
Mortgage servicing rights (residential) (1) | 541 |
| | 9 |
| | 1,624 |
| | — |
| | 2,174 |
|
Net derivative assets and liabilities: | | | | | | | | | |
Interest rate contracts | — |
| | — |
| | — |
| | (632 | ) | | (632 | ) |
Commodity contracts | — |
| | — |
| | — |
| | 3 |
| | 3 |
|
Equity contracts | — |
| | (117 | ) | | — |
| | 47 |
| | (70 | ) |
Foreign exchange contracts | — |
| | — |
| | — |
| | — |
| | — |
|
Credit contracts | 5 |
| | (2 | ) | | — |
| | (56 | ) | | (53 | ) |
Other derivative contracts | — |
| | — |
| | — |
| | (1 | ) | | (1 | ) |
Total derivative contracts | 5 |
| | (119 | ) | | — |
| | (639 | ) | | (753 | ) |
Other assets | — |
| | (1 | ) | | — |
| | — |
| | (1 | ) |
Short sale liabilities | — |
| | (3 | ) | | — |
| | — |
| | (3 | ) |
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 first nine months of 2016, 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, 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 |
| |
(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, 2016 | | | | | | | | | | | | | | | | |
Trading assets: | | | | | | | | | | | | | | | | |
Securities of U.S. states and political subdivisions | $ | 8 |
| | — |
| | — |
| | (5 | ) | | — |
| | — |
| | 3 |
| | — |
| |
Collateralized loan obligations | 343 |
| | (24 | ) | | — |
| | (20 | ) | | — |
| | (11 | ) | | 288 |
| | (25 | ) | |
Corporate debt securities | 56 |
| | (7 | ) | | — |
| | (3 | ) | | — |
| | — |
| | 46 |
| | (6 | ) | |
Mortgage-backed securities | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
Asset-backed securities | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
Equity securities | — |
| | — |
| | — |
| | (1 | ) | | 1 |
| | — |
| | — |
| | — |
| |
Total trading securities | 407 |
| | (31 | ) | | — |
| | (29 | ) | | 1 |
| | (11 | ) | | 337 |
| | (31 | ) | |
Other trading assets | 34 |
| | (4 | ) | | — |
| | — |
| | — |
| | — |
| | 30 |
| | 1 |
| |
Total trading assets | 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: | | | | | | | | | | | | | | | | |
Residential | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| | — |
| |
Commercial | 73 |
| | — |
| | 1 |
| | 19 |
| | — |
| | — |
| | 93 |
| | (1 | ) | |
Total mortgage-backed securities | 74 |
| | — |
| | 1 |
| | 19 |
| | — |
| | — |
| | 94 |
| | (1 | ) | |
Corporate debt securities | 405 |
| | 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 securities | 1,182 |
| | 1 |
| | (7 | ) | | (130 | ) | | — |
| | — |
| | 1,046 |
| | (4 | ) | |
Total asset-backed securities | 1,182 |
| | 1 |
| | (7 | ) | | (130 | ) | | — |
| | — |
| | 1,046 |
| | (4 | ) | |
Total debt securities | 3,726 |
| | 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 sale | 1,082 |
| | 20 |
| | — |
| | (55 | ) | | 72 |
| | (12 | ) | | 1,107 |
| | 15 |
| (6) |
Loans | 5,316 |
| | (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 contracts | 288 |
| | 1,763 |
| | — |
| | (1,411 | ) | | — |
| | (7 | ) | | 633 |
| | 374 |
| |
Commodity contracts | 12 |
| | 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 contracts | 128 |
| | 1,753 |
| | — |
| | (1,502 | ) | | 42 |
| | (129 | ) | | 292 |
| | 126 |
| (8) |
Other assets | 3,065 |
| | 142 |
| | — |
| | 211 |
| | — |
| | — |
| | 3,418 |
| | 142 |
| (5) |
Short sale liabilities | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| (3) |
Other liabilities | (30 | ) | | 1 |
| | — |
| | 25 |
| | — |
| | — |
| | (4 | ) | | — |
| (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 13.11 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 13.11: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: | | | | | | | | | |
Securities of U.S. states and political subdivisions | $ | 2 |
| | (2 | ) | | — |
| | (5 | ) | | (5 | ) |
Collateralized loan obligations | 265 |
| | (285 | ) | | — |
| | — |
| | (20 | ) |
Corporate debt securities | 32 |
| | (35 | ) | | — |
| | — |
| | (3 | ) |
Mortgage-backed securities | — |
| | — |
| | — |
| | — |
| | — |
|
Asset-backed securities | — |
| | — |
| | — |
| | — |
| | — |
|
Equity securities | — |
| | (1 | ) | | — |
| | — |
| | (1 | ) |
Total trading securities | 299 |
| | (323 | ) | | — |
| | (5 | ) | | (29 | ) |
Other trading assets | — |
| | — |
| | — |
| | — |
| | — |
|
Total trading assets | 299 |
| | (323 | ) | | — |
| | (5 | ) | | (29 | ) |
Available-for-sale securities: | | | | | | | | | |
Securities of U.S. states and political subdivisions | 28 |
| | (7 | ) | | 475 |
| | (389 | ) | | 107 |
|
Mortgage-backed securities: | | | | | | | | | |
Residential | — |
| | — |
| | — |
| | — |
| | — |
|
Commercial | 22 |
| | — |
| | — |
| | (3 | ) | | 19 |
|
Total mortgage-backed securities | 22 |
| | — |
| | — |
| | (3 | ) | | 19 |
|
Corporate debt securities | 35 |
| | (4 | ) | | — |
| | (2 | ) | | 29 |
|
Collateralized loan and other debt obligations | 610 |
| | (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 securities | 695 |
| | (88 | ) | | 689 |
| | (900 | ) | | 396 |
|
Marketable equity securities: | | | | | | | | | |
Perpetual preferred securities | — |
| | — |
| | — |
| | — |
| | — |
|
Other marketable equity securities | — |
| | — |
| | — |
| | — |
| | — |
|
Total marketable equity securities | — |
| | — |
| | — |
| | — |
| | — |
|
Total available-for-sale securities | 695 |
| | (88 | ) | | 689 |
| | (900 | ) | | 396 |
|
Mortgages held for sale | 67 |
| | (424 | ) | | 443 |
| | (141 | ) | | (55 | ) |
Loans | 12 |
| | — |
| | 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 contracts | 29 |
| | (146 | ) | | — |
| | (20 | ) | | (137 | ) |
Foreign exchange contracts | — |
| | — |
| | — |
| | — |
| | — |
|
Credit contracts | 5 |
| | (2 | ) | | — |
| | 45 |
| | 48 |
|
Other derivative contracts | — |
| | — |
| | — |
| | — |
| | — |
|
Total derivative contracts | 34 |
| | (148 | ) | | — |
| | (1,388 | ) | | (1,502 | ) |
Other assets | 211 |
| | — |
| | — |
| | — |
| | 211 |
|
Short sale liabilities | — |
| | — |
| | — |
| | — |
| | — |
|
Other liabilities | — |
| | — |
| | — |
| | 25 |
| | 25 |
|
| |
(1) | For more information on the changes in mortgage servicing rights, see Note 811 (Mortgage Banking Activities). |
Table 13.1216.7 and Table 13.1316.8 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 1718 (Fair Values of Assets and Liabilities) to Financial Statements in our 20162018 Form 10-K.
Table 13.12:16.7: Valuation Techniques – Recurring Basis – September 30, 2017March 31, 2019
| | ($ 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, 2017 | | | | | | | | |
Trading and available-for-sale securities: | | | | | | | | |
March 31, 2019 | | | | | | | | |
Trading and available-for-sale debt securities: | | | | | | | | |
Securities of U.S. states and political subdivisions: | | | | | | | | | | | | | | |
Government, healthcare and other revenue bonds | $ | 630 |
| | Discounted cash flow | | Discount rate | | 1.3 |
| - | 5.4 |
| % | | 2.4 |
| $ | 427 |
| | Discounted cash flow | | Discount rate | | 1.8 |
| - | 6.4 |
| % | | 3.0 |
|
Other municipal bonds | 29 |
| | Discounted cash flow | | Discount rate | | 4.2 |
| - | 4.3 |
| | 4.3 |
| |
| 50 |
| | Vendor priced | | | | | | | 43 |
| | Vendor priced | | | | | | |
Collateralized loan and other debt obligations (2) | 383 |
| | Market comparable pricing | | Comparability adjustment | | (16.5 | ) | - | 24.0 |
| | 3.1 |
| 275 |
| | Market comparable pricing | | Comparability adjustment | | (12.0 | ) | - | 16.1 |
| | 2.1 |
|
| | 755 |
| | Vendor priced | | | | | | |
Corporate debt securities | | 225 |
| | Discounted cash flow | | Discount rate | | 2.0 |
| | 14.9 |
| | 8.5 |
|
| | 64 |
| | Market comparable pricing | | Comparability adjustment | | (11.1 | ) | | 15.3 |
| | (2.1 | ) |
| 1,014 |
| | Vendor priced | | | | | | | 129 |
| | Vendor priced | | | | | | |
Asset-backed securities: | | | | | | | | | | | | | | |
Diversified payment rights (3) | 324 |
| | Discounted cash flow | | Discount rate | | 2.1 |
| - | 3.7 |
| | 2.8 |
| 150 |
| | Discounted cash flow | | Discount rate | | 3.1 |
| - | 6.8 |
| | 4.0 |
|
Other commercial and consumer | 285 |
| (4) | Discounted cash flow | | Discount rate | | 3.3 |
| - | 4.7 |
| | 3.9 |
| 195 |
| (4) | Discounted cash flow | | Discount rate | | 4.5 |
| - | 5.4 |
| | 4.6 |
|
| | | Weighted average life | | 1.3 |
| - | 3.5 |
| yrs | | 1.9 |
| | | Weighted average life | | 1.4 |
| - | 1.9 |
| yrs | | 1.8 |
|
| 26 |
| | Vendor priced | | | | | | | 17 |
| | Vendor priced | | | | | | |
Mortgages held for sale (residential) | 1,009 |
| | Discounted cash flow | | Default rate | | 0.0 |
| - | 5.6 |
| % | | 1.2 |
| |
Mortgage loans held for sale (residential) | | 982 |
| | Discounted cash flow | | Default rate | | 0.0 |
| - | 16.6 |
| % | | 0.8 |
|
| | | Discount rate | | 1.1 |
| - | 7.1 |
| | 5.3 |
| | | Discount rate | | 2.6 |
| - | 6.4 |
| | 5.3 |
|
| | | Loss severity | | 0.1 |
| - | 40.8 |
| | 18.8 |
| | | Loss severity | | 0.0 |
| - | 48.7 |
| | 27.9 |
|
| | | Prepayment rate | | 6.5 |
| - | 15.8 |
| | 9.2 |
| | | Prepayment rate | | 4.2 |
| - | 13.7 |
| | 5.6 |
|
| 23 |
| | Market comparable pricing | | Comparability adjustment | | (53.3 | ) | - | (20.0 | ) | | (43.2 | ) | 16 |
| | Market comparable pricing | | Comparability adjustment | | (56.3 | ) | - | (6.3 | ) | | (38.0 | ) |
Loans | 410 |
| (5) | Discounted cash flow | | Discount rate | | 2.8 |
| - | 7.3 |
| | 4.1 |
| 225 |
| (5) | Discounted cash flow | | Discount rate | | 3.9 |
| - | 4.8 |
| | 4.2 |
|
| | | Prepayment rate | | 8.5 |
| - | 100.0 |
| | 92.4 |
| | | Prepayment rate | | 4.0 |
| - | 100.0 |
| | 86.6 |
|
| | | | Loss severity | | 0.0 |
| - | 31.9 |
| | 5.8 |
| | | | Loss severity | | 0.0 |
| - | 34.8 |
| | 11.2 |
|
Mortgage servicing rights (residential) | 13,338 |
| | Discounted cash flow | | Cost to service per loan (6) | | $ | 79 |
| - | 584 |
| | 145 |
| 13,336 |
| | Discounted cash flow | | Cost to service per loan (6) | �� | $ | 63 |
| - | 508 |
| | 103 |
|
| | | Discount rate | | 6.5 |
| - | 12.0 |
| % | | 6.7 |
| | | Discount rate | | 6.9 |
| - | 13.8 |
| % | | 7.6 |
|
| | | | Prepayment rate (7) | | 10.0 |
| - | 20.5 |
| | 10.8 |
| | | | Prepayment rate (7) | | 10.5 |
| - | 25.2 |
| | 11.3 |
|
Net derivative assets and (liabilities): | | | | | | | | | | | | | | |
Interest rate contracts | 89 |
| | Discounted cash flow | | Default rate | | 0.0 |
| - | 5.0 |
| | 1.7 |
| 43 |
| | Discounted cash flow | | Default rate | | 0.0 |
| - | 5.0 |
| | 2.0 |
|
| | | Loss severity | | 50.0 |
| - | 50.0 |
| | 50.0 |
| | | Loss severity | | 50.0 |
| - | 50.0 |
| | 50.0 |
|
| | | | Prepayment rate | | 2.8 |
| - | 12.5 |
| | 10.1 |
| | | | Prepayment rate | | 2.8 |
| - | 25.0 |
| | 15.3 |
|
Interest rate contracts: derivative loan commitments | 25 |
| | Discounted cash flow | | Fall-out factor | | 1.0 |
| - | 99.0 |
| | 17.8 |
| 58 |
| | Discounted cash flow | | Fall-out factor | | 1.0 |
| - | 99.0 |
| | 20.5 |
|
| | | | Initial-value servicing | | (38.0 | ) | - | 98.2 |
| bps | | 27.9 |
| | | | Initial-value servicing | | (37.3 | ) | - | 67.2 |
| bps | | 20.1 |
|
Equity contracts | 105 |
| | Discounted cash flow | | Conversion factor | | (9.8 | ) | - | 0.0 |
| % | | (7.8 | ) | 120 |
| | Discounted cash flow | | Conversion factor | | (9.0 | ) | - | 0.0 |
| % | | (7.7 | ) |
| | | | Weighted average life | | 0.3 |
| - | 2.3 |
| yrs | | 1.4 |
| | | | Weighted average life | | 1.3 |
| - | 3.8 |
| yrs | | 2.2 |
|
| (696 | ) | | Option model | | Correlation factor | | (77.0 | ) | - | 98.0 |
| % | | 29.5 |
| (282 | ) | | Option model | | Correlation factor | | (77.0 | ) | - | 99.0 |
| % | | 24.5 |
|
| | | | Volatility factor | | 5.0 |
| - | 100.0 |
| | 19.2 |
| | | | Volatility factor | | 6.5 |
| - | 100.0 |
| | 19.0 |
|
Credit contracts | (3 | ) | | Market comparable pricing | | Comparability adjustment | | (25.8 | ) | - | 15.7 |
| | (0.8 | ) | 2 |
| | Market comparable pricing | | Comparability adjustment | | (42.5 | ) | - | 30.2 |
| | (5.4 | ) |
| 56 |
| | Option model | | Credit spread | | 0.0 |
| - | 12.2 |
| | 1.2 |
| 47 |
| | Option model | | Credit spread | | 0.1 |
| - | 18.4 |
| | 1.0 |
|
| | | Loss severity | | 12.0 |
| - | 60.0 |
| | 48.8 |
| | | | Loss severity | | 13.0 |
| - | 60.0 |
| | 45.2 |
|
Other assets: nonmarketable equity investments | 10 |
| | Discounted cash flow | | Discount rate | | 5.0 |
| - | 10.3 |
| | 9.7 |
| |
| | | Volatility Factor | | 0.5 |
| - | 1.3 |
| | 0.8 |
| |
| 4,463 |
| | Market comparable pricing | | Comparability adjustment | | (19.1 | ) | - | (3.3 | ) | | (14.6 | ) | |
Nonmarketable equity securities | | 6,381 |
| | Market comparable pricing | | Comparability adjustment | | (22.5 | ) | - | (6.5 | ) | | (16.7 | ) |
| | | | | | | | | | | | | | |
Insignificant Level 3 assets, net of liabilities | 534 |
| (8) | | | | | | | 91 |
| (8) | | | | | | |
Total level 3 assets, net of liabilities | $ | 22,104 |
| (9) | | | | | | | $ | 23,299 |
| (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 $1.0 billion$755 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 balancePredominantly 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$63 - $282. $199. |
| |
(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,positions, other liabilities and certain net derivative assets and liabilities, such as commodity contracts and foreign exchange contracts, and other derivative contracts. |
| |
(9) | Consists of total Level 3 assets of $24.1$25.2 billion and total Level 3 liabilities of $2.0$1.9 billion,, before netting of derivative balances. |
Note 13:16: Fair Values of Assets and Liabilities (continued)
Table 13.13:16.8: Valuation Techniques – Recurring Basis – December 31, 20162018
| | ($ 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) |
|
December 31, 2016 | | | | | | | | |
Trading and available-for-sale securities: | | | | | | | | |
December 31, 2018 | | | | | | | | |
Trading and available-for-sale debt 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 |
| $ | 404 |
| | Discounted cash flow | | Discount rate | | 2.1 |
| - | 6.4 |
| % | | 3.4 |
|
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 | | | | | | | 43 |
| | Vendor priced | | | | | | |
Collateralized loan and other debt obligations (2) | 309 |
| | Market comparable pricing | | Comparability adjustment | | (15.5 | ) | - | 20.3 |
| % | | 2.9 |
| 298 |
| | Market comparable pricing | | Comparability adjustment | | (13.5 | ) | - | 22.1 |
| | 3.2 |
|
| | 739 |
| | Vendor priced | | | | | | |
Corporate debt securities | | 220 |
| | Discounted cash flow | | Discount rate | | 4.0 |
| | 11.7 |
| | 8.5 |
|
| | 56 |
| | Market comparable pricing | | Comparability adjustment | | (11.3 | ) | | 16.6 |
| | (1.4 | ) |
| 879 |
| | Vendor priced | | | | | | | 128 |
| | Vendor priced | | | | | | |
Asset-backed securities: | | | | | | | | | | | | | | |
Diversified payment rights (3) | 443 |
| | Discounted cash flow | | Discount rate | | 1.9 |
| - | 4.8 |
| | 3.3 |
| 171 |
| | Discounted cash flow | | Discount rate | | 3.4 |
| - | 6.2 |
| | 4.4 |
|
Other commercial and consumer | 492 |
| (4) | Discounted cash flow | | Discount rate | | 3.0 |
| - | 4.6 |
| | 3.9 |
| 198 |
| (4) | Discounted cash flow | | Discount rate | | 4.6 |
| - | 5.2 |
| | 4.7 |
|
| | | Weighted average life | | 0.8 |
| - | 4.2 |
| yrs | | 2.9 |
| | | Weighted average life | | 1.1 |
| - | 1.5 |
| yrs | | 1.1 |
|
| 27 |
| | Vendor priced | | | | | | | 20 |
| | Vendor priced | | | | | | |
Mortgages held for sale (residential) | 955 |
| | Discounted cash flow | | Default rate | | 0.5 |
| - | 7.9 |
| % | | 1.9 |
| |
Mortgage loans held for sale (residential) | | 982 |
| | Discounted cash flow | | Default rate | | 0.0 |
| - | 15.6 |
| % | | 0.8 |
|
| | | Discount rate | | 1.1 |
| - | 6.9 |
| | 5.1 |
| | | Discount rate | | 1.1 |
| - | 6.6 |
| | 5.5 |
|
| | | Loss severity | | 0.1 |
| - | 42.5 |
| | 26.9 |
| | | Loss severity | | — |
| - | 43.3 |
| | 23.4 |
|
| | | Prepayment rate | | 6.3 |
| - | 17.1 |
| | 10.0 |
| | | Prepayment rate | | 3.2 |
| - | 13.4 |
| | 4.6 |
|
| 30 |
| | Market comparable pricing | | Comparability adjustment | | (53.3 | ) | - | 0.0 |
| | (37.8 | ) | 15 |
| | Market comparable pricing | | Comparability adjustment | | (56.3 | ) | - | (6.3 | ) | | (36.3 | ) |
Loans | 758 |
| (5) | Discounted cash flow | | Discount rate | | 0.0 |
| - | 3.9 |
| | 0.6 |
| 244 |
| (5) | Discounted cash flow | | Discount rate | | 3.4 |
| - | 6.4 |
| | 4.2 |
|
| | | Prepayment rate | | 0.4 |
| - | 100.0 |
| | 83.7 |
| | | Prepayment rate | | 2.9 |
| - | 100.0 |
| | 87.2 |
|
| | | | Utilization rate | | 0.0 |
| - | 0.8 |
| | 0.1 |
| | | | Loss severity | | 0.0 |
| - | 34.8 |
| | 10.2 |
|
Mortgage servicing rights (residential) | 12,959 |
| | Discounted cash flow | | Cost to service per loan (6) | | $ | 79 |
| - | 598 |
| | 155 |
| 14,649 |
| | Discounted cash flow | | Cost to service per loan (6) | | $ | 62 |
| - | 507 |
| | 106 |
|
| | | Discount rate | | 6.5 |
| - | 18.4 |
| % | | 6.8 |
| | | Discount rate | | 7.1 |
| - | 15.3 |
| % | | 8.1 |
|
| | | | Prepayment rate (7) | | 9.4 |
| - | 20.6 |
| | 10.3 |
| | | | Prepayment rate (7) | | 9.0 |
| - | 23.5 |
| | 9.9 |
|
Net derivative assets and (liabilities): | | | | | | | | | | | | | | |
Interest rate contracts | 127 |
| | Discounted cash flow | | Default rate | | 0.1 |
| - | 6.8 |
| | 2.1 |
| (35 | ) | | Discounted cash flow | | Default rate | | 0.0 |
| - | 5.0 |
| | 2.0 |
|
| | | Loss severity | | 50.0 |
| - | 50.0 |
| | 50.0 |
| | | Loss severity | | 50.0 |
| - | 50.0 |
| | 50.0 |
|
| | | | Prepayment rate | | 2.8 |
| - | 12.5 |
| | 9.6 |
| | | | Prepayment rate | | 2.8 |
| - | 25.0 |
| | 13.8 |
|
Interest rate contracts: derivative loan commitments | (6 | ) | | Discounted cash flow | | Fall-out factor | | 1.0 |
| - | 99.0 |
| | 15.0 |
| 60 |
| | Discounted cash flow | | Fall-out factor | | 1.0 |
| - | 99.0 |
| | 19.4 |
|
| | | | Initial-value servicing | | (23.0 | ) | - | 131.2 |
| bps | | 56.8 |
| | | | Initial-value servicing | | (36.6 | ) | - | 91.7 |
| bps | | 18.5 |
|
Equity contracts | 79 |
| | Discounted cash flow | | Conversion factor | | (10.6 | ) | - | 0.0 |
| % | | (7.9 | ) | 104 |
| | Discounted cash flow | | Conversion factor | | (9.3 | ) | - | 0.0 |
| % | | (7.8 | ) |
| | | | Weighted average life | �� | 1.0 |
| - | 3.0 |
| yrs | | 2.0 |
| | | | Weighted average life | | 1.0 |
| - | 3.0 |
| yrs | | 1.8 |
|
| (346 | ) | | Option model | | Correlation factor | | (65.0 | ) | - | 98.5 |
| % | | 39.9 |
| (121 | ) | | Option model | | Correlation factor | | (77.0 | ) | - | 99.0 |
| % | | 21.6 |
|
| | | | Volatility factor | | 6.5 |
| - | 100.0 |
| | 20.7 |
| | | | Volatility factor | | 6.5 |
| - | 100.0 |
| | 21.8 |
|
Credit contracts | (28 | ) | | Market comparable pricing | | Comparability adjustment | | (27.7 | ) | - | 21.3 |
| | 0.02 |
| 3 |
| | Market comparable pricing | | Comparability adjustment | | (15.5 | ) | - | 40.0 |
| | 3.5 |
|
| 105 |
| | Option model | | Credit spread | | 0.0 |
| - | 11.6 |
| | 1.2 |
| 32 |
| | Option model | | Credit spread | | 0.9 |
| - | 21.5 |
| | 1.3 |
|
| | | Loss severity | | 12.0 |
| - | 60.0 |
| | 50.4 |
| | | | Loss severity | | 13.0 |
| - | 60.0 |
| | 45.2 |
|
Other assets: nonmarketable equity investments | 21 |
| | 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 | ) | |
Nonmarketable equity securities | | 5,468 |
| | Market comparable pricing | | Comparability adjustment | | (20.6 | ) | - | (4.3 | ) | | (15.8 | ) |
| | | | | | | | | | | | | | |
Insignificant Level 3 assets, net of liabilities | 570 |
| (8) | | | | | | | 93 |
| (8) | | | | | | |
Total level 3 assets, net of liabilities | $ | 21,755 |
| (9) | | | | | | | $ | 23,771 |
| (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$800 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 balancePredominantly 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$62 - $293. $204. |
| |
(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,positions, other liabilities and certain net derivative assets and liabilities, such as commodity contracts and foreign exchange contracts, and other derivative contracts. |
| |
(9) | Consists of total Level 3 assets of $23.5$25.3 billion and total Level 3 liabilities of $1.7$1.6 billion,, before netting of derivative balances. |
The valuation techniques used 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 13:16: 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, write-downs of individual assets or use of the measurement alternative for nonmarketable equity securities.
LOCOM accounting or write-downs of individual assets. Table 13.1416.9 provides the fair value hierarchy and carrying amountfair value at the date of the nonrecurring fair value adjustment for all assets that were still held as of September 30, 2017,March 31, 2019, and December 31, 2016,2018, and for which a nonrecurring fair value adjustment was recorded during the periods presented.three months ended March 31, 2019 and year ended December 31, 2018.
Table 13.14:16.9: Fair Value on a Nonrecurring Basis
| | | September 30, 2017 | | | December 31, 2016 | | March 31, 2019 | | | December 31, 2018 | |
(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) | $ | — |
| | 1,652 |
| | 1,340 |
| | 2,992 |
| | — |
| | 2,312 |
| | 1,350 |
| | 3,662 |
| |
Mortgage loans held for sale (LOCOM) (1) | | $ | — |
| | 1,712 |
| | 1,272 |
| | 2,984 |
| | — |
| | 1,213 |
| | 1,233 |
| | 2,446 |
|
Loans held for sale | — |
| | 18 |
| | — |
| | 18 |
| | — |
| | 8 |
| | — |
| | 8 |
| — |
| | 5 |
| | — |
| | 5 |
| | — |
| | 313 |
| | — |
| | 313 |
|
Loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial | — |
| | 386 |
| | — |
| | 386 |
| | — |
| | 464 |
| | — |
| | 464 |
| — |
| | 147 |
| | — |
| | 147 |
| | — |
| | 339 |
| | — |
| | 339 |
|
Consumer | — |
| | 460 |
| | 10 |
| | 470 |
| | — |
| | 822 |
| | 7 |
| | 829 |
| — |
| | 117 |
| | — |
| | 117 |
| | — |
| | 346 |
| | 1 |
| | 347 |
|
Total loans (2) | — |
| | 846 |
| | 10 |
| | 856 |
| | — |
| | 1,286 |
| | 7 |
| | 1,293 |
| — |
| | 264 |
| | — |
| | 264 |
| | — |
| | 685 |
| | 1 |
| | 686 |
|
Other assets - excluding nonmarketable equity investments at NAV (3) | — |
| | 198 |
| | 146 |
| | 344 |
| | — |
| | 233 |
| | 412 |
| | 645 |
| |
Total included in the fair value hierarchy | $ | — |
| | 2,714 |
| | 1,496 |
| | 4,210 |
| | — |
| | 3,839 |
| | 1,769 |
| | 5,608 |
| |
Other assets - nonmarketable equity investments at NAV (4) |
|
| |
|
| |
|
| | 5 |
| |
|
| |
|
| |
|
| | 13 |
| |
Nonmarketable equity securities (3) | | — |
| | 553 |
| | 46 |
| | 599 |
| | — |
| | 774 |
| | 157 |
| | 931 |
|
Other assets (4) | | — |
| | 169 |
| | — |
| | 169 |
| | — |
| | 149 |
| | 6 |
| | 155 |
|
Total assets at fair value on a nonrecurring basis |
|
| |
|
| |
|
| | $ | 4,215 |
| |
|
| |
|
| |
|
| | 5,621 |
| $ | — |
| | 2,703 |
| | 1,318 |
| | 4,021 |
| | — |
| | 3,134 |
| | 1,397 |
| | 4,531 |
|
| |
(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) | Consists of certain nonmarketable equity securities that are measured at fair value on a nonrecurring basis, including observable price adjustments for nonmarketable equity securities carried under the measurement alternative. |
| |
(4) | Includes the fair value of foreclosed real estate, other collateral owned and operating lease assets and nonmarketable equity investments.assets. |
| |
(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 13.1516.10 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 periods presented.
Table 13.15:16.10: Change in Value of Assets with Nonrecurring Fair Value Adjustment
| | | Nine months ended September 30, | | Quarter ended March 31, | |
(in millions) | 2017 |
| | 2016 |
| 2019 |
| | 2018 |
|
Mortgages held for sale (LOCOM) | $ | 23 |
| | 26 |
| |
Mortgage loans held for sale (LOCOM) | | $ | 20 |
| | 7 |
|
Loans held for sale | (1 | ) | | (21 | ) | — |
| | (82 | ) |
Loans: | | | | | | |
Commercial | (286 | ) | | (736 | ) | (74 | ) | | (81 | ) |
Consumer | (371 | ) | | (578 | ) | (79 | ) | | (107 | ) |
Total loans (1) | (657 | ) | | (1,314 | ) | (153 | ) | | (188 | ) |
Other assets (2) | (179 | ) | | (339 | ) | |
Nonmarketable equity securities (2) | | 149 |
| | 208 |
|
Other assets (3) | | (18 | ) | | (22 | ) |
Total | $ | (814 | ) | | (1,648 | ) | $ | (2 | ) | | (77 | ) |
| |
(1) | Represents write-downs of loans based on the appraised value of the collateral. |
| |
(2) | Includes impairment losses for nonmarketable equity securities accounted for under the equity method and measurement alternative. Also includes observable price adjustments for nonmarketable equity securities accounted for under the measurement alternative. |
| |
(3) | 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 13.1616.11 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 13.16:16.11: Valuation Techniques – Nonrecurring Basis
|
| | | | | | | | | | | | | | | |
($ in millions) | Fair Value Level 3 |
| | Valuation Technique(s) (1) | | Significant Unobservable Inputs (1) | | Range of inputs | | Weighted Average (2) |
|
September 30, 2017 | | | | | | | | | | | |
Residential mortgages held for sale (LOCOM) | $ | 1,340 |
| (3) | Discounted cash flow | | Default rate | (4) | 0.1 | — | 10.3 | % | | 2.6 | % |
| | | | | Discount rate | | 1.5 | — | 8.5 |
| | 3.8 |
|
| | | | | Loss severity | | 0.8 | — | 57.6 |
| | 2.6 |
|
| | | | | Prepayment rate | (5) | 5.3 | — | 100.0 |
| | 49.8 |
|
Other assets: nonmarketable equity investments | 34 |
| | Discounted cash flow | | Discount rate | | 5.0 | — | 10.5 |
| | 9.4 |
|
Insignificant level 3 assets | 122 |
| | | | | | | | | | |
Total | $ | 1,496 |
| | | | | | | | | | |
December 31, 2016 | | | | | | | | | | | |
Residential mortgages held for sale (LOCOM) | $ | 1,350 |
| (3) | Discounted cash flow | | Default rate | (4) | 0.2 | — | 4.3 | % | | 1.9 | % |
| | | | | Discount rate | | 1.5 | — | 8.5 |
| | 3.8 |
|
| | | | | Loss severity | | 0.7 | — | 50.1 |
| | 2.4 |
|
| | | | | Prepayment rate | (5) | 3.0 | — | 100.0 |
| | 50.7 |
|
Other assets: nonmarketable equity investments | 220 |
| | Discounted cash flow | | Discount rate | | 4.7 | — | 9.3 |
| | 7.3 |
|
Insignificant level 3 assets | 199 |
| | | | | | | | | | |
Total | $ | 1,769 |
| | | | | | | | | | |
|
| | | | | | | | | | | | | | | |
($ in millions) | Fair Value Level 3 |
| | Valuation Technique(s) (1) | | Significant Unobservable Inputs (1) | | Range of inputs | | Weighted Average (2) |
|
March 31, 2019 | | | | | | | | | | | |
Residential mortgage loans held for sale (LOCOM) | $ | 1,272 |
| (3) | Discounted cash flow | | Default rate | (4) | 0.2 | — | 4.1 | % | | 1.9 | % |
| | | | | Discount rate | | 1.5 | — | 8.5 |
| | 4.0 |
|
| | | | | Loss severity | | 0.4 | — | 70.3 |
| | 1.7 |
|
| | | | | Prepayment rate | (5) | 2.7 | — | 100.0 |
| | 40.7 |
|
Nonmarketable equity securities | — |
| | Discounted cash flow | | Discount rate | | — | — | — |
| | — |
|
Insignificant level 3 assets | 46 |
| | | | | | | | | | |
Total | $ | 1,318 |
| | | | | | | | | | |
December 31, 2018 | | | | | | | | | | | |
Residential mortgage loans held for sale (LOCOM) | $ | 1,233 |
| (3) | Discounted cash flow | | Default rate | (4) | 0.2 | — | 2.3 | % | | 1.4 | % |
| | | | | Discount rate | | 1.5 | — | 8.5 |
| | 4.0 |
|
| | | | | Loss severity | | 0.5 | — | 66.0 |
| | 1.7 |
|
| | | | | Prepayment rate | (5) | 3.5 | — | 100.0 |
| | 46.5 |
|
Nonmarketable equity securities | 7 |
| | Discounted cash flow | | Discount rate | | 10.5 | — | 10.5 |
| | 10.5 |
|
Insignificant level 3 assets | 157 |
| | | | | | | | | | |
Total | $ | 1,397 |
| | | | | | | | | | |
| |
(1) | Refer to the narrative following Table 13.1316.8 for a definition of the valuation technique(s) and significant unobservable inputs. |
| |
(2) | For residential MHFS,MLHFS, weighted averages are calculated using the outstanding unpaid principal balance of the loans. |
| |
(3) | Consists of approximately $1.3$1.2 billion of government insured/guaranteed loans purchased from GNMA-guaranteed mortgage securitizations at both September 30, 2017,March 31, 2019, and December 31, 2016,2018, and $30$26 million and $33$27 million, respectively, of other mortgage loans that are not government insured/guaranteed at September 30, 2017 and December 31, 2016, respectively. guaranteed. |
| |
(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 investments consist of private equity funds that invest in equity and debt securities issued by private and publicly-held companies. The fair values of these investments and related unfunded commitments totaled $27 million and $25 million, respectively, at September 30, 2017, and $48 million and $37 million, respectively, at December 31, 2016. The investments do not allow redemptions. We receive distributions as the underlying assets of the funds liquidate, which we expect to occur through 2025.
Note 13:16: 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 1718 (Fair Values of Assets and Liabilities) to Financial Statements in our 20162018 Form 10-K.
Table 13.1716.12 reflects differences between the fair value carrying amount of the assets for which we have elected the fair value option and the contractual aggregate unpaid principal amount at maturity.
Table 13.17:16.12: Fair Value Option
| | | September 30, 2017 | | | December 31, 2016 | | March 31, 2019 | | | December 31, 2018 | |
(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 | $ | 1,182 |
| | 1,231 |
| | (49 | ) | | 1,332 |
| | 1,418 |
| | (86 | ) | |
Nonaccrual loans | 65 |
| | 84 |
| | (19 | ) | | 100 |
| | 115 |
| | (15 | ) | |
Mortgages held for sale: | | | | | | | | | | | | |
Mortgage loans held for sale: | | | | | | | | | | | | |
Total loans | 16,484 |
| | 16,087 |
| | 397 |
| | 22,042 |
| | 21,961 |
| | 81 |
| $ | 11,091 |
| | 10,883 |
| | 208 |
| | 11,771 |
| | 11,573 |
| | 198 |
|
Nonaccrual loans | 120 |
| | 159 |
| | (39 | ) | | 136 |
| | 182 |
| | (46 | ) | 128 |
| | 157 |
| | (29 | ) | | 127 |
| | 158 |
| | (31 | ) |
Loans 90 days or more past due and still accruing | 13 |
| | 16 |
| | (3 | ) | | 12 |
| | 16 |
| | (4 | ) | 7 |
| | 9 |
| | (2 | ) | | 7 |
| | 9 |
| | (2 | ) |
Loans held for sale: | | | | | | | | | | | | | | | | | | | | | | |
Total loans | — |
| | 6 |
| | (6 | ) | | — |
| | 6 |
| | (6 | ) | 998 |
| | 1,056 |
| | (58 | ) | | 1,469 |
| | 1,536 |
| | (67 | ) |
Nonaccrual loans | — |
| | 6 |
| | (6 | ) | | — |
| | 6 |
| | (6 | ) | 57 |
| | 71 |
| | (14 | ) | | 21 |
| | 32 |
| | (11 | ) |
Loans: | | | | | | | | | | | | | | | | | | | | | | |
Total loans | 410 |
| | 437 |
| | (27 | ) | | 758 |
| | 775 |
| | (17 | ) | 225 |
| | 255 |
| | (30 | ) | | 244 |
| | 274 |
| | (30 | ) |
Nonaccrual loans | 267 |
| | 293 |
| | (26 | ) | | 297 |
| | 318 |
| | (21 | ) | 166 |
| | 196 |
| | (30 | ) | | 179 |
| | 208 |
| | (29 | ) |
Other assets (1) | 4,523 |
| | N/A |
| | N/A |
| | 3,275 |
| | N/A |
| | N/A |
| |
Equity securities (1) | | 6,381 |
| | N/A |
| | N/A |
| | 5,455 |
| | N/A |
| | N/A |
|
| |
(1) | Consists of nonmarketable equity investmentssecurities carried at fair value. See Note 6 (Other Assets) for more information. |
The assets 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 measured at fair value are shown in Table 13.1816.13 by income statement line item. Amounts recorded as interest income are excluded from Table 16.13.
Table 13.18:16.13: Fair Value Option – Changes in Fair Value Included in Earnings
|
| | | | | | | | | | | | | | | | | | |
| 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 |
|
Quarter ended September 30, | | | |
| | |
| | |
| | |
| | |
|
Trading assets - loans | $ | — |
| | 6 |
| | — |
| | — |
| | 21 |
| | 1 |
|
Mortgages held for sale | 400 |
| | — |
| | — |
| | 563 |
| | — |
| | — |
|
Loans | — |
| | — |
| | — |
| | — |
| | — |
| | (25 | ) |
Other assets | — |
| | — |
| | 522 |
| | — |
| | — |
| | 383 |
|
Other interests held (1) | — |
| | (1 | ) | | — |
| | — |
| | (3 | ) | | — |
|
Nine months ended September 30, | | | | | | | | | | | |
Trading assets – loans | $ | — |
| | 42 |
| | 1 |
| | — |
| | 47 |
| | 2 |
|
Mortgages held for sale | 967 |
| | — |
| | — |
| | 1,739 |
| | — |
| | — |
|
Loans | — |
| | — |
| | — |
| | — |
| | — |
| | (29 | ) |
Other assets | — |
| | — |
| | 1,233 |
| | — |
| | — |
| | 149 |
|
Other interests held (1) | — |
| | (5 | ) | | — |
| | — |
| | (4 | ) | | — |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| 2019 | | | 2018 | |
(in millions) | Mortgage banking noninterest income |
| | Net gains (losses) from trading activities |
| | Net gains from equity securities |
| | Other noninterest income |
| | Mortgage banking noninterest income |
| | Net gains (losses) from trading activities |
| | Net gains from equity securities |
| | Other noninterest income |
|
Quarter ended March 31, | | | | | | | | | | | | | | | |
Mortgage loans held for sale | $ | 214 |
| | — |
| | — |
| | — |
| | (59 | ) | | — |
| | — |
| | — |
|
Loans held for sale | — |
| | 14 |
| | — |
| | 1 |
| | — |
| | 6 |
| | — |
| | — |
|
Loans | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1 | ) |
Equity securities | — |
| | — |
| | 926 |
| | — |
| | — |
| | — |
| | 101 |
| | — |
|
Other interests held (1) | — |
| | (1 | ) | | — |
| | — |
| | — |
| | (1 | ) | | — |
| | — |
|
| |
(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 13.1916.14 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 13.19:16.14: 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) | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
| 2019 |
| | 2018 |
|
Gains (losses) attributable to instrument-specific credit risk: | |
| | |
| | | | | | | |
Trading assets – loans | $ | 6 |
| | 21 |
| | 42 |
| | 47 |
| |
Mortgages held for sale | (4 | ) | | 1 |
| | (9 | ) | | (4 | ) | |
Mortgage loans held for sale | | $ | (4 | ) | | 1 |
|
Loans held for sale | | 14 |
| | 6 |
|
Total | $ | 2 |
| | 22 |
| | 33 |
| | 43 |
| $ | 10 |
| | 7 |
|
Disclosures about Fair Value of Financial Instruments
Table 13.2016.15 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 13.216.2 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.captions.
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 13:16: Fair Values of Assets and Liabilities (continued)
Table 13.20:16.15: Fair Value Estimates for Financial Instruments
|
| | | | | | | | | | | | | | | |
| |
| | Estimated fair value | |
(in millions) | Carrying amount |
| | Level 1 |
| | Level 2 |
| | Level 3 |
| | Total |
|
September 30, 2017 | | | | | | | | | |
Financial assets | | | | | | | | | |
Cash and due from banks (1) | $ | 19,206 |
| | 19,206 |
| | — |
| | — |
| | 19,206 |
|
Federal funds sold, securities purchased under resale agreements and other short-term investments (1) | 273,105 |
| | 206,073 |
| | 66,963 |
| | 69 |
| | 273,105 |
|
Held-to-maturity securities | 142,423 |
| | 45,282 |
| | 96,627 |
| | 909 |
| | 142,818 |
|
Mortgages held for sale (2) | 3,525 |
| | — |
| | 2,189 |
| | 1,340 |
| | 3,529 |
|
Loans held for sale | 157 |
| | — |
| | 157 |
| | — |
| | 157 |
|
Loans, net (3) | 921,420 |
| | — |
| | 54,106 |
| | 881,812 |
| | 935,918 |
|
Nonmarketable equity investments (cost method) | | | | | | | | | |
Excluding investments at NAV | 7,642 |
| | — |
| | 23 |
| | 8,084 |
| | 8,107 |
|
Total financial assets included in the fair value hierarchy | 1,367,478 |
| | 270,561 |
| | 220,065 |
| | 892,214 |
| | 1,382,840 |
|
Investments at NAV (4) | 25 |
| | | | | | | | 27 |
|
Total financial assets | $ | 1,367,503 |
|
|
|
|
|
|
|
|
|
| | 1,382,867 |
|
Financial liabilities | | | | | | | | | |
Deposits | $ | 1,306,706 |
| | — |
| | 1,285,239 |
| | 21,455 |
| | 1,306,694 |
|
Short-term borrowings (1) | 93,811 |
| | — |
| | 93,811 |
| | — |
| | 93,811 |
|
Long-term debt (5) | 238,854 |
| | — |
| | 240,846 |
| | 2,306 |
| | 243,152 |
|
Total financial liabilities | $ | 1,639,371 |
|
| — |
|
| 1,619,896 |
|
| 23,761 |
| | 1,643,657 |
|
December 31, 2016 | | | | | | | | | |
Financial assets | | | | | | | | | |
Cash and due from banks (1) | $ | 20,729 |
| | 20,729 |
| | — |
| | — |
| | 20,729 |
|
Federal funds sold, securities purchased under resale agreements and other short-term investments (1) (6) | 266,038 |
| | 207,003 |
| | 58,953 |
| | 82 |
| | 266,038 |
|
Held-to-maturity securities | 99,583 |
| | 45,079 |
| | 51,706 |
| | 2,370 |
| | 99,155 |
|
Mortgages held for sale (2) | 4,267 |
| | — |
| | 2,927 |
| | 1,350 |
| | 4,277 |
|
Loans held for sale | 80 |
| | — |
| | 81 |
| | — |
| | 81 |
|
Loans, net (3) | 936,358 |
| | — |
| | 60,245 |
| | 887,589 |
| | 947,834 |
|
Nonmarketable equity investments (cost method) | | | | | | | | | |
Excluding investments at NAV | 8,362 |
| | — |
| | 18 |
| | 8,924 |
| | 8,942 |
|
Total financial assets included in the fair value hierarchy | 1,335,417 |
| | 272,811 |
| | 173,930 |
| | 900,315 |
| | 1,347,056 |
|
Investments at NAV (4) | 35 |
|
|
|
|
|
|
|
|
|
| | 48 |
|
Total financial assets | $ | 1,335,452 |
|
|
|
|
|
|
|
|
|
| | 1,347,104 |
|
Financial liabilities | | | | | | | | | |
Deposits | $ | 1,306,079 |
| | — |
| | 1,282,158 |
| | 23,995 |
| | 1,306,153 |
|
Short-term borrowings (1) | 96,781 |
| | — |
| | 96,781 |
| | — |
| | 96,781 |
|
Long-term debt (5) | 255,070 |
| | — |
| | 245,704 |
| | 10,075 |
| | 255,779 |
|
Total financial liabilities | $ | 1,657,930 |
|
| — |
|
| 1,624,643 |
|
| 34,070 |
| | 1,658,713 |
|
|
| | | | | | | | | | | | | | | |
| | | Estimated fair value | |
(in millions) | Carrying amount |
| | Level 1 |
| | Level 2 |
| | Level 3 |
| | Total |
|
March 31, 2019 | | | | | | | | | |
Financial assets | | | | | | | | | |
Cash and due from banks (1) | $ | 20,650 |
| | 20,650 |
| | — |
| | — |
| | 20,650 |
|
Interest-earning deposits with banks (1) | 128,318 |
| | 128,036 |
| | 282 |
| | — |
| | 128,318 |
|
Federal funds sold and securities purchased under resale agreements (1) | 98,621 |
| | — |
| | 98,621 |
| | — |
| | 98,621 |
|
Held-to-maturity debt securities | 144,990 |
| | 44,693 |
| | 99,475 |
| | 531 |
| | 144,699 |
|
Mortgage loans held for sale | 3,925 |
| | — |
| | 2,701 |
| | 1,272 |
| | 3,973 |
|
Loans held for sale | 20 |
| | — |
| | 20 |
| | — |
| | 20 |
|
Loans, net (2) | 919,308 |
| | — |
| | 46,649 |
| | 873,169 |
| | 919,818 |
|
Nonmarketable equity securities (cost method) | 5,732 |
| | — |
| | — |
| | 5,765 |
| | 5,765 |
|
Total financial assets | $ | 1,321,564 |
| | 193,379 |
| | 247,748 |
| | 880,737 |
| | 1,321,864 |
|
Financial liabilities | | | | | | | | | |
Deposits (3) | $ | 138,494 |
| | — |
| | 110,129 |
| | 28,346 |
| | 138,475 |
|
Short-term borrowings | 106,597 |
| | — |
| | 106,597 |
| | — |
| | 106,597 |
|
Long-term debt (4) | 236,305 |
| | — |
| | 237,250 |
| | 1,601 |
| | 238,851 |
|
Total financial liabilities | $ | 481,396 |
|
| — |
|
| 453,976 |
|
| 29,947 |
| | 483,923 |
|
December 31, 2018 | | | | | | | | | |
Financial assets | | | | | | | | | |
Cash and due from banks (1) | $ | 23,551 |
| | 23,551 |
| | — |
| | — |
| | 23,551 |
|
Interest-earning deposits with banks (1) | 149,736 |
| | 149,542 |
| | 194 |
| | — |
| | 149,736 |
|
Federal funds sold and securities purchased under resale agreements (1) | 80,207 |
| | — |
| | 80,207 |
| | — |
| | 80,207 |
|
Held-to-maturity debt securities | 144,788 |
| | 44,339 |
| | 97,275 |
| | 501 |
| | 142,115 |
|
Mortgage loans held for sale | 3,355 |
| | — |
| | 2,129 |
| | 1,233 |
| | 3,362 |
|
Loans held for sale | 572 |
| | — |
| | 572 |
| | — |
| | 572 |
|
Loans, net (2) | 923,703 |
| | — |
| | 45,190 |
| | 872,725 |
| | 917,915 |
|
Nonmarketable equity securities (cost method) | 5,643 |
| | — |
| | — |
| | 5,675 |
| | 5,675 |
|
Total financial assets | $ | 1,331,555 |
| | 217,432 |
| | 225,567 |
| | 880,134 |
| | 1,323,133 |
|
Financial liabilities | | | | | | | | | |
Deposits (3) | $ | 130,645 |
| | — |
| | 107,448 |
| | 22,641 |
| | 130,089 |
|
Short-term borrowings | 105,787 |
| | — |
| | 105,789 |
| | — |
| | 105,789 |
|
Long-term debt (4) | 229,008 |
| | — |
| | 225,904 |
| | 2,230 |
| | 228,134 |
|
Total financial liabilities | $ | 465,440 |
|
| — |
|
| 439,141 |
|
| 24,871 |
| | 464,012 |
|
| |
(1) | Amounts consist of financial instruments for which carrying value approximates fair value. |
| |
(2) | Excludes MHFS for which we elected the fair value option.lease financing with a carrying amount of $19.1 billion and $19.7 billion at March 31, 2019, and December 31, 2018, respectively. |
| |
(3) | Excludes loans for which the fair value option was electeddeposit liabilities with no defined or contractual maturity of $1.1 trillion and also excludes lease financing with a carrying amount of $19.2 billion$1.2 trillion at March 31, 2019 and $19.3 billion at September 30, 2017, and December 31, 2016,2018, 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) | Excludes capital lease obligations under capital leases of $39$34 million and $7$36 million at September 30, 2017,March 31, 2019, and December 31, 2016,2018, respectively. |
| |
(6) | The fair value classification level of certain interest-earning deposits have been reclassified to conform with the current period end classification. |
Loan commitments, standby letters of credit and commercial and similar letters of credit are not included in the table above.Table 16.15. 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 $1.1 billion and $1.2$1.0 billion at September 30, 2017,both March 31, 2019, and December 31, 2016, respectively.2018.
|
|
Note 14:17: 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 14.1:17.1: Preferred Stock Shares
| | | September 30, 2017 | | | December 31, 2016 | | March 31, 2019 | | | December 31, 2018 | |
| 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 | | | | | | | | |
Series I | | | | | | | | |
Floating Class A Preferred Stock (1) | — |
| | — |
| | 20,000 |
| | 50,000 |
| 100,000 |
| | 25,010 |
| | 100,000 |
| | 25,010 |
|
Series I | | | | | | | | |
Floating Class A Preferred Stock | 100,000 |
| | 25,010 |
| | 100,000 |
| | 25,010 |
| |
Series J | | | | | | | | |
8.00% Non-Cumulative Perpetual Class A Preferred Stock | 1,000 |
| | 2,300,000 |
| | 1,000 |
| | 2,300,000 |
| |
Series K | | | | | | | | | | | | | | |
7.98% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock | 1,000 |
| | 3,500,000 |
| | 1,000 |
| | 3,500,000 |
| |
Floating Non-Cumulative Perpetual Class A Preferred Stock (2) | | 1,000 |
| | 3,500,000 |
| | 1,000 |
| | 3,500,000 |
|
Series L | | | | | | | | | | | | | | |
7.50% Non-Cumulative Perpetual Convertible Class A Preferred Stock | 1,000 |
| | 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 Stock | 25,000 |
| | 30,000 |
| | 25,000 |
| | 30,000 |
| 25,000 |
| | 30,000 |
| | 25,000 |
| | 30,000 |
|
Series O | | | | | | | | | | | | | | |
5.125% Non-Cumulative Perpetual Class A Preferred Stock | 25,000 |
| | 27,600 |
| | 25,000 |
| | 27,600 |
| 25,000 |
| | 27,600 |
| | 25,000 |
| | 27,600 |
|
Series P | | | | | | | | | | | | | | |
5.25% Non-Cumulative Perpetual Class A Preferred Stock | 25,000 |
| | 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 Stock | 25,000 |
| | 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 Stock | 25,000 |
| | 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 Stock | 25,000 |
| | 80,000 |
| | 25,000 |
| | 80,000 |
| 25,000 |
| | 80,000 |
| | 25,000 |
| | 80,000 |
|
Series T | | | | | | | | | | | | | | |
6.00% Non-Cumulative Perpetual Class A Preferred Stock | 25,000 |
| | 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 Stock | 25,000 |
| | 80,000 |
| | 25,000 |
| | 80,000 |
| 25,000 |
| | 80,000 |
| | 25,000 |
| | 80,000 |
|
Series V | | | | | | | | | | | | | | |
6.00% Non-Cumulative Perpetual Class A Preferred Stock | 25,000 |
| | 40,000 |
| | 25,000 |
| | 40,000 |
| 25,000 |
| | 40,000 |
| | 25,000 |
| | 40,000 |
|
Series W | | | | | | | | | | | | | | |
5.70% Non-Cumulative Perpetual Class A Preferred Stock | 25,000 |
| | 40,000 |
| | 25,000 |
| | 40,000 |
| 25,000 |
| | 40,000 |
| | 25,000 |
| | 40,000 |
|
Series X | | | | | | | | | | | | | | |
5.50% Non-Cumulative Perpetual Class A Preferred Stock | 25,000 |
| | 46,000 |
| | 25,000 |
| | 46,000 |
| 25,000 |
| | 46,000 |
| | 25,000 |
| | 46,000 |
|
Series Y | | | | | | | | | | | | | | |
5.625% Non-Cumulative Perpetual Class A Preferred Stock | 25,000 |
| | 27,600 |
| | — |
| | — |
| 25,000 |
| | 27,600 |
| | 25,000 |
| | 27,600 |
|
ESOP | | | | | | | | | | | | | | |
Cumulative Convertible Preferred Stock (2) | — |
| | 1,774,652 |
| | — |
| | 1,439,181 |
| |
Cumulative Convertible Preferred Stock (3) | | — |
| | 1,406,460 |
| | — |
| | 1,406,460 |
|
Total | | | 12,254,962 |
| | | | 11,941,891 |
| | | 9,586,770 |
| | | | 9,586,770 |
|
| |
(1) | On January 26, 2017, we filed withSeries I preferred stock issuance relates to trust preferred securities. See Note 10 (Securitizations and Variable Interest Entities) in this Report for additional information. This issuance has a floating interest rate that is the Delaware Secretarygreater of State a Certificate Eliminating the Certificate of Designations with respect to the Series H preferred stock.three-month LIBOR plus 0.93% and 5.56975%. |
| |
(2) | Floating rate for Preferred Stock, Series K, is three-month LIBOR plus 3.77%. |
| |
(3) | 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 14:17: Preferred Stock (continued)
Table 14.2:17.2: Preferred Stock – Shares Issued and Carrying Value | | | September 30, 2017 | | | December 31, 2016 | | March 31, 2019 | | | December 31, 2018 | |
(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)(2) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Floating Class A Preferred Stock | 25,010 |
| | 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 Stock | 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 Stock | 3,352,000 |
| | 3,352 |
| | 2,876 |
| | 476 |
| | 3,352,000 |
| | 3,352 |
| | 2,876 |
| | 476 |
| |
Series K (1)(3) | | | | | | | | | | | | | | | | |
Floating Non-Cumulative Perpetual Class A Preferred Stock | | 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 Stock | 3,968,000 |
| | 3,968 |
| | 3,200 |
| | 768 |
| | 3,968,000 |
| | 3,968 |
| | 3,200 |
| | 768 |
| 3,967,995 |
| | 3,968 |
| | 3,200 |
| | 768 |
| | 3,968,000 |
| | 3,968 |
| | 3,200 |
| | 768 |
|
Series N (1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
5.20% Non-Cumulative Perpetual Class A Preferred Stock | 30,000 |
| | 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 Stock | 26,000 |
| | 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 Stock | 25,000 |
| | 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 Stock | 69,000 |
| | 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 Stock | 33,600 |
| | 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 Stock | 80,000 |
| | 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 Stock | 32,000 |
| | 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 Stock | 80,000 |
| | 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 Stock | 40,000 |
| | 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 Stock | 40,000 |
| | 1,000 |
| | 1,000 |
| | — |
| | 40,000 |
| | 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 Stock | 46,000 |
| | 1,150 |
| | 1,150 |
| | — |
| | 46,000 |
| | 1,150 |
| | 1,150 |
| | — |
| 46,000 |
| | 1,150 |
| | 1,150 |
| | — |
| | 46,000 |
| | 1,150 |
| | 1,150 |
| | — |
|
Series Y (1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
5.625% Non-Cumulative Perpetual Class A Preferred Stock | 27,600 |
| | 690 |
| | 690 |
| | — |
| | — |
| | — |
| | — |
| | — |
| 27,600 |
| | 690 |
| | 690 |
| | — |
| | 27,600 |
| | 690 |
| | 690 |
| | — |
|
ESOP | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cumulative Convertible Preferred Stock | 1,774,652 |
| | 1,774 |
| | 1,774 |
| | — |
| | 1,439,181 |
| | 1,439 |
| | 1,439 |
| | — |
| 1,406,460 |
| | 1,407 |
| | 1,407 |
| | — |
| | 1,406,460 |
| | 1,407 |
| | 1,407 |
| | — |
|
Total | 11,895,783 |
| | $ | 26,975 |
| | 25,576 |
| | 1,399 |
| | 11,532,712 |
| | $ | 25,950 |
| | 24,551 |
| | 1,399 |
| 9,377,211 |
| | $ | 24,458 |
| | 23,214 |
| | 1,244 |
| | 9,377,216 |
| | $ | 24,458 |
| | 23,214 |
| | 1,244 |
|
| |
(1) | Preferred shares qualify as Tier 1 capital. |
| |
(2) | Floating rate for Preferred Stock, Series I, is the greater of three-month LIBOR plus 0.93% and 5.56975%. |
| |
(3) | Floating rate for Preferred Stock, Series K, is three-month LIBOR plus 3.77%. |
In April 2017, we issued 27.6 million Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series Y, for an aggregate public offering price of $690 million.
See Note 7 (Securitizations and Variable Interest Entities) for additional information on our trust preferred securities.
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 14.3:17.3: ESOP Preferred Stock
| | | Shares issued and outstanding | | | Carrying value | | | Adjustable dividend rate | Shares issued and outstanding | | | Carrying value | | | Adjustable dividend rate | |
(in millions, except shares) | Sep 30, 2017 |
| | Dec 31, 2016 |
| | Sep 30, 2017 |
| | Dec 31, 2016 |
| | Minimum |
| | Maximum | Mar 31, 2019 |
| | Dec 31, 2018 |
| | Mar 31, 2019 |
| | Dec 31, 2018 |
| | Minimum |
| | Maximum |
|
ESOP Preferred Stock | | | | | | | | | | | | | | | | | | | | | |
$1,000 liquidation preference per share | | | | | | | | | | | | | | | | | | | | | |
2018 | | 336,945 |
| | 336,945 |
| | 337 |
| | 337 |
| | 7.00 | % | | 8.00 | % |
2017 | 491,758 |
| | — |
| | $ | 492 |
| | — |
| | 7.00 | % | | 8.00 | 222,210 |
| | 222,210 |
| | 222 |
| | 222 |
| | 7.00 |
| | 8.00 |
|
2016 | 322,826 |
| | 358,528 |
| | 323 |
| | 358 |
| | 9.30 |
| | 10.30 | 233,835 |
| | 233,835 |
| | 234 |
| | 234 |
| | 9.30 |
| | 10.30 |
|
2015 | 187,436 |
| | 200,820 |
| | 187 |
| | 201 |
| | 8.90 |
| | 9.90 | 144,338 |
| | 144,338 |
| | 144 |
| | 144 |
| | 8.90 |
| | 9.90 |
|
2014 | 237,151 |
| | 255,413 |
| | 237 |
| | 255 |
| | 8.70 |
| | 9.70 | 174,151 |
| | 174,151 |
| | 174 |
| | 174 |
| | 8.70 |
| | 9.70 |
|
2013 | 201,948 |
| | 222,558 |
| | 202 |
| | 223 |
| | 8.50 |
| | 9.50 | 133,948 |
| | 133,948 |
| | 134 |
| | 134 |
| | 8.50 |
| | 9.50 |
|
2012 | 128,634 |
| | 144,072 |
| | 129 |
| | 144 |
| | 10.00 |
| | 11.00 | 77,634 |
| | 77,634 |
| | 78 |
| | 78 |
| | 10.00 |
| | 11.00 |
|
2011 | 129,296 |
| | 149,301 |
| | 129 |
| | 149 |
| | 9.00 |
| | 10.00 | 61,796 |
| | 61,796 |
| | 62 |
| | 62 |
| | 9.00 |
| | 10.00 |
|
2010 | 75,603 |
| | 90,775 |
| | 75 |
| | 91 |
| | 9.50 |
| | 10.50 | |
2008 | — |
| | 17,714 |
| | — |
| | 18 |
| | 10.50 |
| | 11.50 | |
2010 (1) | | 21,603 |
| | 21,603 |
| | 22 |
| | 22 |
| | 9.50 |
| | 10.50 |
|
Total ESOP Preferred Stock (1)(2) | 1,774,652 |
| | 1,439,181 |
| | $ | 1,774 |
| | 1,439 |
| | | | 1,406,460 |
| | 1,406,460 |
| | $ | 1,407 |
| | 1,407 |
| | | | |
Unearned ESOP shares (2)(3) | | | | | $ | (1,904 | ) | | (1,565 | ) | | | | | | | | $ | (1,502 | ) | | (1,502 | ) | | | | |
| |
(1) | At September 30, 2017 and December 31, 2016, additional paid-in capital included $130 million and $126 million, respectively, related toIn April 2019, all of the 2010 ESOP preferredPreferred Stock was converted into common stock.
|
| |
(2) | Additional paid-in capital included $95 million at both March 31, 2019 and December 31, 2018, related to ESOP preferred stock. |
| |
(3) | 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 18: Revenue from Contracts with Customers (continued)
|
|
Note 18: Revenue from Contracts with Customers |
Our revenue includes net interest income on financial instruments and noninterest income. Table 18.1 presents our revenue by operating segment. The “Other” segment for each of the tables below 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. For additional description of our operating segments, including additional financial information and the underlying management accounting process, see Note 22 (Operating Segments).
We adopted ASU 2014-09 – Revenue from Contracts with Customers on a modified retrospective basis as of January 1, 2018. For details on the impact of the adoption of this ASU, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2018 Form 10-K.
Table 18.1: Revenue by Operating Segment
|
| | | | | | | | | | | | | | | | | | | | | |
| Quarter ended Mar 31, | |
| Community Banking | | Wholesale Banking | | Wealth and Investment Management | | Other (3) | | Consolidated Company | |
(in millions) | 2019 |
| 2018 |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
|
Net interest income (1) | $ | 7,248 |
| 7,195 |
| 4,534 |
| 4,532 |
| 1,101 |
| 1,112 |
| (572 | ) | (601 | ) | 12,311 |
| 12,238 |
|
Noninterest income: | | | | | | | | | | |
Service charges on deposit accounts | 610 |
| 639 |
| 483 |
| 534 |
| 4 |
| 4 |
| (3 | ) | (4 | ) | 1,094 |
| 1,173 |
|
Trust and investment fees: | | | | | | | | | | |
Brokerage advisory, commissions and other fees | 449 |
| 478 |
| 78 |
| 67 |
| 2,124 |
| 2,344 |
| (458 | ) | (486 | ) | 2,193 |
| 2,403 |
|
Trust and investment management | 210 |
| 233 |
| 114 |
| 113 |
| 676 |
| 743 |
| (214 | ) | (239 | ) | 786 |
| 850 |
|
Investment banking | (20 | ) | (10 | ) | 412 |
| 440 |
| 5 |
| — |
| (3 | ) | — |
| 394 |
| 430 |
|
Total trust and investment fees | 639 |
| 701 |
| 604 |
| 620 |
| 2,805 |
| 3,087 |
| (675 | ) | (725 | ) | 3,373 |
| 3,683 |
|
Card fees | 858 |
| 821 |
| 86 |
| 87 |
| 1 |
| 1 |
| (1 | ) | (1 | ) | 944 |
| 908 |
|
Other fees: | | | | | | | | | | |
Lending related charges and fees (1)(2) | 65 |
| 76 |
| 282 |
| 304 |
| 2 |
| 2 |
| (2 | ) | (2 | ) | 347 |
| 380 |
|
Cash network fees | 109 |
| 125 |
| — |
| 1 |
| — |
| — |
| — |
| — |
| 109 |
| 126 |
|
Commercial real estate brokerage commissions | — |
| — |
| 81 |
| 85 |
| — |
| — |
| — |
| — |
| 81 |
| 85 |
|
Wire transfer and other remittance fees | 64 |
| 63 |
| 48 |
| 52 |
| 2 |
| 2 |
| (1 | ) | (1 | ) | 113 |
| 116 |
|
All other fees (1) | 94 |
| 63 |
| 26 |
| 30 |
| — |
| — |
| — |
| — |
| 120 |
| 93 |
|
Total other fees | 332 |
| 327 |
| 437 |
| 472 |
| 4 |
| 4 |
| (3 | ) | (3 | ) | 770 |
| 800 |
|
Mortgage banking (1) | 641 |
| 842 |
| 68 |
| 93 |
| (3 | ) | (3 | ) | 2 |
| 2 |
| 708 |
| 934 |
|
Insurance (1) | 11 |
| 28 |
| 78 |
| 79 |
| 17 |
| 18 |
| (10 | ) | (11 | ) | 96 |
| 114 |
|
Net gains (losses) from trading activities (1) | 5 |
| (1 | ) | 333 |
| 225 |
| 19 |
| 19 |
| — |
| — |
| 357 |
| 243 |
|
Net gains on debt securities (1) | 37 |
| — |
| 88 |
| 1 |
| — |
| — |
| — |
| — |
| 125 |
| 1 |
|
Net gains from equity securities (1) | 601 |
| 684 |
| 77 |
| 93 |
| 136 |
| 6 |
| — |
| — |
| 814 |
| 783 |
|
Lease income (1) | — |
| — |
| 443 |
| 455 |
| — |
| — |
| — |
| — |
| 443 |
| 455 |
|
Other income of the segment (1) | 768 |
| 594 |
| (120 | ) | 88 |
| (5 | ) | (6 | ) | (69 | ) | (74 | ) | 574 |
| 602 |
|
Total noninterest income | 4,502 |
| 4,635 |
| 2,577 |
| 2,747 |
| 2,978 |
| 3,130 |
| (759 | ) | (816 | ) | 9,298 |
| 9,696 |
|
Revenue | $ | 11,750 |
| 11,830 |
| 7,111 |
| 7,279 |
| 4,079 |
| 4,242 |
| (1,331 | ) | (1,417 | ) | 21,609 |
| 21,934 |
|
| |
(1) | Most of our revenue is not within the scope of Accounting Standards Update (ASU) 2014-09 – Revenue from Contracts with Customers, and additional details are included in other footnotes to our financial statements. The scope explicitly excludes net interest income as well as many other revenues for financial assets and liabilities, including loans, leases, securities, and derivatives. |
| |
(2) | Represents combined amount of previously reported “Charges and fees on loans” and “Letters of credit fees”. |
| |
(3) | 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. |
We provide services to customers which have related performance obligations that we complete to recognize revenue. Our revenues are generally recognized either immediately upon the completion of our service or over time as we perform services. Any services performed over time generally require that we render services each period and therefore we measure our progress in completing these services based upon the passage of time.
SERVICE CHARGES ON DEPOSIT ACCOUNTS are earned on depository accounts for commercial and consumer customers and include fees for account and overdraft services. Account charges include fees for periodic account maintenance activities and event-driven services such as stop payment fees. Our obligation for event-driven services is satisfied at the time of the event when the service is delivered, while our obligation for maintenance services is satisfied over the course of each month. Our obligation for overdraft services is satisfied at the time of the overdraft.
Table 18.2 presents our service charges on deposit accounts by operating segment.
Table 18.2: Service Charges on Deposit Accounts by Operating Segment
|
| | | | | | | | | | | | | | | | | | | | | |
| Quarter ended Mar 31, | |
| Community Banking | | Wholesale Banking | | Wealth and Investment Management | | Other | | Consolidated Company | |
(in millions) | 2019 |
| 2018 |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
|
Overdraft fees | $ | 417 |
| 412 |
| 1 |
| 2 |
| — |
| — |
| — |
| — |
| 418 |
| 414 |
|
Account charges | 193 |
| 227 |
| 482 |
| 532 |
| 4 |
| 4 |
| (3 | ) | (4 | ) | 676 |
| 759 |
|
Service charges on deposit accounts | $ | 610 |
| 639 |
| 483 |
| 534 |
| 4 |
| 4 |
| (3 | ) | (4 | ) | 1,094 |
| 1,173 |
|
BROKERAGE ADVISORY, COMMISSIONS AND OTHER FEES are earned for providing full-service and discount brokerage services predominantly to retail brokerage clients. These revenues include fees earned on asset-based and transactional accounts and other brokerage advisory services.
Asset-based revenues are charged based on the market value of the client’s assets. The services and related obligations associated with certain of these revenues, which include investment advice, active management of client assets, or assistance with selecting and engaging a third-party advisory manager, are generally satisfied over a month or quarter. The remaining revenues include trailing commissions which are earned for selling shares to investors. Our obligation associated with earning trailing commissions is satisfied at the time shares are sold. However, these fees are received and recognized over time during the period the customer owns the shares and we
remain the broker of record. The amount of trailing commissions is variable based on the length of time the customer holds the shares and on changes in the value of the underlying assets.
Transactional revenues are earned for executing transactions at the client’s direction. Our obligation is generally satisfied upon the execution of the transaction and the fees are based on the size and number of transactions executed.
Other revenues earned from other brokerage advisory services include omnibus and networking fees received from mutual fund companies in return for providing record keeping and other administrative services, and annual account maintenance fees charged to customers.
Table 18.3 presents our brokerage advisory, commissions and other fees by operating segment.
Table 18.3: Brokerage Advisory, Commissions and Other Fees by Operating Segment
|
| | | | | | | | | | | | | | | | | | | | | |
| Quarter ended Mar 31, | |
| Community Banking | | Wholesale Banking | | Wealth and Investment Management | | Other | | Consolidated Company | |
(in millions) | 2019 |
| 2018 |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
|
Asset-based revenue (1) | $ | 343 |
| 371 |
| — |
| — |
| 1,580 |
| 1,743 |
| (343 | ) | (371 | ) | 1,580 |
| 1,743 |
|
Transactional revenue | 89 |
| 93 |
| 16 |
| 12 |
| 387 |
| 439 |
| (98 | ) | (100 | ) | 394 |
| 444 |
|
Other revenue | 17 |
| 14 |
| 62 |
| 55 |
| 157 |
| 162 |
| (17 | ) | (15 | ) | 219 |
| 216 |
|
Brokerage advisory, commissions and other fees | $ | 449 |
| 478 |
| 78 |
| 67 |
| 2,124 |
| 2,344 |
| (458 | ) | (486 | ) | 2,193 |
| 2,403 |
|
| |
(1) | We earned trailing commissions of $280 million and $331 million in first quarter 2019 and 2018, respectively. |
Note 18: Revenue from Contracts with Customers (continued)
TRUST AND INVESTMENT MANAGEMENT FEES are earned for providing trust, investment management and other related services.
Investment management services include managing and administering assets, including mutual funds, and institutional separate accounts. Fees for these services are generally determined based on a tiered scale relative to the market value of assets under management (AUM). In addition to AUM, we have client assets under administration (AUA) that earn various administrative fees which are generally based on the extent of the services provided to administer the account. Services with AUM and AUA-based fees are generally performed over time.
Trust services include acting as a trustee or agent for corporate trust, personal trust, and agency assets. Obligations for trust services are generally satisfied over time, while obligations for activities that are transactional in nature are satisfied at the time of the transaction.
Other related services include the custody and safekeeping of accounts. Our obligation for these services is generally satisfied over time.
Table 18.4 presents our trust and investment management fees by operating segment.
Table 18.4: Trust and Investment Management Fees by Operating Segment
|
| | | | | | | | | | | | | | | | | | | | | |
| Quarter ended Mar 31, | |
| Community Banking | | Wholesale Banking | | Wealth and Investment Management | | Other | | Consolidated Company | |
(in millions) | 2019 |
| 2018 |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
|
Investment management fees | $ | 1 |
| — |
| — |
| — |
| 477 |
| 534 |
| — |
| — |
| 478 |
| 534 |
|
Trust fees | 209 |
| 221 |
| 82 |
| 86 |
| 168 |
| 188 |
| (214 | ) | (239 | ) | 245 |
| 256 |
|
Other revenue | — |
| 12 |
| 32 |
| 27 |
| 31 |
| 21 |
| — |
| — |
| 63 |
| 60 |
|
Trust and investment management fees | $ | 210 |
| 233 |
| 114 |
| 113 |
| 676 |
| 743 |
| (214 | ) | (239 | ) | 786 |
| 850 |
|
INVESTMENT BANKING FEES are earned for underwriting debt and equity securities, arranging loan syndications and performing other advisory services. Our obligation for these services is generally satisfied at closing of the transaction. Substantially all of these fees are in the Wholesale Banking operating segment.
CARD FEES include credit and debit card interchange and network revenues and various card-related fees. Credit and debit
card interchange and network revenues are earned on credit and debit card transactions conducted through payment networks such as Visa, MasterCard, and American Express. Our obligation is satisfied concurrently with the delivery of services on a daily basis.
Table 18.5 presents our card fees by operating segment.
Table 18.5: Card Fees by Operating Segment
|
| | | | | | | | | | | | | | | | | | | | | |
| Quarter ended Mar 31, | |
| Community Banking | | Wholesale Banking | | Wealth and Investment Management | | Other | | Consolidated Company | |
(in millions) | 2019 |
| 2018 |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
|
Credit card interchange and network revenues (1) | $ | 189 |
| 171 |
| 86 |
| 87 |
| 1 |
| 1 |
| (1 | ) | (1 | ) | 275 |
| 258 |
|
Debit card interchange and network revenues | 507 |
| 479 |
| — |
| — |
| — |
| — |
| — |
| — |
| 507 |
| 479 |
|
Late fees, cash advance fees, balance transfer fees, and annual fees | 162 |
| 171 |
| — |
| — |
| — |
| — |
| — |
| — |
| 162 |
| 171 |
|
Card fees (1) | $ | 858 |
| 821 |
| 86 |
| 87 |
| 1 |
| 1 |
| (1 | ) | (1 | ) | 944 |
| 908 |
|
| |
(1) | The cost of credit card rewards and rebates of $354 million and $343 million for the quarters ended March 31, 2019 and 2018, respectively, are presented net against the related revenues. |
CASH NETWORK FEES are earned for processing ATM transactions. Our obligation is completed daily upon settlement of ATM transactions. All of these fees are in the Community Banking operating segment.
COMMERCIAL REAL ESTATE BROKERAGE COMMISSIONS are earned for assisting customers in the sale of real estate property. Our obligation is satisfied upon the successful brokering of a transaction. Fees are based on a fixed percentage of the sales price. All of these fees are in the Wholesale Banking operating segment.
WIRE TRANSFER AND OTHER REMITTANCE FEES consist of fees earned for funds transfer services and issuing cashier’s checks and money orders. Our obligation is satisfied at the time of the funds transfer services or upon issuance of the cashier’s check or money order. Substantially all of these fees are in the Community Banking and Wholesale Banking operating segments.
ALL OTHER FEES include various types of fees earned on services to customers which have related performance obligations that we complete to recognize revenue. A majority portion of the revenue is earned from providing business payroll services and merchant services, which are generally recognized over time as we perform the services. Most of these fees are in the Community Banking operating segment.
|
|
Note 15:19: 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. For additional information on our pension and postretirement plans, including plan assumptions, investment strategy and asset allocation,
projected benefit payments, and valuation methodologies used for assets measured at fair value, see Note 22 (Employee Benefits and Other Expenses) to Financial Statements in our 2018 Form 10-K.
Table 15.119.1 presents the components of net periodic benefit cost.
Table 15.1:19.1: Net Periodic Benefit Cost
|
| | | | | | | | | | | | | | | | | | |
| 2017 | | | 2016 | |
| Pension benefits | | | |
| | Pension benefits | | | |
|
(in millions) | Qualified |
| | Non-qualified |
| | Other benefits |
| | Qualified |
| | Non-qualified |
| | Other benefits |
|
Quarter ended September 30, | | | | | |
Service cost | $ | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Interest cost | 103 |
| | 5 |
| | 7 |
| | 105 |
| | 6 |
| | 11 |
|
Expected return on plan assets | (163 | ) | | — |
| | (7 | ) | | (152 | ) | | — |
| | (8 | ) |
Amortization of net actuarial loss (gain) | 37 |
| | 3 |
| | (3 | ) | | 37 |
| | 3 |
| | (1 | ) |
Amortization of prior service credit | — |
| | — |
| | (2 | ) | | — |
| | — |
| | — |
|
Settlement loss | 6 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net periodic benefit cost (income) | $ | (16 | ) | | 8 |
| | (5 | ) | | (10 | ) | | 9 |
| | 2 |
|
Nine months ended September 30, | | | | | |
Service cost | $ | 4 |
| | — |
| | — |
| | 2 |
| | — |
| | — |
|
Interest cost | 309 |
| | 17 |
| | 21 |
| | 323 |
| | 19 |
| | 31 |
|
Expected return on plan assets | (489 | ) | | — |
| | (22 | ) | | (435 | ) | | — |
| | (23 | ) |
Amortization of net actuarial loss (gain) | 113 |
| | 9 |
| | (8 | ) | | 103 |
| | 9 |
| | (3 | ) |
Amortization of prior service credit | — |
| | — |
| | (7 | ) | | — |
| | — |
| | — |
|
Settlement loss | 7 |
| | 6 |
| | — |
| | 4 |
| | 2 |
| | — |
|
Net periodic benefit cost (income) | $ | (56 | ) | | 32 |
| | (16 | ) | | (3 | ) | | 30 |
| | 5 |
|
|
| | | | | | | | | | | | | | | | | | |
| 2019 | | | 2018 | |
| Pension benefits | | | | | Pension benefits | | | |
(in millions) | Qualified |
| | Non-qualified |
| | Other benefits |
| | Qualified |
| | Non-qualified |
| | Other benefits |
|
Quarter ended March 31, | | | |
Service cost | $ | 3 |
| | — |
| | — |
| | 1 |
| | — |
| | — |
|
Interest cost (1) | 105 |
| | 6 |
| | 5 |
| | 98 |
| | 5 |
| | 5 |
|
Expected return on plan assets (1) | (142 | ) | | — |
| | (7 | ) | | (160 | ) | | — |
| | (7 | ) |
Amortization of net actuarial loss (gain) (1) | 37 |
| | 2 |
| | (4 | ) | | 33 |
| | 3 |
| | (4 | ) |
Amortization of prior service credit (1) | — |
| | — |
| | (2 | ) | | — |
| | — |
| | (3 | ) |
Settlement loss (1) | — |
| | 2 |
| | — |
| | — |
| | 3 |
| | — |
|
Net periodic benefit cost (income) | $ | 3 |
| | 10 |
| | (8 | ) | | (28 | ) | | 11 |
| | (9 | ) |
| |
(1) | Balances are reported in other noninterest expense on the consolidated statement of income. |
|
|
Note 16:20: Earnings and Dividends Per Common Share |
Table 16.120.1 shows earnings per common share and diluted earnings per common share and reconciles the numerator and denominator of both earnings per common share calculations.
See Note 1 (Summary of Significant Accounting Policies) for discussion of share repurchases.
Table 16.1:20.1: Earnings Per Common Share Calculations
| | | Quarter ended September 30, | | | Nine months ended September 30, | | Quarter ended March 31, | |
(in millions, except per share amounts) | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
| 2019 |
| | 2018 |
|
Wells Fargo net income | $ | 4,596 |
| | 5,644 |
| | $ | 15,863 |
| | 16,664 |
| $ | 5,860 |
| | 5,136 |
|
Less: Preferred stock dividends and other | 411 |
| | 401 |
| | 1,218 |
| | 1,163 |
| 353 |
| | 403 |
|
Wells Fargo net income applicable to common stock (numerator) | $ | 4,185 |
| | 5,243 |
| | $ | 14,645 |
| | 15,501 |
| $ | 5,507 |
| | 4,733 |
|
Earnings per common share | | | | | | | | | | |
Average common shares outstanding (denominator) | 4,948.6 |
| | 5,043.4 |
| | 4,982.1 |
| | 5,061.9 |
| 4,551.5 |
| | 4,885.7 |
|
Per share | $ | 0.85 |
| | 1.04 |
| | $ | 2.94 |
| | 3.06 |
| $ | 1.21 |
| | 0.97 |
|
Diluted earnings per common share | | | | | | | | | | |
Average common shares outstanding | 4,948.6 |
| | 5,043.4 |
| | 4,982.1 |
| | 5,061.9 |
| 4,551.5 |
| | 4,885.7 |
|
Add: Stock options | 15.8 |
| | 18.1 |
| | 18.1 |
| | 19.6 |
| 2.5 |
| | 9.9 |
|
Restricted share rights | 22.4 |
| | 23.1 |
| | 24.1 |
| | 26.1 |
| 30.0 |
| | 28.3 |
|
Warrants | 10.0 |
| | 10.0 |
| | 11.1 |
| | 10.6 |
| — |
| | 6.8 |
|
Diluted average common shares outstanding (denominator) | 4,996.8 |
| | 5,094.6 |
| | 5,035.4 |
| | 5,118.2 |
| 4,584.0 |
| | 4,930.7 |
|
Per share | $ | 0.84 |
| | 1.03 |
| | $ | 2.91 |
| | 3.03 |
| $ | 1.20 |
| | 0.96 |
|
Table 16.220.2 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 16.2:20.2: 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) | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
| 2019 |
| | 2018 |
|
Options | 1.8 |
| | 2.6 |
| | 2.0 |
| | 3.4 |
| — |
| | 0.9 |
|
Note 17: Other Comprehensive Income (Table 20.3continued) presents dividends declared per common share.
Table 20.3:Dividends Declared Per Common Share
|
| | | | | |
| Quarter ended March 31, | |
| 2019 |
| | 2018 |
|
Per common share | 0.450 |
| | 0.390 |
|
|
|
Note 17:21: Other Comprehensive Income |
Table 17.121.1 provides the components of other comprehensive income (OCI),OCI, reclassifications to net income by income statement line item, and the related tax effects.
Table 17.1:21.1: Summary of Other Comprehensive Income
| | | Quarter ended September 30, | | | Nine months ended September 30, | | Quarter ended March 31, | |
| 2017 | | | 2016 | | | 2017 | | | 2016 | | 2019 | | | 2018 | |
(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 arising during the period | $ | 891 |
| | (353 | ) | | 538 |
| | 112 |
| | (32 | ) | | 80 |
| | 2,825 |
| | (1,075 | ) | | 1,750 |
| | 2,478 |
| | (938 | ) | | 1,540 |
| |
Debt securities: | | | | | | | | | | | | |
Net unrealized gains (losses) arising during the period | | $ | 2,831 |
| | (695 | ) | | 2,136 |
| | (3,443 | ) | | 848 |
| | (2,595 | ) |
Reclassification of net (gains) losses to net income: | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | |
|
|
Interest income on investment securities (1) | 70 |
| | (26 | ) | | 44 |
| | 2 |
| | (1 | ) | | 1 |
| | 122 |
| | (46 | ) | | 76 |
| | 5 |
| | (2 | ) | | 3 |
| |
Interest income on debt securities (1) | | 45 |
| | (11 | ) | | 34 |
| | 69 |
| | (17 | ) | | 52 |
|
Net gains on debt securities | (166 | ) | | 62 |
| | (104 | ) | | (106 | ) | | 40 |
| | (66 | ) | | (322 | ) | | 119 |
| | (203 | ) | | (797 | ) | | 299 |
| | (498 | ) | (125 | ) | | 31 |
| | (94 | ) | | (1 | ) | | — |
| | (1 | ) |
Net gains from equity investments | (106 | ) | | 41 |
| | (65 | ) | | (85 | ) | | 32 |
| | (53 | ) | | (323 | ) | | 120 |
| | (203 | ) | | (204 | ) | | 77 |
| | (127 | ) | |
Other noninterest income | 2 |
| | — |
| | 2 |
| | (4 | ) | | 2 |
| | (2 | ) | | 1 |
| | — |
| | 1 |
| | (5 | ) | | 2 |
| | (3 | ) | (1 | ) | | — |
| | (1 | ) | | — |
| | — |
| | — |
|
Subtotal reclassifications to net income | (200 | ) |
| 77 |
|
| (123 | ) | | (193 | ) | | 73 |
| | (120 | ) | | (522 | ) | | 193 |
| | (329 | ) | | (1,001 | ) | | 376 |
| | (625 | ) | (81 | ) |
| 20 |
|
| (61 | ) | | 68 |
| | (17 | ) | | 51 |
|
Net change | 691 |
|
| (276 | ) |
| 415 |
| | (81 | ) | | 41 |
| | (40 | ) | | 2,303 |
| | (882 | ) | | 1,421 |
| | 1,477 |
| | (562 | ) | | 915 |
| 2,750 |
|
| (675 | ) |
| 2,075 |
| | (3,375 | ) | | 831 |
| | (2,544 | ) |
Derivatives and hedging activities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net unrealized gains (losses) arising during the period | 36 |
| | (13 | ) | | 23 |
| | (445 | ) | | 168 |
| | (277 | ) | | 279 |
| | (105 | ) | | 174 |
| | 2,611 |
| | (984 | ) | | 1,627 |
| |
Reclassification of net (gains) losses to net income: | | | | | | | | | | |
|
| | | | | | | | | | | | | |
Fair Value Hedges: | | | | | | | | | | | | |
Change in fair value of excluded components on fair value hedges (2) | | (26 | ) | | 7 |
| | (19 | ) | | 24 |
| | (6 | ) | | 18 |
|
Cash Flow Hedges: | | | | | | | | | | | | |
Net unrealized losses arising during the period on cash flow hedges | | (9 | ) | | 2 |
| | (7 | ) | | (266 | ) | | 66 |
| | (200 | ) |
Reclassification of net losses to net income on cash flow hedges: | | | | | | | | | | | |
|
|
Interest income on loans | (107 | ) | | 41 |
| | (66 | ) | | (266 | ) | | 100 |
| | (166 | ) | | (468 | ) | | 177 |
| | (291 | ) | | (794 | ) | | 299 |
| | (495 | ) | 78 |
| | (19 | ) | | 59 |
| | 60 |
| | (15 | ) | | 45 |
|
Interest expense on long-term debt | 2 |
| | (1 | ) | | 1 |
| | 4 |
| | (1 | ) | | 3 |
| | 8 |
| | (3 | ) | | 5 |
| | 11 |
| | (4 | ) | | 7 |
| 1 |
| | — |
| | 1 |
| | — |
| | — |
| | — |
|
Subtotal reclassifications to net income | (105 | ) |
| 40 |
|
| (65 | ) |
| (262 | ) |
| 99 |
|
| (163 | ) |
| (460 | ) |
| 174 |
|
| (286 | ) |
| (783 | ) |
| 295 |
|
| (488 | ) | 79 |
|
| (19 | ) |
| 60 |
|
| 60 |
|
| (15 | ) |
| 45 |
|
Net change | (69 | ) |
| 27 |
|
| (42 | ) | | (707 | ) | | 267 |
| | (440 | ) | | (181 | ) |
| 69 |
|
| (112 | ) | | 1,828 |
|
| (689 | ) |
| 1,139 |
| 44 |
|
| (10 | ) |
| 34 |
| | (182 | ) | | 45 |
| | (137 | ) |
Defined benefit plans adjustments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net actuarial and prior service gains (losses) arising during the period | 11 |
| | (5 | ) | | 6 |
| | (447 | ) | | 168 |
| | (279 | ) | | 4 |
| | (2 | ) | | 2 |
| | (474 | ) | | 178 |
| | (296 | ) | (4 | ) | | 1 |
| | (3 | ) | | 6 |
| | (2 | ) | | 4 |
|
Reclassification of amounts to net periodic benefit costs (2): | | | | | | | | | | | | | | | | | | | | | | | | |
Reclassification of amounts to non interest expense: | | | | | | | | | | | | |
Amortization of net actuarial loss | 37 |
| | (13 | ) | | 24 |
| | 39 |
| | (14 | ) | | 25 |
| | 114 |
| | (43 | ) | | 71 |
| | 109 |
| | (41 | ) | | 68 |
| 35 |
| | (8 | ) | | 27 |
| | 32 |
| | (8 | ) | | 24 |
|
Settlements and other | 4 |
| | (1 | ) | | 3 |
| | — |
| | — |
| | — |
| | 6 |
| | — |
| | 6 |
| | 6 |
| | (2 | ) | | 4 |
| — |
| | — |
| | — |
| | — |
| | 1 |
| | 1 |
|
Subtotal reclassifications to net periodic benefit costs | 41 |
|
| (14 | ) |
| 27 |
| | 39 |
| | (14 | ) | | 25 |
| | 120 |
| | (43 | ) | | 77 |
| | 115 |
| | (43 | ) | | 72 |
| |
Subtotal reclassifications to non interest expense | | 35 |
|
| (8 | ) |
| 27 |
| | 32 |
| | (7 | ) | | 25 |
|
Net change | 52 |
|
| (19 | ) |
| 33 |
| | (408 | ) | | 154 |
| | (254 | ) | | 124 |
| | (45 | ) | | 79 |
| | (359 | ) | | 135 |
| | (224 | ) | 31 |
|
| (7 | ) |
| 24 |
| | 38 |
| | (9 | ) | | 29 |
|
Foreign currency translation adjustments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net unrealized gains (losses) arising during the period | 40 |
| | 3 |
| | 43 |
| | (10 | ) | | (1 | ) | | (11 | ) | | 87 |
| | 6 |
| | 93 |
| | 27 |
| | 6 |
| | 33 |
| 42 |
| | (2 | ) | | 40 |
| | (2 | ) | | (5 | ) | | (7 | ) |
Net change | 40 |
|
| 3 |
|
| 43 |
| | (10 | ) | | (1 | ) | | (11 | ) | | 87 |
| | 6 |
| | 93 |
| | 27 |
| | 6 |
| | 33 |
| 42 |
|
| (2 | ) |
| 40 |
| | (2 | ) | | (5 | ) | | (7 | ) |
Other comprehensive income (loss) | $ | 714 |
|
| (265 | ) |
| 449 |
| | (1,206 | ) |
| 461 |
|
| (745 | ) | | 2,333 |
| | (852 | ) | | 1,481 |
| | 2,973 |
| | (1,110 | ) | | 1,863 |
| $ | 2,867 |
|
| (694 | ) |
| 2,173 |
| | (3,521 | ) |
| 862 |
|
| (2,659 | ) |
Less: Other comprehensive income (loss) from noncontrolling interests, net of tax | | | | | (34 | ) | | | | | | 19 |
| | | | | | (29 | ) | | | | | | (24 | ) | |
Less: Other comprehensive income from noncontrolling interests, net of tax | | | | | | — |
| | | | | | — |
|
Wells Fargo other comprehensive income (loss), net of tax | | | | | $ | 483 |
| | | | | | (764 | ) | | | | | | 1,510 |
| | | | | | 1,887 |
| | | | | $ | 2,173 |
| | | | | | (2,659 | ) |
| |
(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 itemsRepresents changes in fair value of cross-currency swaps attributable to changes in cross-currency basis spreads, which are included inexcluded from the computationassessment of net periodic benefit cost, which iseffectiveness recorded in employee benefits expense (see Note 15 (Employee Benefits) for additional details).other comprehensive income. |
Note 21: Other Comprehensive Income (continued)
Table 17.2:21.2: Cumulative OCI Balances
| | (in millions) | Investment securities |
| | Derivatives and hedging activities |
| | Defined benefit plans adjustments |
| | Foreign currency translation adjustments |
| | Cumulative other compre- hensive income |
| Debt securities |
| | Derivatives and hedging activities |
| | Defined benefit plans adjustments |
| | Foreign currency translation adjustments |
| | Cumulative other compre- hensive income |
|
Quarter ended September 30, 2017 | | | | | | | | | | |
Quarter ended March 31, 2019 | | | | | | | | | | |
Balance, beginning of period | $ | (96 | ) | | 19 |
| | (1,897 | ) | | (136 | ) | | (2,110 | ) | $ | (3,122 | ) | | (685 | ) | | (2,296 | ) | | (233 | ) | | (6,336 | ) |
Net unrealized gains arising during the period | 538 |
| | 23 |
| | 6 |
| | 43 |
| | 610 |
| |
Amounts reclassified from accumulated other comprehensive income | (123 | ) | | (65 | ) | | 27 |
| | — |
| | (161 | ) | |
Net change | 415 |
| | (42 | ) | | 33 |
| | 43 |
| | 449 |
| |
Less: Other comprehensive loss from noncontrolling interests | (34 | ) | | — |
| | — |
| | — |
| | (34 | ) | |
Balance, end of period | $ | 353 |
| | (23 | ) | | (1,864 | ) | | (93 | ) | | (1,627 | ) | |
Quarter ended September 30, 2016 | | | | | | | | | | |
Balance, beginning of period | $ | 2,812 |
| | 2,199 |
| | (1,921 | ) | | (142 | ) | | 2,948 |
| |
Transition adjustment (1) | | 481 |
| | — |
| | — |
| | — |
| | 481 |
|
Balance, January 1, 2019 | | (2,641 | ) | | (685 | ) | | (2,296 | ) | | (233 | ) | | (5,855 | ) |
Net unrealized gains (losses) arising during the period | 80 |
| | (277 | ) | | (279 | ) | | (11 | ) | | (487 | ) | 2,136 |
| | (26 | ) | | (3 | ) | | 40 |
| | 2,147 |
|
Amounts reclassified from accumulated other comprehensive income | (120 | ) | | (163 | ) | | 25 |
| | — |
| | (258 | ) | (61 | ) | | 60 |
| | 27 |
| | — |
| | 26 |
|
Net change | (40 | ) | | (440 | ) | | (254 | ) | | (11 | ) | | (745 | ) | 2,075 |
| | 34 |
| | 24 |
| | 40 |
| | 2,173 |
|
Less: Other comprehensive income from noncontrolling interests | 19 |
| | — |
| | — |
| | — |
| | 19 |
| — |
| | — |
| | — |
| | — |
| | — |
|
Balance, end of period | $ | 2,753 |
| | 1,759 |
| | (2,175 | ) | | (153 | ) | | 2,184 |
| $ | (566 | ) | | (651 | ) | | (2,272 | ) | | (193 | ) | | (3,682 | ) |
Nine months ended September 30, 2017 | |
| | |
| | |
| | |
| | |
| |
Quarter ended March 31, 2018 | | | | | | | | | | |
Balance, beginning of period | $ | (1,099 | ) | | 89 |
| | (1,943 | ) | | (184 | ) | | (3,137 | ) | $ | 171 |
| | (418 | ) | | (1,808 | ) | | (89 | ) | | (2,144 | ) |
Net unrealized gains arising during the period | 1,750 |
| | 174 |
| | 2 |
| | 93 |
| | 2,019 |
| |
Amounts reclassified from accumulated other comprehensive income | (329 | ) | | (286 | ) | | 77 |
| | — |
| | (538 | ) | |
Net change | 1,421 |
| | (112 | ) | | 79 |
| | 93 |
| | 1,481 |
| |
Less: Other comprehensive income (loss) from noncontrolling interests | (31 | ) | | — |
| | — |
| | 2 |
| | (29 | ) | |
Balance, end of period | $ | 353 |
| | (23 | ) | | (1,864 | ) | | (93 | ) | | (1,627 | ) | |
Nine months ended September 30, 2016 | |
| | |
| | |
| | |
| | |
| |
Balance, beginning of period | $ | 1,813 |
| | 620 |
| | (1,951 | ) | | (185 | ) | | 297 |
| |
Transition adjustment (2) | | (118 | ) | | — |
| | — |
| | — |
| | (118 | ) |
Balance, January 1, 2018 | | 53 |
| | (418 | ) | | (1,808 | ) | | (89 | ) | | (2,262 | ) |
Net unrealized gains (losses) arising during the period | 1,540 |
| | 1,627 |
| | (296 | ) | | 33 |
| | 2,904 |
| (2,595 | ) | | (182 | ) | | 4 |
| | (7 | ) | | (2,780 | ) |
Amounts reclassified from accumulated other comprehensive income | (625 | ) | | (488 | ) | | 72 |
| | — |
| | (1,041 | ) | 51 |
| | 45 |
| | 25 |
| | — |
| | 121 |
|
Net change | 915 |
| | 1,139 |
| | (224 | ) | | 33 |
| | 1,863 |
| (2,544 | ) | | (137 | ) | | 29 |
| | (7 | ) | | (2,659 | ) |
Less: Other comprehensive income (loss) from noncontrolling interests | (25 | ) | | — |
| | — |
| | 1 |
| | (24 | ) | |
Less: Other comprehensive income from noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
|
Balance, end of period | $ | 2,753 |
| | 1,759 |
| | (2,175 | ) | | (153 | ) | | 2,184 |
| $ | (2,491 | ) | | (555 | ) | | (1,779 | ) | | (96 | ) | | (4,921 | ) |
| |
(1) | The transition adjustment relates to the adoption of ASU 2017-08 – Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. See Note 1 (Summary of Significant Accounting Policies) for more information. |
| |
(2) | The transition adjustment relates to the adoption of ASU 2016-01 – Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. See Note 1 (Summary of Significant Accounting Policies) for more information. |
|
|
Note 18:22: Operating Segments |
We have three reportable operating segments: Community Banking; Wholesale Banking; and Wealth and Investment 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 2426 (Operating Segments) to Financial Statements in our 20162018 Form 10-K. Table 18.122.1 presents our results by operating segment.
Table 18.1:22.1: 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) | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
| 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
|
Quarter ended Sep 30, | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Quarter ended March 31, | | | | | | | | | | | | | | | | | | | | |
Net interest income (2) | $ | 7,645 |
| | 7,430 |
| | 4,353 |
| | 4,062 |
| | 1,159 |
| | 977 |
| | (681 | ) | | (517 | ) | | 12,476 |
| | 11,952 |
| $ | 7,248 |
| | 7,195 |
| | 4,534 |
| | 4,532 |
| | 1,101 |
| | 1,112 |
| | (572 | ) | | (601 | ) | | 12,311 |
| | 12,238 |
|
Provision (reversal of provision) for credit losses | 650 |
| | 651 |
| | 69 |
| | 157 |
| | (1 | ) | | 4 |
| | (1 | ) | | (7 | ) | | 717 |
| | 805 |
| 710 |
| | 218 |
| | 134 |
| | (20 | ) | | 4 |
| | (6 | ) | | (3 | ) | | (1 | ) | | 845 |
| | 191 |
|
Noninterest income | 4,415 |
| | 4,957 |
| | 2,732 |
| | 3,085 |
| | 3,087 |
| | 3,122 |
| | (784 | ) | | (788 | ) | | 9,450 |
| | 10,376 |
| 4,502 |
| | 4,635 |
| | 2,577 |
| | 2,747 |
| | 2,978 |
| | 3,130 |
| | (759 | ) | | (816 | ) | | 9,298 |
| | 9,696 |
|
Noninterest expense | 7,834 |
| | 6,953 |
| | 4,248 |
| | 4,120 |
| | 3,106 |
| | 2,999 |
| | (837 | ) | | (804 | ) | | 14,351 |
| | 13,268 |
| 7,689 |
| | 8,702 |
| | 3,838 |
| | 3,978 |
| | 3,303 |
| | 3,290 |
| | (914 | ) | | (928 | ) | | 13,916 |
| | 15,042 |
|
Income (loss) before income tax expense (benefit) | 3,576 |
| | 4,783 |
| | 2,768 |
| | 2,870 |
| | 1,141 |
| | 1,096 |
| | (627 | ) | | (494 | ) | | 6,858 |
| | 8,255 |
| 3,351 |
| | 2,910 |
| | 3,139 |
| | 3,321 |
| | 772 |
| | 958 |
| | (414 | ) | | (488 | ) | | 6,848 |
| | 6,701 |
|
Income tax expense (benefit) | 1,286 |
| | 1,546 |
| | 729 |
| | 827 |
| | 427 |
| | 415 |
| | (238 | ) | | (187 | ) | | 2,204 |
| | 2,601 |
| 424 |
| | 809 |
| | 369 |
| | 448 |
| | 192 |
| | 239 |
| | (104 | ) | | (122 | ) | | 881 |
| | 1,374 |
|
Net income (loss) before noncontrolling interests | 2,290 |
| | 3,237 |
| | 2,039 |
| | 2,043 |
| | 714 |
| | 681 |
| | (389 | ) | | (307 | ) | | 4,654 |
| | 5,654 |
| 2,927 |
| | 2,101 |
| | 2,770 |
| | 2,873 |
| | 580 |
| | 719 |
| | (310 | ) | | (366 | ) | | 5,967 |
| | 5,327 |
|
Less: Net income (loss) from noncontrolling interests | 61 |
| | 10 |
| | (7 | ) | | (4 | ) | | 4 |
| | 4 |
| | — |
| | — |
| | 58 |
| | 10 |
| 104 |
| | 188 |
| | — |
| | (2 | ) | | 3 |
| | 5 |
| | — |
| | — |
| | 107 |
| | 191 |
|
Net income (loss) (3) | $ | 2,229 |
| | 3,227 |
| | 2,046 |
| | 2,047 |
| | 710 |
| | 677 |
| | (389 | ) | | (307 | ) | | 4,596 |
| | 5,644 |
| $ | 2,823 |
| | 1,913 |
| | 2,770 |
| | 2,875 |
| | 577 |
| | 714 |
| | (310 | ) | | (366 | ) | | 5,860 |
| | 5,136 |
|
Average loans | $ | 473.5 |
| | 489.2 |
| | 463.8 |
| | 454.3 |
| | 72.4 |
| | 68.4 |
| | (57.4 | ) | | (54.4 | ) | | 952.3 |
| | 957.5 |
| $ | 458.2 |
| | 470.5 |
| | 476.4 |
| | 465.1 |
| | 74.4 |
| | 73.9 |
| | (59.0 | ) | | (58.5 | ) | | 950.0 |
| | 951.0 |
|
Average assets | 988.9 |
| | 993.6 |
| | 824.3 |
| | 794.2 |
| | 213.4 |
| | 212.1 |
| | (88.1 | ) | | (85.3 | ) | | 1,938.5 |
| | 1,914.6 |
| 1,015.4 |
| | 1,061.9 |
| | 844.5 |
| | 829.2 |
| | 83.2 |
| | 84.2 |
| | (60.0 | ) | | (59.4 | ) | | 1,883.1 |
| | 1,915.9 |
|
Average deposits | 734.5 |
| | 708.0 |
| | 463.4 |
| | 441.2 |
| | 188.1 |
| | 189.2 |
| | (79.6 | ) | | (76.9 | ) | | 1,306.4 |
| | 1,261.5 |
| 765.6 |
| | 747.5 |
| | 409.8 |
| | 446.0 |
| | 153.2 |
| | 177.9 |
| | (66.5 | ) | | (74.2 | ) | | 1,262.1 |
| | 1,297.2 |
|
Nine months ended Sep 30, | | | | | | | | | | | | | | | | | | | | |
Net interest income (2) | $ | 22,820 |
| | 22,277 |
| | 12,779 |
| | 11,729 |
| | 3,360 |
| | 2,852 |
| | (1,700 | ) | | (1,506 | ) | | 37,259 |
| | 35,352 |
| |
Provision (reversal of provision) for credit losses | 1,919 |
| | 2,060 |
| | (39 | ) | | 905 |
| | 2 |
| | (8 | ) | | (5 | ) | | 8 |
| | 1,877 |
| | 2,965 |
| |
Noninterest income | 13,622 |
| | 14,928 |
| | 8,295 |
| | 9,660 |
| | 9,261 |
| | 9,020 |
| | (2,340 | ) | | (2,275 | ) | | 28,838 |
| | 31,333 |
| |
Noninterest expense | 22,278 |
| | 20,437 |
| | 12,551 |
| | 12,124 |
| | 9,387 |
| | 9,017 |
| | (2,532 | ) | | (2,416 | ) | | 41,684 |
| | 39,162 |
| |
Income (loss) before income tax expense (benefit) | 12,245 |
| | 14,708 |
| | 8,562 |
| | 8,360 |
| | 3,232 |
| | 2,863 |
| | (1,503 | ) | | (1,373 | ) | | 22,536 |
| | 24,558 |
| |
Income tax expense (benefit) | 3,817 |
| | 4,910 |
| | 2,034 |
| | 2,341 |
| | 1,206 |
| | 1,087 |
| | (571 | ) | | (521 | ) | | 6,486 |
| | 7,817 |
| |
Net income (loss) before noncontrolling interests | 8,428 |
| | 9,798 |
| | 6,528 |
| | 6,019 |
| | 2,026 |
| | 1,776 |
| | (932 | ) | | (852 | ) | | 16,050 |
| | 16,741 |
| |
Less: Net income (loss) from noncontrolling interests | 197 |
| | 96 |
| | (21 | ) | | (22 | ) | | 11 |
| | 3 |
| | — |
| | — |
| | 187 |
| | 77 |
| |
Net income (loss) (3) | $ | 8,231 |
| | 9,702 |
| | 6,549 |
| | 6,041 |
| | 2,015 |
| | 1,773 |
| | (932 | ) | | (852 | ) | | 15,863 |
| | 16,664 |
| |
Average loans | $ | 477.8 |
| | 486.4 |
| | 465.0 |
| | 445.2 |
| | 71.6 |
| | 66.4 |
| | (56.8 | ) | | (52.8 | ) | | 957.6 |
| | 945.2 |
| |
Average assets | 987.7 |
| | 969.6 |
| | 816.5 |
| | 771.9 |
| | 216.1 |
| | 208.5 |
| | (88.1 | ) | | (84.3 | ) | | 1,932.2 |
| | 1,865.7 |
| |
Average deposits | 726.4 |
| | 698.3 |
| | 464.1 |
| | 431.7 |
| | 190.6 |
| | 185.4 |
| | (78.8 | ) | | (76.1 | ) | | 1,302.3 |
| | 1,239.3 |
| |
| |
(1) | Includes the elimination of certain items that are included in more than one business segment, mostsubstantially 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,as well as interest credits for providingany funding of a segment available to be provided to other segments. The cost of liabilities includes actual interest expense on segment liabilities and, if the segment does not have enough liabilities to fund its assets, aas well as funding charge based on the cost of excess liabilitiescharges for any funding provided from another segment.other segments. |
| |
(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 19:23: 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 19.123.1 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 RWAsrisk-weighted assets (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 changesrules are being phased-in effective January 1, 2014, through the end of 2021. Beginning January 1, 2018, the requirements for calculating CET1 and tier 1 capital, along with RWAs, became fully phased-in. Accordingly, the information presented reflects fully phased-in CET1 capital, tier 1 capital, and RWAs, but reflects total capital still in accordance with Transition Requirements.
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, 2017,March 31, 2019, 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 19.1:23.1: Regulatory Capital Information | | | Wells Fargo & Company | | Wells Fargo Bank, N.A. | Wells Fargo & Company | | Wells Fargo Bank, N.A. |
| September 30, 2017 | | | | December 31, 2016 | | | | September 30, 2017 | | December 31, 2016 | March 31, 2019 | | | | December 31, 2018 | | | | March 31, 2019 | | | | December 31, 2018 |
(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 | $ | 153,548 |
| | 153,548 |
| | 148,785 |
| | 148,785 |
| | 140,021 |
| | 140,021 |
| | 132,225 |
| | 132,225 |
| | $ | 148,124 |
| | 148,124 |
| | 146,363 |
| | 146,363 |
| | 145,091 |
| | 145,091 |
| | 142,685 |
| | 142,685 |
| |
Tier 1 | 176,996 |
| | 176,996 |
| | 171,364 |
| | 171,364 |
| | 140,021 |
| | 140,021 |
| | 132,225 |
| | 132,225 |
| | 169,611 |
| | 169,611 |
| | 167,866 |
| | 167,866 |
| | 145,091 |
| | 145,091 |
| | 142,685 |
| | 142,685 |
| |
Total | 209,522 |
| | 219,208 |
| | 204,425 |
| | 214,877 |
| | 153,558 |
| | 162,723 |
| | 145,665 |
| | 155,281 |
| | 199,851 |
| | 208,042 |
| | 198,798 |
| | 207,041 |
| | 158,074 |
| | 165,836 |
| | 155,558 |
| | 163,380 |
| |
Assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Risk-weighted | $ | 1,217,700 |
| | 1,268,638 |
| | 1,274,589 |
| | 1,336,198 |
| | 1,103,800 |
| | 1,173,294 |
| | 1,143,681 |
| | 1,222,876 |
| | |
Adjusted average (1) | 1,908,883 |
| | 1,908,883 |
| | 1,914,802 |
| | 1,914,802 |
| | 1,713,046 |
| | 1,713,046 |
| | 1,714,524 |
| | 1,714,524 |
| | |
Risk-weighted assets | | $ | 1,176,360 |
| | 1,243,125 |
| | 1,177,350 |
| | 1,247,210 |
| | 1,056,290 |
| | 1,143,763 |
| | 1,058,653 |
| | 1,154,182 |
| |
Adjusted average assets (1) | | 1,854,367 |
| | 1,854,367 |
| | 1,850,299 |
| | 1,850,299 |
| | 1,647,785 |
| | 1,647,785 |
| | 1,652,009 |
| | 1,652,009 |
| |
Regulatory capital ratios: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common equity tier 1 capital | 12.61 | % |
| 12.10 |
| * | | 11.67 |
| | 11.13 |
| * | | 12.69 |
|
| 11.93 |
| * | | 11.56 |
|
| 10.81 |
| * | 12.59 | % | | 11.92 |
| * | | 12.43 |
| | 11.74 |
| * | | 13.74 |
| | 12.69 |
| * | | 13.48 |
| | 12.36 |
| * |
Tier 1 capital | 14.54 |
|
| 13.95 |
| * | | 13.44 |
| | 12.82 |
| * | | 12.69 |
|
| 11.93 |
| * | | 11.56 |
|
| 10.81 |
| * | 14.42 |
| | 13.64 |
| * | | 14.26 |
| | 13.46 |
| * | | 13.74 |
| | 12.69 |
| * | | 13.48 |
| | 12.36 |
| * |
Total capital | 17.21 |
| * | 17.28 |
|
| | 16.04 |
| * | 16.08 |
| | | 13.91 |
|
| 13.87 |
| * | | 12.74 |
|
| 12.70 |
| * | 16.99 |
| | 16.74 |
| * | | 16.89 |
| | 16.60 |
| * | | 14.97 |
| | 14.50 |
| * | | 14.69 |
| | 14.16 |
| * |
Tier 1 leverage (1) | 9.27 |
| | 9.27 |
| | 8.95 |
| | 8.95 |
| | 8.17 |
| | 8.17 |
| | 7.71 |
| | 7.71 |
| | 9.15 |
| | 9.15 |
| | 9.07 |
| | 9.07 |
| | 8.81 |
| | 8.81 |
| | 8.64 |
| | 8.64 |
| |
| | Wells Fargo & Company | | | Wells Fargo Bank, N.A. | | |
| | March 31, 2019 | | | December 31, 2018 | | | March 31, 2019 | | | December 31, 2018 | | |
Supplementary leverage: (2) | | | | | | | | | | | | | | | | | |
Total leverage exposure | | $ | 2,180,614 | | | 2,174,564 | | | 1,951,217 | | | 1,957,276 | | |
Supplementary leverage ratio | | 7.78 | % | | 7.72 | | | 7.44 | | | 7.29 | | |
*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. |
| |
(2) | The supplementary leverage ratio consists of Tier 1 capital divided by 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. |
Table 19.223.2 presents the minimum required regulatory capital ratios under Transition Requirements to which the Company and the Bank were subject as of September 30, 2017March 31, 2019, and December 31, 2016.2018.
Table 19.2:23.2: 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, 2017 |
| | December 31, 2016 | | September 30, 2017 | | December 31, 2016 | March 31, 2019 |
| | December 31, 2018 | | March 31, 2019 | | December 31, 2018 |
Regulatory capital ratios: | | | | | | |
Common equity tier 1 capital | 6.750 | % | | 5.625 | | 5.750 | | 5.125 | 9.000 | % | | 7.875 | | 7.000 | | 6.375 |
Tier 1 capital | 8.250 |
| | 7.125 | | 7.250 | | 6.625 | 10.500 |
| | 9.375 | | 8.500 | | 7.875 |
Total capital | 10.250 |
| | 9.125 | | 9.250 | | 8.625 | 12.500 |
| | 11.375 | | 10.500 | | 9.875 |
Tier 1 leverage | 4.000 |
| | 4.000 | | 4.000 | | 4.000 | 4.000 |
| | 4.000 | | 4.000 | | 4.000 |
Supplementary leverage | | 5.000 |
| | 5.000 | | 6.000 | | 6.000 |
| |
(1) | At September 30, 2017,March 31, 2019, under transition requirements, the CET1, tier 1 and total capital minimum ratio requirements for Wells Fargo & Company include a capital conservation buffer of 1.250%2.500% and a global systemically important bank (G-SIB) surcharge of 1.000%2.000%. Only the 1.250%2.500% capital conservation buffer applies to the Bank at September 30, 2017. March 31, 2019. |
|
| | | |
Glossary of Acronyms |
| | | |
ABS | Asset-backed security | G-SIB | Globally systemic important bank |
ACL | Allowance for credit losses | HAMPHQLA | Home Affordability Modification ProgramHigh-quality liquid assets |
ALCO | Asset/Liability Management Committee | HUDHTM | U.S. Department of Housing and Urban DevelopmentHeld to maturity |
ARM | Adjustable-rate mortgage | LCR | Liquidity coverage ratio |
ASC | Accounting Standards Codification | LHFS | Loans held for sale |
ASU | Accounting Standards Update | LIBOR | London Interbank Offered Rate |
AUA | Assets under administration | LIHTC | Low income housing tax credit |
AUM | Assets under management | LOCOM | Lower of cost or marketfair value |
AVM | Automated valuation model | LTV | Loan-to-value |
BCBS | Basel Committee on Bank Supervision | MBS | Mortgage-backed security |
BHC | Bank holding company | MHAMLHFS | Making Home Affordable programsMortgage loans held for sale |
CCAR | Comprehensive Capital Analysis and Review | MHFSMSR | Mortgages held for saleMortgage servicing right |
CD | Certificate of deposit | MSRNAV | Mortgage servicing rightNet asset value |
CDO | Collateralized debt obligation | MTNNPA | Medium-term noteNonperforming asset |
CDS | Credit default swaps | NAV | Net asset value |
CECL | Current expected credit loss | NPA | Nonperforming asset |
CET1 | Common Equity Tier 1 | OCC | Office of the Comptroller of the Currency |
CFPBCECL | Consumer Financial Protection BureauCurrent expected credit loss | OCI | Other comprehensive income |
CLOCET1 | Collateralized loan obligationCommon Equity Tier 1 | OTC | Over-the-counter |
CLTVCFPB | Combined loan-to-valueConsumer Financial Protection Bureau | OTTI | Other-than-temporary impairment |
CMBSCLO | Commercial mortgage-backed securitiesCollateralized loan obligation | PCI Loans | Purchased credit-impaired loans |
CPICLTV | Collateral protection insuranceCombined loan-to-value | PTPP | Pre-tax pre-provision profit |
CPPCPI | Capital Purchase ProgramCollateral protection insurance | RBC | Risk-based capital |
CRECPP | Commercial real estateCapital Purchase Program | RMBS | Residential mortgage-backed securities |
DPDCRE | Days past dueCommercial real estate | ROA | Wells Fargo net income to average total assets |
ESOPDPD | Employee Stock Ownership PlanDays past due | ROE | Wells Fargo net income applicable to common stock |
FASESOP | Statement of Financial Accounting StandardsEmployee Stock Ownership Plan | | to average Wells Fargo common stockholders'stockholders’ equity |
FASBFAS | Statement of Financial Accounting Standards Board | ROTCE | Return on average tangible common equity |
FDICFASB | Federal Deposit Insurance CorporationFinancial Accounting Standards Board | RWAs | Risk-weighted assets |
FFELPFDIC | Federal Family Education Loan ProgramDeposit Insurance Corporation | SEC | Securities and Exchange Commission |
FHA | Federal Housing Administration | S&P | Standard & Poor’s Global Ratings Services |
FHLB | Federal Home Loan Bank | SLR | Supplementary leverage ratio |
FHLMC | Federal Home Loan Mortgage Corporation | SPESOFR | Special purpose entitySecured Overnight Financing Rate |
FICO | Fair Isaac Corporation (credit rating) | TARPSPE | Troubled Asset Relief ProgramSpecial purpose entity |
FNMA | Federal National Mortgage Association | TDR | Troubled debt restructuring |
FRB | Board of Governors of the Federal Reserve System | TLAC | Total Loss Absorbing Capacity |
GAAP | Generally accepted accounting principles | VA | Department of Veterans Affairs |
GNMA | Government National Mortgage Association | VaR | Value-at-Risk |
GSE | Government-sponsored entity | VIE | Variable interest entity |
G-SIB | Globally systemic important bank | WIM | Wealth and Investment Management |
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
Information in response to this item can be found in Note 1114 (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, 2017.March 31, 2019.
|
| | | | | | | | | |
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 |
|
July | 6,616,050 |
| | $ | 54.73 |
| | 164,594,913 |
|
August (2) | 30,887,246 |
| | 53.26 |
| | 133,707,667 |
|
September (2) | 11,519,239 |
| | 51.50 |
| | 122,188,428 |
|
Total | 49,022,535 |
| | | | |
| | | | | |
|
| | | | | | | | | |
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 authorizations |
|
January | 21,996,861 |
| | $ | 48.68 |
| | 373,337,554 |
|
February | 29,472,213 |
| | 49.15 |
| | 343,865,341 |
|
March | 45,894,636 |
| | 50.12 |
| | 297,970,705 |
|
Total | 97,363,710 |
| | | | |
| | | | | |
| |
(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, 2016.23, 2018, or an authorization covering up to an additional 350 million shares of common stock approved by the Board of Directors and publicly announced by the Company on October 23, 2018. Unless modified or revoked by the Board, this authorization doesthese authorizations do not expire. |
| |
(2) | August includes a private repurchase transaction of 18,746,180 shares at a weighted-average price per share of $53.34. September includes a private repurchase transaction of 9,717,399 shares at a weighted-average price per share of $51.45.
|
The following table shows Company repurchases of the warrants for each calendar month in the quarter ended September 30, 2017.
|
| | | | | | | | | |
Calendar month | Total number
of warrants
repurchased (1)
|
| | Average price
paid per warrant
|
| | Maximum dollar value
of warrants that
may yet be repurchased |
|
July | — |
| | $ | — |
| | 451,944,402 |
|
August | — |
| | — |
| | 451,944,402 |
|
September | — |
| | — |
| | 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.
|
A list of exhibits to this Form 10-Q is set forth below.
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.
|
| | | | | | | | | | | | | | | | |
Exhibit Number | | Description | | Location |
| | | | Incorporated by reference to Exhibit 3(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2017. |
| | | | 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). | | |
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. | | |
| | | | Filed herewith. |
| | | | Quarter ended September 30, | | | Nine months ended September 30, | | | |
| | | | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
| | |
| | Including interest on deposits | | 3.53 |
| | 6.03 |
| | 4.17 |
| | 6.36 |
| | |
| | Excluding interest on deposits | | 4.75 |
| | 7.42 |
| | 5.51 |
| | 7.86 |
| | |
| | | | |
| | | | Filed herewith. |
| | | | Quarter ended September 30, | | | Nine months ended September 30, | | | |
| | | | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
| | |
| | Including interest on deposits | | 2.88 |
| | 4.44 |
| | 3.35 |
| | 4.63 |
| | |
| | Excluding interest on deposits | | 3.56 |
| | 5.10 |
| | 4.09 |
| | 5.31 |
| | |
| | | | | | | | | | | | |
| | | | Filed herewith. |
| | | | Filed herewith. |
| | | | Furnished herewith. |
| | | | Furnished herewith. |
101.INS | | XBRL Instance Document | | Filed herewith. |
101.SCH | | XBRL Taxonomy Extension Schema Document | | Filed herewith. |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document | | Filed herewith. |
101.DEF | | XBRL Taxonomy Extension Definitions Linkbase Document | | Filed herewith. |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document | | Filed herewith. |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document | | Filed herewith. |
|
| | | | | | | | | | | | |
Exhibit Number | | Description | | Location |
| | | | Filed herewith. |
| | | | Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed March 1, 2018. |
4(a) | | 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. | | |
10(a) | | | | Incorporated by reference to Exhibit 10(b) to the Company’s Current Report on Form 8-K filed April 26, 2019. |
| | Form of Cash Award Agreement: | | |
| | | | Filed herewith. |
| | Form of Restricted Share Rights Award Agreement: | | |
| | | | Filed herewith. |
| | | | Filed herewith. |
| | | | Filed herewith. |
| | | | Filed herewith. |
| | | | Furnished herewith. |
| | | | Furnished herewith. |
101.INS | | XBRL Instance Document | | Filed herewith. |
101.SCH | | XBRL Taxonomy Extension Schema Document | | Filed herewith. |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document | | Filed herewith. |
101.DEF | | XBRL Taxonomy Extension Definitions Linkbase Document | | Filed herewith. |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document | | Filed herewith. |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document | | Filed herewith. |
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: NovemberMay 3, 20172019 WELLS FARGO & COMPANY
By: /s/ /s/ RICHARD D. LEVY
Richard D. Levy
Executive Vice President and Controller
(Principal Accounting Officer)