0000072971 us-gaap:RealEstateLoanMember us-gaap:FinancialAssetOtherThanFinancialAssetAcquiredWithCreditDeteriorationMember wfc:A3089dayspastdueandstillaccruingMember 2019-06-30 0000072971 us-gaap:CarryingReportedAmountFairValueDisclosureMember us-gaap:VariableInterestEntityPrimaryBeneficiaryMember wfc:InvestmentFundsMember 2019-06-30 0000072971 us-gaap:InterestRateContractMember us-gaap:NondesignatedMember wfc:GainLossonTradingActivitiesMember wfc:EconomicHedgesMember 2018-01-01 2018-06-30 0000072971 srt:WeightedAverageMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CorporateDebtSecuritiesMember us-gaap:MeasurementInputDiscountRateMember us-gaap:ValuationTechniqueDiscountedCashFlowMember 2018-12-31 0000072971 srt:MinimumMember wfc:EmployeeStockOwnershipPlanPreferredStock2011Member 2019-01-01 2019-06-30




UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
FORM 10-Q(Mark One)
☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20182019
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
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, California94163
(Address of principal executive offices)  (Zip Code)
Registrant’s telephone number, including area code:  1-866-249-3302 1-866-249-3302 
 
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading SymbolName of Each Exchange
on Which Registered
Common Stock, par value $1-2/3WFCNYSE
7.5% Non-Cumulative Perpetual Convertible Class A Preferred Stock, Series LWFC.PRLNYSE
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series NWFC.PRNNYSE
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series OWFC.PRONYSE
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series PWFC.PRPNYSE
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 QWFC.PRQNYSE
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 RWFC.PRRNYSE
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series TWFC.PRTNYSE
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series VWFC.PRVNYSE
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series WWFC.PRWNYSE
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series XWFC.PRXNYSE
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series YWFC.PRYNYSE
Guarantee of 5.80% Fixed-to-Floating Rate Normal Wachovia Income Trust Securities of Wachovia Capital Trust IIIWBTPNYSE
Guarantee of Medium-Term Notes, Series A, due October 30, 2028 of Wells Fargo Finance LLCWFC/28ANYSE
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.Yesþ   No ¨
Yes þ
No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Yes þ
No o
Yesþ   No ¨
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 filerþ            Accelerated filer  ¨
Large accelerated filer    þ
Accelerated filer  o
Non-accelerated filer    o
Smaller reporting company  o
Emerging growth company  o
Non-accelerated filer  ¨Smaller reporting company  ☐
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 o
No þ
    Yes ☐  No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
  Shares Outstanding
  OctoberJuly 24, 20182019
Common stock, $1-2/3 par value 4,707,244,1684,406,107,022





FORM 10-QFORM 10-Q FORM 10-Q 
CROSS-REFERENCE INDEXCROSS-REFERENCE INDEX CROSS-REFERENCE INDEX 
PART IFinancial Information Financial Information 
Item 1.Financial StatementsPageFinancial StatementsPage
Consolidated Statement of Income
61
Consolidated Statement of Income
69
Consolidated Statement of Comprehensive Income
62
Consolidated Statement of Comprehensive Income
70
Consolidated Balance Sheet
63
Consolidated Balance Sheet
71
Consolidated Statement of Changes in Equity
64
Consolidated Statement of Changes in Equity
72
Consolidated Statement of Cash Flows
68
Consolidated Statement of Cash Flows
76
Notes to Financial Statements  
Notes to Financial Statements  1
—Summary of Significant Accounting Policies  
69
1
—Summary of Significant Accounting Policies  
77
2
—Business Combinations
71
2
—Business Combinations
80
3
—Cash, Loan and Dividend Restrictions
72
3
—Cash, Loan and Dividend Restrictions
81
4
—Trading Activities
73
4
—Trading Activities
82
5
—Available-for-Sale and Held-to-Maturity Debt Securities
74
5
—Available-for-Sale and Held-to-Maturity Debt Securities
84
6
—Loans and Allowance for Credit Losses
80
6
—Loans and Allowance for Credit Losses
91
7
—Leasing Activity
94
7
—Equity Securities
108
8
—Equity Securities
96
8
—Other Assets
110
9
—Other Assets
98
9
—Securitizations and Variable Interest Entities
111
10
—Securitizations and Variable Interest Entities
99
10
—Mortgage Banking Activities
119
11
—Mortgage Banking Activities
106
11
—Intangible Assets
122
12
—Intangible Assets
108
12
—Guarantees, Pledged Assets and Collateral, and Other Commitments
124
13
—Guarantees, Pledged Assets and Collateral, and Other Commitments
110
13
—Legal Actions
128
14
—Legal Actions
114
14
—Derivatives
132
15
—Derivatives
119
15
—Fair Values of Assets and Liabilities
142
16
—Fair Values of Assets and Liabilities
129
16
—Preferred Stock
162
17
—Preferred Stock
149
17
—Revenue from Contracts with Customers
165
18
—Revenue from Contracts with Customers
152
18
—Employee Benefits
169
19
—Employee Benefits
156
19
—Earnings Per Common Share
170
20
—Earnings Per Common Share
157
20
—Other Comprehensive Income
171
21
—Other Comprehensive Income
158
21
—Operating Segments
173
22
—Operating Segments
160
22
—Regulatory and Agency Capital Requirements
174
23
—Regulatory and Agency Capital Requirements
161
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations (Financial Review) Management’s Discussion and Analysis of Financial Condition and Results of Operations (Financial Review) 
Summary Financial Data  
2
Summary Financial Data  
2
Overview
3
Overview
3
Earnings Performance
8
Earnings Performance
7
Balance Sheet Analysis
23
Balance Sheet Analysis
20
Off-Balance Sheet Arrangements  
26
Off-Balance Sheet Arrangements  
23
Risk Management
27
Risk Management
24
Capital Management
56
Capital Management
49
Regulatory Matters
63
Regulatory Matters
54
Critical Accounting Policies  
64
Critical Accounting Policies  
56
Current Accounting Developments
65
Current Accounting Developments
57
Forward-Looking Statements  
66
Forward-Looking Statements  
58
Risk Factors 
67
Risk Factors 
59
Glossary of Acronyms
175
Glossary of Acronyms
162
Item 3.Quantitative and Qualitative Disclosures About Market Risk
50
Quantitative and Qualitative Disclosures About Market Risk
43
Item 4.Controls and Procedures
68
Controls and Procedures
60
    
PART IIOther Information Other Information 
Item 1.Legal Proceedings
176
Legal Proceedings
163
Item 1A.Risk Factors
176
Risk Factors
163
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
176
Unregistered Sales of Equity Securities and Use of Proceeds
163
Item 6.Exhibits
177
Exhibits
164
    
SignatureSignature
178
Signature
165




PART I - FINANCIAL INFORMATION


FINANCIAL REVIEW
Summary Financial Data                                    
      % Change                % Change          
Quarter ended  Sep 30, 2018 from  Nine months ended    
Quarter ended  Jun 30, 2019 from  Six months ended    
($ in millions, except per share amounts)Sep 30,
2018
 Jun 30,
2018
 Sep 30,
2017
 Jun 30,
2018
 Sep 30,
2017
 Sep 30,
2018

Sep 30,
2017
 
%
Change

Jun 30,
2019
 Mar 31,
2019
 Jun 30,
2018
 Mar 31,
2019
 Jun 30,
2018
 Jun 30,
2019

Jun 30,
2018
 
%
Change

For the Period                                    
Wells Fargo net income$6,007
 5,186
 4,542
 16 % 32
 $16,329
 16,032
 2 %$6,206
 5,860
 5,186
 6 % 20
 $12,066
 10,322
 17 %
Wells Fargo net income applicable to common stock5,453
 4,792
 4,131
 14
 32
 14,978
 14,814
 1
5,848
 5,507
 4,792
 6
 22
 11,355
 9,525
 19
Diluted earnings per common share1.13
 0.98
 0.83
 15
 36
 3.07
 2.94
 4
1.30
 1.20
 0.98
 8
 33
 2.50
 1.94
 29
Profitability ratios (annualized):                              
Wells Fargo net income to average assets (ROA)1.27% 1.10
 0.93
 15
 37
 1.15% 1.11
 4
1.31% 1.26
 1.10
 4
 19
 1.29% 1.10
 17
Wells Fargo net income applicable to common stock to average Wells Fargo common stockholders' equity (ROE)12.04
 10.60
 8.96
 14
 34
 11.08
 10.97
 1
Wells Fargo net income applicable to common stock to average Wells Fargo common stockholders’ equity (ROE)13.26
 12.71
 10.60
 4
 25
 12.99
 10.59
 23
Return on average tangible common equity (ROTCE) (1)14.33
 12.62
 10.66
 14
 34
 13.19
 13.11
 1
15.78
 15.16
 12.62
 4
 25
 15.47
 12.62
 23
Efficiency ratio (2)62.7
 64.9
 65.7
 (3) (5) 65.4
 62.8
 4
62.3
 64.4
 64.9
 (3) (4) 63.4
 66.7
 (5)
Total revenue$21,941
 21,553
 21,849
 2
 —
 $65,428
 66,339
 (1)$21,584
 21,609
 21,553
 —
 —
 $43,193
 43,487
 (1)
Pre-tax pre-provision profit (PTPP) (3)8,178
 7,571
 7,498
 8
 9
 22,641
 24,655
 (8)8,135
 7,693
 7,571
 6
 7
 15,828
 14,463
 9
Dividends declared per common share0.43
 0.39
 0.39
 10
 10
 1.210
 1.150
 5
0.45
 0.45
 0.39
 —
 15
 0.90
 0.78
 15
Average common shares outstanding4,784.0
 4,865.8
 4,948.6
 (2) (3) 4,844.8
 4,982.1
 (3)4,469.4
 4,551.5
 4,865.8
 (2) (8) 4,510.2
 4,875.7
 (7)
Diluted average common shares outstanding4,823.2
 4,899.8
 4,996.8
 (2) (3) 4,885.0
 5,035.4
 (3)4,495.0
 4,584.0
 4,899.8
 (2) (8) 4,540.1
 4,916.1
 (8)
Average loans$939,462
 944,079
 952,343
 —
 (1) $944,813
 957,581
 (1)$947,460
 950,010
 944,079
 —
 —
 $948,728
 947,532
 —
Average assets1,876,283
 1,884,884
 1,938,461
 —
 (3) 1,892,209
 1,932,201
 (2)1,900,627
 1,883,091
 1,884,884
 1
 1
 1,891,907
 1,900,304
 —
Average total deposits1,266,378
 1,271,339
 1,306,356
 —
 (3) 1,278,185
 1,302,273
 (2)1,268,979
 1,262,062
 1,271,339
 1
 —
 1,265,539
 1,284,187
 (1)
Average consumer and small business banking deposits (4)743,503
 754,047
 755,094
 (1) (2) 751,030
 758,443
 (1)742,671
 739,654
 754,047
 —
 (2) 741,171
 754,898
 (2)
Net interest margin2.94% 2.93
 2.86
 —
 3
 2.90% 2.88
 1
2.82% 2.91
 2.93
 (3) (4) 2.86% 2.89
 (1)
At Period End                                    
Debt securities (5)$472,283
 475,495
 474,710
 (1) (1) $472,283
 474,710
 (1)$482,067
 483,467
 475,495
 —
 1
 $482,067
 475,495
 1
Loans942,300
 944,265
 951,873
 —
 (1) 942,300
 951,873
 (1)949,878
 948,249
 944,265
 —
 1
 949,878
 944,265
 1
Allowance for loan losses10,021
 10,193
 11,078
 (2) (10) 10,021
 11,078
 (10)9,692
 9,900
 10,193
 (2) (5) 9,692
 10,193
 (5)
Goodwill26,425
 26,429
 26,581
 —
 (1) 26,425
 26,581
 (1)26,415
 26,420
 26,429
 —
 —
 26,415
 26,429
 —
Equity securities (5)61,755
 57,505
 54,981
 7
 12
 61,755
 54,981
 12
61,537
 58,440
 57,505
 5
 7
 61,537
 57,505
 7
Assets1,872,981
 1,879,700
 1,934,880
 —
 (3) 1,872,981
 1,934,880
 (3)1,923,388
 1,887,792
 1,879,700
 2
 2
 1,923,388
 1,879,700
 2
Deposits1,266,594
 1,268,864
 1,306,706
 —
 (3) 1,266,594
 1,306,706
 (3)1,288,426
 1,264,013
 1,268,864
 2
 2
 1,288,426
 1,268,864
 2
Common stockholders' equity176,934
 181,386
 181,920
 (2) (3) 176,934
 181,920
 (3)
Wells Fargo stockholders' equity198,741
 205,188
 205,722
 (3) (3) 198,741
 205,722
 (3)
Common stockholders’ equity177,235
 176,025
 181,386
 1
 (2) 177,235
 181,386
 (2)
Wells Fargo stockholders’ equity199,042
 197,832
 205,188
 1
 (3) 199,042
 205,188
 (3)
Total equity199,679
 206,069
 206,617
 (3) (3) 199,679
 206,617
 (3)200,037
 198,733
 206,069
 1
 (3) 200,037
 206,069
 (3)
Tangible common equity (1)148,391
 152,580
 152,694
 (3) (3) 148,391
 152,694
 (3)148,864
 147,723
 152,580
 1
 (2) 148,864
 152,580
 (2)
Capital ratios (6):                  
Capital ratios (5):                  
Total equity to assets10.66% 10.96
 10.68
 (3) —
 10.66% 10.68
 —
10.40% 10.53
 10.96
 (1) (5) 10.40% 10.96
 (5)
Risk-based capital:        

       

        

       

Common Equity Tier 111.91
 11.98
 12.10
 (1) (2) 11.91
 12.10
 (2)11.97
 11.92
 11.98
 —
 —
 11.97
 11.98
 —
Tier 1 capital13.63
 13.83
 13.95
 (1) (2) 13.63
 13.95
 (2)13.69
 13.64
 13.83
 —
 (1) 13.69
 13.83
 (1)
Total capital16.79
 16.98
 17.21
 (1) (2) 16.79
 17.21
 (2)16.75
 16.74
 16.98
 —
 (1) 16.75
 16.98
 (1)
Tier 1 leverage9.22
 9.51
 9.27
 (3) (1) 9.22
 9.27
 (1)9.12
 9.15
 9.51
 —
 (4) 9.12
 9.51
 (4)
Common shares outstanding4,711.6
 4,849.1
 4,927.9
 (3) (4) 4,711.6
 4,927.9
 (4)4,419.6
 4,511.9
 4,849.1
 (2) (9) 4,419.6
 4,849.1
 (9)
Book value per common share (7)(6)$37.55
 37.41
 36.92
 —
 2
 $37.55
 36.92
 2
$40.10
 39.01
 37.41
 3
 7
 $40.10
 37.41
 7
Tangible book value per common share (7)(6)31.49
 31.47
 30.99
 —
 2
 31.49
 30.99 2
33.68
 32.74
 31.47
 3
 7
 33.68
 31.47
 7
Team members (active, full-time equivalent)261,700
 264,500
 268,000
 (1) (2) 261,700
 268,000
 (2)262,800
 262,100
 264,500
 —
 (1) 262,800
 264,500
 (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 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)
Financial information for the prior periods of 2017 has been revised to reflect the impact of the adoption in first quarter 2018 of Accounting Standards Update (ASU) 2016-01 – Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which amends the presentation and accounting for certain financial instruments, including equity securities.See Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report for more information.
(6)The risk-based capital ratios were calculated under the lower of Standardized or Advanced Approach determined pursuant to Basel III. 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; however,accordingly, the requirements for calculatinginformation presented reflects fully phased-in common equity tier 21 capital, tier 1 capital and risk-weighted assets but reflects total capital are still in accordance with Transition Requirements. See the “Capital Management” section and Note 2223 (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.
Overview (continued)


This Quarterly Report, including the Financial Review and the Financial Statements and related Notes, contains forward-looking statements, which may include forecasts of our financial results and condition, expectations for our operations and business, and our assumptions for those forecasts and expectations. Do not unduly rely on forward-looking statements. Actual results may differ materially from our forward-looking statements due to several factors. Factors that could cause our actual results to differ materially from our forward-looking statements are described in this Report, including in the “Forward-Looking Statements” section, and in the “Risk Factors” and “Regulation and Supervision” sections of our Annual Report on Form 10-K for the year ended December 31, 2017 (20172018 (2018 Form 10-K).
 
When we refer to “Wells Fargo,” “the Company,” “we,” “our,” or “us” in this Report, we mean Wells Fargo & Company and Subsidiaries (consolidated). When we refer to the “Parent,” we mean Wells Fargo & Company. See the Glossary of Acronyms for definitions of terms used throughout this Report.
 
Financial Review1



Overview
Wells Fargo & Company is a diversified, community-based financial services company with $1.87$1.92 trillion in assets. Founded in 1852 and headquartered in San Francisco, we provide banking, investment and mortgage products and services, as well as consumer and commercial finance, through 7,9507,600 locations, more than 13,000 ATMs, digital (online, mobile and social), and contact centers (phone, email and correspondence), and we have offices in 3732 countries and territories to support customers who conduct business in the global economy. With approximately 262,000263,000 active, full-time equivalent team members, we serve one in three households in the United States and ranked No. 2629 on Fortune’s 20182019 rankings of America’s largest corporations. We ranked fourth in assets and third in the market value of our common stock among all U.S. banks at SeptemberJune 30, 2018.2019.
We use our Vision, Values and& Goals to guide us toward growth and success. Our vision is to satisfy our customers’ financial needs and help them succeed 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 guide the actions we take. First, we place customers at the center of everything we do. 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 the best team members. Third, we strive for the highest ethical standards of integrity, transparency, and principled performance. Fourth, we value and promote diversity and inclusion in all aspects of business and at all levels. Fifth, we look to each of our team members to be a leader in establishing, sharing, and communicating our 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.


1
Financial information for the prior periods of 2017 has been revised to reflect our adoption in first quarter 2018 of Accounting Standards Update (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) to Financial Statements in this Report for more information.
In keeping with our primary values and risk management priorities, we have six long-term goals for the Company, which entail becoming the financial services leader in the following areas:
Customer service and advice – provide exceptional service and guidance to our customers to help them succeed financially.
Team member engagement – be a company where people feel included, valued, and supported; everyone is respected; and we work as a team.
Innovation – create lasting value for our customers and increased efficiency for our operations through innovative thinking, industry-leading technology, and a willingness to test and learn.
Risk management – set the global standard in managing all forms of risk.
Corporate citizenship – make a positive contribution to communities through philanthropy, advancing diversity and inclusion, creating economic opportunity, and promoting environmental sustainability.
Shareholder value – deliver long-term value for shareholders.


The Company’s Board of Directors (Board) elected C. Allen Parker as Interim CEO and President and as a member of the Board effective March 28, 2019. The Board's external search for a permanent CEO is ongoing.

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 the FRB 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 Company continues to engage with the FRB as the Company works to address the consent order provisions. 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 reviewsreview of the enhancements and improvements provided for in the plans. Until thesethis third-party reviews arereview 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. The Company has had constructive dialogue with, and has received detailed feedback from, the FRB regarding the plans. In order to have enough time to incorporate this feedback into the plans in a thoughtful manner and to complete the required third-party reviews, which were initially due September 30, 2018, the Company is planning to operate under the asset cap through the first part of 2019. A second third-party review must also be conducted to assess the efficacy and sustainability of the improvements. As of the end of thirdsecond quarter 2018,2019, 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 Bureau of Consumer Financial Protection (BCFP - formerly known as the Consumer Financial Protection Bureau)Bureau and Office of the Comptroller of the Currency (OCC) 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 BCFPConsumer Financial Protection Bureau (CFPB) and OCCthe Office of the Comptroller of the Currency (OCC) to pay an aggregate of $1 billion in civil money penalties to resolve matters regarding the Company’s compliance risk management program and past 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 BCFPCFPB and OCC an enterprise-wide compliance risk management plan and a plan to enhance the Company'sCompany’s internal audit program with respect to federal consumer financial law and the terms of the consent orders. In addition, as required by the consent orders, the Company submitted for non-objection plans to remediate customers affected by the automobile collateral protection insurance and mortgage interest rate lock matters, as well as a plan for the management of remediation activities conducted by the Company.


Retail Sales Practices Matters
As we have previously reported, in September 2016 we announced settlements with the BCFP,CFPB, the OCC, and the Office of the Los Angeles City Attorney, and entered into consent orders with the BCFPCFPB 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 building a better Company for the future.
Our priority of rebuilding trust has included numerous actions focused on identifying potential financial harm and customer remediation. The Board and management are conducting company-wide reviews of sales practices issues. These reviews are ongoing. In August 2017, a third-party consulting firm completed an expanded data-driven review of retail banking accounts opened from January 2009 to September 2016 to identify financial harm stemming from potentially unauthorized accounts. We have completed financial remediation for the customers identified through the expanded account analysis. 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 closed on July 7, 2018. The settlement administrator will pay claims following the calculation of compensatory damages and favorable resolution of pending appeals in the case.
For additional information regarding sales practices matters, including related legal matters, see the “Risk Factors” section in our 20172018 Form 10-K and Note 1314 (Legal Actions) to Financial Statements in this Report.


Overview (continued)

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, 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:
Automobile Lending BusinessThe Company is reviewing practices concerning the origination, servicing, and/or
•
Automobile Lending BusinessThe Company is reviewing practices concerning the origination, servicing, and collection of consumer automobile loans, including matters related to certain insurance products. For example:
◦
In July 2017, the Company announced it would 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 (based on an understanding that the borrowers did not have physical damage insurance coverage on their automobiles as required during the term of their automobile loans). The practiceCompany is in the process of placing CPI had been previously discontinued by the Company. Commencing in August 2017, the Company began sending refund checksproviding remediation to affected 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 30, 2016. During third quarter 2018, as a result of enhancing our remediation plan to provide greater payments and increasingIn addition, the population of potentially affected customers, the Company accrued an additional $241 million for remediation activities for this matter.
◦The Company has 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 refundsrequire remediation to customers in certain states. The Company is in the process of providing such remediation to affected customers. The Company has also identified certain issues related to its consumer automobile collections processes for customers in default, including legal notice practices in certain states and expenses charged in connection with certain repossessions. We expect remediation of affected customers will be required.
Mortgage Interest Rate Lock ExtensionsIn October 2017, the Company announced plans 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 provide refunds, with interest, to customers who believe they should not have paid those fees. The plan to issue refunds follows an internal review that determined a rate lock extension policy implemented in September 2013 was, at times, not consistently applied, resulting in some borrowers being charged fees in cases where the Company was primarily responsible for the delays that made the extensions necessary. Effective March 1, 2017, the Company changed how it manages the mortgage rate lock extension process by establishing a centralized review team that reviews all rate lock extension requests for consistent application of the policy. Although the Company believes a substantial number of the rate lock extension fees during the period in question were appropriately charged under its policy, due to our customer-oriented remediation approach, we have issued refunds and interest to substantially all of our customers who paid rate lock extension fees during the period in question. While our remediation plan remains subject to regulatory approval, we believe we have substantially completed the remediation process.
•
Add-on ProductsThe Company is reviewingpractices related to certain consumer “add-on” products, including identity theft and debt protection products that were subject to an OCC consent order entered into in June 2015, 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 the Company’s historical practices with respect to these products is ongoing, focusing on, among other topics, sales practices, adequacy of disclosures, customer servicing, and volume and type of customer complaints.
•
Consumer 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 to remediate affected customers.
•
Review of Certain Activities Within Wealth and Investment ManagementA review of certain activities within Wealth and Investment Management (WIM) being conducted by the Board, in response to inquiries from federal government agencies, is assessing whether there have
Add-on ProductsThe Company is reviewingpractices
Overview (continued)

related to certain consumer “add-on” products, including identity theft and debt protection products that were subject to an OCC consent order entered into in June 2015, 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 in the normal course of business, and by mid-2017, the Company had ceased selling any of them to consumers. We are providing remediation where we identify affected customers, and may also provide refunds to customers who purchased certain products. The review of the Company's historical practices with respect to these products is ongoing, focusing on, among other topics, sales practices, adequacy of disclosures, customer servicing, and volume and type of customer complaints.
Consumer Deposit Account Freezing/ClosingThe Company is reviewing procedures regarding 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. This review is ongoing.
Review of Certain Activities Within Wealth and Investment ManagementA review of certain activities within Wealth and Investment Management (WIM) being conducted by the Board, in response 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 fiduciary services business. The review is ongoing.
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 within 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 include 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. The review of customer accounts is ongoing to determine the extent of any additional necessary remediation, including with respect to additional accounts not yet reviewed, which may lead to additional accruals and fee suspensions.
Foreign Exchange BusinessThe Company hasBoard substantially completed an assessment, with the assistanceits review and did not uncover evidence of a third party, of its policies, practices, and proceduressystemic or widespread issues in its foreign exchange (FX) business. The business is in the process of revising and implementing new policies, practices, and procedures, including those relatedthese businesses. Federal government agencies continue to pricing. The Company's review of affected customers is ongoing to determine the extent of any additional remediation forthis matter.

customers that may have received pricing inconsistent with commitments made to those customers.

Mortgage Loan Modifications
•
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. The Company has performed root cause analyses with the assistance of third parties and is in the process of implementing additional operational and control procedures as a result. Systems, operations, and account-level reviews are ongoing to determine the extent of any assets and accounts affected, 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 are in 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 has substantially completed the implementation of new policies, practices, and procedures, including those related to pricing. The Company is in the process of 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 Disclosures and FeesThe Company is reviewing certain past disclosures to customers regarding the minimum qualifying debit card usage required for customers to receive a waiver of monthly service fees on certain consumer deposit accounts. Based on the possibility of confusion by some customers regarding the transactions that counted toward the waiver, we expect to refund certain monthly service and related fees to affected customers.
Separately, the Company expects to refund certain monthly service fees that were included for purposes of determining whether a customer qualified for a mortgage loan modification or repayment plan pursuantcharged in the past on certain consumer deposit accounts prior to an initial deposit being made by 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 (HAMP). Customers were not actually charged the incorrect attorneys’ fees. As a result of these errors, taken together and subject to final validation, approximately 870 customers were incorrectly denied a loan modification or were not offered a loan modification or repayment plan in cases where they otherwise would have qualified. In approximately 545 of these instances, after the loan modification was denied or the customer was deemed ineligible to be offered a loan modification or repayment plan, a foreclosure was completed. The Company has contacted a substantial majority of the approximately 870 affected customers to provide remediation and the option also to pursue no-cost mediation with an independent mediator. Attempts to contact the remaining affected customers are ongoing. Also,customer. Under the Company’s review of these matters is ongoing, includingcurrent processes, which have been in place for several years, we would no longer assess a review of its mortgage loan modification tools. 
monthly service fee on such accounts prior to an initial deposit by the customer.

To the extent issues are identified, we will continue to assess any customer harm and provide remediation as appropriate. This effort to identify other 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 20172018 Form 10-K and Note 1314 (Legal Actions) to Financial Statements in this Report.


Overview (continued)

Financial Performance
Wells Fargo net income was $6.0$6.2 billion in thirdsecond quarter 20182019 with diluted earnings per common share (EPS) of $1.13,$1.30, compared with $4.5$5.2 billion and $0.83,$0.98, respectively, a year ago. Diluted earnings per common share for thirdIn second quarter 2018 was reduced by $0.03 per share as a result of the elimination of the discount recorded on our Non-Cumulative Perpetual Class A Preferred Stock, Series J, which was redeemed during the third quarter. Also in third quarter 2018:2019:
•
revenue was $21.6 billion, up$31 million compared with a year ago, with net interest income down$446 million and noninterest income up$477 million;
•
the net interest margin was 2.82%, down 11 basis points from a year ago primarily due to balance sheet mix and repricing;
•
noninterest expense was $13.4 billion, down $533 million from a year ago primarily due to lower remediation expense, core deposit and other intangibles expense, and FDIC and other deposit assessments expense;
•
average loans were $947.5 billion, up$3.4 billion from a year ago;
•
average deposits were $1.3 trillion, down$2.4 billion from a year ago;

revenue was $21.9 billion, up $92 million compared with a year ago, with net interest income up $123 million, or 1%, and noninterest income down $31 million;
•
return on assets (ROA) of 1.31% and return on equity (ROE) of 13.26%, were up from 1.10% and 10.60%, respectively, a year ago;
•
our credit results remained strong with a net charge-off rate of 0.28% (annualized) of average loans in second quarter 2019, compared with 0.26% (annualized) a year ago;
•
nonaccrual loans of $5.9 billion were down$1.2 billion, or 17%, from a year ago; and
•
we returned $6.1 billion to shareholders through common stock dividends and net share repurchases, an increase of 52% from the $4.0 billion we returned in second quarter 2018 and the 16th consecutive quarter of returning more than $3 billion.
average loans were $939.5 billion, down $12.9 billion, or 1%, from a year ago;
average deposits were $1.3 trillion, down $40.0 billion, or 3%, from a year ago;
return on assets (ROA) of 1.27% and return on equity (ROE) of 12.04%, were up from 0.93% and 8.96%, respectively, a year ago;
our credit results improved with a net charge-off rate of 0.29% (annualized) of average loans in third quarter 2018, compared with 0.30% a year ago;
nonaccrual loans of $7.1 billion were down $1.6 billion, or 18%, from a year ago; and
we returned $8.9 billion to shareholders through common stock dividends and net share repurchases, which was more than double the $4.0 billion we returned in third quarter 2017 and the 13th consecutive quarter of returning more than $3 billion.


Balance Sheet and Liquidity
Despite the asset cap placed on us from the consent order with the FRB, ourOur balance sheet remained strong during thirdsecond quarter 20182019 with strong credit quality and solid levels of liquidity and capital. Our total assets were $1.87$1.92 trillion at SeptemberJune 30, 2018.2019. Cash and other short-term investments decreased $53.0increased $23.1 billion from December 31, 2017,2018, reflecting lower deposit balances.an increase in federal funds sold and securities purchased under resale agreements. Debt securities were $472.3$482.1 billion at SeptemberJune 30, 2018,2019, a decrease of $1.1$2.6 billion from December 31, 2017, driven by runoff and sales in the available-for-sale portfolio, partially offset by an increase in debt securities held for trading. Loans were down $14.5 billion, or 2%, from December 31, 2017,2018, predominantly due to a declinedecrease in automobileavailable-for-sale debt securities. Loans were down $3.2 billion from December 31, 2018, driven by declines in real estate 1-4 family junior lien mortgage, commercial and junior lienindustrial, commercial real estate construction, and other revolving credit and installment loans, partially offset by increases in real estate 1-4 family first mortgage and commercial real estate mortgage loans.
Average deposits in thirdsecond quarter 2019 were $1.3 trillion, down $2.4 billion from second quarter 2018 were $1.27 trillion, down $40.0 billion from third quarter 2017. The decline was driven by a decrease in commercialreflecting lower Wealth and Investment Management and Wholesale Banking deposits from financial institutions, which includes actions the Company took in the first half of 2018 in response to the asset cap, partially offset byas customers allocated more cash into higher interest-bearing checking deposits.yielding liquid alternatives. Our average deposit cost in thirdsecond quarter 20182019 was 4770 basis points, up 2130 basis points from a year ago, primarily driven by an increase in Wholesale Banking and Wealth and Investment Management deposit rates.rates, unfavorable deposit mix shifts and retail banking deposit campaign pricing for new deposits.


Credit Quality
Solid overall credit results continued in thirdsecond quarter 20182019 as losses remained low and we continued to originate high quality loans, reflecting our long-term risk focus. Net charge-offs were $680$653 million, or 0.29%0.28% (annualized) of average loans, in thirdsecond quarter 2018,2019, compared with $717$602 million a year ago (0.30%(0.26%) (annualized). The decreaseincrease in net charge-offs in thirdsecond quarter 2018,2019, compared with a year ago, was predominantly driven by lowerhigher losses in the commercial and industrial portfolio and the credit card portfolio, partially offset by declines in the automobile portfolio.
Our commercial portfolio net charge-offs were $152$165 million, or 1213 basis points (annualized) of average commercial loans, in thirdsecond quarter
2018, 2019, compared with net charge-offs of $113$67 million, or 95 basis points (annualized), a year ago. Net consumer credit losses decreased to 4745 basis points (annualized) of average consumer loans in thirdsecond quarter 20182019 from 5349 basis points (annualized) in thirdsecond quarter 2017. Approximately 83% of the consumer first mortgage loan portfolio outstanding at September 30, 2018, was originated after 2008, when more stringent underwriting standards were implemented.2018.
The allowance for credit losses as of SeptemberJune 30, 2018,2019, decreased $1.2 billion$507 million compared with a year ago and decreased $1.0 billion$104 million from December 31, 2017.2018. We had a $100$150 million release in the allowance for credit losses in thirdboth second quarter 2018, compared with no release a year ago.2019 and 2018. The allowance coverage for total loans was 1.16%1.12% at SeptemberJune 30, 2018,2019, compared with 1.27%1.18% a year ago and 1.25%1.12% at December 31, 2017.2018. The allowance covered 4.14.0 times annualized thirdsecond quarter net charge-offs, compared with 4.34.6 times a year ago. Future allowance levels will be based on a variety of factors, including loan growth, portfolio performance and general economic conditions. Our provision for loan losses was $580$503 million in thirdsecond quarter 2018, down2019, up from $717$452 million a year ago, reflecting an improvement in our outlook for 2017 hurricane-related losses, as well as continued improvement in residential real estate and lower loan balances.ago.
Nonperforming assets decreased $410$1.0 billion, or 14%, from March 31, 2019, and $648 million, or 5%9%, from June 30,December 31, 2018, the 10th consecutive quarter of decreases, with improvement in the consumer and commercial real estate portfolios. Nonperforming assets were 0.80%represented 0.66% of total loans the lowest level since the merger with Wachovia in 2008.at June 30, 2019. Nonaccrual loans decreased $433$983 million from March 31, 2019, and $574 million from December 31, 2018, driven by a decline in consumer nonaccruals from the prior quarter primarily due to a decreasereclassification of $373 million in real estate 1-4 family first mortgage nonaccruals.nonaccrual loans to mortgage loans held for sale (MLHFS) in second quarter 2019, as well as other broad-based improvement across several commercial industry categories. Foreclosed assets were up $23decreased $59 million from the prior quarter.March 31, 2019, and $74 million from December 31, 2018.


Capital
Our financial performance in thirdsecond quarter 20182019 allowed us to maintain a solid capital position, with total equity of $199.7$200.0 billion at SeptemberJune 30, 2018,2019, compared with $208.1$197.1 billion at December 31, 2017.2018. We returned $8.9$6.1 billion to shareholders in thirdsecond quarter 20182019 through common stock dividends and net share repurchases, which was 52% more than double the amount$4.0 billion we returned in thirdsecond quarter 2017.2018. 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 163%104%. We continued to reduce our common shares outstanding through the repurchase of 146.5104.9 million common shares in the quarter. We entered into a $1 billion forward repurchase contract with an unrelated third party in October 2018 that is expected to settle in first quarter 2019 for approximately 19 million common shares. We expect to reduce our common shares outstanding through share repurchases throughout the remainder of 2018.2019.
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 11.91%11.97% at SeptemberJune 30, 2018, flat compared with2019, up from 11.74% at December 31, 2017, but2018, and well above our internal target of 10%. As of June 30, 2019, our eligible external total loss absorbing capacity (TLAC) as a percentage of total risk-weighted assets was 24.09%, 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)




Earnings Performance
Wells Fargo net income for thirdsecond quarter 20182019 was $6.0$6.2 billion ($1.131.30 diluted earnings per common share), compared with $4.5$5.2 billion ($0.830.98 diluted per share) for thirdsecond quarter 2017. Third2018. Our financial performance in second quarter 2018 included the redemption of2019 benefited from a $477 million increase in noninterest income, a $533 million decrease in noninterest expense, and a $516 million decline in income tax expense, partially offset by a $446 million decrease in net interest income, and a $51 million increase in our Series J Preferred Stock on September 17, 2018, which reduced
diluted EPS by $0.03 per share as a result of eliminating the purchase accounting discount recorded on these shares at the time of the Wachovia acquisition.provision for credit losses. Net income in thirdsecond quarter 2018 included2019 benefited from a net discrete income tax benefit of $14 million, compared with a net discrete income tax expense of $168$481 million primarily related to the re-measurement of our initial estimates for the impacts of the Tax Cuts & Jobs Act recognized in fourth quarter 2017. Third quarter 2018 results benefited from the lower U.S. federal statutory income tax rate.same period a year ago. Net income for the first nine monthshalf of 20182019 was $16.3$12.1 billion, compared with $16.0$10.3 billion for the same period a year ago. The increase in net income in the first nine monthshalf of 2018,2019, compared with the same period a year ago, resulted fromwas driven by a $107$79 million increase in net interestnoninterest income, a $654 million$1.7 billion decrease in our provision for credit losses,noninterest expense, and a $1.9$1.0 billion decline in income tax expense, reflecting the lower U.S. federal statutory income tax rate in 2018, partially offset by a $1.0 billion$373 million decrease in noninterestnet interest income, and a $1.1 billion$705 million increase in noninterest expense. Inour provision for credit losses. Net income in the first nine monthshalf of 2018,2019 benefited from a net interestdiscrete income represented 57%tax benefit of revenue,$311 million, compared with 56%a net discrete income tax expense of $618 million for the same period a year ago. Noninterest income was $28.1 billion in the first nine months of 2018, representing 43% of revenue, compared with $29.1 billion (44%) in the first nine months of 2017.
Revenue, the sum of net interest income and noninterest income, was $21.9$21.6 billion in thirdboth the second quarter 2018,of 2019 and 2018. Revenue was flat in second quarter 2019, compared with $21.8 billion in the same period a year ago.ago, with an increase in noninterest income, offset by a decrease in net interest income. Our diversified sources of revenue generated by our businesses continued to be balanced between net interest income and noninterest income. Revenue for the first half of 2019 was $43.2 billion, compared with $43.5 billion for the first half of 2018. The increasedecline in revenue in third quarter 2018,the first half of 2019, compared with the same period a year ago, was due to an increase in net interest income, partially offset by a decrease in noninterest income. Revenue for the first nine months of 2018 was $65.4 billion, compared with $66.3 billion for the first nine months of 2017. The decline in revenue in the first nine months of 2018, compared with the same period a year ago, was substantiallypredominantly due to a decline in noninterestnet interest income. In the first half of 2019 and 2018, net interest income represented 57% of revenue. Noninterest income was $18.8 billion in the first half of 2019, representing 43% of revenue, compared with $18.7 billion and 43% in the first half of 2018.


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 21% and 35% federal statutory tax rate for the periods ended Septemberending June 30, 20182019 and 2017, respectively.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 on a taxable-equivalent basis was $12.7$12.3 billion and $37.8$24.7 billion in the thirdsecond quarter and first nine monthshalf of 2018,2019, respectively, compared with $12.8$12.7 billion and $38.2
$25.1 billion for the same periods a year ago.
The decrease in net interest income in the third quarter of 2018, compared with the same period a year ago, was driven by:
loan and deposit runoff;
lower loan swap income due to unwinding the receive-fixed loan swap portfolio; 
lower tax-equivalent net interest income from updated tax-equivalent factors reflecting new tax law; and
higher premium amortization;
partially offset by:
the net repricing benefit of higher interest rates;
higher variable income; and
higher benefit from hedge ineffectiveness accounting results.

The decrease in net interest income in the first nine months of 2018, compared with the same period a year ago, was driven by:
loan and deposit runoff;
lower loan swap income due to unwinding the receive-fixed loan swap portfolio; 
lower tax-equivalent net interest income from updated tax-equivalent factors reflecting new tax law;
higher premium amortization; and
lower benefit from hedge ineffectiveness accounting results;
partially offset by
the net repricing benefit of higher interest rates;, and
higher variable income.

Net interest margin on a taxable-equivalent basis was 2.94%2.82% and 2.90%2.86% in the thirdsecond quarter and first nine monthshalf of 2018, respectively,2019, compared to 2.86%with 2.93% and 2.88%2.89% for the same periods a year ago.
The increasedecrease in net interest income and net interest margin in the thirdsecond quarter and first half of 2018,2019, compared with the same periods a year ago, was driven by:
unfavorable impacts of growth, mix and repricing; and
lower variable sources of interest income;
partially offset by:
favorable hedge ineffectiveness accounting results; and
a reduction in net securities premium amortization.

Average earning assets increased $6.7 billion in the second quarter compared with the same period a year ago,ago. The change was driven by:by increases in:
the net repricing benefit of higher interest rates;
loan and deposit runoff;
higher variable income; and
higher benefit from hedge ineffectiveness accounting results,
•
average federal funds sold and securities purchased under resale agreements of $18.1 billion;
•
average debt securities of $4.2 billion; and
•
average loans of $3.4 billion;
partially offset by:by decreases in:
•
average interest-earning deposits of $13.8 billion;
•
average equity securities of $2.1 billion;
���
average loans held for sale of $1.8 billion;
•
other earning assets of $825 million; and
•
average mortgage loans held for sale of $324 million.

lower loan swap income due to unwinding the receive-fixed loan swap portfolio;
lower tax-equivalent net interest income from updated tax equivalent factors reflecting new tax law; and
higher premium amortization.

The increase in net interest marginAverage earning assets decreased $11.5 billion in the first nine monthshalf of 2018,2019 compared with the same period a year ago,ago. The change was driven by:by decreases in:
the net repricing benefit of higher interest rates; and
higher variable income;
•
average interest-earning deposits of $22.6 billion;
•
average equity securities of $4.4 billion;
•
average mortgage loans held for sale of $2.4 billion;
•
average loans held for sale of $1.0 billion; and
•
other earning assets of $1.2 billion;
partially offset by:by increases in:
•
average federal funds sold and securities purchased under resale agreements of $11.8 billion;
•
average debt securities of $7.1 billion; and
•
average loans of $1.2 billion.
lower loan swap income due to unwinding the receive-fixed loan swap portfolio;
lower tax-equivalent net interest income from updated tax equivalent factors reflecting new tax law;
loan and deposit runoff;
higher premium amortization; and
lower benefit from hedge ineffectiveness accounting results.
Average earning assets decreased $54.4 billion and $36.1 billion in the third quarter and first nine months of 2018, respectively, compared with the same periods a year ago. Also, compared with the same periods a year ago:
Earnings Performance (continued)




average loans decreased 12.9 billion and $12.8 billion in the third quarter and first nine months of 2018, respectively;
average interest-earning deposits decreased $56.9 billion and $47.7 billion in the third quarter and first nine months of 2018, respectively;
average federal funds sold and securities purchased under resale agreements increased $9.3 billion and $5.1 billion in the third quarter and first nine months of 2018, respectively;
average debt securities increased $10.3 billion and $16.3 billion in the third quarter and first nine months of 2018, respectively;
average equity securities increased $2.1 billion and $2.9 billion in the third quarter and first nine months of 2018, respectively; and
other earning assets decreased $4.0 billion in third quarter 2018 and increased $1.0 billion in the first nine months of 2018.

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 were $1.27 trillion and $1.28 trillion in both the thirdsecond quarter and first nine monthshalf of 2018,2019, respectively, compared with $1.31$1.27 trillion and $1.30$1.28 trillion in the same periods a year ago, and represented 135%134% of average loans in bothsecond quarter 2019 and 133% in the third quarter and first nine monthshalf of 2018,2019, compared with 137%135% in thirdsecond quarter 20172018 and 136% in the first nine monthshalf of 2017.2018. Average deposits were 73% of average earning assets in both the thirdsecond quarter and first nine monthshalf of 2018, flat2019, compared with 73% in both the same periods a year ago. The average deposit cost for thirdsecond quarter 20182019 was 4770 basis points, up 7 basis points from the prior quarter and 2130 basis points from a year ago, primarily driven by an increase in Wholesale Banking and WealthWIM deposit rates, unfavorable deposit mix shifts, and Investment Managementretail banking deposit rates.campaign pricing for new deposits.


Table 1:Average Balances, Yields and Rates Paid (Taxable-Equivalent Basis) (1)(2)
Quarter ended September 30, Quarter ended June 30, 
    2018
     2017
    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                      
Interest-earning deposits with banks (3)$148,565
 1.93% $721
 205,489
 1.21% $629
$141,045
 2.33% $819
 154,846
 1.75% $676
Federal funds sold and securities purchased under resale agreements (3)79,931
 1.93
 390
 70,640
 1.14
 203
98,130
 2.44
 598
 80,020
 1.73
 344
Debt securities (4):            
Debt securities (3):            
Trading debt securities84,481
 3.45
 730
 76,627
 3.21
 616
86,514
 3.45
 746
 80,661
 3.45
 695
Available-for-sale debt securities:                      
Securities of U.S. Treasury and federal agencies6,421
 1.65
 27
 14,529
 1.31
 48
15,402
 2.21
 85
 6,425
 1.66
 27
Securities of U.S. states and political subdivisions (7)46,615
 3.76
 438
 52,500
 4.08
 535
45,769
 4.02
 460
 47,388
 3.91
 464
Mortgage-backed securities:                      
Federal agencies155,525
 2.77
 1,079
 139,781
 2.58
 903
149,761
 2.99
 1,120
 154,929
 2.75
 1,065
Residential and commercial (7)7,318
 4.68
 85
 11,013
 5.44
 149
5,562
 4.02
 56
 8,248
 4.86
 101
Total mortgage-backed securities162,843
 2.86
 1,164
 150,794
 2.79
 1,052
155,323
 3.03
 1,176
 163,177
 2.86
 1,166
Other debt securities (7)46,353
 4.39
 512
 47,592
 3.73
 447
45,063
 4.40
 494
 47,009
 4.33
 506
Total available-for-sale debt securities (7)262,232
 3.26
 2,141
 265,415
 3.13
 2,082
261,557
 3.39
 2,215
 263,999
 3.28
 2,163
Held-to-maturity debt securities:                      
Securities of U.S. Treasury and federal agencies44,739
 2.18
 246
 44,708
 2.18
 246
44,762
 2.19
 244
 44,731
 2.19
 244
Securities of U.S. states and political subdivisions6,251
 4.33
 68
 6,266
 5.44
 85
6,958
 4.06
 71
 6,255
 4.34
 68
Federal agency and other mortgage-backed securities95,298
 2.27
 539
 88,272
 2.26
 498
95,506
 2.64
 632
 94,964
 2.33
 552
Other debt securities106
 5.61
 2
 1,488
 3.05
 12
58
 3.86
 —
 584
 4.66
 7
Total held-to-maturity debt securities146,394
 2.33
 855
 140,734
 2.38
 841
147,284
 2.57
 947
 146,534
 2.38
 871
Total debt securities (7)493,107
 3.02
 3,726
 482,776
 2.93
 3,539
495,355
 3.16
 3,908
 491,194
 3.04
 3,729
Mortgage loans held for sale (7)(4)19,343
 4.33
 210
 22,923
 3.79
 217
18,464
 4.22
 195
 18,788
 4.22
 198
Loans held for sale (5)(4)2,619
 5.28
 35
 1,383
 4.39
 15
1,642
 4.80
 20
 3,481
 5.48
 48
Loans:           
Commercial loans:                      
Commercial and industrial – U.S.273,814
 4.22
 2,915
 270,091
 3.81
 2,590
285,084
 4.47
 3,176
 275,259
 4.16
 2,851
Commercial and industrial – Non U.S. (7)60,884
 3.63
 556
 57,738
 2.89
 422
Commercial and industrial – Non U.S.62,905
 3.90
 611
 59,716
 3.51
 524
Real estate mortgage121,284
 4.35
 1,329
 129,087
 3.83
 1,245
121,869
 4.58
 1,390
 123,982
 4.27
 1,319
Real estate construction23,276
 5.05
 296
 24,981
 4.18
 263
21,568
 5.36
 288
 23,637
 4.88
 287
Lease financing (7)19,512
 4.69
 229
 19,155
 4.59
 219
Lease financing19,133
 4.71
 226
 19,266
 4.48
 216
Total commercial loans498,770
 4.24
 5,325
 501,052
 3.76
 4,739
510,559
 4.47
 5,691
 501,860
 4.15
 5,197
Consumer loans:                      
Real estate 1-4 family first mortgage284,133
 4.07
 2,891
 278,371
 4.03
 2,809
286,169
 3.88
 2,776
 283,101
 4.06
 2,870
Real estate 1-4 family junior lien mortgage35,863
 5.50
 496
 41,916
 4.95
 521
32,609
 5.75
 468
 37,249
 5.32
 495
Credit card36,893
 12.77
 1,187
 35,657
 12.41
 1,114
38,154
 12.65
 1,204
 35,883
 12.66
 1,133
Automobile46,963
 5.20
 616
 56,746
 5.34
 764
45,179
 5.23
 589
 48,568
 5.18
 628
Other revolving credit and installment36,840
 6.78
 630
 38,601
 6.31
 615
34,790
 7.12
 617
 37,418
 6.62
 617
Total consumer loans440,692
 5.26
 5,820
 451,291
 5.14
 5,823
436,901
 5.18
 5,654
 442,219
 5.20
 5,743
Total loans (5)939,462
 4.72
 11,145
 952,343
 4.41
 10,562
Total loans (4)947,460
 4.80
 11,345
 944,079
 4.64
 10,940
Equity securities37,902
 2.98
 283
 35,846
 2.12
 191
35,215
 2.70
 237
 37,330
 2.38
 222
Other4,702
 1.47
 16
 8,656
 0.90
 20
4,693
 1.76
 20
 5,518
 1.48
 21
Total earning assets (7)$1,725,631
 3.81% $16,526
 1,780,056
 3.44% $15,376
Total earning assets$1,742,004
 3.94% $17,142
 1,735,256
 3.73% $16,178
Funding sources                      
Deposits:                      
Interest-bearing checking$51,177
 1.01% $131
 48,278
 0.57% $69
$57,549
 1.46% $210
 80,324
 0.90% $181
Market rate and other savings693,937
 0.35
 614
 681,187
 0.17
 293
690,677
 0.59
 1,009
 676,668
 0.26
 434
Savings certificates20,586
 0.62
 32
 21,806
 0.31
 16
30,620
 1.62
 124
 20,033
 0.43
 21
Other time deposits (7)87,752
 2.35
 519
 66,046
 1.51
 251
Other time deposits96,887
 2.61
 630
 82,061
 2.26
 465
Deposits in foreign offices53,933
 1.50
 203
 124,746
 0.76
 240
51,875
 1.86
 240
 51,474
 1.30
 167
Total interest-bearing deposits (7)907,385
 0.66
 1,499
 942,063
 0.37
 869
Total interest-bearing deposits927,608
 0.96
 2,213
 910,560
 0.56
 1,268
Short-term borrowings105,472
 1.74
 463
 99,193
 0.91
 226
114,754
 2.26
 646
 103,795
 1.54
 398
Long-term debt (7)220,654
 3.02
 1,667
 243,507
 2.28
 1,392
Long-term debt236,734
 3.21
 1,900
 223,800
 2.97
 1,658
Other liabilities27,108
 2.40
 164
 24,851
 1.74
 109
24,314
 2.18
 132
 28,202
 2.12
 150
Total interest-bearing liabilities (7)1,260,619
 1.20
 3,793
 1,309,614
 0.79
 2,596
Portion of noninterest-bearing funding sources (7)465,012
 —
 —
 470,442
 —
 —
Total funding sources (7)$1,725,631
 0.87
 3,793
 1,780,056
 0.58
 2,596
Net interest margin and net interest income on a taxable-equivalent basis (6)(7)  2.94% $12,733
   2.86% $12,780
Total interest-bearing liabilities1,303,410
 1.50
 4,891
 1,266,357
 1.10
 3,474
Portion of noninterest-bearing funding sources438,594
 —
 —
 468,899
 —
 —
Total funding sources$1,742,004
 1.12
 4,891
 1,735,256
 0.80
 3,474
Net interest margin and net interest income on a taxable-equivalent basis (5)  2.82% $12,251
   2.93% $12,704
Noninterest-earning assets                      
Cash and due from banks$18,356
       18,456
      $19,475
       18,609
      
Goodwill26,429
       26,600
      26,415
       26,444
      
Other (7)105,867
     113,349
    
Total noninterest-earning assets (7)$150,652
     158,405
    
Other112,733
     104,575
    
Total noninterest-earning assets$158,623
     149,628
    
Noninterest-bearing funding sources                        
Deposits$358,993
     364,293
    $341,371
     360,779
    
Other liabilities (7)53,845
     56,831
    
Total equity (7)202,826
     207,723
    
Noninterest-bearing funding sources used to fund earning assets (7)(465,012)     (470,442)    
Net noninterest-bearing funding sources (7)$150,652
     158,405
    
Total assets (7)$1,876,283
     1,938,461
    
Other liabilities56,161
     51,681
    
Total equity199,685
     206,067
    
Noninterest-bearing funding sources used to fund earning assets(438,594)     (468,899)    
Net noninterest-bearing funding sources$158,623
     149,628
    
Total assets$1,900,627
     1,884,884
    
(1)
Our average prime rate was 5.01%5.50% and 4.25%4.80% for the quarters ended SeptemberJune 30, 20182019 and 2017,2018, respectively, and 4.78%5.50% and 4.03%4.66%, for the first nine monthshalf of 20182019 and 2017,2018, respectively. The average three-month London Interbank Offered Rate (LIBOR) was 2.34%2.51% and 1.31%2.34% for the quarters ended SeptemberJune 30, 20182019 and 2017,2018, respectively, and 2.20%2.60% and 1.20%2.13% for the first nine monthshalf of 20182019 and 2017,2018, respectively.
(2)Yields/rates and amounts include the effects of hedge and risk management activities associated with the respective asset and liability categories.
(3)
Financial information for the prior periods has been revised to reflect the impact of the adoption of Accounting Standards Update (ASU) 2016-18 – Statement of Cash Flows (Topic 230): Restricted Cash in which we changed the presentation of our cash and cash equivalents to include both cash and due from banks as well as interest-earning deposits with banks, which are inclusive of any restricted cash.
(4)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.







Nine months ended September 30, Six months ended June 30, 
      2018
       2017
      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                      
Interest-earning deposits with banks (3)$158,480
 1.71% $2,029
 206,161
 1.01% $1,557
$140,915
 2.33% $1,629
 163,520
 1.61% $1,308
Federal funds sold and securities purchased under resale agreements (3)79,368
 1.69
 1,005
 74,316
 0.91
 505
90,875
 2.42
 1,093
 79,083
 1.57
 615
Debt securities (4):           
Debt securities (3):           
Trading debt securities81,307
 3.38
 2,062
 72,080
 3.16
 1,709
87,938
 3.52
 1,544
 79,693
 3.35
 1,332
Available-for-sale debt securities:                       
Securities of U.S. Treasury and federal agencies6,424
 1.66
 80
 19,182
 1.48
 212
14,740
 2.18
 159
 6,426
 1.66
 53
Securities of U.S. states and political subdivisions (7)47,974
 3.68
 1,323
 52,748
 3.97
 1,569
47,049
 4.02
 946
 48,665
 3.64
 885
Mortgage-backed securities:                      
Federal agencies156,298
 2.75
 3,220
 142,748
 2.60
 2,782
150,623
 3.04
 2,293
 156,690
 2.73
 2,141
Residential and commercial (7)8,140
 4.54
 277
 12,671
 5.44
 517
5,772
 4.17
 120
 8,558
 4.48
 192
Total mortgage-backed securities (7)164,438
 2.84
 3,497
 155,419
 2.83
 3,299
156,395
 3.09
 2,413
 165,248
 2.82
 2,333
Other debt securities (7)47,146
 4.14
 1,462
 48,727
 3.70
 1,351
Other debt securities45,920
 4.43
 1,011
 47,549
 4.02
 950
Total available-for-sale debt securities (7)265,982
 3.19
 6,362
 276,076
 3.11
 6,431
264,104
 3.44
 4,529
 267,888
 3.16
 4,221
Held-to-maturity debt securities:                      
Securities of U.S. Treasury and federal agencies44,731
 2.19
 733
 44,701
 2.19
 733
44,758
 2.20
 487
 44,727
 2.20
 487
Securities of U.S. states and political subdivisions6,255
 4.34
 204
 6,270
 5.35
 251
6,560
 4.05
 133
 6,257
 4.34
 136
Federal agency and other mortgage-backed securities93,699
 2.32
 1,632
 74,525
 2.38
 1,329
95,753
 2.69
 1,288
 92,888
 2.35
 1,093
Other debt securities460
 4.02
 14
 2,531
 2.48
 47
60
 3.91
 1
 639
 3.89
 12
Total held-to-maturity debt securities145,145
 2.38
 2,583
 128,027
 2.46
 2,360
147,131
 2.60
 1,909
 144,511
 2.40
 1,728
Total debt securities (7)492,434
 2.98
 11,007
 476,183
 2.94
 10,500
499,173
 3.20
 7,982
 492,092
 2.96
 7,281
Mortgage loans held for sale (7)(4)18,849
 4.15
 587
 20,869
 3.77
 590
16,193
 4.28
 347
 18,598
 4.06
 377
Loans held for sale (5)(4)2,706
 5.28
 107
 1,485
 3.47
 38
1,752
 5.04
 44
 2,750
 5.28
 72
Loans:           
Commercial loans:                              
Commercial and industrial – U.S.273,711
 4.08
 8,350
 272,621
 3.70
 7,547
285,827
 4.47
 6,345
 273,658
 4.00
 5,435
Commercial and industrial – Non U.S. (7)60,274
 3.46
 1,559
 56,512
 2.83
 1,197
Commercial and industrial – Non U.S.62,863
 3.90
 1,215
 59,964
 3.37
 1,003
Real estate mortgage123,804
 4.22
 3,910
 130,931
 3.69
 3,615
121,644
 4.58
 2,763
 125,085
 4.16
 2,581
Real estate construction23,783
 4.82
 857
 24,949
 4.00
 747
21,999
 5.40
 589
 24,041
 4.70
 561
Lease financing (7)19,349
 4.82
 700
 19,094
 4.78
 684
Lease financing19,261
 4.66
 450
 19,266
 4.89
 471
Total commercial loans500,921
 4.10
 15,376
 504,107
 3.66
 13,790
511,594
 4.48
 11,362
 502,014
 4.03
 10,051
Consumer loans:                      
Real estate 1-4 family first mortgage283,814
 4.05
 8,613
 276,330
 4.04
 8,380
285,694
 3.92
 5,597
 283,651
 4.04
 5,722
Real estate 1-4 family junior lien mortgage37,308
 5.31
 1,484
 43,589
 4.77
 1,557
33,197
 5.75
 949
 38,042
 5.23
 988
Credit card36,416
 12.73
 3,467
 35,322
 12.19
 3,219
38,168
 12.76
 2,416
 36,174
 12.71
 2,280
Automobile48,983
 5.18
 1,899
 59,105
 5.41
 2,392
45,007
 5.21
 1,163
 50,010
 5.17
 1,283
Other revolving credit and installment37,371
 6.62
 1,851
 39,128
 6.15
 1,801
35,068
 7.13
 1,240
 37,641
 6.54
 1,221
Total consumer loans443,892
 5.21
 17,314
 453,474
 5.11
 17,349
437,134
 5.22
 11,365
 445,518
 5.18
 11,494
Total loans (5)944,813
 4.62
 32,690
 957,581
 4.34
 31,139
Total loans (4)948,728
 4.82
 22,727
 947,532
 4.57
 21,545
Equity securities38,322
 2.57
 738
 35,466
 2.16
 575
34,154
 2.63
 448
 38,536
 2.37
 455
Other5,408
 1.38
 56
 4,383
 0.83
 28
4,555
 1.69
 38
 5,765
 1.34
 40
Total earning assets (7)$1,740,380
 3.70% $48,219
 1,776,444
 3.38% $44,932
Total earning assets$1,736,345
 3.97% $34,308
 1,747,876
 3.64% $31,693
Funding sources                      
Deposits:                              
Interest-bearing checking$66,364
 0.89% $441
 49,134
 0.43% $156
$56,905
 1.44% $407
 74,084
 0.84% $310
Market rate and other savings683,279
 0.28
 1,416
 682,780
 0.13
 664
689,628
 0.54
 1,856
 677,861
 0.24
 802
Savings certificates20,214
 0.46
 70
 22,618
 0.30
 50
27,940
 1.46
 202
 20,025
 0.38
 38
Other time deposits (7)82,175
 2.16
 1,331
 59,414
 1.41
 625
Other time deposits97,356
 2.64
 1,275
 79,340
 2.06
 812
Deposits in foreign offices66,590
 1.20
 599
 123,553
 0.64
 587
53,649
 1.88
 499
 73,023
 1.09
 396
Total interest-bearing deposits (7)918,622
 0.56
 3,857
 937,499
 0.30
 2,082
Total interest-bearing deposits925,478
 0.92
 4,239
 924,333
 0.51
 2,358
Short-term borrowings103,696
 1.51
 1,173
 97,837
 0.69
 505
111,719
 2.24
 1,243
 102,793
 1.39
 710
Long-term debt (7)223,485
 2.93
 4,901
 251,114
 2.03
 3,813
Long-term debt234,963
 3.27
 3,827
 224,924
 2.88
 3,234
Other liabilities27,743
 2.14
 446
 20,910
 1.97
 309
24,801
 2.23
 275
 28,065
 2.02
 282
Total interest-bearing liabilities (7)1,273,546
 1.09
 10,377
 1,307,360
 0.69
 6,709
Portion of noninterest-bearing funding sources (7)466,834
   —
 469,084
 —
 —
Total funding sources (7)$1,740,380
 0.80
 10,377
 1,776,444
 0.50
 6,709
Net interest margin and net interest income on a taxable-equivalent basis (6)(7)   2.90% $37,842
    2.88% $38,223
Total interest-bearing liabilities1,296,961
 1.49
 9,584
 1,280,115
 1.03
 6,584
Portion of noninterest-bearing funding sources439,384
   —
 467,761
 —
 —
Total funding sources$1,736,345
 1.11
 9,584
 1,747,876
 0.75
 6,584
Net interest margin and net interest income on a taxable-equivalent basis (5)   2.86% $24,724
    2.89% $25,109
Noninterest-earning assets                                  
Cash and due from banks$18,604
     18,443
    $19,544
     18,730
    
Goodwill26,463
     26,645
    26,417
     26,480
    
Other (7)106,762
     110,669
    
Total noninterest-earning assets (7)$151,829
     155,757
    
Other109,601
     107,218
    
Total noninterest-earning assets$155,562
     152,428
    
Noninterest-bearing funding sources                          
Deposits$359,563
     364,774
    $340,061
     359,854
    
Other liabilities (7)54,088
     55,032
    
Total equity (7)205,012
     205,035
    
Noninterest-bearing funding sources used to fund earning assets (7)(466,834)     (469,084)    
Net noninterest-bearing funding sources (7)$151,829
     155,757
    
Total assets (7)$1,892,209
     1,932,201
    
Other liabilities55,864
     54,212
    
Total equity199,021
     206,123
    
Noninterest-bearing funding sources used to fund earning assets(439,384)     (467,761)    
Net noninterest-bearing funding sources$155,562
     152,428
    
Total assets$1,891,907
     1,900,304
    
                      
(5)(4)Nonaccrual loans and related income are included in their respective loan categories.
(6)(5)
Includes taxable-equivalent adjustments of $161$156 million and $332$163 million for the quarters ended SeptemberJune 30, 20182019 and 2017,2018, respectively, and $491$318 million and $980$330 million for the first nine monthshalf of 20182019 and 2017,2018, respectively, predominantly related to tax-exempt income on certain loans and securities. The federal statutory tax rate utilized was 21% and 35% for periods ended September 30, 2018 and 2017, respectively.
(7)
Financial information for the prior periods has been revised to reflect the impact of the adoption in fourth quarter 2017 of ASU 2017-12 – Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.
presented.




Noninterest Income
Table 2:Noninterest Income
Quarter ended Sep 30,  %
 Nine months ended Sep 30,  %
Quarter ended June 30,  %
 Six months ended June 30,  %
(in millions)2018
 2017
 Change
 2018
 2017
 Change
2019
 2018
 Change
 2019
 2018
 Change
Service charges on deposit accounts$1,204
 1,276
 (6)% $3,540
 3,865
 (8)%$1,206
 1,163
 4 % $2,300
 2,336
 (2)%
Trust and investment fees:                      
Brokerage advisory, commissions and other fees2,334
 2,304
 1
 7,091
 6,957
 2
2,318
 2,354
 (2) 4,511
 4,757
 (5)
Trust and investment management835
 840
 (1) 2,520
 2,506
 1
795
 835
 (5) 1,581
 1,685
 (6)
Investment banking462
 465
 (1) 1,378
 1,345
 2
455
 486
 (6) 849
 916
 (7)
Total trust and investment fees3,631
 3,609
 1
 10,989
 10,808
 2
3,568
 3,675
 (3) 6,941
 7,358
 (6)
Card fees1,017
 1,000
 2
 2,926
 2,964
 (1)1,025
 1,001
 2
 1,969
 1,909
 3
Other fees:          
          
Charges and fees on loans298
 318
 (6) 903
 950
 (5)
Lending related charges and fees (1)349
 376
 (7) 696
 756
 (8)
Cash network fees121
 126
 (4) 367
 386
 (5)117
 120
 (3) 226
 246
 (8)
Commercial real estate brokerage commissions129
 120
 8
 323
 303
 7
105
 109
 (4) 186
 194
 (4)
Letters of credit fees72
 77
 (6) 223
 227
 (2)
Wire transfer and other remittance fees120
 114
 5
 357
 333
 7
121
 121
 —
 234
 237
 (1)
All other fees110
 122
 (10) 323
 445
 (27)108
 120
 (10) 228
 213
 7
Total other fees850
 877
 (3) 2,496

2,644
 (6)800
 846
 (5) 1,570

1,646
 (5)
Mortgage banking:          
          
Servicing income, net390
 309
 26
 1,264
 1,165
 8
277
 406
 (32) 641
 874
 (27)
Net gains on mortgage loan origination/sales activities456
 737
 (38) 1,286
 2,257
 (43)481
 364
 32
 825
 830
 (1)
Total mortgage banking846
 1,046
 (19) 2,550

3,422
 (25)758
 770
 (2) 1,466

1,704
 (14)
Insurance104
 269
 (61) 320
 826
 (61)93
 102
 (9) 189
 216
 (13)
Net gains from trading activities158
 120
 32
 592
 543
 9
229
 191
 20
 586
 434
 35
Net gains on debt securities57
 166
 (66) 99
 322
 (69)20
 41
 (51) 145
 42
 245
Net gains from equity securities416
 363
 15
 1,494
 1,207
 24
622
 295
 111
 1,436
 1,078
 33
Lease income453
 475
 (5) 1,351
 1,449
 (7)424
 443
 (4) 867
 898
 (3)
Life insurance investment income167
 152
 10
 493
 441
 12
167
 162
 3
 326
 326
 —
All other466
 47
 891
 1,227
 604
 103
577
 323
 79
 992
 761
 30
Total$9,369
 9,400
 —
 $28,077

29,095
 (3)$9,489
 9,012
 5
 $18,787

18,708
 —
(1)Represents combined amount of previously reported “Charges and fees on loans” and “Letters of credit fees”.
Noninterest income was $9.37$9.5 billion and $28.1$18.8 billion in the thirdsecond quarter and first nine monthshalf of 2018,2019, respectively, compared with $9.40$9.0 billion and $29.1$18.7 billion for the same periods a year ago. This income represented 44% of revenue for second quarter 2019 and 43% of revenue for both the third quarter and first nine monthshalf of 2018,2019, compared with 43%42% and 44%43% for the same periods a year ago. The declineincrease in noninterest income in the thirdsecond quarter and first nine monthshalf of 2018,2019, compared with the same periods a year ago, was predominantly due to lower mortgage banking income, lower insurance income due to the sale of Wells Fargo Insurance Services in fourth quarter 2017, lower service charges on deposit accounts, and lowerdriven by higher net gains on debt securities. These decreases were partially offset by growthfrom equity securities and higher all other income. The increase in trust and investment fees,the first half of 2019, compared with the same period a year ago, also reflected higher net gains from trading and equity securities,debt securities. The increases in both periods were partially offset by lower trust and higher all otherinvestment fees and lower mortgage banking income. For more information on our performance obligations and the nature of services performed for certain of our revenues discussed below, see Note 1718 (Revenue from Contracts with Customers) to Financial Statements in this Report.
Service charges on deposit accounts were $1.2$1.2 billion and $3.5
$2.3 billion in the thirdsecond quarter and first nine monthshalf of 2018,2019, respectively, flat compared with $1.3 billion and $3.9 billion for the same periods a year ago. In second quarter 2019, compared with the same period a year ago, higher consumer service charges due to growth in overdraft and returned items fees were offset by lower treasury management fees. In the first half of 2019, compared with the same period a year ago, lower treasury management fees and lower consumer monthly service fees were offset by higher overdraft and returned
items fees. The decreasedecline in treasury management fees in both the thirdsecond quarter and first nine monthshalf of 2018,2019, compared with the same periods a year ago, was primarily due to lower overdraft and monthly service fees driven by customer-friendly initiatives that help customers
minimize monthly and overdraft fees, and the impact of a higher earnings credit rate applied to commercial accounts due to increased interest rates.
Brokerage advisory, commissions and other fees were $2.33decreased to $2.3 billion and $7.1$4.5 billion in the thirdsecond quarter and first nine monthshalf of 2018,2019, respectively, compared with $2.30$2.4 billion and $7.0$4.8 billion for the same periods in 2017. a year ago. The increasedecreases in both periods, compared with the same periods a year ago, waswere due to higherlower asset-based fees partially offset byand lower transactional commission revenue. Retail brokerage client assets totaled $1.6 trillion at both SeptemberJune 30, 20182019 and 2017,2018, with all retail brokerage services provided by our Wealth and Investment Management (WIM) operating segment. For additional information on retail brokerage client assets, see the discussion and Tables 4d and 4e in the “Operating Segment Results – Wealth and Investment Management – Retail Brokerage Client Assets” section in this Report.
Trust and investment management fee income is largely from client assets under management (AUM) for which fees are based on a tiered scale relative to market value of the assets, and client assets under administration (AUA), for which fees are generally based on the extent of services to administer the assets. Trust and investment management fees declined slightly to $835$795 million in third quarter 2018, from $840 million in third quarter 2017, but modestly increased to $2.52 and $1.6 billion in the second quarter and first nine monthshalf of 2018, 2019, respectively, from $2.51$835 million and $1.7 billion for the same period a
Earnings Performance (continued)








periods a year ago. The decreases in both periods, compared with the same periods a year ago, as growth inwere due to lower trust fees, investment management fees, for investment advice onand mutual funds was partially offsetfund asset fees, driven by a decrease in corporate trust fees due to the sale of Wells Fargo Shareowner Services in first quarter 2018. lower average assets under management.
Our AUM totaled $668.8$682.0 billion at SeptemberJune 30, 2018,2019, compared with $678.7$677.7 billion at SeptemberJune 30, 2017,2018, 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.
Our AUA, which includes assets administered by our Institutional Retirement and Trust business (IRT), totaled $1.8 trillion at SeptemberJune 30, 2018,2019, compared with $1.7 trillion at SeptemberJune 30, 2017.2018. We closed the previously announced sale of IRT on July 1, 2019, and recognized a pre-tax gain of approximately $1.1 billion, which will be reflected in our third quarter 2019 net income. We will continue to administer client assets at the direction of the buyer for up to 24 months pursuant to a transition services agreement. The buyer will receive all post-closing revenue from the client assets and will pay us a fee for costs that we incur to administer the client assets during the transition period. The transition services fee will be recognized as other noninterest income. AUA related to IRT were $918 billion at June 30, 2019. Noninterest income related to IRT was $188 million and $398 million for the first half of 2019 and full year 2018, respectively. Direct expenses related to IRT were $130 million and $256 million for the first half of 2019 and full year 2018, respectively. Transition period revenue is expected to approximate transition period expenses and is subject to downward adjustment as client assets transition to the buyer's platform.
Investment banking fees declined slightlydecreased to $462$455 million and $849 million in thirdthe second quarter and first half of 2019, respectively, from $486 million and $916 million for the same periods in 2018, from $465 million in third quarter 2017, but increasedprimarily due to $1.4 billionlower equity and debt originations. The decrease in the first nine monthshalf of 2018, from $1.3 billion for2019, compared with the same period a year ago. Both periods in 2018 reflect the impact of the new accounting standard for revenue recognition, which equally increased both investment banking fees and noninterest expense for underwriting expenses of our broker-dealer business that were previously netted against revenue but are now included in noninterest expense. In third quarter 2018, this impact was more than offset by lower loan syndication fees. In the first nine months of 2018, this impactago, was partially offset by lower equity originations.higher advisory fees.
Card fees were $1.0 billion and $2.9$2.0 billion in the thirdsecond quarter and first nine monthshalf of 2018,2019, respectively, compared with $1.0$1.0 billionand $3.0$1.9 billion for the same periods a year ago. The increase in 2017, reflecting the impactfirst half of 2019, compared with the new revenue recognition accounting standard, which reduced noninterest expense and lowered card fees by an equal amountsame period a year ago, was predominantly due to the netting of card payment network charges against relatedhigher interchange and network revenues in card fees.fees driven by increased purchase activity, partially offset by higher rewards costs.
Other fees decreased to $850$800 million and $2.5$1.57 billion in the thirdsecond quarter and first nine monthshalf of 2018,2019, respectively, from $877$846 million and $2.6$1.65 billion for the same periods in 2017, predominantlya year ago, driven primarily by lower lending related charges and fees on commercial loans, and all other fees. All other fees declined to $110 million and $323 million in the third quarter andThe first nine monthshalf of 2018, from $122 million and $445 million for2019, compared with the same periods in 2017, drivenperiod a year ago, was also impacted by lost fees from discontinued products.lower cash network fees.
Mortgage banking noninterest income, consisting of net servicing income and net gains on mortgage loan origination/sales activities, totaled $846$758 million and $2.6$1.5 billion in the thirdsecond quarter and first nine monthshalf of 2018,2019, respectively, compared with $1.0 billion$770 million and $3.4$1.7 billion for the same periods a year ago.
In addition to servicing fees, net mortgage loan servicing income includes amortization of commercial mortgage servicing rights (MSRs), changes in the fair value of residential MSRs during the period, as well as changes in the value of derivatives (economic hedges) used to hedge the residential MSRs. Net servicing income of $390$277 million for thirdsecond quarter 20182019 included a $30$77 million net MSR valuation gain ($5311.1 billion
decrease in the fair value of the MSRs and a $1.2 billion hedge gain). Net servicing income of $406 million for second quarter 2018 included a $26 million net MSR valuation gain ($345 million increase in the fair value of the MSRs and a $501$319 million hedge loss). NetFor the first half of 2019, net servicing income of $309$641 million for third quarter 2017 included a $98$148 million net MSR valuation gain ($142 million2.0 billion decrease in the fair value of the MSRs and a $240 million$2.1 billion hedge gain). For, and for the first nine monthshalf of 2018, net servicing income of $1.3 billion$874 million included a $166$136 million net MSR valuation gain ($2.21.7 billion increase in the fair value of the MSRs and a $2.0$1.5 billion hedge loss), and 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). The increasereduction in net servicing income in thirdfor the second quarter 2018,and first half of 2019, compared with the same periodperiods a year ago,
was predominantly due to higher servicing fees. Net servicing income increased in the first nine months of 2018, compared with the same period a year ago, due to higher also reflected lower net servicing fees and lower MSR value losses attributable to realization of cash flows due to higher mortgage interest rates, partially offset by lower net MSR valuation gains due to lower hedge results.servicing portfolio runoff and sales.
Our portfolio of mortgage loans serviced for others was $1.71$1.66 trillion at SeptemberJune 30, 2018,2019, and $1.70$1.71 trillion at December 31, 2017.2018. At SeptemberJune 30, 2018,2019, the ratio of combined residential and commercial MSRs to related loans serviced for others was 1.02%0.82%, compared with 0.88%0.94% at December 31, 2017.2018. 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 $456$481 million and $1.3 billion$825 million in the thirdsecond quarter and first nine monthshalf of 2018,2019, respectively, compared with $737$364 million and $2.3 billion$830 million for the same periods a year ago.ago. The increase in second quarter 2019, compared with the same period a year ago, was primarily due to higher production margins. The decrease in the third quarter and first nine monthshalf of 2018,2019, compared with the same periodsperiod a year ago, was mostlypredominantly due to lower productionheld for sale mortgage loan origination volumes, partially offset by higher margins and loan originations. Total mortgage loan originations were $46 billion and $139 billion for the third quarter and first nine months of 2018, respectively, compared with $59 billion and $159 billion for the same periods a year ago. higher repurchase reserve release in 2019. 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.activity. Table 2a presents the information used in determining the production margin.


Table 2a:Selected Mortgage Production Data
 Quarter ended September 30,  Nine months ended September 30,  Quarter ended June 30,  Six months ended June 30, 
 2018
2017
 2018
2017
 2019
2018
 2019
2018
Net gains on mortgage loan origination/sales activities (in millions):            
Residential(A)$324
546
 $929
1,636
(A)$322
281
 $554
605
Commercial 75
81
 200
263
 83
49
 130
125
Residential pipeline and unsold/repurchased loan management (1) 57
110
 157
358
 76
34
 141
100
Total $456
737
 $1,286
2,257
 $481
364
 $825
830
Residential real estate originations (in billions):            
Held-for-sale(B)$33
44
 $104
120
(B)$33
37
 $55
71
Held-for-investment 13
15
 35
39
 20
13
 31
22
Total $46
59
 $139
159
 $53
50
 $86
93
Production margin on residential held-for-sale mortgage loan originations(A)/(B)0.97%1.24
 0.89%1.37
(A)/(B)0.98%0.77
 1.01%0.86
(1)PredominantlyPrimarily 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 0.97%0.98% and 0.89%1.01% for the thirdsecond quarter and first nine monthshalf of 2018,2019, respectively, compared with 1.24%0.77% and 1.37% for the same periods in 2017. The decline in production margin in the third quarter and first nine months of 2018 was attributable to lower margins in both our retail and correspondent production channels and a shift to more correspondent origination volume, which has a lower production margin. Mortgage applications were $57 billion and $182 billion for the third quarter and first nine months of 2018, respectively, compared with $73 billion and $215 billion0.86% for the same periods a year ago. The increase in production margin in the second quarter and first half of 2019, compared with the same periods a year ago, was predominantly due to higher margins in our correspondent production channel and a shift to more retail origination volume, which has a higher production margin. Mortgage applications were $90 billion and $154 billion for the second quarter and first half of 2019, respectively, compared with $67 billion and $125 billion for the same periods a year ago. The 1-4 family first mortgage unclosed application pipeline was $22$44 billion at SeptemberJune 30, 2018,2019, compared with $29$26 billion at SeptemberJune 30, 2017.2018. 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 1011 (Mortgage Banking Activities) and Note 1516 (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 additional information about mortgage loan repurchases, see the “Risk Management – Credit Risk Management – Liability for Mortgage Loan Repurchase Losses” section and Note 10 (Mortgage Banking Activities) to Financial Statements in this Report.
Insurance income was $104$93 million and $320$189 million in the thirdsecond quarter and first nine monthshalf of 2018,2019, respectively, compared with $269$102 million and $826$216 million in the same periods a year ago. ago. The decrease in the third quarter and first nine monthshalf of 2018,2019, compared with the same periodsperiod a year ago, was largely driven by the salewind down of Wells Fargo Insurance Services in fourth quarter 2017.our personal insurance business activities.
Net gains from trading activities, which reflect unrealized changes in fair value of our trading positions and realized gains and losses, were $158$229 million and $592$586 million in the thirdsecond quarter and first nine monthshalf of 2018,2019, respectively, compared with $120$191 million and $543$434 million in the same periods a year ago.The increase in the thirdsecond quarter and first nine monthshalf of 2018,2019, compared with the same periods a year ago, was due to growthpredominantly from the Corporate and Investment Banking business in equity tradingour Wholesale operating segment driven by market volatility,higher trading volumes on residential mortgage-backed securities (RMBS), partially offset by lower foreign exchangeequity trading income.activity. The increase in the first half of 2019, compared with same period a year ago, was also driven by higher credit and municipal bond trading activity. Net gains from trading activities do not include interest and dividend income and expense on trading securities. Those amounts are reported within interest income from debt and equity securities and other interest expense. For additional information about trading activities, see the “Risk Management – Asset/Liability Management – Market Risk-Trading Activities” section and Note 4 (Trading Activities) to Financial Statements in this Report.
 
Net gains on debt and equity securities totaled $473$642 million and $1.6 billion in the thirdsecond quarter and first nine monthshalf of 2018,2019, respectively, compared with $529$336 million and $1.5$1.1 billion for the same periods in 2017,a year ago, after other-than-temporary impairment (OTTI) write-downs of $50$38 million and $325$119 million for the thirdsecond quarter and first nine monthshalf of 2018,2019, respectively, compared with $91$245 million and $293$275 million for the same periods in 2017. a year ago. The decreaseincrease in net gains on debt and equity securities in thirdthe second quarter 2018,and first half of 2019, compared with the same periods a year ago, was predominantly driven by higher unrealized gains on equity securities and higher deferred compensation gains (offset in employee benefits expense), partially offset by lower net realized gains from nonmarketable equity securities. Table 3a presents results for our deferred compensation plan and related investments. The increase in the first half of 2019, compared with the same period a year ago, was driven by loweralso reflected higher net gains on debt securities, partially offset by higher net gains from nonmarketable equity securities. The increasedecrease in OTTI in the second quarter and first nine monthshalf of 2018,2019, compared with the same periodperiods a year ago, was predominantly driven by higher net gains from nonmarketable equity securities and $319a $214 million of unrealized gains fromimpairment related to the impact of the new accounting standard for financial instruments which requires any gain or loss associated with the fair value measurement of equity securities to be reflected in earnings. These increases were partially offset by lower net gains on debt securities and lower deferred compensation gains (offset in employee benefits expense). The increase in OTTI in the first nine months of 2018, compared with the same period a year ago, was predominantly driven by the impairment on the announced sale of our ownership stake in RockCreek.The Rock Creek Group, LP (RockCreek) in second quarter 2018.
Lease income was $453$424 million and $1.35 billion$867 million in the thirdsecond quarter and first nine monthshalf of 2018,2019, respectively, compared with $475$443 million and $1.45 billion$898 million for the same periods a year ago. The decreasedecreases in boththe second quarter and first half of 2019, compared with the same periods was predominantlya year ago, were driven by lower rail and equipment lease income. Lease income in second quarter 2019 also reflected lower gains on the sale of lease assets, compared with the same period a year ago.
All other income was $466$577 million and $1.2 billion$992 million in the thirdsecond quarter and first nine monthshalf of 2018,2019, respectively, compared with $47$323 million and $604$761 million for the same periods a year ago. All other income includes hedge accounting results related to hedges of foreign currency risk, 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, hedge accounting results related to hedges of foreign currency risk, and the results of certain economic hedges, any of which can cause decreases and net losses in other income. The increase in allAll other income in third quarter 2018, compared with the same period a year ago, was predominantly driven by a $638included $721 million pre-tax gainand $1.3 billion of gains from the sales of purchased credit-impaired (PCI) Pick-a-Pay loans in thirdthe second quarter 2018, partially offset byand first half of 2019, respectively, compared with $479 million and $1.1 billion for the same periods a lower benefit from hedge ineffectiveness accounting and lower income from equity method investments.year ago. The increase in all other income in the first nine monthshalf of 2018,2019, compared with the same period a year ago, was predominantly driven by higher pre-tax gains from the sales of purchased credit-impaired Pick-a-Pay loans, andalso reflected a pre-tax gain from the sale of Wells Fargo ShareownerBusiness Payroll Services in secondfirst quarter 2018. These gains were partially offset by2019 and a realized loss related to the previously announced sale of certain assets and liabilities of Reliable Financial Services, Inc. (a subsidiary of Wells Fargo'sFargo’s automobile financing business), in first quarter 2018, partially offset by a lower benefitpretax gain from hedge ineffectiveness accounting, and lower income from equity method investments.the sale of Wells Fargo Shareowner Services in first quarter 2018.


Earnings Performance (continued)








Noninterest Expense
Table 3:Noninterest Expense
Quarter ended Sep 30,  %
 Nine months ended Sep 30,  %
Quarter ended June 30,  %
 Six months ended June 30,  %
(in millions)2018
 2017
 Change
 2018
 2017
 Change
2019
 2018
 Change
 2019
 2018
 Change
Salaries$4,461
 4,356
 2 % $13,289
 12,960
 3 %$4,541
 4,465
 2 % $8,966
 8,828
 2 %
Commission and incentive compensation2,427
 2,553
 (5) 7,837
 7,777
 1
2,597
 2,642
 (2) 5,442
 5,410
 1
Employee benefits1,377
 1,279
 8
 4,220
 4,273
 (1)1,336
 1,245
 7
 3,274
 2,843
 15
Equipment634
 523
 21
 1,801
 1,629
 11
607
 550
 10
 1,268
 1,167
 9
Net occupancy(1)718
 716
 —
 2,153
 2,134
 1
719
 722
 —
 1,436
 1,435
 —
Core deposit and other intangibles264
 288
 (8) 794
 864
 (8)27
 265
 (90) 55
 530
 (90)
FDIC and other deposit assessments336
 314
 7
 957
 975
 (2)144
 297
 (52) 303
 621
 (51)
Outside professional services821
 881
 (7) 1,499
 1,702
 (12)
Contract services624
 536
 16
 1,187
 983
 21
Operating losses605
 1,329
 (54) 2,692
 1,961
 37
247
 619
 (60) 485
 2,087
 (77)
Outside professional services761
 955
 (20) 2,463
 2,788
 (12)
Contract services (1)593
 415
 43
 1,576
 1,228
 28
Operating leases311
 347
 (10) 942
 1,026
 (8)
Leases (2)311
 311
 —
 597
 631
 (5)
Advertising and promotion329
 227
 45
 566
 380
 49
Outside data processing166
 227
 (27) 492
 683
 (28)175
 164
 7
 342
 326
 5
Travel and entertainment141
 154
 (8) 450
 504
 (11)163
 157
 4
 310
 309
 —
Advertising and promotion223
 137
 63
 603
 414
 46
Postage, stationery and supplies120
 128
 (6) 383
 407
 (6)119
 121
 (2) 241
 263
 (8)
Telecommunications90
 90
 —
 270
 272
 (1)93
 88
 6
 184
 180
 2
Foreclosed assets59
 66
 (11) 141
 204
 (31)35
 44
 (20) 72
 82
 (12)
Insurance26
 24
 8
 76
 72
 6
25
 24
 4
 50
 50
 —
All other (1)451
 450
 —
 1,648
 1,513
 9
536
 624
 (14) 1,088
 1,197
 (9)
Total$13,763
 14,351
 (4) $42,787
 41,684
 3
$13,449
 13,982
 (4) $27,365
 29,024
 (6)
(1)The prior periods have been revisedRepresents expenses for both leased and owned properties.
(2)Represents expenses for assets we lease to conform with the current period presentation whereby temporary help is included in contract services rather than in all other noninterest expense.customers.

Noninterest expense was $13.8$13.4 billion in thirdsecond quarter 2018,2019, down 4% from $14.4$14.0 billion a year ago, and $42.8$27.4 billion in the first nine monthshalf of 2018, up 3%2019, down 6% from the same period a year ago. The decrease in thirdsecond quarter 2018,2019, compared with the same period a year ago, was due to lower operating losses, core deposit and other intangibles expense, and FDIC and other deposit assessments, partially offset by higher personnel and advertising and promotion expenses. The decrease in the first half of 2019, compared with the same period a year ago, was predominantly due to lower operating losses, partially offset by higher equipment expense. The increase in the first nine months of 2018, compared with the same period a year ago, was substantially due to higher operating losses and personnel expenses.losses.
Personnel expenses, which include salaries, commissions, incentive compensation, and employee benefits, were up $77$122 million, or 1%, in thirdsecond quarter 2018,2019, compared with the
same period a year ago, and up $336$601 million, or 1%4%, in the first nine monthshalf of 2018,2019, compared with the same period a year ago. The increase in thirdsecond quarter 20182019, compared with the same period a year ago, was due to annual salary increases and higher benefits expense,deferred compensation costs (offset in net gains from equity securities), partially offset by lower revenue related incentive compensation the impact of the sale of Wells Fargo Insurance Services in fourth quarter 2017, and lower staffing levels. The increase in the first nine monthshalf of 20182019, compared with the same period a year ago, was due to salary increases and higher benefits expense, partially offset by the impact of the sale of Wells Fargo Insurance Services, lower staffing levels, and lower deferred compensation costs (offset in net gains from equity securities)., annual salary increases and the impact of staffing mix changes. Table 3a presents results for our deferred compensation plan and related investments.
Outside professionalTable 3a:Deferred Compensation Plan and contract servicesRelated Investments
  Quarter ended  Six months ended 
(in millions)Jun 30,
2019
 Jun 30,
2018
 Jun 30,
2019
 Jun 30,
2018
Net interest income$18
 13
 $31
 23
Net gains (losses) from equity securities87
 37
 432
 31
Total revenue from deferred compensation plan investments105
 50
 463
 54
Employee benefits expense (1)114
 53
 471
 57
Income (loss) before income tax expense$(9) (3) $(8) (3)
(1)Represents change in deferred compensation plan liability.

Equipment expense was down $16up $57 million, or 1%10%, in thirdsecond quarter 2018,2019, compared with the same period a year ago, and up $23$101 million, or 1%9%, in the first nine monthshalf of 2018, compared with the same period a year ago. The decrease in third quarter 2018 reflected lower project and technology spending on regulatory and compliance related initiatives, while the increase in the first nine months of 2018 was due to higher project and technology spending, partially offset by lower legal expense.
Outside data processing expense was down $61 million in third quarter 2018, or 27%, compared with the same period a year ago, and down $191 million in the first nine months of 2018, or 28%, compared with the same period a year ago, reflecting lower data processing expense related to the GE Capital business acquisitions and the impact of the new revenue recognition accounting standard, which reduced noninterest expense and lowered card fees by an equal amount due to the netting of card payment network charges against related interchange and network revenues in card fees.
Operating losses were down $724 million, or 54%, in third quarter 2018, compared with the same period a year ago, and up $731 million, or 37%, in the first nine months of 2018, compared with the same period a year ago. The decrease in third quarter 2018 was driven by lower litigation accruals, partially offset by higher remediation accruals for previously disclosed matters, while the increase in the first nine months of 2018 was predominantly driven by higher remediation accruals for previously disclosed matters.
Advertising and promotion expense was up $86 million, or 63%, in third quarter 2018, compared with the same period a year ago, and up $189 million, or 46%, in the first nine months of 2018,2019, compared with the same period a year ago, in each case due to higher advertisingcomputer software licensing and maintenance and depreciation expense, including for the “Re-Established” advertising campaign launchedpartially offset by lower small furniture and equipment expense.
Core deposit and other intangibles expense was down $238 million, or 90%, in second quarter 2018.
Equipment expense was up $111 million, or 21%, in third quarter 2018,2019, compared with the same period a year ago, and up $172down $475 million, or 11%90%, in the first nine monthshalf of 2018,2019, compared with the same period a year ago, in each case due to increased computer purchaseslower amortization expense reflecting the end of the 10-year amortization period on Wachovia intangibles.

Federal Deposit Insurance Corporation (FDIC) and equipment expense relatedother deposit assessments were down $153 million, or 52%, in second quarter 2019, compared with the same period a year ago, and down $318 million, or 51%, in the first half of 2019, compared with the same period a year ago. The decrease in both periods was due to the Company's migration to Windows 10, as well as depreciation expense.
completion of the FDIC temporary surcharge, which ended September 30, 2018.

All other noninterestOutside professional and contract services expense was up $28 million, or 2%, in thirdsecond quarter 2018 was flat,2019, compared with the same period a year ago, and up $135$1 million in the first half of 2019, compared with the same period a year ago, reflecting an increase in project spending, partially offset by lower legal expenses in both periods.
Operating losses were down $372 million, or 9%60%, in second quarter 2019, compared with the same period a year ago, and down $1.6 billion, or 77%, in the first nine monthshalf of 2018,2019, compared with the same period a year ago. The increasedecrease in second quarter 2019, compared with the same period a year ago, reflected lower remediation expense, while the decrease in the first nine monthshalf of 20182019, compared with the same period a year ago, was predominantly driven by higherlower litigation accruals. First quarter 2018 included an $800 million discrete litigation accrual in connection with entering into the consent orders with the CFPB and OCC on April 20, 2018.
Advertising and promotion expense was up $102 million, or 45%, in second quarter 2019, compared with the same period a year ago, and up $186 million, or 49%, in the first half of 2019, compared with the same period a year ago, in each case due to increases in marketing and brand campaign volumes.
All other expense was down $88 million, or 14%, in second quarter 2019, compared with the same period a year ago, and down $109 million, or 9%, in the first half of 2019, compared with the same period a year ago. The decrease in second quarter 2019, compared with the same period a year ago, reflected lower donations expense. The decrease in the first half of 2019, compared with the same period a year ago, included a state sales tax refund and lower donations expense.
Our efficiency ratio was 62.7%62.3% in thirdsecond quarter 2018,2019, compared with 65.7%64.9% in thirdsecond quarter 2017.2018.


Income Tax Expense
Our effective income tax rate was 20.1%17.3% and 32.4% 15.3%for thirdthe second quarter and first half of 2019, respectively, compared with 25.9% and 23.6% for the same periods in 2018. The rate for the first half of 2019 reflected net discrete income tax benefits related to the results of U.S. federal and state income tax examinations. The rate in second quarter 2018 and 2017, respectively, and was 22.3% in the first nine months of 2018, down from 29.0% in the first nine months of 2017. The effective income tax rate for third quarter 2018 includedreflected a net discrete income tax expense of $168$481 million primarilymostly related to state income taxes driven by the re-measurement of our initial estimates for the impacts of the Tax Cuts & Jobs Act (the Tax Act) recognizedU.S. Supreme Court decision in fourth quarter 2017.South Dakota v. Wayfair. The effective income tax rate for the first nine monthshalf of 2018 reflected the reduced U.S federal income tax ratenon-tax deductible treatment of an $800 million discrete litigation accrual recorded as part of the Tax Act that was enactednoninterest expense in 2017, partially offset by discrete income tax expense items. We expect the effective income tax rate in fourthfirst quarter 2018 to be approximately 19%, excludingin connection with the impact of any future discrete items. We continue to collectconsent orders entered into with the CFPB and analyze data related to provisional tax estimates recorded in fourth quarter 2017 and monitor interpretations that emerge for various provisions of the the Tax Act. We anticipate these items will be finalized upon completion of our U.S. tax filings inOCC on April 20, 2018.
Operating Segment Results
We are organized for management reporting purposes into three operating segments: Community Banking; Wholesale Banking; and WIM.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). Effective first quarter 2018, assets and liabilities now receive a funding charge or credit that considers interest rate risk, liquidity risk, and other product characteristics on a more granular level. This methodology change affects results across all three of our reportable operating segments and operating segment results for the prior periods of 2017 have been revised to reflect this methodology change. Our previously reported consolidated financial results were not impacted by the methodology change; however, in connection with the adoption of ASU 2016-01 in first quarter 2018, certain reclassifications have occurred within noninterest income. 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 2122 (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) 2018
 2017
 2018
 2017
 2018
 2017
 2018
 2017
 2018
 2017
 2019
 2018
 2019
 2018
 2019
 2018
 2019
 2018
 2019
 2018
Quarter ended Sep 30,                    
Quarter ended June 30,                    
Revenue $11,816
 11,520
 7,304
 7,504
 4,226
 4,256
 (1,405) (1,431) 21,941
 21,849
 $11,805
 11,806
 7,065
 7,197
 4,050
 3,951
 (1,336) (1,401) 21,584
 21,553
Provision (reversal of provision) for credit losses 547
 650
 26
 69
 6
 (1) 1
 (1) 580
 717
 479
 484
 28
 (36) (1) (2) (3) 6
 503
 452
Noninterest expense 7,467
 7,852
 3,935
 4,234
 3,243
 3,102
 (882) (837) 13,763
 14,351
 7,212
 7,290
 3,882
 4,219
 3,246
 3,361
 (891) (888) 13,449
 13,982
Net income (loss) 2,816
 1,877
 2,851
 2,314
 732
 719
 (392) (368) 6,007
 4,542
 3,147
 2,496
 2,789
 2,635
 602
 445
 (332) (390) 6,206
 5,186
Average loans $460.9
 473.7
 462.8
 463.7
 74.6
 72.4
 (58.8) (57.5) 939.5
 952.3
 $457.7
 463.8
 474.0
 464.7
 75.0
 74.7
 (59.2) (59.1) 947.5
 944.1
Average deposits 760.9
 734.6
 413.6
 463.4
 159.8
 184.4
 (67.9) (76.0) 1,266.4
 1,306.4
 777.6
 760.6
 410.4
 414.0
 143.5
 167.1
 (62.5) (70.4) 1,269.0
 1,271.3
Nine months ended Sep 30,                    
Six months ended June 30,                    
Revenue $35,452
 35,298
 21,780
 22,560
 12,419
 12,739
 (4,223) (4,258) 65,428
 66,339
 $23,555
 23,636
 14,176
 14,476
 8,129
 8,193
 (2,667) (2,818) 43,193
 43,487
Provision (reversal of provision) for credit losses 1,249
 1,919
 (30) (39) (2) 2
 6
 (5) 1,223
 1,877
 1,189
 702
 162
 (56) 3
 (8) (6) 5
 1,348
 643
Noninterest expense 23,459
 22,399
 12,132
 12,437
 9,894
 9,377
 (2,698) (2,529) 42,787
 41,684
 14,901
 15,992
 7,720
 8,197
 6,549
 6,651
 (1,805) (1,816) 27,365
 29,024
Net income (loss) 7,225
 7,466
 8,361
 7,541
 1,891
 2,095
 (1,148) (1,070) 16,329
 16,032
 5,970
 4,409
 5,559
 5,510
 1,179
 1,159
 (642) (756) 12,066
 10,322
Average loans $465.0
 476.5
 464.2
 466.3
 74.4
 71.6
 (58.8) (56.8) 944.8
 957.6
 $457.9
 467.1
 475.2
 464.9
 74.7
 74.3
 (59.1) (58.8) 948.7
 947.5
Average deposits 756.4
 726.8
 424.4
 463.7
 168.2
 190.6
 (70.8) (78.8) 1,278.2
 1,302.3
 771.6
 754.1
 410.1
 429.9
 148.3
 172.5
 (64.5) (72.3) 1,265.5
 1,284.2
(1)Includes the elimination of certain items that are included in more than one business segment, most of which substantially 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 tohave substantially completed the wind down theof our personal insurance business, and we expect to substantially complete these activities infully exit this business by the first halfend 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 June 30,    Six months ended June 30,   
(in millions, except average balances which are in billions)2018
 2017
 % Change 2018
 2017
 % Change
2019
 2018
 % Change 2019
 2018
 % Change
Net interest income$7,338
 7,154
 3 % $21,879
 21,419
 2 %$7,066
 7,346
 (4)% $14,314
 14,541
 (2)%
Noninterest income:                      
Service charges on deposit accounts700
 739
 (5) 1,971
 2,206
 (11)704
 632
 11
 1,314
 1,271
 3
Trust and investment fees:          
          
Brokerage advisory, commissions and other fees (1)470
 461
 2
 1,413
 1,357
 4
480
 465
 3
 929
 943
 (1)
Trust and investment management (1)231
 225
 3
 684
 658
 4
199
 220
 (10) 409
 453
 (10)
Investment banking (2)(17) (13) (31) (27) (60) 55
(18) —
 NM
 (38) (10) NM
Total trust and investment fees684
 673
 2
 2,070
 1,955
 6
661
 685
 (4) 1,300
 1,386
 (6)
Card fees925
 909
 2
 2,650
 2,703
 (2)929
 904
 3
 1,787
 1,725
 4
Other fees344
 362
 (5) 1,019
 1,152
 (12)335
 348
 (4) 667
 675
 (1)
Mortgage banking747
 937
 (20) 2,284
 3,081
 (26)655
 695
 (6) 1,296
 1,537
 (16)
Insurance21
 35
 (40) 65
 104
 (38)11
 16
 (31) 22
 44
 (50)
Net gains (losses) from trading activities10
 (58) 117
 33
 (143) 123
Net (losses) gains from trading activities(11) 24
 NM
 (6) 23
 NM
Net gains (losses) on debt securities1
 169
 (99) (1) 455
 NM
15
 (2) 850
 52
 (2) NM
Net gains from equity securities (3)274
 270
 1
 1,367
 960
 42
471
 409
 15
 1,072
 1,093
 (2)
Other income of the segment772
 330
 134
 2,115
 1,406
 50
969
 749
 29
 1,737
 1,343
 29
Total noninterest income4,478
 4,366
 3
 13,573
 13,879
 (2)4,739
 4,460
 6
 9,241
 9,095
 2
          
          
Total revenue11,816
 11,520
 3
 35,452
 35,298
 —
11,805
 11,806
 —
 23,555
 23,636
 —
          
          
Provision for credit losses547
 650
 (16) 1,249
 1,919
 (35)479
 484
 (1) 1,189
 702
 69
Noninterest expense:          
          
Personnel expense5,414
 5,026
 8
 16,325
 15,229
 7
5,436
 5,400
 1
 11,417
 10,911
 5
Equipment615
 512
 20
 1,736
 1,570
 11
584
 525
 11
 1,225
 1,121
 9
Net occupancy542
 531
 2
 1,618
 1,577
 3
542
 542
 —
 1,084
 1,076
 1
Core deposit and other intangibles100
 112
 (11) 303
 336
 (10)—
 102
 (100) 1
 203
 (100)
FDIC and other deposit assessments195
 170
 15
 531
 547
 (3)94
 155
 (39) 200
 336
 (40)
Outside professional services335
 464
 (28) 1,162
 1,367
 (15)387
 430
 (10) 703
 827
 (15)
Operating losses577
 1,295
 (55) 2,304
 1,853
 24
197
 287
 (31) 416
 1,727
 (76)
Other expense of the segment(311) (258) (21) (520) (80) NM
(28) (151) 81
 (145) (209) 31
Total noninterest expense7,467
 7,852
 (5) 23,459
 22,399
 5
7,212
 7,290
 (1) 14,901
 15,992
 (7)
Income before income tax expense and noncontrolling interests3,802
 3,018
 26
 10,744
 10,980
 (2)4,114
 4,032
 2
 7,465
 6,942
 8
Income tax expense925
 1,079
 (14) 3,147
 3,316
 (5)838
 1,413
 (41) 1,262
 2,222
 (43)
Net income from noncontrolling interests (4)61
 62
 (2) 372
 198
 88
129
 123
 5
 233
 311
 (25)
Net income$2,816
 1,877
 50
 $7,225
 7,466
 (3)$3,147
 2,496
 26
 $5,970
 4,409
 35
Average loans$460.9
 473.7
 (3) $465.0
 476.5
 (2)$457.7
 463.8
 (1) $457.9
 467.1
 (2)
Average deposits760.9
 734.6
 4
 756.4
 726.8
 4
777.6
 760.6
 2
 771.6
 754.1
 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)PrimarilyMostly 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 $2.8$3.1 billion, up $939$651 million, or 50%26%, from thirdsecond quarter 2017,2018, and $7.2$6.0 billion for the first nine monthshalf of 2018, down $241 million,2019, up $1.6 billion, or 3%35%, compared with the same period a year ago. Revenue of $11.8 billion increased $296 million, or 3%, from thirdwas flat compared with second quarter 2017,2018 and was $35.5$23.6 billion for the first nine monthshalf of 2018, an increase2019, a decrease of $154$81 million compared with the same period a year ago. The increaseRevenue in revenue from thirdsecond quarter 20172019 was due to higher gains onflat, compared with the sales of PCI Pick-a-Pay mortgage loans andsame period a year ago, as lower net interest income, partially offset by lower mortgage banking income, and net gains from debt securities. The increase in revenue from the first nine months of 2017 was due totrading activities were offset by higher gains onfrom the sales of Pick-a-Pay PCI Pick-a-Pay mortgage loans, net interest income,service charges on deposit accounts, and net gains from equity securities, partially offset bysecurities. The decrease in revenue in the first half of 2019, compared with the same period a year ago, was due to lower mortgage banking income, net interest income, and trust and investment fees, partially offset by higher gains from the sales of Pick-a-Pay PCI mortgage loans, card fees, and net gains from debt securities, and service charges on deposit accounts.securities. Average loans of $457.7 billion in second
 
$460.9 billion in third quarter 20182019 decreased $12.8$6.1 billion, or 3%1%, from thirdsecond quarter 2017,2018, and average loans of $465.0$457.9 billion in the first nine monthshalf of 20182019 decreased $11.5$9.2 billion, or 2%, from the first nine monthshalf of 2017.2018. The decline in average loans for both periods was predominantly due to lower automobile loans and junior lien mortgages and automobile loans, partially offset by higher real estate 1-4 family first mortgages.mortgages and credit cards. Average deposits of $760.9$777.6 billion in thirdsecond quarter 2019 increased $17.0 billion, or 2%, from second quarter 2018, and increased $26.3$17.5 billion, or 4%, from third quarter 2017, and increased $29.6 billion, or 4%2%, from the first nine monthshalf of 2017. The number of 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 2018 was up 1.7% from August 2017. 2018.
Noninterest expense was $7.5$7.2 billion in thirdsecond quarter 2019, down $78 million, or 1%, from second quarter 2018, down $385 million, or 5%, from third quarter 2017, and was $23.5$14.9 billion in the first nine monthshalf of

2018, up 2019, down $1.1 billion, or 5%7%, from the first nine monthshalf of 2017.2018. The decrease in noninterest expense from third quarter 2017for both periods was predominantly due to lower operating losses, core deposit and other intangibles amortization, FDIC expense, and outside professional services, partially offset by higher personnel, expense. The increase in noninterest expense from the first nine months of 2017 was predominantly due to higher personnel expenseequipment, contract services, and operating losses.advertising

and promotion expense. The provision for credit losses decreased $103was down $5 million from thirdsecond quarter 20172018 and $670up $487 million from the first nine monthshalf of 2017, both due to continued improvement2018. The increase in the consumer lending portfolioprovision for credit losses in the first half of 2019, compared with the same periodsperiod a year ago.ago, was due to an allowance release in the first half of 2018, partially offset by lower net charge-offs in the automobile portfolio in the first half of 2019. Income tax expense decreased $154$575 million from thirdsecond quarter 2017 and2018, driven by a net discrete income tax expense of $481 million in second quarter 2018 mostly related to state income taxes. Income tax expense decreased $169$960 million fromin the first nine monthshalf of 2017,2019, compared with the same period a year ago, driven by the beneficial impact of the reduced U.S. federal statutory income tax
rate for 2018, partially offset by net discrete income tax benefits in the first half of 2019 related mostly to the results of
U.S. federal and state income tax examinations as well as the aforementioned net discrete income tax expense items.in the first half of 2018.


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 BusinessCommercial Banking, Commercial Real Estate, Corporate and Investment Banking, Financial Institutions Group, Government and Institutional Banking, 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 June 30,    Six months ended June 30,   
(in millions, except average balances which are in billions)2018
 2017
 % Change 2018
 2017
 % Change
2019
 2018
 % Change 2019
 2018
 % Change
Net interest income$4,726
 4,763
 (1)% $13,951
 14,253
 (2)%$4,535
 4,693
 (3)% $9,069
 9,225
 (2)%
Noninterest income:                      
Service charges on deposit accounts505
 538
 (6) 1,569
 1,658
 (5)502
 530
 (5) 985
 1,064
 (7)
Trust and investment fees:          
          
Brokerage advisory, commissions and other fees79
 65
 22
 224
 231
 (3)74
 78
 (5) 152
 145
 5
Trust and investment management112
 129
 (13) 335
 390
 (14)117
 110
 6
 231
 223
 4
Investment banking476
 479
 (1) 1,401
 1,407
 —
475
 485
 (2) 887
 925
 (4)
Total trust and investment fees667
 673
 (1) 1,960
 2,028
 (3)666
 673
 (1) 1,270
 1,293
 (2)
Card fees92
 91
 1
 275
 260
 6
95
 96
 (1) 181
 183
 (1)
Other fees504
 513
 (2) 1,472
 1,487
 (1)464
 496
 (6) 901
 968
 (7)
Mortgage banking101
 110
 (8) 269
 343
 (22)104
 75
 39
 172
 168
 2
Insurance76
 225
 (66) 233
 695
 (66)75
 78
 (4) 153
 157
 (3)
Net gains from trading activities135
 157
 (14) 514
 615
 (16)226
 154
 47
 559
 379
 47
Net gains (losses) on debt securities53
 (5) NM
 96
 (135) 171
Net gains on debt securities5
 42
 (88) 93
 43
 116
Net gains from equity securities50
 40
 25
 232
 92
 152
116
 89
 30
 193
 182
 6
Other income of the segment395
 399
 (1) 1,209
 1,264
 (4)277
 271
 2
 600
 814
 (26)
Total noninterest income2,578
 2,741
 (6) 7,829
 8,307
 (6)2,530
 2,504
 1
 5,107
 5,251
 (3)
          
          
Total revenue7,304
 7,504
 (3) 21,780
 22,560
 (3)7,065
 7,197
 (2) 14,176
 14,476
 (2)
          
          
Provision (reversal of provision) for credit losses26
 69
 (62) (30) (39) 23
28
 (36) 178
 162
 (56) 389
Noninterest expense:          
          
Personnel expense1,302
 1,607
 (19) 4,224
 5,012
 (16)1,384
 1,386
 —
 2,894
 2,922
 (1)
Equipment10
 12
 (17) 36
 42
 (14)10
 14
 (29) 19
 26
 (27)
Net occupancy99
 106
 (7) 299
 322
 (7)96
 100
 (4) 191
 200
 (5)
Core deposit and other intangibles95
 102
 (7) 284
 310
 (8)23
 94
 (76) 47
 189
 (75)
FDIC and other deposit assessments122
 121
 1
 366
 359
 2
44
 122
 (64) 89
 244
 (64)
Outside professional services234
 301
 (22) 722
 830
 (13)231
 255
 (9) 415
 488
 (15)
Operating losses(13) 22
 NM
 203
 34
 497
10
 208
 (95) 11
 216
 (95)
Other expense of the segment2,086
 1,963
 6
 5,998
 5,528
 9
2,084
 2,040
 2
 4,054
 3,912
 4
Total noninterest expense3,935
 4,234
 (7) 12,132
 12,437
 (2)3,882
 4,219
 (8) 7,720
 8,197
 (6)
Income before income tax expense and noncontrolling interests3,343
 3,201
 4
 9,678
 10,162
 (5)3,155
 3,014
 5
 6,294
 6,335
 (1)
Income tax expense475
 894
 (47) 1,302
 2,642
 (51)365
 379
 (4) 734
 827
 (11)
Net loss from noncontrolling interests17
 (7) 343
 15
 (21) 171
1
 —
 NM
 1
 (2) 150
Net income$2,851
 2,314
 23
 $8,361
 7,541
 11
$2,789
 2,635
 6
 $5,559
 5,510
 1
Average loans$462.8
 463.7
 —
 $464.2
 466.3
 —
$474.0
 464.7
 2
 $475.2
 464.9
 2
Average deposits413.6
 463.4
 (11) 424.4
 463.7
 (8)410.4
 414.0
 (1) 410.1
 429.9
 (5)
NM -– Not meaningful
Wholesale Banking reported net income of $2.9$2.8 billion in thirdsecond quarter 2018,2019, up $537$154 million, or 23%6%, from thirdsecond quarter 2017.2018. In the first nine monthshalf of 2018,2019, net income of $8.4$5.6 billion increased $820$49.0 million, or 11%1%, from the same period a year ago. Results forRevenue decreased $132 million, or 2%, from second quarter 2018, largely due to lower net interest income and treasury management fees, partially offset by higher market sensitive revenue and mortgage banking fees. Revenue decreased $300 million, or 2%, from the third quarter and first nine monthshalf of 2018, benefited frompredominantly due to the reduced U.S. federal statutory income tax rate, whilegain related to the first nine monthssale of 2017 included a discrete income tax benefit resulting from our agreement to sell Wells Fargo InsuranceShareowner Services USA (WFIS). Revenuein first quarter 2018 and lower net interest income, partially offset by higher market sensitive revenue. Net interest income decreased $200$158 million, or 3%, from thirdsecond quarter 2017,2018, and $780$156 million, or 2%, from the first half of 2018, as lower
income on trading and debt investments and lower income on loans due to spread compression was partially offset by higher average loan balances and the positive impact of higher interest rates. Noninterest income increased $26 million, or 1%, from second quarter 2018, as higher market sensitive revenue was partially offset by lower treasury management fees related to an increased earnings credit rate provided to customers. Noninterest income decreased $144 million, or 3%, from the first nine monthshalf of 2017, primarily2018 predominantly due to the impact ofgain related to the sale of WFISWells Fargo Shareowner Services in fourthfirst quarter 2017, as well as2018, lower net interest income. Net interest income decreased $37 million, or
1%, from third quarter 2017,treasury management fees, loan fees, and $302 million, or 2%, from the first nine months of 2017, as lower average loan and deposit balances and lower income on tax advantaged products were partially offset by higher interest rates. Noninterest income decreased $163 million, or 6%, from third quarter 2017, and decreased $478 million, or 6%, from the first nine months of 2017. Noninterest income decreased for both periods driven by the impact of the sale of WFIS, lower operating lease income and lower mortgageinvestment banking fees, partially offset by higher market sensitive revenue. Average loans of $462.8$474.0 billion in thirdsecond quarter 2018 decreased $900 million2019 increased $9.3 billion, or 2%, from thirdsecond quarter 2017,2018, and average loans of $464.2
Earnings Performance (continued)




$475.2 billion in the first nine monthshalf of 2018 decreased $2.12019 increased $10.3 billion, or 2%, from the first nine monthshalf of 2017,2018, as
Earnings Performance (continued)




growth in commercial and industrial loans was more thanpartially offset by lower commercial real estate loans. Average deposits of $413.6$410.4 billion in thirdsecond quarter 20182019 decreased $49.8$3.6 billion, or 11%1%, from thirdsecond quarter 2017,2018, and average deposits of $424.4$410.1 billion in the first nine monthshalf of 20182019 decreased $39.3$19.8 billion, or 8%5%, from the first nine monthshalf of 2017.2018. The decline in average deposits for both periods was driven by actions taken indeclines across many businesses as commercial customers allocated more cash to alternative higher-rate liquid investments. The decline from the first half of 2018 was also affected by actions taken in 2018 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.2018. Noninterest expense decreased $299$337 million, or 7%8%, from thirdsecond quarter 2017,2018, and decreased $305$477 million, or 2%6%, from the first nine monthshalf of 2017 on2018 as lower personneloperating losses, FDIC expense, primarily due to the sale of WFIS, lower variable compensation, and lower project spending,core deposit and other intangibles amortization, were partially offset by higher regulatory, risk, cyber and technology expenses. The provision for credit losses decreased $43increased $64 million from thirdsecond quarter 2017,2018, and increased $9$218 million from the first nine monthshalf of 2017.

2018, reflecting higher charge-offs and lower recoveries.
 
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. The previously announced sale of our IRT business closed on July 1, 2019. For additional information on the IRT sale, including its anticipated impact on our AUA and associated revenue and expenses, see the “Noninterest Income” section in this Report. 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 June 30,    Six months ended June 30,   
(in millions, except average balances which are in billions)2018
 2017
 % Change 2018
 2017
 % Change
2019
 2018
 % Change 2019
 2018
 % Change
Net interest income$1,102
 1,177
 (6)% $3,325
 3,489
 (5)%$1,037
 1,111
 (7)% $2,138
 2,223
 (4)%
Noninterest income:                      
Service charges on deposit accounts3
 3
 —
 12
 13
 (8)4
 5
 (20) 8
 9
 (11)
Trust and investment fees:                      
Brokerage advisory, commissions and other fees2,268
 2,241
 1
 6,896
 6,741
 2
2,248
 2,284
 (2) 4,372
 4,628
 (6)
Trust and investment management727
 718
 1
 2,201
 2,137
 3
687
 731
 (6) 1,363
 1,474
 (8)
Investment banking (1)3
 (1) 400
 4
 (2) 300
(1) 1
 NM
 4
 1
 300
Total trust and investment fees2,998
 2,958
 1
 9,101
 8,876
 3
2,934
 3,016
 (3) 5,739
 6,103
 (6)
Card fees1
 1
 —
 4
 4
 —
2
 2
 —
 3
 3
 —
Other fees4
 5
 (20) 13
 14
 (7)4
 5
 (20) 8
 9
 (11)
Mortgage banking(3) (3) —
 (8) (7) (14)(3) (2) (50) (6) (5) (20)
Insurance19
 21
 (10) 55
 63
 (13)17
 18
 (6) 34
 36
 (6)
Net gains from trading activities13
 21
 (38) 45
 71
 (37)13
 13
 —
 32
 32
 —
Net gains on debt securities3
 2
 50
 4
 2
 100
—
 1
 (100) —
 1
 (100)
Net gains (losses) from equity securities92
 53
 74
 (105) 155
 NM
35
 (203) 117
 171
 (197) 187
Other income of the segment(6) 18
 NM
 (27) 59
 NM
7
 (15) 147
 2
 (21) 110
Total noninterest income3,124
 3,079
 1
 9,094
 9,250
 (2)3,013
 2,840
 6
 5,991
 5,970
 —
                      
Total revenue4,226
 4,256
 (1) 12,419
 12,739
 (3)4,050
 3,951
 3
 8,129
 8,193
 (1)
                      
Provision (reversal of provision) for credit losses6
 (1) 700
 (2) 2
 NM
(1) (2) 50
 3
 (8) 138
Noninterest expense:                      
Personnel expense2,010
 1,984
 1
 6,212
 6,068
 2
2,112
 2,037
 4
 4,309
 4,202
 3
Equipment10
 (1) NM
 31
 19
 63
14
 11
 27
 25
 21
 19
Net occupancy108
 108
 —
 327
 323
 1
112
 110
 2
 224
 219
 2
Core deposit and other intangibles69
 74
 (7) 207
 218
 (5)4
 69
 (94) 7
 138
 (95)
FDIC and other deposit assessments33
 38
 (13) 103
 117
 (12)12
 34
 (65) 26
 70
 (63)
Outside professional services198
 198
 —
 598
 613
 (2)210
 202
 4
 394
 400
 (2)
Operating losses44
 15
 193
 193
 81
 138
43
 127
 (66) 64
 149
 (57)
Other expense of the segment771
 686
 12
 2,223
 1,938
 15
739
 771
 (4) 1,500
 1,452
 3
Total noninterest expense3,243
 3,102
 5
 9,894
 9,377
 6
3,246
 3,361
 (3) 6,549
 6,651
 (2)
Income before income tax expense and noncontrolling interests977
 1,155
 (15) 2,527
 3,360
 (25)805
 592
 36
 1,577
 1,550
 2
Income tax expense244
 433
 (44) 630
 1,255
 (50)201
 147
 37
 393
 386
 2
Net income from noncontrolling interests1
 3
 (67) 6
 10
 (40)2
 —
 NM
 5
 5
 —
Net income$732
 719
 2
 $1,891
 2,095
 (10)$602
 445
 35
 $1,179
 1,159
 2
Average loans$74.6
 72.4
 3
 $74.4
 71.6
 4
$75.0
 74.7
 —
 $74.7
 74.3
 1
Average deposits159.8
 184.4
 (13) 168.2
 190.6
 (12)143.5
 167.1
 (14) 148.3
 172.5
 (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 $732$602 million in thirdsecond quarter 2018,2019, up $13$157 million, or 2%35%, from thirdsecond quarter 2017.2018. Net income for the first nine monthshalf of 20182019 was $1.9$1.2 billion, down $204up $20 million, or 10%2%, from the same period a year ago. Results for the third quarter and first nine months of 2018 benefited from the lower U.S. federal statutory income tax rate. Revenue was up $99 million, or 3%, from second quarter 2018, and down $30$64 million, or 1%, from third quarter 2017, and down $320 million, or 3%, from the first nine monthshalf of 2017, primarily2018.Revenue in second
quarter 2019 was up from second quarter 2018 largely due to the 2018 impairment on the sale of our ownership stake in RockCreek and lower net interest income, partially offset by higher trust and investment fees. Net interest income decreased 6% from third quarter 2017, and 5% from the first nine months of 2017, predominantly driven by lower deposit balances. Noninterest income increased $45 million from third quarter 2017, driven by higher asset-based fees and net gains on equity securities, partially offset by lower brokerage transaction revenue. Noninterest income decreased $156 million from the first nine months of 2017, largely due to the impairment on the sale of our ownership stake in RockCreek, lower brokerage transaction revenue and deferred compensation plan investments (offset in employee benefits expense), partially offset by higher asset-based fees. Asset-basedlower trust and investment fees increased and lower net interest income. Revenue in the first half of 2019 was down from the first half of 2018

predominantly due to lower trust and investment fees and lower net interest income, partially offset by the 2018 impairment on the sale of our ownership stake in RockCreek and higher deferred compensation plan investments (offset in employee benefits expense). Net interest income decreased 7% from second quarter 2018, and 4% from the first half of 2018, primarily driven by lower deposit balances in both periods. Noninterest income increased $173 million from second quarter 2018, and $21 million from the first half of 2018, in both periods primarily due to the 2018 impairment on the sale of our ownership stake in RockCreek and higher deferred compensation plan investments (offset in employee benefits expense), partially offset by lower asset-based fees and lower brokerage transaction revenue. Asset-based fees decreased due to lower brokerage advisory account client assets driven by higherlower market valuations.valuations at the end of 2018. Average loans of $74.6$75.0 billion in thirdsecond quarter 2018 and $74.42019 were flat compared with the same period a year ago, while average loans of $74.7 billion in the first nine monthshalf of 20182019 increased 3% and 4%, respectively,1% from the same periodsperiod a year ago, driven by growth in nonconforming mortgage loans. Average deposits of $143.5 billion in thirdsecond quarter 2019 decreased $23.6 billion, or 14%, from second quarter 2018, and average deposits of $159.8$148.3 billion decreased 13% from third quarter 2017. Average deposits in the first nine monthshalf of 2019 decreased $24.2 billion, or 14%, from the first half of 2018, decreased 12% from the same period a year ago, as customers moved depositscontinued to allocate more cash into other investmenthigher yielding liquid alternatives. Noninterest expense was up 5%down 3% from thirdsecond quarter 2017,2018, and updown 2% from the first half of 2018, in both periods driven by lower core deposit and other intangibles amortization expense, lower operating losses, and lower broker commissions, partially offset by higher employee benefits expense primarily from higher deferred compensation
 
6%plan expense (offset in net gains from the first nine months of 2017, driven by higher project and technology spending on regulatory and compliance related initiatives, higherequity securities). Second quarter 2018 operating losses including remediationincluded $114 million of non-litigation expense related to fee calculations within certain fiduciary and custody accounts in our wealth management business, and higher broker commissions, partially offset by lower deferred compensation plan expense (offset in net gains from equity securities).business. The provision for credit losses increased $7$1 million from thirdsecond quarter 20172018 and decreased $4$11 million from the first nine monthshalf of 2017.2018.
The following discussions provide additional information for client assets we oversee in our retail brokerage advisory and trust and investment management business lines.


Retail Brokerage Client Assets Brokerage advisory, commissions and other fees are received for providing full-service and discount brokerage services predominantly to retail brokerage clients. Offering advisory account relationships to our brokerage clients is an important component of our broader strategy of meeting their financial needs. Although a majority of our retail brokerage client assets are in accounts that earn brokerage commissions, the fees from those accounts generally represent transactional commissions based on the number and size of transactions executed at the client’s direction. Fees earned from advisory accounts are asset-based and dependbased on changes ina percentage of the market value of the client’s 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 the level of assets resulting fromasset 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 SeptemberJune 30, 20182019 and 2017.2018.
Table 4d:Retail Brokerage Client Assets
 September 30, 
($ in billions)2018
 2017
Retail brokerage client assets$1,642.1
 1,612.1
Advisory account client assets560.5
 521.8
Advisory account client assets as a percentage of total client assets34% 32
Earnings Performance (continued)




 June 30, 
($ in billions)2019
 2018
Retail brokerage client assets$1,620.5
 1,623.7
Advisory account client assets561.3
 542.6
Advisory account client assets as a percentage of total client assets35% 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, which vary across the account types based on the distinct services provided,
For second quarter 2019 and are affected by investment performance as well as asset inflows and outflows. For the third quarter of 2018, and 2017, 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 thirdsecond quarter and first nine monthshalf of 20182019 and 2017.2018.
Earnings Performance (continued)




Table 4e:Retail Brokerage Advisory Account Client Assets
Quarter ended  Nine months ended Quarter ended  Six months 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
 Balance, beginning of period
Inflows (1)
Outflows (2)
Market impact (3)
Balance, end of period
September 30, 2018    
June 30, 2019     
Client directed (4)$167.5
8.4
(9.8)5.4
171.5
 170.9
26.0
(30.1)4.7
171.5
$163.6
8.6
(9.7)3.7
166.2
 $151.5
16.5
(19.0)17.2
166.2
Financial advisor directed (5)150.0
6.9
(7.5)7.4
156.8
 147.0
22.5
(24.0)11.3
156.8
156.9
8.6
(8.7)6.4
163.2
 141.9
16.1
(16.4)21.6
163.2
Separate accounts (6)147.2
6.2
(6.8)6.0
152.6
 149.1
18.6
(21.1)6.0
152.6
148.3
6.2
(8.0)5.4
151.9
 136.4
11.8
(14.9)18.6
151.9
Mutual fund advisory (7)77.9
3.1
(3.5)2.1
79.6
 75.8
10.3
(9.8)3.3
79.6
77.9
2.9
(3.5)2.7
80.0
 71.3
5.7
(6.7)9.7
80.0
Total advisory client assets$542.6
24.6
(27.6)20.9
560.5
 542.8
77.4
(85.0)25.3
560.5
$546.7
26.3
(29.9)18.2
561.3
 $501.1
50.1
(57.0)67.1
561.3
September 30, 2017    
June 30, 2018     
Client directed (4)$163.8
8.2
(8.9)3.7
166.8
 159.1
28.5
(30.1)9.3
166.8
$168.4
8.2
(11.1)2.0
167.5
 $170.9
17.6
(20.3)(0.7)167.5
Financial advisor directed (5)131.7
6.7
(5.2)6.0
139.2
 115.7
23.0
(17.4)17.9
139.2
148.6
7.5
(9.5)3.4
150.0
 147.0
15.6
(16.5)3.9
150.0
Separate accounts (6)137.7
5.6
(5.0)4.7
143.0
 125.7
20.1
(17.2)14.4
143.0
146.6
5.6
(7.0)2.0
147.2
 149.1
12.4
(14.3)—
147.2
Mutual fund advisory (7)69.3
3.2
(2.3)2.6
72.8
 63.3
9.9
(8.0)7.6
72.8
76.8
3.2
(3.3)1.2
77.9
 75.8
7.2
(6.3)1.2
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
$540.4
24.5
(30.9)8.6
542.6
 $542.8
52.8
(57.4)4.4
542.6
(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 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.


Trust and Investment Client Assets Under Management We earn trust and investment management fees from managing and administering assets, including mutual funds, institutional separate accounts, personal trust, employee benefit trust and agency assets through our asset management, wealth and retirement businesses. Our asset management business is conducted by Wells Fargo Asset Management (WFAM), which offers Wells Fargo proprietary mutual funds and manages institutional separate accounts. Our wealth business manages
assets for high net worth clients, and our retirement business
provides total retirement management, investments, and trust and custody solutions tailored to meet the needs of institutional clients. Substantially all of our trust and investment management fee income is earned from AUM where we have discretionary management authority over the investments and generate fees as a percentage of the market value of the AUM. Table 4f presents AUM activity for the thirdsecond quarter and first nine monthshalf of 20182019 and 2017.2018.
Table 4f:WIM Trust and Investment – Assets Under Management
Quarter ended 
Nine months ended Quarter ended 
Six months 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
 Balance, beginning of period
Inflows (1)
Outflows (2)
Market impact (3)
Balance, end of period
September 30, 2018    
June 30, 2019     
Assets managed by WFAM (4):  

    

   
Money market funds (5)$107.7
—
(0.4)—
107.3
 108.2
—
(0.9)—
107.3
$109.5
10.3
—
—
119.8
 $112.4
7.4
—
—
119.8
Other assets managed386.5
19.7
(35.2)4.3
375.3
 395.7
66.3
(91.7)5.0
375.3
367.0
22.2
(23.0)9.1
375.3
 353.5
41.5
(44.9)25.2
375.3
Assets managed by Wealth and Retirement (6)183.2
7.3
(8.7)4.0
185.8
 186.2
26.8
(30.4)3.2
185.8
181.4
8.2
(11.2)3.5
181.9
 170.7
17.4
(21.6)15.4
181.9
Total assets under management$677.4
27.0
(44.3)8.3
668.4
 690.1
93.1
(123.0)8.2
668.4
$657.9
40.7
(34.2)12.6
677.0
 $636.6
66.3
(66.5)40.6
677.0
September 30, 2017    
June 30, 2018     
Assets managed by WFAM (4):
 
 
  
 
 
   
Money market funds (5)$94.7
7.7
—
—
102.4
 102.6
—
(0.2)—
102.4
$105.0
2.7
—
—
107.7
 $108.2
—
(0.5)—
107.7
Other assets managed392.5
25.4
(31.2)7.3
394.0
 379.6
89.0
(98.8)24.2
394.0
391.8
20.9
(27.3)1.1
386.5
 395.7
46.6
(56.5)0.7
386.5
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
183.3
9.1
(10.3)1.1
183.2
 186.2
19.5
(21.7)(0.8)183.2
Total assets under management$662.8
43.2
(39.9)11.3
677.4
 650.7
118.5
(128.1)36.3
677.4
$680.1
32.7
(37.6)2.2
677.4
 $690.1
66.1
(78.7)(0.1)677.4
(1)Inflows include new managed account assets, contributions, dividends and interest.
(2)Outflows include closed managed account assets, withdrawals and client management fees.
(3)Market impact reflects gains and losses on portfolio investments.
(4)Assets managed by 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 $4.9$4.5 billion and $5.7$5.2 billion as of SeptemberJune 30, 20182019 and 2017,2018, respectively, of client assets invested in proprietary funds managed by WFAM.


Balance Sheet Analysis (continued)


Balance Sheet Analysis 
At SeptemberJune 30, 2018,2019, our assets totaled $1.87$1.92 trillion, down $78.8up $27.5 billion from December 31, 2017. Asset decline2018. The asset growth was driven by declinesincreases in interest-earning deposits with banks, available-for-sale debtfederal funds sold and securities purchased under resale agreements and loans,equity securities, which decreasedincreased by $51.8 billion, $13.4$31.9 billion and $14.5$6.4 billion, respectively, from December 31, 2017.2018. Liabilities totaled $1.7$1.72 trillion, down $70.4up $24.5 billion from December 31, 2017.2018. The declineincrease in liabilities was due to declinesincreases in total depositsshort-term borrowings and long-term debt, which decreasedincreased by $69.4$9.6 billion and $3.7$12.4 billion, respectively, from December 31, 2017.2018. Total equity decreasedincreased by $8.4$3.0 billion from December 31, 2017,2018, predominantly due to a $4.7$4.1 billion decline in cumulativeincrease
 
in cumulative other comprehensive income a $10.6 billiondriven largely by the increase in treasury stock,fair value of available-for-sale debt securities, and a $1.9 billion decline in preferred stock, partially offset by a $9.3$6.4 billion increase in retained earnings, net of dividends paid.paid, partially offset by a $7.6 billion increase in 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 2223 (Regulatory and Agency Capital Requirements) to Financial Statements in this Report.


Available-for-Sale and Held-to-Maturity Debt Securities
Table 5:Available-for-Sale and Held-to-Maturity Debt Securities
September 30, 2018  December 31, 2017 June 30, 2019  December 31, 2018 
(in millions)Amortized Cost
 
Net
 unrealized
gain (loss)

 Fair value
 Amortized Cost
 
Net
unrealized
gain (loss)

 Fair value
Amortized cost
 
Net
 unrealized
gain (loss)

 Fair value
 Amortized cost
 
Net
unrealized
gain (loss)

 Fair value
Available-for-sale266,722
 (3,758) 262,964
 275,096
 1,311
 276,407
263,458
 2,525
 265,983
 272,471
 (2,559) 269,912
Held-to-maturity144,131
 (5,095) 139,036
 139,335
 (350) 138,985
145,876
 1,988
 147,864
 144,788
 (2,673) 142,115
Total (1)$410,853
 (8,853) 402,000
 414,431
 961
 415,392
$409,334
 4,513
 413,847
 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 available-for-sale and held-to-maturity debt securities, which decreased $8.6$2.8 billion in balance sheet carrying value from December 31, 2017,2018, largely due to net declines in federal agency mortgage-backed securities, residential mortgage-backed securities, securities of U.S. states and political subdivisions and corporatecollateralized debt obligations, partially offset by net purchases of U.S. Treasury and federal agency debt securities.
The total net unrealized lossesgains on available-for-sale debt securities were $3.8$2.5 billion at SeptemberJune 30, 2018, down2019, up from net unrealized gainslosses of $1.3$2.6 billion at December 31, 2017,2018, primarily due to higher long-termlower U.S. interest rates. For a discussion of our investment management objectives and practices, see the “Balance Sheet Analysis” section in our 20172018 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. In the first nine monthshalf of 2018,2019, we recognized $23$52 million of OTTI write-downs on debt 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 20172018 Form 10-K and Note 5 (Available-for-Sale and Held-to-Maturity Debt Securities) to Financial Statements in this Report.
At SeptemberJune 30, 2018,2019, debt securities included $54.5$53.0 billion of municipal bonds, of which 94.1%96.1% 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 6.25.0 years at SeptemberJune 30, 2018.2019. The expected remaining maturity is shorter than the remaining contractual maturity for the 61% 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, 2018    
At June 30, 2019    
Actual$160.5
 (4.8) 6.4$161.3
 1.4
 4.5
Assuming a 200 basis point:        
Increase in interest rates142.2
 (23.1) 8.4146.0
 (13.9) 6.8
Decrease in interest rates173.1
 7.8
 3.6170.7
 10.8
 3.3
The weighted-average expected maturity of debt securities held-to-maturity (HTM) was 6.24.5 years at SeptemberJune 30, 2018.2019. 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 5 (Available-for-Sale and Held-to-Maturity Debt Securities) to Financial Statements in this Report for a summary of debt 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 $14.5$3.2 billion from December 31, 2017,2018, with a decline in both commercial and consumer loans. Consumer loans were down $2.1 billion from December 31, 2018, as growth in the real estate loans reflecting continued credit discipline, partially offset by growth in commercial and industrial loans. The decrease in loans also reflected paydowns, sales of 1-4 family first mortgage and automobile loan portfolios was more than offset by the sale of $3.5 billion of Pick-a-Pay PCI Pick-a-loans, the
 
Payreclassification of $1.8 billion of real estate 1-4 family first mortgage loans to MLHFS, and a continued decline in junior lien mortgage loans reclassificationas paydowns continued to exceed originations in the first half of automobile2019. Commercial loans of Reliable Financial Services, Inc. to loans held for sale, and an expected declinewere down $1.2 billion from December 31, 2018, as growth in automobile loans as originations wereour credit investment portfolio was more than offset by paydowns.

declines across several commercial industry categories.
Table 7:Loan Portfolios
(in millions)September 30, 2018
 December 31, 2017
June 30, 2019
 December 31, 2018
Commercial$501,886
 503,388
$512,245
 513,405
Consumer440,414
 453,382
437,633
 439,705
Total loans$942,300
 956,770
$949,878
 953,110
Change from prior year-end$(14,470) (10,834)$(3,232) (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 6 (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, 2018  December 31, 2017  June 30, 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 $104,800
 208,060
 25,188
 338,048
 105,327
 201,530
 26,268
 333,125
 $109,939
 210,083
 28,824
 348,846
 109,566
 213,425
 27,208
 350,199
Real estate mortgage 16,301
 63,006
 41,096
 120,403
 20,069
 64,384
 42,146
 126,599
 16,089
 65,324
 41,595
 123,008
 16,413
 63,648
 40,953
 121,014
Real estate construction 9,725
 12,687
 1,278
 23,690
 9,555
 13,276
 1,448
 24,279
 9,663
 10,575
 829
 21,067
 9,958
 11,343
 1,195
 22,496
Total selected loans $130,826
 283,753
 67,562
 482,141
 134,951
 279,190
 69,862
 484,003
 $135,691
 285,982
 71,248
 492,921
 135,937
 288,416
 69,356
 493,709
Distribution of loans to changes in interest
rates:
                                
Loans at fixed interest rates $16,989
 28,680
 27,951
 73,620
 18,587
 30,049
 26,748
 75,384
 $17,815
 26,912
 28,872
 73,599
 17,619
 28,545
 28,163
 74,327
Loans at floating/variable interest rates 113,837
 255,073
 39,611
 408,521
 116,364
 249,141
 43,114
 408,619
 117,876
 259,070
 42,376
 419,322
 118,318
 259,871
 41,193
 419,382
Total selected loans $130,826
 283,753
 67,562
 482,141
 134,951
 279,190
 69,862
 484,003
 $135,691
 285,982
 71,248
 492,921
 135,937
 288,416
 69,356
 493,709


Balance Sheet Analysis (continued)


Deposits
Deposits were $1.3 trillion at SeptemberJune 30, 2018, down $69.42019, up $2.3 billion from December 31, 2017,2018, due to an increase in mortgage escrow deposits reflecting an inflow of higher mortgage payoffs to be remitted to investors in accordance with servicing contracts, partially offset by a decrease in commercial deposits from financial institutions and a decline in consumer and small business banking deposits. The decline in commercial deposits from financial institutions was due to actions taken in the first half of 2018 in response to the asset cap included in the consent order issued by the Board of Governors of the Federal Reserve System on February 2, 2018, and declines across many businesses as commercial customers allocated more
cash to higher-rate alternative investments. The declinedecrease in consumer and small business banking deposits was due todriven by seasonality as well as higher balance customers moving a portion of those balances to other cash
higher rate liquid alternatives, offering higher rates.partially offset by growth in certificates of deposit (CDs) and high-yield savings that was driven by an increase in promotional activity. Table 9 provides additional information regarding deposits. Information regarding the impact of deposits on net interest income and a comparison of average deposit balances is provided in the “Earnings Performance – Net Interest Income” section and Table 1 earlier in this Report. 
Table 9:Deposits
($ in millions)Sep 30,
2018
 
% of
total
deposits

 Dec 31,
2017
 % of
total
deposits
 

% Change

Jun 30,
2019
 
% of
total
deposits

 Dec 31,
2018
 % of
total
deposits
 

% Change

Noninterest-bearing$352,869
 27% $373,722
 28% (6)$340,813
 26% $349,534
 27% (2)
Interest-bearing checking49,517
 4
 51,928
 4
 (5)54,722
 4
 56,797
 4
 (4)
Market rate and other savings695,291
 55
 690,168
 52
 1
713,219
 56
 703,338
 55
 1
Savings certificates21,257
 2
 20,415
 2
 4
32,379
 3
 22,648
 2
 43
Other time deposits89,824
 7
 71,715
 4
 25
93,868
 7
 95,602
 7
 (2)
Deposits in foreign offices (1)57,836
 5
 128,043
 10
 (55)53,425
 4
 58,251
 5
 (8)
Total deposits$1,266,594
 100% $1,335,991
 100% (5)$1,288,426
 100% $1,286,170
 100% —
(1)Includes Eurodollar sweep balances of $29.7$26.4 billion and $80.1$31.8 billion at SeptemberJune 30, 2018,2019, and December 31, 2017,2018, respectively.
Fair Value of Financial Instruments
We use fair value measurements to record fair value adjustments to certain financial instruments and to determine fair value disclosures. See the “Critical Accounting Policies” section in our 20172018 Form 10-K and Note 1516 (Fair Values of Assets and Liabilities) to Financial Statements in this Report for a description of our critical accounting policy related to fair value of financial instruments and a discussion of our fair value measurement techniques.
Table 10 presents the summary of the fair value of financial instruments recorded at fair value on a recurring basis, and the amounts measured using significant Level 3 inputs (before derivative netting adjustments). The fair value of the remaining assets and liabilities were measured using valuation methodologies involving market-based or market-derived information (collectively Level 1 and 2 measurements).
Table 10:Fair Value Level 3 Summary
September 30, 2018  December 31, 2017 June 30, 2019  December 31, 2018 
($ 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
$409.7
 27.9
 416.6
 24.9
$415.1
 24.9
 408.4
 25.3
As a percentage
of total assets
22% 1
 21
 1
22% 1
 22
 1
Liabilities carried
at fair value
$32.6
 2.0
 27.3
 2.0
$24.4
 2.3
 28.2
 1.6
As a percentage of
total liabilities
2% *
 2
 *
1% *
 2
 *
* Less than 1%.
(1)Before derivative netting adjustments.


 
See Note 1516 (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 $199.7$200.0 billion at SeptemberJune 30, 2018,2019, compared with $208.1$197.1 billion at December 31, 2017.2018. The decreaseincrease was driven by a $4.7$4.1 billion declineincrease in cumulative other comprehensive income predominantlyprimarily due to fair value adjustments to available-for-sale securities caused bya decrease in U.S. interest rates resulting in an increase in long-term interest rates, a $10.6 billion increase in treasury stock,the value of available-for-sale debt securities, and a $1.9 billion decline in preferred stock, partially offset by a $9.3$6.4 billion increase in retained earnings net of dividends paid.paid, partially offset by a $7.6 billion increase in 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 6 (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 1213 (Guarantees, Pledged Assets and Collateral, and Other Commitments) to Financial Statements in this Report. We also may enter into commitments to purchase debt and equity securities to provide capital for customers'customers’ funding, liquidity or other future needs. For more information, see the “Off-Balance Sheet Arrangements – Contractual Cash Obligations” section in our 20172018 Form 10-K and Note 1213 (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 910 (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 1213 (Guarantees, Pledged Assets and 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 1415 (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. Our operating lease obligations are discussed in Note 7 (Premises, Equipment, Lease Commitments and Other Assets) to Financial Statements in our 2017 Form 10-K.


Risk Management - Overview (continued)


Risk Management
Wells Fargo manages a variety of risks that can significantly affect our financial performance and our ability to meet the expectations of our customers, stockholders,shareholders, regulators and other stakeholders. We operate under a Board 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. During third quarterFor more information about how we manage risk, see the “Risk Management” section in our 2018 our Board's Risk Committee approved enhancements to our risk management framework. We believe these enhancements transform and clarify our risk management approach by emphasizing the role of risk management when setting corporate strategy and by further rationalizing and integrating certain risk management organizational, governance and reporting practices.Form 10-K. The discussion that follows updatessupplements our discussion of riskthe management of certain risks contained in the “Risk Management” section in our 20172018 Form 10-K.

Risk Management Framework
Our risk management framework defines how we manage risk in a comprehensive, integrated and consistent manner and lays out our vision for the risk management of the organization. It reinforces each team member’s personal accountability for risk management and is built on a foundation that begins with a deep understanding of the Company’s processes, risks and controls. Our risk management framework also supports members of senior management in achieving the Company’s strategic objectives and priorities, and it supports the Board as it carries out its risk oversight responsibilities.
The risk management framework consists of three lines of defense: (1) the front line which consists of Wells Fargo’s risk-generating activities, including all activities of its four primary business groups (Consumer Banking; Wholesale Banking; Wealth and Investment Management; and Payments, Virtual Solutions & Innovation) and certain activities of its enterprise functions (Human Resources, Enterprise Finance, Technology, Legal Department, Corporate Risk, and Wells Fargo Audit Services); (2) independent risk management, which consists of our Corporate Risk function and is led by our Chief Risk Officer (CRO) who reports to the Board’s Risk Committee; and (3) internal audit, which is Wells Fargo Audit Services and is led by our Chief Auditor who reports to the Board’s Audit & Examination Committee. In addition to the three lines of defense, our risk management framework includes enterprise control activities, which are certain specialized activities performed within centralized enterprise functions (such as Human Resources and the Legal Department) with a focus on controlling specific risks. Key elements of our risk management framework include:
Astrong culture that emphasizes each team member’s ownership and understanding of risk. We want to cultivate an environment that expects and promotes robust communication and cooperation among the three lines of defense and supports identifying, escalating and addressing current and emerging risk issues.
A company-wide statement of risk appetite that guides business and risk leaders as they manage risk on a daily basis. The company-wide statement of risk appetite describes the nature and magnitude of risk that the Company is willing to assume in pursuit of its business and strategic objectives, consistent with capital, liquidity and other regulatory requirements.
A risk management governance structure, including escalation requirements and a committee structure that helps provide comprehensive oversight of the risks we face.
A company-widerisk inventory that promotes a standardized and systematic process to identify and quantify risks at the business group and enterprise level to guide strategic business decisions and capital planning efforts.
Policies, procedures and controls which form an integrated risk management program that promotes active, prompt, and consistent identification, measurement, assessment, control, mitigation, reporting and monitoring of current and emerging risk exposures across Wells Fargo and are integrated with clear enterprise risk roles and responsibilities for the three lines of defense.
Three lines of defense that are closely integrated, each with specific roles and responsibilities for risk management and a clear engagement model that promotes challenge and appropriate escalation of issues and information.

Board and Management-level Committee Structure
Wells Fargo’s Board committee and management-level governance committee structures are designed to ensure that key risks are identified and escalated and, if necessary, decided upon at the appropriate level of the Company. Accordingly, the structure is composed of defined escalation and reporting paths from the front line to independent risk management and management-level governance committees and, ultimately, to the Board as appropriate. Each management-level governance committee has defined escalation processes, authorities and responsibilities as outlined in each of their charters. Our Board committee and management-level governance committee structures, and the primary risk oversight responsibilities of each of those committees, is presented in Table 11.

Table 11:Board and Management-level Governance Committee Structure
Wells Fargo & Company
Board Committees and Primary Risk Oversight Responsibility
Audit & Examination Committee (1)Finance CommitteeCorporate Responsibility Committee
Risk
Committee (2)
Governance & Nominating CommitteeCredit CommitteeHuman Resources Committee
Financial, regulatory and risk reporting and controlsInterest Rate Risk
Market Risk		Social and public responsibility matters
COMPANY-WIDE RISKS
- Compliance
- Conduct
- Data
- Financial Crimes
- Information Security
- Liquidity
- Model
- Operational
- Reputation
- Strategic
- Technology
Board-level governance matters

Credit RiskCulture, ethics, human capital management and compensation
Management-level Governance Committees (3)
Regulatory and Risk Reporting Oversight CommitteeCapital Adequacy Process Committee
Enterprise
Risk & Control
Committee (4)

Corporate Allowance for Credit Losses Approval Governance Committee
Incentive Compensation Committee

SOX Disclosure Committee

Capital Management Committee


Corporate Asset and Liability Committee
Recovery and Resolution Committee
Management Reporting Oversight Committee
(1)The Audit & Examination Committee additionally oversees the internal audit function, external auditor independence, activities, and performance, and the disclosure framework for financial, regulatory and risk reports prepared for the Board, management, and bank regulatory agencies, and assists the Board in its oversight of the Company’s compliance with legal and regulatory requirements.
(2)The Risk Committee also has a compliance subcommittee and a technology subcommittee to assist it in providing oversight of those risks.
(3)Pursuant to their charters, many of the management-level governance committees have formed one or more sub-committees to address specific risk matters.
(4)Certain committees report to the Enterprise Risk & Control Committee and have dual escalation and informational reporting paths to Board committees.
Board Oversight of Risk
The business and affairs of the Company are managed under the direction of the Board, whose responsibilities include overseeing the implementation of the Company’s risk management framework and the ongoing oversight and governance of the Company’s risk management activities. The Board carries out its risk oversight responsibilities directly and through the work of its seven standing committees, which all report to the full Board. Each Board committee works closely with management to understand and oversee the Company’s key risk exposures.
The Risk Committee oversees company-wide risks. The Board’s other standing committees also have primary oversight responsibility for certain specific risk matters, as highlighted in Table 11.
The Risk Committee additionally oversees the Company's Corporate Risk function and plays an active role in approving and overseeing the Company’s risk management framework. The Risk Committee and the full Board review and approve the enterprise statement of risk appetite annually, and the Risk Committee also actively monitors the risk profile relative to the approved risk appetite.
The full Board receives reports at each of its regular meetings from the Board committee chairs about committee activities, including risk oversight matters, and the Risk Committee receives periodic reports from management regarding current or emerging risk matters.

Risk Management - Overview (continued)

Management Oversight of Risk
The Company’s management-level governance committees are designed to enable understanding, consideration and decision-making of significant risk and control matters at the appropriate level of the Company and by the appropriate mix of executives. Each committee has a defined set of authorities and responsibilities as set forth in its charter, and each committee has defined escalation paths and risk reporting responsibilities, including to the Board or Board committees, as appropriate.
The Company recently enhanced its management-level governance committee structure by replacing its Enterprise Risk Management Committee with an Enterprise Risk & Control Committee. The Company also integrated many of the risk-specific responsibilities of committees that previously reported to the Enterprise Risk Management Committee into new Risk & Control Committees for each business group and enterprise function. We believe these changes promote greater focus on the risks and corresponding controls within each business group and enterprise function.
The Enterprise Risk & Control Committee is co-chaired by the Company’s CEO and CRO and has a direct escalation path to the Board’s Risk Committee. The Enterprise Risk & Control Committee governs the management of financial risks, non-financial risks, and enterprise and other risk programs. It considers and makes decisions on risk and control matters, addresses escalated issues, actively oversees risk mitigation, and provides regular updates to the Board’s Risk Committee regarding emerging risks and senior management’s assessment of the effectiveness of the Company’s risk management program. It also may escalate other risk and control matters to other Board committees as appropriate based on their primary risk oversight responsibilities. The Risk & Control Committee for each business group and enterprise function reports to the Enterprise Risk & Control Committee and each have a mandate that mirrors the Enterprise Risk & Control Committee but is limited to the relevant business group or enterprise function. The focus of these committees is on the risks that each group or function generates and each of these committees is responsible for managing, and on the controls each group or function is expected to have in place. Additionally, there are standalone specific risk type- or program-specific management-level risk governance committees reporting to the Enterprise Risk & Control Committee to help provide complete and comprehensive governance for certain risk areas. To supplement our management-level governance committees, additional management forums exist to support broader and deeper reviews, examinations, and discussions of enterprise wide views of risk.
While the Enterprise Risk & Control Committee and the committees that report to it serve as the focal point for the management of company-wide risk matters, the management of certain specific risk types is supported by additional management-level governance committees, which all report to at least one of the Board’s standing committees.
The Corporate Risk function, which is the Company’s independent risk management organization, is headed by the Company’s CRO who, among other things, is responsible for setting the strategic direction and driving the execution of Wells Fargo’s risk management activities. The Corporate Risk function provides senior management and the Board with an independent perspective of the level of risk to which the Company is exposed.
Corporate Risk develops our enterprise statement of risk appetite in the context of our risk management framework described above. As part of Wells Fargo’s risk appetite, we maintain metrics along with associated objectives to measure and monitor the amount of risk that the Company is prepared to take.
Actual results of these metrics are reported to the Enterprise Risk & Control Committee on a quarterly basis as well as to the Board’s Risk Committee. Our business groups also have business-specific risk appetite statements based on the enterprise statement of risk appetite. The metrics included in the business group statements are harmonized with the enterprise level metrics to ensure consistency where appropriate. Business lines also maintain metrics and qualitative statements that are unique to their line of business. This allows for monitoring of risk and definition of risk appetite deeper within the organization.
The Company’s senior management, including the CRO and Chief Auditor, work closely with the Board’s committees and provide reports and updates on an ongoing basis to those committees and the committee chairs on risk matters during and outside of regular committee meetings, as appropriate.

Operational Risk Management
Operational risk is the risk resulting from inadequate or failed controls, internal processes, people and systems, or external events. Operational risk is inherent in all Wells Fargo activities.
The Board’s Risk Committee has primary oversight responsibility for all aspects of operational risk, including significant policies and programs regarding the Company’s business continuity, data management, information security, privacy, technology, and third-party risk management. As part of its oversight responsibilities, the Board’s Risk Committee approves operational risk appetite qualitative statements including inner and outer boundaries, reviews and approves significant operational risk policies, and oversees the Company’s ongoing operational risk management program.
At the management level, the Operational Risk function, which is part of Corporate Risk, has primary oversight responsibility for operational risk. The Operational Risk function reports to the CRO and also provides periodic reporting related to operational risk to the Board’s Risk Committee. In addition, the Risk & Control Committee for each business group and enterprise function reports operational risk matters to the Enterprise Risk & Control Committee.
Information security is a significant operational risk for financial institutions such as Wells Fargo, and includes the risk of losses resulting from cyber attacks. Our Board is actively engaged in the oversight of the Company’s information security risk management and cyber defense programs. The Board’s Risk Committee has primary oversight responsibility for information security and receives regular updates and reporting from management on information and cyber security matters, including information related to any third-party assessments of the Company’s cyber program. In addition, the Risk Committee annually approves the Company’s information security program which includes the cyber defense program and information security policy. In 2017, the Risk Committee also formed a Technology Subcommittee to assist it in providing oversight of technology, information security, and cyber risks as well as data governance and management. The Technology Subcommittee reports to the Risk Committee and updates are provided by the Risk Committee and the Technology Subcommittee to the full Board.
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, commit fraud, or obtain confidential, proprietary or other information. Cyber attacks have also focused on targeting online applications and services, such as online banking, as well as cloud-based services provided by

third parties, and have targeted the infrastructure of the internet causing the widespread unavailability of websites and degrading website performance. Wells Fargo has not experienced any material losses relating to these or other cyber attacks. Addressing cybersecurity risks is a priority for Wells Fargo, and we continue to develop and enhance our controls, processes and systems in order to protect our networks, computers, software and data from attack, damage or unauthorized access. We are also proactively involved in industry cybersecurity efforts and working with other parties, including our third-party service providers and governmental agencies, to continue to enhance defenses and improve resiliency to cybersecurity threats. See the “Risk Factors” section in our 2017 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.

Compliance Risk Management
Compliance risk is the risk resulting from the failure to comply with applicable laws, regulations, rules, and other regulatory requirements, and the failure to appropriately address and limit violations of law and any associated harm to customers. Compliance risk encompasses other standards of self-regulatory organizations applicable to the banking industry as well as nonconformance with applicable internal policies and procedures.
The Board’s Risk Committee has primary oversight responsibility for compliance risk. In 2017, the Risk Committee also formed a Compliance Subcommittee to assist it in providing oversight of compliance risk. The Compliance Subcommittee reports to the Risk Committee and updates are provided by the Risk Committee and the Compliance Subcommittee to the full Board.
At the management level, Wells Fargo Compliance, which is part of Corporate Risk, monitors the implementation of the Company’s compliance program. Wells Fargo Compliance reports to the CRO and also provides periodic reporting related to compliance risk to the Board’s Risk Committee and Compliance Subcommittee. In addition, the Risk & Control Committee for each business group and enterprise function reports compliance risk matters to the Enterprise Risk & Control Committee. We continue to enhance our oversight of operational and compliance risk management, including as required by the FRB’s February 2, 2018, and the BCFP/OCC’s April 20, 2018, consent orders.

Conduct Risk ManagementConduct risk, a sub-category of compliance risk, is the risk resulting from inappropriate, unethical, or unlawful behavior on the part of team members or individuals acting on behalf of the Company, caused by deliberate actions or business practices.
Our Board has enhanced its oversight of conduct risk to oversee the alignment of team member conduct to the Company’s risk appetite (which the Board approves annually) and culture as reflected in our Vision, Values & Goals andCode of Ethics and Business Conduct. The Board’s Risk Committee has primary oversight responsibility for company-wide conduct risk, while the responsibilities of the Board’s Human Resources Committee include oversight of the Company’s company-wide culture, Code of Ethics and Business Conduct, conflicts of interest program, human capital management and incentive compensation risk management program.
At the management level, the Conduct Management Office has primary oversight responsibility for key elements of conduct risk, including internal investigations, sales practices oversight, complaints oversight, and ethics oversight. The Conduct
Management Office reports to the CRO and also provides periodic reporting related to conduct risk to the relevant Board committees. In addition, the Risk & Control Committee for each business group and enterprise function reports conduct risk matters to the Enterprise Risk & Control Committee.
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 CROChief Risk Officer (CRO) and also provides periodic reporting related to credit risk to the Board'sBoard’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 1211 presents our total loans outstanding by portfolio segment and class of financing receivable.
Table 12:11:Total Loans Outstanding by Portfolio Segment and Class of Financing Receivable
(in millions)Sep 30, 2018
 Dec 31, 2017
Jun 30, 2019
 Dec 31, 2018
Commercial:      
Commercial and industrial$338,048
 333,125
$348,846
 350,199
Real estate mortgage120,403
 126,599
123,008
 121,014
Real estate construction23,690
 24,279
21,067
 22,496
Lease financing19,745
 19,385
19,324
 19,696
Total commercial501,886
 503,388
512,245
 513,405
Consumer:      
Real estate 1-4 family first mortgage284,273
 284,054
286,427
 285,065
Real estate 1-4 family junior lien mortgage35,330
 39,713
32,068
 34,398
Credit card37,812
 37,976
38,820
 39,025
Automobile46,075
 53,371
45,664
 45,069
Other revolving credit and installment36,924
 38,268
34,654
 36,148
Total consumer440,414
 453,382
437,633
 439,705
Total loans$942,300
 956,770
$949,878
 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


Risk Management - Credit Risk Management (continued)

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 OverviewSolidcredit quality continued in thirdsecond quarter 2018,2019, as our net charge-off rate remained low at 0.29%0.28% (annualized) of average total loans. We continued to benefit from improvementsSecond quarter 2019 results reflected:
•
Nonaccrual loans were $5.9 billion at June 30, 2019, down from $6.5 billion at December 31, 2018. Commercial nonaccrual loans increased to $2.5 billion at June 30, 2019, compared with $2.2 billion at December 31, 2018, and consumer nonaccrual loans declined to $3.5 billion at June 30, 2019, compared with $4.3 billion at December 31, 2018. The overall decrease in nonaccrual loans was primarily due to a decrease in consumer nonaccruals from the reclassification of $373 million of real estate 1-4 family first mortgage nonaccrual loans to MLHFS. Nonaccrual loans represented 0.62% of total loans at June 30, 2019, compared with 0.68% at December 31, 2018.
•
Net charge-offs (annualized) as a percentage of average total loans were 0.28% and 0.29% in the second quarter and first half of 2019, respectively, compared with 0.26% and 0.29% for the same periods a year ago. Net charge-offs (annualized) as a percentage of our average commercial and consumer portfolios were 0.13% and 0.45% in second quarter 2019 and 0.12% and 0.48% in the first half of 2019, respectively, compared with 0.05% and 0.49% in second quarter 2018 and 0.06% and 0.54% in the first half of 2018.
•
Loans that are not government insured/guaranteed and 90 days or more past due and still accruing were $41 million and $739 million in our commercial and consumer portfolios, respectively, at June 30, 2019, compared with $94 million and $885 million at December 31, 2018.
•
Our provision for credit losses was $503 million and $1.3 billion in the second quarter and first half of 2019, respectively, compared with $452 million and $643 million for the same periods a year ago. The increase in provision for credit losses in second quarter 2019, compared with the same period a year ago, primarily reflected loan growth. The increase in the first half of 2019, compared with the same period a year ago, was 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 the performance of our residential real estate portfolio as well as seasonally lower credit card losses, partially offset by seasonally higher automobile loan losses. For the fourth consecutivefirst quarter all of our commercial and consumer real estate loan portfolios were in a net recovery position. In particular:
Nonaccrual loans were $7.1 billion at September 30, 2018, down from $8.0 billion at December 31, 2017. Commercial nonaccrual loans declined to $2.3 billion at September 30, 2018, compared with $2.6 billion at December 31, 2017, and consumer nonaccrual loans declined to $4.8 billion at September 30, 2018, compared with $5.4 billion at December 31, 2017. The decline in nonaccrual loans reflected an improved housing market and credit reflecting improvement in commercial and industrial loans. Nonaccrual loans represented 0.75% of total loans at September 30, 2018, compared with 0.84% at December 31,our outlook for 2017. hurricane-related losses.
Net charge-offs (annualized) as a percentage of average total loans decreased to 0.29% in both the third quarter and first nine months of 2018, compared with 0.30% in both the third quarter and first nine months of 2017. Net charge-offs (annualized) as a percentage of our average commercial and consumer portfolios were 0.12% and 0.47% in the third quarter and 0.08% and 0.52% in the first nine months of 2018, respectively, compared with 0.09% and 0.53% in the third quarter and 0.09% and 0.54% in the first nine months of 2017.
Loans that are not government insured/guaranteed and 90 days or more past due and still accruing were $98 million and $835 million in our commercial and consumer portfolios, respectively, at September 30, 2018, compared with $49 million and $1.0 billion at December 31, 2017.
Our provision for credit losses was $580 million and $1.2 billion in the third quarter and first nine months of 2018, respectively, compared with $717 million and $1.9 billion for the same periods a year ago.
The allowance for credit losses totaled $11.0 billion, or 1.16% of total loans, at September 30, 2018, down from $12.0 billion, or 1.25%, at December 31, 2017.

•
The allowance for credit losses totaled $10.6 billion, or 1.12% of total loans, at June 30, 2019, down from $10.7 billion, or 1.12%, at December 31, 2018.
Additional information on our loan portfolios and our credit quality trends follows.


PURCHASED CREDIT-IMPAIRED (PCI) LOANSLoans 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, 2018, totaled $6.9 billion, compared with $12.8 billion at December 31, 2017, and $58.8 billion at December 31, 2008. The decrease from December 31, 2017, was due to the sales of $1.6 billion of Pick-a-Pay PCI loans in first quarter 2018, $1.3 billion in second quarter 2018, and $1.7 billion in third quarter 2018, as well as portfolio runoff. 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, 2018, was $4.4 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. At SeptemberThe carrying value of PCI loans at June 30, 2018, $419 million2019, totaled $1.2 billion, compared with $5.0 billion at December 31, 2018. The decline in nonaccretable difference remainedcarrying value was due to absorb losses onthe sale of $3.5 billion of Pick-a-Pay PCI loans.loans in the first half of 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 20172018 Form 10-K, and Note 6 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.



Significant Loan Portfolio ReviewsMeasuring and monitoring our credit risk is an ongoing process that tracks delinquencies, collateral values, Fair 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 6 (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 FINANCINGFor 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 segmented among special mention, substandard, doubtful and loss categories.
The commercial and industrial loans and lease financing portfolio totaled $357.8$368.2 billion, or 38%39% of total loans, at SeptemberJune 30, 2018.2019. The annualized net charge-off rate (annualized) for this portfolio was 0.17%0.18% and 0.12%0.17% in the thirdsecond quarter and first nine monthshalf of 2018,2019, respectively, compared with 0.15%0.08% and 0.10% for both of the same periods a year ago. At SeptemberJune 30, 2018,2019, 0.46% of this portfolio was nonaccruing, compared with 0.56%0.43% at December 31, 2017,2018, reflecting a decreasean increase of $324$121 million in nonaccrual loans predominantly due to improvementa customer in the utilities industry, as well as increases in the oil, gas and gas portfolio. Also, $16.8pipelines portfolio, partially offset by improvement across various industry categories. At June 30, 2019, $15.9 billion of the commercial and industrial loan and lease financing portfolio wasloans were internally classified as criticized in accordance with regulatory guidance, at September 30, 2018, compared with $17.9$15.8 billion at December 31, 2017. The decrease in criticized loans, which also includes the decrease in nonaccrual loans, was predominantly due to improvement in the oil and gas portfolio.2018.
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 1312 provides a breakout of commercial and industrial loans and lease financing by industry, and includes $62.9foreign loans of $64.5 billion and $63.7 billion at June 30, 2019, and December 31, 2018, respectively. Significant industry concentrations of foreign loans at September 30, 2018. Foreign loans totaled $21.3include $26.9 billion withinand $25.6 billion in the investorfinancials except banks category, $18.3$17.0 billion withinand $18.1 billion in the financial institutionsbanks category, and $1.4$1.5 billion withinand $1.2 billion in the oil, gas and gas category.
pipelines category at June 30, 2019, and December 31, 2018, respectively. The industry categories were updated in 2019, to align with industry groupings that our regulators use to monitor industry concentration risks.
The investors category includesLoans to financials except banks, our largest industry concentration, were $107.3 billion, or 11% of total outstanding loans, at June 30, 2019, compared with $105.9 billion, or 11% of total outstanding loans, at December 31, 2018. These are predominantly loans to special purposeinvestment firms, financial vehicles, (SPVs) formed by sponsoringand non-bank creditors. A significant portion of this industry category consists of loans to entities tothat invest in financial assets backed predominantly by commercial andor residential real estate or corporate cash flow,consumer loan assets and are repaid from the asset cash flows or the sale of assets by the SPV.assets. We limit our loan amounts to a percentage of the value of the underlying assets as determined by us, based on analysis ofconsidering 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 $18.3 billion of foreign loans in the financial institutions category were predominantly originated by our Financial Institutions business.
The oil and gas loan portfolio totaled $12.2$13.6 billion, or 1% of total outstanding loans, at SeptemberJune 30, 2018,2019, compared with $12.5$12.8 billion, or 1% of total outstanding loans, at December 31, 2017.2018. Oil, gas and gaspipelines nonaccrual loans decreasedincreased to $525$636 million at SeptemberJune 30, 2018,2019, compared with $1.1 billion$417 million at December 31, 2017,2018, due to improvedweaker portfolio credit performance.

Table 13:12:Commercial and Industrial Loans and Lease Financing by Industry (1)
 September 30, 2018 
(in millions)
Nonaccrual
loans

 
Total
portfolio

 (2) 
% of
total
loans

Investors$32
 71,903
   8%
Financial institutions133
 40,032
   4
Cyclical retailers176
 26,149
   3
Healthcare45
 16,607
   2
Food and beverage11
 16,467
   2
Real estate lessor7
 14,880
   2
Technology8
 14,635
   2
Industrial equipment80
 14,168
   2
Oil and gas525
 12,151
   1
Transportation79
 8,719
   1
Business services27
 8,219
   1
Public administration5
 7,969
   1
Other523
 105,894
 (3) 9
Total$1,651
 357,793
   38%
 June 30, 2019  December 31, 2018 
(in millions)
Nonaccrual
loans

 
Total
portfolio

 
% of
total
loans

 Nonaccrual
loans
 Total
portfolio
 % of
total
loans
Financials except banks$160
 107,292
 11% $305
 105,925
 11%
Technology, telecom and media46
 24,648
 3
 26
 25,681
 3
Real estate and construction43
 22,463
 2
 31
 23,380
 2
Equipment, machinery and parts manufacturing66
 22,298
 2
 47
 20,850
 2
Retail88
 20,351
 2
 87
 19,541
 2
Materials and commodities94
 19,599
 2
 136
 18,688
 2
Banks—
 17,136
 2
 —
 18,407
 2
Automobile related23
 16,673
 2
 16
 16,801
 2
Food and beverage manufacturing5
 14,640
 2
 48
 15,448
 2
Health care and pharmaceuticals24
 14,555
 2
 124
 15,529
 2
Entertainment and recreation36
 13,644
 1
 33
 14,045
 1
Oil, gas and pipelines636
 13,562
 1
 417
 12,840
 1
Transportation services88
 11,797
 1
 176
 12,029
 1
Commercial services50
 10,820
 1
 48
 10,591
 1
Agribusiness61
 7,118
 1
 46
 7,996
 1
Utilities224
 5,864
 1
 6
 5,756
 1
Government and education2
 5,765
 1
 3
 6,160
 1
Other (2)51
 19,945
 2
 27
 20,228
 2
Total$1,697
 368,170
 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 6 (Loans and AllowanceThe industry categories were updated in 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 $45 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 $6.0$5.0 billion. 
and $4.5 billion at June 30, 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 segmented among special mention, substandard, doubtful and loss categories. The CRE portfolio, which included $7.6$8.1 billion of foreign CRE loans, totaled $144.1 billion, or 15% of total loans, at SeptemberJune 30, 2018,2019, and consisted of $120.4$123.0 billion of mortgage loans and $23.7$21.1 billion of construction loans.
Table 1413 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, Florida and Texas, which combined represented 49% of the total CRE portfolio. By property type, the largest concentrations are office buildings at 28%27% and apartments at 17% of the portfolio. CRE nonaccrual loans totaled 0.4%0.5% of the CRE outstanding balance at SeptemberJune 30, 2018,2019, compared with 0.4% at December 31, 2017.2018. At SeptemberJune 30, 2018,2019, we had $4.4$4.2 billion of criticized CRE mortgage loans, compared with $4.3$4.5 billion at December 31, 2017,2018, and $271$184 million of criticized CRE construction loans, compared with $298$289 million at December 31, 2017.2018.


Table 14:13:CRE Loans by State and Property Type
September 30, 2018 June 30, 2019 
Real estate mortgage    Real estate construction    Total     Real estate mortgage    Real estate construction    Total     
(in millions)
Nonaccrual
loans

 
Total
portfolio

 
Nonaccrual
loans

 
Total
portfolio

 
Nonaccrual
loans

 
Total
portfolio

 
% of
total
loans

Nonaccrual
loans

 
Total
portfolio

 
Nonaccrual
loans

 
Total
portfolio

 
Nonaccrual
loans

 
Total
portfolio

 
% of
total
loans

By state:                          
California$136
 34,419
 10
 4,506
 146
 38,925
 4%$142
 33,152
 9
 4,502
 151
 37,654
 4%
New York10
 10,456
 —
 2,595
 10
 13,051
 1
23
 11,926
 2
 2,387
 25
 14,313
 2
Florida29
 7,745
 3
 2,202
 32
 9,947
 1
19
 8,078
 3
 1,554
 22
 9,632
 1
Texas70
 7,652
 —
 1,648
 70
 9,300
 1
56
 7,833
 4
 1,437
 60
 9,270
 1
Arizona70
 4,632
 —
 312
 70
 4,944
 1
North Carolina33
 3,793
 6
 865
 39
 4,658
 *
23
 3,663
 4
 904
 27
 4,567
 *
Arizona29
 4,213
 —
 410
 29
 4,623
 *
Georgia15
 3,502
 —
 799
 15
 4,301
 *
14
 3,908
 —
 517
 14
 4,425
 *
Washington17
 3,450
 —
 599
 17
 4,049
 *
Illinois5
 3,406
 —
 554
 5
 3,960
 *
176
 3,477
 —
 348
 176
 3,825
 *
Washington19
 3,245
 3
 614
 22
 3,859
 *
Virginia11
 2,856
 —
 881
 11
 3,737
 *
8
 2,749
 —
 903
 8
 3,652
 *
Other246
 39,116
 22
 8,616
 268
 47,732
 (1) 5
189
 40,140
 14
 7,604
 203
 47,744
 (1) 5
Total$603
 120,403
 44
 23,690
 647
 144,093
 15%$737
 123,008
 36
 21,067
 773
 144,075
 15%
By property:
                          
Office buildings$141
 37,022
 6
 2,861
 147
 39,883
 4%$152
 36,237
 5
 2,618
 157
 38,855
 4%
Apartments13
 15,907
 —
 7,950
 13
 23,857
 3
13
 16,886
 —
 6,937
 13
 23,823
 3
Industrial/warehouse119
 15,036
 1
 1,674
 120
 16,710
 2
80
 15,711
 2
 1,303
 82
 17,014
 2
Retail (excluding shopping center)93
 14,919
 3
 551
 96
 15,470
 2
98
 15,072
 10
 349
 108
 15,421
 2
Shopping center7
 10,993
 —
 1,250
 7
 12,243
 1
83
 10,999
 —
 1,364
 83
 12,363
 1
Hotel/motel20
 8,800
 —
 1,971
 20
 10,771
 1
86
 9,711
 —
 1,574
 86
 11,285
 1
Mixed use properties (2)85
 6,020
 6
 228
 91
 6,248
 1
93
 6,705
 —
 447
 93
 7,152
 1
Institutional43
 3,010
 —
 1,887
 43
 4,897
 1
39
 3,478
 —
 1,888
 39
 5,366
 1
1-4 family structure—
 10
 10
 2,572
 10
 2,582
 *
Collateral pool—
 2,428
 —
 7
 —
 2,435
 *
Agriculture42
 2,505
 —
 28
 42
 2,533
 *
80
 2,419
 —
 7
 80
 2,426
 *
Other40
 6,181
 18
 2,718
 58
 8,899
 1
13
 3,362
 19
 4,573
 32
 7,935
 1
Total$603
 120,403
 44
 23,690
 647
 144,093
 15%$737
 123,008
 36
 21,067
 773
 144,075
 15%
*Less than 1%.
(1)Includes 40 states; no state had loans in excess of $3.5 billion.$3.3 billion.
(2)Mixed use properties are primarily owner occupied real estate, including data centers, flexible space leased to multiple tenants, light manufacturing and other specialized use properties.uses.




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 SeptemberJune 30, 2018,2019, foreign loans totaled $70.9$73.0 billion, representing approximately 8% of our total consolidated loans outstanding, compared with $70.4$71.9 billion, or approximately 7%8% of total consolidated loans outstanding, at December 31, 2017.2018. Foreign loans were approximately 4% of our consolidated total assets at Septemberboth June 30, 20182019 and at December 31, 2017.2018.
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 SeptemberJune 30, 2018,2019, was the United Kingdom, which totaled $26.8$27.7 billion, or approximately 1% of our total assets, and included $3.3$4.2 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 executingimplement plans for Brexit with our implementation plansprimary goal to ensure we can continue to prudently serve our customers post-Brexit.existing clients in the United Kingdom and the European Union as well as to continue to meet the needs of our domestic clients as they do business in the United Kingdom and the European Union. We have an existing authorized bank in Ireland and an asset management entity in Luxembourg. We also have obtained regulatory approval 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 European Union. For additional information on risks associated with Brexit, see the “Risk Factors” section in our 2018 Form 10-K.
 
Table 1514 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. OurWith respect to Table 14:
Lending exposure includes outstanding loans, unfunded credit commitments, and deposits with foreign banks. These balances are presented prior to Puerto Rico (considered partthe deduction of U.S. exposure) is not material to our consolidated countryallowance for credit losses or collateral received under the terms of the credit agreements, if any.
Securities exposure represents debt and equity securities of foreign issuers. Long and short positions are netted, and net short positions are reflected as negative exposure. In first quarter 2018, we entered into an agreement to sell certain assets and liabilities of our automobile financing business in Puerto Rico, which closed in third quarter 2018.

Risk Management - Credit Risk Management (continued)

Table 15:Select Country Exposures
 September 30, 2018 
 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
Top 20 country exposures:                 
United Kingdom$3,313
 21,853
 —
 1,395
 —
 213
 3,313
 23,461
 26,774
Canada32
 16,557
 (60) 474
 —
 162
 (28) 17,193
 17,165
Cayman Islands—
 6,984
 —
 —
 —
 132
 —
 7,116
 7,116
Germany2,415
 1,665
 24
 20
 —
 333
 2,439
 2,018
 4,457
Ireland—
 3,926
 —
 155
 —
 42
 —
 4,123
 4,123
China—
 2,628
 (2) 401
 98
 26
 96
 3,055
 3,151
Bermuda—
 2,880
 —
 100
 —
 62
 —
 3,042
 3,042
Netherlands—
 2,412
 66
 270
 1
 27
 67
 2,709
 2,776
India—
 2,084
 —
 154
 —
 —
 —
 2,238
 2,238
Guernsey—
 2,211
 —
 2
 —
 2
 —
 2,215
 2,215
Luxembourg—
 1,313
 —
 670
 —
 127
 —
 2,110
 2,110
Brazil—
 2,049
 1
 (4) —
 9
 1
 2,054
 2,055
Japan270
 1,347
 4
 157
 —
 40
 274
 1,544
 1,818
Australia—
 1,294
 —
 78
 —
 10
 —
 1,382
 1,382
Chile1
 1,325
 —
 4
 —
 8
 1
 1,337
 1,338
South Korea—
 1,151
 4
 130
 3
 7
 7
 1,288
 1,295
Switzerland—
 1,214
 —
 (5) —
 31
 —
 1,240
 1,240
United Arab Emirates—
 1,083
 —
 28
 —
 2
 —
 1,113
 1,113
Hong Kong1
 1,043
 —
 2
 2
 1
 3
 1,046
 1,049
Mexico—
 1,024
 —
 13
 —
 1
 —
 1,038
 1,038
Total top 20 country exposures$6,032
 76,043
 37
 4,044
 104
 1,235
 6,173
 81,322
 87,495
Eurozone exposure:                 
Eurozone countries included in Top 20 above (5)$2,415
 9,316
 90
 1,115
 1
 529
 2,506
 10,960
 13,466
France—
 836
 —
 102
 —
 30
 —
 968
 968
Austria—
 664
 —
 3
 —
 —
 —
 667
 667
Spain—
 400
 —
 31
 —
 108
 —
 539
 539
Other Eurozone exposure (6)23
 491
 1
 2
 —
 1
 24
 494
 518
Total Eurozone exposure$2,438
 11,707
 91
 1,253
 1
 668
 2,530
 13,628
 16,158
(1)•
LendingDerivatives and other 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, there are $596 million in defeased leases secured significantly 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 onrepresents foreign exchange andcontracts, derivative contracts, and securities resale agreements, and securities lending agreements. This exposure is presented net of counterparty netting adjustments and reduced by the amount of cash collateral.collateral, if any. It includes credit default swaps (CDS) predominantly used for market making activities in the U.S. and London basedU.S.-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 investmentinvestments or loan positions, although we do use them to manage risk in our trading businessesbusinesses. At SeptemberJune 30, 20182019, the gross notional amount of our CDS sold that reference assets in the Top 20 or Eurozone countries that contain non-sovereign debt was $429280 million, which was offset by the notional amount of CDS purchased of $479472 million. We did not have anyAt June 30, 2019, the gross notional amount of our CDS purchased or sold that reference pools of assets in the Top 20 or Eurozone countries that contain sovereign debt or wherewas $410 million, which was offset by the reference asset was solely the sovereign debtnotional amount of a foreign country.CDS purchased of $390 million.

Risk Management - Credit Risk Management (continued)

Table 14:Select Country Exposures
 June 30, 2019 
 Lending  Securities  Derivatives and other  Total exposure 
(in millions)Sovereign
 
Non-
sovereign

 Sovereign
 
Non-
sovereign

 Sovereign
 
Non-
sovereign

 Sovereign
 
Non-
sovereign (1)

 Total
Top 20 country exposures:                 
United Kingdom$4,193
 21,727
 —
 1,552
 —
 266
 4,193
 23,545
 27,738
Canada32
 17,696
 42
 258
 —
 112
 74
 18,066
 18,140
Cayman Islands—
 6,598
 —
 43
 —
 134
 —
 6,775
 6,775
Ireland62
 4,464
 —
 143
 —
 163
 62
 4,770
 4,832
Bermuda—
 3,634
 —
 115
 —
 73
 —
 3,822
 3,822
Netherlands—
 2,744
 95
 337
 —
 32
 95
 3,113
 3,208
Luxembourg—
 2,473
 —
 583
 —
 32
 —
 3,088
 3,088
Germany—
 2,304
 19
 228
 —
 305
 19
 2,837
 2,856
China—
 2,345
 15
 339
 15
 25
 30
 2,709
 2,739
Guernsey—
 2,704
 —
 —
 —
 1
 —
 2,705
 2,705
France—
 1,999
 —
 67
 39
 1
 39
 2,067
 2,106
Australia—
 1,913
 —
 51
 —
 1
 —
 1,965
 1,965
India—
 1,824
 —
 66
 —
 —
 —
 1,890
 1,890
Chile1
 1,734
 —
 (1) —
 103
 1
 1,836
 1,837
Brazil—
 1,772
 —
 2
 5
 —
 5
 1,774
 1,779
South Korea—
 1,364
 1
 60
 —
 7
 1
 1,431
 1,432
Virgin Islands (British)—
 1,276
 —
 45
 —
 —
 —
 1,321
 1,321
Japan311
 1,042
 3
 (49) —
 8
 314
 1,001
 1,315
United Arab Emirates—
 1,262
 —
 2
 —
 —
 —
 1,264
 1,264
Mexico—
 1,156
 —
 7
 —
 1
 —
 1,164
 1,164
Total top 20 country exposures$4,599
 82,031
 175
 3,848
 59
 1,264
 4,833
 87,143
 91,976
Eurozone exposure:                 
Eurozone countries included in Top 20 above (2)$62
 13,984
 114
 1,358
 39
 533
 215
 15,875
 16,090
Belgium—
 545
 —
 (66) —
 2
 —
 481
 481
Spain—
 405
 —
 25
 —
 1
 —
 431
 431
Austria—
 265
 —
 (2) —
 —
 —
 263
 263
Other Eurozone exposure (3)—
 218
 —
 88
 —
 —
 —
 306
 306
Total Eurozone exposure$62
 15,417
 114
 1,403
 39
 536
 215
 17,356
 17,571
(4)(1)
For countries presented in the table, total non-sovereign exposure comprises $40.4$44.4 billion exposure to financial institutions and $43.6$44.2 billion to non-financial corporations at SeptemberJune 30, 2018.
2019.
(5)(2)Consists of exposure to Germany, Ireland, Netherlands, Luxembourg, Germany and LuxembourgFrance included in Top 20.
(6)(3)
Includes non-sovereign exposure to Italy, Portugal, and Greece in the amount of $120$135 million,, $23 $19 million and $9$3 million,, respectively. We had no sovereign debt exposure to Greece and Portugal, and the sovereign exposure to Italy was $1 millionin these countries at SeptemberJune 30, 2018.
2019.


REAL ESTATE 1-4 FAMILY FIRST AND JUNIOR LIEN MORTGAGE LOANSOur real estate 1-4 family first and junior lien mortgage loans asare presented in Table 16, include loans we have made to customers and retained as part of our asset/liability management strategy, the Pick-a-Pay portfolio acquired from
Wachovia which is discussed later in this Report and other purchased loans, and loans included on our balance sheet as a result of consolidation of variable interest entities (VIEs).15.
Table 16:15:Real Estate 1-4 Family First and Junior Lien Mortgage Loans
September 30, 2018  December 31, 2017 June 30, 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$284,273
 89% $284,054
 88%$286,427
 90% $285,065
 89%
Real estate 1-4 family junior lien mortgage35,330
 11
 39,713
 12
32,068
 10
 34,398
 11
Total real estate 1-4 family mortgage loans$319,603
 100% $323,767
 100%$318,495
 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 3% and 4% of total loans at both SeptemberJune 30, 2018,2019, and December 31, 2017.2018, 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 45% at September 30, 2018, 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 20172018 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 thirdsecond quarter 20182019 on the non-PCI mortgage portfolio. Loans 30 days or more delinquent at SeptemberJune 30, 2018,2019, totaled $4.2$3.4 billion, or 1% of total non-PCI mortgages, compared with $5.3$4.0 billion, or 2%1%, at December 31, 2017.2018. Loans with FICO scores lower than 640 totaled $9.9$8.3 billion, or 3% of total non-PCI mortgages at SeptemberJune 30, 2018,2019, compared with $11.7$9.7 billion, or 4%3%, at December 31, 2017.2018. Mortgages with a LTV/CLTV greater than 100% totaled $4.3$3.3 billion at SeptemberJune 30, 2018,2019, or 1% of total non-PCI mortgages, compared with $6.1$3.9 billion, or 2%1%, at December 31, 2017.2018. Information regarding credit quality indicators, including PCI credit quality indicators can be found in Note 6 (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 17.16. Our real estate 1-4 family non-PCI mortgage loans to borrowers in California represented 12%13% of total loans at SeptemberJune 30, 2018,2019, located predominantly 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 portfolios 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 6 (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 20172018 Form 10-K.
Table 17:16:Real Estate 1-4 Family First and Junior Lien Mortgage Loans by State
September 30, 2018 June 30, 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$107,382
 9,498
 116,880
 12%$113,523
 8,812
 122,335
 13%
New York28,528
 1,758
 30,286
 3
30,032
 1,612
 31,644
 3
New Jersey13,694
 3,243
 16,937
 2
13,923
 2,955
 16,878
 2
Florida12,505
 3,235
 15,740
 2
11,943
 2,853
 14,796
 2
Washington10,380
 719
 11,099
 1
Virginia8,200
 2,093
 10,293
 1
8,627
 1,858
 10,485
 1
Washington9,475
 778
 10,253
 1
Texas8,585
 665
 9,250
 1
8,746
 626
 9,372
 1
North Carolina5,922
 1,655
 7,577
 1
5,883
 1,484
 7,367
 1
Pennsylvania5,459
 1,986
 7,445
 1
5,341
 1,792
 7,133
 1
Other (1)64,759
 10,401
 75,160
 8
65,496
 9,342
 74,838
 8
Government insured/
guaranteed loans (2)
12,886
 —
 12,886
 1
11,374
 —
 11,374
 1
Real estate 1-4 family loans (excluding PCI)277,395
 35,312
 312,707
 33
285,268
 32,053
 317,321
 34
Real estate 1-4 family PCI loans6,878
 18
 6,896
 1
1,159
 15
 1,174
 —
Total$284,273
 35,330
 319,603
 34%$286,427
 32,068
 318,495
 34%
(1)
Consists of 41 states; no state had loans in excess of $6.7 billion.
$7.0 billion.
(2)
Represents loans whose repayments are predominantly insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA).


Risk Management - Credit Risk Management (continued)


First Lien Mortgage PortfolioOur total real estate 1-4 family first lien mortgage portfolio increased $1.3$1.9 billion and $1.4 billion in thirdthe second quarter 2018 as growthand first half of 2019, respectively. The increase was the result of retaining mortgage loan originations of $19.8 billion and $30.4 billion in nonconforming mortgage loans wasthe second quarter and first half of 2019, respectively, partially offset by payoffs,paydowns, $1.6 billion and $3.5 billion of sales of Pick-a-Pay PCI loan salesloans in the second quarter and first half of $1.7 billion.2019, respectively, and the reclassification in second quarter 2019 of $1.8 billion of mortgage loans to MLHFS. In addition, $249 million of nonconforming mortgage loan originations of $658 million in second quarter 2019 and $1.4 billion in the first half of 2019 that would have otherwise been included in this portfolio were designated as held for sale in third quarter 2018MLHFS in anticipation of the future issuance of residential mortgage-backed securities. In the first nine months of 2018, the real estate 1-4 family first lien mortgage portfolio increased $219 million as a result of nonconforming mortgage loan growth, partially offset by payoffs and Pick-a-Pay PCI loan sales. We retained $11.7 billion and $32.2 billion in nonconforming originations, consisting of loans that exceed conventional conforming loan amount limits established by federal government-sponsored entities (GSEs) in the third quarter and first nine months of 2018, respectively.
The credit performance associated with our real estate 1-4 family first lien mortgage portfolio continued to improveimproved in thirdsecond quarter
 
quarter 2018,2019, 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 0.04% and 0.03% in the thirdsecond quarter and first nine monthshalf of 2018,2019, respectively, compared with a net recovery of 0.02% and 0.01%0.03% for both the same periods a year ago. Nonaccrual loans were $3.6$2.4 billion at SeptemberJune 30, 2018,2019, down $517$758 million from December 31, 2017.2018. The decrease in nonaccrual loans from December 31, 20172018, was driven by the reclassification of nonaccrual loans to MLHFS in anticipation of future sales, 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, comprised approximately 83% of our total real estate 1-4 family first lien mortgage portfolio as of September 30, 2018.a reduction in inflows due to credit stabilization.
Table 1817 shows certain delinquency and loss information for the first lien mortgage portfolio and lists the top five states by outstanding balance.
Table 18:17: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,
2018
Dec 31,
2017
 Sep 30,
2018
Dec 31,
2017		 Sep 30,
2018
Jun 30,
2018
Mar 31,
2018
Dec 31,
2017
Sep 30,
2017
Jun 30,
2019
Dec 31,
2018
 Jun 30,
2019
Dec 31,
2018		 Jun 30,
2019
Mar 31,
2019
Dec 31,
2018
Sep 30,
2018
Jun 30,
2018
California$107,382
101,464
 0.72%1.06 (0.05)(0.07)(0.07)(0.05)(0.09)$113,523
109,092
 0.55%0.68 (0.04)(0.03)(0.04)(0.05)(0.07)
New York28,528
26,624
 1.30
1.65 0.04
0.09
(0.01)—
0.05
30,032
28,954
 1.00
1.12 —
0.02
0.02
0.04
0.09
New Jersey13,694
13,212
 2.17
2.74 (0.02)0.02
0.08
0.09
0.15
13,923
13,811
 1.60
1.91 (0.06)0.08
0.05
(0.02)0.02
Florida12,505
13,083
 2.74
3.95 (0.22)(0.15)(0.14)(0.16)(0.22)11,943
12,350
 2.22
2.58 (0.11)(0.10)(0.18)(0.22)(0.15)
Washington9,475
8,845
 0.59
0.85 (0.06)(0.06)(0.06)(0.05)(0.09)10,380
9,677
 0.42
0.57 (0.03)(0.04)(0.06)(0.06)(0.06)
Other92,925
92,961
 1.82
2.25 (0.03)(0.03)0.01
(0.02)0.03
94,093
93,261
 1.40
1.70 (0.06)(0.02)(0.03)(0.03)(0.03)
Total264,509
256,189
 1.33
1.78 (0.04)(0.04)(0.03)(0.04)(0.03)273,894
267,145
 1.01
1.23 (0.04)(0.02)(0.03)(0.04)(0.04)
Government insured/guaranteed loans12,886
15,143
    11,374
12,932
    
PCI6,878
12,722
    1,159
4,988
    
Total first lien mortgages$284,273
284,054
    $286,427
285,065
    


Pick-a-Pay PortfolioThe 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 1918 provides balances by types of loans as of SeptemberJune 30, 2018. As a result of our loan modification and loss mitigation efforts, Pick-
a-Pay option payment loans have been reduced to $9.3 billion at September 30, 2018, from $99.9 billion at acquisition. Total adjusted unpaid principal balance of Pick-a-Pay PCI loans was $9.1 billion at September 30, 2018, 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 17% of the total Pick-a-Pay portfolio at September 30, 2018, compared with 51% at acquisition. As favorable sale opportunities arise, we may sell portions of this portfolio. We expect to close on the sale of approximately $2.5 billion of unpaid principal balance of Pick-a-Pay PCI loans in fourth quarter 2018.2019.
Table 19:18:Pick-a-Pay Portfolio – Comparison to Acquisition Date
  December 31, 
September 30, 2018  2017  2008 June 30, 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$9,312
 45% $10,891
 36% $99,937
 86%$5,618
 52% $8,813
 50%
Non-option payment adjustable-rate
and fixed-rate loans
3,094
 15
 3,771
 13
 15,763
 14
2,433
 22
 2,848
 16
Full-term loan modifications8,328
 40
 15,366
 51
 —
 —
2,783
 26
 6,080
 34
Total adjusted unpaid principal balance$20,734
 100% $30,028
 100% $115,700
 100%$10,834
 100% $17,741
 100%
Total carrying value$18,498
   26,038
   95,315
  $10,512
   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.


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).
Since December 31, 2008, we have completed over 138,000 proprietary and Home Affordability Modification Program (HAMP) Pick-a-Pay loan modifications, which have resulted in over $6.1 billion of principal forgiveness. 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 57% of our Pick-a-Pay PCI adjusted unpaid principal balance as of September 30, 2018 has been modified.
The predominant portion of our remaining PCI loans is included in the Pick-a-Pay portfolio. Our cash flows expected to be collected have been favorably affected over time by lower expected defaults and losses as a resultTotal carrying value of observed and forecasted economic strengthening, particularly in housing prices, and our loan modification efforts. Since acquisition, we have reclassified $9.3 billion from the nonaccretable difference to the accretable yield. Fluctuations in the accretable yield are driven by changes in interest rate indices for variable ratePick-a-Pay 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, prepayments, modifications and short sales, can also affect the accretable yield and the estimated weighted-average life of the portfolio.
was $1.1 billion at June 30, 2019, compared with $4.9 billion at December 31, 2018. During thirdsecond quarter 2018,2019, we sold $1.7$1.9 billion of Pick-a-Pay PCI loans that resulted in a gain of $638$721 million. We also expect to close on the sale of approximately $500 million of Pick-a-Pay PCI loans in third quarter 2019. The accretable yield balance related toof our Pick-a-Pay PCI loan portfolio declined $1.3was $411 million ($594 million for all PCI loans) at June 30, 2019, compared with $2.8 billion during third quarter 2018, driven by realized accretion of $257 million, $638 million from the gain on the loan sales, a $516 million reduction in expected interest cash flows resulting from the loan sales, partially offset by a $107 million increase in expected interest cash flows due to slower estimated prepayments.($3.0 billion for all PCI loans) at December 31, 2018. The slower estimated prepayments resulted in increasing the estimated weighted-average life of the portfolio towas approximately 5.55.2 years at September 30, 2018 up from 5.2and 5.5 years at June 30, 2018. Due to a decrease in the amount of2019 and December 31, 2018, respectively. The accretable yield relative to the longer weighted-average life,percentage for Pick-a-Pay PCI loans for second quarter 2019 was 11.56%, and we expect the accretable yield percentage to decline from 12.02% inincrease to approximately 12.24% for third quarter 2018 to approximately 11.47% for fourth quarter 2018.2019.
For furtheradditional information on the judgment involved in estimating expected cash flows for PCI loans, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 20172018 Form 10-K.


Risk Management - Credit Risk Management (continued)


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 first 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, 2017,2018, predominantly reflects loan paydowns. As of SeptemberJune 30, 2018, 7%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%, 2.81%3% 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 2% of the junior lien mortgage portfolio at SeptemberJune 30, 2018.2019. For additional information on consumer loans by LTV/CLTV, see Table 6.12 in Note 6 (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,
2018
 Dec 31,
2017
 Sep 30,
2018
 Dec 31,
2017		 Sep 30,
2018
 Jun 30,
2018
 Mar 31,
2018
 Dec 31,
2017
 Sep 30,
2017
Jun 30,
2019
 Dec 31,
2018
 Jun 30,
2019
 Dec 31,
2018		 Jun 30,
2019
 Mar 31,
2019
 Dec 31,
2018
 Sep 30,
2018
 Jun 30,
2018
California$9,498
 10,599
 1.79% 2.09 (0.51) (0.56) (0.42) (0.35) (0.46)$8,812
 9,338
 1.64% 1.67 (0.40) (0.39) (0.33) (0.51) (0.56)
New Jersey3,243
 3,606
 2.63
 2.86 0.24
 0.28
 0.44
 0.47
 0.58
2,955
 3,152
 2.77
 2.57 (0.07) 0.12
 0.03
 0.24
 0.28
Florida3,235
 3,688
 2.72
 3.05 0.12
 (0.05) (0.12) 0.13
 0.06
2,853
 3,140
 2.82
 2.73 (0.11) (0.05) 0.07
 0.12
 (0.05)
Virginia2,093
 2,358
 2.00
 2.34 0.16
 0.30
 0.25
 0.15
 0.33
1,858
 2,020
 2.03
 1.91 (0.17) 0.14
 0.04
 0.16
 0.30
Pennsylvania1,986
 2,210
 2.35
 2.37 0.18
 0.13
 0.06
 0.11
 0.47
1,792
 1,929
 2.19
 2.10 (0.19) 0.04
 0.25
 0.18
 0.13
Other15,257
 17,225
 2.16
 2.33 (0.05) (0.06) (0.05) (0.09) 0.06
13,783
 14,802
 1.99
 2.12 (0.22) (0.03) (0.11) (0.05) (0.06)
Total35,312

39,686
 2.15
 2.38 (0.10) (0.13) (0.09) (0.06) —
32,053

34,381
 2.05
 2.08 (0.24) (0.10) (0.11) (0.10) (0.13)
PCI18
 27
            15
 17
            
Total junior lien mortgages$35,330
 39,713
            $32,068
 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 available during the draw period of (1) interest only or (2) 1.5% of outstanding principal balance plus accrued interest. As of June 30, 2019, lines of credit in a draw period primarily used the interest-only option. 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 lines of credit portfolios. In September 2018,June 2019, approximately 45%46% of these borrowers paid only the minimum amount due and approximately 50%49% paid more than the minimum amount due. The rest were either delinquent or paid less than the minimum amount due. For the
borrowers with an interest only payment feature, approximately 31% paid only the minimum amount due and approximately 63% paid more than the minimum amount due.
The lines that enter their amortization period may experience higher delinquencies and higher loss rates than the ones in their draw or term period. We have considered this increased inherent risk in our allowance for credit loss estimate.
In anticipation of our borrowers reaching the end of their contractual commitment, we have created a program to inform, educate and help these borrowers transition from interest-only to fully-amortizing payments or full repayment. We monitor the performance of the borrowers moving through the program in an effort to refine our ongoing program strategy.
Table 2120 reflects the outstanding balance of our portfolio of junior lien mortgages, including lines and loans, and first 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 $113$94 million, because they are predominantly insured by the FHA, and it excludes PCI loans, which total $35$30 million, because their losses were generally reflected in our nonaccretable difference established at the date of acquisition. At June 30, 2019, $531 million, or 2%, of lines in their draw period were 30 days or more past due, compared with $431 million, or 4%, of amortizing lines of credit. Included in the amortizing amounts in Table 20 is $51 million of end-of-term balloon payments which were past due. The unfunded credit commitments for junior and first lien lines totaled $59.6 billion at June 30, 2019.
Table 21:20:Junior Lien Mortgage Line and Loan and First Lien Mortgage Line Portfolios Payment Schedule
    Scheduled end of draw / term       Scheduled end of draw / term   
(in millions)Outstanding balance September 30, 2018
 Remainder of 2018
 2019
 2020
 2021
 2022
 
2023 and
thereafter (1)

 Amortizing
Outstanding balance June 30, 2019
 Remainder of 2019
 2020
 2021
 2022
 2023
 
2024 and
thereafter (1)

 Amortizing
Junior lien lines and loans$35,312
 138
 514
 539
 1,157
 4,104
 17,039
 11,821
$32,053
 165
 405
 984
 3,636
 2,501
 14,043
 10,319
First lien lines12,084
 69
 185
 212
 523
 1,946
 7,110
 2,039
11,059
 58
 164
 460
 1,749
 1,307
 5,437
 1,884
Total (3)$47,396
 207
 699
 751
 1,680
 6,050
 24,149
 13,860
$43,112
 223
 569
 1,444
 5,385
 3,808
 19,480
 12,203
% of portfolios100% —
 1
 2
 4
 13
 51
 29
100% 1
 1
 3
 12
 9
 45
 29
End-of-term balloon payments included in Total$764
 75
 185
 322
 153
 6
 23
  
(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 $3.5$2.1 billion to $6.0$5.3 billion and averaging $4.8$3.6 billion per year.
(2)
Junior and first lien lines are primarily interest-only during their draw period. The unfunded credit commitments for junior and first lien lines totaled $60.6 billion at September 30, 2018.
(3)
Includes scheduled end-of-term balloon payments for lines and loans totaling $32 million, $202 million, $237 million, $386 million, $185 million and $62 million for 2018, 2019, 2020, 2021, 2022, and 2023 and thereafter, respectively. Amortizing lines and loans include $62 million of end-of-term balloon payments, which are past due. At September 30, 2018, $506 million, or 4% of outstanding lines of credit that are amortizing, are 30 days or more past due compared to $573 million or 2% for lines in their draw period.
CREDIT CARDS  Our credit card portfolio totaled $37.8$38.8 billion at SeptemberJune 30, 2018,2019, which represented 4% of our total outstanding loans. The net charge-off rate (annualized) for our credit card portfolio was 3.22%3.68% for thirdsecond quarter 2019, compared with 3.61% for second quarter 2018 compared with 3.08% for third quarter 2017 and 3.50%3.71% and 3.43%3.65% for the first nine monthshalf of 2019 and 2018, and 2017, respectively.
 
AUTOMOBILEOur automobile portfolio, predominantly composed of indirect loans, totaled $46.1$45.7 billion at SeptemberJune 30, 2018.2019. The net charge-off rate (annualized) for our automobile portfolio was 1.10%0.46% for thirdsecond quarter 2019, compared with 0.93% for second quarter 2018 compared with 1.41% for third quarter 2017 and 1.23%0.64% and 1.12%1.30% for the first nine monthshalf of 20182019 and 2017,2018, respectively. The increase in net charge-offsdecreases in the net charge-off rate in the second quarter and first nine monthshalf of 2018,2019, compared with 2017, wasthe same periods in 2018, were driven by lower losses on higher severity.quality originations.
 
OTHER REVOLVING CREDIT AND INSTALLMENTOther revolving credit and installment loans totaled $36.9$34.7 billion at SeptemberJune 30, 2018,2019, and primarily included student and securities-based loans. Our private student loan portfolio totaled $11.5$10.9 billion at SeptemberJune 30, 2018.2019. The net charge-off rate (annualized) for other revolving credit and installment loans was 1.56% for second quarter 2019, compared with 1.44% for both thirdsecond quarter 2018 and 2017 and 1.49% and 1.54%1.52% for both the first nine monthshalf of 20182019 and 2017, respectively.2018.
Risk Management - Credit Risk Management (continued)


NONPERFORMING ASSETS (NONACCRUAL LOANS AND FORECLOSED ASSETS)Table 2221 summarizes nonperforming assets (NPAs) for each of the last four quarters. Total NPAs decreased $410 million$1.0 billion from secondfirst quarter 20182019 to $7.6$6.3 billion. Nonaccrual loans decreased $433$983 million from secondfirst quarter 20182019 to $7.1$5.9 billion, reflecting both lowerdue to a decline in consumer andnonaccruals from the reclassification of $373 million in real estate 1-4 family first mortgage nonaccrual loans to MLHFS, as well as other broad-based improvement across several commercial nonaccruals.industry categories. Foreclosed assets of $522$377 million were up $23down
$59 million from secondfirst quarter 2018.

We2019. 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. For additional information on impaired loans, see Note 6 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.

Table 22:21:Nonperforming Assets (Nonaccrual Loans and Foreclosed Assets)
 September 30, 2018  June 30, 2018  March 31, 2018  December 31, 2017  June 30, 2019  March 31, 2019  December 31, 2018  September 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 $1,555
 0.46% $1,559
 0.46% $1,516
 0.45% $1,899
 0.57% $1,634
 0.47% $1,986
 0.57% $1,486
 0.42% $1,555
 0.46%
Real estate mortgage 603
 0.50
 765
 0.62
 755
 0.60
 628
 0.50
 737
 0.60
 699
 0.57
 580
 0.48
 603
 0.50
Real estate construction 44
 0.19
 51
 0.22
 45
 0.19
 37
 0.15
 36
 0.17
 36
 0.16
 32
 0.14
 44
 0.19
Lease financing 96
 0.49
 80
 0.41
 93
 0.48
 76
 0.39
 63
 0.33
 76
 0.40
 90
 0.46
 96
 0.49
Total commercial 2,298
 0.46
 2,455
 0.49
 2,409
 0.48
 2,640
 0.52
 2,470
 0.48
 2,797
 0.55
 2,188
 0.43
 2,298
 0.46
Consumer:                                
Real estate 1-4 family first mortgage (1) 3,605
 1.27
 3,829
 1.35
 4,053
 1.43
 4,122
 1.45
 2,425
 0.85
 3,026
 1.06
 3,183
 1.12
 3,267
 1.15
Real estate 1-4 family junior lien mortgage 984
 2.79
 1,029
 2.82
 1,087
 2.87
 1,086
 2.73
 868
 2.71
 916
 2.77
 945
 2.75
 983
 2.78
Automobile 118
 0.26
 119
 0.25
 117
 0.24
 130
 0.24
 115
 0.25
 116
 0.26
 130
 0.29
 118
 0.26
Other revolving credit and installment 48
 0.13
 54
 0.14
 53
 0.14
 58
 0.15
 44
 0.13
 50
 0.14
 50
 0.14
 48
 0.13
Total consumer 4,755
 1.08
 5,031
 1.14
 5,310
 1.20
 5,396
 1.19
 3,452
 0.79
 4,108
 0.94
 4,308
 0.98
 4,416
 1.00
Total nonaccrual loans (4)(2) 7,053
 0.75
 7,486
 0.79
 7,719
 0.81
 8,036
 0.84
 5,922
 0.62
 6,905
 0.73
 6,496
 0.68
 6,714
 0.71
Foreclosed assets:                                
Government insured/guaranteed (5)(3) 87
   90
   103
   120
   68
   75
   88
   87
  
Non-government insured/guaranteed 435
   409
   468
   522
   309
   361
   363
   435
  
Total foreclosed assets 522
   499
   571
   642
   377
   436
   451
   522
  
Total nonperforming assets $7,575
 0.80% $7,985
 0.85% $8,290
 0.88% $8,678
 0.91% $6,299
 0.66% $7,341
 0.77% $6,947
 0.73% $7,236
 0.77%
Change in NPAs from prior quarter $(410)   (305)   (388)   (647)   $(1,042)   394
   (289)   (389)  
(1)
Includes mortgage loans held for sale (MLHFS) of $132 million, $133 million, $137 million, and $136 million at September 30, June 30 and March 31, 2018, and December 31, 2017, respectively.
(2)Excludes PCI loans because they continue to earn interest income from accretable yield, independent of performance in accordance with their contractual terms.
(3)(2)Real estate 1-4 family mortgage loans predominantly insured by the FHA or guaranteed by the VA are not placed on nonaccrual status because they are insured or guaranteed.
(4)(3)See Note 6 (Loans and Allowance for Credit Losses) to Financial Statements in this Report for further information on impaired loans.
(5)
Consistent with regulatory reporting requirements, foreclosed real estate resulting from government insured/guaranteed loans are classified as nonperforming. However, bothBoth principal and interest related to these foreclosed real estate assets are collectible because the loans were predominantly insured by the FHA or guaranteed by the VA. Foreclosure of certain government guaranteed residential real estate mortgage loans that meet criteria specified by Accounting Standards Update (ASU) 2014-14, Classification of Certain Government-Guaranteed Mortgage Loans Upon Foreclosure, effective as of January 1, 2014, are excluded from this table and included in Accounts Receivable in Other Assets. For more information on the changes in foreclosures for government guaranteed residential real estate mortgage loans,foreclosed assets, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 20172018 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 Quarter ended 
(in millions)Sep 30,
2018
 Jun 30,
2018
 Mar 31,
2018
 Dec 31,
2017
 Sep 30,
2017
Jun 30,
2019
 Mar 31,
2019
 Dec 31,
2018
 Sep 30,
2018
 Jun 30,
2018
Commercial nonaccrual loans                  
Balance, beginning of period$2,455
 2,409
 2,640
 3,109
 3,385
$2,797
 2,188
 2,298
 2,455
 2,409
Inflows774
 726
 605
 617
 627
621
 1,238
 662
 774
 726
Outflows:                  
Returned to accruing(122) (43) (113) (126) (97)(46) (43) (45) (122) (43)
Foreclosures—
 —
 —
 (1) (3)(2) (15) (12) —
 —
Charge-offs(191) (133) (119) (139) (173)(187) (158) (193) (191) (133)
Payments, sales and other(618) (504) (604) (820) (630)(713) (413) (522) (618) (504)
Total outflows(931) (680) (836) (1,086) (903)(948) (629) (772) (931) (680)
Balance, end of period2,298

2,455

2,409

2,640

3,109
2,470

2,797

2,188

2,298

2,455
Consumer nonaccrual loans                  
Balance, beginning of period5,031
 5,310
 5,396
 5,510
 5,671
4,108
 4,308
 4,416
 4,671
 4,930
Inflows (1)599
 602
 738
 845
 887
Inflows437
 552
 569
 572
 578
Outflows:                  
Returned to accruing(325) (345) (376) (345) (397)(250) (248) (269) (319) (342)
Foreclosures(62) (53) (62) (72) (56)(34) (42) (35) (41) (40)
Charge-offs(65) (86) (88) (94) (109)(34) (49) (57) (65) (84)
Payments, sales and other(423) (397) (298) (448) (486)(775) (413) (316) (402) (371)
Total outflows(875) (881) (824) (959) (1,048)(1,093) (752) (677) (827) (837)
Balance, end of period4,755

5,031

5,310

5,396

5,510
3,452

4,108

4,308

4,416

4,671
Total nonaccrual loans$7,053
 7,486
 7,719
 8,036
 8,619
$5,922
 6,905
 6,496
 6,714
 7,126
(1)Quarter ended September 30, 2017, includes an incremental $171 million of nonaccrual loans, reflecting updated industry regulatory guidance related to loans in bankruptcy.
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 SeptemberJune 30, 2018:2019:
•
85% of total commercial nonaccrual loans and 99% of total consumer nonaccrual loans are secured. Of the consumer nonaccrual loans, 95% are secured by real estate and 87% have a combined LTV (CLTV) ratio of 80% or less.
•
losses of $284 million and $1.1 billion have already been recognized on 15% of commercial nonaccrual loans and 38% of consumer nonaccrual loans, respectively, in accordance with our charge-off policies. Once we write down loans to the net realizable value (fair value of collateral less estimated costs to sell), we re-evaluate each loan regularly and record additional write-downs if needed.
over 99% of total commercial nonaccrual loans and 99% of total consumer nonaccrual loans are secured. Of the consumer nonaccrual loans, 97% are secured by real estate and 85% have a combined LTV (CLTV) ratio of 80% or less.
losses of $358 million and $1.6 billion have already been recognized on 21% of commercial nonaccrual loans and 42% of consumer nonaccrual loans, respectively. Generally, when a consumer real estate loan is 120 days past due (except when required earlier by guidance issued by bank regulatory agencies), we transfer it to nonaccrual status. When the loan reaches 180 days past due, or is active or 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). Thereafter, we re-evaluate each loan regularly and record additional write-downs if needed.


 
84% of commercial nonaccrual loans were current on interest, but were on nonaccrual status because the full or timely collection of interest or principal had become uncertain.
76% of commercial nonaccrual loans were current on both principal and interest, but will remain on nonaccrual status until the full and timely collection of principal and interest becomes certain.
•
70% of commercial nonaccrual loans were current on interest and 54% 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.
•
of the $1.5 billion of consumer loans in bankruptcy or discharged in bankruptcy, and classified as nonaccrual, $1.0 billion were current.
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 $2.1 billion of consumer loans in bankruptcy or discharged in bankruptcy, and classified as nonaccrual, $1.4 billion were current.


We continue to work with our customers experiencing financial difficulty to determine if they can qualify for a loan modification so that they can stay in their homes. Under our proprietary modification 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)


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,
2018
 Jun 30,
2018
 Mar 31,
2018
 Dec 31,
2017
 Sep 30,
2017
Jun 30,
2019
 Mar 31,
2019
 Dec 31,
2018
 Sep 30,
2018
 Jun 30,
2018
Summary by loan segment                  
Government insured/guaranteed$87
 90
 103
 120
 137
$68
 75
 88
 87
 90
PCI loans:         
Commercial31
 42
 59
 57
 67
101
 124
 127
 201
 176
Consumer63
 61
 58
 62
 72
208
 237
 236
 234
 233
Total PCI loans94
 103
 117
 119
 139
All other loans:         
Commercial170
 134
 162
 207
 226
Consumer171
 172
 189
 196
 204
Total all other loans341
 306
 351
 403
 430
Total foreclosed assets$522
 499
 571
 642
 706
$377
 436
 451
 522
 499
Analysis of changes in foreclosed assets                  
Balance, beginning of period$499
 571
 642
 706
 781
$436
 451
 522
 499
 571
Net change in government insured/guaranteed (1)(3) (13) (17) (17) (12)(7) (13) 1
 (3) (13)
Additions to foreclosed assets (2)209
 191
 185
 180
 198
144
 193
 193
 209
 191
Reductions:                  
Sales(181) (257) (245) (231) (257)(199) (205) (274) (181) (257)
Write-downs and gains (losses) on sales(2) 7
 6
 4
 (4)3
 10
 9
 (2) 7
Total reductions(183) (250) (239) (227) (261)(196) (195) (265) (183) (250)
Balance, end of period$522
 499
 571
 642
 706
$377
 436
 451
 522
 499
(1)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 MLHFS, and outflows when we are reimbursed by FHA/VA.
(2)Includes loans moved into foreclosureforeclosed assets from nonaccrual status, PCI loans transitioned directly to foreclosed assets and repossessed automobiles.


Foreclosed assets at SeptemberJune 30, 2018,2019, included $317$253 million of foreclosed residential real estate, of which 27% is predominantly FHA insured or VA guaranteed and expected to have minimal or no loss content. The remaining amount of foreclosed assets balance of $205 million has been written down to estimated net realizable value. Of the $522$377 million in foreclosed assets at SeptemberJune 30, 2018, 63%2019, 67% 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,
2018

Jun 30,
2018

Mar 31,
2018

Dec 31,
2017

Sep 30,
2017
Jun 30,
2019

Mar 31,
2019

Dec 31,
2018

Sep 30,
2018

Jun 30,
2018
Commercial:                  
Commercial and industrial$1,837
 1,792
 1,703
 2,096
 2,424
$1,294
 1,740
 1,623
 1,837
 1,792
Real estate mortgage782
 904
 939
 901
 953
620
 681
 704
 782
 904
Real estate construction49
 40
 45
 44
 48
43
 45
 39
 49
 40
Lease financing65
 50
 53
 35
 39
31
 46
 56
 65
 50
Total commercial TDRs2,733
 2,786
 2,740
 3,076
 3,464
1,988
 2,512
 2,422
 2,733
 2,786
Consumer:                  
Real estate 1-4 family first mortgage10,967
 11,387
 11,782
 12,080
 12,617
8,218
 10,343
 10,629
 10,967
 11,387
Real estate 1-4 family junior lien mortgage1,689
 1,735
 1,794
 1,849
 1,919
1,550
 1,604
 1,639
 1,689
 1,735
Credit Card431
 410
 386
 356
 340
486
 473
 449
 431
 410
Automobile91
 81
 83
 87
 88
85
 85
 89
 91
 81
Other revolving credit and installment146
 141
 137
 126
 124
159
 156
 154
 146
 141
Trial modifications163
 200
 198
 194
 183
127
 136
 149
 163
 200
Total consumer TDRs13,487
 13,954
 14,380
 14,692
 15,271
10,625
 12,797
 13,109
 13,487
 13,954
Total TDRs$16,220
 16,740
 17,120
 17,768
 18,735
$12,613
 15,309
 15,531
 16,220
 16,740
TDRs on nonaccrual status$4,298
 4,454
 4,428
 4,801
 5,218
$3,058
 4,037
 4,058
 4,298
 4,454
TDRs on accrual status:                  
Government insured/guaranteed1,308
 1,368
 1,375
 1,359
 1,377
1,209
 1,275
 1,299
 1,308
 1,368
Non-government insured/guaranteed10,614
 10,918
 11,317
 11,608
 12,140
8,346
 9,997
 10,174
 10,614
 10,918
Total TDRs$16,220
 16,740
 17,120
 17,768
 18,735
$12,613
 15,309
 15,531
 16,220
 16,740
Table 2524 provides information regarding the recorded investment of loans modified in TDRs. The allowance for loan losses for TDRs was $1.3$1.1 billion and $1.6$1.2 billion at SeptemberJune 30, 2018,2019, and December 31, 2017,2018, respectively. See Note 6 (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 20172018 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 new loans.
TDRs of $12.6 billion at June 30, 2019, decreased $2.7 billion from first quarter 2019 primarily due to a new loan.decline in consumer TDRs from the reclassification of $1.7 billion in real estate 1-4 family first mortgage TDR loans to MLHFS, as well as paydowns.
Risk Management - Credit Risk Management (continued)


Table 26:25:Analysis of Changes in TDRs
    Quarter ended     Quarter ended 
(in millions)Sep 30,
2018
 Jun 30,
2018
 Mar 31,
2018
 Dec 31,
2017
 Sep 30,
2017
Jun 30,
2019
 Mar 31,
2019
 Dec 31,
2018
 Sep 30,
2018
 Jun 30,
2018
Commercial TDRs                  
Balance, beginning of quarter$2,786
 2,740
 3,076
 3,464
 3,736
$2,512
 2,422
 2,733
 2,786
 2,740
Inflows (1)(2)588
 481
 321
 412
 333
232
 539
 374
 588
 481
Outflows                  
Charge-offs(92) (41) (63) (65) (74)(37) (44) (88) (92) (41)
Foreclosures(13) —
 —
 (1) (2)—
 —
 (2) (13) —
Payments, sales and other (2)(3)(536) (394) (594) (734) (529)(719) (405) (595) (536) (394)
Balance, end of quarter2,733
 2,786
 2,740
 3,076
 3,464
1,988
 2,512
 2,422
 2,733
 2,786
Consumer TDRs                  
Balance, beginning of quarter13,954
 14,380
 14,692
 15,271
 15,850
12,797
 13,109
 13,487
 13,954
 14,380
Inflows (1)414
 467
 487
 395
 461
336
 439
 379
 414
 467
Outflows                  
Charge-offs(56) (56) (54) (52) (51)(61) (60) (57) (56) (56)
Foreclosures(116) (133) (131) (135) (146)(74) (86) (90) (116) (133)
Payments, sales and other (3)(672) (706) (618) (798) (811)(2,364) (593) (595) (672) (706)
Net change in trial modifications (4)(37) 2
 4
 11
 (32)(9) (12) (15) (37) 2
Balance, end of quarter13,487
 13,954
 14,380
 14,692
 15,271
10,625
 12,797
 13,109
 13,487
 13,954
Total TDRs$16,220
 16,740
 17,120
 17,768
 18,735
$12,613
 15,309
 15,531
 16,220
 16,740
(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 $5 million and $6 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 March 31, 2018 and September 30, 2017, respectively, while no loans were removed from TDR classification for the quarters ended September 30 and June 30, 2018, and December 31, 2017.
which are also included as other outflows.
(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 SeptemberJune 30, 2018,2019, were down $130$199 million, or 12%20%, from December 31, 2017,2018, due to payoffs, modifications and
other loss mitigation activities, and credit
stabilization. Also, fluctuations from quarter to quarter are influenced by seasonality.
Loans 90 days or more past due and still accruing whose repayments are predominantly insured by the FHA or guaranteed by the VA for mortgages were $8.3$6.5 billion at SeptemberJune 30, 2018,2019, down from $10.9$7.7 billion at December 31, 2017,2018, due to an improvement in delinquencies in the portfolio as well as a higher volume of loan modifications.reduction in the 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 6 (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, 2018
 Jun 30, 2018
 Mar 31, 2018
 Dec 31, 2017
 Sep 30, 2017
Jun 30, 2019
 Mar 31, 2019
 Dec 31, 2018
 Sep 30, 2018
 Jun 30, 2018
Total (excluding PCI (1)):$9,209
 9,464
 10,753
 11,997
 10,227
$7,258
 7,870
 8,704
 8,838
 9,087
Less: FHA insured/VA guaranteed (3)(2)8,276
 8,622
 9,786
 10,934
 9,266
6,478
 6,996
 7,725
 7,906
 8,246
Total, not government insured/guaranteed$933
 842
 967
 1,063
 961
$780
 874
 979
 932
 841
By segment and class, not government insured/guaranteed:
Commercial:
                  
Commercial and industrial$42
 23
 40
 26
 27
$17
 42
 43
 42
 23
Real estate mortgage56
 26
 23
 23
 11
24
 20
 51
 56
 26
Real estate construction—
 —
 1
 —
 —
—
 5
 —
 —
 —
Total commercial98

49

64

49

38
41

67

94

98

49
Consumer:                  
Real estate 1-4 family first mortgage (3)129
 133
 164
 219
 190
108
 117
 124
 128
 132
Real estate 1-4 family junior lien mortgage (3)32
 33
 48
 60
 49
27
 28
 32
 32
 33
Credit card460
 429
 473
 492
 475
449
 502
 513
 460
 429
Automobile108
 105
 113
 143
 111
63
 68
 114
 108
 105
Other revolving credit and installment106
 93
 105
 100
 98
92
 92
 102
 106
 93
Total consumer835
 793

903

1,014

923
739
 807

885

834

792
Total, not government insured/guaranteed$933
 842

967

1,063

961
$780
 874

979

932

841
(1)
PCI loans totaled $567$156 million,, $811 $243 million,, $1.0 billion, $1.4 billion, $370 million, $567 million, and $1.4 billion$811 million at September 30,June 30, and March 31, 2018,2019, and December 31, and September 30, 2017,and June 30, 2018, respectively.
(2)Represents loans whose repayments are predominantly insured by the FHA or guaranteed by the VA.
(3)Includes mortgage loans held for sale 90 days or more past due and still accruing.


Risk Management - Credit Risk Management (continued)


NET CHARGE-OFFS


Table 28:27:Net Charge-offs
              Quarter ended                Quarter ended  
Sep 30, 2018  Jun 30, 2018  Mar 31, 2018  Dec 31, 2017  Sep 30, 2017 Jun 30, 2019  Mar 31, 2019  Dec 31, 2018  Sep 30, 2018  Jun 30, 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$148
 0.18 % $58
 0.07 % $85
 0.10 % $118
 0.14 % $125
 0.15 %$159
 0.18 % $133
 0.15 % $132
 0.15 % $148
 0.18 % $58
 0.07 %
Real estate mortgage(1) —
 —
 —
 (15) (0.05) (10) (0.03) (3) (0.01)4
 0.01
 6
 0.02
 (12) (0.04) (1) —
 —
 —
Real estate construction(2) (0.04) (6) (0.09) (4) (0.07) (3) (0.05) (15) (0.24)(2) (0.04) (2) (0.04) (1) (0.01) (2) (0.04) (6) (0.09)
Lease financing7
 0.14
 15
 0.32
 12
 0.25
 10
 0.20
 6
 0.12
4
 0.09
 8
 0.17
 13
 0.26
 7
 0.14
 15
 0.32
Total commercial152
 0.12
 67
 0.05
 78
 0.06
 115
 0.09
 113
 0.09
165
 0.13
 145
 0.11
 132
 0.10
 152
 0.12
 67
 0.05
Consumer:                                      
Real estate 1-4 family
first mortgage
(25) (0.04) (23) (0.03) (18) (0.03) (23) (0.03) (16) (0.02)(30) (0.04) (12) (0.02) (22) (0.03) (25) (0.04) (23) (0.03)
Real estate 1-4 family
junior lien mortgage
(9) (0.10) (13) (0.13) (8) (0.09) (7) (0.06) 1
 —
(19) (0.24) (9) (0.10) (10) (0.11) (9) (0.10) (13) (0.13)
Credit card299
 3.22
 323
 3.61
 332
 3.69
 336
 3.66
 277
 3.08
349
 3.68
 352
 3.73
 338
 3.54
 299
 3.22
 323
 3.61
Automobile130
 1.10
 113
 0.93
 208
 1.64
 188
 1.38
 202
 1.41
52
 0.46
 91
 0.82
 133
 1.16
 130
 1.10
 113
 0.93
Other revolving credit and
installment
133
 1.44
 135
 1.44
 149
 1.60
 142
 1.46
 140
 1.44
136
 1.56
 128
 1.47
 150
 1.64
 133
 1.44
 135
 1.44
Total consumer528
 0.47
 535
 0.49
 663
 0.60
 636
 0.56
 604
 0.53
488
 0.45
 550
 0.51
 589
 0.53
 528
 0.47
 535
 0.49
Total$680
 0.29 % $602
 0.26 % $741
 0.32 % $751
 0.31 % $717
 0.30 %$653
 0.28 % $695
 0.30 % $721
 0.30 % $680
 0.29 % $602
 0.26 %
                                      
(1)Quarterly net charge-offs (recoveries) as a percentage of average respective loans are annualized.


Table 2827 presents net charge-offs for thirdsecond quarter 20182019 and the previous four quarters. Net charge-offs in thirdsecond quarter 20182019 were $680$653 million (0.29%(0.28% of average total loans outstanding), compared with $717$602 million (0.30%(0.26%) in thirdsecond quarter 2017.2018.
The increase in commercial net charge-offs from thirdsecond quarter 20172018 was due to higher commercial and industrial loan charge-offs and lower recoveries. Ourrecoveries in the commercial real estate portfolios were in a net recovery position. Totaland industrial portfolio. Consumer net charge-offs decreased from the prior year across all consumer portfolios, except for thepredominantly due to a decrease in automobile net charge-offs, partially offset by an increase in credit card portfolio, which had a slight increase.net charge-offs.
ALLOWANCE FOR CREDIT LOSSESThe 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 6 (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 20172018 Form 10-K and Note 6 (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, 2018  Dec 31, 2017  Dec 31, 2016  Dec 31, 2015  Dec 31, 2014 Jun 30, 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$3,759
 36% $3,752
 35% $4,560
 34% $4,231
 33% $3,506
 32%$3,583
 37% $3,628
 37% $3,752
 35% $4,560
 34% $4,231
 33%
Real estate mortgage1,281
 13
 1,374
 13
 1,320
 14
 1,264
 13
 1,576
 13
1,275
 13
 1,282
 13
 1,374
 13
 1,320
 14
 1,264
 13
Real estate construction1,228
 2
 1,238
 3
 1,294
 2
 1,210
 3
 1,097
 2
1,122
 2
 1,200
 2
 1,238
 3
 1,294
 2
 1,210
 3
Lease financing300
 2
 268
 2
 220
 2
 167
 1
 198
 1
318
 2
 307
 2
 268
 2
 220
 2
 167
 1
Total commercial6,568
 53
 6,632
 53
 7,394
 52
 6,872
 50
 6,377
 48
6,298
 54
 6,417
 54
 6,632
 53
 7,394
 52
 6,872
 50
Consumer:                                      
Real estate 1-4 family first mortgage827
 30
 1,085
 30
 1,270
 29
 1,895
 30
 2,878
 31
729
 30
 750
 30
 1,085
 30
 1,270
 29
 1,895
 30
Real estate 1-4 family
junior lien mortgage
493
 4
 608
 4
 815
 5
 1,223
 6
 1,566
 7
294
 3
 431
 3
 608
 4
 815
 5
 1,223
 6
Credit card1,959
 4
 1,944
 4
 1,605
 4
 1,412
 4
 1,271
 4
2,249
 4
 2,064
 4
 1,944
 4
 1,605
 4
 1,412
 4
Automobile546
 5
 1,039
 5
 817
 6
 529
 6
 516
 6
462
 5
 475
 5
 1,039
 5
 817
 6
 529
 6
Other revolving credit and installment563
 4
 652
 4
 639
 4
 581
 4
 561
 4
571
 4
 570
 4
 652
 4
 639
 4
 581
 4
Total consumer4,388
 47
 5,328
 47
 5,146
 48
 5,640
 50
 6,792
 52
4,305
 46
 4,290
 46
 5,328
 47
 5,146
 48
 5,640
 50
Total$10,956
 100% $11,960
 100% $12,540
 100% $12,512
 100% $13,169
 100%$10,603
 100% $10,707
 100% $11,960
 100% $12,540
 100% $12,512
 100%
                                      
Sep 30, 2018  Dec 31, 2017  Dec 31, 2016  Dec 31, 2015  Dec 31, 2014 Jun 30, 2019  Dec 31, 2018  Dec 31, 2017  Dec 31, 2016  Dec 31, 2015 
Components:                  
Allowance for loan losses$10,021  11,004  11,419  11,545  12,319 $9,692  9,775  11,004  11,419  11,545 
Allowance for unfunded
credit commitments
935  956  1,121  967  850 911  932  956  1,121  967 
Allowance for credit losses$10,956  11,960  12,540  12,512  13,169 $10,603  10,707  11,960  12,540  12,512 
Allowance for loan losses as a percentage of total loans1.06% 1.15  1.18  1.26  1.43 1.02% 1.03  1.15  1.18  1.26 
Allowance for loan losses as a percentage of total net charge-offs (1)371  376  324  399  418 370  356  376  324  399 
Allowance for credit losses as a percentage of total loans1.16  1.25  1.30  1.37  1.53 1.12  1.12  1.25  1.30  1.37 
Allowance for credit losses as a percentage of total nonaccrual loans155  149  121  110  103 179  165  156  126  115 
(1)
Total net charge-offs are annualized for quarter ended SeptemberJune 30, 2018.
2019.


In addition to the allowance for credit losses, there was $419$595 million at SeptemberJune 30, 2018,2019, and $474$480 million at December 31, 20172018, of nonaccretable difference to absorb losses foron PCI loans which totaled $6.9of $1.2 billion at SeptemberJune 30, 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 in 2016, 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 6 (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.
The allowance for credit losses decreased$1.0 billion, $104 million, or 8%1%, from December 31, 2017, due to an improvement in our outlook for 2017 hurricane-related losses, as well as continued improvement in residential real estate and lower loan balances.2018, primarily driven by strong overall credit portfolio performance. Total provision for credit losses was $580$503 million in thirdsecond quarter 2018,2019, compared with $717$452 million in thirdsecond quarter 2017, reflecting 2018. The increase in the provision for credit losses in second quarter 2019, compared with
the same changes mentioned above forperiod a year ago, was due to loan growth, primarily in the allowance for credit losses.card portfolio.
We believe the allowance for credit losses of $11.0$10.6 billion at SeptemberJune 30, 2018,2019, was appropriate to cover credit losses inherent in the loan portfolio, including unfunded credit commitments, at that date. 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
Risk Management - Credit Risk Management (continued)

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 20172018 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 $1.5 trillion in the residential mortgage loan servicing portfolio at September 30, 2018, 96% was current and less than 1% was subprime at origination. Our combined delinquency and foreclosure rate on this portfolio was 4.32% at September 30, 2018, compared with 5.14% at December 31, 2017. One 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, 2018, was $62 million, representing 294 loans, down from a year ago both in number of outstanding loans and in total dollar balances. The decrease was predominantly due to private investor demands which we resolved in third quarter 2018.
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 $178 million at September 30, 2018, and $181 million at December 31, 2017. In third quarter 2018, we recorded a provision of $1 million predominantly due to loan sales, which decreased net gains on mortgage loan origination/sales activities, compared with a release of $6 million in third quarter 2017. We incurred net losses on repurchased loans and investor reimbursements totaling $2 million in third quarter 2018 and $3 million in third quarter 2017.
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 $201 million at September 30, 2018, 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 20172018 Form 10-K and Note 10 (Mortgage Banking Activities) to Financial Statements in this Report.10-K.


RISKS RELATING TO SERVICING ACTIVITIESIn 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 could become subject to consent orders and settlement agreements with federal and state regulators for alleged servicing issues and practices. In general, these can require us to provide customers with loan modification relief, refinancing relief, and foreclosure prevention and assistance, as well as can impose certain monetary penalties on us.
For additional information about the risks related to our servicing activities, see the “Risk Management – Credit Risk Management – Risks Relating to Servicing Activities” section in our 20172018 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 market 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 rising, earnings will initially increase);
assets and liabilities may reprice at the same time but by different amounts (for example, when the general level of interest rates is rising, we may increase rates paid on checking and savings deposit accounts by an amount that is less than the general rise 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 increase sharply, MBS held in the debt securities portfolio may pay down slower than anticipated, which could impact 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 debt 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.
Our most recent simulations estimate net interest income sensitivity over the next two years under a range of both lower and higher interest rates. Measured impacts from standardized ramps (gradual changes) and shocks (instantaneous changes) are summarized in Table 30,29, 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 debt and equity securities portfolios constant across scenarios.

Table 30:29:Net Interest Income Sensitivity Over Next Two-Year Horizon Relative to Base Expectation
   Lower Rates Higher Rates
($ in billions)Base 
100 bps
Ramp
Parallel
 Decrease
 
100 bps Instantaneous
Parallel
Increase
 
200 bps
Ramp
Parallel
Increase
First Year of Forecasting Horizon       
Net Interest Income Sensitivity to Base Scenario $(1.2) - (0.7) 1.2 - 1.7 1.0 - 1.5
Key Rates at Horizon End       
Fed Funds Target2.50%1.50 3.50 4.50
10-year CMT (1)2.87 1.87 3.87 4.87
Second Year of Forecasting Horizon       
Net Interest Income Sensitivity to Base Scenario $(3.1) - (2.6 ) 1.6 - 2.1 2.3 - 2.8
Key Rates at Horizon End       
Fed Funds Target2.50%1.50 3.50 4.50
10-year CMT (1)3.16 2.16 4.16 5.16
   Lower Rates Higher Rates
($ in billions)Base 
100 bps
Ramp
Parallel
 Decrease
 
100 bps Instantaneous
Parallel
Increase
 
200 bps
Ramp
Parallel
Increase
First Year of Forecasting Horizon       
Net Interest Income Sensitivity to Base Scenario $(1.0) - (0.5) 0.8 - 1.3 0.8 - 1.3
Key Rates at Horizon End       
Fed Funds Target3.00%2.00 4.00 5.00
10-year CMT (1)3.47 2.47 4.47 5.47
Second Year of Forecasting Horizon       
Net Interest Income Sensitivity to Base Scenario $(1.9) - (1.4) 1.2 - 1.7 2.0 - 2.5
Key Rates at Horizon End       
Fed Funds Target3.00%2.00 4.00 5.00
10-year CMT (1)3.81 2.81 4.81 5.81
(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 predominantly 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,Additionally, 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 reflectour trading assets are (before the offsetting effects of certain economic hedges. Instead, ashedges) generally less sensitive to changes in interest rates than the related funding liabilities. As a result, net interest income from the trading portfolio contracts and expands as interest rates rise and fall, respectively. The impact to net interest income does not include the fair value changes of GAAP requirements,trading securities and loans, which, along with the effects of suchrelated economic hedges, are recorded in noninterest income.
Asset/Liability Management (continued)

We use the debt securities portfolio and exchange-traded and over-the-counter (OTC) interest rate derivatives to hedge our interest rate exposures. See the “Balance Sheet Analysis – Available-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-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 SeptemberJune 30, 2018,2019, and December 31, 2017,2018, are presented in Note 1415 (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 20172018 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 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 $17.4$13.5 billion at SeptemberJune 30, 2018,2019, and $15.0$16.1 billion at December 31, 2017.2018. The weighted-average note rate on our portfolio of loans serviced for others was 4.29%4.33% at SeptemberJune 30, 2018,2019, and 4.23%4.32% at December 31, 2017.2018. The carrying value of our total MSRs represented 1.02%0.82% of mortgage loans serviced for others at SeptemberJune 30, 2018,2019, and 0.88%0.94% of mortgage loans serviced for others at December 31, 2017.
2018.
 
MARKET RISK Market risk is the risk of possible economic loss in the trading book associated withfrom adverse changes in market risk factors such as interest rates, credit spreads, foreign exchange rates, equity and commodity prices.prices, and the risk of possible loss due to counterparty risk. This includes implied volatility risk, basis risk, and market liquidity risk. Market risk also 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 of our Board reviews the acceptablealso reports key market risk appetitematters to the Risk Committee.
At the management level, the Market and Counterparty Risk Management function, which is part of Corporate Risk, has primary oversight responsibility for our trading activities.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 activities to accommodate the investment and risk management 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
Asset/Liability Management (continued)

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, 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 20172018 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 on our balance sheet.

Table 3130 shows the Company’s Trading General VaR by risk category. As presented in Table 31,30, average Company Trading General VaR was $12$20 million for the quarter ended SeptemberJune 30, 2018,2019, compared with $15 million for the quarter ended June 30, 2018,March 31, 2019, and $15 million for the quarter ended
September June 30, 2017.2018. The decreaseincrease in average Company Trading General VaR for the quarter ended SeptemberJune 30, 2018,2019, compared with the quarter ended June 30, 2018, was mainly driven by changes in portfolio composition.
Table 31:30:Trading 1-Day 99% General VaR by Risk Category
  Quarter ended   Quarter ended 
September 30, 2018  June 30, 2018 September 30, 2017 June 30, 2019  March 31, 2019  June 30, 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
 
Period
end

 Average
 Low
 High
Company Trading General VaR Risk Categories                                            
Credit$13
 17
 11
 55
 17
 18
 15
 20
18
 26
 18
 35
$15
 15
 11
 18
 15
 15
 11
 19
 17
 18
 15
 20
Interest rate18
 18
 6
 52
 18
 17
 11
 24
7
 13
 7
 20
29
 37
 27
 49
 42
 34
 22
 44
 18
 17
 11
 24
Equity5
 5
 4
 7
 8
 7
 5
 16
13
 11
 9
 14
4
 5
 4
 8
 5
 5
 4
 7
 8
 7
 5
 16
Commodity2
 1
 1
 2
 1
 1
 1
 1
2
 1
 1
 2
2
 2
 1
 6
 2
 2
 1
 4
 1
 1
 1
 1
Foreign exchange0
 1
 0
 1
 0
 0
 0
 1
0
 1
 0
 1
1
 1
 1
 1
 1
 1
 1
 1
 0
 0
 0
 1
Diversification benefit (1)(25) (30)     (29) (28)    (22) (37)    (32) (40) 

   (46) (42)     (29) (28)    
Company Trading General VaR$13
 12
     15
 15
    18
 15
    $19
 20
     19
 15
     15
 15
    
(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.


Market Risk Governance,Measurement, Monitoring and Model Risk Management We employ a well-defined and structured market risk governance process and market risk measurement process, which incorporates 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 2017 Form 10-K.

MARKET RISK – EQUITY SECURITIESWe are directly and indirectly affected by changes in the equity markets. We make and manage direct 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 and observable price changes. For nonmarketable equity securities, the analysis is based on facts and circumstances of each individual investment and the expectations for that investment’s cash flows, capital needs, the viability of its business model, our exit strategy, and observable price changes that are similar to the investment held. Investments in nonmarketable equity securities include private equity investments accounted for under the equity method, fair value 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, 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 1314 (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 that include investments relating to our venture capital activities. We manage these marketable equity securities within capital risk limits approved by management and the Board and monitored by Corporate ALCO and the Market Risk Committee. The fair value changes in these marketable equity securities are recognized in net income. For more information, see Note 78 (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.




Asset/Liability Management (continued)

LIQUIDITY AND FUNDINGThe 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 In September 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 has finalized a rule that requires large bank holding companies to publicly disclose on a quarterly basis certain quantitative and qualitative information regarding their LCR calculations.Fargo.
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.


Liquidity Coverage Ratio As of SeptemberJune 30, 2018,2019, 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 3231 presents the Company’s quarterly average values for the daily-calculated LCR and its components calculated pursuant to the LCR rule requirements.


Table 32:31: Liquidity Coverage Ratio
(in millions, except ratio)Average for Quarter ended September 30, 2018
Average for Quarter ended June 30, 2019
HQLA (1)(2)$366,558
$352,298
Projected net cash outflows295,813
291,624
LCR124%121%
(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 33.32. 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. Debt 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 debt 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 debt securities portfolio and as such are not intended for sale but may be pledged to obtain financing. Some of the legal entities within our consolidated group of companies are subject to various regulatory, tax, legal and other restrictions that can limit the transferability of their funds. We believe we maintain adequate liquidity for these entities in consideration of such funds transfer restrictions.
Table 33:32:Primary Sources of Liquidity
September 30, 2018  December 31, 2017 June 30, 2019  December 31, 2018 
(in millions)Total
 Encumbered
 Unencumbered
 Total
 Encumbered
 Unencumbered
Total
 Encumbered
 Unencumbered
 Total
 Encumbered
 Unencumbered
Interest-earning deposits with banks$140,732
 —
 140,732
 192,580
 —
 192,580
$143,547
 —
 143,547
 149,736
 —
 149,736
Debt securities of U.S. Treasury and federal agencies49,855
 953
 48,902
 51,125
 964
 50,161
60,655
 2,384
 58,271
 57,688
 1,504
 56,184
Mortgage-backed securities of federal agencies (1)242,166
 30,161
 212,005
 246,894
 46,062
 200,832
249,619
 34,627
 214,992
 244,211
 35,656
 208,555
Total$432,753
 31,114
 401,639
 490,599
 47,026
 443,573
$453,821
 37,011
 416,810
 451,635
 37,160
 414,475
(1)
Included in encumbered debt securities at SeptemberJune 30, 2018,2019, were debt securities with a fair value of $534 million$2.1 billion which were purchased in September 2018,June 2019, but settled in October 2018.
July 2019.


In addition to our primary sources of liquidity shown in Table 33,32, 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 134%136% of total loans at SeptemberJune 30, 20182019, and 140%135% at December 31, 2017.2018.
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.

Asset/Liability Management (continued)

Table 3433 shows selected information for short-term borrowings, which generally mature in less than 30 days.
Table 34:33:Short-Term Borrowings
Quarter ended Quarter ended 
(in millions)Sep 30
2018
 Jun 30,
2018
 Mar 31,
2018
 Dec 31,
2017
 Sep 30,
2017
Jun 30
2019
 Mar 31,
2019
 Dec 31,
2018
 Sep 30,
2018
 Jun 30,
2018
Balance, period end                  
Federal funds purchased and securities sold under agreements to repurchase$92,418
 89,307
 80,916
 88,684
 79,824
$102,560
 93,896
 92,430
 92,418
 89,307
Commercial paper—
 —
 —
 —
 —
Other short-term borrowings13,033
 15,189
 16,291
 14,572
 13,987
12,784
 12,701
 13,357
 13,033
 15,189
Total$105,451
 104,496
 97,207
 103,256
 93,811
$115,344
 106,597
 105,787
 105,451
 104,496
Average daily balance for period                  
Federal funds purchased and securities sold under agreements to repurchase$92,141
 89,138
 86,535
 88,197
 81,980
$102,557
 95,721
 93,483
 92,141
 89,138
Commercial paper—
 —
 —
 —
 4
Other short-term borrowings13,331
 14,657
 15,244
 13,945
 17,209
12,197
 12,930
 12,479
 13,331
 14,657
Total$105,472
 103,795
 101,779
 102,142
 99,193
$114,754
 108,651
 105,962
 105,472
 103,795
Maximum month-end balance for period                  
Federal funds purchased and securities sold under agreements to repurchase (1)$92,531
 92,103
 88,121
 91,604
 83,260
$105,098
 97,650
 93,918
 92,531
 92,103
Commercial paper (2)—
 —
 —
 —
 11
Other short-term borrowings (3)14,270
 15,272
 16,924
 14,948
 18,301
Other short-term borrowings (2)12,784
 14,129
 13,357
 14,270
 15,272
(1)Highest month-end balance in each of the last five quarters was in July, May and January 2018,2019, and November, July and August 2017.May 2018.
(2)There were no month-end balances in third, second and first quarter 2018, and fourth quarter 2017; highest month-end balance in remaining quarter was in July 2017.
(3)Highest month-end balance in each of the last five quarters was in June and February 2019, and December, July and May and January 2018, and November and July 2017.2018.

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 $221.3$241.5 billion at SeptemberJune 30, 2018, decreased $3.72019, increased $12.4 billion from December 31, 2017.2018. We issued $10.1$15.8 billion and $31.4$33.1 billion of
 
long-term debt in the thirdsecond quarter and first nine monthshalf of 2018,2019, respectively. Table 3534 provides the aggregate carrying value of long-term debt maturities (based on contractual payment dates) for the remainder of 20182019 and the following years thereafter, as of SeptemberJune 30, 2018.2019.
Table 35:34:Maturity of Long-Term Debt
September 30, 2018 June 30, 2019 
(in millions)Remaining 2018
 2019
 2020
 2021
 2022
 Thereafter
 Total
Remaining 2019
 2020
 2021
 2022
 2023
 Thereafter
 Total
Wells Fargo & Company (Parent Only)                          
Senior notes$153
 6,683
 13,335
 17,766
 17,748
 51,116
 106,801
$1,280
 13,497
 18,146
 18,028
 11,092
 54,815
 116,858
Subordinated notes581
 —
 —
 —
 —
 24,667
 25,248
—
 —
 —
 —
 3,655
 23,619
 27,274
Junior subordinated notes—
 —
 —
 —
 —
 1,562
 1,562
—
 —
 —
 —
 —
 1,733
 1,733
Total long-term debt - Parent$734
 6,683
 13,335
 17,766
 17,748
 77,345
 133,611
$1,280
 13,497
 18,146
 18,028
 14,747
 80,167
 145,865
Wells Fargo Bank, N.A. and other bank entities (Bank)                          
Senior notes$8,999
 32,617
 12,495
 14,938
 40
 2,928
 72,017
$17,219
 30,630
 27,232
 2,148
 2,883
 181
 80,293
Subordinated notes—
 —
 —
 —
 —
 5,125
 5,125
—
 —
 —
 —
 1,041
 4,354
 5,395
Junior subordinated notes—
 —
 —
 —
 —
 350
 350
—
 —
 —
 —
 —
 357
 357
Securitizations and other bank debt1,068
 1,250
 1,374
 299
 164
 2,738
 6,893
1,302
 1,793
 861
 418
 108
 2,035
 6,517
Total long-term debt - Bank$10,067
 33,867
 13,869
 15,237
 204
 11,141
 84,385
$18,521
 32,423
 28,093
 2,566
 4,032
 6,927
 92,562
Other consolidated subsidiaries                          
Senior notes$769
 1,148
 —
 958
 —
 379
 3,254
$1,146
 66
 1,123
 12
 422
 248
 3,017
Securitizations and other bank debt73
 —
 —
 —
 —
 —
 73
—
 —
 —
 —
 —
 32
 32
Total long-term debt - Other consolidated subsidiaries$842
 1,148
 —
 958
 —
 379
 3,327
$1,146
 66
 1,123
 12
 422
 280
 3,049
Total long-term debt$11,643
 41,698
 27,204
 33,961
 17,952
 88,865
 221,323
$20,947
 45,986
 47,362
 20,606
 19,201
 87,374
 241,476
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 June 30, 2019, the Parent’s remaining authorized issuance capacity under this registration statement was $47.5 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 SeptemberJune 30, 2018,2019, the Parent was authorized by the Board to issue up to $180$200 billion in
outstanding long-term debt. The Parent'sParent’s long-term debt issuance authority granted by the Board includes debt
issued to affiliates and others. At SeptemberJune 30, 2018,2019, the Parent had available $37.0$52.3 billion in long-term debt issuance authority.authority, net of debt issued to affiliates. During the first nine monthshalf of 2018,2019, the Parent issued $1.2$11.3 billion of senior notes, most of which $888 million were registered with the SEC. The Parent'sParent’s short-term debt issuance
Asset/Liability Management (continued)

authority granted by the Board was limited to debt issued to affiliates, and was revoked by the Board at management'smanagement’s request in January 2018.
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 SeptemberJune 30, 2018,2019, 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 $99.6$98.9 billion in short-term debt issuance authority and $101.7$97.7 billion in long-term debt issuance authority. In April 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 SeptemberJune 30, 2018,2019, 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 $43.0$34.2 billion in long-term senior or subordinated notes. During the first nine monthshalf of 2018,2019, Wells Fargo Bank, N.A. issued $14.3$6.7 billion of unregistered senior notes, including $1.0 billion of senior redeemable floating rate notes issued in September 2018 with an interest rate indexed to the new Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York, and $6.0 billion of which were issued under a prior bank note program. SOFR is an alternative to LIBOR and is a broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities. It is expected that a transition away from the widespread use of LIBOR to alternative benchmark rates will occur over the course of the next few years. Accordingly, the FASB recently issued a pronouncement that includes SOFR, among others, as a permitted benchmark interest rate for the application of hedge accounting. See the “Risk
notes.
Factors” section in our 2017 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.
In addition, duringDuring the first nine monthshalf of 2018,2019, Wells Fargo Bank, N.A. executed advances of $17.7borrowed $8.5 billion withfrom the Federal Home Loan Bank of Des Moines, and as of SeptemberJune 30, 2018,2019, Wells Fargo Bank, N.A. had outstanding advances of $45.9 billion across the Federal Home Loan Bank System. Furthermore, in October 2018, Wells Fargo Bank, N.A. issued $3.3 billion of unregistered senior notes under the new bank note program and executed $6.5 billion in Federal Home Loan Bank advances.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.
During third quarter 2018, our ratings were affirmed byOn April 1, 2019, S&P Global Ratings confirmedaffirmed the credit ratings for both the Parent and Wells Fargo Bank, N.A., but revised the ratings outlook for the Parent to negative from stable. There were no other actions undertaken by DBRS, Inc. (DBRS), and affirmed by Fitch Ratings, Inc.the rating agencies with regard to our credit ratings during second quarter 2019. Both the Parent and Wells Fargo Bank, N.A. remain among the highest-rated financial firms in the U.S.
See the “Risk Factors” section in our 20172018 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 1415 (Derivatives) to Financial Statements in this Report for information regarding additional collateral and funding obligations required for certain derivative instruments in the event our credit ratings were to fall below investment grade.
The credit ratings of the Parent and Wells Fargo Bank, N.A. as of SeptemberJune 30, 2018,2019, are presented in Table 36.

35.
Table 36:35:Credit Ratings as of SeptemberJune 30, 20182019
 Wells Fargo & Company Wells Fargo Bank, N.A.
 Senior debt 
Short-term
borrowings 
 
Long-term
deposits 
 
Short-term
borrowings 
Moody'sMoody’sA2 P-1 Aa1 P-1
S&P Global RatingsA- A-2 A+ A-1
Fitch Ratings, Inc.A+ F1 AA F1+
DBRSAA(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 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 half 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.


Capital Management (continued)

Capital Management
We have an active program for managing capital through a comprehensive process for assessing the Company’s overall capital adequacy. Our objective is to maintain capital at an amount commensurate with our risk profile and risk tolerance objectives, and to meet both regulatory and market expectations. We primarily fund our 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 $9.3$6.4 billion from December 31, 2017,2018, predominantly from Wells Fargo net income of $16.3$12.1 billion, less common and preferred stock dividends of $7.1$4.8 billion. During thirdsecond quarter 2018,2019, we issued 9.0 million shares of common stock. During third quarter 2018, we repurchased 146.58.5 million shares of common stock, in open market transactions and from employee benefit plans,excluding conversions of preferred shares. During second quarter 2019, we repurchased 104.9 million shares of common stock at a cost of $8.4$4.9 billion. We 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 2018 that is expected to settle in first quarter 2019 for approximately 19 million common 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.
On September 17, 2018, we redeemed all of our 8.00% Non-Cumulative Perpetual Class A Preferred Stock, Series J, at a redemption price equal to $1,000 per share.
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 2016 data;for 2019;
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 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 CCAR,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 are also subject to the FRB’sFRB's rule implementing the additional capital surcharge of between 1.0-4.5% on the minimum capital requirements of 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) considers our size, interconnectedness, cross-jurisdictional activity, substitutability, and complexity, consistent with the methodology developed by the BCBS and the Financial Stability Board (FSB). The second (method two) uses similar inputs, but replaces 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 effectivephased-in on January 1, 2019. Based on year-end 2016 data, our 2018Our 2019 G-SIB surcharge under method two is 2.0% of the Company’s RWAs,risk-weighted assets (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 11.91%11.97% exceeded the minimum of 9.0% by 291297 basis points at SeptemberJune 30, 2018.2019.
Beginning 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. The tables that follow provide information about our risk- basedrisk-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 2223 (Regulatory and Agency Capital Requirements) to Financial Statements in this Report.
Table 3736 summarizes our CET1, tier 1 capital, total capital, risk-weighted assets and capital ratios on a fully phased-in basis
Capital Management (continued)

at SeptemberJune 30, 20182019 and December 31, 2017.2018. As of SeptemberJune 30, 2018,2019, our CET1, tier 1, and total capital ratios were lower using RWAs calculated under the Standardized Approach.




Table 37:36:Capital Components and Ratios (Fully Phased-In) (1)
 September 30, 2018  December 31, 2017   June 30, 2019  December 31, 2018  
(in millions, except ratios) Advanced Approach
 Standardized Approach
  Advanced Approach
 Standardized Approach
  Advanced Approach
 Standardized Approach
  Advanced Approach
 Standardized Approach
 
Common Equity Tier 1(A)$148,855
 148,855
 154,022
 154,022
 (A)$149,183
 149,183
 146,363
 146,363
 
Tier 1 Capital(B)170,342
 170,342
 177,466
 177,466
 (B)170,675
 170,675
 167,866
 167,866
 
Total Capital(C)200,921
 209,229
 208,395
 218,159
 (C)200,291
 208,298
 198,103
 206,346
 
Risk-Weighted Assets(D)1,189,464
 1,250,215
 1,225,939
 1,285,563
 (D)1,182,838
 1,246,683
 1,177,350
 1,247,210
 
Common Equity Tier 1 Capital Ratio(A)/(D)12.51% 11.91
* 12.56
 11.98
*(A)/(D)12.61% 11.97
* 12.43
 11.74
*
Tier 1 Capital Ratio(B)/(D)14.32
 13.63
* 14.48
 13.80
*(B)/(D)14.43
 13.69
* 14.26
 13.46
*
Total Capital Ratio(C)/(D)16.90

16.73
* 17.00
 16.97
*(C)/(D)16.93

16.71
* 16.83
 16.54
*
*Denotes the lowest capital ratio as determined under the Advanced and Standardized Approaches.
(1)
Beginning 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, fullyFully phased-in total capital amounts and ratios 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 3837 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 3837 provides information regarding the calculation and composition of our risk-based capital under the Advanced and
Standardized Approaches at SeptemberJune 30, 20182019 and December 31, 2017.2018.
Table 38:37:Risk-Based Capital Calculation and Components
 September 30, 2018  December 31, 2017  June 30, 2019  December 31, 2018 
(in millions) Advanced Approach
 Standardized Approach
 Advanced Approach
 Standardized Approach
 Advanced Approach
 Standardized Approach
 Advanced Approach
 Standardized Approach
Total equity $199,679
 199,679
 208,079
 208,079
 $200,037
 200,037
 197,066
 197,066
Adjustments:         
 
    
Preferred stock (23,482) (23,482) (25,358) (25,358) (23,021) (23,021) (23,214) (23,214)
Additional paid-in capital on ESOP preferred stock (105) (105) (122) (122) (78) (78) (95) (95)
Unearned ESOP shares 1,780
 1,780
 1,678
 1,678
 1,292
 1,292
 1,502
 1,502
Noncontrolling interests (938) (938) (1,143) (1,143) (995) (995) (900) (900)
Total common stockholders' equity
176,934
 176,934
 183,134
 183,134
Total common stockholders’ equity
177,235
 177,235
 174,359
 174,359
Adjustments:                
Goodwill (26,425) (26,425) (26,587) (26,587) (26,415) (26,415) (26,418) (26,418)
Certain identifiable intangible assets (other than MSRs) (826) (826) (1,624) (1,624) (493) (493) (559) (559)
Other assets (1) (2,121) (2,121) (2,155) (2,155) (2,251) (2,251) (2,187) (2,187)
Applicable deferred taxes (2) 829
 829
 962
 962
 788
 788
 785
 785
Investment in certain subsidiaries and other 464
 464
 292
 292
 319
 319
 383
 383
Common Equity Tier 1 (Fully Phased-In)
148,855
 148,855
 154,022
 154,022

149,183
 149,183
 146,363
 146,363
Effect of Transition Requirements (3) —
 —
 743
 743
Common Equity Tier 1 (Transition Requirements) $148,855
 148,855
 154,765
 154,765
                
Common Equity Tier 1 (Fully Phased-In) $148,855
 148,855
 154,022
 154,022
 $149,183
 149,183
 146,363
 146,363
Preferred stock 23,482
 23,482
 25,358
 25,358
 23,021
 23,021
 23,214
 23,214
Additional paid-in capital on ESOP preferred stock 105
 105
 122
 122
 78
 78
 95
 95
Unearned ESOP shares (1,780) (1,780) (1,678) (1,678) (1,292) (1,292) (1,502) (1,502)
Other (320) (320) (358) (358) (315) (315) (304) (304)
Total Tier 1 capital (Fully Phased-In)(A)170,342
 170,342
 177,466
 177,466
(A)170,675
 170,675
 167,866
 167,866
Effect of Transition Requirements (3) —
 —
 743
 743
Total Tier 1 capital (Transition Requirements) $170,342
 170,342
 178,209
 178,209
                
Total Tier 1 capital (Fully Phased-In) $170,342
 170,342
 177,466
 177,466
Long-term debt and other instruments qualifying as Tier 2 28,097
 28,097
 28,994
 28,994
 27,223
 27,223
 27,946
 27,946
Qualifying allowance for credit losses (4) 2,648
 10,956
 2,196
 11,960
Qualifying allowance for credit losses (3) 2,596
 10,603
 2,463
 10,706
Other (166) (166) (261) (261) (203) (203) (172) (172)
Total Tier 2 capital (Fully Phased-In)(B)30,579
 38,887
 30,929
 40,693
(B)29,616
 37,623
 30,237
 38,480
Effect of Transition Requirements 695
 695
 1,195
 1,195
 519
 519
 695
 695
Total Tier 2 capital (Transition Requirements) $31,274
 39,582
 32,124
 41,888
 $30,135
 38,142
 30,932
 39,175
                
Total qualifying capital (Fully Phased-In)(A)+(B)$200,921
 209,229
 208,395
 218,159
(A)+(B)$200,291
 208,298
 198,103
 206,346
Total Effect of Transition Requirements 695
 695
 1,938
 1,938
 519
 519
 695
 695
Total qualifying capital (Transition Requirements) $201,616
 209,924
 210,333
 220,097
 $200,810
 208,817
 198,798
 207,041
                
Risk-Weighted Assets (RWAs) (5)(6):        
Risk-Weighted Assets (RWAs) (4)(5):        
Credit risk $825,336
 1,205,475
 890,171
 1,249,395
 $802,054
 1,203,474
 803,273
 1,201,246
Market risk 44,740
 44,740
 36,168
 36,168
 43,209
 43,209
 45,964
 45,964
Operational risk 319,388
 N/A
 299,600
 N/A
 337,575
 —
 328,113
 N/A
Total RWAs (Fully Phased-In) (3) $1,189,464
 1,250,215
 1,225,939
 1,285,563
Total RWAs (Fully Phased-In) $1,182,838
 1,246,683
 1,177,350
 1,247,210
(1)Represents goodwill and other intangibles on nonmarketable equity 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)
Beginning January 1, 2018, the requirements for calculating CET1 and tier 1 capital, along with RWAs, became fully phased-in, so the effect of the transition requirements was $0 at September 30, 2018.
(4)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.
(5)(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.
(6)(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 3938 presents the changes in Common Equity Tier 1 under the Advanced Approach for the ninesix months ended SeptemberJune 30, 2018.2019.
 


Table 39:38:Analysis of Changes in Common Equity Tier 1
(in millions)    
Common Equity Tier 1 (Fully Phased-In) at December 31, 2017 $154,022
Common Equity Tier 1 (Fully Phased-In) at December 31, 2018 $146,363
Net income applicable to common stock 14,978
 11,355
Common stock dividends (5,873) (4,069)
Common stock issued, repurchased, and stock compensation-related items (11,075) (8,030)
Goodwill 162
 3
Certain identifiable intangible assets (other than MSRs) 798
 67
Other assets (1) 34
 (64)
Applicable deferred taxes (2) (133) 3
Investment in certain subsidiaries and other (4,058) 3,555
Change in Common Equity Tier 1 (5,167) 2,820
Common Equity Tier 1 (Fully Phased-In) at September 30, 2018 $148,855
Common Equity Tier 1 (Fully Phased-In) at June 30, 2019 $149,183
(1)Represents goodwill and other intangibles on nonmarketable equity 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 4039 presents net changes in the components of RWAs under the Advanced and Standardized Approaches for the ninesix months ended SeptemberJune 30, 2018.2019.
 




Table 40:39:Analysis of Changes in RWAs
(in millions)Advanced Approach
Standardized Approach
Advanced Approach
Standardized Approach
RWAs (Fully Phased-In) at December 31, 2017$1,225,939
1,285,563
RWAs (Fully Phased-In) at December 31, 2018$1,177,350
1,247,210
Net change in credit risk RWAs(64,835)(43,920)(1,219)2,228
Net change in market risk RWAs8,572
8,572
(2,755)(2,755)
Net change in operational risk RWAs19,788
—
9,462
—
Total change in RWAs(36,475)(35,348)5,488
(527)
RWAs (Fully Phased-In) at September 30, 2018$1,189,464
1,250,215
RWAs (Fully Phased-In) at June 30, 2019$1,182,838
1,246,683




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 securities, 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 4140 provides a reconciliation of these non-GAAP financial measures to GAAP financial measures.


Table 41:40: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  Six months ended 
(in millions, except ratios) Sep 30,
2018
Jun 30,
2018
Sep 30,
2017
 Sep 30,
2018
Jun 30,
2018
Sep 30,
2017
 Sep 30,
2018
Sep 30,
2017
 Jun 30,
2019
Mar 31,
2019
Jun 30,
2018
 Jun 30,
2019
Mar 31,
2019
Jun 30,
2018
 Jun 30,
2019
Jun 30,
2018
Total equity $199,679
206,069
206,617
 202,826
206,067
207,723
 205,012
205,035
 $200,037
198,733
206,069
 199,685
198,349
206,067
 199,021
206,123
Adjustments:                
Preferred stock (23,482)(25,737)(25,576) (24,219)(26,021)(25,780) (25,459)(25,600) (23,021)(23,214)(25,737) (23,023)(23,214)(26,021) (23,118)(26,089)
Additional paid-in capital on ESOP preferred stock (105)(116)(130) (115)(129)(136) (132)(142) (78)(95)(116) (78)(95)(129) (87)(141)
Unearned ESOP shares 1,780
2,051
1,904
 2,026
2,348
2,114
 2,292
2,226
 1,292
1,502
2,051
 1,294
1,502
2,348
 1,397
2,428
Noncontrolling interests (938)(881)(895) (892)(919)(926) (936)(931) (995)(901)(881) (939)(899)(919) (919)(958)
Total common stockholders' equity(A) 176,934
181,386
181,920
 179,626
181,346
182,995
 180,777
180,588
Total common stockholders’ equity(A) 177,235
176,025
181,386
 176,939
175,643
181,346
 176,294
181,363
Adjustments:            
 
  
Goodwill (26,425)(26,429)(26,581) (26,429)(26,444)(26,600) (26,463)(26,645) (26,415)(26,420)(26,429) (26,415)(26,420)(26,444) (26,417)(26,480)
Certain identifiable intangible assets (other than MSRs) (826)(1,091)(1,913) (958)(1,223)(2,056) (1,221)(2,314) (493)(522)(1,091) (505)(543)(1,223) (524)(1,355)
Other assets (1) (2,121)(2,160)(2,282) (2,083)(2,271)(2,231) (2,195)(2,163) (2,251)(2,131)(2,160) (2,155)(2,159)(2,271) (2,157)(2,252)
Applicable deferred taxes (2) 829
874
1,550
 845
889
1,579
 889
1,650
 788
771
874
 780
784
889
 782
911
Tangible common equity(B) $148,391
152,580
152,694
 151,001
152,297
153,687
 151,787
151,116
(B) $148,864
147,723
152,580
 148,644
147,305
152,297
 147,978
152,187
Common shares outstanding(C) 4,711.6
4,849.1
4,927.9
 N/A
N/A
N/A
 N/A
N/A
(C) 4,419.6
4,511.9
4,849.1
 N/A
N/A
N/A
 N/A
N/A
Net income applicable to common stock (3)(D) N/A
N/A
N/A
 $5,453
4,792
4,131
 14,978
14,814
(D) N/A
N/A
N/A
 $5,848
5,507
4,792
 11,355
9,525
Book value per common share(A)/(C) $37.55
37.41
36.92
 N/A
N/A
N/A
 N/A
N/A
(A)/(C) $40.10
39.01
37.41
 N/A
N/A
N/A
 N/A
N/A
Tangible book value per common share(B)/(C) 31.49
31.47
30.99
 N/A
N/A
N/A
 N/A
N/A
(B)/(C) 33.68
32.74
31.47
 N/A
N/A
N/A
 N/A
N/A
Return on average common stockholders’ equity (ROE) (annualized)(D)/(A) N/A
N/A
N/A
 12.04%10.60
8.96
 11.08
10.97
(D)/(A) N/A
N/A
N/A
 13.26%12.71
10.60
 12.99
10.59
Return on average tangible common equity (ROTCE) (annualized)(D)/(B) N/A
N/A
N/A
 14.33
12.62
10.66
 13.19
13.11
(D)/(B) N/A
N/A
N/A
 15.78
15.16
12.62
 15.47
12.62
(1)Represents goodwill and other intangibles on nonmarketable equity 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 calculation of the SLR consists ofis Tier 1 capital divided by the Company’s total leverage exposure. Total leverage exposure consists of the total average on-balance sheet assets, less goodwill and other permitted Tier 1 capital deductions (net of deferred tax liabilities), plus certain off-balance sheet exposures, such as undrawn commitments and derivative exposures, less amounts permitted to be deducted from Tier 1 capital.exposures. The rule, which became effective on January 1, 2018, requires 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 also requires that all of our insured depository institutions maintain a SLR of 6.0% under applicable regulatory capital adequacy guidelines. In April 2018, the FRB and OCC proposed rules (the “Proposed SLR Rules”) that would replace the 2% supplementary leverage buffer with a buffer equal to one-half of the firm’s G-SIB capital surcharge. The Proposed SLR Rules would similarly tailor the current 6% SLR requirement for our insured depository institutions.
At SeptemberJune 30, 2018,2019, our SLR for the Company was 7.8% calculated under the Advanced Approach capital framework.7.7%. Based on our review, our current leverage levels would exceed the applicable requirements for each of our insured depository institutions as well. See Table 4241 for information regarding the calculation and components of the SLR.
Table 42:41:Supplementary Leverage Ratio
(in millions, except ratio)Quarter ended September 30, 2018
 Quarter ended June 30, 2019
Tier 1 capital$170,342
(A)$170,675
Total average assets1,876,283
 1,900,627
Less: deductions from Tier 1 capital (1)28,983
Less: Goodwill and other permitted Tier 1 capital deductions (net of deferred tax liabilities) 28,821
Total adjusted average assets1,847,300
 1,871,806
Adjustments: 
Derivative exposures (2)69,619
Plus adjustments for off-balance sheet exposures:  
Derivatives (1) 68,229
Repo-style transactions (3)(2)3,330
 5,033
Other off-balance sheet exposures (4)253,371
Total adjustments326,320
Other (3) 257,539
Total off-balance sheet exposures 330,801
Total leverage exposure$2,173,620
(B)$2,202,607
Supplementary leverage ratio7.8%(A)/(B)7.7%
(1)Amounts permitted to be deducted from Tier 1 capital primarily include goodwillAdjustment represents derivatives and other intangible assets, net of associated deferred tax liabilities.
(2)Represents adjustments for off balance sheet derivative exposures, and derivative collateral netting exposures as defined for supplementary leverage ratio determination purposes.
(3)(2)Adjustments for repo-style transactions representAdjustment represents counterparty credit risk for all repo-style transactions where Wells Fargo & Company is the principal (i.e., principal counterparty facing the client).
(4)(3)Adjustments forAdjustment represents credit equivalent amounts of other off-balance sheet exposures represent the notional amounts of all off-balance sheet exposures (excluding off balance sheet exposures associated with derivativenot already included as derivatives and repo-style transactions) less the adjustments for conversion to credit equivalent amounts under the regulatory capital rule.transactions exposures.
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 SeptemberJune 30, 2018, we estimate that2019, our eligible external TLAC as a percentage of total risk-weighted assets was 23.50%24.09% compared with an expected January 1, 2019a 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 20182019 capital plan, which was submitted on April 4, 2018,2019, 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 20182019 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 reviewed 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 published its supervisory stress test results as required under the Dodd-Frank Act on June 21, 2018.2019. On June 28, 2018,27, 2019, the FRB notified us that it did not object to our capital plan included in the 20182019 CCAR. On July 23, 2019, the Company increased its quarterly common stock dividend to $0.51 per share, as approved by the Board. The plan also includes up to $23.1 billion of gross common stock repurchases, subject to management discretion, for the four-quarter period from third quarter 2019 through second quarter 2020.
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 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 JanuaryOctober 2018, the Board authorized the repurchase of 350 million shares of our common stock. At SeptemberJune 30, 2018,2019, we had remaining authority to repurchase approximately 188193 million shares, subject to regulatory and legal conditions. In October 2018,July 2019, the Board authorized the repurchase of an additional 350 million shares of our common stock. For more information about share repurchases during thirdsecond quarter 2018,2019, 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. The Board authorized the repurchase by the Company of up to $1 billion of the warrants. At September 30, 2018, there were 11,071,127 warrants outstanding, exercisable at an adjusted exercise price of $33.592 per share, and $452 million of unused warrant repurchase authority. Because the original expiration date was not a business day, the warrants expired on October 29, 2018. As of the close of business on October 29, 2018, 110,646 unexercised warrants expired, and the holders of the unexercised warrants are no longer entitled to receive any shares of our common stock.



Regulatory Matters (continued)

Regulatory Matters
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.
For a discussion of certain consent orders applicable to the Company, see the “Overview” section in this Report. The following supplements our discussion of the other significant regulations and regulatory oversight initiatives that have affected or may affect our business contained in the “Regulatory Matters” and “Risk Factors” sections in our 20172018 Form 10-K and the “Regulatory Matters”"Regulatory Matters" section in our 20182019 First and Second Quarter ReportsReport on Form 10-Q.

CONSENT ORDERS WITH THE BCFP
“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 2019 resolution plan to the FRB and FDIC on June 27, 2019. Our national bank subsidiary, Wells Fargo Bank, N.A. (the "Bank"), is also required to prepare a resolution plan. If the FRB or FDIC determines that our resolution plan has
Regulatory Matters (continued)

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 or FDIC ultimately determines 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. The Bank must also prepare and submit to the OCC REGARDING COMPLIANCE RISK MANAGEMENT PROGRAM, AUTOMOBILE COLLATERAL PROTECTION INSURANCE POLICIES, AND MORTGAGE INTEREST RATE LOCK EXTENSIONS On April 20, 2018,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 single point of entry strategy. However, we are not obligated to maintain a single point of entry strategy, and the strategy reflected in our resolution plan is 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, on June 28, 2017, the Parent entered into consent ordersa support agreement, as amended and restated on June 26, 2019 (the “Support Agreement”), with WFC Holdings, LLC, an intermediate holding company and subsidiary of the Parent (the “IHC”), the Bank, Wells Fargo Securities, LLC (“WFS”), Wells Fargo Clearing Services, LLC (“WFCS”), and certain other direct and indirect subsidiaries of the Parent designated as material entities for resolution planning purposes (the “Covered Entities”) or identified as related support entities in our resolution plan (the “Related Support Entities”). 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, WFS, WFCS, and the Covered Entities pursuant to 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 BCFPissuance 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 OCCperform 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, or if the Parent’s board of directors authorizes it to file a case under the U.S. Bankruptcy Code, the subordinated notes would be forgiven, the committed line of credit would terminate, and the IHC’s ability to pay an aggregatedividends to the Parent would be restricted, any of $1 billionwhich could materially and adversely impact the Parent’s liquidity and its ability to satisfy its debts and other obligations, and could result in civil money penalties to resolve matters regarding the Company's compliance risk management program and past practices involving certain automobile collateral protection insurance policies and certain mortgage interest rate lock extensions. As requiredcommencement of bankruptcy proceedings by the consent orders,Parent at an earlier time than might have otherwise occurred if the Company submitted toSupport Agreement were not implemented. The respective obligations under the BCFP and OCC an enterprise-wide compliance risk management plan and a plan to enhanceSupport Agreement of the Company's internal audit program with respect to federal consumer financial lawParent, the IHC, the Bank, and the termsRelated Support Entities are secured pursuant to a related security agreement.

BROKER-DEALER STANDARDS OF CONDUCT In June 2019, the SEC finalized a rule that requires broker-dealers to act in the best interest of a retail customer when making a recommendation of any securities transaction or investment strategy involving securities. This rule impacts the consent orders. In addition, as required by the consent orders, the Company submitted for non-objection plans to remediatemanner in which business is conducted with customers affected by the automobile collateral protection insuranceseeking investment advice and mortgage interest rate lock matters, as well as a plan for the management of remediation activities conducted by the Company.may affect certain investment product offerings.




Critical Accounting Policies
Our significant accounting policies (see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 20172018 Form 10-K) are fundamental to understanding our results of operations and financial condition because they require that we use estimates and assumptions that may affect the value of our assets or liabilities and financial results. Five of these policies are critical because they require management to make difficult, subjective and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. These policies govern:
the allowance for credit losses;
the valuation of residential MSRs;
the fair value of financial instruments;
income taxes; and
liability for contingent litigation losses.


Management and the Board'sBoard’s Audit and Examination Committee have reviewed and approved these critical accounting policies. These policies are described further in the “Financial Review – Critical Accounting Policies” section and Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 20172018 Form 10-K.
Current Accounting Developments (continued)


Current Accounting Developments
Table 4342 provides the significant accounting updates applicable to us that have been issued by the FASB but are not yet effective.


Table 43:42:Current Accounting Developments – Issued Standards
Standard Description Effective date and financial statement impact
Accounting Standard Update (ASU or Update) 2018-16 - Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes
The Update expands the list 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 to interest rate risk hedging strategies for both risk management and hedge accounting purposes.


The guidance is effective in first quarter 2019. The standard will have no impact upon adoption, but will once the market for SOFR derivatives develops over time and is used to hedge the Company's fixed-rate financial instruments and forecasted issuances or purchases of fixed-rate financial instruments.

ASU 2018-12 – Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-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 our 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 guidance isbecomes effective on January 1, 2021. Certain of our variable annuity reinsurance products meet the definition of market risk benefits and will require the associated insurance-related reserves for these products to be measured at fair value as of the earliest period presented. Thepresented, with the cumulative effect ofon fair value for changes inattributable to our 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 ofon fair value for our own credit risk, will be recognized in the opening balance of retained earnings. As of June 30, 2019, we held $1.0 billion in insurance-related reserves of which $444 million was in scope of the Update. A total of $387 million was associated with products that meet the definition of market risk benefits, and of this amount, $21 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 this volatility, where feasible. The ultimate impact of these changes will depend on the composition of our market risk benefits portfolio at the date of adoption. Changes to the liability for future policy benefits for traditional long-duration contracts and deferred acquisition costs will be applied to all outstanding long-duration contracts on the basis of their existing carrying amounts at the beginning of the earliest period presented. The impact of the Update on our consolidated financial statements is still being evaluated.presented, and are not expected to be material.
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 than to the maturity date. Accounting for purchased callable debt securities held at a discount does not change. The discount would continue to amortize to the maturity date.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 debt securities portfolio includes holdings of available-for-sale (AFS) and held-to-maturity (HTM) callable debt securities held at a premium, which primarily consist of obligations of U.S. states and political subdivisions. At adoption, based upon our current portfolio composition, the guidance is expected to result in a cumulative effect reduction to retained earnings estimated to range from $500 to 600 million, which will be primarily offset with a corresponding increase to other comprehensive income related to AFS securities. 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 the most recent balance sheet date and the adoption date, as well as the finalization of necessary system enhancements. After adoption, the guidance will reduce interest income prior to the call date because the premium will be amortized over a shorter time period.
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, including the development and implementation of models to estimate losses. We expect the Update will result in an increase in the allowance for credit losses with an expected increase for longer duration consumer portfolios such as real estate 1-4 family mortgage loans and an expected decrease for commercial loans given short contractual maturities with conditional renewal options. In addition, we will be required to recognize an allowance for debt securities. The amount of the expected increase will be affected by the portfolio composition and credit quality at the adoption date as well as economic conditions and forecasts at that time.

StandardDescriptionEffective date and financial statement impact
ASU 2016-02 – Leases (Topic 842)The Update requires lessees to recognize operating leases on the balance sheet with lease liabilities and related right-of-use assets based on the present value of future 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 2020. Our implementation process includes loss forecasting model development, evaluation of technical accounting topics, updates to our allowance documentation, reporting processes and related internal controls, and overall operational readiness for our adoption of the Update, which will continue throughout 2019, usingincluding parallel runs for CECL alongside our current allowance process.
     We are in the optional transition method without restating 2018process of developing, validating, and 2017 financial statements with comparable amounts. At adoption,implementing models used to estimate credit losses under CECL. We have completed substantially all of our loss forecasting models, and we expect to havecomplete the validation process for our loan models during 2019.
     Our current planned approach for estimating expected life-time credit losses for loans and debt securities includes the following key components:
•
An initial forecast period of one year for all portfolio segments and classes 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 change 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 cumulative effect adjustmenttroubled debt restructuring, unless they are collateral dependent and measured at the fair value of collateral. 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 at June 30, 2019, and the current economic environment, we currently estimate an overall decrease in our ACL for loans of approximately $140 million to$1.5 billion. The reduction reflects an expected decrease for commercial loans, given their short contractual maturities, partially offset by an expected increase retained earningsfor longer duration consumer loans and includes recoveries related to deferred gainsresidential mortgage loans that were previously written down during the last credit cycle and are below their current recovery value. The change from the estimate we provided last quarter primarily reflects a reduction in our expected recoveries on loans previously written down due to the reclassification of $1.8 billion of residential mortgage loans to held for sale, as well as additional refinements to our prior sale-leaseback transactions. The calculation ofassumptions and changes in our operating lease right-of-use assets and liabilities, for approximately 7,000 leases, are expected to be $5 billion and $5.6 billion, respectively, andportfolio composition. We will continue to be refined as we complete our implementation process. We do not expect material changes toevaluate and refine the timing of expense recognition on our operating leases or the recognition and measurementresults of our lessor accounting. Whileloss 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 limitation based on the increase tofair value of the debt securities. Based on the credit quality of our consolidated total assets related to operating lease right-of-use assets will increase our risk-weighted assets and decrease our capital ratios,existing debt securities portfolio, we do not expect these changesthe ACL for held-to-maturity and available-for-sale debt securities to be material.significant.
     The ultimate effect of CECL on our ACL will depend on the size and composition of our portfolio, the portfolio’s credit quality and economic conditions at the time of adoption, as well as any refinements to our models, methodology and other key assumptions. At adoption, we will have a cumulative-effect adjustment to retained earnings for our change in the ACL, which will impact our capital. A decrease in our ACL will result in an increase to our regulatory capital amounts and ratios. Federal banking regulatory agencies have provided relief for an initial capital decrease from the Update by allowing a phased adoption over four years, on a straight-line basis.


In addition to the list above, the following Updates are applicable to us but are not expected to have a material impact on our consolidated financial statements:
•
ASU 2019-04 – Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. This Update includes guidance on recoveries of financial assets, which has been included in the discussion for ASU 2016-13 above.
•
ASU 2018-17 – Consolidation (Topic 810): Targeted 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 the FASB Emerging Issues Task Force)
ASU 2018-14 – Compensation – Retirement Benefits – Defined Benefit Plans—General (Subtopic 715-20):
 
Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans
ASU 2018-13 – Fair Value Measurement (Topic 820):Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement
ASU 2018-09 – Codification Improvements
ASU 2017-04 – Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
•
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 the 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
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, (including the impact of the Tax Cuts & Jobs Act), geopolitical matters, and any 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;
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
Forward-Looking Statements (continued)

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 any 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;
the effect of the current interest rate environment or changes in interest rates on our net interest income, net interest margin and our mortgage originations, mortgage servicing rights and mortgage 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 debt securities 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
Forward-Looking Statements (continued)

to attract and retain qualified team members, and our reputation;
resolution of regulatory matters, litigation, or other legal actions, which may result in, among other things, additional costs, fines, penalties, restrictions on our business activities, reputational harm, or other 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, 2017.
•
the other risk factors and uncertainties described under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018.
 
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.
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, 2017,2018, 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.

Risk Factors
An investment in the Company involves risk, including the possibility that the value of the investment could fall substantially and that dividends or other distributions on the investment could be reduced or eliminated. For a discussion of risk factors that could adversely affect our financial results and condition, and the value of, and return on, an investment in the Company, we refer you to the “Risk Factors” section in our 20172018 Form 10-K.


Controls and Procedures
Disclosure Controls and Procedures
The Company’s management evaluated the effectiveness, as of SeptemberJune 30, 2018,2019, 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 SeptemberJune 30, 2018.2019.


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 thirdsecond quarter 20182019 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 June 30,  Six months ended June 30, 
(in millions, except per share amounts)2019
 2018
 2019
 2018
Interest income       
Debt securities$3,781
 3,594
 7,722
 7,008
Mortgage loans held for sale195
 198
 347
 377
Loans held for sale20
 48
 44
 72
Loans11,316
 10,912
 22,670
 21,491
Equity securities236
 221
 446
 452
Other interest income1,438
 1,042
 2,760
 1,962
Total interest income16,986
 16,015
 33,989
 31,362
Interest expense       
Deposits2,213
 1,268
 4,239
 2,358
Short-term borrowings646
 398
 1,242
 709
Long-term debt1,900
 1,658
 3,827
 3,234
Other interest expense132
 150
 275
 282
Total interest expense4,891
 3,474
 9,583
 6,583
Net interest income12,095
 12,541
 24,406

24,779
Provision for credit losses503
 452
 1,348
 643
Net interest income after provision for credit losses11,592
 12,089
 23,058
 24,136
Noninterest income       
Service charges on deposit accounts1,206
 1,163
 2,300
 2,336
Trust and investment fees3,568
 3,675
 6,941
 7,358
Card fees1,025
 1,001
 1,969
 1,909
Other fees800
 846
 1,570
 1,646
Mortgage banking758
 770
 1,466
 1,704
Insurance93
 102
 189
 216
Net gains from trading activities229
 191
 586
 434
Net gains on debt securities (1)20
 41
 145
 42
Net gains from equity securities (2)622
 295
 1,436
 1,078
Lease income424
 443
 867
 898
Other744
 485
 1,318
 1,087
Total noninterest income9,489
 9,012
 18,787
 18,708
Noninterest expense       
Salaries4,541
 4,465
 8,966
 8,828
Commission and incentive compensation2,597
 2,642
 5,442
 5,410
Employee benefits1,336
 1,245
 3,274
 2,843
Equipment607
 550
 1,268
 1,167
Net occupancy719
 722
 1,436
 1,435
Core deposit and other intangibles27
 265
 55
 530
FDIC and other deposit assessments144
 297
 303
 621
Other3,478
 3,796
 6,621
 8,190
Total noninterest expense13,449
 13,982
 27,365
 29,024
Income before income tax expense7,632
 7,119
 14,480

13,820
Income tax expense1,294
 1,810
 2,175
 3,184
Net income before noncontrolling interests6,338
 5,309
 12,305

10,636
Less: Net income from noncontrolling interests132
 123
 239
 314
Wells Fargo net income$6,206
 5,186
 12,066

10,322
Less: Preferred stock dividends and other358
 394
 711
 797
Wells Fargo net income applicable to common stock$5,848
 4,792
 11,355
 9,525
Per share information       
Earnings per common share$1.31
 0.98
 2.52
 1.95
Diluted earnings per common share1.30
 0.98
 2.50
 1.94
Average common shares outstanding4,469.4
 4,865.8
 4,510.2
 4,875.7
Diluted average common shares outstanding4,495.0
 4,899.8
 4,540.1
 4,916.1
Wells Fargo & Company and Subsidiaries
Consolidated Statement of Income (Unaudited)
 Quarter ended September 30,  Nine months ended September 30, 
(in millions, except per share amounts)2018
 2017
 2018
 2017
Interest income       
Debt securities (1)(2)$3,595
 3,253
 $10,603
 9,652
Mortgage loans held for sale (2)210
 217
 587
 590
Loans held for sale (1)35
 15
 107
 38
Loans11,116
 10,522
 32,607
 31,021
Equity securities (1)280
 186
 732
 560
Other interest income (1)1,128
 851
 3,090
 2,090
Total interest income (2)16,364
 15,044
 47,726
 43,951
Interest expense       
Deposits (2)1,499
 869
 3,857
 2,082
Short-term borrowings462
 226
 1,171
 503
Long-term debt (2)1,667
 1,391
 4,901
 3,813
Other interest expense164
 109
 446
 309
Total interest expense (2)3,792
 2,595
 10,375
 6,707
Net interest income (2)12,572
 12,449
 37,351

37,244
Provision for credit losses580
 717
 1,223
 1,877
Net interest income after provision for credit losses11,992
 11,732
 36,128
 35,367
Noninterest income       
Service charges on deposit accounts1,204
 1,276
 3,540
 3,865
Trust and investment fees3,631
 3,609
 10,989
 10,808
Card fees1,017
 1,000
 2,926
 2,964
Other fees850
 877
 2,496
 2,644
Mortgage banking846
 1,046
 2,550
 3,422
Insurance104
 269
 320
 826
Net gains from trading activities (1)158
 120
 592
 543
Net gains on debt securities (3)57
 166
 99
 322
Net gains from equity securities (1)(4)416
 363
 1,494
 1,207
Lease income453
 475
 1,351
 1,449
Other (2)633
 199
 1,720
 1,045
Total noninterest income (2)9,369
 9,400
 28,077
 29,095
Noninterest expense       
Salaries4,461
 4,356
 13,289
 12,960
Commission and incentive compensation2,427
 2,553
 7,837
 7,777
Employee benefits1,377
 1,279
 4,220
 4,273
Equipment634
 523
 1,801
 1,629
Net occupancy718
 716
 2,153
 2,134
Core deposit and other intangibles264
 288
 794
 864
FDIC and other deposit assessments336
 314
 957
 975
Other3,546
 4,322
 11,736
 11,072
Total noninterest expense13,763
 14,351
 42,787
 41,684
Income before income tax expense (2)7,598
 6,781
 21,418

22,778
Income tax expense (2)1,512
 2,181
 4,696
 6,559
Net income before noncontrolling interests (2)6,086
 4,600
 16,722

16,219
Less: Net income from noncontrolling interests79
 58
 393
 187
Wells Fargo net income (2)$6,007
 4,542
 $16,329

16,032
Less: Preferred stock dividends and other554
 411
 1,351
 1,218
Wells Fargo net income applicable to common stock (2)$5,453
 4,131
 $14,978
 14,814
Per share information       
Earnings per common share (2)$1.14
 0.83
 $3.09
 2.97
Diluted earnings per common share (2)1.13
 0.83
 3.07
 2.94
Average common shares outstanding4,784.0
 4,948.6
 4,844.8
 4,982.1
Diluted average common shares outstanding4,823.2
 4,996.8
 4,885.0
 5,035.4

(1)
Financial information for the prior periods has been revised to reflect the impact of the adoption in first quarter 2018 of Accounting Standards Update (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.
(2)
Financial information for the prior period has been revised to reflect the impact of the adoption of ASU 2017-12 – Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, effective January 1, 2017.
(3)
Total other-than-temporary impairment (OTTI) losses (reversal of losses) were $0$6 million and $5$(3) million for thirdsecond quarter 20182019 and 2017,2018, respectively. Of total OTTI, losses of $5$7 million and $7$8 million were recognized in earnings, and losses (reversal of losses) of $(5)$(1) million and $(2)$(11) million were recognized as non-credit-related OTTI in other comprehensive income for thirdsecond quarter 20182019 and 2017,2018, respectively. Total OTTI losses were $14$51 million and $54$14 million for the first nine monthshalf of 20182019 and 2017,2018, respectively. Of total OTTI, losses of $23$52 million and $107$18 million were recognized in earnings, and losses (reversal of losses) of $(9)$(1) million and $(53)$(4) million were recognized as non-credit-related OTTI in other comprehensive income for the first nine monthshalf of 20182019 and 2017,2018, respectively.
(4)(2)
Includes OTTI losses of $45$31 million and $84$237 million for thirdsecond quarter 20182019 and 2017,2018, respectively, and $302$67 million and $186$257 million for the first nine monthshalf of 20182019 and 2017,2018, respectively.


The accompanying notes are an integral part of these statements.


Wells Fargo & Company and Subsidiaries        
Consolidated Statement of Comprehensive Income (Unaudited)    
  Quarter ended June 30,  Six months ended June 30, 
(in millions) 2019
 2018
 2019
 2018
Wells Fargo net income $6,206
 5,186
 12,066
 10,322
Other comprehensive income (loss), before tax:        
Debt securities:        
Net unrealized gains (losses) arising during the period 1,709
 (617) 4,540
 (4,060)
Reclassification of net (gains) losses to net income 39
 49
 (42) 117
Derivative and hedging activities:        
Net unrealized gains (losses) arising during the period 57
 (150) 22
 (392)
Reclassification of net losses to net income 79
 77
 158
 137
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 33
 29
 68
 61
Foreign currency translation adjustments:        
Net unrealized gains (losses) arising during the period 14
 (83) 56
 (85)
Other comprehensive income (loss), before tax 1,931
 (695) 4,798
 (4,216)
Income tax benefit (expense) related to other comprehensive income (473) 154
 (1,167) 1,016
Other comprehensive income (loss), net of tax 1,458
 (541) 3,631
 (3,200)
Less: Other comprehensive loss from noncontrolling interests —
 (1) —
 (1)
Wells Fargo other comprehensive income (loss), net of tax 1,458
 (540) 3,631
 (3,199)
Wells Fargo comprehensive income 7,664
 4,646
 15,697
 7,123
Comprehensive income from noncontrolling interests 132
 122
 239
 313
Total comprehensive income $7,796
 4,768
 15,936
 7,436

Wells Fargo & Company and Subsidiaries        
Consolidated Statement of Comprehensive Income (Unaudited)    
  Quarter ended September 30,  Nine months ended September 30, 
(in millions) 2018
 2017
 2018
 2017
Wells Fargo net income (1) $6,007
 4,542
 16,329
 16,032
Other comprehensive income (loss), before tax:        
Debt securities (2):        
Net unrealized gains (losses) arising during the period (1,468) 891
 (5,528) 2,825
Reclassification of net (gains) losses to net income 51
 (200) 168
 (522)
Derivatives and hedging activities (1):        
Net unrealized gains (losses) arising during the period (24) 104
 (416) 18
Reclassification of net (gains) losses to net income 79
 (105) 216
 (460)
Defined benefit plans adjustments:        
Net actuarial and prior service gains arising during the period —
 11
 6
 4
Amortization of net actuarial loss, settlements and other to net income 29
 41
 90
 120
Foreign currency translation adjustments:        
Net unrealized gains (losses) arising during the period (9) 39
 (94) 86
Other comprehensive income (loss), before tax (1) (1,342) 781
 (5,558) 2,071
Income tax (expense) benefit related to other comprehensive income (1) 330
 (289) 1,346
 (753)
Other comprehensive income (loss), net of tax (1) (1,012) 492
 (4,212) 1,318
Less: Other comprehensive loss from noncontrolling interests —
 (34) (1) (29)
Wells Fargo other comprehensive income (loss), net of tax (1) (1,012) 526
 (4,211) 1,347
Wells Fargo comprehensive income (1) 4,995
 5,068
 12,118
 17,379
Comprehensive income from noncontrolling interests 79
 24
 392
 158
Total comprehensive income (1) $5,074
 5,092
 12,510
 17,537
(1)
Financial information for the prior period has been revised to reflect the impact of the adoption of ASU 2017-12 – Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, effective January 1, 2017.
(2)
The quarter and nine months ended September 30, 2017, includes net unrealized gains (losses) arising during the period from equity securities of $(13) million and $113��million and reclassification of net (gains) losses to net income related to equity securities of $(106) million and $(323) million, respectively. With the adoption in first quarter 2018 of ASU 2016-01, the quarter and nine months ended September 30, 2018, reflects net unrealized gains (losses) arising during the period and reclassification of net (gains) losses to net income from only debt securities.


The accompanying notes are an integral part of these statements.


Wells Fargo & Company and Subsidiaries      
Consolidated Balance Sheet      
(in millions, except shares)Sep 30,
2018
 Dec 31,
2017
Jun 30,
2019
 Dec 31,
2018
Assets(Unaudited)
  (Unaudited)
  
Cash and due from banks$18,791
 23,367
$20,880
 23,551
Interest-earning deposits with banks (1)140,732
 192,580
143,547
 149,736
Total cash, cash equivalents, and restricted cash (1)159,523
 215,947
164,427
 173,287
Federal funds sold and securities purchased under resale agreements (1)83,471
 80,025
112,119
 80,207
Debt securities:      
Trading, at fair value (2)65,188
 57,624
70,208
 69,989
Available-for-sale, at fair value (2)262,964
 276,407
265,983
 269,912
Held-to-maturity, at cost (fair value $139,036 and $138,985)144,131
 139,335
Mortgage loans held for sale (includes $13,885 and $16,116 carried at fair value) (3)19,225
 20,070
Loans held for sale (includes $1,266 and $1,023 carried at fair value) (2)1,765
 1,131
Loans (includes $286 and $376 carried at fair value) (3)942,300
 956,770
Held-to-maturity, at cost (fair value $147,864 and $142,115)145,876
 144,788
Mortgage loans held for sale (includes $16,343 and $11,771 carried at fair value) (1)22,998
 15,126
Loans held for sale (includes $1,118 and $1,469 carried at fair value) (1)1,181
 2,041
Loans (includes $202 and $244 carried at fair value) (1)949,878
 953,110
Allowance for loan losses (10,021) (11,004)(9,692) (9,775)
Net loans932,279
 945,766
940,186
 943,335
Mortgage servicing rights:       
Measured at fair value 15,980
 13,625
12,096
 14,649
Amortized 1,414
 1,424
1,407
 1,443
Premises and equipment, net 8,802
 8,847
9,435
 8,920
Goodwill26,425
 26,587
26,415
 26,418
Derivative assets11,811
 12,228
13,162
 10,770
Equity securities (includes $38,322 and $39,227 carried at fair value) (2)61,755
 62,497
Equity securities (includes $35,950 and $29,556 carried at fair value) (1)61,537
 55,148
Other assets (2)78,248
 90,244
76,358
 79,850
Total assets (4) $1,872,981
 1,951,757
Total assets (2) $1,923,388
 1,895,883
Liabilities      
Noninterest-bearing deposits $352,869
 373,722
$340,813
 349,534
Interest-bearing deposits 913,725
 962,269
947,613
 936,636
Total deposits 1,266,594
 1,335,991
1,288,426
 1,286,170
Short-term borrowings 105,451
 103,256
115,344
 105,787
Derivative liabilities8,586
 8,796
8,399
 8,499
Accrued expenses and other liabilities71,348
 70,615
69,706
 69,317
Long-term debt 221,323
 225,020
241,476
 229,044
Total liabilities (5) 1,673,302
 1,743,678
Total liabilities (3) 1,723,351
 1,698,817
Equity       
Wells Fargo stockholders' equity:    
Wells Fargo stockholders’ equity:    
Preferred stock 23,482
 25,358
23,021
 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 60,738
 60,893
60,625
 60,685
Retained earnings 154,576
 145,263
164,551
 158,163
Cumulative other comprehensive income (loss)(6,873) (2,144)(2,224) (6,336)
Treasury stock – 770,250,428 shares and 590,194,846 shares (40,538) (29,892)
Treasury stock – 1,062,220,277 shares and 900,557,866 shares (54,775) (47,194)
Unearned ESOP shares (1,780) (1,678)(1,292) (1,502)
Total Wells Fargo stockholders' equity 198,741
 206,936
Total Wells Fargo stockholders’ equity 199,042
 196,166
Noncontrolling interests 938
 1,143
995
 900
Total equity199,679
 208,079
200,037
 197,066
Total liabilities and equity$1,872,981
 1,951,757
$1,923,388
 1,895,883
(1)
Financial information has been revised to reflect the impact of the adoption in first quarter 2018 of ASU 2016-18 – Statement of Cash Flows (Topic 230): Restricted Cash in which we changed the presentation of our cash and cash equivalents to include both cash and due from banks as well as interest-earning deposits with banks, which are inclusive of any restricted cash. See Note 1 (Summary of Significant Accounting Policies) for more information.
(2)
Financial information for the prior period has been revised to reflect the impact of the adoption in first quarter 2018 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.
(3)Parenthetical amounts represent assets and liabilities for whichthat we are required to carry at fair value or have elected the fair value option.
(4)(2)
Our consolidated assets at SeptemberJune 30, 2018,2019, and December 31, 2017,2018, 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, $112$11 million and $116 million;$139 million; Interest-earning deposits with banks, $8$8 million and $371 million;$8 million; Debt securities, $0$60 million at both period ends; and $45 million; Net loans, $12.7$13.6 billion and $12.5 billion; Derivative assets, $0 million at both period ends;$13.6 billion; Equity securities, $61$121 million and $306 million;$85 million; Other assets, $210$208 million and $342 million;$221 million; and Total assets, $13.1$14.0 billion and $13.6$14.1 billion,, respectively.
(5)(3)
Our consolidated liabilities at SeptemberJune 30, 2018,2019, and December 31, 2017,2018, include the following VIE liabilities for which the VIE creditors do not have recourse to Wells Fargo: Derivative liabilities, $0$1 million and $5 million;$0 million; Accrued expenses and other liabilities, $154$201 million and $132 million;$191 million; Long-term debt, $871$748 million and $1.5 billion;$816 million; and Total liabilities, $1.0$950 million and $1.0 billion, and $1.6 billion, respectively.


The accompanying notes are an integral part of these statements.




Wells Fargo & Company and Subsidiaries       
Consolidated Statement of Changes in Equity (Unaudited)    
        
 Preferred stock  Common stock 
(in millions, except shares)Shares
 Amount
 Shares
 Amount
Balance March 31, 20199,377,211
 $23,214
 4,511,947,830
 $9,136
Net income       
Other comprehensive income (loss), net of tax       
Noncontrolling interests       
Common stock issued    8,491,923
  
Common stock repurchased    (104,852,744)  
Preferred stock issued to ESOP—
 —
    
Preferred stock released by ESOP       
Preferred stock converted to common shares(193,042) (193) 4,004,188
  
Common stock warrants repurchased/exercised       
Preferred stock issued—
 —
    
Common stock dividends       
Preferred stock dividends       
Stock incentive compensation expense       
Net change in deferred compensation and related plans       
Net change(193,042)
(193)
(92,356,633)Balance—
Balance June 30, 20199,184,169

$23,021

4,419,591,197

$9,136
Balance March 31, 201812,546,235
 $26,227
 4,873,882,481
 $9,136
Net income       
Other comprehensive income (loss), net of tax       
Noncontrolling interests       
Common stock issued    1,834,029
  
Common stock repurchased (1)    (35,771,728)  
Preferred stock issued to ESOP—
 —
    
Preferred stock released by ESOP       
Preferred stock converted to common shares(490,251) (490) 9,123,072
  
Common stock warrants repurchased/exercised       
Preferred stock issued—
 —
    
Common stock dividends       
Preferred stock dividends       
Stock incentive compensation expense       
Net change in deferred compensation and related plans       
Net change(490,251)
(490)
(24,814,627)
—
Balance June 30, 201812,055,984

$25,737

4,849,067,854

$9,136

(1)For the quarter ended June 30, 2018, additional paid-in capital was reduced by $1.0 billion for the upfront payment related to a private forward repurchase transaction that settled in third quarter 2018 and reduced our third quarter 2018 shares of common stock by 18.8 million shares upon settlement.


Wells Fargo & Company and Subsidiaries       
Consolidated Statement of Changes in Equity (Unaudited)    
        
 Preferred stock  Common stock 
(in millions, except shares)Shares
 Amount
 Shares
 Amount
Balance June 30, 201812,055,984
 $25,737
 4,849,067,854
 $9,136
Adoption of accounting standard related to reclassification of certain tax effects from cumulative other comprehensive income (1)       
Net income       
Other comprehensive income (loss), net of tax       
Noncontrolling interests       
Common stock issued    4,131,347
  
Common stock repurchased    (146,487,043)  
Preferred stock redeemed (2)(2,150,375) (1,995)    
Preferred stock issued to ESOP       
Preferred stock released by ESOP       
Preferred stock converted to common shares(260,257) (260) 4,848,888
  
Common stock warrants repurchased/exercised       
Preferred stock issued       
Common stock dividends       
Preferred stock dividends       
Stock incentive compensation expense       
Net change in deferred compensation and related plans       
Net change(2,410,632)
(2,255)
(137,506,808)
—
Balance September 30, 20189,645,352

$23,482

4,711,561,046

$9,136
Balance June 30, 201712,104,127
 $25,785
 4,966,770,050
 $9,136
Net income (3)       
Other comprehensive income (loss), net of tax (3)       
Noncontrolling interests       
Common stock issued    6,345,864
  
Common stock repurchased    (49,022,535)  
Preferred stock redeemed—
 —
    
Preferred stock issued to ESOP       
Preferred stock released by ESOP       
Preferred stock converted to common shares(208,344) (209) 3,777,769
  
Common stock warrants repurchased/exercised       
Preferred stock issued       
Common stock dividends       
Preferred stock dividends       
Stock incentive compensation expense       
Net change in deferred compensation and related plans       
Net change (3)(208,344)
(209)
(38,898,902)
—
Balance September 30, 2017 (3)11,895,783

$25,576

4,927,871,148

$9,136
               
            Quarter ended June 30, 
      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

60,409
 160,776
 (3,682) (50,519) (1,502) 197,832
 901
 198,733
  6,206
       6,206
 132
 6,338
    1,458
     1,458
 —
 1,458
—
         —
 (38) (38)
(2) (38)   439
   399
   399
—
     (4,898)   (4,898)   (4,898)
—
       —
 —
   —
(17)       210
 193
   193
(15)     208
   —
   —
—
         —
   —
—
         —
   —
20
 (2,035)       (2,015)   (2,015)
  (358)       (358)   (358)
247
         247
   247
(17)     (5)   (22)   (22)
216

3,775

1,458

(4,256)
210

1,210

94

1,304
60,625

164,551

(2,224)
(54,775)
(1,292)
199,042

995

200,037
60,399
 147,928
 (4,921) (31,246) (2,571) 204,952
 958
 205,910
  5,186
       5,186
 123
 5,309
    (540)     (540) (1) (541)
—
   
       —
 (199) (199)
(20) —
   93
   73
   73
(1,000)     (1,923)   (2,923)   (2,923)
—
       —
 —
   —
(30)       520
 490
   490
22
     468
   —
   —
(1)         (1)   (1)
—
         —
   —
17
 (1,917)       (1,900)   (1,900)
  (394)       (394)   (394)
258
         258
   258
(1)     (12)   (13)   (13)
(755)
2,875

(540)
(1,374)
520

236

(77)
159
59,644

150,803

(5,461)
(32,620)
(2,051)
205,188

881

206,069



Wells Fargo & Company and Subsidiaries       
Consolidated Statement of Changes in Equity (Unaudited)    
        
 Preferred stock  Common stock 
(in millions, except shares)Shares
 Amount
 Shares
 Amount
Balance December 31, 20189,377,216
 $23,214
 4,581,253,608
 $9,136
Cumulative effect from change in accounting policies (1)       
Balance January 1, 20199,377,216
 $23,214
 4,581,253,608
 $9,136
Net income       
Other comprehensive income (loss), net of tax       
Noncontrolling interests       
Common stock issued    36,549,824
  
Common stock repurchased    (202,216,454)  
Preferred stock issued to ESOP—
 —
    
Preferred stock released by ESOP       
Preferred stock converted to common shares(193,047) (193) 4,004,219
  
Common stock warrants repurchased/exercised       
Preferred stock issued—
 —
    
Common stock dividends       
Preferred stock dividends       
Stock incentive compensation expense       
Net change in deferred compensation and related plans       
Net change(193,047) (193) (161,662,411) —
Balance June 30, 20199,184,169
 $23,021
 4,419,591,197
 $9,136
Balance December 31, 201711,677,235
 $25,358
 4,891,616,628
 $9,136
Cumulative effect from change in accounting policies (2)       
Balance January 1, 201811,677,235
 $25,358
 4,891,616,628
 $9,136
Net income       
Other comprehensive income (loss), net of tax       
Noncontrolling interests       
Common stock issued    30,259,788
  
Common stock repurchased (3)    (86,339,185)  
Preferred stock issued to ESOP1,100,000
 1,100
    
Preferred stock released by ESOP  
      
Preferred stock converted to common shares(721,251) (721) 13,530,623
  
Common stock warrants repurchased/exercised  
     
  
Preferred stock issued—
 —
   
  
Common stock dividends       
Preferred stock dividends       
Stock incentive compensation expense       
Net change in deferred compensation and related plans       
Net change378,749
 379
 (42,548,774) —
Balance June 30, 201812,055,984
 $25,737
 4,849,067,854
 $9,136

(1)
Represents the reclassification from other comprehensive income to retained earnings as a resultEffective January 1, 2019, we adopted ASU 2016-02 – Leases (Topic 842) and subsequent related Updates, ASU 2017-08 – Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. See Note 1 (Summary of the adoption of ASU 2018-02 - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, in the third quarter of 2018. For additional information, see Note 1.Significant Accounting Policies) for more information.
(2)Represents the impact of the redemption of preferred stock, series J, in third quarter 2018.
(3)
Financial information for the prior period has been revised to reflect the impact of the adoption of ASU 2017-12 – Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, effective January 1, 2017.







               
            Quarter ended September 30, 
      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

59,644
 150,803
 (5,461) (32,620) (2,051) 205,188
 881
 206,069
  400
 (400)     —
   —
  6,007
       6,007
 79
 6,086
    (1,012)     (1,012) —
 (1,012)
          —
 (22) (22)
(58)     214
   156
   156
1,000
     (8,382)   (7,382)   (7,382)


 (155)       (2,150)   (2,150)
          —
   —
(11)       271
 260
   260
6
     254
   —
   —
(36)         (36)   (36)
          —
   —
18
 (2,080)       (2,062)   (2,062)
  (399)       (399)   (399)
202
         202
   202
(27)     (4)   (31)   (31)
1,094

3,773

(1,412)
(7,918)
271

(6,447)
57

(6,390)
60,738

154,576

(6,873)
(40,538)
(1,780)
198,741

938

199,679
60,689
 139,366
 (2,148) (25,675) (2,119) 205,034
 915
 205,949
  4,542
       4,542
 58
 4,600
    526
     526
 (34) 492
          —
 (44) (44)
(61)     315
   254
   254
—
     (2,601)   (2,601)   (2,601)
—
         —
   —
          —
   —
(6)       215
 209
   209
20
     189
   —
   —
(19)         (19)   (19)
          —
   —
12
 (1,948)       (1,936)   (1,936)
  (411)       (411)   (411)
135
         135
   135
(11)     —
   (11)   (11)
70

2,183

526

(2,097)
215

688

(20)
668
60,759

141,549

(1,622)
(27,772)
(1,904)
205,722

895

206,617



Wells Fargo & Company and Subsidiaries       
Consolidated Statement of Changes in Equity (Unaudited)    
        
 Preferred stock  Common stock 
(in millions, except shares)Shares
 Amount
 Shares
 Amount
Balance December 31, 201711,677,235
 $25,358
 4,891,616,628
 $9,136
Cumulative effect from change in accounting policies (1)       
Balance January 1, 201811,677,235
 $25,358
 4,891,616,628
 $9,136
Adoption of accounting standard related to reclassification of certain tax effects from cumulative other comprehensive income (2)       
Net income       
Other comprehensive income (loss), net of tax       
Noncontrolling interests       
Common stock issued    34,391,135
  
Common stock repurchased    (232,826,228)  
Preferred stock redeemed (3)(2,150,375) (1,995)    
Preferred stock issued to ESOP1,100,000
 1,100
    
Preferred stock released by ESOP       
Preferred stock converted to common shares(981,508) (981) 18,379,511
  
Common stock warrants repurchased / exercised       
Preferred stock issued—
 —
    
Common stock dividends       
Preferred stock dividends       
Stock incentive compensation expense       
Net change in deferred compensation and related plans       
Net change(2,031,883) (1,876) (180,055,582) —
Balance September 30, 20189,645,352
 $23,482
 4,711,561,046
 $9,136
Balance December 31, 201611,532,712
 $24,551
 5,016,109,326
 $9,136
Cumulative effect from change in hedge accounting (4)       
Balance January 1, 201711,532,712
 $24,551
 5,016,109,326
 $9,136
Net income (5)          
Other comprehensive income (loss), net of tax (5)          
Noncontrolling interests      
  
Common stock issued  
   
 45,738,310
  
Common stock repurchased  
   
 (145,143,692)  
Preferred stock redeemed—
 —
    
Preferred stock issued to ESOP950,000
 950
    
Preferred stock released by ESOP  
      
Preferred stock converted to common shares(614,529) (615) 11,167,204
  
Common stock warrants repurchased / exercised  
     
  
Preferred stock issued27,600
 690
   
  
Common stock dividends  
   
   
  
Preferred stock dividends  
   
   
  
Stock incentive compensation expense  
   
   
  
Net change in deferred compensation and related plans  
   
   
  
Net change (5)363,071
 1,025
 (88,238,178) —
September 30, 2017 (5)11,895,783
 $25,576
 4,927,871,148
 $9,136
(1)
Effective January 1, 2018, we adopted ASU 2016-04 – Liabilities – Extinguishments of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value Products, ASU 2016-01 –Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, and ASU 2014-09 –Revenue from Contracts With Customers (Topic 606) and subsequent related Updates. See Note 1 (Summary of Significant Accounting Policies) in this Report for more information.
(2)
Represents the reclassification from other comprehensive income to retained earnings as a result of the adoption of ASU 2018-02 - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, in the third quarter of 2018. For additional information, see Note 1.
(3)Represents the impact of the redemption of preferred stock, series J, in third quarter 2018.
(4)
Effective January 1, 2017, we adopted changes in hedge accounting pursuant to ASU 2017-12 – Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.
(5)
Financial information for the prior period has been revised to reflect the impact of the adoption of ASU 2017-12 – Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, effective January 1, 2017.
The accompanying notes are an integral part of these statements.


               
            Nine months ended September 30, 
      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

60,893
 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
  400
 (400)     —
   —
  16,329
       16,329
 393
 16,722
    (4,211)     (4,211) (1) (4,212)
7
         7
 (597) (590)
(53) (231)   1,721
   1,437
   1,437
—
     (13,334)   (13,334)   (13,334)


 (155)       (2,150)   (2,150)
43
       (1,143) —
   —
(60)       1,041
 981
   981
33
     948
   —
   —
(194)         (194)   (194)
—
         —
   —
48
 (5,921)       (5,873)   (5,873)
  (1,203)       (1,203)   (1,203)
897
         897
   897
(876)     19
   (857)   (857)
(155) 9,219
 (4,611) (10,646) (102) (8,171) (205) (8,376)
60,738
 154,576
 (6,873) (40,538) (1,780) 198,741
 938
 199,679
60,234
 133,075
 (3,137) (22,713) (1,565) 199,581
 916
 200,497
  (381) 168
     (213)   (213)
60,234
 132,694
 (2,969) (22,713) (1,565) 199,368
 916
 200,284
  
 16,032
   
   
   16,032
 187
 16,219
      1,347
      1,347
 (29) 1,318
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
 8,855
 1,347
 (5,059) (339) 6,354
 (21) 6,333
60,759
 141,549
 (1,622) (27,772) (1,904) 205,722
 895
 206,617



Wells Fargo & Company and Subsidiaries   
Consolidated Statement of Cash Flows (Unaudited)   
 Nine months ended September 30, 
(in millions)2018
 2017
Cash flows from operating activities:   
Net income before noncontrolling interests (2)$16,722
 16,219
Adjustments to reconcile net income to net cash provided by operating activities:   
Provision for credit losses1,223
 1,877
Changes in fair value of MSRs, MLHFS and LHFS carried at fair value(1,057) 828
Depreciation, amortization and accretion4,222
 3,794
Other net (gains) losses (1)(2)(8,919) 284
Stock-based compensation1,859
 1,595
Originations and purchases of mortgage loans held for sale (1)(120,006) (134,319)
Proceeds from sales of and paydowns on mortgage loans held for sale (1)90,714
 97,059
Net change in:   
Debt and equity securities, held for trading (1)24,709
 28,572
Loans held for sale (1)(530) 163
Deferred income taxes940
 1,748
Derivative assets and liabilities (2)315
 (4,038)
Other assets (2)9,738
 2,176
Other accrued expenses and liabilities (2)1,109
 2,386
Net cash provided by operating activities21,039
 18,344
Cash flows from investing activities:   
Net change in:   
Federal funds sold and securities purchased under resale agreements (3)(4,448) (8,562)
Available-for-sale debt securities:   
Proceeds from sales (1)7,088
 37,069
Prepayments and maturities (1)28,360
 35,387
Purchases (1)(41,495) (74,248)
Held-to-maturity debt securities:   
Paydowns and maturities8,509
 7,557
Equity securities, not held for trading:   
Proceeds from sales and capital returns (1)4,481
 3,979
Purchases (1)(3,937) (2,588)
Loans:   
Loans originated by banking subsidiaries, net of principal collected (4)(2,965) 5,568
Proceeds from sales (including participations) of loans held for investment12,356
 8,473
Purchases (including participations) of loans(896) (2,436)
Principal collected on nonbank entities’ loans (4)5,110
 5,968
Loans originated by nonbank entities (4)(5,760) (4,199)
Net cash paid for acquisitions(10) (23)
Proceeds from sales of foreclosed assets and short sales2,781
 4,175
Other, net1,317
 (1,336)
Net cash provided by investing activities10,491
 14,784
Cash flows from financing activities:   
Net change in:   
Deposits(69,371) 627
Short-term borrowings2,195
 4,655
Long-term debt:   
Proceeds from issuance31,397
 38,358
Repayment(29,419) (60,103)
Preferred stock:   
Proceeds from issuance—
 677
Redeemed(2,150) —
Cash dividends paid(1,211) (1,226)
Common stock:   
Proceeds from issuance548
 905
Stock tendered for payment of withholding taxes(322) (376)
Repurchased(13,334) (7,063)
Cash dividends paid(5,730) (5,605)
Net change in noncontrolling interests(364) (72)
Other, net(193) (94)
Net cash used by financing activities(87,954) (29,317)
Net change in cash, cash equivalents, and restricted cash (3)(56,424) 3,811
Cash, cash equivalents, and restricted cash at beginning of period (3)215,947
 221,043
Cash, cash equivalents, and restricted cash at end of period (3)$159,523
 224,854
Supplemental cash flow disclosures:   
Cash paid for interest$10,108
 6,514
Cash paid for income taxes1,921
 4,687
(1)
Financial information for the prior period has been revised to reflect the impact of the adoption in first quarter 2018 of ASU 2016-01 – Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial LiabilitiesUpdates. See Note 1 (Summary of Significant Accounting Policies) for more information.
(2)
Financial information for the prior period has been revised to reflect the impact of the adoption of ASU 2017-12 – Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, effective January 1, 2017.
(3)
Financial information has been revisedFor the quarter ended June 30, 2018, additional paid-in capital was reduced by $1.0 billion for the upfront payment related to reflect the impact of the adoptiona private forward repurchase transaction that settled in firstthird quarter 2018 and reduced our third quarter 2018 shares of ASU 2016-18 – Statement of Cash Flows (Topic 230): Restricted Cash in which we changed the presentation of our cash and cash equivalents to include both cash and due from banks as well as interest-earning deposits with banks, which are inclusive of any restricted cash. See Note 1 (Summary of Significant Accounting Policies) for more information.
common stock by 18.8 million shares upon settlement.
(4)Prior periods have been revised to reflect classification changes due to entity restructuring activities.


               
          Six months ended June 30, 
      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
  12,066
       12,066
 239
 12,305
    3,631
     3,631
 —
 3,631
—
 

 

 

 

 —
 (144) (144)
(2) (367) 

 1,907
 

 1,538
   1,538
—
 

 

 (9,718) 

 (9,718)   (9,718)
—
 

 

 

 —
 —
   —
(17) 

 

 

 210
 193
   193
(15) 

 

 208
 

 —
   —
—
 

 

 

 

 —
   —
—
 

 

 

 

 —
   —
39
 (4,108) 

 

 

 (4,069)   (4,069)


 (711) 

 

 

 (711)   (711)
791
 

 

 

 

 791
   791
(856) 

 

 22
 

 (834)   (834)
(60) 6,880
 3,631
 (7,581) 210
 2,887
 95
 2,982
60,625
 164,551
 (2,224) (54,775) (1,292) 199,042
 995
 200,037
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
  
 10,322
   
   
   10,322
 314
 10,636
      (3,199)      (3,199) (1) (3,200)
7
   
   
   
   7
 (575) (568)
5
 (231)   
 1,507
   1,281
   1,281
(1,000)     
 (4,952)   (5,952)   (5,952)
43
     
   (1,143) —
   —
(49)     
   770
 721
   721
27
     
 694
   —
   —
(158)     
   
   (158)   (158)
—
     
   
   —
   —
30
 (3,841)   
   
   (3,811)   (3,811)
  (804)   
   
   (804)   (804)
695
     
     695
   695
(849)   
   
 23
   (826)   (826)
(1,249) 5,446
 (3,199) (2,728) (373) (1,724) (262) (1,986)
59,644
 150,803
 (5,461) (32,620) (2,051) 205,188
 881
 206,069



Wells Fargo & Company and Subsidiaries   
Consolidated Statement of Cash Flows (Unaudited)   
 Six months ended June 30, 
(in millions)2019
 2018
Cash flows from operating activities:   
Net income before noncontrolling interests$12,305
 10,636
Adjustments to reconcile net income to net cash provided by operating activities:   
Provision for credit losses1,348
 643
Changes in fair value of MSRs, MLHFS and LHFS carried at fair value2,408
 (787)
Depreciation, amortization and accretion3,100
 2,835
Other net (gains)(1,360) (6,285)
Stock-based compensation1,388
 1,286
Originations and purchases of mortgage loans held for sale(63,836) (80,948)
Proceeds from sales of and paydowns on mortgage loans held for sale39,741
 60,898
Net change in:   
Debt and equity securities, held for trading14,777
 16,371
Loans held for sale619
 (411)
Deferred income taxes(821) 1,118
Derivative assets and liabilities(2,461) 958
Other assets7,194
 7,547
Other accrued expenses and liabilities(7,120) 520
Net cash provided by operating activities7,282
 14,381
Cash flows from investing activities:   
Net change in:   
Federal funds sold and securities purchased under resale agreements(31,912) (1,161)
Available-for-sale debt securities:   
Proceeds from sales6,682
 6,151
Prepayments and maturities17,657
 17,377
Purchases(18,306) (26,300)
Held-to-maturity debt securities:   
Paydowns and maturities5,145
 5,431
Purchases(154) —
Equity securities, not held for trading:   
Proceeds from sales and capital returns2,320
 3,337
Purchases(2,426) (2,791)
Loans:   
Loans originated by banking subsidiaries, net of principal collected(7,008) (445)
Proceeds from sales (including participations) of loans held for investment8,196
 7,879
Purchases (including participations) of loans(1,001) (668)
Principal collected on nonbank entities’ loans1,770
 3,229
Loans originated by nonbank entities(2,604) (2,998)
Proceeds from sales of foreclosed assets and short sales1,405
 1,954
Other, net512
 (284)
Net cash provided (used) by investing activities(19,724) 10,711
Cash flows from financing activities:   
Net change in:   
Deposits1,938
 (67,101)
Short-term borrowings9,557
 1,240
Long-term debt:   
Proceeds from issuance33,091
 21,308
Repayment(26,357) (22,305)
Preferred stock:   
Cash dividends paid(711) (872)
Common stock:   
Proceeds from issuance242
 446
Stock tendered for payment of withholding taxes(272) (311)
Repurchased(9,718) (5,952)
Cash dividends paid(3,954) (3,722)
Net change in noncontrolling interests(124) (232)
Other, net(110) (89)
Net cash provided (used) by financing activities3,582
 (77,590)
Net change in cash, cash equivalents, and restricted cash(8,860) (52,498)
Cash, cash equivalents, and restricted cash at beginning of period173,287
 215,947
Cash, cash equivalents, and restricted cash at end of period$164,427
 163,449
Supplemental cash flow disclosures:   
Cash paid for interest$9,354
 6,352
Cash paid for income taxes2,516
 1,679

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, trust and investments, mortgage banking, investment banking, retail banking, brokerage, and consumer and commercial finance through 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, 2017 (20172018 (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 worse than anticipated in those estimates, which could materially affect our results of operations and financial condition. Management has made significant estimates in several areas, including:
allowance for credit losses (Note 6 (Loans and Allowance for Credit Losses));
valuations of residential mortgage servicing rights (MSRs) (Note 910 (Securitizations and Variable Interest Entities) and Note 1011 (Mortgage Banking Activities)) and;
valuations of financial instruments (Note 15 (Derivatives) and Note 16 (Fair Values of Assets and Liabilities));
liabilities for contingent litigation losses (Note 1314 (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 20172018 Form 10-K.
 
Accounting Standards Adopted in 20182019
In first quarter 2018,2019, we adopted the following new accounting guidance:
Accounting Standards Update (ASU or Update) 2017-09 – Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting;
•
Accounting Standards Update (ASU or Update) 2018-16 – Derivatives and Hedging (Topic 815): Inclusion of the
 
ASU 2017-07 – Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost;
ASU 2017-05 – Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets;
ASU 2017-01 – Business Combinations (Topic 805): Clarifying the Definition of a Business;
ASU 2016-18 – Statement of Cash Flows (Topic 230): Restricted Cash;
ASU 2016-16 – Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory;
ASU 2016-15 – Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments;
ASU 2016-04 – Liabilities – Extinguishments of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value Products;
ASU 2016-01 – Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities; and
ASU 2014-09 – Revenue from Contracts With Customers (Topic 606) and subsequent related Updates.

ASU 2017-09 clarifies when to account for a change to the terms or conditions of a share-based payment awardSecured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a modification. UnderBenchmark Interest Rate for Hedge Accounting Purposes
•
ASU 2017-08 – Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities
•
ASU 2016-02 – Leases (Topic 842) and subsequent related Updates, including early adoption of ASU 2019-01 – Leases (Topic 842): Codification Improvements

ASU 2018-16 expands the ASU, modification accounting is required only iflist of U.S. benchmark interest rates permitted in the fair value,application of hedge accounting. The Update adds the vesting conditions, or the classification of the award (as equity or liability) changesOIS rate based on SOFR as a result ofU.S. benchmark interest rate to facilitate the change in terms or conditions. The Update is appliedLIBOR to awards modified on or after the adoption dateSOFR transition and accordingly, did not have a material impact on our consolidated financial statements.

ASU 2017-07 requires that the service cost component of net benefit cost be reported in the same line item as other compensation costs arising from services rendered by employees during the period,provide sufficient lead time for entities to prepare for changes to interest rate risk hedging strategies for both risk management and the other pension cost components (interest cost, expected return on plan assets and amortization of actuarial gains and losses) be presented in the income statement separate from the service cost component. The income statement line item used to present the other pension cost components must be disclosed. We adopted this change in first quarter 2018. The Update did not have a material impact on our consolidated financial statements.

ASU 2017-05 provides guidance for recognizing gains and losses from the transfer of nonfinancial assets in contracts with non-customers. The ASU applies to nonfinancial assets, including real estate (e.g., buildings, land, windmills, solar farms), ships and intellectual property. We adopted this change in first quarter 2018. The Update did not have a material impact on our consolidated financial statements.

ASU 2017-01 requires that when substantially all of the fair value of gross assets acquired is concentrated in a single asset (or a group of similar assets), the assets acquired would not represent a business.hedge accounting purposes. The Update is applied prospectively and accordingly,for qualifying new or re-designated hedging relationships entered into on or after adoption date.
We adopted the guidance in first quarter 2019. The adoption did not have an impact as we did not designate SOFR OIS as a material impact on our consolidated financial statements.benchmark interest rate in any hedging relationships.



ASU 2016-18 requires that restricted cash and cash equivalents are included with2017-08 changes the total cash and cash equivalents ininterest income recognition model for purchased callable debt securities carried at a premium, as the consolidated statement of cash flows. In addition, the nature of any restrictionspremium will be disclosed in the footnotesamortized to the financial statements. We adopted thisearliest call date rather than to the contractual maturity date. Accounting for purchased callable debt securities held at a discount does not change, in first quarter 2018. Our retrospective adoption includes changesas the discount will continue to our presentation of cash and cash equivalents in our consolidated statement of cash flowsaccrete to include both cash and due from banks as well as interest-earning deposits with banks. In addition, we had corresponding changes on our consolidated balance sheets.

ASU 2016-16 requires us to recognize the income tax effects of intercompany sales and transfers of assets other than inventory in the period in which the transfer occurs. We adopted this change in first quarter 2018.contractual maturity date. The Update did not have a material impact onimpacted our consolidated financial statements.

ASU 2016-15 addresses eight specific cash flow issues with the objectiveinvestments in purchased callable debt securities classified as available-for-sale (AFS) and held-to-maturity (HTM), which primarily consist of reducing the existing diversity in practice for reporting in the statementdebt securities of cash flows. We adopted this change in first quarter 2018. The Update did not have a material impact on our consolidated financial statements.

ASU 2016-04 modifies the accounting for certain prepaid card products to require the recognition of breakage. Breakage represents the estimated amount that will not be redeemed by the cardholder for goods or services. We adopted this change in first quarter 2018. Upon adoption, we recorded a cumulative-effect adjustment that increased retained earnings, given estimated breakage, by $20 million.

ASU 2016-01 changes the accounting for certain equity securities to record at fair value with unrealized gains or losses reflected in earnings, as well as improve the disclosures of equity securitiesU.S. states and the fair value of financial instruments. The Update also requires that for purposes of disclosing the fair value of financial instruments recorded at amortized cost, including loans and long-term debt, the valuation methodology is based on an exit price notion.political subdivisions.
We adopted the Update in first quarter 20182019 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 $106$100 million related to deferred gains on our prior sale-leaseback transactions. We also recognized operating lease right-of-use

(ROU) assets and liabilities, substantially all of which relate to our leasing of real estate as a resultlessee, 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 transition adjustmentform 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 reclassify $118 millionexercise. The residual 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 diversity 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 unrealized gains from other comprehensive incomeof accumulated depreciation. Periodic depreciation expense is recorded on a straight-line basis to retained earnings, partially offset bythe estimated residual value over the estimated useful life of the leased asset. On a transition adjustment to decrease retained earnings by $12 million primarily to adjustperiodic 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 recoverable. The carrying amount of our auction rate securitiesleased assets is deemed not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from cost to fair value. No transition adjustment was recorded for investments changed to the measurement alternative (described below), which was applied prospectively.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.
 
Operating 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 railcars, 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 our 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 ROU 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 resultdiscount rate that we believe approximates a collateralized borrowing rate for the estimated duration of adopting this ASU, our investmentsthe 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 marketable equity securities, including those previously classified as available-for-sale, are accounted for at fair value with unrealized gains or losses reflected in earnings. Additionally, our share of unrealized gains or lossesaccrued expenses and other liabilities and the related to marketable equity securities held by our equity method investees are reflected in earnings. Prior to adoption, such unrealized gains and losses were reflectedoperating lease ROU assets in other comprehensive income. Our investmentsassets. 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 nonmarketable equity securities previously accountednet 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 under the cost methoduse of accounting, except for federal bank stock, are now accounted for either at fair value with unrealized gains and losses reflected in earnings or using the measurement alternative. The measurement alternative is similar to the cost method of accounting, except the carrying value is adjusted through earnings for impairment, if any, andasset based on changes in observablefactors 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 orderly transactionsoperating lease ROU assets, these variable lease payments are recognized as incurred in the same or similar investment. We account fornet occupancy expense within noninterest expense.
For substantially all of our private equity securities, previously using the cost method of accounting, nowleased assets, we account for consideration paid under the measurement alternative. Our auction rate securities portfolio is now accountedcontract for at fair value with unrealized gainsmaintenance or losses reflected in earnings.
other services as lease payments. In connection with our adoption of this Update,addition, for certain asset classes, we have modified our balance sheetelected to exclude leases with original terms of less than one year from the operating lease ROU assets and income statement presentation to report marketablelease 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 nonmarketable equity securitiesthe associated finance ROU assets are presented in premises and their results separately from debt securities by now reporting all equity securities in a new line labeled “Equity securities” in both the balance sheet and income statement. Additionally we now report loans held for trading purposes in loans held for sale and have reclassified net gains and losses on marketable equity securities used as economic hedges of deferred compensation obligations from “Net gains for trading activities” to “Net gains from equity securities”. All prior periods have been revised to conform to these changes in reporting.equipment.
Table 1.1 provides a summary of our reporting changes implemented in connection with our adoption of ASU 2016-01 in first quarter 2018.
Note 1: Summary of Significant Accounting Policies (continued)

Table 1.1:Summary of Reporting Changes
Financial instrument or transaction typeAs previously reportedRevised reporting
Balance Sheet
   Marketable equity securitiesTrading assets and available for sale investment securitiesEquity securities (new caption)
   Nonmarketable equity securitiesOther assetsEquity securities (new caption)
   Loans held for tradingTrading assetsLoans held for sale
   Debt securities held for tradingTrading assetsDebt securities (formerly “Investment securities”)
Income Statement
   Interest income:
      Marketable equity securitiesTrading assets and investment securitiesEquity securities (new caption)
      Nonmarketable equity securitiesOtherEquity securities (new caption)
      Loans held for tradingTrading assetsLoans held for sale
      Debt securities held for tradingTrading assetsDebt securities (formerly “Investment securities”)
   Noninterest income:
      Deferred compensation gains (1)Net gains from trading activitiesNet gains from equity securities
(1)Reclassification of net gains and losses on marketable equity securities economically hedging our deferred compensation obligations.
Table 1.2 summarizes financial assets and liabilities by form and measurement accounting model.
Table 1.2:Accounting Model for Financial Assets and Liabilities
Balance sheet captionMeasurement model(s)Financial statement Note reference
Cash and due from banksCostN/A
Interest-earning deposits with banksCostN/A
Federal funds sold and securities purchased under resale agreementsAmortized costN/A
Debt securities:
TradingFV-NI (1)
Note 4: Trading Activities
Note 15: Fair Values of Assets and Liabilities
Available-for-saleFV-OCI (2)Note 5: Available-for-Sale and Held-to-Maturity Debt Securities
Note 15: Fair Values of Assets and Liabilities
Held-to-maturityAmortized costNote 5: Available-for-Sale and Held-to-Maturity Debt Securities
Mortgage loans held for sale
FV-NI (1)
LOCOM (3)
Note 15: Fair Values of Assets and Liabilities
Loans held for saleFV-NI (1)
LOCOM (3)		Note 15: Fair Values of Assets and Liabilities
Loans
Amortized cost
FV-NI (1)
Note 6: Loans and Allowance for Credit Losses
Note 15: Fair Values of Assets and Liabilities
Derivative assets and liabilities
FV-NI (1)
FV-OCI (2)
Note 4: Trading Activities
Note 14: Derivatives
Note 15: Fair Values of Assets and Liabilities
Equity securities:
MarketableFV-NI (1)
Note 4: Trading Activities
Note 7: Equity Securities
Note 15: Fair Values of Assets and Liabilities
Nonmarketable
FV-NI (1)
Cost method
Equity method
MA (4)
Note 4: Trading Activities
Note 7: Equity Securities
Note 15: Fair Values of Assets and Liabilities
Other assetsAmortized cost (5)Note 8: Other Assets
DepositsAmortized costN/A
Short-term borrowingsAmortized costN/A
Long-term debtAmortized costN/A
(1)FV-NI represents the fair value through net income accounting model.
(2)FV-OCI represents the fair value through other comprehensive income accounting model.
(3)LOCOM represents the lower of cost or fair value accounting model.
(4)MA represents the measurement alternative accounting model.
(5)Other assets are generally carried at amortized cost, except for bank-owned life insurance which is carried at cash surrender value.
ASU 2014-09 modifies the guidance used to recognize revenue from contracts with customers for transfers of goods or services and transfers of non-financial assets, unless those contracts are within the scope of other guidance. Upon a modified retrospective adoption, we recorded a cumulative-effect adjustment that decreased retained earnings by $32 million, due
to changes in the timing of revenue for corporate trust services that are provided over the life of the associated trust. In addition, we changed the presentation of some costs such that underwriting expenses of our broker-dealer business that were previously netted against revenue are now included in noninterest expense, and card payment network charges that


were previously included in noninterest expense are now netted against card fee revenue.

In third quarter 2018, we adopted the following new accounting guidance:
ASU 2018-02 – Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.

ASU 2018-02 allows a reclassification to update amounts in accumulated other comprehensive income to an appropriate tax rate under the Tax Cuts & Jobs Act. In third quarter 2018, we reclassified $400 million resulting in a reduction of accumulated other comprehensive income and an increase to retained earnings. For additional information, see Note 20: Other Comprehensive Income. In addition, we recognized $104 million of additional tax expense associated with the re-measurement of our initial estimates for the impacts of the Tax Cuts & Jobs Act, in accordance with ASC Topic 740, Income Taxes and SEC Staff Accounting Bulletin 118. These adjustments were included in income tax expense. We continue to collect and analyze data related to our provisional tax estimates and monitor interpretations that emerge for various provisions of the Tax Act. We anticipate the re-measurements will be finalized upon completion of our U.S. tax filings in the fourth quarter.

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 second quarter 2019 and we had no unsettled private share repurchase contracts at both SeptemberJune 30, 20182019.
Under a Rule 10b5-1 repurchase plan, payments and September 30, 2017.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 in Table 1.3.1.1.


Table 1.3:1.1:Supplemental Cash Flow Information
 Six months ended June 30, 
(in millions)2019
 2018
Trading debt securities retained from securitization of MLHFS$19,131
 17,674
Transfers from loans to MLHFS4,419
 3,053
Transfers from loans to LHFS92
 2,149
Transfers from available-for-sale debt securities to held-to-maturity debt securities6,071
 10,371
Operating lease ROU assets acquired with operating lease liabilities (1)5,302
 —

(1)
The six months ended June 30, 2019, balance includes $4.9 billion from adoption of ASU 2016-02 – Leases (Topic 842) and $402 million attributable to new leases and changes from modified leases.
 Nine months ended September 30, 
(in millions)2018
 2017
Trading debt securities retained from securitization of MLHFS$28,761
 43,394
Transfers from loans to MLHFS4,456
 4,015
Transfers from loans to LHFS2,542
 681
Transfers from available-for-sale debt securities to held-to-maturity debt securities13,372
 50,405


Subsequent Events
We have evaluated the effects of events that have occurred subsequent to SeptemberJune 30, 2018,2019, and, except as disclosed elsewhere in the footnotes, there have been no material events that would
 
that would require recognition in our thirdsecond quarter 20182019 consolidated financial statements or disclosure in the Notes to the consolidated financial statements.
Note 2: Business Combinations
We regularly explore opportunities to acquire financial services companies and businesses. Generally, we do not make a public announcement about an acquisition opportunity until a definitive agreement has been signed. For information on additional contingent consideration related to acquisitions, which is considered to be a guarantee, see Note 12 (Guarantees, Pledged Assets and Collateral, and Other Commitments).
We completed no new acquisitions during the first nine monthshalf of 20182019 and had no business combinations pending as of SeptemberJune 30, 2018.
2019.
We completedclosed the previously announced sale of Wells Fargo Shareowner Servicesour Institutional Retirement and Trust business (IRT) on July 1, 2019, and we recognized a pre-tax gain of approximately $1.1 billion, which will be reflected in February 2018 andour third quarter 2019 net income. We will continue to administer client assets at the saledirection of the automobile lending business of Reliable Financial Services, Inc.buyer for up to 24 months pursuant to a transition services agreement. The buyer will receive all post-closing revenue from the client assets and Reliable Finance Holding Company in August 2018. In June 2018,will pay us a fee for costs that we announced plansincur to divest 52 branches in Indiana, Ohio, Michigan and part of Wisconsin. Included withadminister the sale are approximately $2 billion of deposits as of September 30, 2018.client assets during the transition period. The final amount of deposits thattransition services fee will be divested could differ.recognized as other noninterest income. Assets under administration related to IRT were $918 billion at June 30, 2019. Transition period revenue, is expected to approximate transition period expenses and is subject to downward adjustment as client assets transition to the buyer's platform.






Note 3:Cash, Loan and Dividend Restrictions
Cash and cash equivalents may be restricted as to usage or withdrawal. Federal Reserve Board (FRB)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)Sep 30,
2018
 Dec 31,
2017
Jun 30,
2019
 Dec 31,
2018
Average required reserve balance for FRB (1)$12,798
 12,306
$11,179
 12,428
Reserve balance for non-U.S. central banks554
 617
556
 517
Segregated for benefit of brokerage customers under federal and other brokerage regulations698
 666
956
 1,135
Related to consolidated variable interest entities (VIEs) that can only be used to settle liabilities of VIEs120
 487
19
 147
(1)
FRB required reserve balance represents average for the first nine monthshalf of 20182019 and for the year ended December 31, 2017.
2018.


We are subject to additional loan and dividend restrictions. 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 $15.6$7.6 billion at SeptemberJune 30, 2018,2019, 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, as amended and restated on June 26, 2019, 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 anand certain other direct and indirect subsidiarysubsidiaries of the Parent designated as material entities for resolution planning purposes or identified as related support entities in our resolution plan, the IHC may be restricted from making dividend payments to the Parent if certain liquidity and/or capital metrics fall below defined triggers.triggers or if the Parent's board of directors authorizes it to file a case under the U.S. Bankruptcy Code. Based on retained earnings at SeptemberJune 30, 2018,2019, our nonbank subsidiaries could have declared additional dividends of $25.5$25.1 billion at SeptemberJune 30, 2018,2019, without obtaining prior regulatory approval. For additional information see Note 3 (Cash, Loan and Dividend Restrictions) in our 20172018 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 $0.43$0.51 per share as declared by the Company’s Board of Directors on OctoberJuly 23, 2018,2019, payable on DecemberSeptember 1, 2018.2019.






Note 4: Trading Activities
We engage in trading activities to accommodate the investment and risk management activities of our customers. These activities predominantly occur in our Wholesale Banking businesses and to a lesser extent other divisions of the Company. Assets and liabilities associated with our trading activities include debt and equity securities, derivatives, loans and short sales. Our trading
assets and liabilities are carried on the balance sheet at fair value with changes in fair value recognized in net gains from trading activities and interest income and interest expense recognized in net interest income.
Table 4.1 presents a summary of our trading assets and liabilities measured at fair value through earnings.
Table 4.1: Trading Assets and Liabilities
Sep 30,
 Dec 31,
Jun 30,
 Dec 31,
(in millions)2018
 2017
2019
 2018
Trading assets:      
Debt securities$65,188
 57,624
$70,208
 69,989
Equity securities26,138
 30,004
23,327
 19,449
Loans held for sale1,266
 1,023
1,118
 1,469
Gross trading derivative assets30,302
 31,340
34,683
 29,216
Netting (1)(19,188) (19,629)(22,827) (19,807)
Total trading derivative assets11,114
 11,711
11,856
 9,409
Total trading assets103,706
 100,362
106,509
 100,316
Trading liabilities:      
Short sale23,992
 18,472
15,955
 19,720
Gross trading derivative liabilities29,268
 31,386
33,458
 28,717
Netting (1)(21,842) (23,062)(26,417) (21,178)
Total trading derivative liabilities7,426
 8,324
7,041
 7,539
Total trading liabilities$31,418
 26,796
$22,996
 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 a summary of the net interest income earned from trading securities, and net gains and losses due to the realized and unrealized gains and losses from trading activities.
 

Net interest income includes dividend income on trading securities and dividend expense on trading securities we have sold, but not yet purchased.

Table 4.2:Net Interest Income and Net Gains (Losses) on Trading Activities
Quarter ended September 30,  Nine months ended September 30, Quarter ended June 30,  Six months ended June 30, 
(in millions)2018
 2017
 2018
 2017
2019
 2018
 2019
 2018
Interest income (1):       
Interest income:       
Debt securities$723
 607
 2,043
 1,678
$740
 689
 1,533
 1,320
Equity securities178
 125
 447
 370
143
 128
 258
 269
Loans held for sale20
 11
 43
 29
20
 15
 43
 23
Total interest income921
 743
 2,533
 2,077
903
 832
 1,834
 1,612
Less: Interest expense (2)157
 107
 429
 305
127
 144
 263
 272
Net interest income764
 636
 2,104
 1,772
776
 688
 1,571
 1,340
              
Net gains (losses) from trading activities:       
Net gains (losses) from trading activities (1):       
Debt securities(369) 52
 (1,008) 348
401
 (140) 1,089
 (639)
Equity securities1,129
 717
 25
 2,143
1,236
 (635) 3,303
 (1,104)
Loans held for sale3
 6
 18
 42
(4) 7
 10
 15
Derivatives (3)(2)(605) (655) 1,557
 (1,990)(1,404) 959
 (3,816) 2,162
Total net gains from trading activities (4)158
 120
 592
 543
229
 191
 586
 434
Total trading-related net interest and noninterest income$922
 756
 2,696
 2,315
$1,005
 879
 2,157
 1,774
(1)Represents interestrealized gains (losses) and dividend income earned onunrealized gains (losses) due to changes in fair value of our trading securities.positions.
(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.


Customer accommodation trading activities include our actions as an intermediary to buy and sell financial instruments and market-making activities. We also take positions to manage our exposure to customer accommodation activities. We hold financial instruments for trading in long positions (assets), as well as short positions where we sold financial instruments we have not yet purchased (liabilities), to facilitate our trading activities. As an intermediary we interact with market buyers and sellers to facilitate the purchase and sale of financial instruments to meet the anticipated or current needs of our customers. For example, we may purchase or sell a derivative to a customer who wants to manage interest rate risk exposure. We typically enter into an offsetting derivative or security position to manage our exposure to the customer transaction. We earn income based on the transaction price difference between the customer transaction and the offsetting position, which is reflected in the fair value changes of the positions recorded in the net gains from trading activities.
Our market-making activities include taking long and short trading positions to facilitate customer order flow. These activities are typically executed on a short term basis. As a market-maker we earn income due to: (1) difference between the price paid or received for the purchase and sale of the security (bid-ask spread), (2) the net interest income of the positions, and (3) the changes in fair value of the trading positions held on our balance sheet. Additionally, we may enter into separate derivative or security positions to manage our exposure related to our long and short trading positions taken in our market-making activities. Income earned on these market-making activities are reflected in the fair value changes of these positions recorded in net gains from trading activities.



Note 5:  Available-for-Sale and Held-to-Maturity Debt Securities

Table 5.1 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 5.1:Amortized Cost and Fair Value
(in millions)Amortized Cost
 
Gross
unrealized
gains

 
Gross
unrealized
losses

 
Fair
value

Amortized Cost
 
Gross
unrealized
gains

 
Gross
unrealized
losses

 
Fair
value

September 30, 2018       
June 30, 2019       
Available-for-sale debt securities:              
Securities of U.S. Treasury and federal agencies$6,347
 1
 (161) 6,187
$15,334
 2
 (17) 15,319
Securities of U.S. states and political subdivisions (1)47,565
 984
 (333) 48,216
44,205
 968
 (78) 45,095
Mortgage-backed securities:              
Federal agencies158,584
 289
 (5,362) 153,511
154,549
 1,617
 (308) 155,858
Residential2,789
 179
 (2) 2,966
1,241
 23
 (1) 1,263
Commercial3,910
 67
 (4) 3,973
4,140
 45
 (5) 4,180
Total mortgage-backed securities165,283
 535
 (5,368) 160,450
159,930
 1,685
 (314) 161,301
Corporate debt securities6,365
 273
 (24) 6,614
6,058
 208
 (36) 6,230
Collateralized loan and other debt obligations (2) 35,973
 239
 (18) 36,194
32,944
 165
 (114) 32,995
Other (3)5,189
 120
 (6) 5,303
4,987
 70
 (14) 5,043
Total available-for-sale debt securities266,722
 2,152
 (5,910) 262,964
263,458
 3,098
 (573) 265,983
Held-to-maturity debt securities:              
Securities of U.S. Treasury and federal agencies44,743
 —
 (1,075) 43,668
44,766
 574
 (4) 45,336
Securities of U.S. states and political subdivisions6,293
 15
 (157) 6,151
7,948
 182
 (5) 8,125
Federal agency and other mortgage-backed securities (4)93,020
 7
 (3,885) 89,142
93,105
 1,312
 (71) 94,346
Collateralized loan obligations75
 —
 —
 75
57
 —
 —
 57
Other (3)—
 —
 —
 —
Total held-to-maturity debt securities144,131
 22
 (5,117) 139,036
145,876
 2,068
 (80) 147,864
Total$410,853
 2,174
 (11,027) 402,000
$409,334
 5,166
 (653) 413,847
December 31, 2017       
December 31, 2018       
Available-for-sale debt securities:              
Securities of U.S. Treasury and federal agencies$6,425
 2
 (108) 6,319
$13,451
 3
 (106) 13,348
Securities of U.S. states and political subdivisions (1)50,733
 1,032
 (439) 51,326
48,994
 716
 (446) 49,264
Mortgage-backed securities:              
Federal agencies160,561
 930
 (1,272) 160,219
155,974
 369
 (3,140) 153,203
Residential4,356
 254
 (2) 4,608
2,638
 142
 (5) 2,775
Commercial4,487
 80
 (2) 4,565
4,207
 40
 (22) 4,225
Total mortgage-backed securities169,404
 1,264
 (1,276) 169,392
162,819
 551
 (3,167) 160,203
Corporate debt securities7,343
 363
 (40) 7,666
6,230
 131
 (90) 6,271
Collateralized loan and other debt obligations (2)35,675
 384
 (3) 36,056
35,581
 158
 (396) 35,343
Other (3)5,516
 137
 (5) 5,648
5,396
 100
 (13) 5,483
Total available-for-sale debt securities275,096
 3,182
 (1,871) 276,407
272,471
 1,659
 (4,218) 269,912
Held-to-maturity debt securities:              
Securities of U.S. Treasury and federal agencies44,720
 189
 (103) 44,806
44,751
 4
 (415) 44,340
Securities of U.S. states and political subdivisions6,313
 84
 (43) 6,354
6,286
 30
 (116) 6,200
Federal agency and other mortgage-backed securities (4)87,527
 201
 (682) 87,046
93,685
 112
 (2,288) 91,509
Collateralized loan obligations661
 4
 —
 665
66
 —
 —
 66
Other (3)114
 —
 —
 114
Total held-to-maturity debt securities139,335
 478
 (828) 138,985
144,788
 146
 (2,819) 142,115
Total$414,431
 3,660
 (2,699) 415,392
$417,259
 1,805
 (7,037) 412,027
(1)
Available-for-sale debt securities includeIncludes investments in tax-exempt preferred debt securities issued by investment funds or trusts that predominantly invest in tax-exempt municipal securities. The cost basis and fair value of these types of securities was $6.2$5.8 billion each at SeptemberJune 30, 2018,2019, and $5.2$6.3 billion each at December 31, 2017.
2018.
(2)
Available-for-sale debt securities includeIncludes collateralized debt obligations (CDOs) with a cost basis and fair value of $690$521 million and $843$649 million,, respectively, at SeptemberJune 30, 2018,2019, and $887$662 million and $1.0 billion,$800 million, respectively, at December 31, 2017.
2018.
(3)
The “Other” category of available-for-sale debt securitieslargelyLargely includes asset-backed securities collateralized by student loans. Included in the “Other” category of held-to-maturity debt securities are asset-backed securities collateralized by automobile leases or loans and cash with a cost basis and fair value of $0 million each at September 30, 2018, and $114 million each at December 31, 2017.
(4)
Predominantly consists of federal agency mortgage-backed securities at both SeptemberJune 30, 20182019 and December 31, 2017.
2018.
Note 5: Available-for-Sale and Held-to-Maturity Debt Securities (continued)


Gross Unrealized Losses and Fair Value
Table 5.2 shows the gross unrealized losses and fair value of available-for-sale and held-to-maturity debt securities by length of time those 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 5.2:Gross Unrealized Losses and Fair Value
 Less than 12 months  12 months or more  Total 
(in millions)
Gross
unrealized
losses

 
Fair
value

 
Gross
unrealized
losses

 
Fair
value

 
Gross
unrealized
losses

 
Fair
value

June 30, 2019           
Available-for-sale debt securities:           
Securities of U.S. Treasury and federal agencies$(2) 5,780
 (15) 5,511
 (17) 11,291
Securities of U.S. states and political subdivisions(32) 5,003
 (46) 2,696
 (78) 7,699
Mortgage-backed securities:          
Federal agencies(2) 1,203
 (306) 32,179
 (308) 33,382
Residential(1) 180
 —
 —
 (1) 180
Commercial(3) 837
 (2) 89
 (5) 926
Total mortgage-backed securities(6) 2,220
 (308) 32,268
 (314) 34,488
Corporate debt securities(11) 470
 (25) 281
 (36) 751
Collateralized loan and other debt obligations(58) 12,847
 (56) 7,239
 (114) 20,086
Other(8) 1,222
 (6) 246
 (14) 1,468
Total available-for-sale debt securities(117) 27,542
 (456) 48,241
 (573) 75,783
Held-to-maturity debt securities:        
 
Securities of U.S. Treasury and federal agencies—
 —
 (4) 1,613
 (4) 1,613
Securities of U.S. states and political subdivisions—
 —
 (5) 514
 (5) 514
Federal agency and other mortgage-backed securities(1) 15
 (70) 17,392
 (71) 17,407
Collateralized loan obligations—
 —
 —
 —
 —
 —
Total held-to-maturity debt securities(1) 15
 (79) 19,519
 (80) 19,534
Total$(118) 27,557
 (535) 67,760
 (653) 95,317
December 31, 2018           
Available-for-sale debt securities:           
Securities of U.S. Treasury and federal agencies$(1) 498
 (105) 6,204
 (106) 6,702
Securities of U.S. states and political subdivisions(73) 9,746
 (373) 9,017
 (446) 18,763
Mortgage-backed securities:           
Federal agencies(42) 10,979
 (3,098) 112,252
 (3,140) 123,231
Residential(3) 398
 (2) 69
 (5) 467
Commercial(20) 1,972
 (2) 79
 (22) 2,051
Total mortgage-backed securities(65) 13,349
 (3,102) 112,400
 (3,167) 125,749
Corporate debt securities(64) 1,965
 (26) 298
 (90) 2,263
Collateralized loan and other debt obligations(388) 28,306
 (8) 553
 (396) 28,859
Other(7) 819
 (6) 159
 (13) 978
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(3) 895
 (412) 41,083
 (415) 41,978
Securities of U.S. states and political subdivisions(4) 598
 (112) 3,992
 (116) 4,590
Federal agency and other mortgage-backed securities(5) 4,635
 (2,283) 77,741
 (2,288) 82,376
Collateralized loan obligations—
 —
 —
 —
 —
 —
Total held-to-maturity debt securities(12) 6,128
 (2,807) 122,816
 (2,819) 128,944
Total$(610) 60,811
 (6,427) 251,447
 (7,037) 312,258

 Less than 12 months  12 months or more  Total 
(in millions)
Gross
unrealized
losses

 
Fair
value

 
Gross
unrealized
losses

 
Fair
value

 
Gross
unrealized
losses

 
Fair
value

September 30, 2018           
Available-for-sale debt securities:           
Securities of U.S. Treasury and federal agencies$(32) 1,705
 (129) 4,444
 (161) 6,149
Securities of U.S. states and political subdivisions(26) 7,207
 (307) 8,737
 (333) 15,944
Mortgage-backed securities:          
Federal agencies(2,165) 82,975
 (3,197) 63,029
 (5,362) 146,004
Residential(1) 169
 (1) 52
 (2) 221
Commercial(3) 438
 (1) 60
 (4) 498
Total mortgage-backed securities(2,169) 83,582
 (3,199) 63,141
 (5,368) 146,723
Corporate debt securities(12) 658
 (12) 246
 (24) 904
Collateralized loan and other debt obligations(17) 8,725
 (1) 165
 (18) 8,890
Other(2) 476
 (4) 153
 (6) 629
Total available-for-sale debt securities(2,258) 102,353
 (3,652) 76,886
 (5,910) 179,239
Held-to-maturity debt securities:        
 
Securities of U.S. Treasury and federal agencies(871) 39,298
 (204) 4,370
 (1,075) 43,668
Securities of U.S. states and political subdivisions(62) 3,101
 (95) 1,922
 (157) 5,023
Federal agency and other mortgage-backed securities(1,166) 37,313
 (2,719) 50,258
 (3,885) 87,571
Collateralized loan obligations—
 —
 —
 —
 —
 —
Total held-to-maturity debt securities(2,099) 79,712
 (3,018) 56,550
 (5,117) 136,262
Total$(4,357) 182,065
 (6,670) 133,436
 (11,027) 315,501
December 31, 2017           
Available-for-sale debt securities:           
Securities of U.S. Treasury and federal agencies$(27) 4,065
 (81) 2,209
 (108) 6,274
Securities of U.S. states and political subdivisions(17) 6,179
 (422) 11,766
 (439) 17,945
Mortgage-backed securities:           
Federal agencies(243) 52,559
 (1,029) 44,691
 (1,272) 97,250
Residential(1) 47
 (1) 58
 (2) 105
Commercial(1) 101
 (1) 133
 (2) 234
Total mortgage-backed securities(245) 52,707
 (1,031) 44,882
 (1,276) 97,589
Corporate debt securities(4) 239
 (36) 503
 (40) 742
Collateralized loan and other debt obligations(1) 373
 (2) 146
 (3) 519
Other(1) 37
 (4) 483
 (5) 520
Total available-for-sale debt securities(295) 63,600
 (1,576) 59,989
 (1,871) 123,589
Held-to-maturity debt securities:           
Securities of U.S. Treasury and federal agencies(69) 11,255
 (34) 1,490
 (103) 12,745
Securities of U.S. states and political subdivisions(5) 500
 (38) 1,683
 (43) 2,183
Federal agency and other mortgage-backed securities(198) 29,713
 (484) 28,244
 (682) 57,957
Collateralized loan obligations—
 —
 —
 —
 —
 —
Total held-to-maturity debt securities(272) 41,468
 (556) 31,417
 (828) 72,885
Total$(567) 105,068
 (2,132) 91,406
 (2,699) 196,474


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. We 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 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 20172018 Form 10-K. There were no material changes to our methodologies for assessing impairment in the first nine monthshalf of 2018.2019. 
Table 5.3 shows the gross unrealized losses and fair value of the available-for-sale and held-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. Debt 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 $23$9 million and $5.5$2.3 billion, respectively, at SeptemberJune 30, 2018,2019, and $32$20 million and $6.9$5.2 billion, respectively, at December 31, 2017.2018. If an internal credit grade was not assigned, we categorized the debt security as non-investment grade. 
Table 5.3:Gross Unrealized Losses and Fair Value by Investment Grade
 Investment grade  Non-investment grade 
(in millions)
Gross
unrealized
losses

 
Fair
value

 
Gross
unrealized
losses

 
Fair
value

June 30, 2019       
Available-for-sale debt securities:       
Securities of U.S. Treasury and federal agencies$(17) 11,291
 —
 —
Securities of U.S. states and political subdivisions(69) 7,480
 (9) 219
Mortgage-backed securities:       
Federal agencies(308) 33,382
 —
 —
Residential(1) 180
 —
 —
Commercial(4) 915
 (1) 11
Total mortgage-backed securities(313) 34,477
 (1) 11
Corporate debt securities(6) 299
 (30) 452
Collateralized loan and other debt obligations(114) 20,086
 —
 —
Other(8) 1,120
 (6) 348
Total available-for-sale debt securities(527) 74,753
 (46) 1,030
Held-to-maturity debt securities:       
Securities of U.S. Treasury and federal agencies(4) 1,613
 —
 —
  Securities of U.S. states and political subdivisions(5) 514
 —
 —
Federal agency and other mortgage-backed securities(70) 17,374
 (1) 33
Collateralized loan obligations—
 —
 —
 —
Total held-to-maturity debt securities(79) 19,501
 (1) 33
Total$(606) 94,254
 (47) 1,063
December 31, 2018  
    
Available-for-sale debt securities:       
Securities of U.S. Treasury and federal agencies$(106) 6,702
 —
 —
Securities of U.S. states and political subdivisions(425) 18,447
 (21) 316
Mortgage-backed securities:       
Federal agencies(3,140) 123,231
 —
 —
Residential(2) 295
 (3) 172
Commercial(20) 1,999
 (2) 52
Total mortgage-backed securities(3,162) 125,525
 (5) 224
Corporate debt securities(17) 791
 (73) 1,472
Collateralized loan and other debt obligations(396) 28,859
 —
 —
Other(7) 726
 (6) 252
Total available-for-sale debt securities(4,113) 181,050
 (105) 2,264
Held-to-maturity debt securities:       
Securities of U.S. Treasury and federal agencies(415) 41,978
 —
 —
Securities of U.S. states and political subdivisions(116) 4,590
 —
 —
Federal agency and other mortgage-backed securities(2,278) 81,977
 (10) 399
Collateralized loan obligations—
 —
 —
 —
Total held-to-maturity debt securities(2,809) 128,545
 (10) 399
Total$(6,922) 309,595
 (115) 2,663
 Investment grade  Non-investment grade 
(in millions)
Gross
unrealized
losses

 
Fair
value

 
Gross
unrealized
losses

 
Fair
value

September 30, 2018       
Available-for-sale debt securities:       
Securities of U.S. Treasury and federal agencies$(161) 6,149
 —
 —
Securities of U.S. states and political subdivisions(314) 15,661
 (19) 283
Mortgage-backed securities:       
Federal agencies(5,362) 146,004
 —
 —
Residential(1) 147
 (1) 74
Commercial(1) 429
 (3) 69
Total mortgage-backed securities(5,364) 146,580
 (4) 143
Corporate debt securities(4) 276
 (20) 628
Collateralized loan and other debt obligations(18) 8,890
 —
 —
Other(3) 358
 (3) 271
Total available-for-sale debt securities(5,864) 177,914
 (46) 1,325
Held-to-maturity debt securities:       
Securities of U.S. Treasury and federal agencies(1,075) 43,668
 —
 —
Securities of U.S. states and political subdivisions(157) 5,023
 —
 —
Federal agency and other mortgage-backed securities(3,873) 87,188
 (12) 383
Collateralized loan obligations—
 —
 —
 —
Total held-to-maturity debt securities(5,105) 135,879
 (12) 383
Total$(10,969) 313,793
 (58) 1,708
December 31, 2017  
    
Available-for-sale debt securities:       
Securities of U.S. Treasury and federal agencies$(108) 6,274
 —
 —
Securities of U.S. states and political subdivisions(412) 17,763
 (27) 182
Mortgage-backed securities:       
Federal agencies(1,272) 97,250
 —
 —
Residential(1) 42
 (1) 63
Commercial(1) 183
 (1) 51
Total mortgage-backed securities(1,274) 97,475
 (2) 114
Corporate debt securities(13) 304
 (27) 438
Collateralized loan and other debt obligations(3) 519
 —
 —
Other(2) 469
 (3) 51
Total available-for-sale debt securities(1,812) 122,804
 (59) 785
Held-to-maturity debt securities:       
Securities of U.S. Treasury and federal agencies(103) 12,745
 —
 —
Securities of U.S. states and political subdivisions(43) 2,183
 —
 —
Federal agency and other mortgage-backed securities(680) 57,789
 (2) 168
Collateralized loan obligations—
 —
 —
 —
Total held-to-maturity debt securities(826) 72,717
 (2) 168
Total$(2,638) 195,521
 (61) 953

Note 5: Available-for-Sale and Held-to-Maturity Debt Securities (continued)


Contractual Maturities
Table 5.4 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 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, 2018                   
June 30, 2019                   
Available-for-sale debt securities (1):                                       
Fair value:                                      
Securities of U.S. Treasury and federal agencies$6,187
 1.60% $46
 1.96% $6,094
 1.59% $47
 1.89% $—
 —%$15,319
 1.94% $5,521
 1.69% $9,747
 2.08% $51
 1.89% $—
 —%
Securities of U.S. states and political subdivisions48,216
 4.73
 4,216
 2.75
 6,507
 3.33
 4,251
 3.31
 33,242
 5.43
45,095
 4.92
 2,016
 3.34
 5,135
 3.34
 4,322
 3.54
 33,622
 5.40
Mortgage-backed securities:                                      
Federal agencies153,511
 3.38
 —
 —
 63
 3.52
 2,396
 2.66
 151,052
 3.39
155,858
 3.50
 —
 —
 137
 3.48
 1,665
 2.56
 154,056
 3.51
Residential2,966
 3.88
 —
 —
 16
 5.84
 7
 2.77
 2,943
 3.88
1,263
 2.80
 —
 —
 —
 —
 —
 —
 1,263
 2.80
Commercial3,973
 3.55
 —
 —
 —
 —
 311
 3.50
 3,662
 3.56
4,180
 3.71
 —
 —
 —
 —
 342
 3.61
 3,838
 3.72
Total mortgage-backed securities160,450
 3.39
 —
 —
 79
 4.01
 2,714
 2.75
 157,657
 3.41
161,301
 3.50
 —
 —
 137
 3.48
 2,007
 2.74
 159,157
 3.51
Corporate debt securities6,614
 5.09
 372
 5.82
 2,505
 5.28
 3,008
 4.75
 729
 5.47
6,230
 5.01
 484
 6.17
 2,384
 5.00
 2,737
 4.69
 625
 5.59
Collateralized loan and other debt obligations36,194
 3.77
 —
 —
 33
 3.73
 10,592
 3.78
 25,569
 3.76
32,995
 3.96
 —
 —
 8
 5.02
 10,005
 4.03
 22,982
 3.93
Other5,303
 3.09
 19
 4.82
 834
 3.56
 1,083
 2.32
 3,367
 3.21
5,043
 3.10
 12
 3.34
 749
 3.80
 1,424
 2.13
 2,858
 3.40
Total available-for-sale debt securities at fair value$262,964
 3.68% $4,653
 2.99% $16,052
 2.99% $21,695
 3.62% $220,564
 3.76%$265,983
 3.73% $8,033
 2.38% $18,160
 2.96% $20,546
 3.75% $219,244
 3.85%
December 31, 2017                   
Available-for-sale debt securities (1):        `          
Fair value:                   
Securities of U.S. Treasury and federal agencies$6,319
 1.59% $81
 1.37% $6,189
 1.59% $49
 1.89% $—
 —%
Securities of U.S. states and political subdivisions51,326
 5.88
 2,380
 3.47
 9,484
 3.42
 2,276
 4.63
 37,186
 6.75
Mortgage-backed securities:                   
Federal agencies160,219
 3.27
 15
 2.03
 210
 3.08
 5,534
 2.82
 154,460
 3.28
Residential4,608
 3.52
 —
 —
 24
 5.67
 11
 2.46
 4,573
 3.51
Commercial4,565
 3.45
 —
 —
 —
 —
 166
 2.69
 4,399
 3.48
Total mortgage-backed securities169,392
 3.28
 15
 2.03
 234
 3.35
 5,711
 2.82
 163,432
 3.30
Corporate debt securities7,666
 5.12
 443
 5.54
 2,738
 5.56
 3,549
 4.70
 936
 5.26
Collateralized loan and other debt obligations36,056
 2.98
 —
 —
 50
 1.68
 15,008
 2.96
 20,998
 3.00
Other5,648
 2.46
 71
 3.56
 463
 2.72
 1,466
 2.13
 3,648
 2.53
Total available-for-sale debt securities at fair value$276,407
 3.72% $2,990
 3.70% $19,158
 3.11% $28,059
 3.24% $226,200
 3.83%
(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 5.5 shows the amortized cost and weighted-average yields of held-to-maturity debt securities by contractual maturity.
Table 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, 2018                   
June 30, 2019                   
Held-to-maturity debt securities (1):                                       
Amortized cost:                                      
Securities of U.S. Treasury and federal agencies$44,743
 2.12% $—
 —% $32,349
 2.04% $12,394
 2.32% $—
 —%$44,766
 2.12% $—
 —% $34,667
 2.07% $10,099
 2.28% $—
 —%
Securities of U.S. states and political subdivisions6,293
 4.93
 —
 —
 52
 5.90
 1,118
 4.97
 5,123
 4.91
7,948
 4.97
 —
 —
 75
 6.05
 1,570
 4.89
 6,303
 4.98
Federal agency and other mortgage-backed securities93,020
 3.09
 —
 —
 15
 3.40
 11
 3.10
 92,994
 3.09
93,105
 3.12
 —
 —
 15
 3.77
 —
 —
 93,090
 3.12
Collateralized loan obligations75
 3.52
 —
 —
 —
 —
 75
 3.52
 —
 —
57
 3.78
 —
 —
 —
 —
 57
 3.78
 —
 —
Other—
 —
 —
 —
 —
 —
 —
 —
 —
 —
Total held-to-maturity debt securities at amortized cost$144,131
 2.87% $—
 —% $32,416
 2.05% $13,598
 2.54% $98,117
 3.19%$145,876
 2.91% $—
 —% $34,757
 2.08% $11,726
 2.64% $99,393
 3.24%
December 31, 2017                   
Held-to-maturity debt securities (1):                   
Amortized cost:                   
Securities of U.S. Treasury and federal agencies$44,720
 2.12% $—
 —% $32,330
 2.04% $12,390
 2.32% $—
 —%
Securities of U.S. states and political subdivisions6,313
 6.02
 —
 —
 50
 7.18
 695
 6.31
 5,568
 5.98
Federal agency and other mortgage-backed securities87,527
 3.11
 —
 —
 15
 2.81
 11
 2.49
 87,501
 3.11
Collateralized loan obligations661
 2.86
 —
 —
 —
 —
 661
 2.86
 —
 —
Other114
 1.83
 —
 —
 114
 1.83
 —
 —
 —
 —
Total held-to-maturity debt securities at amortized cost$139,335
 2.92% $—
 —% $32,509
 2.05% $13,757
 2.55% $93,069
 3.28%
(1)
Weighted-average yields displayed by maturity bucket are weighted based on amortized cost and predominantly represent contractual coupon rates.


Table 5.6 shows the fair value of held-to-maturity debt securities by contractual maturity.
 


Table 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
June 30, 2019         
Held-to-maturity debt securities:         
Fair value:         
Securities of U.S. Treasury and federal agencies$45,336
 —
 34,962
 10,374
 —
Securities of U.S. states and political subdivisions8,125
 —
 75
 1,625
 6,425
Federal agency and other mortgage-backed securities94,346
 —
 15
 —
 94,331
Collateralized loan obligations57
 —
 —
 57
 —
Total held-to-maturity debt securities at fair value$147,864
 —
 35,052
 12,056
 100,756

   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, 2018         
Held-to-maturity debt securities:         
Fair value:         
Securities of U.S. Treasury and federal agencies$43,668
 —
 31,700
 11,968
 —
Securities of U.S. states and political subdivisions6,151
 —
 50
 1,111
 4,990
Federal agency and other mortgage-backed securities89,142
 —
 15
 11
 89,116
Collateralized loan obligations75
 —
 —
 75
 —
Other—
 —
 —
 —
 —
Total held-to-maturity debt securities at fair value$139,036
 —
 31,765
 13,165
 94,106
December 31, 2017         
Held-to-maturity debt securities:         
Fair value:         
Securities of U.S. Treasury and federal agencies$44,806
 —
 32,388
 12,418
 —
Securities of U.S. states and political subdivisions6,354
 —
 49
 701
 5,604
Federal agency and other mortgage-backed securities87,046
 —
 15
 11
 87,020
Collateralized loan obligations665
 —
 —
 665
 —
Other114
 —
 114
 —
 —
Total held-to-maturity debt securities at fair value$138,985
 —
 32,566
 13,795
 92,624
Note 5: Available-for-Sale and Held-to-Maturity Debt Securities (continued)


Realized Gains and Losses
Table 5.7 shows the gross realized gains and losses on sales and OTTI write-downs related to available-for-sale debt securities.
Table 5.7:Realized Gains and Losses
 Quarter ended June 30,  Six months ended June 30, 
(in millions)2019
 2018
 2019
 2018
Gross realized gains$29
 53
 202
 74
Gross realized losses(2) (4) (5) (14)
OTTI write-downs(7) (8) (52) (18)
Net realized gains from available-for-sale debt securities$20
 41
 145
 42

 Quarter ended September 30,  Nine months ended September 30, 
(in millions)2018
 2017
 2018
 2017
Gross realized gains$65
 191
 139
 531
Gross realized losses(3) (18) (17) (102)
OTTI write-downs(5) (7) (23) (107)
Net realized gains from available-for-sale debt securities$57
 166
 99
 322


Other-Than-Temporarily Impaired Debt Securities
Table 5.8 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 the first nine monthshalf of 20182019 and 20172018.
Table 5.8:Detail of OTTI Write-downs
 Quarter ended June 30,  Six months ended June 30, 
(in millions)2019
 2018
 2019
 2018
Debt securities OTTI write-downs included in earnings:       
Securities of U.S. states and political subdivisions$4
 —
 33
 2
Mortgage-backed securities:       
Residential—
 1
 —
 2
Commercial3
 7
 17
 14
Corporate debt securities—
 —
 2
 —
Total debt securities OTTI write-downs included in earnings$7
 8
 52
 18

 Quarter ended September 30,  Nine months ended September 30, 
(in millions)2018
 2017
 2018
 2017
Debt securities OTTI write-downs included in earnings:       
Securities of U.S. states and political subdivisions$—
 1
 2
 9
Mortgage-backed securities:       
Residential—
 1
 2
 7
Commercial1
 4
 15
 70
Corporate debt securities—
 1
 —
 21
Other debt securities4
 —
 4
 —
Total debt securities OTTI write-downs included in earnings$5
 7
 23
 107


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 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 June 30,  Six months ended June 30, 
(in millions)2018
 2017
 2018
 2017
2019
 2018
 2019
 2018
OTTI on debt securities              
Recorded as part of gross realized losses:              
Credit-related OTTI$5
 6
 22
 105
$7
 8
 23
 17
Intent-to-sell OTTI—
 1
 1
 2
—
 —
 29
 1
Total recorded as part of gross realized losses5
 7
 23
 107
7
 8
 52
 18
Changes to OCI for losses (reversal of losses) in non-credit-related OTTI (1):              
Securities of U.S. states and political subdivisions—
 —
 (2) (5)(1) —
 (1) (2)
Residential mortgage-backed securities—
 (1) (1) (1)—
 —
 (1) (1)
Commercial mortgage-backed securities(5) —
 (6) (47)—
 (11) 1
 (1)
Corporate debt securities—
 —
 —
 1
Other debt securities—
 (1) —
 (1)
Total changes to OCI for non-credit-related OTTI(5) (2) (9) (53)(1) (11) (1) (4)
Total OTTI losses (reversal of losses) recorded on debt securities$—
 5
 14
 54
Total OTTI losses recorded on debt securities$6
 (3) 51
 14
(1)Represents amounts recorded to OCI for impairment of debt securities, due to factors other than credit, 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 5.10 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 5.10:Rollforward of OTTI Credit Loss
Quarter ended September 30,  Nine months ended September 30, Quarter ended June 30,  Six months ended June 30, 
(in millions)2018
 2017
 2018
 2017
2019
 2018
 2019
 2018
Credit loss recognized, beginning of period$626
 1,120
 742
 1,043
$232
 649
 562
 742
Additions:              
For securities with initial credit impairments—
 —
 —
 8
4
 —
 6
 —
For securities with previous credit impairments5
 6
 22
 97
3
 8
 17
 17
Total additions5
 6
 22
 105
7
 8
 23
 17
Reductions:              
For securities sold, matured, or intended/required to be sold(68) (96) (199) (114)(23) (30) (369) (131)
For recoveries of previous credit impairments (1)—
 (1) (2) (5)—
 (1) —
 (2)
Total reductions(68) (97) (201) (119)(23) (31) (369) (133)
Credit loss recognized, end of period$563
 1,029
 563
 1,029
$216
 626
 216
 626
(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 6: Loans and Allowance for Credit Losses (continued)


Note 6: Loans and Allowance for Credit Losses 
Table 6.1 presents total loans outstanding by portfolio segment and class of financing receivable. Outstanding balances include a total net reduction of $2.0 billion and $3.9 billion at September 30, 2018, andDecember 31, 2017, respectively, for
unearned income, net deferred loan fees or costs, and
unamortized discounts and premiums, which among other things, reflect the impactpremiums. These amounts were less than 1% of various loan sales.our total loans outstanding at June 30, 2019 and December 31, 2018.
Table 6.1:Loans Outstanding
(in millions)Sep 30,
2018
 Dec 31,
2017
Jun 30,
2019
 Dec 31,
2018
Commercial:      
Commercial and industrial$338,048
 333,125
$348,846
 350,199
Real estate mortgage120,403
 126,599
123,008
 121,014
Real estate construction23,690
 24,279
21,067
 22,496
Lease financing19,745
 19,385
19,324
 19,696
Total commercial501,886
 503,388
512,245
 513,405
Consumer:      
Real estate 1-4 family first mortgage284,273
 284,054
286,427
 285,065
Real estate 1-4 family junior lien mortgage35,330
 39,713
32,068
 34,398
Credit card37,812
 37,976
38,820
 39,025
Automobile46,075
 53,371
45,664
 45,069
Other revolving credit and installment36,924
 38,268
34,654
 36,148
Total consumer440,414
 453,382
437,633
 439,705
Total loans$942,300
 956,770
$949,878
 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 6.2 presents total commercial foreign loans outstanding by class of financing receivable.
Table 6.2:Commercial Foreign Loans Outstanding
(in millions)Jun 30,
2019
 Dec 31,
2018
Commercial foreign loans:   
Commercial and industrial$63,296
 62,564
Real estate mortgage6,801
 6,731
Real estate construction1,287
 1,011
Lease financing1,215
 1,159
Total commercial foreign loans$72,599
 71,465


Note 6: Loans and Allowance for Credit Losses (continued)
(in millions)Sep 30,
2018
 Dec 31,
2017
Commercial foreign loans:   
Commercial and industrial$61,696
 60,106
Real estate mortgage6,891
 8,033
Real estate construction726
 655
Lease financing1,187
 1,126
Total commercial foreign loans$70,500
 69,920



Loan Purchases, Sales, and Transfers
Table 6.3 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, includingand government insured/ guaranteed real estate 1-4 family first mortgage loans originated for sale because their loan activity normally does not impact the allowance for credit losses. 

Table 6.3:Loan Purchases, Sales, and Transfers
 2019  2018 
(in millions)Commercial
 Consumer
 Total
 Commercial
 Consumer
 Total
Quarter ended June 30,           
Purchases$670
 5
 675
 398
 7
 405
Sales(535) (153) (688) (294) (88) (382)
Transfers (to) from MLHFS/LHFS(89) (1,852) (1,941) (100) (72) (172)
Six months ended June 30,           
Purchases$999
 8
 1,007
 654
 7
 661
Sales(956) (332) (1,288) (754) (88) (842)
Transfers (to) from MLHFS/LHFS(92) (1,852) (1,944) (520) (1,625) (2,145)

 2018  2017 
(in millions)Commercial
 Consumer (1)
 Total
 Commercial
 Consumer (1)
 Total
Quarter ended September 30,           
Purchases$225
 4
 229
 449
 —
 449
Sales(438) (113) (551) (310) (145) (455)
Transfers (to) from MLHFS/LHFS(21) (371) (392) 374
 —
 374
Nine months ended September 30,           
Purchases$879
 11
 890
 2,418
 2
 2,420
Sales(1,192) (201) (1,393) (1,649) (291) (1,940)
Transfers (to) from MLHFS/LHFS(541) (1,996) (2,537) (284) (1) (285)
(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.
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 $92$94 billion and $85$91 billion at SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively.
We issue commercial letters of credit to assist customers in purchasing goods or services, typically for international trade. At SeptemberJune 30, 2018,2019, and December 31, 2017,2018, we had $1.1$1.0 billion and $982$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 1213 (Guarantees, Pledged Assets and 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 6.4. The table excludes the issued standby and commercial letters of credit and temporary advance arrangements described above.
Table 6.4:Unfunded Credit Commitments
(in millions)Sep 30,
2018
 Dec 31,
2017
Jun 30,
2019
 Dec 31,
2018
Commercial:      
Commercial and industrial$330,296
 326,626
$329,751
 330,492
Real estate mortgage7,042
 7,485
7,905
 6,984
Real estate construction15,198
 16,621
15,459
 16,400
Total commercial352,536
 350,732
353,115
 353,876
Consumer:      
Real estate 1-4 family first mortgage30,566
 29,876
43,427
 29,736
Real estate 1-4 family
junior lien mortgage
37,959
 38,897
37,454
 37,719
Credit card109,871
 108,465
113,306
 109,840
Other revolving credit and installment27,832
 27,541
26,676
 27,530
Total consumer206,228
 204,779
220,863
 204,825
Total unfunded
credit commitments
$558,764
 555,511
$573,978
 558,701

Note 6: Loans and Allowance for Credit Losses (continued)


Allowance for Credit Losses
Table 6.5 presents the allowance for credit losses, which consists of the allowance for loan losses and the allowance for unfunded credit commitments.
Table 6.5:Allowance for Credit Losses
Quarter ended September 30,  Nine months ended September 30, Quarter ended June 30,  Six months ended June 30, 
(in millions)2018
 2017
 2018
 2017
2019
 2018
 2019
 2018
Balance, beginning of period$11,110
 12,146
 11,960
 12,540
$10,821
 11,313
 10,707
 11,960
Provision for credit losses580
 717
 1,223
 1,877
503
 452
 1,348
 643
Interest income on certain impaired loans (1)(42) (43) (128) (137)(39) (43) (78) (86)
Loan charge-offs:              
Commercial:              
Commercial and industrial(209) (194) (507) (608)(205) (134) (381) (298)
Real estate mortgage(9) (21) (30) (34)(14) (19) (26) (21)
Real estate construction—
 —
 —
 —
—
 —
 (1) —
Lease financing(15) (11) (52) (31)(12) (20) (23) (37)
Total commercial(233) (226) (589) (673)(231) (173) (431) (356)
Consumer:              
Real estate 1-4 family first mortgage(45) (67) (141) (191)(27) (55) (70) (96)
Real estate 1-4 family junior lien mortgage(47) (70) (141) (225)(29) (47) (63) (94)
Credit card(376) (337) (1,185) (1,083)(437) (404) (874) (809)
Automobile(214) (274) (730) (741)(142) (216) (329) (516)
Other revolving credit and installment(161) (170) (505) (544)(167) (164) (329) (344)
Total consumer(843) (918) (2,702) (2,784)(802) (886) (1,665) (1,859)
Total loan charge-offs(1,076) (1,144) (3,291) (3,457)(1,033) (1,059) (2,096) (2,215)
Loan recoveries:              
Commercial:              
Commercial and industrial61
 69
 216
 234
46
 76
 89
 155
Real estate mortgage10
 24
 46
 68
10
 19
 16
 36
Real estate construction2
 15
 12
 27
2
 6
 5
 10
Lease financing8
 5
 18
 13
8
 5
 11
 10
Total commercial81
 113
 292
 342
66
 106
 121
 211
Consumer:              
Real estate 1-4 family first mortgage70
 83
 207
 216
57
 78
 112
 137
Real estate 1-4 family junior lien mortgage56
 69
 171
 205
48
 60
 91
 115
Credit card77
 60
 231
 177
88
 81
 173
 154
Automobile84
 72
 279
 246
90
 103
 186
 195
Other revolving credit and installment28
 30
 88
 94
31
 29
 65
 60
Total consumer315
 314
 976
 938
314
 351
 627
 661
Total loan recoveries396
 427
 1,268
 1,280
380
 457
 748
 872
Net loan charge-offs(680) (717) (2,023) (2,177)(653) (602) (1,348) (1,343)
Other(12) 6
 (76) 6
(29) (10) (26) (64)
Balance, end of period$10,956
 12,109
 10,956
 12,109
$10,603
 11,110
 10,603
 11,110
Components:              
Allowance for loan losses$10,021
 11,078
 10,021
 11,078
$9,692
 10,193
 9,692
 10,193
Allowance for unfunded credit commitments935
 1,031
 935
 1,031
911
 917
 911
 917
Allowance for credit losses$10,956
 12,109
 10,956
 12,109
$10,603
 11,110
 10,603
 11,110
Net loan charge-offs (annualized) as a percentage of average total loans0.29% 0.30
 0.29
 0.30
0.28% 0.26
 0.29
 0.29
Allowance for loan losses as a percentage of total loans1.06
 1.16
 1.06
 1.16
1.02
 1.08
 1.02
 1.08
Allowance for credit losses as a percentage of total loans1.16
 1.27
 1.16
 1.27
1.12
 1.18
 1.12
 1.18
(1)Certain impaired loans with an allowance calculated by discounting expected cash flows using the loan’s effective interest rate over the remaining life of the loan recognize changes in allowance attributable to the passage of time as interest income.



Note 6: Loans and Allowance for Credit Losses (continued)

Table 6.6 summarizes the activity in the allowance for credit losses by our commercial and consumer portfolio segments.
Table 6.6:Allowance Activity by Portfolio Segment
     2019
     2018
(in millions)Commercial
 Consumer
 Total
 Commercial
 Consumer
 Total
Quarter ended June 30,           
Balance, beginning of period$6,428
 4,393
 10,821
 6,708
 4,605
 11,313
Provision for credit losses46
 457
 503
 89
 363
 452
Interest income on certain impaired loans(14) (25) (39) (14) (29) (43)
            
Loan charge-offs(231) (802) (1,033) (173) (886) (1,059)
Loan recoveries66
 314
 380
 106
 351
 457
Net loan charge-offs(165) (488) (653) (67) (535) (602)
Other3
 (32) (29) (5) (5) (10)
Balance, end of period$6,298
 4,305
 10,603
 6,711
 4,399
 11,110
            
Six months ended June 30,           
Balance, beginning of period$6,417
 4,290
 10,707
 6,632
 5,328
 11,960
Provision for credit losses210
 1,138
 1,348
 258
 385
 643
Interest income on certain impaired loans(25) (53) (78) (25) (61) (86)
            
Loan charge-offs(431) (1,665) (2,096) (356) (1,859) (2,215)
Loan recoveries121
 627
 748
 211
 661
 872
Net loan charge-offs(310) (1,038) (1,348) (145) (1,198) (1,343)
Other6
 (32) (26) (9) (55) (64)
Balance, end of period$6,298
 4,305
 10,603
 6,711
 4,399
 11,110
     2018
     2017
(in millions)Commercial
 Consumer
 Total
 Commercial
 Consumer
 Total
Quarter ended September 30,           
Balance, beginning of period$6,711
 4,399
 11,110
 6,961
 5,185
 12,146
Provision (reversal of provision) for credit losses22
 558
 580
 (9) 726
 717
Interest income on certain impaired loans(12) (30) (42) (13) (30) (43)
            
Loan charge-offs(233) (843) (1,076) (226) (918) (1,144)
Loan recoveries81
 315
 396
 113
 314
 427
Net loan charge-offs(152) (528) (680) (113) (604) (717)
Other(1) (11) (12) 6
 —
 6
Balance, end of period$6,568
 4,388
 10,956
 6,832
 5,277
 12,109
            
Nine months ended September 30,           
Balance, beginning of period$6,632
 5,328
 11,960
 7,394
 5,146
 12,540
Provision (reversal of provision) for credit losses280
 943
 1,223
 (195) 2,072
 1,877
Interest income on certain impaired loans(37) (91) (128) (42) (95) (137)
            
Loan charge-offs(589) (2,702) (3,291) (673) (2,784) (3,457)
Loan recoveries292
 976
 1,268
 342
 938
 1,280
Net loan charge-offs(297) (1,726) (2,023) (331) (1,846) (2,177)
Other(10) (66) (76) 6
 —
 6
Balance, end of period$6,568
 4,388
 10,956
 6,832
 5,277
 12,109



Table 6.7 disaggregates our allowance for credit losses and recorded investment in loans by impairment methodology.
Table 6.7:Allowance by Impairment Methodology
Allowance for credit losses  Recorded investment in loans Allowance for credit losses  Recorded investment in loans 
(in millions)Commercial
 Consumer
 Total
 Commercial
 Consumer
 Total
Commercial
 Consumer
 Total
 Commercial
 Consumer
 Total
September 30, 2018           
June 30, 2019           
Collectively evaluated (1)$6,062
 3,407
 9,469
 498,353
 420,014
 918,367
$5,831
 3,436
 9,267
 508,798
 425,818
 934,616
Individually evaluated (2)499
 981
 1,480
 3,488
 13,504
 16,992
467
 869
 1,336
 3,447
 10,641
 14,088
PCI (3)7
 —
 7
 45
 6,896
 6,941
—
 —
 —
 —
 1,174
 1,174
Total$6,568
 4,388
 10,956
 501,886
 440,414
 942,300
$6,298
 4,305
 10,603
 512,245
 437,633
 949,878
December 31, 2017 
December 31, 2018 
Collectively evaluated (1)$5,927
 4,143
 10,070
 499,342
 425,919
 925,261
$5,903
 3,361
 9,264
 510,180
 421,574
 931,754
Individually evaluated (2)705
 1,185
 1,890
 3,960
 14,714
 18,674
514
 929
 1,443
 3,221
 13,126
 16,347
PCI (3)—
 —
 —
 86
 12,749
 12,835
—
 —
 —
 4
 5,005
 5,009
Total$6,632
 5,328
 11,960
 503,388
 453,382
 956,770
$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 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, 2018. See the “Purchased Credit-Impaired Loans” section in this Note for credit quality information on our PCI portfolio.March 31, 2019.

Note 6: Loans and Allowance for Credit Losses (continued)


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.
 
agencies.
Table 6.8 provides a breakdown of outstanding commercial loans by risk category. Of the $15.7 billion in criticizedCriticized commercial and industrial loans and $4.7 billion in criticized commercial real estate (CRE) loans at SeptemberJune 30, 2018, $1.62019, included $2.5 billion and $647 million, respectively, have been placed on nonaccrual status andthat have been written down to net realizable collateral value. For additional information on nonaccrual loans, see Table 6.13.


Table 6.8:Commercial Loans by Risk Category
(in millions)
Commercial
and
industrial

 
Real
estate
mortgage

 
Real
estate
construction

 
Lease
financing

 Total
June 30, 2019         
By risk category:         
Pass$334,034
 118,768
 20,883
 18,225
 491,910
Criticized14,812
 4,240
 184
 1,099
 20,335
Total commercial loans (excluding PCI)348,846
 123,008
 21,067
 19,324
 512,245
Total commercial PCI loans (carrying value)—
 —
 —
 —
 —
Total commercial loans$348,846
 123,008
 21,067
 19,324
 512,245
December 31, 2018         
By risk category:         
Pass$335,412
 116,514
 22,207
 18,671
 492,804
Criticized14,783
 4,500
 289
 1,025
 20,597
Total commercial loans (excluding PCI)350,195
 121,014
 22,496
 19,696
 513,401
Total commercial PCI loans (carrying value)4
 —
 —
 —
 4
Total commercial loans$350,199
 121,014
 22,496
 19,696
 513,405

(in millions)
Commercial
and
industrial

 
Real
estate
mortgage

 
Real
estate
construction

 
Lease
financing

 Total
September 30, 2018         
By risk category:         
Pass$322,264
 115,970
 23,419
 18,751
 480,404
Criticized15,739
 4,433
 271
 994
 21,437
Total commercial loans (excluding PCI)338,003
 120,403
 23,690
 19,745
 501,841
Total commercial PCI loans (carrying value)45
 —
 —
 —
 45
Total commercial loans$338,048
 120,403
 23,690
 19,745
 501,886
December 31, 2017         
By risk category:         
Pass$316,431
 122,312
 23,981
 18,162
 480,886
Criticized16,608
 4,287
 298
 1,223
 22,416
Total commercial loans (excluding PCI)333,039
 126,599
 24,279
 19,385
 503,302
Total commercial PCI loans (carrying value)86
 —
 —
 —
 86
Total commercial loans$333,125
 126,599
 24,279
 19,385
 503,388


Table 6.9 provides past due information for commercial loans, which we monitor as part of our credit risk management practices.
Table 6.9:Commercial Loans by Delinquency Status
(in millions)
Commercial
and
industrial

 
Real
estate
mortgage

 
Real
estate
construction

 
Lease
financing

 Total
June 30, 2019         
By delinquency status:         
Current-29 days past due (DPD) and still accruing$346,688
 122,101
 20,854
 19,101
 508,744
30-89 DPD and still accruing507
 146
 177
 160
 990
90+ DPD and still accruing17
 24
 —
 —
 41
Nonaccrual loans1,634
 737
 36
 63
 2,470
Total commercial loans (excluding PCI)348,846
 123,008
 21,067
 19,324
 512,245
Total commercial PCI loans (carrying value)—
 —
 —
 —
 —
Total commercial loans$348,846
 123,008
 21,067
 19,324
 512,245
December 31, 2018         
By delinquency status:         
Current-29 DPD and still accruing$348,158
 120,176
 22,411
 19,443
 510,188
30-89 DPD and still accruing508
 207
 53
 163
 931
90+ DPD and still accruing43
 51
 —
 —
 94
Nonaccrual loans1,486
 580
 32
 90
 2,188
Total commercial loans (excluding PCI)350,195
 121,014
 22,496
 19,696
 513,401
Total commercial PCI loans (carrying value)4
 —
 —
 —
 4
Total commercial loans$350,199
 121,014
 22,496
 19,696
 513,405


Note 6: Loans and Allowance for Credit Losses (continued)
(in millions)
Commercial
and
industrial

 
Real
estate
mortgage

 
Real
estate
construction

 
Lease
financing

 Total
September 30, 2018         
By delinquency status:         
Current-29 days past due (DPD) and still accruing$336,004
 119,445
 23,506
 19,494
 498,449
30-89 DPD and still accruing402
 299
 140
 155
 996
90+ DPD and still accruing42
 56
 —
 —
 98
Nonaccrual loans1,555
 603
 44
 96
 2,298
Total commercial loans (excluding PCI)338,003
 120,403
 23,690
 19,745
 501,841
Total commercial PCI loans (carrying value)45
 —
 —
 —
 45
Total commercial loans$338,048
 120,403
 23,690
 19,745
 501,886
December 31, 2017         
By delinquency status:         
Current-29 DPD and still accruing$330,319
 125,642
 24,107
 19,148
 499,216
30-89 DPD and still accruing795
 306
 135
 161
 1,397
90+ DPD and still accruing26
 23
 —
 —
 49
Nonaccrual loans1,899
 628
 37
 76
 2,640
Total commercial loans (excluding PCI)333,039
 126,599
 24,279
 19,385
 503,302
Total commercial PCI loans (carrying value)86
 —
 —
 —
 86
Total commercial loans$333,125
 126,599
 24,279
 19,385
 503,388



CONSUMER CREDIT QUALITY INDICATORSWe 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 6.10 provides the outstanding balances of our consumer portfolio by delinquency status.
Table 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, 2018           
June 30, 2019           
By delinquency status:                      
Current-29 DPD$261,118
 34,551
 36,871
 44,661
 36,590
 413,791
271,144
 31,374
 37,925
 44,554
 34,383
 419,380
30-59 DPD1,498
 253
 284
 1,005
 119
 3,159
1,311
 250
 258
 808
 97
 2,724
60-89 DPD531
 126
 197
 300
 94
 1,248
436
 115
 188
 232
 70
 1,041
90-119 DPD232
 73
 173
 108
 74
 660
196
 63
 152
 69
 68
 548
120-179 DPD239
 82
 286
 1
 24
 632
177
 70
 297
 1
 22
 567
180+ DPD891
 227
 1
 —
 23
 1,142
630
 181
 —
 —
 14
 825
Government insured/guaranteed loans (1)12,886
 —
 —
 —
 —
 12,886
11,172
 —
 —
 —
 —
 11,172
Loans held at fair value202
 —
 —
 —
 —
 202
Total consumer loans (excluding PCI)277,395
 35,312
 37,812
 46,075
 36,924
 433,518
285,268
 32,053
 38,820
 45,664
 34,654
 436,459
Total consumer PCI loans (carrying value)6,878
 18
 —
 —
 —
 6,896
Total consumer PCI loans (carrying value) (2)1,159
 15
 —
 —
 —
 1,174
Total consumer loans$284,273
 35,330
 37,812
 46,075
 36,924
 440,414
286,427
 32,068
 38,820
 45,664
 34,654
 437,633
December 31, 2017           
December 31, 2018           
By delinquency status:                      
Current-29 DPD$251,786
 38,746
 36,996
 51,445
 37,885
 416,858
263,881
 33,644
 38,008
 43,604
 35,794
 414,931
30-59 DPD1,893
 336
 287
 1,385
 155
 4,056
1,411
 247
 292
 1,040
 140
 3,130
60-89 DPD742
 163
 201
 392
 93
 1,591
549
 126
 212
 314
 87
 1,288
90-119 DPD369
 103
 192
 146
 80
 890
257
 74
 192
 109
 80
 712
120-179 DPD308
 95
 298
 3
 30
 734
225
 77
 320
 2
 27
 651
180+ DPD1,091
 243
 2
 —
 25
 1,361
822
 213
 1
 —
 20
 1,056
Government insured/guaranteed loans (1)15,143
 —
 —
 —
 —
 15,143
12,688
 —
 —
 —
 —
 12,688
Loans held at fair value244
 —
 —
 —
 —
 244
Total consumer loans (excluding PCI)271,332
 39,686
 37,976
 53,371
 38,268
 440,633
280,077
 34,381
 39,025
 45,069
 36,148
 434,700
Total consumer PCI loans (carrying value)12,722
 27
 —
 —
 —
 12,749
Total consumer PCI loans (carrying value) (2)4,988
 17
 —
 —
 —
 5,005
Total consumer loans$284,054
 39,713
 37,976
 53,371
 38,268
 453,382
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 $7.9$6.5 billion at SeptemberJune 30, 2018,2019, compared with $10.5$7.7 billion at December 31, 2017.
2018.
(2)23% of the adjusted unpaid principal balance for consumer PCI loans are 30+ DPD at June 30, 2019, compared with 18% at December 31, 2018.

Of the $2.4$1.9 billion of consumer loans not government insured/guaranteed that are 90 days or more past due at SeptemberJune 30, 2018, $8352019, $739 million was accruing, compared with $3.0$2.4 billion past due and $1.0 billion$885 million accruing at December 31, 2017.2018.
Real estate 1-4 family first mortgage loans 180 days or more past due totaled $891$630 million, or 0.3%0.2% of total first mortgages (excluding PCI), at SeptemberJune 30, 2018,2019, compared with $1.1 billion,$822 million, or 0.4%0.3%, at December 31, 2017.2018.
Note 6: Loans and Allowance for Credit Losses (continued)


Table 6.11 provides a breakdown of our consumer portfolio by FICO. MostSubstantially all 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
 
strong collateral and other borrower attributes. Substantially all loans not requiring a FICO score are securities-based loans originated through retail brokerage, and totaled $9.0$8.6 billion at SeptemberJune 30, 2018,2019, and $8.5$8.9 billion at December 31, 2017.2018.
Table 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

 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, 2018           
June 30, 2019           
By FICO:                      
< 600$4,363
 1,485
 3,476
 7,237
��753
 17,314
3,539
 1,297
 3,064
 6,442
 707
 15,049
600-6393,017
 1,044
 3,005
 4,546
 785
 12,397
2,559
 897
 2,670
 4,498
 677
 11,301
640-6795,840
 1,968
 5,504
 6,383
 1,749
 21,444
5,276
 1,720
 6,313
 6,386
 1,757
 21,452
680-71913,813
 4,073
 7,553
 7,524
 3,246
 36,209
12,898
 3,620
 9,415
 7,475
 3,283
 36,691
720-75927,330
 5,487
 8,223
 6,991
 4,728
 52,759
27,807
 4,947
 8,022
 7,051
 4,164
 51,991
760-79957,101
 6,494
 6,470
 6,008
 5,863
 81,936
61,007
 6,001
 5,323
 6,240
 4,999
 83,570
800+147,812
 13,401
 3,040
 7,252
 8,276
 179,781
157,049
 12,346
 3,879
 7,464
 8,011
 188,749
No FICO available5,233
 1,360
 541
 134
 2,568
 9,836
3,759
 1,225
 134
 108
 2,434
 7,660
FICO not required—
 —
 —
 —
 8,956
 8,956
—
 —
 —
 —
 8,622
 8,622
Government insured/guaranteed loans (1)12,886
 —
 —
 —
 —
 12,886
11,374
 —
 —
 —
 —
 11,374
Total consumer loans (excluding PCI)277,395
 35,312
 37,812
 46,075
 36,924
 433,518
285,268
 32,053
 38,820
 45,664
 34,654
 436,459
Total consumer PCI loans (carrying value)(2)6,878
 18
 —
 —
 —
 6,896
1,159
 15
 —
 —
 —
 1,174
Total consumer loans$284,273
 35,330
 37,812
 46,075
 36,924
 440,414
286,427
 32,068
 38,820
 45,664
 34,654
 437,633
December 31, 2017          

December 31, 2018          

By FICO:          
          
< 600$5,145
 1,768
 3,525
 8,858
 863
 20,159
4,273
 1,454
 3,292
 7,071
 697
 16,787
600-6393,487
 1,253
 3,101
 5,615
 904
 14,360
2,974
 994
 2,777
 4,431
 725
 11,901
640-6796,789
 2,387
 5,690
 7,696
 1,959
 24,521
5,810
 1,898
 6,464
 6,225
 1,822
 22,219
680-71914,977
 4,797
 7,628
 8,825
 3,582
 39,809
13,568
 3,908
 9,445
 7,354
 3,384
 37,659
720-75927,926
 6,246
 8,097
 7,806
 5,089
 55,164
27,258
 5,323
 7,949
 6,853
 4,395
 51,778
760-79955,590
 7,323
 6,372
 6,468
 6,257
 82,010
57,193
 6,315
 5,227
 5,947
 5,322
 80,004
800+136,729
 15,144
 2,994
 7,845
 8,455
 171,167
151,465
 13,190
 3,794
 7,099
 8,411
 183,959
No FICO available5,546
 768
 569
 258
 2,648
 9,789
4,604
 1,299
 77
 89
 2,507
 8,576
FICO not required—
 —
 —
 —
 8,511
 8,511
—
 —
 —
 —
 8,885
 8,885
Government insured/guaranteed loans (1)15,143
 —
 —
 —
 —
 15,143
12,932
 —
 —
 —
 —
 12,932
Total consumer loans (excluding PCI)271,332
 39,686
 37,976
 53,371
 38,268
 440,633
280,077
 34,381
 39,025
 45,069
 36,148
 434,700
Total consumer PCI loans (carrying value)(2)12,722
 27
 —
 —
 —
 12,749
4,988
 17
 —
 —
 —
 5,005
Total consumer loans$284,054
 39,713
 37,976
 53,371
 38,268
 453,382
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.
(2)44% of the adjusted unpaid principal balance for consumer PCI loans have FICO scores less than 680 and 16% where no FICO is available to us at June 30, 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 6.12 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 6.12:Consumer Loans by LTV/CLTV
September 30, 2018  December 31, 2017 June 30, 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%$147,186
 15,949
 163,135
 133,902
 16,301
 150,203
$145,884
 15,004
 160,888
 147,666
 15,753
 163,419
60.01-80%102,473
 11,344
 113,817
 104,639
 12,918
 117,557
110,919
 10,452
 121,371
 104,477
 11,183
 115,660
80.01-100%11,983
 5,175
 17,158
 13,924
 6,580
 20,504
14,763
 4,387
 19,150
 12,372
 4,874
 17,246
100.01-120% (1)1,353
 1,774
 3,127
 1,868
 2,427
 4,295
1,052
 1,350
 2,402
 1,211
 1,596
 2,807
> 120% (1)536
 649
 1,185
 783
 1,008
 1,791
412
 480
 892
 484
 578
 1,062
No LTV/CLTV available978
 421
 1,399
 1,073
 452
 1,525
864
 380
 1,244
 935
 397
 1,332
Government insured/guaranteed loans (2)12,886
 —
 12,886
 15,143
 —
 15,143
11,374
 —
 11,374
 12,932
 —
 12,932
Total consumer loans (excluding PCI)277,395
 35,312
 312,707
 271,332
 39,686
 311,018
285,268
 32,053
 317,321
 280,077
 34,381
 314,458
Total consumer PCI loans (carrying value)(3)6,878
 18
 6,896
 12,722
 27
 12,749
1,159
 15
 1,174
 4,988
 17
 5,005
Total consumer loans$284,273
 35,330
 319,603
 284,054
 39,713
 323,767
$286,427
 32,068
 318,495
 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)12% of the adjusted unpaid principal balance for consumer PCI loans have LTV/CLTV amounts greater than 80% at June 30, 2019, compared with 10% at December 31, 2018.
 
NONACCRUAL LOANSTable 6.13 provides loans on nonaccrual status. PCI loans are excluded from this table because they continue to earn interest fromaccretable yield, independent of performance in accordance with their contractual terms.
Table 6.13:Nonaccrual Loans
(in millions)Sep 30,
2018
 Dec 31,
2017
Jun 30,
2019
 Dec 31,
2018
Commercial:      
Commercial and industrial$1,555
 1,899
$1,634
 1,486
Real estate mortgage603
 628
737
 580
Real estate construction44
 37
36
 32
Lease financing96
 76
63
 90
Total commercial2,298
 2,640
2,470
 2,188
Consumer:      
Real estate 1-4 family first mortgage (1)3,605
 4,122
2,425
 3,183
Real estate 1-4 family junior lien mortgage984
 1,086
868
 945
Automobile118
 130
115
 130
Other revolving credit and installment48
 58
44
 50
Total consumer4,755
 5,396
3,452
 4,308
Total nonaccrual loans
(excluding PCI)
$7,053
 8,036
$5,922
 6,496
(1)
Includes MLHFS of $132 million and $136 million at September 30, 2018, and December 31, 2017, respectively.

 
 
LOANS IN PROCESS OF FORECLOSUREOur recorded investment in consumer mortgage loans collateralized by residential real estate property that are in process of foreclosure was $4.9$3.7 billion and $6.3$4.6 billion at SeptemberJune 30, 20182019, and December 31, 2017,2018, respectively, which included $3.5$2.9 billion and $4.0$3.2 billion, respectively, of loans that are government insured/guaranteed. Under Bureau ofthe Consumer Financial Protection Bureau guidelines, we do not commence the foreclosure process on consumer real estate loans until after the loan is 120 days 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 6: Loans and Allowance for Credit Losses (continued)


LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUINGCertain 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 $567$156 million at SeptemberJune 30, 2018,2019, and $1.4 billion$370 million at December 31, 2017,2018, 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 accruingbecause they continue to earn interest from accretable yield, independent of performance in accordance with their contractual terms.
Table 6.14 shows non-PCI loans 90 days or more past due and still accruing by class for loans not government insured/guaranteed.
Table 6.14:Loans 90 Days or More Past Due and Still Accruing (1)
(in millions)Sep 30, 2018
 Dec 31, 2017
Jun 30, 2019
 Dec 31, 2018
Total (excluding PCI):$9,209
 11,997
$7,258
 8,704
Less: FHA insured/VA guaranteed (2)(1)8,276
 10,934
6,478
 7,725
Total, not government insured/guaranteed$933
 1,063
$780
 979
By segment and class, not government insured/guaranteed:      
Commercial:      
Commercial and industrial$42
 26
$17
 43
Real estate mortgage56
 23
24
 51
Real estate construction—
 —
Total commercial98
 49
41
 94
Consumer:      
Real estate 1-4 family first mortgage (2)129
 219
Real estate 1-4 family junior lien mortgage (2)32
 60
Real estate 1-4 family first mortgage108
 124
Real estate 1-4 family junior lien mortgage27
 32
Credit card460
 492
449
 513
Automobile108
 143
63
 114
Other revolving credit and installment106
 100
92
 102
Total consumer835
 1,014
739
 885
Total, not government insured/guaranteed$933
 1,063
$780
 979
(1)Represents loans whose repayments are predominantly insured by the FHA or guaranteed by the VA.
(2)Includes mortgage loans held for sale 90 days or more past due and still accruing.




Note 6: Loans and Allowance for Credit Losses (continued)

IMPAIRED LOANS Table 6.15 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 6.15 includes trial modifications that totaled $163$127 million at SeptemberJune 30, 2018,2019, and $194$149 million at December 31, 2017.2018.
For additional information on our impaired loans and allowance for credit losses, see Note 1 (Summary of Significant Accounting Policies) in our 20172018 Form 10-K.
Table 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, 2018       
June 30, 2019       
Commercial:              
Commercial and industrial$3,102
 2,200
 1,806
 321
$2,963
 2,169
 1,991
 303
Real estate mortgage1,311
 1,107
 1,064
 142
1,297
 1,142
 1,078
 134
Real estate construction111
 63
 48
 10
82
 54
 53
 10
Lease financing148
 118
 118
 26
91
 82
 82
 20
Total commercial4,672
 3,488
 3,036
 499
4,433
 3,447
 3,204
 467
Consumer:              
Real estate 1-4 family first mortgage(2)12,719
 11,087
 4,747
 571
8,803
 8,307
 3,782
 451
Real estate 1-4 family junior lien mortgage1,950
 1,748
 1,216
 198
1,781
 1,603
 1,040
 174
Credit card431
 431
 431
 167
487
 486
 486
 194
Automobile157
 91
 45
 8
144
 85
 45
 9
Other revolving credit and installment155
 147
 129
 37
166
 160
 142
 41
Total consumer (2)(3)15,412
 13,504
 6,568
 981
11,381
 10,641
 5,495
 869
Total impaired loans (excluding PCI)$20,084
 16,992
 9,604
 1,480
$15,814
 14,088
 8,699
 1,336
December 31, 2017       
December 31, 2018       
Commercial:              
Commercial and industrial$3,577
 2,568
 2,310
 462
$3,057
 2,030
 1,730
 319
Real estate mortgage1,502
 1,239
 1,207
 211
1,228
 1,032
 1,009
 154
Real estate construction95
 54
 45
 9
74
 47
 46
 9
Lease financing132
 99
 89
 23
146
 112
 112
 32
Total commercial5,306
 3,960
 3,651
 705
4,505
 3,221
 2,897
 514
Consumer:              
Real estate 1-4 family first mortgage14,020
 12,225
 6,060
 770
12,309
 10,738
 4,420
 525
Real estate 1-4 family junior lien mortgage2,135
 1,918
 1,421
 245
1,886
 1,694
 1,133
 183
Credit card356
 356
 356
 136
449
 449
 449
 172
Automobile157
 87
 34
 5
153
 89
 43
 8
Other revolving credit and installment136
 128
 117
 29
162
 156
 136
 41
Total consumer (2)(3)16,804
 14,714
 7,988
 1,185
14,959
 13,126
 6,181
 929
Total impaired loans (excluding PCI)$22,110
 18,674
 11,639
 1,890
$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)
Impaired loans includes reduction of $1.7 billion reclassified to MLHFS.
(3)Includes the recorded investment of $1.3$1.2 billion at SeptemberJune 30, 20182019, and $1.4$1.3 billion at December 31, 2017,2018, 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 6: Loans and Allowance for Credit Losses (continued)


Commitments to lend additional funds on loans whose terms have been modified in a TDRamounted to $543$478 million and $579$513 million at SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively.
 
Table 6.16 provides the average recorded investment in impaired loans and the amount of interest income recognized on impaired loans by portfolio segment and class.
Table 6.16:Average Recorded Investment in Impaired Loans
Quarter ended September 30,  Nine months ended September 30, Quarter ended June 30,  Six months ended June 30, 
2018  2017  2018  2017 2019  2018  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

 
Average
recorded
investment

 
Recognized
interest
income

 
Average
recorded
investment

 
Recognized
interest
income

Commercial:                              
Commercial and industrial$2,325
 59
 3,208
 22
 2,316
 138
 3,460
 91
$2,285
 50
 2,212
 43
 2,249
 73
 2,318
 79
Real estate mortgage1,172
 16
 1,293
 19
 1,225
 66
 1,351
 70
1,116
 16
 1,299
 22
 1,079
 31
 1,266
 50
Real estate construction66
 2
 58
 —
 62
 4
 69
 3
55
 —
 62
 1
 53
 2
 60
 2
Lease financing117
 —
 105
 1
 127
 1
 110
 1
88
 —
 138
 1
 98
 —
 132
 1
Total commercial3,680
 77
 4,664
 42
 3,730
 209
 4,990
 165
3,544
 66
 3,711
 67
 3,479
 106
 3,776
 132
Consumer:                              
Real estate 1-4 family first mortgage11,318
 165
 13,044
 180
 11,718
 504
 13,594
 555
9,398
 128
 11,772
 167
 9,950
 281
 11,921
 339
Real estate 1-4 family junior lien mortgage1,775
 29
 2,009
 30
 1,832
 87
 2,072
 92
1,630
 26
 1,832
 29
 1,654
 52
 1,861
 58
Credit card421
 14
 326
 9
 396
 36
 314
 26
480
 16
 398
 12
 470
 31
 384
 22
Automobile87
 2
 86
 2
 85
 8
 84
 8
86
 3
 82
 3
 87
 7
 83
 6
Other revolving credit and installment145
 2
 123
 2
 139
 7
 114
 6
158
 3
 140
 3
 157
 7
 136
 5
Total consumer13,746
 212
 15,588
 223
 14,170
 642
 16,178
 687
11,752
 176
 14,224
 214
 12,318
 378
 14,385
 430
Total impaired loans (excluding PCI)$17,426
 289
 20,252
 265
 17,900
 851
 21,168
 852
$15,296
 242
 17,935
 281
 15,797
 484
 18,161
 562
Interest income:                              
Cash basis of accounting  $92
   64
   257
   219
  $76
   84
   135
   165
Other (1)  197
   201
   594
   633
  166
   197
   349
   397
Total interest income  $289
   265
   851
   852
  $242
   281
   484
   562
(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 $16.2$12.6 billion and $17.8$15.5 billion at SeptemberJune 30, 20182019 and December 31, 2017,2018, 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 6.17 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 6.17:TDR Modifications
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)

Quarter ended September 30, 2018             
Quarter ended June 30, 2019             
Commercial:                          
Commercial and industrial$—
 3
 802
 805
 3
 1.30% $3
$—
 34
 180
 214
 26
 0.34% $34
Real estate mortgage—
 20
 78
 98
 —
 0.98
 20
—
 24
 95
 119
 —
 0.49
 24
Real estate construction—
 —
 15
 15
 —
 —
 —
13
 —
 13
 26
 —
 —
 —
Lease financing—
 —
 22
 22
 —
 —
 —
—
 —
 —
 —
 —
 —
 —
Total commercial—
 23
 917
 940
 3
 1.02
 23
13
 58
 288
 359
 26
 0.40
 58
Consumer:                          
Real estate 1-4 family first mortgage58
 4
 225
 287
 1
 2.27
 30
28
 2
 181
 211
 —
 1.83
 19
Real estate 1-4 family junior lien mortgage2
 11
 31
 44
 —
 2.09
 13
1
 11
 21
 33
 1
 2.39
 11
Credit card—
 84
 —
 84
 —
 12.78
 84
—
 89
 —
 89
 —
 13.35
 89
Automobile7
 6
 17
 30
 9
 5.95
 6
2
 3
 14
 19
 8
 4.13
 3
Other revolving credit and installment—
 12
 4
 16
 —
 8.25
 12
—
 12
 1
 13
 —
 7.67
 12
Trial modifications (6)—
 —
 (20) (20) —
 —
 —
—
 —
 5
 5
 —
 —
 —
Total consumer67
 117
 257
 441
 10
 8.98
 145
31
 117
 222
 370
 9
 10.06
 134
Total$67
 140
 1,174
 1,381
 13
 7.88% $168
$44
 175
 510
 729
 35
 7.17% $192
Quarter ended September 30, 2017             
Quarter ended June 30, 2018             
Commercial:                          
Commercial and industrial$—
 19
 481
 500
 60
 0.34% $18
$3
 5
 449
 457
 14
 0.58% $5
Real estate mortgage1
 12
 98
 111
 7
 1.58
 13
—
 11
 121
 132
 —
 0.67
 11
Real estate construction—
 —
 1
 1
 —
 1.85
 —
—
 —
 1
 1
 —
 —
 —
Lease financing—
 —
 23
 23
 —
 —
 —
—
 —
 —
 —
 —
 —
 —
Total commercial1
 31
 603
 635
 67
 0.85
 31
3
 16
 571
 590
 14
 0.64
 16
Consumer:                          
Real estate 1-4 family first mortgage48
 15
 272
 335
 2
 2.62
 41
64
 8
 286
 358
 2
 2.26
 31
Real estate 1-4 family junior lien mortgage3
 23
 20
 46
 4
 3.97
 26
2
 12
 30
 44
 2
 1.66
 13
Credit card—
 74
 —
 74
 —
 12.00
 74
—
 83
 —
 83
 —
 13.19
 83
Automobile1
 4
 20
 25
 12
 5.53
 4
2
 4
 11
 17
 5
 6.49
 4
Other revolving credit and installment—
 11
 1
 12
 —
 7.72
 12
—
 10
 2
 12
 —
 7.95
 10
Trial modifications (6)—
 —
 (10) (10) —
 —
 —
—
 —
 17
 17
 —
 —
 —
Total consumer52
 127
 303
 482
 18
 7.68
 157
68
 117
 346
 531
 9
 9.17
 141
Total$53
 158
 906
 1,117
 85
 6.56% $188
$71
 133
 917
 1,121
 23
 8.30% $157


Note 6: 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, 2018             
Six months ended June 30, 2019             
Commercial:                          
Commercial and industrial$3
 17
 1,739
 1,759
 23
 0.95% $17
$—
 45
 734
 779
 39
 0.42% $45
Real estate mortgage—
 37
 297
 334
 —
 0.94
 37
—
 26
 168
 194
 —
 0.54
 26
Real estate construction—
 —
 19
 19
 —
 —
 —
13
 —
 16
 29
 —
 —
 —
Lease financing—
 —
 61
 61
 —
 —
 —
—
 —
 —
 —
 —
 —
 —
Total commercial3
 54
 2,116
 2,173
 23
 0.94
 54
13
 71
 918
 1,002
 39
 0.47
 71
Consumer:                          
Real estate 1-4 family first mortgage168
 22
 817
 1,007
 4
 2.31
 96
63
 5
 475
 543
 1
 1.89
 38
Real estate 1-4 family junior lien mortgage5
 31
 89
 125
 3
 1.96
 35
3
 22
 46
 71
 2
 2.34
 23
Credit card—
 253
 —
 253
 —
 12.42
 253
—
 186
 —
 186
 —
 13.27
 186
Automobile10
 14
 42
 66
 23
 6.25
 14
4
 4
 26
 34
 14
 4.55
 4
Other revolving credit and installment—
 37
 8
 45
 —
 8.04
 37
—
 23
 4
 27
 —
 7.63
 23
Trial modifications (6)—
 —
 12
 12
 —
 —
 —
—
 —
 5
 5
 —
 —
 —
Total consumer183
 357
 968
 1,508
 30
 8.77
 435
70
 240
 556
 866
 17
 10.17
 274
Total$186
 411
 3,084
 3,681
 53
 7.90% $489
$83
 311
 1,474
 1,868
 56
 8.18% $345
Nine months ended September 30, 2017             
Six months ended June 30, 2018             
Commercial:                          
Commercial and industrial$17
 38
 2,323
 2,378
 154
 0.61% $37
$3
 14
 937
 954
 20
 0.88% $14
Real estate mortgage5
 51
 416
 472
 20
 1.31
 52
—
 17
 219
 236
 —
 0.89
 17
Real estate construction—
 1
 24
 25
 —
 0.90
 1
—
 —
 4
 4
 —
 —
 —
Lease financing—
 —
 37
 37
 —
 —
 —
—
 —
 39
 39
 —
 —
 —
Total commercial22
 90
 2,800
 2,912
 174
 1.02
 90
3
 31
 1,199
 1,233
 20
 0.88
 31
Consumer:                          
Real estate 1-4 family first mortgage196
 132
 797
 1,125
 14
 2.59
 227
110
 18
 592
 720
 3
 2.33
 66
Real estate 1-4 family junior lien mortgage23
 70
 64
 157
 13
 3.26
 80
3
 20
 58
 81
 3
 1.89
 22
Credit card—
 188
 —
 188
 —
 12.21
 188
—
 169
 —
 169
 —
 12.24
 169
Automobile2
 11
 52
 65
 30
 5.92
 11
3
 8
 25
 36
 14
 6.48
 8
Other revolving credit and installment—
 38
 5
 43
 1
 7.41
 38
—
 25
 4
 29
 —
 7.95
 25
Trial modifications (6)—
 —
 (54) (54) —
 —
 —
—
 —
 32
 32
 —
 —
 —
Total consumer221
 439
 864
 1,524
 58
 6.41
 544
116
 240
 711
 1,067
 20
 8.67
 290
Total$243
 529
 3,664
 4,436
 232
 5.64% $634
$119
 271
 1,910
 2,300
 40
 7.92% $321
(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 $545$323 million and $394$381 million for the quarters ended SeptemberJune 30, 20182019 and 20172018, respectively, and $1.4 billion$683 million and $1.7 billion,$884 million for the first nine monthshalf of 2019 and 2018, and 2017 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 $5$3 million and $4$14 million for the quarters ended SeptemberJune 30, 20182019 and 20172018, and $22$6 million and $23$17 million for the first nine monthshalf of 2019 and 2018, and 2017 respectively.
(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.

Note 6: Loans and Allowance for Credit Losses (continued)

Table 6.18 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 6.18:Defaulted TDRs
 Recorded investment of defaults 
 Quarter ended June 30,  Six months ended June 30, 
(in millions)2019
 2018
 2019
 2018
Commercial:       
Commercial and industrial$25
 7
 48
 93
Real estate mortgage5
 14
 33
 40
Real estate construction—
 16
 3
 16
Total commercial30
 37
 84
 149
Consumer:       
Real estate 1-4 family first mortgage13
 15
 24
 33
Real estate 1-4 family junior lien mortgage4
 2
 9
 7
Credit card21
 24
 42
 37
Automobile4
 4
 7
 7
Other revolving credit and installment1
 1
 3
 2
Total consumer43
 46
 85
 86
Total$73
 83
 169
 235
 Recorded investment of defaults 
 Quarter ended September 30,  Nine months ended September 30, 
(in millions)2018
 2017
 2018
 2017
Commercial:       
Commercial and industrial$42
 14
 135
 106
Real estate mortgage35
 16
 75
 47
Real estate construction—
 4
 16
 4
Total commercial77
 34
 226
 157
Consumer:       
Real estate 1-4 family first mortgage11
 32
 44
 83
Real estate 1-4 family junior lien mortgage3
 5
 10
 14
Credit card20
 20
 57
 52
Automobile4
 4
 11
 11
Other revolving credit and installment2
 1
 4
 3
Total consumer40
 62
 126
 163
Total$117
 96
 352
 320



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 6.19 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 6.19:PCI Loans
(in millions)Sep 30,
2018
 Dec 31,
2017
Jun 30,
2019
 Dec 31,
2018
Total commercial$45
 86
$—
 4
Consumer:      
Real estate 1-4 family first mortgage6,878
 12,722
1,159
 4,988
Real estate 1-4 family junior lien mortgage18
 27
15
 17
Total consumer6,896
 12,749
1,174
 5,005
Total PCI loans (carrying value)$6,941
 12,835
$1,174
 5,009
Total PCI loans (unpaid principal balance)$10,126
 18,975
$1,952
 7,348



Note 6: 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 6.20. Changes during third quarter 2018 reflect the impact of the sale of $1.7 billion of Pick-a-Pay PCI loans.
Table 6.20:Change in Accretable Yield
(in millions)Quarter
ended
Sep 30,
2018
 Nine months
ended
Sep 30,
2018
 2009-2017
Balance, beginning of period$5,733
 8,887
 10,447
Change in accretable yield due to acquisitions—
 —
 161
Accretion into interest income (1)(279) (892) (16,983)
Accretion into noninterest income due to sales (2)(638) (1,760) (801)
Reclassification from nonaccretable difference for loans with improving credit-related cash flows 3
 402
 11,597
Changes in expected cash flows that do not affect nonaccretable difference (3)(410) (2,228) 4,466
Balance, end of period $4,409
 4,409
 8,887
(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 6.21 provides a breakdown of commercial PCI loans by risk category.
Table 6.21:Commercial PCI Loans by Risk Category
(in millions)Total
September 30, 2018 
By risk category: 
Pass$2
Criticized43
Total commercial PCI loans$45
December 31, 2017 
By risk category: 
Pass$8
Criticized78
Total commercial PCI loans$86


Table 6.22 provides past due information for commercial PCI loans.
Table 6.22:Commercial PCI Loans by Delinquency Status
(in millions)Total
September 30, 2018 
By delinquency status: 
Current-29 DPD and still accruing$44
30-89 DPD and still accruing1
90+ DPD and still accruing—
Total commercial PCI loans$45
December 31, 2017 
By delinquency status: 
Current-29 DPD and still accruing$86
30-89 DPD and still accruing—
90+ DPD and still accruing—
Total commercial PCI loans$86
CONSUMER PCI CREDIT QUALITY INDICATORS Our consumer PCI loans were aggregated into several pools of loans at acquisition. Below, we have provided credit quality indicators based on the unpaid principal balance (adjusted for write-downs) of the individual loans included in the pool, but we have not
allocated the remaining purchase accounting adjustments, which were established at a pool level. Table 6.23 provides the delinquency status of consumer PCI loans.
Table 6.23:Consumer PCI Loans by Delinquency Status
 September 30, 2018  December 31, 2017 
(in millions)
Real estate
1-4 family
first
mortgage

 
Real estate
1-4 family
junior lien
mortgage

 Total
 
Real estate
1-4 family
first
mortgage

 
Real estate
1-4 family
junior lien
mortgage

 Total
By delinquency status:           
 Current-29 DPD and still accruing$7,322
 127
 7,449
 13,127
 138
 13,265
30-59 DPD and still accruing776
 5
 781
 1,317
 8
 1,325
60-89 DPD and still accruing409
 3
 412
 622
 3
 625
90-119 DPD and still accruing161
 1
 162
 293
 2
 295
120-179 DPD and still accruing91
 1
 92
 219
 2
 221
180+ DPD and still accruing518
 3
 521
 1,310
 4
 1,314
Total consumer PCI loans (adjusted unpaid principal balance)$9,277
 140
 9,417
 16,888
 157
 17,045
Total consumer PCI loans (carrying value)$6,878
 18
 6,896
 12,722
 27
 12,749
Note 6: Loans and Allowance for Credit Losses (continued)

Table 6.24 provides FICO scores forconsumer PCI loans.

Table 6.24:Consumer PCI Loans by FICO
 September 30, 2018  December 31, 2017 
(in millions)
Real estate
1-4 family
first
mortgage

 
Real estate
1-4 family
junior lien
mortgage

 Total
 
Real estate
1-4 family
first
mortgage

 
Real estate
1-4 family
junior lien
mortgage

 Total
By FICO:           
< 600$2,070
 29
 2,099
 4,014
 37
 4,051
600-6391,026
 18
 1,044
 2,086
 20
 2,106
640-6791,222
 21
 1,243
 2,393
 24
 2,417
680-7191,266
 24
 1,290
 2,242
 29
 2,271
720-7591,091
 22
 1,113
 1,779
 23
 1,802
760-799654
 11
 665
 933
 12
 945
800+426
 6
 432
 468
 6
 474
No FICO available1,522
 9
 1,531
 2,973
 6
 2,979
Total consumer PCI loans (adjusted unpaid principal balance)$9,277
 140
 9,417
 16,888
 157
 17,045
Total consumer PCI loans (carrying value)$6,878
 18
 6,896
 12,722
 27
 12,749


Table 6.25 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 6.25:Consumer PCI Loans by LTV/CLTV
 September 30, 2018  December 31, 2017 
(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%$5,281
 47
 5,328
 8,010
 45
 8,055
60.01-80%3,013
 54
 3,067
 6,510
 63
 6,573
80.01-100%822
 28
 850
 1,975
 35
 2,010
100.01-120% (1)133
 8
 141
 319
 10
 329
> 120% (1)28
 1
 29
 73
 3
 76
No LTV/CLTV available—
 2
 2
 1
 1
 2
Total consumer PCI loans (adjusted unpaid principal balance)$9,277
 140
 9,417
 16,888
 157
 17,045
Total consumer PCI loans (carrying value)$6,878
 18
 6,896
 12,722
 27
 12,749
(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 7: Leasing Activity
The information below provides a summary of our leasing activities as a lessor and lessee.

As a Lessor
Table 7.1 presents the composition of our leasing revenue and Table 7.2 provides the components of our investment in lease financing.

Table 7.1:Leasing Revenue
(in millions)Quarter ended June 30, 2019
Six months ended June 30, 2019
Interest income on lease financing$224
447
Other lease revenues:  
Variable revenues on lease financing26
50
Fixed revenues on operating leases357
730
Variable revenues on operating leases14
32
Other lease-related revenues (1)27
55
Lease income424
867
Total leasing revenue$648
1,314
(1)Predominantly includes net gains on disposition of assets leased under operating leases or lease financings.

Table 7.2:Investment in Lease Financing
(in millions)Jun 30, 2019
Lease receivables$17,735
Residual asset values4,244
Unearned income(2,655)
Lease financing$19,324


Our net investment in financing and sales-type leases includes $2.1 billion of leveraged leases at June 30, 2019.
As shown in Table 9.1, included in Note 9 (Other Assets), we had $8.7 billion in operating lease assets at June 30, 2019, which was net of $3.2 billion of accumulated depreciation. Depreciation expense for the lease assets was $219 million and $448 million in the second quarter and first half of 2019, respectively.
Table 7.3 presents future lease payments owed by our lessees.

Table 7.3:Maturities of Lease Receivables
 June 30, 2019 
(in millions)Direct financing and sales- type leases
Operating leases
Remainder of 2019$3,036
535
20205,167
880
20214,004
591
20222,127
407
20231,219
269
Thereafter2,182
605
Total lease receivables$17,735
3,287


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)Jun 30, 2019
ROU assets$4,776
Lease liabilities5,302


Table 7.5 provides the composition of our lease costs, which are predominantly included in net occupancy expense.

Table 7.5:Lease Costs
(in millions)Quarter ended June 30, 2019
Six months ended June 30, 2019
Fixed lease expense - operating leases$291
588
Variable lease expense80
153
Other (1)(9)(17)
Total lease costs$362
724
(1)Predominantly includes sublease rental income 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 June 30, 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
20201,056
2021880
2022713
2023577
Thereafter1,654
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)June 30, 2019
Remainder of 2019$566
20201,127
2021947
2022792
2023654
Thereafter2,054
Total lease payments6,140
Less: imputed interest838
Total operating lease liabilities$5,302
Weighted average remaining lease term (in years)7.3
Weighted average discount rate3.2%


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 June 30, 2019, we had additional operating leases commitments of $72 million, predominantly for real estate, which leases had not yet commenced. These leases will commence by 2020 and have lease terms of 1 year to 11 years.


Note 8: Equity Securities
Table 7.18.1 provides a summary of our equity securities by business purpose and accounting model,method, including equity securities with readily determinable fair values (marketable) and those without readily determinable fair values (nonmarketable).
Table 7.1:8.1: Equity Securities
Sep 30,
 Dec 31,
Jun 30,
 Dec 31,
(in millions)2018
 2017
2019
 2018
Held for trading at fair value:      
Marketable equity securities$26,138
 30,004
$23,327
 19,449
Not held for trading:      
Fair value:      
Marketable equity securities (1)5,705
 4,356
5,379
 4,513
Nonmarketable equity securities (2)6,479
 4,867
7,244
 5,594
Total equity securities at fair value12,184
 9,223
12,623
 10,107
Equity method:      
LIHTC (3)10,453
 10,269
Low-income housing tax credit investments11,162
 10,999
Private equity3,838
 3,839
3,352
 3,832
Tax-advantaged renewable energy1,967
 1,950
3,051
 3,073
New market tax credit and other259
 294
294
 311
Total equity method16,517
 16,352
17,859

18,215
Other:      
Federal bank stock and other at cost (4)5,467
 5,828
Federal Reserve Bank stock and other at cost (2)5,622
 5,643
Private equity (5)(3)1,449
 1,090
2,106
 1,734
Total equity securities not held for trading35,617
 32,493
38,210
 35,699
Total equity securities$61,755
 62,497
$61,537
 55,148
(1)
Includes $3.6$3.5 billion and $3.7$3.2 billion at SeptemberJune 30, 2018,2019, and December 31, 2017,2018, respectively, related to securities held as economic hedges of our deferred compensation plan obligations.
(2)
Includes $6.3$5.6 billion and $4.9$5.6 billion at SeptemberJune 30, 2018,2019 and December 31, 2017,2018, respectively, related to investments for which we elected the fair value option. See Note 15 (Fair Value of Assets and Liabilities) for additional information.
(3)Represents low-income housing tax credit investments.
(4)
Includes $5.4 billion at both September 30, 2018, and December 31, 2017, related to investments in Federal Reserve Bank and Federal Home Loan Bank stock.
(5)(3)Represents nonmarketable equity securities accounted 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 which are held as part of our customer accommodation trading activities, are carried at fair value with changes in fair value reflected in net gains from trading activities. MoreFor more information on these activities, can be found insee Note 4 (Trading Activities) to Financial Statements in this Report..


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 VALUEEquity securities accounted for using the fair value method are recorded at fair value with changes in fair value reflected in net gains from equity securities. Marketable equity securities held for purposes other than trading primarily consist of exchange-tradedexchange-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. NonmarketableWe account for certain nonmarketable equity securities represent securities that do not have a readily determinable fair value for which we have elected to account for usingunder the fair value method. Substantiallymethod, and substantially all of these nonmarketable equity securities are economically hedged with equity derivatives.


EQUITY METHODUnder the equity method of accounting, we carry the security at cost adjusted for our share of the investee’s earnings less any impairment write-downs. Our equity method investments consist of tax credit and private equity securities,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 isare 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 the thirdsecond quarter and first nine monthshalf of 2018,2019, we recognized pre-tax losses of $283$298 million and $850$571 million, respectively, related to our LIHTC investments, compared with $227$287 million and $684$567 million, respectively, for the same periods a year ago. These losses were recognized in other noninterest income. We also recognized total tax benefits of $352$376 million and $1.1 billion$746 million in the thirdsecond quarter and first nine monthshalf of 2018,2019, respectively, which included tax credits recorded to income taxes of $282$303 million and $853$605 million for the same periods, respectively. In the thirdsecond quarter and first nine monthshalf of 2017,2018, total tax benefits were $360$352 million and $1.1 billion,$711 million, respectively, which included tax credits of $275$281 million and $796$571 million for the same periods, respectively. 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 $3.4$3.9 billion at SeptemberJune 30, 2018,2019, and $3.6 billion at December 31, 2017. Substantially all of this2018. This liability is expected to be paid over the next three years. This liabilityfor 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 method or measurement alternative. Cost method securities are held at cost less impairment. If impaired, the carrying value is written down to fair value. The measurement alternative is similar to the cost method of accounting, except the carrying value is adjusted up or down to fair value through net gains from equity securities upon the occurrence of orderly observable transactions in the same or similar security of the same issuer. Impairment write-downs are recorded on these securities when the carrying value of these securities exceeds the fair value of the investment or we identify possible indicators of impairment.method.
Note 7:8: Equity Securities (continued)


Realized Gains and Losses Not Held for Trading
Table 7.28.2 provides a summary of the net gains and losses from equity securities not held for equity securities.trading. Gains and losses for securities held for trading are reported in net gains from trading activities.
 


Table 7.2:8.2:Net Gains (Losses) from Equity Securities Not Held for Trading
Quarter ended September 30,  Nine months ended September 30, Quarter ended June 30,  Six months ended June 30, 
(in millions)2018
2017
 2018
 2017
2019
 2018
 2019
 2018
Net gains (losses) from equity securities carried at fair value:             
Marketable equity securities$103
231
 139
 701
$264
 28
 641
 36
Nonmarketable equity securities822
514
 1,525
 1,208
732
 594
 1,668
 703
Total equity securities carried at fair value925
745
 1,664
 1,909
996
 622
 2,309
 739
Net gains (losses) from nonmarketable equity securities not carried at fair value:             
Impairment write-downs(45)(83) (302) (181)(31) (237) (67) (257)
Net unrealized gains related to measurement alternative observable transactions51
—
 314
 —
146
 35
 331
 263
Net realized gains on sale204
175
 1,101
 565
169
 399
 406
 897
All other—
16
 34
 78
—
 16
 —
 34
Total nonmarketable equity securities not carried at fair value210
108
 1,147
 462
284
 213
 670
 937
Net losses from economic hedge derivatives (1)(719)(490) (1,317) (1,164)(658) (540) (1,543) (598)
Total net gains from equity securities$416
363
 1,494
 1,207
$622
 295
 1,436
 1,078
(1)Includes net gains (losses) on derivatives not designated as hedging instruments.
Measurement Alternative
Table 7.38.3 provides additional information about the impairment write-downs and observable price adjustments related to
 
related to nonmarketable equity securities accounted for under the measurement alternative. Gains and losses related to these adjustments are also included in Table 7.2.8.2.
Table 7.3:8.3:Net Gains (Losses) from Measurement Alternative Equity Securities     
Quarter ended September 30,
 Nine months ended September 30,
Quarter ended June 30,  Six months ended June 30, 
(in millions)2018
 2018
2019
 2018
 2019
 2018
Net gains (losses) recognized in earnings during the period:          
Gross unrealized gains due to observable price changes$68
 339
$157
 43
 342
 271
Gross unrealized losses due to observable price changes(17) (25)(11) (8) (11) (8)
Impairment write-downs(6) (18)(11) (5) (33) (12)
Realized net gains from sale186
 277
102
 16
 125
 91
Total net gains recognized during the period$231
 573
$237
 46
 423
 342

TheTable 8.4 presents cumulative gross unrealized gains and (losses) due to observable price changes as of September 30, 2018, were $312 million and $(25) million, respectively. Cumulative impairment losses as of September 30, 2018, were $18 million. These cumulative amounts represent carrying value adjustments to nonmarketable equity securities accounted for under the measurement alternative that were recognized onstill held as of the balance sheet as of September 30, 2018.date.


Table 8.4:Measurement Alternative Cumulative Gains (Losses)
 Jun 30,
 Dec 31,
(in millions)2019
 2018
Cumulative gains (losses):   
Gross unrealized gains due to observable price changes$733
 415
Gross unrealized losses due to observable price changes(36) (25)
Impairment write-downs(52) (33)




Note 8:9: Other Assets
Table 8.19.1 presents the components of other assets.
Table 8.1:9.1:Other Assets
(in millions)Sep 30,
2018
 Dec 31,
2017
Jun 30,
2019
 Dec 31,
2018
Corporate/bank-owned life insurance$19,677
 19,549
$19,912
 19,751
Accounts receivable (1)32,965
 39,127
26,213
 34,281
Interest receivable5,986
 5,688
6,177
 6,084
Core deposit intangibles192
 769
Customer relationship and other amortized intangibles620
 841
479
 545
Foreclosed assets:      
Residential real estate:      
Government insured/guaranteed (1)87
 120
Government insured/guaranteed68
 88
Non-government insured/guaranteed230
 252
185
 229
Non-residential real estate205
 270
Operating lease assets9,329
 9,666
Other124
 134
Operating lease assets (lessor)8,663
 9,036
Operating lease ROU assets (lessee) (2)4,776
 —
Due from customers on acceptances257
 177
272
 258
Other8,700
 13,785
9,489
 9,444
Total other assets$78,248
 90,244
$76,358
 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 20172018 Form 10-K.
(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).


Note 9:10: Securitizations and Variable Interest Entities (continued)


Note 9:10: Securitizations and Variable Interest Entities
Involvement with Special 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 20172018 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 9.110.1 provides the classifications of assets and liabilities in our balance sheet for our transactions with VIEs.
Table 9.1:10.1: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, 2018     
Cash$—
 112
 —
 112
June 30, 2019     
Cash and due from banks$—
 11
 —
 11
Interest-earning deposits with banks—
 8
 —
 8
—
 8
 —
 8
Debt securities:              
Trading debt securities1,973
 —
 200
 2,173
2,072
 60
 200
 2,332
Available-for-sale debt securities (1)2,806
 —
 338
 3,144
1,879
 —
 68
 1,947
Held-to-maturity debt securities499
 —
 —
 499
560
 —
 —
 560
Loans1,504
 12,749
 96
 14,349
1,214
 13,602
 87
 14,903
Mortgage servicing rights15,930
 —
 —
 15,930
12,354
 —
 —
 12,354
Derivative assets43
 —
 —
 43
143
 —
 —
 143
Equity securities10,572
 61
 —
 10,633
11,211
 121
 —
 11,332
Other assets—
 210
 7
 217
—
 208
 2
 210
Total assets33,327
 13,140
 641
 47,108
29,433
 14,010
 357
 43,800
Short-term borrowings—
 —
 512
 512
—
 —
 263
 263
Derivative liabilities92
 —
(2)—
 92
1
 1
(2)—
 2
Accrued expenses and other liabilities
242
 154
(2)9
 405
198
 201
(2)2
 401
Long-term debt
3,428
 871
(2)97
 4,396
3,857
 748
(2)85
 4,690
Total liabilities3,762
 1,025
 618
 5,405
4,056
 950
 350
 5,356
Noncontrolling interests—
 37
 —
 37
—
 41
 —
 41
Net assets$29,565
 12,078
 23
 41,666
$25,377
 13,019
 7
 38,403
December 31, 2017       
Cash$—
 116
 —
 116
December 31, 2018       
Cash and due from banks$—
 139
 —
 139
Interest-earning deposits with banks—
 371
 —
 371
—
 8
 —
 8
Debt securities:              
Trading debt securities1,305
 —
 201
 1,506
2,110
 45
 200
 2,355
Available-for-sale debt securities (1)3,288
 —
 358
 3,646
2,686
 —
 317
 3,003
Held-to-maturity debt securities485
 —
 —
 485
510
 —
 —
 510
Loans4,274
 12,482
 110
 16,866
1,433
 13,564
 94
 15,091
Mortgage servicing rights13,628
 —
 —
 13,628
14,761
 —
 —
 14,761
Derivative assets44
 —
 —
 44
53
 —
 —
 53
Equity securities10,740
 306
 —
 11,046
11,041
 85
 —
 11,126
Other assets—
 342
 6
 348
—
 221
 6
 227
Total assets33,764
 13,617
 675
 48,056
32,594
 14,062
 617
 47,273
Short-term borrowings—
 —
 522
 522
—
 —
 493
 493
Derivative liabilities106
 5
(2)—
 111
26
 —
(2)—
 26
Accrued expenses and other liabilities244
 132
(2)10
 386
231
 191
(2)8
 430
Long-term debt3,590
 1,479
(2)111
 5,180
3,870
 816
(2)93
 4,779
Total liabilities3,940
 1,616
 643
 6,199
4,127
 1,007
 594
 5,728
Noncontrolling interests—
 283
 —
 283
—
 34
 —
 34
Net assets$29,824
 11,718
 32
 41,574
$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.


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 debt and equity securities, loans, MSRs, derivative assets and liabilities, other assets, other liabilities, and long-term debt, as appropriate.
Table 9.210.2 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 9.2:10.2: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, 2018           
June 30, 2019           
Residential mortgage loan securitizations:                      
Conforming (2)$1,174,883
 2,291
 14,998
 —
 (185) 17,104
$1,132,124
 2,367
 11,420
 —
 (136) 13,651
Other/nonconforming11,158
 458
 60
 —
 —
 518
9,438
 37
 57
 —
 —
 94
Commercial mortgage securitizations151,503
 2,463
 872
 (92) (37) 3,206
154,690
 2,041
 877
 85
 (42) 2,961
Collateralized debt obligations:                      
Debt securities681
 —
 —
 5
 (20) (15)637
 —
 —
 4
 (20) (16)
Loans (3)—
 —
 —
 —
 —
 —
Asset-based finance structures445
 330
 —
 —
 —
 330
244
 143
 —
 —
 —
 143
Tax credit structures31,547
 11,511
 —
 —
 (3,428) 8,083
36,888
 12,232
 —
 —
 (3,857) 8,375
Collateralized loan obligations2
 —
 —
 —
 —
 —
176
 1
 —
 —
 —
 1
Investment funds221
 51
 —
 —
 —
 51
210
 49
 —
 —
 —
 49
Other (4)1,738
 250
 —
 38
 —
 288
Other (3)1,508
 66
 —
 53
 —
 119
Total$1,372,178
 17,354
 15,930
 (49) (3,670) 29,565
$1,335,915
 16,936
 12,354
 142
 (4,055) 25,377
  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  $2,291
 14,998
 —
 1,146
 18,435
  $2,367
 11,420
 —
 902
 14,689
Other/nonconforming  458
 60
 —
 —
 518
  37
 57
 —
 —
 94
Commercial mortgage securitizations  2,463
 872
 92
 10,954
 14,381
  2,041
 877
 85
 12,007
 15,010
Collateralized debt obligations:                      
Debt securities  —
 —
 5
 20
 25
  —
 —
 4
 20
 24
Loans (3)  —
 —
 —
 —
 —
Asset-based finance structures  330
 —
 —
 71
 401
  143
 —
 —
 71
 214
Tax credit structures  11,511
 —
 —
 1,140
 12,651
  12,232
 —
 —
 1,373
 13,605
Collateralized loan obligations  —
 —
 —
 —
 —
  1
 —
 —
 —
 1
Investment funds  51
 —
 —
 —
 51
  49
 —
 —
 —
 49
Other (4)  250
 —
 55
 157
 462
Other (3)  66
 —
 54
 159
 279
Total  $17,354
 15,930
 152
 13,488
 46,924
  $16,936
 12,354
 143
 14,532
 43,965
(continued on following page)
Note 9:10: 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, 2017           
December 31, 2018           
Residential mortgage loan securitizations:                      
Conforming (2)$1,169,410
 2,100
 12,665
 —
 (190) 14,575
$1,172,833
 2,377
 13,811
 —
 (171) 16,017
Other/nonconforming14,175
 598
 73
 —
 —
 671
10,596
 453
 57
 —
 —
 510
Commercial mortgage securitizations144,650
 2,198
 890
 28
 (34) 3,082
153,350
 2,409
 893
 (22) (40) 3,240
Collateralized debt obligations:                      
Debt securities1,031
 —
 —
 5
 (20) (15)659
 —
 —
 5
 (20) (15)
Loans (3)1,481
 1,443
 —
 —
 —
 1,443
Asset-based finance structures2,333
 1,867
 —
 —
 —
 1,867
304
 205
 —
 —
 —
 205
Tax credit structures31,852
 11,258
 —
 —
 (3,590) 7,668
35,185
 12,087
 —
 —
 (3,870) 8,217
Collateralized loan obligations23
 1
 —
 —
 —
 1
2
 —
 —
 —
 —
 —
Investment funds225
 50
 —
 —
 —
 50
185
 42
 —
 —
 —
 42
Other (4)2,257
 577
 —
 (95) —
 482
Other (3)1,688
 207
 —
 44
 —
 251
Total$1,367,437
 20,092
 13,628
 (62) (3,834) 29,824
$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  $2,100
 12,665
 —
 1,137
 15,902
  $2,377
 13,811
 —
 1,183
 17,371
Other/nonconforming  598
 73
 —
 —
 671
  453
 57
 —
 —
 510
Commercial mortgage securitizations  2,198
 890
 42
 10,202
 13,332
  2,409
 893
 28
 11,563
 14,893
Collateralized debt obligations:                      
Debt securities  —
 —
 5
 20
 25
  —
 —
 5
 20
 25
Loans (3)  1,443
 —
 —
 —
 1,443
Asset-based finance structures  1,867
 —
 —
 71
 1,938
  205
 —
 —
 71
 276
Tax credit structures  11,258
 —
 —
 1,175
 12,433
  12,087
 —
 —
 1,420
 13,507
Collateralized loan obligations  1
 —
 —
 —
 1
  —
 —
 —
 —
 —
Investment funds  50
 —
 —
 —
 50
  42
 —
 —
 —
 42
Other (4)  577
 —
 120
 157
 854
Other (3)  207
 —
 45
 158
 410
Total  $20,092
 13,628
 167
 12,762
 46,649
  $17,780
 14,761
 78
 14,415
 47,034
(1)
Includes total equity interests of $10.6$11.2 billion and $10.7$11.0 billion at SeptemberJune 30, 2018,2019, and December 31, 2017,2018, respectively. Also includes debt interests in the form of both loans and securities. Excludes certain debt securities held related to loans serviced for FNMA, FHLMC and GNMA.
(2)
Excludes assets and related liabilities with a recorded carrying value on our balance sheet of $1.0$551 million and $1.2 billion at June 30, 2019, and $2.2 billion at September 30, 2018, and December 31, 2017,2018, 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 invested in senior tranches from a diversified pool of U.S. asset securitizations, of which all were current and 100% were rated as investment grade by the primary rating agencies at December 31, 2017. These senior loans were accounted for at amortized cost and were subject to the Company’s allowance and credit charge-off policies. The securitization was terminated in first quarter 2018.
(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 9.2,10.2, “Total VIE assets”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 20172018 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 thirdsecond quarter and first nine monthshalf of 20182019 was $10 million and $3520 million, respectively, compared with $12 million and $39$25 million, respectively, in the same periods of 2017.2018.


OTHER TRANSACTIONS WITH VIEs  Other VIEs include certain entities that issue auction rate securities (ARS) which are debt instruments with long-term maturities, that re-price more frequently, and preferred equities with no maturity. At September 30, 2018, we held $43 million of ARS issued by VIEs compared with $400 million at December 31, 2017. 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.

TRUST PREFERRED SECURITIESVIEs 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, 2018, and December 31, 2017, we reported the debt securities issued to the VIEs as long-term junior subordinated debt with a carrying value of $1.9$2.1 billion and $2.0 billion at June 30, 2019 and December 31, 2018, respectively, and the preferred
equity securities issued to the VIEs as preferred stock with a carrying value of $2.5 billion at both dates. These amountsVIEs are in addition to the involvements in these VIEsnot included in the preceding table.

Loan Sales and Securitization Activity
We periodically transfer consumer and CRE loans and other types of financial assets in securitization and whole loan sale

transactions. We typically retain the servicing rights from these sales and may continue to hold other beneficial interests in the transferred financial assets. We may also provide liquidity to investors in the beneficial interests and credit enhancements in the form of standby letters of credit. Through these transfers we may be exposed to liability under limited amounts of recourse as
well as standard representations and warranties we make to purchasers and issuers. Table 9.310.3 presents the cash flows for our transfers accounted for as sales.sales in which we have continuing involvement with the transferred financial assets.
Table 9.3:10.3:Cash Flows From Sales and Securitization Activity
2018  2017 Mortgage loans 
(in millions)
Mortgage
loans

 
Other
financial
assets

 
Mortgage
loans

 
Other
financial
assets

2019
 2018
Quarter ended September 30,       
Quarter ended June 30,   
Proceeds from securitizations and whole loan sales$53,792
 —
 61,756
 —
$39,697
 51,990
Fees from servicing rights retained812
 —
 826
 —
786
 830
Cash flows from other interests held (1)221
 —
 408
 —
133
 168
Repurchases of assets/loss reimbursements (2):          
Non-agency securitizations and whole loan transactions2
 —
 5
 —
1
 1
Agency securitizations (3)17
 —
 20
 —
27
 19
Servicing advances, net of repayments(24) —
 (90) —
(54) (7)
Nine months ended September 30,       
Six months ended June 30,   
Proceeds from securitizations and whole loan sales$156,369
 —
 172,837
 25
$76,204
 102,577
Fees from servicing rights retained2,487
 —
 2,520
 —
1,566
 1,675
Cash flows from other interests held (1)574
 1
 1,883
 —
244
 353
Repurchases of assets/loss reimbursements (2):          
Non-agency securitizations and whole loan transactions4
 —
 12
 —
1
 2
Agency securitizations (3)69
 —
 66
 —
44
 52
Servicing advances, net of repayments(67) —
 (252) —
(93) (43)
(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. We also received $1 million in both the second quarter and first half of 2018 related to other financial assets.
(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. ThirdSecond quarter and first nine monthshalf of 20182019 exclude $1.5$1.3 billion and $6.2$3.2 billion,, respectively, in delinquent insured/guaranteed loans that we service and have exercised our option to purchase out of GNMA pools, compared with $2.1$1.8 billion and $6.0$4.7 billion,, respectively, in the same periods of 2017.2018. These loans are predominantly insured by the FHA or guaranteed by the VA.


In the thirdsecond quarter and first nine monthshalf of 2018, 2019, we recognized net gains of $690$119 million and $1.9 billion,180 million, respectively, from transfers accounted for as sales of financial assets, in which we have continuing involvement with the transferred assets, compared with $91$54 million and $616$112 million, respectively, in the same periods of 2017.2018. Net gains recognized in the second quarter and first half of 2018 were revised from the amounts previously reported to exclude transfers for which we do not have continuing involvement. These net gains predominantly relate to whole loan sales, commercial mortgage securitizations, and residential mortgage securitizations where the loans were not already carried at fair value.
Sales with continuing involvement during the thirdsecond quarter and first nine monthshalf of 2019 and 2018 and 2017 largelylargely 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 thirdsecond quarter and first nine monthshalf of 2018,2019, we transferred $49.6$36.7 billion and $144.6$70.8 billion, respectively, in fair value of residential mortgages to unconsolidated VIEs and third-party investors and recorded the
transfers as sales, compared with $57.8$47.7 billion and $163.0$95.0 billion, respectively, in the same periods of 2017.2018. 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 monthshalf of 2018,2019, we recorded a $1.5 billion$707 million servicing asset, measured at fair value using a Level 3 measurement technique, securities of $2.6$3.4 billion, classified as Level 2, and a $12$8 million liability for repurchase losses which reflects management’s estimate of probable losses related to various representations and warranties for the loans
transferred, initially measured at fair value. In the first nine monthshalf of 2017,2018, we recorded a $1.5 billion$988 million servicing asset, securities of $2.2$1.8 billion, and a $20$7 million liability.


Note 9: Securitizations and Variable Interest Entities (continued)

Table 9.410.4 presents the key weighted-average assumptions we used to measure residential mortgage servicing rights at the date of securitization.


Table 9.4:10.4:Residential Mortgage Servicing Rights
Residential mortgage
servicing rights
 
Residential mortgage
servicing rights
 
2018
 2017
2019
 2018
Quarter ended September 30,   
Quarter ended June 30,   
Prepayment speed (1)11.2% 12.1
13.5% 10.7
Discount rate7.6
 6.9
7.5
 7.4
Cost to service ($ per loan) (2)$128
 122
$121
 146
Nine months ended September 30,   
Six months ended June 30,   
Prepayment speed (1)10.5% 11.7
13.5% 10.1
Discount rate7.4
 6.9
7.7
 7.4
Cost to service ($ per loan) (2)$130
 135
$109
 132
(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 thirdsecond quarter and first nine monthshalf of 2018,2019, we transferred $4.1 $3.4 billion and $11.6$6.1 billion, respectively, in carrying value of commercial mortgages to unconsolidated VIEs and third-party investors and recorded the transfers as sales, compared
Note 10: Securitizations and Variable Interest Entities (continued)

with $4.6$4.4 billion and $11.2$7.5 billion, respectively, in the same periods of 2017.2018. These transfers resulted in gains of $67$74 million and $196$121 million in the thirdsecond quarter and first nine monthshalf of 2018,2019, respectively, because the loans were carried at lower of cost or fair value (LOCOM),LOCOM, compared with gains of $89$60 million and $265$129 million in the same periods of 2017.2018. In connection with these transfers, in the first nine monthshalf of 2018,2019, we recorded a servicing asset of $106$59 million, initially measured at fair value using a Level 3 measurement technique, and securities of $47 million, classified as Level 2.no securities. In the first nine monthshalf of 2017,2018, we recorded a servicing asset of $123$73 million and securities of $65$208 million.



Retained Interests from Unconsolidated VIEs
Table 9.510.5 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 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 9.5:10.5:Retained Interests from Unconsolidated VIEs
  Other interests held   Other interests held 
Residential
mortgage
servicing
rights (1)

 
Interest-only
strips

 Commercial (2) 
Residential
mortgage
servicing
rights (1)

 
Interest-only
strips

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

 
Senior
bonds

 
Subordinated
bonds

 
Senior
bonds

Fair value of interests held at September 30, 2018$15,980
 17
 677
 270
Fair value of interests held at June 30, 2019$12,096
 14
 706
 302
Expected weighted-average life (in years)6.9
 3.8
 6.8
 5.3
5.6
 3.4
 7.2
 5.3
Key economic assumptions:              
Prepayment speed assumption (3)(2)9.0% 16.8
    12.2% 18.8
    
Decrease in fair value from:              
10% adverse change$572
 1
    $526
 1
    
25% adverse change1,361
 1
    1,239
 1
    
Discount rate assumption7.2% 14.7
 4.1
 3.8
7.4% 13.9
 3.5
 2.8
Decrease in fair value from:              
100 basis point increase$727
 —
 37
 12
$499
 —
 41
 14
200 basis point increase1,386
 1
 71
 23
954
 —
 79
 26
Cost to service assumption ($ per loan)129
      104
      
Decrease in fair value from:              
10% adverse change442
      283
      
25% adverse change1,100
      707
      
Credit loss assumption    4.9% —
    4.4% —
Decrease in fair value from:              
10% higher losses    $2
 —
    $2
 —
25% higher losses    5
 —
    5
 —
Fair value of interests held at December 31, 2017$13,625
 19
 596
 468
Fair value of interests held at December 31, 2018$14,649
 16
 668
 309
Expected weighted-average life (in years)6.2
 3.3
 6.7
 5.2
6.5
 3.6
 7.0
 5.7
Key economic assumptions:              
Prepayment speed assumption (3)(2)10.5% 20.0
    9.9% 17.7
    
Decrease in fair value from:              
10% adverse change$565
 1
    $530
 1
    
25% adverse change1,337
 2
    1,301
 1
    
Discount rate assumption6.9% 14.8
 4.1
 3.1
8.1% 14.5
 4.3
 3.7
Decrease in fair value from:              
100 basis point increase$652
 —
 32
 20
$615
 —
 37
 14
200 basis point increase1,246
 1
 61
 39
1,176
 1
 72
 28
Cost to service assumption ($ per loan)143
      106
      
Decrease in fair value from:              
10% adverse change467
      316
      
25% adverse change1,169
      787
      
Credit loss assumption    1.8% —
    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.
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 $2.4$1.9 billion and $2.0$2.3 billion at SeptemberJune 30, 2018,2019, and December 31, 2017,2018, 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. Similarly, prepayment speed assumptions do not significantly impact the value of the commercial mortgage securitization bonds. Additionally, for our commercial MSR portfolio, we are typically master/primary servicer, but not the special servicer, who is separately
responsible for the servicing and workout of delinquent and foreclosed loans. It is the special

servicer, similar to our role as servicer of residential mortgage loans, who is affected by higher servicing and foreclosure costs due to an increase in delinquent and foreclosed loans. Accordingly, prepayment speeds and costs to service are not key assumptions for commercial MSRs as they do not significantly impact the valuation. The primary economic driver impacting the fair value of our commercial MSRs is forward interest rates, which are derived from market observable yield curves used to price capital markets instruments. Market interest rates significantly affect interest earned on custodial deposit balances. The sensitivity of the current fair value to an immediate adverse 25% change in the assumption about interest
Note 9: Securitizations and Variable Interest Entities (continued)

earned on deposit balances at SeptemberJune 30, 2018,2019, and December 31, 2017,2018, results in a decrease in fair value of $347$231 million and $278$320 million, respectively. See Note 1011 (Mortgage Banking Activities) for further information on our commercial MSRs.
The sensitivities in the preceding paragraph 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 9.610.6 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 9.6:10.6: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)  Six months ended Jun 30, 
(in millions)Sep 30, 2018
 Dec 31, 2017
 Sep 30, 2018
 Dec 31, 2017
 2018
 2017
Jun 30, 2019
 Dec 31, 2018
 Jun 30, 2019
 Dec 31, 2018
 2019
 2018
Commercial:                      
Real estate mortgage$102,384
 100,875
 1,997
 2,839
 244
 718
$107,239
 105,173
 955
 1,008
 89
 151
Total commercial102,384
 100,875
 1,997
 2,839
 244
 718
107,239
 105,173
 955
 1,008
 89
 151
Consumer:                      
Real estate 1-4 family first mortgage1,110,568
 1,126,208
 9,863
 13,393
 368
 546
1,045,840
 1,097,128
 7,650
 8,947
 110
 250
Total consumer1,110,568
 1,126,208
 9,863
 13,393
 368
 546
1,045,840
 1,097,128
 7,650
 8,947
 110
 250
Total off-balance sheet sold or securitized loans (2)$1,212,952
 1,227,083
 11,860
 16,232
 612
 1,264
$1,153,079
 1,202,301
 8,605
 9,955
 199
 401
(1)
Includes $1.3 billion$583 million and $1.2 billion$675 million of commercial foreclosed assets and $656$507 million and $879$582 million of consumer foreclosed assets at SeptemberJune 30, 2018,2019, and December 31, 2017,2018, respectively.
(2)
At SeptemberJune 30, 2018,2019, and December 31, 2017,2018, the table includes total loans of $1.1$1.1 trillion at both dates, delinquent loans of $6.6$5.7 billion and $9.1$6.4 billion,, and foreclosed assets of $455$364 million and $619$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.

Note 10: Securitizations and Variable Interest Entities (continued)

Transactions with Consolidated VIEs and Secured Borrowings
Table 9.710.7 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 9.7:10.7:Transactions with Consolidated VIEs and Secured Borrowings
   Carrying value 
(in millions)
Total VIE
assets

 Assets
 Liabilities
 
Noncontrolling
interests

 Net assets
June 30, 2019         
Secured borrowings:         
Municipal tender option bond securitizations$263
 270
 (265) —
 5
Residential mortgage securitizations87
 87
 (85) —
 2
Total secured borrowings350
 357
 (350) —
 7
Consolidated VIEs:         
Commercial and industrial loans and leases7,742
 7,728
 (490) (13) 7,225
Nonconforming residential mortgage loan securitizations1,475
 1,288
 (452) —
 836
Commercial real estate loans4,794
 4,794
 —
 —
 4,794
Investment funds194
 194
 (6) (24) 164
Other6
 6
 (2) (4) —
Total consolidated VIEs14,211
 14,010
 (950) (41) 13,019
Total secured borrowings and consolidated VIEs$14,561
 14,367
 (1,300) (41) 13,026
December 31, 2018         
Secured borrowings:         
Municipal tender option bond securitizations$627
 523
 (501) —
 22
Residential mortgage securitizations95
 94
 (93) —
 1
Total secured borrowings722
 617
 (594) —
 23
Consolidated VIEs:         
Commercial and industrial loans and leases8,215
 8,204
 (477) (14) 7,713
Nonconforming residential mortgage loan securitizations1,947
 1,732
 (521) —
 1,211
Commercial real estate loans3,957
 3,957
 —
 —
 3,957
Investment funds155
 155
 (5) (15) 135
Other14
 14
 (4) (5) 5
Total consolidated VIEs14,288
 14,062
 (1,007) (34) 13,021
Total secured borrowings and consolidated VIEs$15,010
 14,679
 (1,601) (34) 13,044
   Carrying value 
(in millions)
Total VIE
assets

 Assets
 Liabilities
 
Noncontrolling
interests

 Net assets
September 30, 2018         
Secured borrowings:         
Municipal tender option bond securitizations$647
 545
 (521) —
 24
Residential mortgage securitizations99
 96
 (97) —
 (1)
Total secured borrowings746
 641
 (618) —
 23
Consolidated VIEs:         
Commercial and industrial loans and leases7,571
 7,546
 (447) (13) 7,086
Nonconforming residential mortgage loan securitizations2,127
 1,873
 (576) —
 1,297
Commercial real estate loans3,648
 3,648
 —
 —
 3,648
Structured asset finance—
 —
 —
 —
 —
Investment funds61
 61
 (1) (18) 42
Other12
 12
 (1) (6) 5
Total consolidated VIEs13,419
 13,140
 (1,025) (37) 12,078
Total secured borrowings and consolidated VIEs$14,165
 13,781
 (1,643) (37) 12,101
December 31, 2017         
Secured borrowings:         
Municipal tender option bond securitizations$658
 565
 (532) —
 33
Residential mortgage securitizations113
 110
 (111) —
 (1)
Total secured borrowings771
 675
 (643) —
 32
Consolidated VIEs:         
Commercial and industrial loans and leases9,116
 8,626
 (915) (29) 7,682
Nonconforming residential mortgage loan securitizations2,515
 2,212
 (694) —
 1,518
Commercial real estate loans2,378
 2,378
 —
 —
 2,378
Structured asset finance10
 6
 (4) —
 2
Investment funds305
 305
 (2) (230) 73
Other100
 90
 (1) (24) 65
Total consolidated VIEs14,424
 13,617
 (1,616) (283) 11,718
Total secured borrowings and consolidated VIEs$15,195
 14,292
 (2,259) (283) 11,750

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.
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 20172018 Form 10-K.
Note 10: Mortgage Banking Activities (continued)


Note 10:11: 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 10.111.1 presents the changes in MSRs measured using the fair value method.
Table 10.1:11.1:Analysis of Changes in Fair Value MSRs
 Quarter ended June 30,  Six months ended June 30, 
(in millions)2019
 2018
 2019
 2018
Fair value, beginning of period$13,336
 15,041
 14,649
 13,625
Servicing from securitizations or asset transfers (1)400
 486
 741
 1,059
Sales and other (2)(1) (1) (282) (5)
Net additions399
 485
 459
 1,054
Changes in fair value:       
Due to changes in valuation model inputs or assumptions:       
Mortgage interest rates (3)(1,153) 376
 (2,093) 1,629
Servicing and foreclosure costs (4)(22) 30
 (10) 64
Discount rates (5)(109) —
 (9) —
Prepayment estimates and other (6)206
 (61) 143
 (18)
Net changes in valuation model inputs or assumptions(1,078) 345
 (1,969) 1,675
Changes due to collection/realization of expected cash flows over time(561) (460) (1,043) (943)
Total changes in fair value(1,639) (115) (3,012) 732
Fair value, end of period$12,096
 15,411
 12,096
 15,411
 Quarter ended Sep 30,  Nine months ended Sep 30, 
(in millions)2018
 2017
 2018
 2017
Fair value, beginning of period$15,411
 12,789
 13,625
 12,959
Purchases—
 541
 —
 541
Servicing from securitizations or asset transfers (1)502
 605
 1,561
 1,624
Sales and other (2)(2) 64
 (7) 9
Net additions500
 1,210
 1,554
 2,174
Changes in fair value:       
Due to changes in valuation model inputs or assumptions:       
Mortgage interest rates (3)582
 (171) 2,211
 (324)
Servicing and foreclosure costs (4)(9) 60
 55
 73
Discount rates (5)(9) —
 (9) —
Prepayment estimates and other (6)(33) (31) (51) (77)
Net changes in valuation model inputs or assumptions531
 (142) 2,206
 (328)
Changes due to collection/realization of expected cash flows over time(462) (519) (1,405) (1,467)
Total changes in fair value69
 (661) 801
 (1,795)
Fair value, end of period$15,980
 13,338
 15,980
 13,338
(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 10.211.2 presents the changes in amortized MSRs.
 
 
Table 10.2:11.2:Analysis of Changes in Amortized MSRs
Quarter ended Sep 30,  Nine months ended Sep 30, Quarter ended June 30,  Six months ended June 30, 
(in millions)2018
 2017
 2018
 2017
2019
 2018
 2019
 2018
Balance, beginning of period$1,407
 1,399
 1,424
 1,406
$1,427
 1,411
 1,443
 1,424
Purchases42
 31
 82
 75
16
 22
 40
 40
Servicing from securitizations or asset transfers33
 41
 106
 123
33
 39
 59
 73
Amortization(68) (65) (198) (198)(69) (65) (135) (130)
Balance, end of period (1)$1,414
 1,406
 1,414
 1,406
$1,407
 1,407
 1,407
 1,407
Fair value of amortized MSRs:              
Beginning of period$2,309
 1,989
 2,025
 1,956
$2,149
 2,307
 2,288
 2,025
End of period2,389
 1,990
 2,389
 1,990
1,897
 2,309
 1,897
 2,309
(1)Commercial amortized MSRs are evaluated for impairment purposes by the following risk strata: agency (GSEs) for multi-family properties and non-agency. There was no valuation allowance recorded for the periods presented on the commercial amortized MSRs.





Note 11: Mortgage Banking Activities (continued)

We present the components of our managed servicing portfolio in Table 10.311.3 at unpaid principal balance for loans serviced and subserviced for others and at book value for owned loans serviced.
 
 
Table 10.3:11.3:Managed Servicing Portfolio
(in billions)Jun 30, 2019
 Dec 31, 2018
Residential mortgage servicing:   
Serviced for others$1,107
 1,164
Owned loans serviced340
 334
Subserviced for others5
 4
Total residential servicing1,452
 1,502
Commercial mortgage servicing:   
Serviced for others548
 543
Owned loans serviced123
 121
Subserviced for others9
 9
Total commercial servicing680
 673
Total managed servicing portfolio$2,132
 2,175
Total serviced for others$1,655
 1,707
Ratio of MSRs to related loans serviced for others0.82% 0.94
(in billions)Sep 30, 2018
 Dec 31, 2017
Residential mortgage servicing:   
Serviced for others$1,184
 1,209
Owned loans serviced337
 342
Subserviced for others5
 3
Total residential servicing1,526
 1,554
Commercial mortgage servicing:   
Serviced for others529
 495
Owned loans serviced121
 127
Subserviced for others9
 9
Total commercial servicing659
 631
Total managed servicing portfolio$2,185
 2,185
Total serviced for others$1,713
 1,704
Ratio of MSRs to related loans serviced for others1.02% 0.88

 
Table 10.411.4 presents the components of mortgage banking noninterest income.
Table 10.4:11.4:Mortgage Banking Noninterest Income

 Quarter ended Sep 30,  Nine months ended Sep 30,  Quarter ended June 30,  Six months ended June 30, 
(in millions) 2018
 2017
 2018
 2017
 2019
 2018
 2019
 2018
Servicing income, net:                
Servicing fees:                
Contractually specified servicing fees $880
 889
 2,697
 2,696
 $846
 901
 1,686
 1,817
Late charges 40
 41
 126
 133
 30
 42
 63
 86
Ancillary fees 49
 51
 136
 160
 38
 47
 76
 87
Unreimbursed direct servicing costs (1) (79) (186) (258) (430) (84) (85) (154) (179)
Net servicing fees 890
 795
 2,701
 2,559
 830
 905
 1,671
 1,811
Changes in fair value of MSRs carried at fair value:                
Due to changes in valuation model inputs or assumptions (2)(A)531
 (142) 2,206
 (328)(A)(1,078) 345
 (1,969) 1,675
Changes due to collection/realization of expected cash flows over time (462) (519) (1,405) (1,467) (561) (460) (1,043) (943)
Total changes in fair value of MSRs carried at fair value 69
 (661) 801
 (1,795) (1,639) (115) (3,012) 732
Amortization (68) (65) (198) (198) (69) (65) (135) (130)
Net derivative gains (losses) from economic hedges (3)(B)(501) 240
 (2,040) 599
(B)1,155
 (319) 2,117
 (1,539)
Total servicing income, net 390
 309
 1,264
 1,165
 277
 406
 641
 874
Net gains on mortgage loan origination/sales activities(4) 456
 737
 1,286
 2,257
 481
 364
 825
 830
Total mortgage banking noninterest income $846
 1,046
 2,550
 3,422
 $758
 770
 1,466
 1,704
Market-related valuation changes to MSRs, net of hedge results (2)(3)(A)+(B)$30
 98
 166
 271
(A)+(B)$77
 26
 148
 136
(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 10.111.1 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 14 (Derivatives Not Designated as Hedging Instruments)15 (Derivatives) for additional discussion and detail.

Note 10: Mortgage Banking Activities (continued)

Table 10.5 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 $201 million at September 30, 2018, 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 10.5:Analysis of Changes in Liability for Mortgage Loan Repurchase Losses
 Quarter ended Sep 30,  Nine months ended Sep 30, 
(in millions)2018
 2017
 2018
 2017
Balance, beginning of period$179
 178
 181
 229
Assumed with MSR purchases (1)—
 10
 —
 10
Provision for repurchase losses:       
Loan sales5
 6
 12
 20
Change in estimate (2)(4) (12) (5) (65)
Net additions (reductions) to provision1
 (6) 7
 (45)
Losses(2) (3) (10) (15)
Balance, end of period$178
 179
 178
 179
(1)(4)Represents repurchase liability associated with portfolioIncludes net gains (losses) of loans underlying mortgage servicing rights acquired during the period.
(2)Results from changes in investor demand$(283) million and mortgage insurer practices, credit deterioration and changes$(434) million in the financial stabilitysecond quarter and first half of correspondent lenders.2019, respectively, and $134 million and $759 million in the second quarter and first half of 2018, respectively, related to derivatives used as economic hedges of mortgage loans held for sale and derivative loan commitments.










Note 11:12: Intangible Assets
Table 11.112.1 presents the gross carrying value of intangible assets and accumulated amortization.
Table 11.1:12.1:Intangible Assets
September 30, 2018  December 31, 2017 June 30, 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)$4,064
 (2,650) 1,414
 3,876
 (2,452) 1,424
$4,260
 (2,853) 1,407
 4,161
 (2,718) 1,443
Core deposit intangibles12,834
 (12,642) 192
 12,834
 (12,065) 769
—
 —
 —
 12,834
 (12,834) —
Customer relationship and other intangibles3,997
 (3,377) 620
 3,994
 (3,153) 841
3,937
 (3,458) 479
 3,994
 (3,449) 545
Total amortized intangible assets$20,895
 (18,669) 2,226
 20,704
 (17,670) 3,034
$8,197
 (6,311) 1,886
 20,989
 (19,001) 1,988
Unamortized intangible assets:                      
MSRs (carried at fair value) (2)$15,980
     13,625
    $12,096
     14,649
    
Goodwill26,425
     26,587
    26,415
     26,418
    
Trademark14
     14
    14
     14
    
(1)Excludes fully amortized intangible assets.Balances are excluded commencing in the period following full amortization.
(2)See Note 1011 (Mortgage Banking Activities) for additional information on MSRs.


Table 11.212.2 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 SeptemberJune 30, 2018.2019. Future amortization expense may vary from these projections.




Table 11.2:12.2:Amortization Expense for Intangible Assets
(in millions) Amortized MSRs
  
Customer
relationship
and other
intangibles

 Total
Six months ended June 30, 2019 (actual) $135
  59
 194
Estimate for the remainder of 2019 $136
  55
 191
Estimate for year ended December 31,      
2020 249
  95
 344
2021 213
  81
 294
2022 188
  68
 256
2023 159
  59
 218
2024 134
  48
 182


Note 12: Intangible Assets (continued)
(in millions) Amortized MSRs
 
Core deposit
intangibles

 
Customer
relationship
and other
intangibles (1)

 Total
Nine months ended September 30, 2018 (actual) $198
 577
 224
 999
Estimate for the remainder of 2018 $67
 192
 75
 334
Estimate for year ended December 31,       
2019 247
 —
 117
 364
2020 220
 —
 97
 317
2021 189
 —
 83
 272
2022 168
 —
 69
 237
2023 141
 —
 59
 200
(1)
The nine months endedSeptember 30, 2018 balance includes $7 million for lease intangible amortization.


Table 11.312.3 shows the allocation of goodwill to our reportable operating segments.
Table 11.3:12.3:Goodwill
(in millions)
Community
Banking

 
Wholesale
Banking

 Wealth and Investment Management
 
Consolidated
Company

December 31, 2017$16,849
 8,455
 1,283

26,587
Reclassification of goodwill held for sale to other assets(155) —
 —
 (155)
Reduction in goodwill related to divested businesses and other—
 (3) —
 (3)
June 30, 2018 (1)$16,694
 8,452
 1,283
 26,429
December 31, 2018$16,685
 8,450
 1,283
 26,418
Reclassification of goodwill held for sale to other assets—
 —
 (7) (7)
Foreign currency translation—
 4
 —
 4
June 30, 2019 (1)$16,685
 8,454
 1,276
 26,415
(in millions)
Community
Banking

 
Wholesale
Banking

 Wealth and Investment Management
 
Consolidated
Company

December 31, 2016$16,849
 8,585
 1,259

26,693
Reclassification of goodwill held for sale to other assets—
 (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
December 31, 2017$16,849
 8,455
 1,283
 26,587
Reclassification of goodwill held for sale to other assets(155) —
 —
 (155)
Reduction in goodwill related to divested businesses and other(6) (1) —
 (7)
September 30, 2018 (1)$16,688
 8,454
 1,283
 26,425
(1)
At SeptemberJune 30, 2017, other2018, others assets included Goodwillgoodwill classified as held-for-sale of $116$155 million related to the sales agreementagreements for Wells Fargo InsuranceReliable Financial Services, USA (and related businesses)Inc. and Wells Fargo Shareowner Services. At September 30, 2018, other assets included Goodwill classified as held-for-sale of $12 million related to the branch divestitures announced in June 2018.
At June 30, 2019, other assets included goodwill classified as held-for-sale of $7 million related to the sale of our Institutional Retirement and Trust business, which was announced in April 2019 and closed on July 1, 2019.

We assess goodwill for impairment at a reporting unit level, which is one level below the operating segments. See Note 2122 (Operating Segments) for further information on management reporting.




Note 12:13: 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, and Other Commitments) to Financial Statements in our 20172018 Form 10-K. Table 12.113.1 shows carrying value, maximum exposure to loss on our guarantees and the related non-investment grade amounts.
Table 12.1:13.1: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, 2018             
June 30, 2019             
Standby letters of credit (1)$36
 14,051
 8,024
 3,051
 476
 25,602
 8,025
$38
 14,078
 7,185
 3,901
 464
 25,628
 7,938
Securities lending and other indemnifications (2)—
 —
 —
 —
 1,454
 1,454
 —
—
 —
 1
 —
 849
 850
 1
Written put options (3)(486) 14,420
 11,122
 2,876
 702
 29,120
 16,703
(371) 12,574
 11,682
 2,803
 386
 27,445
 15,882
Loans and MLHFS sold with recourse (4)50
 148
 654
 1,178
 9,540
 11,520
 8,587
53
 111
 634
 1,205
 10,597
 12,547
 9,318
Factoring guarantees (5)—
 978
 —
 —
 —
 978
 891
—
 639
 —
 —
 —
 639
 558
Other guarantees1
 3
 —
 3
 2,781
 2,787
 4
1
 —
 —
 3
 4,146
 4,149
 1
Total guarantees$(399) 29,600
 19,800
 7,108
 14,953
 71,461
 34,210
$(279) 27,402
 19,502
 7,912
 16,442
 71,258
 33,698
December 31, 2017             
December 31, 2018             
Standby letters of credit (1)$39
 15,357
 7,908
 3,068
 645
 26,978
 8,773
$40
 14,636
 7,897
 3,398
 497
 26,428
 8,027
Securities lending and other indemnifications (2)—
 —
 —
 2
 809
 811
 2
—
 —
 1
 —
 1,044
 1,045
 1
Written put options (3)(455) 14,758
 12,706
 3,890
 1,038
 32,392
 19,087
(185) 17,243
 10,502
 3,066
 400
 31,211
 21,732
Loans and MLHFS sold with recourse (4)51
 165
 533
 934
 9,385
 11,017
 8,155
54
 104
 653
 1,207
 10,163
 12,127
 9,079
Factoring guarantees (5)—
 747
 —
 —
 —
 747
 668
—
 889
 —
 —
 —
 889
 751
Other guarantees1
 7
 —
 2
 4,175
 4,184
 7
1
 —
 —
 3
 2,959
 2,962
 1
Total guarantees$(364) 31,034
 21,147
 7,896
 16,052
 76,129
 36,692
$(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 $7.2$6.4 billion and $8.1$7.5 billion at SeptemberJune 30, 2018,2019, and December 31, 2017,2018, 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 $115$90 million and $92$70 million with related collateral of $1.3 billion$759 million and $717$974 million at SeptemberJune 30, 2018,2019, and December 31, 2017,2018, respectively. Estimated maximum exposure to loss was $1.5 billion at September 30, 2018 and $809 million at December 31, 2017.
(3)Written put options, which are in the form of derivatives, are also included in the derivative disclosures in Note 1415 (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 $2 million of loans associated with these agreements in both the third quarter and first nine months of 2018, and $1 million and $3 million in the same periods of 2017, 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 6 (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 12.113.1 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 12:13: 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 12.213.2 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 $13.1$14.0 billion and $13.6$14.1 billion at SeptemberJune 30, 2018,2019, and December 31, 2017,2018, respectively, which can only be used to settle the liabilities of those entities. The table also excludes $641$357 million and $675$617 million in assets pledged in transactions with VIE'sVIE’s accounted for as secured borrowings at SeptemberJune 30, 2018,2019, and December 31, 2017,2018, respectively. See Note 910 (Securitizations and Variable Interest Entities) for additional information on consolidated VIE assets and secured borrowings.
Table 12.2:13.2:Pledged Assets
(in millions)Sep 30,
2018
 Dec 31,
2017
Jun 30,
2019
 Dec 31,
2018
Held for trading:   
Related to trading activities:   
Debt securities$94,862
 96,993
$107,673
 96,616
Equity securities10,996
 12,161
10,594
 9,695
Total pledged assets held for trading (1)105,858
 109,154
Not held for trading:   
Total pledged assets related to trading activities (1)118,267
 106,311
Related to non-trading activities:   
Debt securities and other (2)56,327
 73,592
56,413
 62,438
Mortgage loans held for sale and loans (3)451,031
 469,554
413,882
 453,894
Total pledged assets not held for trading507,358
 543,146
Total pledged assets related to non-trading activities470,295
 516,332
Total pledged assets$613,216
 652,300
$588,562
 622,643
(1)
Consists of pledged assets held forrelated to trading activities of $47.2$45.9 billion and $41.9$45.5 billion at SeptemberJune 30, 2018,2019, and December 31, 2017,2018, respectively and off-balance sheet securities of $58.6$72.3 billion and $67.3$60.8 billion as of the same dates, respectively, that are pledged as collateral for repurchase agreements and other securities financings. Total pledged assets held forrelated to trading activities includes $105.8$118.2 billion and $109.0$106.2 billion at SeptemberJune 30, 2018,2019, and December 31, 2017,2018, respectively, under agreements that permit the secured parties to sell or repledge the collateral.
(2)
Includes carrying value of $4.3$3.5 billion and $5.0$4.2 billion (fair value of $4.1$3.5 billion and $5.0 billion)$4.1 billion) in collateral for repurchase agreements at SeptemberJune 30, 2018,2019, and December 31, 2017,2018, respectively, which are pledged under agreements that do not permit the secured parties to sell or repledge the collateral. Also includes $50$33 million and $64$68 million in collateral pledged under repurchase agreements at SeptemberJune 30, 2018,2019, and December 31, 2017,2018, respectively, that permit the secured parties to sell or repledge the collateral. Substantially all other pledged securities are pursuant to agreements that do not permit the secured party to sell or repledge the collateral.
(3)
Includes mortgage loans held for sale of $1.4$2.0 billion and $2.6$7.4 billion at SeptemberJune 30, 2018,2019, and December 31, 2017,2018, respectively. Substantially all of the total mortgage 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 $1.0$551 million and $1.2 billion at June 30, 2019, and $2.2 billion at September 30, 2018, and December 31, 2017,2018, 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-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 12.313.3 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 12.3,13.3, we also have balance sheet netting related to derivatives that is disclosed in Note 1415 (Derivatives).
Table 12.3:13.3:Offsetting – Resale and Repurchase AgreementsSecurities Financing Activities
(in millions)Sep 30,
2018
 Dec 31,
2017
Jun 30,
2019
 Dec 31,
2018
Assets:      
Resale and securities borrowing agreements      
Gross amounts recognized$114,914
 121,135
$146,096
 112,662
Gross amounts offset in consolidated balance sheet (1)(14,371) (23,188)(15,248) (15,258)
Net amounts in consolidated balance sheet (2)100,543
 97,947
130,848
 97,404
Collateral not recognized in consolidated balance sheet (3)(99,699) (96,829)(130,082) (96,734)
Net amount (4)$844
 1,118
$766
 670
Liabilities:      
Repurchase and securities lending agreements      
Gross amounts recognized (5)$106,253
 111,488
$116,900
 106,248
Gross amounts offset in consolidated balance sheet (1)(14,371) (23,188)(15,248) (15,258)
Net amounts in consolidated balance sheet (6)91,882
 88,300
101,652
 90,990
Collateral pledged but not netted in consolidated balance sheet (7)(91,580) (87,918)(101,476) (90,798)
Net amount (8)$302
 382
$176
 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, 2018, and December 31, 2017, includes $83.4Includes $112.1 billion and $78.9$80.1 billion respectively, classified on our consolidated balance sheet in federal funds sold and securities purchased under resale agreements. Balance alsoagreements at June 30, 2019, and December 31, 2018, respectively. Also includes securities purchased under long-term resale agreements (generally one year or more) classified in loans, which totaled $17.1$18.8 billionand $19.0$17.3 billion, at SeptemberJune 30, 2018,2019, and December 31, 2017,2018, respectively.
(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 SeptemberJune 30, 2018,2019, and December 31, 2017,2018, we have received total collateral with a fair value of $124.1$157.4 billion and $130.8$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 $60.4$73.4 billion at SeptemberJune 30, 2018,2019, and $66.3$60.8 billion at December 31, 2017.2018.
(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 SeptemberJune 30, 2018,2019, and December 31, 2017,2018, we have pledged total collateral with a fair value of $108.7$119.6 billion and $113.6$108.8 billion, respectively, of which, the counterparty does not have the right to sell or repledge $4.3$3.5 billion as of SeptemberJune 30, 20182019 and $5.2$4.4 billion as of December 31, 2017.2018.
(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.
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 12.413.4 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 12:13: Guarantees, Pledged Assets and Collateral, and Other Commitments (continued)


Table 12.4:13.4:Underlying Collateral Types of Gross Obligations
(in millions) Sep 30,
2018
 Dec 31,
2017
 Jun 30,
2019
 Dec 31,
2018
Repurchase agreements:        
Securities of U.S. Treasury and federal agencies (1) $35,758
 40,507
Securities of U.S. Treasury and federal agencies $49,622
 38,408
Securities of U.S. States and political subdivisions 68
 92
 97
 159
Federal agency mortgage-backed securities (1) 45,153
 45,336
 43,346
 47,241
Non-agency mortgage-backed securities 1,441
 1,324
 1,754
 1,875
Corporate debt securities (1) 8,869
 8,020
Corporate debt securities 8,132
 6,191
Asset-backed securities 2,128
 2,034
 2,258
 2,074
Equity securities 793
 838
 2,034
 992
Other (1) 1,424
 1,602
 866
 340
Total repurchases 95,634
 99,753
 108,109
 97,280
Securities lending:    
Securities lending arrangements:    
Securities of U.S. Treasury and federal agencies 192
 186
 198
 222
Federal agency mortgage-backed securities —
 2
Corporate debt securities 418
 619
 483
 389
Equity securities (2) 9,947
 10,930
Equity securities (1) 8,094
 8,349
Other 62
 —
 16
 6
Total securities lending 10,619
 11,735
 8,791
 8,968
Total repurchases and securities lending $106,253
 111,488
 $116,900
 106,248
(1)Amounts for December 31, 2017 have been revised to conform with the current period classification of certain collateral.
(2)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 12.513.5 provides the contractual maturities of our gross obligations under repurchase and securities lending agreements.
Table 12.5:13.5: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, 2018         
June 30, 2019         
Repurchase agreements$82,130
 5,879
 2,954
 4,671
 95,634
$96,487
 3,565
 3,938
 4,119
 108,109
Securities lending10,281
 38
 300
 —
 10,619
Securities lending arrangements8,643
 —
 148
 —
 8,791
Total repurchases and securities lending (1)$92,411
 5,917
 3,254
 4,671
 106,253
$105,130
 3,565
 4,086
 4,119
 116,900
December 31, 2017 
December 31, 2018 
Repurchase agreements$83,780
 7,922
 3,286
 4,765
 99,753
$86,574
 3,244
 2,153
 5,309
 97,280
Securities lending9,634
 584
 1,363
 154
 11,735
Securities lending arrangements8,669
 —
 299
 —
 8,968
Total repurchases and securities lending (1)$93,414
 8,506
 4,649
 4,919
 111,488
$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 SeptemberJune 30, 20182019, and December 31, 2017,2018, we had commitments to purchase debt securities of $1.4 billion$212 million and $194$335 million, respectively, and commitments to purchase equity securities of $2.4$2.1 billion and $2.2$2.5 billion, respectively.
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 commitmentsCertain of these obligations are guarantees of other members’ performance and accordingly are included in Other guarantees in Table 13.1.
Also, we have entered intocommitments to purchase securities under resale agreements from a central clearing organization that, at its option, require us to provide funding under such agreements.organizations. We do not have any outstanding amounts funded, and the amount of our unfunded contractual commitmentcommitments was $5.1 billion and $9.8 billion as of June 30, 2019, and December 31, 2018, respectively. Given the nature of these commitments, they are
 
$2.8 billion as of September 30, 2018,excluded from Table 6.4 (Unfunded Credit Commitments) in Note 6 (Loans and December 31, 2017, respectively.Allowance for Credit Losses).
The Parent will fully and unconditionally guaranteeguarantees 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 $545 million and $5 million at June 30, 2019 and December 31, 2018, respectively. These guarantees rank on parity with all of the Parent’s other unsecured and unsubordinated indebtedness.





Note 13:14: 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 al. v. Visa, Inc. 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 that 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 On April 20, 2018, the Company entered into consent orders with the Office of the Comptroller of the Currency (OCC) and the Bureau of Consumer Financial Protection (BCFP)Bureau (CFPB) to resolve, among other things, investigations by the agencies into the Company'sCompany’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 payment of a total of $1$1.0 billion in civil money penalties to the agencies. In July 2017, the Company announced a plan to remediate customers who may have been financially harmed due to issues related to automobile CPI policies purchased through a third-party vendor on their behalf. 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. 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 $424 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 common fund for the class. The district court scheduled a preliminary approval hearing for August 5, 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'sCompany’s public disclosures. Former team members 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 will result in refundsrequire remediation 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 the CPI and GAP programs are among the subjects of shareholder derivative lawsuits pending in federal and state court in California. The court dismissed the state court action in September 2018, but granted plaintiffs leave to filefiled an amended complaint byin November 23, 2018. The parties to the state 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. The court granted preliminary approval of the settlement on July 12, 2019, and scheduled a final approval hearing for October 9, 2019. 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, including a multi-state attorneys general group that is conductingagencies. 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. TheGAP, and mortgage interest rate lock matters, pursuant to which the Company anticipates it may continue to identify and remediate issues related to historical practices concerning the origination, servicing, and/or collection of consumer automobile loans.paid $575 million.

Note 14: Legal Actions (continued)

CONSUMER DEPOSIT ACCOUNT RELATED REGULATORY INVESTIGATION The BCFPCFPB is conducting an investigation into whether customers were unduly harmed by the Company’s procedures regardinghistorical 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. A former team member has brought a state court action alleging retaliation for raising concerns about these procedures.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’s investment and fiduciary services business, which is part of the wealth management business within WIM.the Wealth and Investment Management (WIM) operating segment. 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.
FOREIGN EXCHANGE BUSINESSFederal government agencies, including the United States Department of Justice (Department of Justice), are investigating or examining certain activities in the Company’s foreign exchange business. These matters are at varying stages. The Company has accrued amountsresponded, and continues to remediaterespond, to requests from a number of the foregoing and has discussed the potential resolution of some of the matters. The Company is in the process of providing remediation to customers that may have received pricing inconsistent with commitments made to those customers, and rebates to rebate customers where historic pricing, while consistent with contracts
Note 13: Legal Actions (continued)

entered into with those customers, does not conform to recently implemented pricing review standards and pricing.for prior periods.
INADVERTENT CLIENT INFORMATION DISCLOSURE In July 2017, the Company inadvertently provided certain client information in response to 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 that contained the client information and all copies to be delivered to the New Jersey state court and the Company for safekeeping. The court has now returned the data to counsel for the Company. The Company has made voluntary self-disclosures to various state and federal regulatory agencies. Notifications have been sent to clients whose personal identifying data was contained in the inadvertent production.
INTERCHANGE LITIGATIONPlaintiffs 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 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 8eight 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'sCompany’s allocated responsibility for the additional funding is approximately $94.5 million. Plaintiffs filed a motion forThe court granted preliminary approval of the settlement in September 2018.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 equitable relief class 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
MOBILE DEPOSIT PATENT LITIGATIONPlaintiffs, representing  The Company is a putative class of mortgage borrowers who were debtorsdefendant in Chapter 13 bankruptcytwo separate cases filed a putative class action, Cotton, et al. v. Wells Fargo, et al., against Wells Fargo & Company and Wells Fargo Bank, N.A.brought by United Services Automobile Association (USAA) in the United States BankruptcyDistrict Court for the WesternEastern District of North Carolina on June 7, 2017. Plaintiffs allege that Wells Fargo improperlyTexas alleging claims of patent infringement regarding mobile deposit capture technology patents held by USAA. Trial in the first case is scheduled for November 2019 and unilaterally modifiedtrial in the mortgages of borrowers who were debtors in Chapter 13 bankruptcy cases. Plaintiffs 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. On October 24, 2018, the court granted preliminary approval of the settlement andsecond case is scheduled a final fairness hearing for March 4, 2019.January 2020.
MORTGAGE INTEREST RATE LOCK RELATED REGULATORY INVESTIGATIONMATTERS On April 20, 2018, the Company entered into consent orders with the OCC and BCFPCFPB to resolve, among other things, investigations by the agencies into the Company'sCompany’s compliance risk management program and its past practices involving certain automobile CPI policies and certain mortgage interest rate lock extensions. The consent orders require remediation to customers and the payment of a total of $1$1.0 billion in civil money penalties to the agencies. On October 4, 2017, the Company announced plans 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 provide refunds, with interest, to customers who believe they should not have paid those fees. The Company was named in a putative class action, filed in the United States District Court for 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 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 filedconsolidated in

California state court. The parties have entered into an agreement to resolve the state court action pursuant to which the Company will pay plaintiffs’ attorneys’ fees and undertake certain business and governance practices. The court granted preliminary approval of the settlement on July 12, 2019, and scheduled a final approval hearing for October 9, 2019. This matter has also subjected the Company to formal or informal inquiries, investigations or examinations from other federal and state government agencies, includingagencies. 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 LOAN MODIFICATION LITIGATION Plaintiffs representing a multi-state attorneys general group.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, (Department of Justice), have been investigating or examining certain mortgage-relatedmortgage 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. An agreement, pursuant to which the Company paid $2.09 billion, was reached in August 2018 to resolve the Department of Justice investigation, which related to certain 2005-2007 residential mortgage-backed securities activities. The amount was fully accrued asIn addition, the Company reached an agreement with the Attorney General of June 30, 2018.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 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) 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 (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 in October 2016, and Wells Fargo appealed this decision to the United States Court of Appeals for the Eleventh Circuit. In May 2018, the Eleventh Circuit ruled in Wells Fargo'sFargo’s favor and found that Wells Fargo had not waived its arbitration rights and remanded the case to the District Courtdistrict court for further proceedings. Plaintiffs filed a petition for rehearing to the Eleventh Circuit, which was denied in August 2018. Plaintiffs petitioned for certiorari from the United States Supreme Court, and that petition was denied in January 2019. The case has returned to the district court for 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,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 BCFP,CFPB, the OCC, 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 and has discussed the resolution of some of the matters, including with a multi-state attorneys general group.foregoing. In October 2018, the Company entered into an agreement to resolve the New York Attorney General'sGeneral’s investigation pursuant to which the Company will paypaid $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 SEC, although there can be no assurance as to the outcome of 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 April 20, 2017. Pursuant to the settlement, the Company will pay $142 million for remediation, attorneys’ fees, and settlement fund
Note 14: Legal Actions (continued)

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. The district court issued an order granting final approval of the settlement on June 14, 2018. Several appeals of the district court'scourt’s order granting final approval of the settlement have been filed with the United States Court of Appeals for the 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 has entered into a settlement agreement to resolve this matter pursuant to which the Company will paypaid $480 million. The amount was fully accrued as of March 31, 2018. The district court issued an order granting preliminaryfinal approval of the settlement on September 4,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. These actions have been filed or transferred toare currently pending in the United States District Court for the Northern District of California and California state court for coordinated proceedings. An additional lawsuit asserting similar claims pending in Delaware state court has been stayed. 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. Preliminary approval of the settlements has been granted, and the federal court held a final approval hearing on August 1, 2019, and the state court scheduled a final approval hearing for October 9, 2019. Fourth, multiple employment litigation matters 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 on behalf of 401(k) plan participants that has been dismissed and is now been dismissed;on appeal; a class action in the United States District Court for the Northern District of California on behalf of team members who allege that they protested sales practice misconduct and/or
Note 13: Legal Actions (continued)

were terminated for not meeting sales goals that has now been dismissed, and we have entered into a framework with plaintiffs'plaintiffs’ counsel to address individual claims that have been asserted; various wage and hour class actions brought in federal and state court in California and Pennsylvania (which have been settled), and in New Jersey and Pennsylvania on behalf of non-exempt branch based team 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 allegesalleged that Wells Fargo Bank, N.A., as trustee, caused losses to investors and assertsasserted causes of action based upon, among other things, the trustee'strustee’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 seeksought 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 Wells Fargo are proceeding before the same judge. On. In 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'sCompany’s subsequent 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).
A complaint raising similar allegations to the Federal Court Complaint was filed in May 2016 in New York state court by a different plaintiff investor. In 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). The Company has movedA complaint raising similar allegations to dismissthose in the StateFederal Court Action.Complaint was filed in May 2016 in New York state court by IKB International and IKB Deutsche Industriebank (IKB 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’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,sought, among other relief, declarations that Wells Fargo Bank, N.A.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,May 2019, the Company's motion to dismiss the complaint was granted. Plaintiffs filed a notice of appeal in January 2018. In September 2017, Royal Park filed a similar complaint in the Southern District of New York seeking declaratorystate court approved a settlement agreement among the Institutional Investor Plaintiffs and injunctive reliefthe Company pursuant to which, among other terms, the Company paid $43 million to resolve the Federal Court Complaint and money damages on an individualthe State Court Action. The settlement also resolved the Third Party Claims and class action basis (Royal Park Action).the Declaratory Judgment Action. The settlement did not affect the Related Federal Cases or the IKB Action, which remain pending.


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 February 2020.
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 recent inquiries from various federal government agencies regarding potentially inappropriate conduct in connection with the collection of beneficial ownership information.
OUTLOOKAs 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 and estimable losses was approximately $2.2$3.9 billion as of SeptemberJune 30, 2018.2019. The increase in the high end of the range from March 31, 2019, was due to a variety of matters, including retail sales practices 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 the retail 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)

Note 14:15: Derivatives
We use derivatives to manage exposure to market risk, including interest rate risk, credit risk and foreign currency risk, and to assist customers with their risk management objectives. We designate certain derivatives as hedging instruments in a qualifying hedge accounting relationship (fair value or cash flow hedge). Our remaining derivatives consist of economic hedges that do not qualify for hedge accounting, and derivatives held for customer accommodation trading or other purposes. For more information on our derivative activities, see Note 1617 (Derivatives) to Financial Statements in our 20172018 Form 10-K.
 
Table 14.115.1 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 14.1:15.1:Notional or Contractual Amounts and Fair Values of Derivatives
September 30, 2018  December 31, 2017 June 30, 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)$184,332
 2,471
 650
 209,677
 2,492
 1,092
$186,206
 2,559
 1,368
 177,511
 2,237
 636
Foreign exchange contracts (1)35,136
 737
 1,221
 34,135
 1,482
 1,137
33,439
 540
 1,162
 34,176
 573
 1,376
Total derivatives designated as qualifying hedging instruments  3,208
 1,871
   3,974
 2,229
  3,099
 2,530
   2,810
 2,012
Derivatives not designated as hedging instruments                      
Economic hedges:                      
Interest rate contracts (2)181,607
 166
 375
 220,558
 159
 201
255,760
 692
 290
 173,215
 849
 369
Equity contracts15,764
 929
 210
 12,315
 716
 138
17,374
 1,213
 658
 13,920
 1,362
 79
Foreign exchange contracts14,288
 115
 116
 15,976
 78
 309
20,829
 212
 85
 19,521
 225
 80
Credit contracts – protection purchased101
 26
 —
 111
 37
 —
220
 38
 —
 100
 27
 —
Subtotal  1,236
 701
   990
 648
  2,155
 1,033
   2,463
 528
Customer accommodation trading and           
other derivatives:           
Customer accommodation trading and other derivatives:           
Interest rate contracts8,156,678
 13,426
 14,518
 6,434,673
 14,979
 14,179
11,130,569
 22,302
 18,979
 9,162,821
 15,349
 15,303
Commodity contracts72,559
 4,205
 1,716
 62,530
 2,354
 1,335
72,255
 1,424
 1,936
 66,173
 1,588
 2,336
Equity contracts229,905
 6,894
 8,514
 213,750
 6,291
 8,363
246,045
 6,164
 8,520
 217,890
 6,183
 5,931
Foreign exchange contracts333,715
 5,582
 5,032
 362,896
 7,413
 7,122
353,918
 4,803
 5,021
 364,982
 5,916
 5,657
Credit contracts – protection sold9,185
 94
 141
 9,021
 147
 214
10,507
 15
 80
 11,741
 76
 182
Credit contracts – protection purchased17,973
 134
 177
 17,406
 207
 208
20,784
 88
 17
 20,880
 175
 98
Subtotal  30,335
 30,098
   31,391
 31,421
  34,796
 34,553
   29,287
 29,507
Total derivatives not designated as hedging instruments  31,571
 30,799
   32,381
 32,069
  36,951
 35,586
   31,750
 30,035
Total derivatives before netting  34,779
 32,670
   36,355
 34,298
  40,050
 38,116
   34,560
 32,047
Netting (3)  (22,968) (24,084)   (24,127) (25,502)  (26,888) (29,717)   (23,790) (23,548)
Total  $11,811
 8,586
   12,228
 8,796
  $13,162
 8,399
   10,770
 8,499
(1)
Notional amounts presented exclude $0 million and $500 million of interest rate contracts at September 30, 2018, and December 31, 2017, respectively, for certain derivatives that are combined for designation as a hedge in a single relationship. The notional amount for foreign exchange contracts at SeptemberJune 30, 2018,2019, and December 31, 2017,2018, excludes $11.3$10.0 billion and $13.5$11.2 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, 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 14.215.2 for further information.
Note 14: Derivatives (continued)


Table 14.215.2 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 substantially 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 $31.4$35.1 billion and $29.2$34.9 billion of gross derivative assets and liabilities, respectively, at SeptemberJune 30, 2018,2019, and $30.0$30.9 billion and $29.9$28.4 billion, respectively, at December 31, 2017,2018, 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 $3.4$5.0 billion and $3.5$3.2 billion, respectively, at SeptemberJune 30, 2018,2019, and $6.4$3.7 billion and $4.4$3.6 billion, respectively, at December 31, 2017,2018, 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 14.215.2 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 1213 (Guarantees, Pledged Assets and Collateral, and Other Commitments).

Note 15: Derivatives (continued)

Table 14.2:15.2:Gross Fair Values of Derivative Assets and Liabilities

(in millions)
Gross
amounts
recognized

 
Gross amounts
offset in
consolidated
balance
sheet (1)

 
Net amounts in
consolidated
balance
sheet

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

 
Net
amounts

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

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, 2018           
June 30, 2019           
Derivative assets                      
Interest rate contracts$16,063
 (10,905) 5,158
 (104) 5,054
 98%$25,553
 (16,558) 8,995
 (313) 8,682
 95%
Commodity contracts4,205
 (1,165) 3,040
 (2) 3,038
 92
1,424
 (951) 473
 (1) 472
 73
Equity contracts7,823
 (5,646) 2,177
 (494) 1,683
 74
7,377
 (5,041) 2,336
 (34) 2,302
 71
Foreign exchange contracts6,434
 (5,036) 1,398
 (33) 1,365
 100
5,555
 (4,250) 1,305
 (8) 1,297
 100
Credit contracts – protection sold94
 (92) 2
 —
 2
 13
15
 (9) 6
 —
 6
 74
Credit contracts – protection purchased160
 (124) 36
 (2) 34
 90
126
 (79) 47
 (1) 46
 99
Total derivative assets$34,779
 (22,968) 11,811
 (635) 11,176
  $40,050
 (26,888) 13,162
 (357) 12,805
  
Derivative liabilities                      
Interest rate contracts$15,543
 (11,982) 3,561
 (306) 3,255
 98%$20,637
 (18,046) 2,591
 (848) 1,743
 95%
Commodity contracts1,716
 (823) 893
 —
 893
 55
1,936
 (738) 1,198
 —
 1,198
 81
Equity contracts8,724
 (5,949) 2,775
 (235) 2,540
 84
9,178
 (5,934) 3,244
 (214) 3,030
 84
Foreign exchange contracts6,369
 (5,023) 1,346
 (61) 1,285
 100
6,268
 (4,918) 1,350
 (197) 1,153
 100
Credit contracts – protection sold141
 (140) 1
 (1) —
 84
80
 (75) 5
 (3) 2
 99
Credit contracts – protection purchased177
 (167) 10
 —
 10
 9
17
 (6) 11
 —
 11
 98
Total derivative liabilities$32,670
 (24,084) 8,586
 (603) 7,983
  $38,116
 (29,717) 8,399
 (1,262) 7,137
  
December 31, 2017           
December 31, 2018           
Derivative assets                      
Interest rate contracts$17,630
 (11,929) 5,701
 (145) 5,556
 99%$18,435
 (12,029) 6,406
 (80) 6,326
 90%
Commodity contracts2,354
 (966) 1,388
 (4) 1,384
 88
1,588
 (849) 739
 (4) 735
 57
Equity contracts7,007
 (4,233) 2,774
 (596) 2,178
 76
7,545
 (5,318) 2,227
 (755) 1,472
 78
Foreign exchange contracts8,973
 (6,656) 2,317
 (25) 2,292
 100
6,714
 (5,355) 1,359
 (35) 1,324
 100
Credit contracts – protection sold147
 (145) 2
 —
 2
 10
76
 (73) 3
 —
 3
 12
Credit contracts – protection purchased244
 (198) 46
 (3) 43
 89
202
 (166) 36
 (1) 35
 78
Total derivative assets$36,355
 (24,127) 12,228
 (773) 11,455
  $34,560
 (23,790) 10,770
 (875) 9,895
  
Derivative liabilities                      
Interest rate contracts$15,472
 (13,226) 2,246
 (1,078) 1,168
 99%$16,308
 (13,152) 3,156
 (567) 2,589
 92%
Commodity contracts1,335
 (648) 687
 (1) 686
 76
2,336
 (727) 1,609
 (8) 1,601
 85
Equity contracts8,501
 (4,041) 4,460
 (400) 4,060
 85
6,010
 (3,877) 2,133
 (110) 2,023
 75
Foreign exchange contracts8,568
 (7,189) 1,379
 (204) 1,175
 100
7,113
 (5,522) 1,591
 (188) 1,403
 100
Credit contracts – protection sold214
 (204) 10
 (9) 1
 85
182
 (180) 2
 (2) —
 67
Credit contracts – protection purchased208
 (194) 14
 —
 14
 9
98
 (90) 8
 —
 8
 11
Total derivative liabilities$34,298
 (25,502) 8,796
 (1,692) 7,104
  $32,047
 (23,548) 8,499
 (875) 7,624
  
(1)
Represents amounts with counterparties subject to enforceable master netting arrangements that have been offset in the consolidated balance sheet, including related cash collateral and portfolio level counterparty valuation adjustments. Counterparty valuation adjustments were $243$301 million and $245$353 million related to derivative assets and $108$92 million and $95$152 million related to derivative liabilities at SeptemberJune 30, 2018,2019, and December 31, 2017,2018, respectively. Cash collateral totaled $2.9$3.6 billion and $4.1$6.6 billion,, netted against derivative assets and liabilities, respectively, at SeptemberJune 30, 2018,2019, and $2.7$3.7 billion and $4.2$3.6 billion,, respectively, at December 31, 2017.
2018.
(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.
(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.
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 interest rate swaps, cross-currency swaps, cross-currency interest rate swaps and forward contracts to hedge
against changes in fair value of certain investments in available-for-sale debt securities due 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.
For cash flow hedges, we use interest rate swaps to hedge the variability in interest payments received on certain floating-rate commercial loans and paid on certain floating-rate debt due to changes in the contractually specified interest rate.
Note 14: Derivatives (continued)

We estimate $309$247 million pre-tax of deferred net losses primarily related to cash flow hedges in OCI at SeptemberJune 30, 2018,2019, will be reclassified into net interest income during the next twelve months. The deferred losses expected to be reclassified into net interest income are primarilypredominantly related to discontinued hedges of floating rate loans. WeFor cash flow hedges as of June 30, 2019, we are hedging our foreign exposure to the variability of future cash flows for all forecasted
transactions for a maximum of 87 years. For more information on our accounting

hedges, see Note 1 (Summary of Significant Accounting Policies) and Note 16 (Derivatives) to Financial Statements in our 20172018 Form 10-K.
Table 14.315.3 shows the net gains (losses) related to derivatives in fair value and cash flow hedging relationships.
Table 14.3:15.3:Gains (Losses) Recognized in Consolidated Statement of Income on Fair Value and Cash Flow Hedging Relationships
Net interest income  Noninterest income
 Net interest income  Noninterest income
 
(in millions)Debt securities
Loans
Mortgage loans held for sale
Deposits
Long-term debt
 Other
Total
Debt securities
Loans
Mortgage loans held for sale
Deposits
Long-term debt
 Other
Total
Quarter ended September 30, 2018    
Quarter ended June 30, 2019    
Total amounts presented in the consolidated statement of income$3,595
11,116
210
(1,499)(1,667) 633
12,388
$3,781
11,316
195
(2,213)(1,900) 744
11,923
    
Gains (losses) on fair value hedging relationships        
Interest contracts        
Amounts related to interest settlements on derivatives (1)(34)—
(1)(10)39
 —
(6)14
—
—
(7)7
 —
14
Recognized on derivatives386
—
10
(58)(1,119) —
(781)(1,089)—
(25)351
2,947
 —
2,184
Recognized on hedged items(410)—
(12)61
1,101
 —
740
1,096
—
24
(343)(2,890) —
(2,113)
Foreign exchange contracts        
Amounts related to interest settlements on derivatives (1)(2)8
—
—
—
(118) —
(110)10
—
—
—
(128) —
(118)
Recognized on derivatives (3)2
—
—
—
(58) (139)(195)(5)—
—
—
205
 326
526
Recognized on hedged items(3)—
—
—
126
 139
262
4
—
—
—
(186) (315)(497)
Net income (expense) recognized on fair value hedges(51)—
(3)(7)(29) —
(90)30
—
(1)1
(45) 11
(4)
        
Gains (losses) on cash flow hedging relationships        
Interest contracts        
Realized gains (losses) (pre-tax) reclassified from cumulative OCI into net income (4)—
(78)—
—
—
 —
(78)—
(77)—
—
1
 —
(76)
Foreign exchange contracts        
Realized gains (losses) (pre-tax) reclassified from cumulative OCI into net income (4)$—
—
—
—
(1) —
(1)$—
—
—
—
(3) —
(3)
Net income (expense) recognized on cash flow hedges$—
(78)—
—
(1) —
(78)$—
(77)—
—
(2) —
(79)
Nine months ended September 30, 2018    
Six months ended June 30, 2019    
Total amounts presented in the consolidated statement of income$10,603
32,607
587
(3,857)(4,901) 1,720
36,759
$7,722
22,670
347
(4,239)(3,827) 1,318
23,991
Gains (losses) on fair value hedging relationships    
    
Gains (losses) on fair value hedging relationships:    
Interest contracts        
Amounts related to interest settlements on derivatives (1)(158)—
(3)(35)291
 —
95
30
—
—
(30)—
 —
—
Recognized on derivatives1,692
1
21
(248)(4,331) —
(2,865)(1,903)—
(33)558
4,933
 —
3,555
Recognized on hedged items(1,730)(1)(27)233
4,215
 —
2,690
1,913
—
31
(533)(4,837) —
(3,426)
Foreign exchange contracts        
Amounts related to interest settlements on derivatives (1)(2)23
—
—
—
(300) —
(277)20
—
—
—
(270) —
(250)
Recognized on derivatives (3)8
—
—
—
(132) (889)(1,013)(9)—
—
—
497
 (76)412
Recognized on hedged items(5)—
—
—
153
 820
968
9
—
—
—
(452) 76
(367)
Net income (expense) recognized on fair value hedges(170)—
(9)(50)(104) (69)(402)60
—
(2)(5)(129) —
(76)
        
Gains (losses) on cash flow hedging relationships    
Gains (losses) on cash flow hedging relationships:    
Interest contracts        
Realized gains (losses) (pre-tax) reclassified from cumulative OCI into net income (4)—
(215)—
—
—
 —
(215)—
(155)—
—
1
 —
(154)
Foreign exchange contracts        
Realized gains (losses) (pre-tax) reclassified from cumulative OCI into net income (4)—
—
—
—
(1) —
(1)—
—
—
—
(4) —
(4)
Net income (expense) recognized on cash flow hedges$—
(215)—
—
(1)
—
(216)$—
(155)—
—
(3)
—
(158)

(continued on following page)

Note 15: Derivatives (continued)

(continued from previous page)        
Net interest income  Noninterest income
 Net interest income  Noninterest income
 
(in millions)Debt securities
Loans
Mortgage loans held for sale
Deposits
Long-term debt
 Other
Total
Debt securities
Loans
Mortgage loans held for sale
Deposits
Long-term debt
 Other
Total
Quarter ended September 30, 2017    
Quarter ended June 30, 2018    
Total amounts presented in the consolidated statement of income$3,253
10,522
217
(869)(1,391) 199
11,931
$3,594
10,912
198
(1,268)(1,658) 485
12,263
        
Gains (losses) on fair value hedging relationships    
Gains (losses) on fair value hedging relationships:    
Interest contracts        
Amounts related to interest settlements on derivatives (1)(110)—
(1)25
246
 —
160
(42)—
(1)(20)81
 —
18
Recognized on derivatives(6)—
—
1
(162) —
(167)356
—
5
(41)(819) —
(499)
Recognized on hedged items(5)—
(2)—
164
 —
157
(352)—
(7)31
780
 —
452
Foreign exchange contracts









 

     
Amounts related to interest settlements on derivatives (1)(2)4
—
—
—
(60) —
(56)10
—
—
—
(102) —
(92)
Recognized on derivatives (3)—
—
—
—
(32) 851
819
2
—
—
—
97
 (1,410)(1,311)
Recognized on hedged items—
—
—
—
15
 (790)(775)1
—
—
—
(82) 1,308
1,227
Net income (expense) recognized on fair value hedges(117)—
(3)26
171
 61
138
(25)—
(3)(30)(45) (102)(205)
        
Gains (losses) on cash flow hedging relationships    
Gains (losses) on cash flow hedging relationships:    
Interest contracts        
Realized gains (losses) (pre-tax) reclassified from cumulative OCI into net income (4)—
107
—
—
(2) —
105
—
(77)—
—
—
 —
(77)
Foreign exchange contracts        
Realized gains (losses) (pre-tax) reclassified from cumulative OCI into net income (4)—
—
—
—
—
 —
—
—
—
—
—
—
 —
—
Net income (expense) recognized on cash flow hedges$—
107
—
—
(2) —
105
$—
(77)—
—
—
 —
(77)
Nine months ended September 30, 2017    
Six months ended June 30, 2018    
Total amounts presented in the consolidated statement of income$9,652
31,021
590
(2,082)(3,813) 1,045
36,413
$7,008
21,491
377
(2,358)(3,234) 1,087
24,371
        
Gains (losses) on fair value hedging relationships    
Gains (losses) on fair value hedging relationships:    
Interest contracts        
Amounts related to interest settlements on derivatives (1)(363)(1)(4)29
1,041
 —
702
(124)—
(2)(25)252
 —
101
Recognized on derivatives(167)—
(11)30
(325) —
(473)1,306
1
11
(190)(3,212) —
(2,084)
Recognized on hedged items121
—
4
(22)322
 —
425
(1,320)(1)(15)172
3,114
 —
1,950
Foreign exchange contracts        
Amounts related to interest settlements on derivatives (1)(2)10
—
—
—
(142) —
(132)15
—
—
—
(182) —
(167)
Recognized on derivatives (3)11
—
—
—
(187) 2,727
2,551
6
—
—
—
(74) (750)(818)
Recognized on hedged items(7)—
—
—
215
 (2,485)(2,277)(2)—
—
—
27
 681
706
Net income (expense) recognized on fair value hedges(395)(1)(11)37
924
 242
796
(119)—
(6)(43)(75) (69)(312)
        
Gains (losses) on cash flow hedging relationships    
Gains (losses) on cash flow hedging relationships:    
Interest contracts        
Realized gains (losses) (pre-tax) reclassified from cumulative OCI into net income (4)—
468
—
—
(8) —
460
—
(137)—
—
—
 —
(137)
Foreign exchange contracts        
Realized gains (losses) (pre-tax) reclassified from cumulative OCI into net income (4)—
—
—
—
—
 —
—
—
—
—
—
—
 —
—
Net income (expense) recognized on cash flow hedges$—
468
—
—
(8) —
460
$—
(137)—
—
—
 —
(137)
(1)
Includes$11 million and $35 million for third quarter and first nine months of 2018, respectively, and includes $12 million and $22 million for the third quarter and first nine months of 2017, respectively which represents changes in fair value due to the passage of time associated with the non-zero fair value amount at hedge inception.
(2)
The thirdsecond quarter and first nine monthshalf of 20182019 included $(5)$7 million and $(3)$14 million,, respectively, and the thirdsecond quarter and first nine monthshalf of 20172018 both included $(1)$2 million, and $(2) million, 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 2021 (Other Comprehensive Income) for the amounts recognized in other comprehensive income.
(4)See Note 2021 (Other Comprehensive Income) for details of amounts reclassified to net income.
Note 14: Derivatives (continued)


Table 14.415.4 shows the carrying amount and associated cumulative basis adjustment related to the application of hedge accounting that is included in the carrying amount of hedged assets and liabilities in fair value hedging relationships.
 





Table 14.4:15.4:Hedged Items in Fair Value Hedging Relationship
Hedged Items Currently Designated  Hedged Items No Longer Designated (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)
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)
September 30, 2018    
June 30, 2019    
Available-for-sale debt securities (5)$29,736
(1,008) 4,947
261
$39,478
1,226
 5,704
110
Loans—
—
 —
—
Mortgage loans held for sale681
(6) —
—
852
16
 388
4
Deposits(45,282)383
 —
—
(56,584)(425) —
—
Long-term debt(127,072)2,223
 (808)10
(115,922)(5,999) (25,638)270
December 31, 2017    
December 31, 2018    
Available-for-sale debt securities (5)32,498
870
 5,221
343
37,857
(157) 4,938
238
Loans140
(1) —
—
Mortgage loans held for sale465
(1) —
—
448
7
 —
—
Deposits(23,679)158
 —
—
(56,535)115
 —
—
Long-term debt(128,950)(2,154) (1,953)16
(104,341)(742) (25,539)366
(1)Represents hedged items no longer designated in qualifying fair value hedging relationships for which an associated basis adjustment exists at the balance sheet date.
(2)
Does not include the carrying amount of hedged items where only foreign currency risk is the designated hedged risk. The carrying amount excluded $1.5 billion for debt securities is $1.3and $(5.7) billion and $(6.4) billion for long-term debt as of SeptemberJune 30, 20182019, and $1.5$1.6 billion for debt securities and $(6.3) billion for long-term debt is $(7.7) billion as of December 31, 2017.
2018.
(3)
The balance includes $1.5 billion$828 million and $49$99 million of debt securities and long-term debt cumulative basis adjustments, respectively, as of SeptemberJune 30, 2018, respectively,2019, and $2.1$1.4 billion and $297$66 million of debt securities and long-term debt cumulative basis adjustments,respectively, as of December 31, 2017, respectively,2018, on terminated hedges whereby the hedged items have subsequently been re-designated into existing hedges.
(4)Represents the full carrying amount of the hedged asset or liability item as of the balance sheet date, except for circumstances in which only a portion of the asset or liability was designated as the 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 hedge derivatives to hedge the risk of changes in the fair value of certain residential MLHFS, residential MSRs measured at fair value, derivative loan commitments and other interests held. We also use economic hedge derivatives to mitigate the periodic earnings volatility caused by mismatches 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 $(501) million$1.2 billion and $(2.0)$2.1 billion in the thirdsecond quarter and first nine monthshalf of 2018,2019, respectively, and $240$(319) million and $599 million$(1.5) billion in the thirdsecond quarter and first nine monthshalf of 2017,2018, respectively, which are included in mortgage banking noninterest income. The aggregate fair value of these derivatives was a net liabilityasset of $185$602 million at SeptemberJune 30, 2018,2019, and net asset of $89$757 million at December 31, 2017.2018. 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.
 
Loan 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 negative fair value of $7 million and a positive fair value of $17$94 million at SeptemberJune 30, 2018,2019 and a net positive fair value of $60 million at December 31, 2017, respectively,2018, and is included in the caption “Interest rate contracts” under “Customer accommodation trading and other derivatives” in Table 14.115.1 in this Note.
For more information on economic hedges and other derivatives, see Note 16 (Derivatives) to Financial Statements in our 20172018 Form 10-K. Table 14.515.5 shows the net gains (losses) recognized by income statement lines, related to derivatives not designated as hedging instruments.
 

Note 15: Derivatives (continued)

Table 14.5:15.5:Gains (Losses) on Derivatives Not Designated as Hedging Instruments
Noninterest income Noninterest income 
(in millions)Mortgage banking
Net gains (losses) from equity securities
Net gains (losses) from trading activities
Other
Total
Mortgage banking
Net gains (losses) from equity securities
Net gains (losses) from trading activities
Other
Total
Quarter ended September 30, 2018  
Quarter ended June 30, 2019  
Net gains (losses) recognized on economic hedges derivatives:    
Interest contracts (1)$(334)—
—
(1)(335)$872
—
—
2
874
Equity contracts—
(719)—
8
(711)—
(658)—
(7)(665)
Foreign exchange contracts—
—
—
78
78
—
—
—
164
164
Credit contracts—
—
—
4
4
—
—
—
(5)(5)
Subtotal (2)(334)(719)—
89
(964)872
(658)—
154
368
Net gains (losses) recognized on customer accommodation trading and other derivatives:    
Interest contracts (3)(67)—
298
(1)230
179
—
(222)—
(43)
Commodity contracts—
—
27
—
27
Equity contracts—
—
(1,147)(112)(1,259)—
—
(1,110)(133)(1,243)
Foreign exchange contracts—
—
258
—
258
—
—
(83)—
(83)
Credit contracts—
—
(28)—
(28)—
—
(16)—
(16)
Commodity contracts—
—
14
—
14
Other—
—
—
—
—
Subtotal(67)—
(605)(113)(785)179
—
(1,404)(133)(1,358)
Net gains (losses) recognized related to derivatives not designated as hedging instruments$(401)(719)(605)(24)(1,749)$1,051
(658)(1,404)21
(990)
Nine months ended September 30, 2018  
Six months ended June 30, 2019  
Net gains (losses) recognized on economic hedges derivatives:    
Interest contracts (1)$(1,114)—
—
5
(1,109)$1,683
—
—
7
1,690
Equity contracts—
(1,317)—
13
(1,304)—
(1,543)—
—
(1,543)
Foreign exchange contracts—
—
—
405
405
—
—
—
140
140
Credit contracts—
—
—
(2)(2)—
—
—
10
10
Subtotal (2)(1,114)(1,317)—
421
(2,010)1,683
(1,543)—
157
297
Net gains (losses) recognized on customer accommodation trading and other derivatives:    
Interest contracts (3)(372)—
865
(1)492
297
—
(506)—
(209)
Commodity contracts—
—
78
—
78
Equity contracts—
—
(33)(378)(411)—
—
(3,259)(406)(3,665)
Foreign exchange contracts—
—
659
—
659
—
—
(69)—
(69)
Credit contracts—
—
(22)—
(22)—
—
(60)—
(60)
Commodity contracts—
—
88
—
88
Other—
—
—
—
—
Subtotal(372)—
1,557
(379)806
297
—
(3,816)(406)(3,925)
Net gains (losses) recognized related to derivatives not designated as hedging instruments$(1,486)(1,317)1,557
42
(1,204)$1,980
(1,543)(3,816)(249)(3,628)


(continued on following page)
Note 14: Derivatives (continued)


(continued from previous page)  
Noninterest income Noninterest income 
(in millions)Mortgage banking
Net gains (losses) from equity securities
Net gains (losses) from trading activities
Other
Total
Mortgage banking
Net gains (losses) from equity securities
Net gains (losses) from trading activities
Other
Total
Quarter ended September 30, 2017  
Quarter ended June 30, 2018  
Net gains (losses) recognized on economic hedges derivatives:    
Interest contracts (1)$138
—
—
(19)119
$(185)—
—
(3)(188)
Equity contracts—
(490)—
1
(489)—
(540)—
5
(535)
Foreign exchange contracts—
—
—
(300)(300)—
—
—
486
486
Credit contracts—
—
—
(6)(6)—
—
—
(10)(10)
Subtotal (2)138
(490)—
(324)(676)(185)(540)—
478
(247)
Net gains (losses) recognized on customer accommodation trading and other derivatives:    
Interest contracts (3)152
—
17
—
169
(46)—
182
—
136
Commodity contracts—
—
35
—
35
Equity contracts—
—
(851)—
(851)—
—
655
(71)584
Foreign exchange contracts—
—
155
—
155
—
—
91
—
91
Credit contracts—
—
(31)—
(31)—
—
(4)—
(4)
Commodity contracts—
—
63
—
63
Other—
—
—
8
8
Subtotal152
—
(647)8
(487)(46)—
959
(71)842
Net gains (losses) recognized related to derivatives not designated as hedging instruments$290
(490)(647)(316)(1,163)$(231)(540)959
407
595
Nine months ended September 30, 2017  
Six months ended June 30, 2018  
Net gains (losses) recognized on economic hedges derivatives:    
Interest contracts (1)$480
—
—
(64)416
$(780)—
—
6
(774)
Equity contracts—
(1,164)—
(11)(1,175)—
(598)—
5
(593)
Foreign exchange contracts—
—
—
(834)(834)—
—
—
327
327
Credit contracts—
—
—
8
8
—
—
—
(6)(6)
Subtotal (2)480
(1,164)—
(901)(1,585)(780)(598)—
332
(1,046)
Net gains (losses) recognized on customer accommodation trading and other derivatives:    
Interest contracts (3)599
—
80
—
679
(305)—
567
—
262
Commodity contracts—
—
74
—
74
Equity contracts—
—
(2,525)—
(2,525)—
—
1,114
(266)848
Foreign exchange contracts—
—
356
—
356
—
—
401
—
401
Credit contracts—
—
(59)—
(59)—
—
6
—
6
Commodity contracts—
—
138
—
138
Other—
—
—
22
22
Subtotal599
—
(2,010)22
(1,389)(305)—
2,162
(266)1,591
Net gains (losses) recognized related to derivatives not designated as hedging instruments$1,079
(1,164)(2,010)(879)(2,974)$(1,085)(598)2,162
66
545
(1)IncludesMortgage banking amounts for the second quarter and first half of 2019 are comprised of gains (losses) on theof $1.2 billion and $2.1 billion, respectively, related to derivatives used as economic hedges of MSRs measured at fair value derivative loan commitmentsoffset by gains (losses) of $(283) million and $(434) million related to derivatives used as economic hedges of mortgage loans held for sale.sale and derivative loan commitments. The corresponding amounts for the second quarter and first half of 2018 are comprised of gains (losses) of $(319) million and $(1.5) billion offset by gains (losses) of $134 million and $759 million, respectively.
(2)
Includes hedging gains (losses) of $10$(18) million and $46$(36) million for the thirdsecond quarter and first nine monthshalf of 2018,2019, respectively, and $(18)$8 million and $(64)$36 million for the thirdsecond quarter and first nine monthshalf of 2017,2018, respectively, which partially offset hedge accounting ineffectiveness.
(3)Amounts presented in mortgage banking noninterest income are gains (losses) on derivative loan commitments.

Note 15: 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 14.615.6 provides details of sold and purchased credit derivatives.
Table 14.6:15.6: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, 2018            
June 30, 2019            
Credit default swaps on:                        
Corporate bonds$23
 1,906
 391
 1,266
 640
 1,300
 2018 - 2027$1
 1,995
 472
 1,362
 633
 2,021
 2019 - 2029
Structured products55
 148
 143
 130
 18
 114
 2022 - 204731
 138
 133
 109
 29
 113
 2022 - 2047
Credit protection on:                        
Default swap index—
 2,194
 453
 308
 1,886
 3,824
 2018 - 2028—
 1,897
 194
 163
 1,734
 3,923
 2019 - 2029
Commercial mortgage-backed securities index53
 402
 122
 375
 27
 51
 2047 - 205838
 342
 87
 316
 26
 51
 2047 - 2058
Asset-backed securities index9
 43
 43
 42
 1
 1
 2045 - 20468
 41
 41
 41
 —
 1
 2045 - 2046
Other1
 4,492
 4,372
 —
 4,492
 10,663
 2018 - 20382
 6,094
 5,796
 —
 6,094
 12,904
 2019 - 2048
Total credit derivatives$141
 9,185
 5,524
 2,121
 7,064
 15,953
 $80
 10,507
 6,723
 1,991
 8,516
 19,013
 
December 31, 2017            
December 31, 2018            
Credit default swaps on:                        
Corporate bonds$35
 2,007
 510
 1,575
 432
 946
 2018 - 2027$59
 2,037
 441
 1,374
 663
 1,460
 2019 - 2027
Structured products86
 267
 252
 232
 35
 153
 2022 - 204762
 133
 128
 121
 12
 113
 2022 - 2047
Credit protection on:                        
Default swap index—
 2,626
 540
 308
 2,318
 3,932
 2018 - 20271
 3,618
 582
 1,998
 1,620
 2,896
 2019 - 2028
Commercial mortgage-backed securities index83
 423
 —
 401
 22
 87
 2047 - 205849
 389
 109
 363
 26
 51
 2047 - 2058
Asset-backed securities index9
 42
 —
 42
 —
 1
 2045 - 20469
 42
 42
 42
 —
 1
 2045 - 2046
Other1
 3,656
 3,306
 —
 3,656
 9,840
 2018 - 20312
 5,522
 5,327
 —
 5,522
 12,561
 2018 - 2048
Total credit derivatives$214
 9,021
 4,608
 2,558
 6,463
 14,959
 $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 14: 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 $7.7$10.7 billion at SeptemberJune 30, 2018,2019, and $8.3$7.4 billion at December 31, 2017,2018, for which we posted $5.9$9.2 billion and $7.1$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 SeptemberJune 30, 2018,2019, or December 31, 2017,2018, we would have been required to post additional collateral of $1.8$1.5 billion or $1.2$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 16: Fair Values of Assets and Liabilities (continued)

Note 15:16: 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 15.216.2 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 15.1316.13 in this Note.
See Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 20172018 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 20172018 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.
We do not classify an equity 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. Marketable equity securities with published NAVs continue to be classified in the fair value hierarchy.

Fair Value Measurements from Vendors
For certain assets and liabilities, we obtain fair value measurements from vendors, which predominantly consist of third-party pricing services, and record the unadjusted fair value in our financial statements. For additional information, see Note 1718 (Fair Values of Assets and Liabilities) to Financial Statements in our 2017 2018
Form 10-K. Table 15.116.1 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 15.1.16.1.
Note 15: Fair Values of Assets and Liabilities (continued)

Table 15.1:16.1:Fair Value Measurements by Brokers or Third-Party Pricing Services
Brokers  Third-party pricing services Brokers  Third-party pricing services 
(in millions)Level 1
 Level 2
 Level 3
 Level 1
 Level 2
 Level 3
Level 1
 Level 2
 Level 3
 Level 1
 Level 2
 Level 3
September 30, 2018           
June 30, 2019           
Trading debt securities$—
 —
 —
 —
 212
 —
$—
 —
 —
 534
 319
 —
Available-for-sale debt securities:                      
Securities of U.S. Treasury and federal agencies—
 —
 —
 3,267
 2,920
 —
—
 —
 —
 12,324
 2,995
 —
Securities of U.S. states and political subdivisions—
 —
 —
 —
 47,382
 40
—
 —
 —
 —
 44,642
 38
Mortgage-backed securities—
 27
 —
 —
 160,382
 41
—
 —
 —
 —
 161,260
 41
Other debt securities (1)—
 423
 967
 —
 44,451
 48
—
 45
 130
 —
 41,947
 663
Total available-for-sale debt securities—
 450
 967
 3,267
 255,135
 129
—
 45
 130
 12,324
 250,844
 742
Equity securities:                      
Marketable—
 —
 —
 —
 224
 —
—
 —
 —
 —
 160
 —
Nonmarketable—
 —
 —
 —
 1
 46
—
 —
 —
 —
 —
 —
Total equity securities—
 —
 —
 —
 225
 46
—
 —
 —
 —
 160
 —
Derivative assets—
 —
 —
 34
 —
 —
—
 —
 —
 12
 —
 —
Derivative liabilities—
 —
 —
 (38) —
 —
—
 —
 —
 (13) (2) —
Other liabilities (2)—
 —
 —
 —
 —
 —
—
 —
 —
 —
 —
 —
December 31, 2017           
December 31, 2018           
Trading debt securities$—
 —
 —
 926
 215
 —
$—
 —
 —
 899
 256
 —
Available-for-sale debt securities:                      
Securities of U.S. Treasury and federal agencies—
 —
 —
 3,389
 2,930
 —
—
 —
 —
 10,399
 2,949
 —
Securities of U.S. states and political subdivisions—
 —
 —
 —
 50,401
 49
—
 —
 —
 —
 48,377
 43
Mortgage-backed securities—
 33
 —
 —
 168,948
 75
—
 —
 —
 —
 160,162
 41
Other debt securities (1)—
 307
 1,158
 —
 44,465
 22
—
 45
 129
 —
 44,292
 758
Total available-for-sale debt securities—
 340
 1,158
 3,389
 266,744
 146
—
 45
 129
 10,399
 255,780
 842
Equity securities:                      
Marketable—
 —
 —
 —
 227
 —
—
 —
 —
 —
 158
 —
Nonmarketable—
 —
 —
 —
 —
 —
—
 —
 —
 —
 1
 —
Total equity securities—
 —
 —
 —
 227
 —
—
 —
 —
 —
 159
 —
Derivative assets—
 —
 —
 19
 —
 —
—
 —
 —
 17
 —
 —
Derivative liabilities—
 —
 —
 (19) —
 —
—
 —
 —
 (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 16: Fair Values of Assets and Liabilities (continued)

Assets and Liabilities Recorded at Fair Value on a Recurring Basis
 
Table 15.216.2 presents the balances of assets and liabilities recorded at fair value on a recurring basis.
Table 15.2:16.2: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, 2018         
June 30, 2019       
Trading debt securities:                
Securities of U.S. Treasury and federal agencies$14,234
 3,184
 —
 —
 17,418
$15,010
 3,215
 —
 —
18,225
Securities of U.S. states and political subdivisions—
 3,215
 3
 —
 3,218
—
 3,314
 —
 —
3,314
Collateralized loan obligations—
 772
 263
 —
 1,035
—
 758
 249
 —
1,007
Corporate debt securities—
 11,826
 35
 —
 11,861
—
 11,321
 44
 —
11,365
Mortgage-backed securities—
 30,662
 —
 —
 30,662
—
 35,186
 —
 —
35,186
Asset-backed securities—
 960
 —
 —
 960
—
 1,084
 —
 —
1,084
Other trading debt securities—
 17
 17
 —
 34
—
 13
 14
 —
27
Total trading debt securities14,234
 50,636
 318
 —
 65,188
15,010
 54,891
 307
 —
70,208
Available-for-sale debt securities:                
Securities of U.S. Treasury and federal agencies3,267
 2,920
 —
 —
 6,187
12,324
 2,995
 —
 —
15,319
Securities of U.S. states and political subdivisions—
 47,621
 595
 —
 48,216
—
 44,704
 391
 —
45,095
Mortgage-backed securities:                   
Federal agencies—
 153,511
 —
 —
 153,511
—
 155,858
 —
 —
155,858
Residential—
 2,966
 —
 —
 2,966
—
 1,263
 —
 —
1,263
Commercial—
 3,932
 41
 —
 3,973
—
 4,139
 41
 —
4,180
Total mortgage-backed securities—
 160,409
 41
 —
 160,450
—
 161,260
 41
 —
161,301
Corporate debt securities35
 6,191
 388
 —
 6,614
37
 5,810
 383
 —
6,230
Collateralized loan and other debt obligations (1)(2)—
 35,351
 843
 —
 36,194
—
 32,346
 649
 —
32,995
Asset-backed securities:  
   
   
   
         
Automobile loans and leases—
 547
 —
 —
 547
—
 889
 —
 —
889
Home equity loans—
 124
 —
 —
 124
—
 14
 —
 —
14
Other asset-backed securities—
 4,229
 402
 —
 4,631
—
 3,792
 341
 —
4,133
Total asset-backed securities—
 4,900
 402
 —
 5,302
—
 4,695
 341
 —
5,036
Other debt securities—
 1
 —
 —
 1
—
 7
 —
 —
7
Total available-for-sale debt securities3,302
 257,393
 2,269
(2)—
 262,964
12,361
 251,817
 1,805
(3)—
265,983
Mortgage loans held for sale—
 12,905
 980
 —
 13,885
—
 15,228
 1,115
 —
16,343
Loans held for sale—
 1,244
 22
 —
 1,266
—
 1,106
 12
 —
1,118
Loans—
 —
 286
 —
 286
—
 —
 202
 —
202
Mortgage servicing rights (residential)—
 —
 15,980
 —
 15,980
—
 —
 12,096
 —
12,096
Derivative assets:                    
Interest rate contracts19
 15,996
 48
 —
 16,063
45
 25,258
 250
 —
25,553
Commodity contracts—
 4,129
 76
 —
 4,205
—
 1,404
 20
 —
1,424
Equity contracts2,022
 4,306
 1,495
 —
 7,823
2,162
 3,300
 1,915
 —
7,377
Foreign exchange contracts34
 6,391
 9
 —
 6,434
12
 5,522
 21
 —
5,555
Credit contracts—
 172
 82
 —
 254
—
 62
 79
 —
141
Netting—
 —
 —
 (22,968)(3)(22,968)—
 —
 —
 (26,888)(26,888)
Total derivative assets2,075
 30,994
 1,710
 (22,968) 11,811
2,219
 35,546
 2,285
 (26,888)13,162
Equity securities - excluding securities at NAV:                
Marketable30,799
 1,044
 —
 —
 31,843
28,447
 259
 —
 —
28,706
Nonmarketable—
 33
  6,328
 —
 6,361
—
 16
 7,110
 —
7,126
Total equity securities$30,799
 1,077
 6,328
 —
 38,204
28,447
 275
 7,110
 —
35,832
Total assets included in the fair value hierarchy$50,410

354,249

27,893

(22,968) 409,584
$58,037

358,863

24,932

(26,888)414,944
Equity securities at NAV (4)        118
       118
Total assets recorded at fair value        $409,702
       415,062
Derivative liabilities:                   
Interest rate contracts$(16) (15,371) (156) —
 (15,543)$(55) (20,537) (45) —
(20,637)
Commodity contracts—
 (1,701) (15) —
 (1,716)—
 (1,887) (49) —
(1,936)
Equity contracts(1,411) (5,544) (1,769) —
 (8,724)(1,509) (5,526) (2,143) —
(9,178)
Foreign exchange contracts(38) (6,301) (30) —
 (6,369)(13) (6,224) (31) —
(6,268)
Credit contracts—
 (263) (55) —
 (318)—
 (63) (34) —
(97)
Netting—
 —
 —
 24,084
(3)24,084
—
 —
 —
 29,717
29,717
Total derivative liabilities(1,465) (29,180) (2,025) 24,084
  (8,586)(1,577) (34,237) (2,302) 29,717
(8,399)
Short sale liabilities:                    
Securities of U.S. Treasury and federal agencies(14,334) (609) —
 —
 (14,943)(7,768) (230) —
 —
(7,998)
Mortgage-backed securities—
 (121) —
 —
 (121)—
 (533) —
 —
(533)
Asset-backed securities—
 (10) —
 —
(10)
Corporate debt securities—
 (5,416) —
 —
 (5,416)—
 (4,887) —
 —
(4,887)
Equity securities(3,506) (5) —
 —
 (3,511)(2,527) —
 —
 —
(2,527)
Other securities—
 (1) —
 —
 (1)—
 —
 —
 —
—
Total short sale liabilities(17,840) (6,152) —
 —
 (23,992)(10,295) (5,660) —
 —
(15,955)
Other liabilities—
 —
 (2) —
 (2)—
 —
 (2) —
(2)
Total liabilities recorded at fair value$(19,305) (35,332) (2,027) 24,084
 (32,580)$(11,872) (39,897) (2,304) 29,717
(24,356)
(1)
Includes collateralized debt obligationsRepresents balance sheet netting of $843 million.
derivative asset and liability balances and related cash collateral. See Note 15 (Derivatives) for additional information.
(2)Includes collateralized debt obligations of $649 million.
(3)A significant portion of the balance consists of securities that are 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)Represents balance sheet netting of derivative asset and liability balances and related cash collateral. See Note 14 (Derivatives) for additional information.
(4)Consists of certain nonmarketable equity securities 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 15: 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, 2017         
December 31, 2018       
Trading debt securities:                
Securities of U.S. Treasury and federal agencies$12,491
 2,383
 —
 —
 14,874
$20,525
 2,892
 —
 —
23,417
Securities of U.S. states and political subdivisions—
 3,732
 3
 —
 3,735
—
 3,272
 3
 —
3,275
Collateralized loan obligations—
 565
 354
 —
 919
—
 673
 237
 —
910
Corporate debt securities—
 11,760
 31
 —
 11,791
—
 10,723
 34
 —
10,757
Mortgage-backed securities—
 25,273
 —
 —
 25,273
—
 30,715
 —
 —
30,715
Asset-backed securities—
 993
 —
 —
 993
—
 893
 —
 —
893
Other trading debt securities—
 20
 19
 —
 39
—
 6
 16
 —
22
Total trading debt securities12,491
 44,726
 407
 —
 57,624
20,525
 49,174
 290
 —
69,989
Available-for-sale debt securities:                
Securities of U.S. Treasury and federal agencies3,389
 2,930
 —
 —
 6,319
10,399
 2,949
 —
 —
13,348
Securities of U.S. states and political subdivisions—
 50,401
 925
 —
 51,326
—
 48,820
 444
 —
49,264
Mortgage-backed securities:        
       
Federal agencies—
 160,219
 —
 —
 160,219
—
 153,203
 —
 —
153,203
Residential—
 4,607
 1
 —
 4,608
—
 2,775
 —
 —
2,775
Commercial—
 4,490
 75
 —
 4,565
—
 4,184
 41
 —
4,225
Total mortgage-backed securities—
 169,316
 76
 —
 169,392
—
 160,162
 41
 —
160,203
Corporate debt securities56
 7,203
 407
 —
 7,666
34
 5,867
 370
 —
6,271
Collateralized loan and other debt obligations (1)(2)—
 35,036
 1,020
 —
 36,056
—
 34,543
 800
 —
35,343
Asset-backed securities:        
       
Automobile loans and leases—
 553
 —
 —
 553
—
 925
 —
 —
925
Home equity loans—
 149
 —
 —
 149
—
 112
 —
 —
112
Other asset-backed securities—
 4,380
 566
 —
 4,946
—
 4,056
 389
 —
4,445
Total asset-backed securities—
 5,082
 566
 —
 5,648
—
 5,093
 389
 —
5,482
Other debt securities—
 —
 —
  —
 —
—
 1
 —
 —
1
Total available-for-sale debt securities3,445
 269,968
 2,994
(2)—
 276,407
10,433
 257,435
 2,044
(3)—
269,912
Mortgage loans held for sale—
 15,118
 998
 —
 16,116
—
 10,774
 997
 —
11,771
Loans held for sale—
 1,009
 14
 —
 1,023
—
 1,409
 60
 —
1,469
Loans—
 —
 376
 —
 376
—
 —
 244
 —
244
Mortgage servicing rights (residential)—
 —
 13,625
 —
 13,625
—
 —
 14,649
 —
14,649
Derivative assets:            
       
Interest rate contracts17
 17,479
 134
 —
 17,630
46
 18,294
 95
 —
18,435
Commodity contracts—
 2,318
 36
 —
 2,354
—
 1,535
 53
 —
1,588
Equity contracts1,698
 3,970
 1,339
 —
 7,007
1,648
 4,582
 1,315
 —
7,545
Foreign exchange contracts19
 8,944
 10
 —
 8,973
17
 6,689
 8
 —
6,714
Credit contracts—
 269
 122
 —
 391
—
 179
 99
 —
278
Netting—
 —
 —
 (24,127)(3)(24,127)—
 —
 —
 (23,790)(23,790)
Total derivative assets1,734
 32,980
 1,641
 (24,127) 12,228
1,711
 31,279
 1,570
 (23,790)10,770
Equity securities - excluding securities at NAV:                
Marketable33,931
 429
 —
 —
 34,360
23,205
 757
 —
 —
23,962
Nonmarketable—
 46
 4,821
 —
 4,867
—
 24
 5,468
 —
5,492
Total equity securities$33,931
 475
 4,821
 —
 39,227
23,205
 781
 5,468
 —
29,454
Total assets included in the fair value hierarchy$51,601
 364,276
 24,876
 (24,127) 416,626
$55,874
 350,852
 25,322
 (23,790)408,258
Equity securities at NAV (4)        —
       102
Total assets recorded at fair value

 

 

 

 $416,626


 

 

 

408,360
Derivative liabilities:            
       
Interest rate contracts$(17) (15,392) (63) —
 (15,472)$(21) (16,217) (70) —
(16,308)
Commodity contracts—
 (1,318) (17) —
 (1,335)—
 (2,287) (49) —
(2,336)
Equity contracts(1,313) (5,338) (1,850) —
 (8,501)(1,492) (3,186) (1,332) —
(6,010)
Foreign exchange contracts(19) (8,546) (3) —
 (8,568)(12) (7,067) (34) —
(7,113)
Credit contracts—
 (336) (86) —
 (422)—
 (216) (64) —
(280)
Netting—
 —
 —
 25,502
(3)25,502
—
 —
 —
 23,548
23,548
Total derivative liabilities(1,349) (30,930) (2,019) 25,502
 (8,796)(1,525) (28,973) (1,549) 23,548
(8,499)
Short sale liabilities:            

       

Securities of U.S. Treasury and federal agencies(10,420) (568) —
 —
 (10,988)(11,850) (411) —
 —
(12,261)
Mortgage-backed securities—
 (47) —
 —
(47)
Corporate debt securities—
 (4,986) —
 —
 (4,986)—
 (4,505) —
 —
(4,505)
Equity securities(2,168) (45) —
 —
 (2,213)(2,902) (2) —
 —
(2,904)
Other securities—
 (285) —
 —
 (285)—
 (3) —
 —
(3)
Total short sale liabilities(12,588) (5,884) —
 —
 (18,472)(14,752) (4,968) —
 —
(19,720)
Other liabilities—
 —
 (3) —
 (3)—
 —
 (2) —
(2)
Total liabilities recorded at fair value$(13,937) (36,814) (2,022) 25,502
 (27,271)$(16,277) (33,941) (1,551) 23,548
(28,221)
(1)
Includes collateralized debt obligationsRepresents balance sheet netting of $1.0 billion.
derivative asset and liability balances and related cash collateral. See Note 15 (Derivatives) for additional information.
(2)Balance primarilyIncludes collateralized debt obligations of $800 million.
(3)A significant portion of the balance consists of securities that are 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)Represents balance sheet netting of derivative asset and liability balances and related cash collateral. See Note 14 (Derivatives) for additional information.
(4)Consists of certain nonmarketable equity securities 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 16: 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. The amounts reported as transfers represent the fair value as of the beginning of the quarter in which the transfer occurred. The changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the quarter ended September 30, 2018, are presented in Table 15.3.

Table 15.3:Changes in Level 3 Fair Value Assets and Liabilities on a Recurring Basis – Quarter ended September 30, 2018
    
 
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 (2)

 
Transfers
out of
Level 3 (3)

 
Balance,
end of
period

 (4)
Quarter ended September 30, 2018                        
Trading debt securities:                        
Securities of U.S. states and political subdivisions$3
 —
 —
 —
 —
 —
 3
 —
  
Collateralized loan obligations291
 2
 —
 (26) —
 (4) 263
 1
  
Corporate debt securities36
 2
 —
 7
 —
 (10) 35
 2
  
Mortgage-backed securities—
 —
 —
 —
 —
 —
 —
 —
  
Asset-backed securities—
 —
 —
 —
 —
 —
 —
 —
  
Other trading debt securities17
 —
 —
 —
 —
 —
 17
 1
 
Total trading debt securities347
 4
 —
 (19) —
 (14) 318
 4
(5)
Available-for-sale debt securities:                         
Securities of U.S. states and political subdivisions559
 —
 (3) 39
 —
 —
 595
 —
  
Mortgage-backed securities:      ��                 
Residential—
 —
 1
 (1) —
 —
 —
 —
  
Commercial53
 (1) —
 (11) —
 —
 41
 (1)  
Total mortgage-backed securities53
 (1) 1
 (12) —
 —
 41
 (1) 
Corporate debt securities443
 2
 (2) (55) —
 —
 388
 —
  
Collateralized loan and other debt obligations1,037
 44
 (33) (205) —
 —
 843
 —
  
Asset-backed securities:                        
Automobile loans and leases—
 —
 —
 —
 —
 —
 —
 —
  
Other asset-backed securities401
 (4) (2) 7
 —
 —
 402
 (3)  
Total asset-backed securities401
 (4) (2) 7
 —
 —
 402
 (3)  
Total available-for-sale debt securities2,493
 41
 (39) (226) —
 —
 2,269
 (4)(6)
Mortgage loans held for sale986
 (12) —
 (8) 16
 (2) 980
 (12)(7)
Loans held for sale20
 1
 —
 1
 —
 —
 22
 —
 
Loans321
 —
 —
 (35) —
 —
 286
 (5)(7)
Mortgage servicing rights (residential)(8)15,411
 69
 —
 500
 —
 —
 15,980
 531
(7)
Net derivative assets and liabilities:                        
Interest rate contracts(41) (103) —
 36
 —
 —
 (108) (43)  
Commodity contracts26
 29
 —
 6
 —
 —
 61
 38
  
Equity contracts(339) (30) —
 89
 —
 6
 (274) (74)  
Foreign exchange contracts(15) (10) —
 4
 —
 —
 (21) (4)  
Credit contracts24
 5
 —
 (2) —
 —
 27
 3
  
Other derivative contracts—
 —
 —
 —
 —
 —
 —
 —
  
Total derivative contracts(345) (109) —
 133
 —
 6
 (315) (80)(9)
Equity securities:                
Marketable—
 —
 —
 —
 —
 —
 —
 —
 
Nonmarketable5,806
 817
 —
 (295) —
 —
 6,328
 770
 
Total equity securities5,806
 817
 —
 (295) —
 —
 6,328
 770
(10)
Short sale liabilities—
 —
 —
 —
 —
 —
 —
 —
(5)
Other liabilities(2) —
 —
 —
 —
 —
 (2) —
(7)
(1)See Table 15.4 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.
(5)Included in net gains (losses) from trading activities in the income statement.
(6)Included in net gains (losses) from debt securities in the income statement.
(7)Included in mortgage banking and other noninterest income in the income statement.
(8)For more information on the changes in mortgage servicing rights, see Note 10 (Mortgage Banking Activities).
(9)Included in mortgage banking, trading activities, equity securities 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 15: Fair Values of Assets and Liabilities (continued)

(continued from previous page)
Table 15.4 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 the quarter ended September 30, 2018.
Table 15.4:Gross Purchases, Sales, Issuances and Settlements – Level 3 – Quarter ended September 30, 2018
(in millions)Purchases
 Sales
 Issuances
 Settlements
 Net
Quarter ended September 30, 2018              
Trading debt securities:              
Securities of U.S. states and political subdivisions$—
 —
 —
 —
 —
Collateralized loan obligations75
 (70) —
 (31) (26)
Corporate debt securities8
 (1) —
 —
 7
Mortgage-backed securities—
 —
 —
 —
 —
Asset-backed securities—
 —
 —
 —
 —
Other trading debt securities—
 —
 —
 —
 —
Total trading debt securities83
 (71) —
 (31) (19)
Available-for-sale debt securities:              
Securities of U.S. states and political subdivisions—
 —
 69
 (30) 39
Mortgage-backed securities:              
Residential—
 —
 —
 (1) (1)
Commercial—
 —
 —
 (11) (11)
Total mortgage-backed securities—
 —
 —
 (12) (12)
Corporate debt securities—
 —
 —
 (55) (55)
Collateralized loan and other debt obligations—
 (149) —
 (56) (205)
Asset-backed securities:              
Automobile loans and leases—
 —
 —
 —
 —
Other asset-backed securities—
 —
 96
 (89) 7
Total asset-backed securities—
 —
 96
 (89) 7
Total available-for-sale debt securities—
 (149) 165
 (242) (226)
Mortgage loans held for sale17
 (89) 104
 (40) (8)
Loans held for sale1
 —
 —
 —
 1
Loans2
 —
 5
 (42) (35)
Mortgage servicing rights (residential) (1)—
 (2) 502
 —
 500
Net derivative assets and liabilities:              
Interest rate contracts—
 —
 —
 36
 36
Commodity contracts—
 —
 —
 6
 6
Equity contracts3
 (37) —
 123
 89
Foreign exchange contracts—
 —
 —
 4
 4
Credit contracts1
 (2) —
 (1) (2)
Other derivative contracts—
 —
 —
 —
 —
Total derivative contracts4
 (39) —
 168
 133
Equity securities:         
Marketable—
 —
 —
 —
 —
Nonmarketable—
 —
 —
 (295) (295)
Total equity securities—
 —
 —
 (295) (295)
Short sale liabilities—
 —
 —
 —
 —
Other liabilities—
 —
 —
 —
 —
(1)For more information on the changes in mortgage servicing rights, see Note 10 (Mortgage Banking Activities).


The changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the quarter ended SeptemberJune 30, 2017,2019, are presented in Table 15.5.16.3.

Table 15.5:16.3:Changes in Level 3 Fair Value Assets and Liabilities on a Recurring Basis – Quarter ended SeptemberJune 30, 20172019
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

    
 
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) 
Net
income 

 
Other
compre-
hensive
income

 
Transfers
into
Level 3 (2)

 
Transfers
out of
Level 3 (3)

 
Balance,
end of
period

 (4)
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                         
Quarter ended June 30, 2019                        
Trading debt securities:                                                 
Securities of U.S. states and
political subdivisions
$9
 —
 —
 (6) —
 —
 3
 —
  $—
 —
 —
 —
 —
 —
 —
 —
  
Collateralized loan obligations403
 —
 —
 (20) —
 —
 383
 (4)  275
 (2) —
 (24) —
 —
 249
 (6)  
Corporate debt securities26
 —
 —
 6
 2
 —
 34
 —
  41
 1
 —
 3
 —
 (1) 44
 1
  
Mortgage-backed securities—
 —
 —
 —
 —
 —
 —
 —
  
Asset-backed securities—
 —
 —
 —
 —
 —
 —
 —
  
Other trading debt securities25
 —
 —
 —
 —
 —
 25
 —
  15
 (1) —
 —
 —
 —
 14
 —
 
Total trading debt securities463
 —
 —
 (20) 2
 —
 445
 (4)(5)331
 (2) —
 (21) —
 (1) 307
 (5)(5)
Available-for-sale debt securities:                                                  
Securities of U.S. states and political subdivisions1,557
 3
 3
 (19) —
 (838) 706
 —
  470
 1
 2
 (33) —
 (49) 391
 —
  
Mortgage-backed securities:                                                
Residential1
 —
 —
 —
 —
 —
 1
 —
  —
 —
 —
 —
 —
 —
 —
 —
  
Commercial75
 —
 1
 —
 —
 —
 76
 —
  41
 —
 —
 —
 —
 —
 41
 —
  
Total mortgage-backed securities76
 —
 1
 —
 —
 —
 77
 —
  41
 —
 —
 —
 —
 —
 41
 —
 
Corporate debt securities376
 1
 4
 (1) —
 —
 380
 —
  377
 —
 (1) 7
 —
 —
 383
 —
  
Collateralized loan and other debt obligations1,002
 7
 25
 (20) —
 —
 1,014
 —
  755
 7
 (6) (107) —
 —
 649
 —
  
Asset-backed securities:                                               
Automobile loans and leases—
 —
 —
 —
 —
 —
 —
 —
  
Other asset-backed securities872
 1
 2
 (240) —
 —
 635
 —
  362
 —
 —
 (21) —
 —
 341
 —
  
Total asset-backed securities872
 1
 2
 (240) —
 —
 635
 —
  362
 —
 —
 (21) —
 —
 341
 —
  
Total available-for-sale debt securities3,883
 12
 35
 (280) —
 (838) 2,812
 —
(6)2,005
 8
 (5) (154) —
 (49) 1,805
 —
(6)
Mortgage loans held for sale995
 (10) —
 (6) 55
 (2) 1,032
 (11)(7)998
 37
 —
 (22) 104
 (2) 1,115
 39
(7)
Loans held for sale14
 —
 —
 (1) 18
 —
 31
 —
 71
 —
 —
 (3) —
 (56) 12
 —
 
Loans443
 —
 —
 (33) —
 —
 410
 (3)(7)225
 1
 —
 (24) —
 —
 202
 (2)(7)
Mortgage servicing rights (residential) (8)12,789
 (661) —
 1,210
 —
 —
 13,338
 (142)(7)
Mortgage servicing rights (residential)(8)13,336
 (1,639) —
 399
 —
 —
 12,096
 (1,078)(7)
Net derivative assets and liabilities:                                                
Interest rate contracts115
 158
 —
 (159) —
 —
 114
 8
  101
 237
 —
 (133) —
 —
 205
 141
  
Commodity contracts17
 (16) —
 9
 2
 —
 12
 7
  (18) (75) —
 64
 —
 —
 (29) (10)  
Equity contracts(471) (70) —
 (27) (17) (6) (591) (130)  (162) 15
 —
 (66) (2) (13) (228) (29)  
Foreign exchange contracts4
 3
 —
 —
 —
 —
 7
 1
  (16) 3
 —
 3
 —
 —
 (10) 7
  
Credit contracts72
 (6) —
 (13) —
 —
 53
 (6)  49
 (3) —
 (1) —
 —
 45
 (3)  
Other derivative contracts(34) 8
 —
 —
 —
 —
 (26) 8
  
Total derivative contracts(297) 77
 —
 (190) (15) (6) (431) (112)(9)(46) 177
 —
 (133) (2) (13) (17) 106
(9)
Equity securities:                                
Marketable—
 —
 —
 —
 —
 —
 —
 —
 
Nonmarketable3,960
 513
 —
 —
 —
 —
 4,473
 513
 6,381
 724
 —
 —
 5
 —
 7,110
 724
 
Total equity securities3,960
 513
 —
 —
 —
 —
 4,473
 513
(10)6,381
 724
 —
 —
 5
 —
 7,110
 724
(10)
Short sale liabilities—
 —
 —
 (3) —
 —
 (3) —
(5)
Other liabilities(3) —
 —
 —
 —
 —
 (3) —
(7)(2) —
 —
 —
 —
 —
 (2) —
(7)
(1)See Table 15.616.4 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.
(5)Included in net gains (losses) from trading activities in the income statement.
(6)Included in net gains (losses) fromon debt securities in the income statement.
(7)Included in mortgage banking and other noninterest income in the income statement.
(8)For more information on the changes in mortgage servicing rights, see Note 1011 (Mortgage Banking Activities).
(9)Included in mortgage banking, trading activities, equity securities 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 15: Fair Values of Assets and Liabilities (continued)


(continued from previous page)
 
Table 15.616.4 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 the quarter ended SeptemberJune 30, 2017.2019.
Table 15.6:16.4:Gross Purchases, Sales, Issuances and Settlements – Level 3 – Quarter ended SeptemberJune 30, 20172019
(in millions)Purchases
 Sales
 Issuances
 Settlements
 Net
Purchases
 Sales
 Issuances
 Settlements
 Net
Quarter ended September 30, 2017         
Quarter ended June 30, 2019              
Trading debt securities:                       
Securities of U.S. states and political subdivisions$30
 (35) —
 (1) (6)$—
 —
 —
 —
 —
Collateralized loan obligations51
 (36) —
 (35) (20)44
 (65) —
 (3) (24)
Corporate debt securities9
 (3) —
 —
 6
6
 (3) —
 —
 3
Mortgage-backed securities—
 —
 —
 —
 —
Asset-backed securities—
 —
 —
 —
 —
Other trading debt securities—
 —
 —
 —
 —
—
 —
 —
 —
 —
Total trading debt securities90
 (74) —
 (36) (20)50
 (68) —
 (3) (21)
Available-for-sale debt securities:                       
Securities of U.S. states and political subdivisions—
 (68) 98
 (49) (19)—
 —
 6
 (39) (33)
Mortgage-backed securities:                       
Residential—
 —
 —
 —
 —
—
 —
 —
 —
 —
Commercial—
 —
 —
 —
 —
—
 —
 —
 —
 —
Total mortgage-backed securities—
 —
 —
 —
 —
—
 —
 —
 —
 —
Corporate debt securities—
 —
 —
 (1) (1)8
 —
 —
 (1) 7
Collateralized loan and other debt obligations6
 —
 —
 (26) (20)—
 —
 —
 (107) (107)
Asset-backed securities:                       
Automobile loans and leases—
 —
 —
 —
 —
Other asset-backed securities—
 —
 16
 (256) (240)—
 (2) 57
 (76) (21)
Total asset-backed securities—
 —
 16
 (256) (240)—
 (2) 57
 (76) (21)
Total available-for-sale debt securities6
 (68) 114
 (332) (280)8
 (2) 63
 (223) (154)
Mortgage loans held for sale17
 (130) 147
 (40) (6)30
 (47) 54
 (59) (22)
Loans held for sale—
 (1) —
 —
 (1)—
 (1) —
 (2) (3)
Loans2
 —
 5
 (40) (33)—
 —
 2
 (26) (24)
Mortgage servicing rights (residential) (1)541
 64
 605
 —
 1,210
—
 (1) 400
 —
 399
Net derivative assets and liabilities:                       
Interest rate contracts—
 —
 —
 (159) (159)—
 —
 —
 (133) (133)
Commodity contracts—
 —
 —
 9
 9
—
 —
 —
 64
 64
Equity contracts—
 (48) —
 21
 (27)—
 —
 —
 (66) (66)
Foreign exchange contracts—
 —
 —
 —
 —
—
 —
 —
 3
 3
Credit contracts1
 —
 —
 (14) (13)2
 (3) —
 —
 (1)
Other derivative contracts—
 —
 —
 —
 —
Total derivative contracts1
 (48) —
 (143) (190)2
 (3) —
 (132) (133)
Equity securities:                  
Marketable—
 —
 —
 —
 —
Nonmarketable—
 —
 —
 —
 —
—
 —
 —
 —
 —
Total equity securities—
 —
 —
 —
 —
—
 —
 —
 —
 —
Short sale liabilities—
 (3) —
 —
 (3)
Other liabilities—
 —
 —
 —
 —
—
 —
 —
 —
 —
(1)For more information on the changes in mortgage servicing rights, see Note 1011 (Mortgage Banking Activities).


Note 16: Fair Values of Assets and Liabilities (continued)


(continued from previous page)

TheTable 16.5 presents gross purchases, sales, issuances and settlements related to the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the first nine months of 2018, are presented in quarter ended June 30, 2018.
Table 15.7.
Table 15.7:16.5:Changes in Level 3 Fair Value Assets and Liabilities on a Recurring Basis – Nine monthsQuarter ended SeptemberJune 30, 2018
  
 
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)
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

 (4) 
Net
income 

 
Other
compre-
hensive
income

 
Transfers
into
Level 3 (2)

 
Transfers
out of
Level 3 (3)

 
Balance,
end of
period

 (4)
Nine months ended September 30, 2018                        
Quarter ended June 30, 2018                         
Trading debt securities:                                                 
Securities of U.S. states and
political subdivisions
$3
 —
 —
 —
 —
 —
 3
 —
  $3
 —
 —
 —
 —
 —
 3
 —
  
Collateralized loan obligations354
 (2) —
 (85) —
 (4) 263
 —
  316
 (6) —
 (19) —
 —
 291
 (8)  
Corporate debt securities31
 2
 —
 13
 —
 (11) 35
 4
  34
 —
 —
 3
 —
 (1) 36
 1
  
Mortgage-backed securities—
 —
 —
 —
 —
 —
 —
 —
  
Asset-backed securities—
 —
 —
 —
 —
 —
 —
 —
  
Other trading debt securities19
 (2) —
 —
 —
 —
 17
 —
 18
 (1) —
 —
 —
 —
 17
 —
  
Total trading debt securities407
 (2) —
 (72) —
 (15) 318
 4
(5)371
 (7) —
 (16) —
 (1) 347
 (7)(5)
Available-for-sale debt securities:                                                  
Securities of U.S. states and political subdivisions925
 5
 (5) (51) —
 (279) 595
 —
  617
 1
 —
 (49) —
 (10) 559
 —
  
Mortgage-backed securities:                                                
Residential1
 —
 —
 (1) —
 —
 —
 —
  1
 —
 (1) —
 —
 —
 —
 —
  
Commercial75
 —
 (2) (32) —
 —
 41
 (2)  67
 —
 (1) (13) —
 —
 53
 —
  
Total mortgage-backed securities76
 —
 (2) (33) —
 —
 41
 (2) 68
 —
 (2) (13) —
 —
 53
 —
  
Corporate debt securities407
 4
 2
 (25) —
 —
 388
 —
  410
 1
 1
 31
 —
 —
 443
 —
  
Collateralized loan and other debt obligations1,020
 55
 20
 (252) —
 —
 843
 —
  1,045
 6
 10
 (24) —
 —
 1,037
 —
  
Asset-backed securities:                                               
Automobile loans and leases—
 —
 —
 —
 —
 —
 —
 —
  
Other asset-backed securities566
 4
 (10) (158) —
 —
 402
 (3)  501
 —
 (1) (99) —
 —
 401
 —
  
Total asset-backed securities566
 4
 (10) (158) —
 —
 402
 (3)  501
 —
 (1) (99) —
 —
 401
 —
  
Total available-for-sale debt securities2,994
 68
 5
 (519) —
 (279) 2,269
 (5)(6)2,641
 8
 8
 (154) —
 (10) 2,493
 —
(6)
Mortgage loans held for sale998
 (46) —
 (20) 56
 (8) 980
 (42)(7)950
 (11) —
 25
 25
 (3) 986
 (11)(7)
Loans held for sale14
 2
 —
 (15) 21
 —
 22
 —
 —
 (1) —
 —
 21
 —
 20
 —
 
Loans376
 (1) —
 (89) —
 —
 286
 (9)(7)352
 —
 —
 (31) —
 —
 321
 (4)(7)
Mortgage servicing rights (residential) (8)13,625
 801
 —
 1,554
 —
 —
 15,980
 2,206
(7)15,041
 (115) —
 485
 —
 —
 15,411
 345
(7)
Net derivative assets and liabilities:                                               
Interest rate contracts71
 (511) —
 332
 —
 —
 (108) (163)  (8) (63) —
 30
 —
 —
 (41) 6
  
Commodity contracts19
 59
 —
 (20) 3
 —
 61
 60
  10
 15
 —
 (2) 3
 —
 26
 21
  
Equity contracts(511) 27
 —
 153
 —
 57
 (274) (67)  (322) (12) —
 (7) —
 2
 (339) 261
  
Foreign exchange contracts7
 (35) —
 7
 —
 —
 (21) (23)  1
 (18) —
 2
 —
 —
 (15) (13)  
Credit contracts36
 1
 —
 (10) —
 —
 27
 (6)  41
 (12) —
 (5) —
 —
 24
 (17)  
Other derivative contracts—
 —
 —
 —
 —
 —
 —
 —
  
Total derivative contracts(378) (459) —
 462
 3
 57
 (315) (199)(9)(278) (90) —
 18
 3
 2
 (345) 258
(9)
Equity securities:                                
Marketable—
 —
 —
 —
 —
 —
 —
 —
 
Nonmarketable (10)5,203
 1,510
 —
 (391) 10
 (4) 6,328
 1,457
 
Nonmarketable5,219
 585
 —
 —
 6
 (4) 5,806
 586
 
Total equity securities5,203
 1,510
 —
 (391) 10
 (4) 6,328
 1,457
(11)5,219
 585
 —
 —
 6
 (4) 5,806
 586
(10)
Short sale liabilities—
 —
 —
 —
 —
 —
 —
 —
(5)
Other liabilities(3) 1
 —
 —
 —
 —
 (2) —
(7)(2) —
 —
 —
 —
 —
 (2) —
(7)
(1)See Table 15.816.6 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.
(5)Included in net gains (losses) from trading activities in the income statement.
(6)Included in net gains (losses) fromon debt securities in the income statement.
(7)Included in mortgage banking and other noninterest income in the income statement.
(8)For more information on the changes in mortgage servicing rights, see Note 1011 (Mortgage Banking Activities).
(9)Included in mortgage banking, trading activities, equity securities and other noninterest income in the income statement.
(10)
Beginning balance includes $382 million of auction rate securities, which changed from the cost to fair value method of accounting in connection with the adoption of ASU 2016-01 in first quarter 2018.
(11)Included in net gains (losses) from equity securities in the income statement.
(continued on following page)

Note 15: Fair Values of Assets and Liabilities (continued)



(continued from previous page)
 
Table 15.816.6 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 the first nine months ofquarter ended June 30, 2018.
Table 15.8:16.6:Gross Purchases, Sales, Issuances and Settlements – Level 3 – Nine monthsQuarter ended SeptemberJune 30, 2018
(in millions)Purchases
 Sales
 Issuances
 Settlements
 Net
Quarter ended June 30, 2018         
Trading debt securities:         
Securities of U.S. states and political subdivisions$—
 —
 —
 —
 —
Collateralized loan obligations89
 (39) —
 (69) (19)
Corporate debt securities4
 (1) —
 —
 3
Other trading debt securities—
 —
 —
 —
 —
Total trading debt securities93
 (40) —
 (69) (16)
Available-for-sale debt securities:         
Securities of U.S. states and political subdivisions—
 —
 —
 (49) (49)
Mortgage-backed securities:         
Residential—
 —
 —
 —
 —
Commercial—
 —
 —
 (13) (13)
Total mortgage-backed securities—
 —
 —
 (13) (13)
Corporate debt securities31
 —
 —
 —
 31
Collateralized loan and other debt obligations—
 —
 —
 (24) (24)
Asset-backed securities:         
Other asset-backed securities—
 —
 9
 (108) (99)
Total asset-backed securities—
 —
 9
 (108) (99)
Total available-for-sale debt securities31
 —
 9
 (194) (154)
Mortgage loans held for sale20
 (68) 109
 (36) 25
Loans held for sale—
 —
 —
 —
 —
Loans—
 —
 4
 (35) (31)
Mortgage servicing rights (residential) (1)—
 (1) 486
 —
 485
Net derivative assets and liabilities:         
Interest rate contracts—
 —
 —
 30
 30
Commodity contracts—
 —
 —
 (2) (2)
Equity contracts—
 —
 —
 (7) (7)
Foreign exchange contracts—
 —
 —
 2
 2
Credit contracts5
 (2) —
 (8) (5)
Total derivative contracts5
 (2) —
 15
 18
Equity securities:         
Nonmarketable—
 —
 —
 —
 —
Total equity securities—
 —
 —
 —
 —
Other liabilities—
 —
 —
 —
 —
(in millions)Purchases
 Sales
 Issuances
 Settlements
 Net
Nine months ended September 30, 2018              
Trading debt securities:              
Securities of U.S. states and political subdivisions$—
 —
 —
 —
 —
Collateralized loan obligations346
 (300) —
 (131) (85)
Corporate debt securities16
 (3) —
 —
 13
Mortgage-backed securities—
 —
 —
 —
 —
Asset-backed securities—
 —
 —
 —
 —
Other trading debt securities—
 —
 —
 —
 —
Total trading debt securities362
 (303) —
 (131) (72)
Available-for-sale debt securities:              
Securities of U.S. states and political subdivisions—
 (4) 79
 (126) (51)
Mortgage-backed securities:              
Residential—
 —
 —
 (1) (1)
Commercial—
 —
 —
 (32) (32)
Total mortgage-backed securities—
 —
 —
 (33) (33)
Corporate debt securities31
 —
 —
 (56) (25)
Collateralized loan and other debt obligations—
 (149) —
 (103) (252)
Asset-backed securities:              
Automobile loans and leases—
 —
 —
 —
 —
Other asset-backed securities—
 (8) 154
 (304) (158)
Total asset-backed securities—
 (8) 154
 (304) (158)
Total available-for-sale debt securities31
 (161) 233
 (622) (519)
Mortgage loans held for sale64
 (240) 271
 (115) (20)
Loans held for sale1
 (16) —
 —
 (15)
Loans3
 —
 13
 (105) (89)
Mortgage servicing rights (residential) (1)—
 (7) 1,561
 —
 1,554
Net derivative assets and liabilities:              
Interest rate contracts—
 —
 —
 332
 332
Commodity contracts—
 —
 —
 (20) (20)
Equity contracts3
 (37) —
 187
 153
Foreign exchange contracts—
 —
 —
 7
 7
Credit contracts9
 (6) —
 (13) (10)
Other derivative contracts—
 —
 —
 —
 —
Total derivative contracts12
 (43) —
 493
 462
Equity securities:         
Marketable—
 —
 —
 —
 —
Nonmarketable—
 (17) —
 (374) (391)
Total equity securities—
 (17) —
 (374) (391)
Short sale liabilities—
 —
 —
 —
 —
Other liabilities—
 —
 —
 —
 —

(1)For more information on the changes in mortgage servicing rights, see Note 1011 (Mortgage Banking Activities).



Note 16: Fair Values of Assets and Liabilities (continued)

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the first nine monthshalf of 2017,2019, are presented in Table 15.9.16.7.

Table 15.9:16.7:Changes in Level 3 Fair Value Assets and Liabilities on a Recurring Basis – NineSix months ended SeptemberJune 30, 20172019
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

    
 
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) 
Net
income 

 
Other
compre-
hensive
income

 
Transfers
into
Level 3 (2)

 
Transfers
out of
Level 3 (3)

 
Balance,
end of
period

 (4)
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

  
Nine months ended September 30, 2017                         
Six months ended June 30, 2019                        
Trading debt securities:                                                 
Securities of U.S. states and
political subdivisions		$3
 —
 —
 —
 —
 —
 3
 —
  $3
 —
 —
 (2) —
 (1) —
 —
  
Collateralized loan obligations309
 (3) —
 77
 —
 —
 383
 (12)  237
 (5) —
 17
 —
 —
 249
 (4)  
Corporate debt securities34
 1
 —
 (5) 5
 (1) 34
 —
  34
 3
 —
 7
 1
 (1) 44
 3
  
Mortgage-backed securities—
 —
 —
 —
 —
 —
 —
 —
  
Asset-backed securities—
 —
 —
 —
 —
 —
 —
 —
  
Other trading debt securities28
 (3) —
 —
 —
 —
 25
 (2) 16
 (2) —
 —
 —
 —
 14
 —
 
Total trading debt securities374
 (5) —
 72
 5
 (1) 445
 (14)(5)290
 (4) —
 22
 1
 (2) 307
 (1)(5)
Available-for-sale debt securities:                                                  
Securities of U.S. states and political subdivisions1,140
 4
 7
 884
 5
 (1,334) 706
 —
  444
 1
 5
 (10) —
 (49) 391
 —
  
Mortgage-backed securities:                                                
Residential1
 —
 —
 —
 —
 —
 1
 —
  —
 —
 —
 —
 —
 —
 —
 —
  
Commercial91
 (6) —
 (9) —
 —
 76
 (11)  41
 —
 —
 —
 —
 —
 41
 —
  
Total mortgage-backed securities92
 (6) —
 (9) —
 —
 77
 (11) 41
 —
 —
 —
 —
 —
 41
 —
 
Corporate debt securities432
 (13) 14
 (53) —
 —
 380
 —
  370
 1
 3
 9
 —
 —
 383
 —
  
Collateralized loan and other debt obligations879
 17
 70
 48
 —
 —
 1,014
 —
  800
 13
 (10) (154) —
 —
 649
 —
  
Asset-backed securities:                                                
Automobile loans and leases—
 —
 —
 —
 —
 —
 —
 —
  
Other asset-backed securities962
 1
 5
 (333) —
 —
 635
 —
  389
 —
 (1) (47) —
 —
 341
 —
  
Total asset-backed securities962
 1
 5
 (333) —
 —
 635
 —
  389
 —
 (1) (47) —
 —
 341
 —
  
Total available-for-sale debt securities3,505
 3
 96
 537
 5
 (1,334) 2,812
 (11)(6)2,044
 15
 (3) (202) —
 (49) 1,805
 —
(6)
Mortgage loans held for sale985
 (20) —
 (41) 116
 (8) 1,032
 (21)(7)997
 52
 —
 (88) 160
 (6) 1,115
 54
(7)
Loans held for sale—
 —
 —
 (3) 34
 —
 31
 —
 60
 —
 —
 8
 37
 (93) 12
 —
 
Loans758
 (6) —
 (342) —
 —
 410
 (9)(7)244
 1
 —
 (43) —
 —
 202
 (4)(7)
Mortgage servicing rights (residential) (8)12,959
 (1,795) —
 2,174
 —
 —
 13,338
 (328)(7)14,649
 (3,012) —
 459
 —
 —
 12,096
 (1,969)(7)
Net derivative assets and liabilities:                                               
Interest rate contracts121
 625
 —
 (632) —
 —
 114
 (10)  25
 424
 —
 (244) —
 —
 205
 220
  
Commodity contracts23
 (14) —
 3
 2
 (2) 12
 9
  4
 (126) —
 91
 2
 —
 (29) (26)  
Equity contracts(267) (128) —
 (70) (39) (87) (591) (223)  (17) (104) —
 (69) 7
 (45) (228) (175)  
Foreign exchange contracts12
 (5) —
 —
 —
 —
 7
 (1)  (26) 10
 —
 6
 —
 —
 (10) 17
  
Credit contracts77
 29
 —
 (53) —
 —
 53
 (42)  35
 5
 —
 5
 —
 —
 45
 10
  
Other derivative contracts(47) 22
 —
 (1) —
 —
 (26) 22
  
Total derivative contracts(81) 529
 —
 (753) (37) (89) (431) (245)(9)21
 209
 —
 (211) 9
 (45) (17) 46
(9)
Equity securities:                                
Marketable—
 —
 —
 —
 —
 —
 —
 —
 
Nonmarketable3,259
 1,214
 —
 (1) 1
 —
 4,473
 1,215
 5,468
 1,650
 —
 (1) 5
 (12) 7,110
 1,650
 
Total equity securities3,259
 1,214
 —
 (1) 1
 —
 4,473
 1,215
(10)5,468
 1,650
 —
 (1) 5
 (12) 7,110
 1,650
(10)
Short sale liabilities—
 —
 —
 (3) —
 —
 (3) —
(5)
Other liabilities(4) 1
 —
 —
 —
 —
 (3) —
(7)(2) —
 —
 —
 —
 —
 (2) —
(7)
(1)See Table 15.1016.8 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.
(5)Included in net gains (losses) from trading activities in the income statement.
(6)Included in net gains (losses) fromon debt securities in the income statement.
(7)Included in mortgage banking and other noninterest income in the income statement.
(8)For more information on the changes in mortgage servicing rights, see Note 1011 (Mortgage Banking Activities).
(9)Included in mortgage banking, trading activities, equity securities 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)

(continued from previous page)
Table 16.8 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 half of 2019.
Table 16.8:Gross Purchases, Sales, Issuances and Settlements – Level 3 – Six months ended June 30, 2019
(in millions)Purchases
 Sales
 Issuances
 Settlements
 Net
Six months ended June 30, 2019              
Trading debt securities:              
Securities of U.S. states and political subdivisions$—
 —
 —
 (2) (2)
Collateralized loan obligations174
 (152) —
 (5) 17
Corporate debt securities11
 (4) —
 —
 7
Other trading debt securities—
 —
 —
 —
 —
Total trading debt securities185
 (156) —
 (7) 22
Available-for-sale debt securities:              
Securities of U.S. states and political subdivisions—
 —
 55
 (65) (10)
Mortgage-backed securities:              
Residential—
 —
 —
 —
 —
Commercial—
 —
 —
 —
 —
Total mortgage-backed securities—
 —
 —
 —
 —
Corporate debt securities11
 —
 —
 (2) 9
Collateralized loan and other debt obligations—
 —
 —
 (154) (154)
Asset-backed securities:              
Other asset-backed securities—
 (5) 123
 (165) (47)
Total asset-backed securities—
 (5) 123
 (165) (47)
Total available-for-sale debt securities11
 (5) 178
 (386) (202)
Mortgage loans held for sale46
 (140) 100
 (94) (88)
Loans held for sale12
 (2) —
 (2) 8
Loans2
 —
 5
 (50) (43)
Mortgage servicing rights (residential) (1)—
 (282) 741
 —
 459
Net derivative assets and liabilities:              
Interest rate contracts—
 —
 —
 (244) (244)
Commodity contracts—
 —
 —
 91
 91
Equity contracts—
 —
 —
 (69) (69)
Foreign exchange contracts—
 —
 —
 6
 6
Credit contracts8
 (3) —
 —
 5
Total derivative contracts8
 (3) —
 (216) (211)
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 11 (Mortgage Banking Activities).

Note 16: Fair Values of Assets and Liabilities (continued)

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the first half of 2018, are presented in Table 16.9.

Table 16.9:Changes in Level 3 Fair Value Assets and Liabilities on a Recurring Basis – Six months ended June 30, 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

  
(in millions) 
Net
income 

 
Other
compre-
hensive
income

  
Transfers
into
Level 3 (2)

 
Transfers
out of
Level 3 (3)

 
Balance,
end of
period

 (4)
Six months ended June 30, 2018                         
Trading debt securities:                         
Securities of U.S. states and
political subdivisions		$3
 —
 —
 —
 —
 —
 3
 —
  
Collateralized loan obligations354
 (4) —
 (59) —
 —
 291
 —
  
Corporate debt securities31
 —
 —
 6
 —
 (1) 36
 —
  
Other trading debt securities19
 (2) —
 —
 —
 —
 17
 —
 
Total trading debt securities407
 (6) —
 (53) —
 (1) 347
 —
(5)
Available-for-sale debt securities:                         
Securities of U.S. states and political subdivisions925
 5
 (2) (90) —
 (279) 559
 —
  
Mortgage-backed securities:                        
Residential1
 —
 (1) —
 —
 —
 —
 —
  
Commercial75
 1
 (2) (21) —
 —
 53
 —
  
Total mortgage-backed securities76
 1
 (3) (21) —
 —
 53
 —
 
Corporate debt securities407
 2
 4
 30
 —
 —
 443
 —
  
Collateralized loan and other debt obligations1,020
 11
 53
 (47) —
 —
 1,037
 —
  
Asset-backed securities:                        
Other asset-backed securities566
 8
 (8) (165) —
 —
 401
 —
  
Total asset-backed securities566
 8
 (8) (165) —
 —
 401
 —
  
Total available-for-sale debt securities2,994
 27
 44
 (293) —
 (279) 2,493
 —
(6)
Mortgage loans held for sale998
 (34) —
 (12) 40
 (6) 986
 (32)(7)
Loans held for sale14
 1
 —
 (16) 21
 —
 20
 —
 
Loans376
 (1) —
 (54) —
 —
 321
 (7)(7)
Mortgage servicing rights (residential) (8)13,625
 732
 —
 1,054
 —
 —
 15,411
 1,675
(7)
Net derivative assets and liabilities:                        
Interest rate contracts71
 (408) —
 296
 —
 —
 (41) (94)  
Commodity contracts19
 30
 —
 (26) 3
 —
 26
 22
  
Equity contracts(511) 57
 —
 64
 —
 51
 (339) 80
  
Foreign exchange contracts7
 (25) —
 3
 —
 —
 (15) (17)  
Credit contracts36
 (4) —
 (8) —
 —
 24
 (8)  
Total derivative contracts(378) (350) —
 329
 3
 51
 (345) (17)(9)
Equity securities:                
Nonmarketable5,203
 693
 —
 (96) 10
 (4) 5,806
 687
 
Total equity securities5,203
 693
 —
 (96) 10
 (4) 5,806
 687
(10)
Other liabilities(3) 1
 —
 —
 —
 —
 (2) —
(7)
(1)See Table 16.10 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.
(5)Included in net gains (losses) from trading activities in the income statement.
(6)Included in net gains (losses) on debt securities in the income statement.
(7)Included in mortgage banking and other noninterest income in the income statement.
(8)For more information on the changes in mortgage servicing rights, see Note 11 (Mortgage Banking Activities).
(9)Included in mortgage banking, trading activities, equity securities 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 15: Fair Values of Assets and Liabilities (continued)


(continued from previous page)


Table 15.1016.10 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 monthshalf of 2017.2018.

Table 15.10:16.10:Gross Purchases, Sales, Issuances and Settlements – Level 3 – NineSix months ended SeptemberJune 30, 20172018
(in millions)Purchases
 Sales
 Issuances
 Settlements
 Net
Six months ended June 30, 2018              
Trading debt securities:              
Securities of U.S. states and political subdivisions$—
 —
 —
 —
 —
Collateralized loan obligations271
 (230) —
 (100) (59)
Corporate debt securities8
 (2) —
 —
 6
Other trading debt securities—
 —
 —
 —
 —
Total trading debt securities279
 (232) —
 (100) (53)
Available-for-sale debt securities:              
Securities of U.S. states and political subdivisions—
 (4) 10
 (96) (90)
Mortgage-backed securities:             
Residential—
 —
 —
 —
 —
Commercial—
 —
 —
 (21) (21)
Total mortgage-backed securities—
 —
 —
 (21) (21)
Corporate debt securities31
 —
 —
 (1) 30
Collateralized loan and other debt obligations—
 —
 —
 (47) (47)
Asset-backed securities:         
Other asset-backed securities—
 (8) 58
 (215) (165)
Total asset-backed securities—
 (8) 58
 (215) (165)
Total available-for-sale debt securities31
 (12) 68
 (380) (293)
Mortgage loans held for sale47
 (151) 167
 (75) (12)
Loans held for sale—
 (16) —
 —
 (16)
Loans1
 —
 8
 (63) (54)
Mortgage servicing rights (residential) (1)—
 (5) 1,059
 —
 1,054
Net derivative assets and liabilities:             
Interest rate contracts—
 —
 —
 296
 296
Commodity contracts—
 —
 —
 (26) (26)
Equity contracts—
 —
 —
 64
 64
Foreign exchange contracts—
 —
 —
 3
 3
Credit contracts8
 (4) —
 (12) (8)
Total derivative contracts8
 (4) —
 325
 329
Equity securities:         
Nonmarketable—
 (17) —
 (79) (96)
Total equity securities—
 (17) —
 (79) (96)
Other liabilities—
 —
 —
 —
 —
(in millions)Purchases
 Sales
 Issuances
 Settlements
 Net
Nine months ended September 30, 2017              
Trading debt securities:              
Securities of U.S. states and political subdivisions$37
 (36) —
 (1) —
Collateralized loan obligations337
 (165) —
 (95) 77
Corporate debt securities18
 (23) —
 —
 (5)
Mortgage-backed securities—
 —
 —
 —
 —
Asset-backed securities—
 —
 —
 —
 —
Other trading debt securities—
 —
 —
 —
 —
Total trading debt securities392
 (224) —
 (96) 72
Available-for-sale debt 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 securities4
 —
 —
 (57) (53)
Collateralized loan and other debt obligations135
 —
 —
 (87) 48
Asset-backed securities:         
Automobile loans and leases—
 —
 —
 —
 —
Other asset-backed securities—
 —
 198
 (531) (333)
Total asset-backed securities—
 —
 198
 (531) (333)
Total available-for-sale debt securities139
 (68) 1,297
 (831) 537
Mortgage loans held for sale57
 (374) 386
 (110) (41)
Loans held for sale—
 (1) —
 (2) (3)
Loans5
 (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 contracts5
 (2) —
 (56) (53)
Other derivative contracts—
 —
 —
 (1) (1)
Total derivative contracts5
 (119) —
 (639) (753)
Equity securities:         
Marketable—
 —
 —
 —
 —
Nonmarketable—
 (1) —
 —
 (1)
Total equity securities—
 (1) —
 —
 (1)
Short sale liabilities—
 (3) —
 —
 (3)
Other liabilities—
 —
 —
 —
 —
(1)For more information on the changes in mortgage servicing rights, see Note 1011 (Mortgage Banking Activities).


Table 15.1116.11 and Table 15.1216.12 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 20172018 Form 10-K. 

Note 16: Fair Values of Assets and Liabilities (continued)

Table 15.11: 16.11:Valuation Techniques – Recurring Basis – SeptemberJune 30, 2018
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, 2018       
June 30, 2019       
Trading and available-for-sale debt securities:              
Securities of U.S. states and
political subdivisions:
              
Government, healthcare and
other revenue bonds
$549
 Discounted cash flow Discount rate 2.2
-6.3
% 3.1
$353
 Discounted cash flow Discount rate 1.5
-6.2
% 3.0
Other municipal bonds9
 Discounted cash flow Discount rate 5.2
-5.2
 5.2
40
 Vendor priced      38
 Vendor priced      
Collateralized loan and other debt
obligations (2)
263
 Market comparable pricing Comparability adjustment (12.0)-17.8
 2.3
249
 Market comparable pricing Comparability adjustment (11.3)-20.0
 1.7
649
 Vendor priced      
Corporate debt securities232
 Discounted cash flow Discount rate 2.0
 14.9
 8.5
66
 Market comparable pricing Comparability adjustment (14.0) 14.4
 (2.8)
843
 Vendor priced      129
 Vendor priced      
Asset-backed securities:              
Diversified payment rights (3)176
 Discounted cash flow Discount rate 2.9
-8.3
 4.9
132
 Discounted cash flow Discount rate 2.5
-4.9
 3.4
Other commercial and consumer200
(4)Discounted cash flow Discount rate 4.4
-5.9
 4.6
194
(4)Discounted cash flow Discount rate 3.9
-4.8
 4.0
  Weighted average life 1.3
-1.6
yrs 1.4
  Weighted average life 1.3
-1.9
yrs 1.8
26
 Vendor priced      15
 Vendor priced      
Mortgage loans held for sale (residential)962
 Discounted cash flow Default rate 0.0
-8.6
% 0.9
1,101
 Discounted cash flow Default rate 0.0
-18.4
% 0.8
  Discount rate 1.1
-7.2
 5.9
  Discount rate 3.0
-6.3
 4.6
  Loss severity 0.0
-45.2
 25.0
  Loss severity 0.0
-46.4
 25.0
  Prepayment rate 2.8
-12.8
 5.0
  Prepayment rate 4.3
-14.4
 6.1
18
 Market comparable pricing Comparability adjustment (56.3)-(6.3) (38.1)14
 Market comparable pricing Comparability adjustment (56.3)-(25.0) (40.9)
Loans286
(5)Discounted cash flow Discount rate 3.4
-7.4
 4.2
202
(5)Discounted cash flow Discount rate 3.9
-4.4
 4.1
  Prepayment rate 3.8
-100.0
 89.1
  Prepayment rate 4.4
-100.0
 85.6
   Loss severity 0.0
-33.6
 9.3
   Loss severity 0.0
-34.8
 12.0
Mortgage servicing rights (residential)15,980
 Discounted cash flow Cost to service per loan (6) $77
-517
 129
12,096
 Discounted cash flow Cost to service per loan (6) $63
-482
 104
  Discount rate 7.0
-13.1
% 7.2
  Discount rate 6.5
-13.2
% 7.4
   Prepayment rate (7) 7.9
-20.3
 9.0
   Prepayment rate (7) 10.6
-24.6
 12.2
Net derivative assets and (liabilities):              
Interest rate contracts(101) Discounted cash flow Default rate 0.1
-5.0
 2.2
111
 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
-25.0
 11.8
   Prepayment rate 2.8
-25.0
 15.3
Interest rate contracts: derivative loan
commitments
(7) Discounted cash flow Fall-out factor 1.0
-99.0
 13.9
94
 Discounted cash flow Fall-out factor 1.0
-99.0
 19.5
   Initial-value servicing (40.3)-79.3
bps 15.1
   Initial-value servicing (40.5)-67.1
bps 12.3
Equity contracts129
 Discounted cash flow Conversion factor (9.2)-0.0
% (7.7)146
 Discounted cash flow Conversion factor (8.9)-0.0
% (8.3)
   Weighted average life 0.8
-2.3
yrs 1.6
   Weighted average life 1.0
-3.5
yrs 2.0
(403) Option model Correlation factor (77.0)-99.0
% 18.3
(374) Option model Correlation factor (77.0)-98.5
% 63.9
   Volatility factor 6.5
-100.0
 21.6
   Volatility factor 6.5
-105.2
 24.1
Credit contracts(2) Market comparable pricing Comparability adjustment (16.2)-37.1
 1.6
2
 Market comparable pricing Comparability adjustment (48.3)-29.6
 (6.9)
29
 Option model Credit spread 0.0
-9.2
 0.6
43
 Option model Credit spread 0.1
-21.4
 0.9
  Loss severity 13.0
-60.0
 48.3
   Loss severity 13.0
-60.0
 45.6
Nonmarketable equity securities9
 Discounted cash flow Discount rate 10.0
-10.0
 10.0
7,110
 Market comparable pricing Comparability adjustment (21.7)-(6.3) (16.6)
  Volatility Factor 2.3
-3.1
 2.5
       
6,273
 Market comparable pricing Comparability adjustment (21.1)-(6.5) (14.9)
46
 Vendor priced      
       
Insignificant Level 3 assets, net of liabilities541
(8)      26
(8)      
Total level 3 assets, net of liabilities$25,866
(9)      $22,628
(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 $843$649 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 $77$63 - $235.
$208.
(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 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 $27.9$24.9 billion and total Level 3 liabilities of $2.0$2.3 billion,, before netting of derivative balances.


Note 15: Fair Values of Assets and Liabilities (continued)


Table 15.12:16.12:Valuation Techniques – Recurring Basis –December– December 31, 20172018


($ 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, 2017       
December 31, 2018       
Trading and available-for-sale debt securities:              
Securities of U.S. states and
political subdivisions:
              
Government, healthcare and
other revenue bonds
$868
 Discounted cash flow Discount rate 1.7
-5.8
% 2.7
$404
 Discounted cash flow Discount rate 2.1
-6.4
% 3.4
Other municipal bonds11
 Discounted cash flow Discount rate 4.7
-4.9
 4.8
49
 Vendor priced      43
 Vendor priced      
Collateralized loan and other debt
obligations (2)
354
 Market comparable pricing Comparability adjustment (22.0)-19.5
 3.0
298
 Market comparable pricing Comparability adjustment (13.5)-22.1
 3.2
739
 Vendor priced      
Corporate debt securities220
 Discounted cash flow Discount rate 4.0
 11.7
 8.5
56
 Market comparable pricing Comparability adjustment (11.3) 16.6
 (1.4)
1,020
 Vendor priced      128
 Vendor priced      
Asset-backed securities:              
Diversified payment rights (3)292
 Discounted cash flow Discount rate 2.4
-3.9
 3.1
171
 Discounted cash flow Discount rate 3.4
-6.2
 4.4
Other commercial and consumer248
(4)Discounted cash flow Discount rate 3.7
-5.2
 3.9
198
(4)Discounted cash flow Discount rate 4.6
-5.2
 4.7
  Weighted average life 2.0
-2.3
yrs 2.1
  Weighted average life 1.1
-1.5
yrs 1.1
26
 Vendor priced      20
 Vendor priced      
Mortgage loans held for sale (residential)974
 Discounted cash flow Default rate 0.0
-7.1
% 1.3
982
 Discounted cash flow Default rate 0.0
-15.6
% 0.8
  Discount rate 2.6
-7.3
 5.6
  Discount rate 1.1
-6.6
 5.5
  Loss severity 0.1
-41.4
 19.6
  Loss severity —
-43.3
 23.4
  Prepayment rate 6.5
-15.9
 9.1
  Prepayment rate 3.2
-13.4
 4.6
24
 Market comparable pricing Comparability adjustment (56.3)-(6.3) (42.7)15
 Market comparable pricing Comparability adjustment (56.3)-(6.3) (36.3)
Loans376
(5)Discounted cash flow Discount rate 3.1
-7.5
 4.2
244
(5)Discounted cash flow Discount rate 3.4
-6.4
 4.2
  Prepayment rate 8.7
-100.0
 91.9
  Prepayment rate 2.9
-100.0
 87.2
   Loss severity 0.0
-33.9
 6.6
   Loss severity 0.0
-34.8
 10.2
Mortgage servicing rights (residential)13,625
 Discounted cash flow Cost to service per loan (6) $78
-587
 143
14,649
 Discounted cash flow Cost to service per loan (6) $62
-507
 106
  Discount rate 6.6
-12.9
% 6.9
  Discount rate 7.1
-15.3
% 8.1
   Prepayment rate (7) 9.7
-20.5
 10.5
   Prepayment rate (7) 9.0
-23.5
 9.9
Net derivative assets and (liabilities):              
Interest rate contracts54
 Discounted cash flow Default rate 0.0
-5.0
 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
 10.5
   Prepayment rate 2.8
-25.0
 13.8
Interest rate contracts: derivative loan
commitments
17
 Discounted cash flow Fall-out factor 1.0
-99.0
 15.2
60
 Discounted cash flow Fall-out factor 1.0
-99.0
 19.4
   Initial-value servicing (59.9)-101.1
bps 2.7
   Initial-value servicing (36.6)-91.7
bps 18.5
Equity contracts102
 Discounted cash flow Conversion factor (9.7)-0.0
% (7.6)104
 Discounted cash flow Conversion factor (9.3)-0.0
% (7.8)
   Weighted average life 0.5
-3.0
yrs 1.6
   Weighted average life 1.0
-3.0
yrs 1.8
(613) Option model Correlation factor (77.0)-98.0
% 24.2
(121) Option model Correlation factor (77.0)-99.0
% 21.6
   Volatility factor 5.7
-95.5
 19.2
   Volatility factor 6.5
-100.0
 21.8
Credit contracts(3) Market comparable pricing Comparability adjustment (29.9)-17.3
 (0.2)3
 Market comparable pricing Comparability adjustment (15.5)-40.0
 3.5
39
 Option model Credit spread 0.0
-63.7
 1.3
32
 Option model Credit spread 0.9
-21.5
 1.3
  Loss severity 13.0
-60.0
 50.7
   Loss severity 13.0
-60.0
 45.2
Nonmarketable equity securities8
 Discounted cash flow Discount rate 10.0
-10.0
 10.0
5,468
 Market comparable pricing Comparability adjustment (20.6)-(4.3) (15.8)
  Volatility Factor 0.5
-1.9
 1.4
       
4,813
 Market comparable pricing Comparability adjustment (21.1)-(5.5) (15.0)
       
Insignificant Level 3 assets, net of liabilities570
(8)      93
(8)      
Total level 3 assets, net of liabilities$22,854
(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 $1.0 billion$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 $78$62 - $252.
$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 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 $24.9$25.3 billion and total Level 3 liabilities of $2.0$1.6 billion,, before netting of derivative balances.



Note 16: Fair Values of Assets and Liabilities (continued)

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.
•
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.
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).
•
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.
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).
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 15: 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 commencing in 2018 with adoption of ASU 2016-01, use of the
measurement alternative for nonmarketable equity securities.
Table 15.1316.13 provides the fair value hierarchy and fair value at the date of the nonrecurring fair value adjustment for all assets that were still held as of SeptemberJune 30, 2018,2019 and December 31, 2017,2018,and for which a nonrecurring fair value adjustment was recorded during the ninesix months ended SeptemberJune 30, 20182019 and year ended December 31, 2017.2018.
Table 15.13:16.13:Fair Value on a Nonrecurring Basis
September 30, 2018  December 31, 2017 June 30, 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
Mortgage loans held for sale (LOCOM) (1)$—
 1,641
 1,252
 2,893
 —
 1,646
 1,333
 2,979
$—
 1,865
 3,148
 5,013
 —
 1,213
 1,233
 2,446
Loans held for sale—
 334
 —
 334
 —
 108
 —
 108
—
 26
 —
 26
 —
 313
 —
 313
Loans:                                  
Commercial—
 313
 —
 313
 —
 374
 —
 374
—
 215
 —
 215
 —
 339
 —
 339
Consumer—
 295
 1
 296
 —
 502
 10
 512
—
 164
 1
 165
 —
 346
 1
 347
Total loans (2)—
 608
 1
 609
 —
 876
 10
 886
—
 379
 1
 380
 —
 685
 1
 686
Nonmarketable equity securities (3)—
 613
 212
 825
 —
 —
 136
 136
—
 812
 83
 895
 —
 774
 157
 931
Other assets (4)—
 183
 6
 189
 —
 177
 161
 338
—
 153
 —
 153
 —
 149
 6
 155
Total assets at fair value on a nonrecurring basis (5)$—
 3,379
 1,471
 4,850
 —
 2,807
 1,640
 4,447
$—
 3,235
 3,232
 6,467
 —
 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.
(5)
Prior period balances exclude $6 million of nonmarketable equity securities at NAV.
Table 15.1416.14 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 15.14:16.14:Change in Value of Assets with Nonrecurring Fair Value Adjustment
Nine months ended Sep 30, Six months ended June 30, 
(in millions)2018
 2017
2019
 2018
Mortgage loans held for sale (LOCOM)$7
 23
$18
 13
Loans held for sale(46) (1)(2) (78)
Loans:        
Commercial(175) (286)(106) (138)
Consumer(241) (371)(121) (185)
Total loans (1)
(416) (657)(227) (323)
Nonmarketable equity securities (2)206
 (108)264
 (17)
Other assets (3)
(36) (71)(29) (30)
Total$(285) (814)$24
 (435)
(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 certain nonmarketable equity securities.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.


 

Note 16: Fair Values of Assets and Liabilities (continued)

Table 15.1516.15 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 15.15:16.15:Valuation Techniques – Nonrecurring Basis
($ in millions)
Fair Value
Level 3

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

Fair Value
Level 3

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

September 30, 2018     
June 30, 2019     
Residential mortgage loans held for sale (LOCOM)$1,252
(3)Discounted cash flow Default rate(4)0.2—2.4% 1.3%$3,148
(3)Discounted cash flow Default rate(4)0.3—5.7% 1.4%
  Discount rate 1.5—8.5
 4.0
  Discount rate 1.5—9.5
 4.8
  Loss severity 0.6—63.0
 1.9
  Loss severity 0.5—62.3
 24.7
  Prepayment rate(5)4.6—100.0
 47.4
  Prepayment rate(5)5.1—100.0
 21.6
Nonmarketable equity securities12
 Discounted cash flow Discount rate 5.0—10.5
 7.3
—
 Discounted cash flow Discount rate ———
 —
Insignificant level 3 assets207
    84
    
Total$1,471
    $3,232
    
December 31, 2017     
December 31, 2018     
Residential mortgage loans held for sale (LOCOM)$1,333
(3)Discounted cash flow Default rate(4)0.1—4.1% 1.7%$1,233
(3)Discounted cash flow Default rate(4)0.2—2.3% 1.4%
  Discount rate 1.5—8.5
 3.8
  Discount rate 1.5—8.5
 4.0
  Loss severity 0.7—52.9
 2.2
  Loss severity 0.5—66.0
 1.7
  Prepayment rate(5)5.4—100.0
 50.6
  Prepayment rate(5)3.5—100.0
 46.5
Nonmarketable equity securities122
 Discounted cash flow Discount rate 5.0—10.5
 10.2
7
 Discounted cash flow Discount rate 10.5—10.5
 10.5
Insignificant level 3 assets185
    157
    
Total$1,640
    $1,397
    
(1)Refer to the narrative following Table 15.1216.12 for a definition of the valuation technique(s) and significant unobservable inputs.
(2)For residential MLHFS, weighted averages are calculated using the outstanding unpaid principal balance of the loans.
(3)
Consists of approximately $1.2$1.3 billion and $1.3$1.2 billion of government insured/guaranteed loans purchased from GNMA-guaranteed mortgage securitizations at SeptemberJune 30, 2018,2019, and December 31, 2017,2018, respectively, and $26$1.8 billion and $27 million, respectively, of other mortgage loans that are not government insured/guaranteed at both dates.
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.


Note 15: 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 20172018 Form 10-K.
Table 15.1616.16 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 15.16:16.16:Fair Value Option
  September 30, 2018  December 31, 2017 
(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

Mortgage loans held for sale:           
Total loans$13,885
 13,808
 77
 16,116
 15,827
 289
Nonaccrual loans122
 158
 (36) 127
 165
 (38)
Loans 90 days or more past due and still accruing8
 11
 (3) 16
 21
 (5)
Loans held for sale:           
Total loans1,266
 1,301
 (35) 1,023
 1,075
 (52)
Nonaccrual loans33
 47
 (14) 34
 56
 (22)
Loans:           
Total loans286
 318
 (32) 376
 404
 (28)
Nonaccrual loans206
 238
 (32) 253
 281
 (28)
Equity securities (1)6,313
 N/A
 N/A
 4,867
 N/A
 N/A
(1)Consists of nonmarketable equity securities carried at fair value.

  June 30, 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

Mortgage loans held for sale:           
Total loans$16,343
 15,906
 437
 11,771
 11,573
 198
Nonaccrual loans130
 155
 (25) 127
 158
 (31)
Loans 90 days or more past due and still accruing8
 10
 (2) 7
 9
 (2)
Loans held for sale:           
Total loans1,118
 1,166
 (48) 1,469
 1,536
 (67)
Nonaccrual loans57
 65
 (8) 21
 32
 (11)
Loans:           
Total loans202
 231
 (29) 244
 274
 (30)
Nonaccrual loans150
 179
 (29) 179
 208
 (29)



Note 16: Fair Values of Assets and Liabilities (continued)

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 15.1716.17 by income statement line item. Amounts recorded as interest income are excluded from Table 16.17.
Table 15.17:16.17:Fair Value Option – Changes in Fair Value Included in Earnings
2018  2017 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

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 Sep 30,    
     
   
   
     
Quarter ended June 30,    
   
   
   
   
Mortgage loans held for sale$183
 —
 —
 —
 400
 —
 —
 —
$379
 —
 —
 114
 —
 —
Loans held for sale—
 3
 —
 1
 —
 6
 —
 —
—
 (4) —
 —
 9
 —
Loans—
 —
 —
 —
 —
 —
 —
 —
—
 —
 1
 —
 —
 —
Equity securities—
 —
 798
 —
 —
 —
 522
 —
Other interests held (1)—
 —
 —
 —
 —
 (1) —
 —
—
 (1) —
 —
 (1) —
Nine months ended Sep 30,               
Six months ended June 30,           
Mortgage loans held for sale$238
 —
 —
 —
 967
 —
 —
 —
$593
 —
 —
 55
 —
 —
Loans held for sale—
 18
 —
 1
 —
 42
 —
 1
—
 10
 1
 —
 15
 —
Loans—
 —
 —
 (1) —
 —
 —
 —
—
 —
 1
 —
 —
 (1)
Equity securities—
 —
 1,492
 —
 —
 —
 1,233
 —
Other interests held (1)—
 (2) —
 —
 —
 (5) —
 —
—
 (2) —
 —
 (2) —
(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 15.1816.18 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 15.18:16.18:Fair Value Option – Gains/Losses Attributable to Instrument-Specific Credit Risk
 Quarter ended June 30,  Six months ended June 30, 
(in millions)2019
 2018
 2019
 2018
Gains (losses) attributable to instrument-specific credit risk:  
   
    
Mortgage loans held for sale$16
 (2) 12
 (1)
Loans held for sale(3) 9
 11
 15
Total$13
 7
 23
 14

  Quarter ended September 30,  Nine months ended September 30, 
(in millions)2018
 2017
 2018
 2017
Gains (losses) attributable to instrument-specific credit risk:  
   
    
Mortgage loans held for sale$(1) (4) (2) (9)
Loans held for sale3
 6
 18
 42
Total$2
 2
 16
 33


Disclosures about Fair Value of Financial Instruments
Table 15.1916.19 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 15.216.2 in this Note. In connection with the adoption of ASU 2016-01 in first quarter 2018, the valuation methodologies for estimating the fair value of financial instruments in Table 15.19 have been changed, where necessary, to conform with an exit price notion. Under an exit price notion, fair value estimates are based upon the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the balance sheet date. For certain loans and deposit liabilities, the estimated fair values prior to adoption of ASU 2016-01 followed an entrance price notion that based fair values on recent prices offered to customers for loans and deposits with similar characteristics. The carrying amounts in the following table are recorded on the balance sheet under the indicated 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 15: Fair Values of Assets and Liabilities (continued)


Table 15.19:16.19:Fair Value Estimates for Financial Instruments
   Estimated fair value 
(in millions)Carrying amount
 Level 1
 Level 2
 Level 3
 Total
June 30, 2019         
Financial assets         
Cash and due from banks (1)$20,880
 20,880
 —
 —
 20,880
Interest-earning deposits with banks (1)143,547
 143,312
 235
 —
 143,547
Federal funds sold and securities purchased under resale agreements (1)112,119
 —
 112,119
 —
 112,119
Held-to-maturity debt securities145,876
 45,336
 101,943
 585
 147,864
Mortgage loans held for sale6,655
 —
 3,548
 4,102
 7,650
Loans held for sale63
 —
 63
 —
 63
Loans, net (2)920,977
 —
 49,839
 878,601
 928,440
Nonmarketable equity securities (cost method)5,622
 —
 —
 5,654
 5,654
Total financial assets$1,355,739
 209,528
 267,747
 888,942
 1,366,217
Financial liabilities         
Deposits (3)$139,343
 —
 106,653
 32,549
 139,202
Short-term borrowings115,344
 —
 115,345
 —
 115,345
Long-term debt (4)241,441
 —
 242,529
 1,626
 244,155
Total financial liabilities$496,128

—

464,527

34,175
 498,702
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 securities144,788
 44,339
 97,275
 501
 142,115
Mortgage loans held for sale3,355
 —
 2,129
 1,233
 3,362
Loans held for sale572
 —
 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 borrowings105,787
 —
 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
   
 Estimated fair value 
(in millions)Carrying amount
 Level 1
 Level 2
 Level 3
 Total
September 30, 2018         
Financial assets         
Cash and due from banks (1)$18,791
 18,791
 —
 —
 18,791
Interest-earning deposits with banks (1)140,732
 140,566
 166
 —
 140,732
Federal funds sold and securities purchased under resale agreements (1)83,471
 —
 83,471
 —
 83,471
Held-to-maturity debt securities144,131
 43,668
 94,881
 487
 139,036
Mortgage loans held for sale5,340
 —
 4,098
 1,252
 5,350
Loans held for sale499
 —
 500
 —
 500
Loans, net (2)(3)912,548
 —
 46,272
 867,348
 913,620
Nonmarketable equity securities (cost method) (4)5,467
 —
 —
 5,500
 5,500
Total financial assets$1,310,979
 203,025
 229,388
 874,587
 1,307,000
Financial liabilities         
Deposits (3)(5)$128,648
 —
 107,272
 21,257
 128,529
Short-term borrowings105,451
 —
 105,451
 —
 105,451
Long-term debt (6)221,286
 —
 222,436
 1,879
 224,315
Total financial liabilities$455,385

—

435,159

23,136
 458,295
December 31, 2017         
Financial assets         
Cash and due from banks (1)$23,367
 23,367
 —
 —
 23,367
Interest-earning deposits with banks (1)192,580
 192,455
 125
 —
 192,580
Federal funds sold and securities purchased under resale agreements (1)80,025
 1,002
 78,954
 69
 80,025
Held-to-maturity securities139,335
 44,806
 93,694
 485
 138,985
Mortgage loans held for sale3,954
 —
 2,625
 1,333
 3,958
Loans held for sale108
 —
 108
 —
 108
Loans, net (2)(3)926,273
 —
 51,713
 886,622
 938,335
Nonmarketable equity securities (cost method)7,136
 —
 23
 7,605
 7,628
Total financial assets (7)$1,372,778
 261,630
 227,242
 896,114
 1,384,986
Financial liabilities         
Deposits (3)(5)$128,594
 —
 108,146
 19,768
 127,914
Short-term borrowings103,256
 —
 103,256
 —
 103,256
Long-term debt (6)224,981
 —
 227,109
 3,159
 230,268
Total financial liabilities$456,831

—

438,511

22,927
 461,438
(1)Amounts consist of financial instruments for which carrying value approximates fair value.
(2)
Excludes lease financing with a carrying amount of $19.7$19.0 billion and $19.4$19.7 billion at SeptemberJune 30, 2018,2019, and December 31, 2017,2018, respectively.
(3)
In connection with the adoption of ASU 2016-01, the valuation methodologies used to estimate the fair value at September 30, 2018, for a portion of loans and deposit liabilities with a defined or contractual maturity has been changed to conform to an exit price notion. The fair value estimates at December 31, 2017 have not been revised to reflect application of the modified methodology.
(4)
Excludes $1.4 billion of nonmarketable equity securities accounted for under the measurement alternative at September 30, 2018, that were accounted for under the cost method in prior periods.
(5)
Excludes deposit liabilities with no defined or contractual maturity of $1.1$1.1 trillion and $1.2$1.2 trillion at SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively.
(6)(4)
Excludes capital lease obligations under capital leases of $37$35 million and $39$36 million at SeptemberJune 30, 2018,2019, and December 31, 2017,2018, respectively.
(7)
Excludes $27 million of carrying value and $30 million of fair value relating to nonmarketable equity securities at NAV at December 31, 2017.
Loan commitments, standby letters of credit and commercial and similar letters of credit are not included in the table above.Table 16.19. 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 $1.0 billion at both SeptemberJune 30, 2018,2019, and December 31, 2017.2018.

Note 17: Preferred Stock (continued)

Note 16:17: 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 16.1:17.1:Preferred Stock Shares
September 30, 2018  December 31, 2017 June 30, 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 I              
Floating Class A Preferred Stock (1)100,000
 25,010
 100,000
 25,010
100,000
 25,010
 100,000
 25,010
Series J       
8.00% Non-Cumulative Perpetual Class A Preferred Stock (2)—
 —
 1,000
 2,300,000
Series K              
Floating Non-Cumulative Perpetual Class A Preferred Stock (3)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 Stock1,000
 4,025,000
 1,000
 4,025,000
1,000
 4,025,000
 1,000
 4,025,000
Series N              
5.20% Non-Cumulative Perpetual Class A Preferred Stock25,000
 30,000
 25,000
 30,000
25,000
 30,000
 25,000
 30,000
Series O              
5.125% Non-Cumulative Perpetual Class A Preferred Stock25,000
 27,600
 25,000
 27,600
25,000
 27,600
 25,000
 27,600
Series P              
5.25% Non-Cumulative Perpetual Class A Preferred Stock25,000
 26,400
 25,000
 26,400
25,000
 26,400
 25,000
 26,400
Series Q              
5.85% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock25,000
 69,000
 25,000
 69,000
25,000
 69,000
 25,000
 69,000
Series R              
6.625% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock25,000
 34,500
 25,000
 34,500
25,000
 34,500
 25,000
 34,500
Series S              
5.90% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock25,000
 80,000
 25,000
 80,000
25,000
 80,000
 25,000
 80,000
Series T              
6.00% Non-Cumulative Perpetual Class A Preferred Stock25,000
 32,200
 25,000
 32,200
25,000
 32,200
 25,000
 32,200
Series U              
5.875% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock25,000
 80,000
 25,000
 80,000
25,000
 80,000
 25,000
 80,000
Series V              
6.00% Non-Cumulative Perpetual Class A Preferred Stock25,000
 40,000
 25,000
 40,000
25,000
 40,000
 25,000
 40,000
Series W              
5.70% Non-Cumulative Perpetual Class A Preferred Stock25,000
 40,000
 25,000
 40,000
25,000
 40,000
 25,000
 40,000
Series X              
5.50% Non-Cumulative Perpetual Class A Preferred Stock25,000
 46,000
 25,000
 46,000
25,000
 46,000
 25,000
 46,000
Series Y              
5.625% Non-Cumulative Perpetual Class A Preferred Stock25,000
 27,600
 25,000
 27,600
25,000
 27,600
 25,000
 27,600
ESOP              
Cumulative Convertible Preferred Stock (4)—
 1,674,596
 —
 1,556,104
Cumulative Convertible Preferred Stock (3)—
 1,213,418
 —
 1,406,460
Total  9,854,906
   12,036,414
  9,393,728
   9,586,770
(1)FloatingSeries I preferred stock issuance relates to trust preferred securities. See Note 10 (Securitizations and Variable Interest Entities) for additional information. This issuance has a floating interest rate for Preferred Stock, Series I,that is the greater of three-month LIBOR plus 0.93% and 5.56975%.
(2)Preferred Stock, Series J, was redeemed in third quarter 2018.
(3)Effective June 15, 2018,Floating rate for Preferred Stock, Series K, converted from a fixed to a floating coupon rate ofis three-month LIBOR plus 3.77%.
(4)(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 16: Preferred Stock (continued)


Table 16.2:17.2:Preferred Stock – Shares Issued and Carrying Value
 June 30, 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
DEP Shares               
Dividend Equalization Preferred Shares (DEP)96,546
 $—
 —
 —
 96,546
 $—
 —
 —
Series I (1)(2)
               
Floating Class A Preferred Stock25,010
 2,501
 2,501
 —
 25,010
 2,501
 2,501
 —
Series K (1)(3)
               
Floating Non-Cumulative Perpetual Class A Preferred Stock3,352,000
 3,352
 2,876
 476
 3,352,000
 3,352
 2,876
 476
Series L (1) 
               
7.50% Non-Cumulative Perpetual Convertible Class A Preferred Stock3,967,995
 3,968
 3,200
 768
 3,968,000
 3,968
 3,200
 768
Series N (1) 
               
5.20% Non-Cumulative Perpetual Class A Preferred Stock30,000
 750
 750
 —
 30,000
 750
 750
 —
Series O (1) 
               
5.125% Non-Cumulative Perpetual Class A Preferred Stock26,000
 650
 650
 —
 26,000
 650
 650
 —
Series P (1) 
               
5.25% Non-Cumulative Perpetual Class A Preferred Stock25,000
 625
 625
 —
 25,000
 625
 625
 —
Series Q (1)
               
5.85% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock69,000
 1,725
 1,725
 —
 69,000
 1,725
 1,725
 —
Series R (1)
               
6.625% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock33,600
 840
 840
 —
 33,600
 840
 840
 —
Series S (1)
               
5.90% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock80,000
 2,000
 2,000
 —
 80,000
 2,000
 2,000
 —
Series T (1)
               
6.00% Non-Cumulative Perpetual Class A Preferred Stock32,000
 800
 800
 —
 32,000
 800
 800
 —
Series U (1)
               
5.875% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock80,000
 2,000
 2,000
 —
 80,000
 2,000
 2,000
 —
Series V (1)
               
6.00% Non-Cumulative Perpetual Class A Preferred Stock40,000
 1,000
 1,000
 —
 40,000
 1,000
 1,000
 —
Series W (1)
               
5.70% Non-Cumulative Perpetual Class A Preferred Stock40,000
 1,000
 1,000
 —
 40,000
 1,000
 1,000
 —
Series X (1)
               
5.50% Non-Cumulative Perpetual Class A Preferred Stock46,000
 1,150
 1,150
 —
 46,000
 1,150
 1,150
 —
Series Y (1)
               
5.625% Non-Cumulative Perpetual Class A Preferred Stock27,600
 690
 690
 —
 27,600
 690
 690
 —
ESOP               
Cumulative Convertible Preferred Stock1,213,418
 1,214
 1,214
 —
 1,406,460
 1,407
 1,407
 —
Total9,184,169
 $24,265
 23,021
 1,244
 9,377,216
 $24,458
 23,214
 1,244
 September 30, 2018  December 31, 2017 
(in millions, except shares)
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
 $—
 —
 —
Series I (1)(2)
               
Floating Class A Preferred Stock25,010
 2,501
 2,501
 —
 25,010
 2,501
 2,501
 —
Series J (1)(3)
               
8.00% Non-Cumulative Perpetual Class A Preferred Stock—
 —
 —
 —
 2,150,375
 2,150
 1,995
 155
Series K (1)(4)
               
Floating Non-Cumulative Perpetual Class A Preferred Stock3,352,000
 3,352
 2,876
 476
 3,352,000
 3,352
 2,876
 476
Series L (1) 
               
7.50% Non-Cumulative Perpetual Convertible Class A Preferred Stock3,968,000
 3,968
 3,200
 768
 3,968,000
 3,968
 3,200
 768
Series N (1) 
               
5.20% Non-Cumulative Perpetual Class A Preferred Stock30,000
 750
 750
 —
 30,000
 750
 750
 —
Series O (1) 
               
5.125% Non-Cumulative Perpetual Class A Preferred Stock26,000
 650
 650
 —
 26,000
 650
 650
 —
Series P (1) 
               
5.25% Non-Cumulative Perpetual Class A Preferred Stock25,000
 625
 625
 —
 25,000
 625
 625
 —
Series Q (1)
               
5.85% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock69,000
 1,725
 1,725
 —
 69,000
 1,725
 1,725
 —
Series R (1)
               
6.625% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock33,600
 840
 840
 —
 33,600
 840
 840
 —
Series S (1)
               
5.90% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock80,000
 2,000
 2,000
 —
 80,000
 2,000
 2,000
 —
Series T (1)
               
6.00% Non-Cumulative Perpetual Class A Preferred Stock32,000
 800
 800
 —
 32,000
 800
 800
 —
Series U (1)
               
5.875% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock80,000
 2,000
 2,000
 —
 80,000
 2,000
 2,000
 —
Series V (1)
               
6.00% Non-Cumulative Perpetual Class A Preferred Stock40,000
 1,000
 1,000
 —
 40,000
 1,000
 1,000
 —
Series W (1)
               
5.70% Non-Cumulative Perpetual Class A Preferred Stock40,000
 1,000
 1,000
 —
 40,000
 1,000
 1,000
 —
Series X (1)
               
5.50% Non-Cumulative Perpetual Class A Preferred Stock46,000
 1,150
 1,150
 —
 46,000
 1,150
 1,150
 —
Series Y (1)
               
5.625% Non-Cumulative Perpetual Class A Preferred Stock27,600
 690
 690
 —
 27,600
 690
 690
 —
ESOP               
Cumulative Convertible Preferred Stock1,674,596
 1,675
 1,675
 —
 1,556,104
 1,556
 1,556
 —
Total9,645,352
 $24,726
 23,482
 1,244
 11,677,235
 $26,757
 25,358
 1,399
(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)Preferred Stock, Series J, was redeemed in third quarter 2018.
(4)Effective June 15, 2018,Floating rate for Preferred Stock, Series K, converted from a fixed to a floating coupon rate ofis three-month LIBOR plus 3.77%.


See Note 9 (Securitizations and Variable Interest Entities) for additional information on our trust preferred securities.



Note 17: Preferred Stock (continued)

ESOP CUMULATIVE CONVERTIBLE PREFERRED STOCKAll 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 16.3:17.3:ESOP Preferred Stock
Shares issued and outstanding  Carrying value  Adjustable dividend rateShares issued and outstanding  Carrying value  Adjustable dividend rate 
(in millions, except shares)Sep 30,
2018
 Dec 31,
2017
 Sep 30,
2018
 Dec 31,
2017
 Minimum
 MaximumJun 30,
2019
 Dec 31,
2018
 Jun 30,
2019
 Dec 31,
2018
 Minimum
 Maximum
ESOP Preferred Stock                     
$1,000 liquidation preference per share                     
2018605,081
 —
 $605
 —
 7.00% 8.00336,945
 336,945
 337
 337
 7.00% 8.00%
2017222,210
 273,210
 222
 273
 7.00
 8.00222,210
 222,210
 222
 222
 7.00
 8.00
2016233,835
 322,826
 234
 323
 9.30
 10.30227,450
 233,835
 228
 234
 9.30
 10.30
2015144,338
 187,436
 144
 187
 8.90
 9.90116,784
 144,338
 117
 144
 8.90
 9.90
2014174,151
 237,151
 174
 237
 8.70
 9.70136,151
 174,151
 136
 174
 8.70
 9.70
2013133,948
 201,948
 134
 202
 8.50
 9.5097,948
 133,948
 98
 134
 8.50
 9.50
201277,634
 128,634
 78
 129
 10.00
 11.0049,134
 77,634
 49
 78
 10.00
 11.00
201161,796
 129,296
 62
 129
 9.00
 10.0026,796
 61,796
 27
 62
 9.00
 10.00
2010(1)21,603
 75,603
 22
 76
 9.50
 10.50—
 21,603
 —
 22
 9.50
 10.50
Total ESOP Preferred Stock (1)(2)1,674,596
 1,556,104
 $1,675
 1,556
   1,213,418
 1,406,460
 $1,214
 1,407
    
Unearned ESOP shares (2)(3)    $(1,780) (1,678)       $(1,292) (1,502)    
(1)
At September 30, 2018 and December 31, 2017, additional paid-in capital included $105 million and $122 million, respectively, related toIn April 2019, all of the 2010 ESOP preferredPreferred Stock was converted into common stock.
(2)At June 30, 2019 and December 31, 2018, additional paid-in capital included $78 million and $95 million, respectively, 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 17: Revenue from Contracts with Customers (continued)




Note 17:18: Revenue from Contracts with Customers


Our revenue includes net interest income on financial instruments and noninterest income. Table 17.118.1 presents our revenue by operating segment. The Other“Other” segment for each of the tables below includes the elimination of certain items that are included in more than one business segment, mostsubstantially all of which represents products and services for WIM customers served
through ConsumerCommunity Banking distribution channels. For additional description of our operating segments, including
additional financial information and the underlying management accounting process, see Note 2122 (Operating Segments) to Financial Statements.
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) in this Report.our 2018 Form 10-K.
Table 17.1: 18.1: Revenue by Operating Segment
Quarter ended Sep 30, Quarter ended June 30, 
Community Banking Wholesale Banking Wealth and Investment Management Other Consolidated
Company		 Community Banking Wholesale Banking Wealth and Investment Management Other Consolidated
Company		 
(in millions)2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
Net interest income (1)$7,338
7,154
4,726
4,763
1,102
1,177
(594)(645)12,572
12,449
$7,066
7,346
4,535
4,693
1,037
1,111
(543)(609)12,095
12,541
Noninterest income:    
Service charges on deposit accounts700
739
505
538
3
3
(4)(4)1,204
1,276
704
632
502
530
4
5
(4)(4)1,206
1,163
Trust and investment fees:    
Brokerage advisory, commissions and other fees470
461
79
65
2,268
2,241
(483)(463)2,334
2,304
480
465
74
78
2,248
2,284
(484)(473)2,318
2,354
Trust and investment management231
225
112
129
727
718
(235)(232)835
840
199
220
117
110
687
731
(208)(226)795
835
Investment banking(17)(13)476
479
3
(1)—
—
462
465
(18)—
475
485
(1)1
(1)—
455
486
Total trust and investment fees684
673
667
673
2,998
2,958
(718)(695)3,631
3,609
661
685
666
673
2,934
3,016
(693)(699)3,568
3,675
Card fees925
909
92
91
1
1
(1)(1)1,017
1,000
929
904
95
96
2
2
(1)(1)1,025
1,001
Other fees:    
Charges and fees on loans (1)65
72
233
246
—
1
—
(1)298
318
Lending related charges and fees (1)(2)65
69
284
307
2
2
(2)(2)349
376
Cash network fees121
125
—
1
—
—
—
—
121
126
117
118
—
2
—
—
—
—
117
120
Commercial real estate brokerage commissions—
1
129
119
—
—
—
—
129
120
—
—
105
109
—
—
—
—
105
109
Letters of credit fees (1)2
1
70
76
1
1
(1)(1)72
77
Wire transfer and other remittance fees67
60
52
52
2
3
(1)(1)120
114
71
67
49
53
2
2
(1)(1)121
121
All other fees89
103
20
19
1
—
—
—
110
122
All other fees(1)82
94
26
25
—
1
—
—
108
120
Total other fees344
362
504
513
4
5
(2)(3)850
877
335
348
464
496
4
5
(3)(3)800
846
Mortgage banking (1)747
937
101
110
(3)(3)1
2
846
1,046
655
695
104
75
(3)(2)2
2
758
770
Insurance (1)21
35
76
225
19
21
(12)(12)104
269
11
16
75
78
17
18
(10)(10)93
102
Net gains (losses) from trading activities (1)10
(58)135
157
13
21
—
—
158
120
(11)24
226
154
13
13
1
—
229
191
Net gains (losses) on debt securities (1)1
169
53
(5)3
2
—
—
57
166
15
(2)5
42
—
1
—
—
20
41
Net gains from equity securities (1)274
270
50
40
92
53
—
—
416
363
471
409
116
89
35
(203)—
—
622
295
Lease income (1)—
—
453
475
—
—
—
—
453
475
—
—
424
443
—
—
—
—
424
443
Other income of the segment (1)772
330
(58)(76)(6)18
(75)(73)633
199
969
749
(147)(172)7
(15)(85)(77)744
485
Total noninterest income4,478
4,366
2,578
2,741
3,124
3,079
(811)(786)9,369
9,400
4,739
4,460
2,530
2,504
3,013
2,840
(793)(792)9,489
9,012
Revenue$11,816
11,520
7,304
7,504
4,226
4,256
(1,405)(1,431)21,941
21,849
$11,805
11,806
7,065
7,197
4,050
3,951
(1,336)(1,401)21,584
21,553
Nine months ended Sep 30, Six months ended June 30, 
Community Banking Wholesale Banking Wealth and Investment Management Other Consolidated
Company		 Community Banking Wholesale Banking Wealth and Investment Management Other Consolidated
Company		 
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
(in millions)2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
Net interest income (1)$21,879
21,419
13,951
14,253
3,325
3,489
(1,804)(1,917)37,351
37,244
$14,314
14,541
9,069
9,225
2,138
2,223
(1,115)(1,210)24,406
24,779
Noninterest income:    
Service charges on deposit accounts1,971
2,206
1,569
1,658
12
13
(12)(12)3,540
3,865
1,314
1,271
985
1,064
8
9
(7)(8)2,300
2,336
Trust and investment fees:    
Brokerage advisory, commissions and other fees1,413
1,357
224
231
6,896
6,741
(1,442)(1,372)7,091
6,957
929
943
152
145
4,372
4,628
(942)(959)4,511
4,757
Trust and investment management684
658
335
390
2,201
2,137
(700)(679)2,520
2,506
409
453
231
223
1,363
1,474
(422)(465)1,581
1,685
Investment banking(27)(60)1,401
1,407
4
(2)—
—
1,378
1,345
(38)(10)887
925
4
1
(4)—
849
916
Total trust and investment fees2,070
1,955
1,960
2,028
9,101
8,876
(2,142)(2,051)10,989
10,808
1,300
1,386
1,270
1,293
5,739
6,103
(1,368)(1,424)6,941
7,358
Card fees2,650
2,703
275
260
4
4
(3)(3)2,926
2,964
1,787
1,725
181
183
3
3
(2)(2)1,969
1,909
Other fees:    
Charges and fees on loans (1)208
235
695
715
2
3
(2)(3)903
950
Lending related charges and fees (1)(2)130
145
566
611
4
4
(4)(4)696
756
Cash network fees364
379
3
7
—
—
—
—
367
386
226
243
—
3
—
—
—
—
226
246
Commercial real estate brokerage commissions—
1
323
302
—
—
—
—
323
303
—
—
186
194
—
—
—
—
186
194
Letters of credit fees (1)4
4
219
223
3
3
(3)(3)223
227
Wire transfer and other remittance fees197
178
157
151
6
7
(3)(3)357
333
135
130
97
105
4
4
(2)(2)234
237
All other fees246
355
75
89
2
1
—
—
323
445
All other fees (1)176
157
52
55
—
1
—
—
228
213
Total other fees1,019
1,152
1,472
1,487
13
14
(8)(9)2,496
2,644
667
675
901
968
8
9
(6)(6)1,570
1,646
Mortgage banking (1)2,284
3,081
269
343
(8)(7)5
5
2,550
3,422
1,296
1,537
172
168
(6)(5)4
4
1,466
1,704
Insurance (1)65
104
233
695
55
63
(33)(36)320
826
22
44
153
157
34
36
(20)(21)189
216
Net gains (losses) from trading activities (1)33
(143)514
615
45
71
—
—
592
543
(6)23
559
379
32
32
1
—
586
434
Net gains (losses) on debt securities (1)(1)455
96
(135)4
2
—
—
99
322
Net gains on debt securities (1)52
(2)93
43
—
1
—
—
145
42
Net gains from equity securities (1)1,367
960
232
92
(105)155
—
—
1,494
1,207
1,072
1,093
193
182
171
(197)—
—
1,436
1,078
Lease income (1)—
—
1,351
1,449
—
—
—
—
1,351
1,449
—
—
867
898
—
—
—
—
867
898
Other income of the segment (1)2,115
1,406
(142)(185)(27)59
(226)(235)1,720
1,045
1,737
1,343
(267)(84)2
(21)(154)(151)1,318
1,087
Total noninterest income13,573
13,879
7,829
8,307
9,094
9,250
(2,419)(2,341)28,077
29,095
9,241
9,095
5,107
5,251
5,991
5,970
(1,552)(1,608)18,787
18,708
Revenue$35,452
35,298
21,780
22,560
12,419
12,739
(4,223)(4,258)65,428
66,339
$23,555
23,636
14,176
14,476
8,129
8,193
(2,667)(2,818)43,193
43,487
(1)
These revenues areMost of our revenue is not within the scope of ASUAccounting 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.”
Following is a discussion of key revenues within the scope of ASU 2014-09 – Note 18: Revenue from Contracts with Customers (“the new revenue guidance” (continued).

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 17.218.2 presents our service charges on deposit accounts by operating segment.


Table 17.2:18.2: Service Charges on Deposit Accounts by Operating Segment
 Quarter ended June 30, 
 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$496
416
1
1
1
1
—
—
498
418
Account charges208
216
501
529
3
4
(4)(4)708
745
Service charges on deposit accounts$704
632
502
530
4
5
(4)(4)1,206
1,163
 Six months ended June 30, 
 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$913
828
2
3
1
1
—
—
916
832
Account charges401
443
983
1,061
7
8
(7)(8)1,384
1,504
Service charges on deposit accounts$1,314
1,271
985
1,064
8
9
(7)(8)2,300
2,336
 Quarter ended Sep 30, 
 Community Banking Wholesale Banking Wealth and Investment Management Other Consolidated
Company		 
(in millions)2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
Overdraft fees$484
503
1
2
—
—
—
—
485
505
Account charges216
236
504
536
3
3
(4)(4)719
771
Service charges on deposit accounts$700
739
505
538
3
3
(4)(4)1,204
1,276
 Nine months ended Sep 30, 
 Community Banking Wholesale Banking Wealth and Investment Management Other Consolidated
Company		 
(in millions)2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
Overdraft fees$1,312
1,471
4
5
1
1
—
—
1,317
1,477
Account charges659
735
1,565
1,653
11
12
(12)(12)2,223
2,388
Service charges on deposit accounts$1,971
2,206
1,569
1,658
12
13
(12)(12)3,540
3,865

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.
Note 17: Revenue from Contracts with Customers (continued)


Table 17.318.3 presents our brokerage advisory, commissions and other fees by operating segment.
Table 17.3:18.3: Brokerage Advisory, Commissions and Other Fees by Operating Segment
Quarter ended Sep 30, Quarter ended June 30, 
Community Banking Wholesale Banking Wealth and Investment Management Other Consolidated
Company		 Community Banking Wholesale Banking Wealth and Investment Management Other Consolidated
Company		 
(in millions)2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
Asset-based revenue (1)$371
347
1
—
1,720
1,669
(372)(347)1,720
1,669
$369
365
—
—
1,698
1,722
(369)(365)1,698
1,722
Transactional revenue82
93
19
9
388
421
(94)(95)395
428
94
83
10
16
390
400
(98)(92)396
407
Other revenue17
21
59
56
160
151
(17)(21)219
207
17
17
64
62
160
162
(17)(16)224
225
Brokerage advisory, commissions and other fees$470
461
79
65
2,268
2,241
(483)(463)2,334
2,304
$480
465
74
78
2,248
2,284
(484)(473)2,318
2,354
Nine months ended Sep 30, Six months ended June 30, 
Community Banking Wholesale Banking Wealth and Investment Management Other Consolidated
Company		 Community Banking Wholesale Banking Wealth and Investment Management Other Consolidated
Company		 
(in millions)2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
Asset-based revenue (1)$1,107
1,013
1
—
5,185
4,910
(1,108)(1,012)5,185
4,911
$712
736
—
—
3,278
3,465
(712)(736)3,278
3,465
Transactional revenue258
287
47
33
1,227
1,356
(286)(303)1,246
1,373
183
176
26
28
777
839
(196)(192)790
851
Other revenue48
57
176
198
484
475
(48)(57)660
673
34
31
126
117
317
324
(34)(31)443
441
Brokerage advisory, commissions and other fees$1,413
1,357
224
231
6,896
6,741
(1,442)(1,372)7,091
6,957
$929
943
152
145
4,372
4,628
(942)(959)4,511
4,757
(1)
We earned trailing commissions of $323$289 million and $975$569 million in for the thirdsecond quarter and first nine monthshalf of 2019, respectively, and $321 million and $652 million for the second quarter and first half of 2018, respectively, and $337 million and $1.0 billion for the third quarter and nine months of 2017, respectively.
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 17.418.4 presents our trust and investment management fees by operating segment.

Table 17.4:18.4: Trust and Investment Management Fees by Operating Segment
 Quarter ended June 30, 
 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)—
—
—
501
531
—
—
500
531
Trust fees200
232
83
82
175
185
(208)(226)250
273
Other revenue—
(12)34
28
11
15
—
—
45
31
Trust and investment management fees$199
220
117
110
687
731
(208)(226)795
835
 Six months ended June 30, 
 Community Banking Wholesale Banking Wealth and Investment Management Other Consolidated
Company		 
(in millions)2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
Investment management fees$—
—
—
—
978
1,065
—
—
978
1,065
Trust fees409
453
165
168
343
373
(422)(465)495
529
Other revenue—
—
66
55
42
36
—
—
108
91
Trust and investment management fees$409
453
231
223
1,363
1,474
(422)(465)1,581
1,685

Note 18: Revenue from Contracts with Customers (continued)
 Quarter ended Sep 30, 
 Community Banking Wholesale Banking Wealth and Investment Management Other Consolidated
Company		 
(in millions)2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
Investment management fees$—
—
—
—
520
508
—
—
520
508
Trust fees229
224
82
104
181
189
(235)(231)257
286
Other revenue2
1
30
25
26
21
—
(1)58
46
Trust and investment management fees$231
225
112
129
727
718
(235)(232)835
840
 Nine months ended Sep 30, 
 Community Banking Wholesale Banking Wealth and Investment Management Other Consolidated
Company		 
(in millions)2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
Investment management fees$—
2
—
—
1,585
1,525
—
—
1,585
1,527
Trust fees682
655
250
315
554
566
(700)(678)786
858
Other revenue2
1
85
75
62
46
—
(1)149
121
Trust and investment management fees$684
658
335
390
2,201
2,137
(700)(679)2,520
2,506


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. Card-related fees such as late fees, cash advance fees, and balance transfer fees are loan-related and excluded from the scope of the new revenue guidance.
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 17.518.5 presents our card fees by operating segment.


Table 17.5:18.5: Card Fees by Operating Segment
Quarter ended Sep 30, Quarter ended June 30, 
Community Banking Wholesale Banking Wealth and Investment Management Other Consolidated
Company		 Community Banking Wholesale Banking Wealth and Investment Management Other Consolidated
Company		 
(in millions)2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
Credit card interchange and network revenues (1)$218
230
92
91
1
1
(1)(1)310
321
$209
211
95
96
2
2
(1)(1)305
308
Debit card interchange and network revenues523
496
—
—
—
—
—
—
523
496
546
525
—
—
—
—
—
—
546
525
Late fees, cash advance fees, balance transfer fees, and annual fees184
183
—
—
—
—
—
—
184
183
174
168
—
—
—
—
—
—
174
168
Card fees (1)$925
909
92
91
1
1
(1)(1)1,017
1,000
$929
904
95
96
2
2
(1)(1)1,025
1,001
Nine months ended Sep 30, Six months ended June 30, 
Community Banking Wholesale Banking Wealth and Investment Management Other Consolidated
Company		 Community Banking Wholesale Banking Wealth and Investment Management Other Consolidated
Company		 
(in millions)2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
Credit card interchange and network revenues (1)$600
703
275
260
4
4
(3)(3)876
964
$398
382
181
183
3
3
(2)(2)580
566
Debit card interchange and network revenues1,527
1,459
—
—
—
—
—
—
1,527
1,459
1,053
1,004
—
—
—
—
—
—
1,053
1,004
Late fees, cash advance fees, balance transfer fees, and annual fees523
541
—
—
—
—
—
—
523
541
336
339
—
—
—
—
—
—
336
339
Card fees (1)$2,650
2,703
275
260
4
4
(3)(3)2,926
2,964
$1,787
1,725
181
183
3
3
(2)(2)1,969
1,909
(1)
The cost of credit card rewards and rebates of $335$375 million and $1,013$729 million for the second quarter and nine months ended September 30, 2018,first half of 2019, respectively, and $310$335 million and $873$678 million for the second quarter and nine months ended September 30, 2017,first half of 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 significantmajority 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 18:19: Employee Benefits
We sponsor a frozen noncontributory qualified defined benefit retirement plan, 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) in our 2018 Form 10-K.
Table 18.119.1 presents the components of net periodic benefit cost.




Table 18.1:19.1:Net Periodic Benefit Cost
 2019  2018 
 Pension benefits    Pension benefits   
(in millions)Qualified
 Non-qualified
 
Other
benefits

 Qualified
 Non-qualified
 
Other
benefits

Quarter ended June 30,       
Service cost$3
 —
 —
 2
 —
 —
Interest cost (1)104
 5
 6
 98
 6
 5
Expected return on plan assets (1)(142) —
 (7) (161) —
 (8)
Amortization of net actuarial loss (gain) (1)37
 3
 (4) 33
 3
 (5)
Amortization of prior service credit (1)—
 —
 (3) —
 —
 (2)
Settlement loss (1)—
 —
 —
 —
 —
 —
Net periodic benefit cost (income)$2
 8
 (8) (28) 9
 (10)
Six months ended June 30,   
Service cost$6
 —
 —
 3
 —
 —
Interest cost (1)209
 11
 11
 196
 11
 10
Expected return on plan assets (1)(284) —
 (14) (321) —
 (15)
Amortization of net actuarial loss (gain) (1)74
 5
 (8) 66
 6
 (9)
Amortization of prior service credit (1)—
 —
 (5) —
 —
 (5)
Settlement loss (1)—
 2
 —
 —
 3
 —
Net periodic benefit cost (income)$5
 18
 (16) (56) 20
 (19)
  2018  2017 
  Pension benefits    
 Pension benefits    
(in millions)Qualified
 Non-qualified
 
Other
benefits

 Qualified
 Non-qualified
 
Other
benefits

Quarter ended September 30,       
Service cost$2
 —
 —
 1
 —
 —
Interest cost (1)97
 5
 6
 103
 5
 7
Expected return on plan assets (1)(160) —
 (8) (163) —
 (7)
Amortization of net actuarial loss (gain) (1)32
 4
 (4) 37
 3
 (3)
Amortization of prior service credit (1)—
 —
 (3) —
 —
 (2)
Settlement loss (1)—
 —
 —
 6
 —
 —
Net periodic benefit cost (income)$(29) 9
 (9) (16) 8
 (5)
Nine months ended September 30,       
Service cost$5
 —
 —
 4
 —
 —
Interest cost (1)293
 16
 16
 309
 17
 21
Expected return on plan assets (1)(481) —
 (23) (489) —
 (22)
Amortization of net actuarial loss (gain) (1)98
 10
 (13) 113
 9
 (8)
Amortization of prior service credit (1)—
 —
 (8) —
 —
 (7)
Settlement loss (1)—
 3
 —
 7
 6
 —
Net periodic benefit cost (income)$(85) 29
 (28) (56) 32
 (16)

(1)
Effective January 1, 2018, we adopted ASU 2017-07 – Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. Accordingly, 2018 balancesBalances are reported in other noninterest expense on the consolidated statement of income. For 2017, these balances were reported in employee benefits.




Note 19:20: Earnings and Dividends Per Common Share
Table 19.120.1 shows earnings per common share and diluted earnings per common share and reconciles the numerator and denominator of both earnings per common share calculations.
Table 19.1:20.1:Earnings Per Common Share Calculations
 Quarter ended June 30,  Six months ended June 30, 
(in millions, except per share amounts)2019
 2018
 2019
 2018
Wells Fargo net income$6,206
 5,186
 $12,066
 10,322
Less: Preferred stock dividends and other358
 394
 711
 797
Wells Fargo net income applicable to common stock (numerator)$5,848
 4,792
 $11,355
 9,525
Earnings per common share       
Average common shares outstanding (denominator)4,469.4
 4,865.8
 4,510.2
 4,875.7
Per share$1.31
 0.98
 $2.52
 1.95
Diluted earnings per common share       
Average common shares outstanding4,469.4
 4,865.8
 4,510.2
 4,875.7
Add: Stock options (1)0.1
 8.2
 1.4
 9.0
Restricted share rights (1)25.5
 20.7
 28.5
 25.4
Warrants (1)—
 5.1
 —
 6.0
Diluted average common shares outstanding (denominator)4,495.0
 4,899.8
 4,540.1
 4,916.1
Per share$1.30
 0.98
 $2.50
 1.94
 Quarter ended September 30,  Nine months ended September 30, 
(in millions, except per share amounts)2018
 2017
 2018
 2017
Wells Fargo net income (1)$6,007
 4,542
 $16,329
 16,032
Less: Preferred stock dividends and other (2)554
 411
 1,351
 1,218
Wells Fargo net income applicable to common stock (numerator) (1)$5,453
 4,131
 $14,978
 14,814
Earnings per common share       
Average common shares outstanding (denominator)4,784.0
 4,948.6
 4,844.8
 4,982.1
Per share (1)$1.14
 0.83
 $3.09
 2.97
Diluted earnings per common share       
Average common shares outstanding4,784.0
 4,948.6
 4,844.8
 4,982.1
Add: Stock options7.5
 15.8
 8.5
 18.1
Restricted share rights26.5
 22.4
 25.9
 24.1
Warrants5.2
 10.0
 5.8
 11.1
Diluted average common shares outstanding (denominator)4,823.2
 4,996.8
 4,885.0
 5,035.4
Per share (1)$1.13
 0.83
 $3.07
 2.94

(1)
Financial information forCalculated using the prior period has been revised to reflect the impact of the adoption of ASU 2017-12 – Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, effective January 1, 2017.
(2)
The quarter and nine months ended September 30, 2018, includes $155 million as a result of eliminating the discount on our Series J Preferred Stock, which was redeemed on September 17, 2018.
treasury stock method.

Table 19.220.2 presents the outstanding Series L convertible preferred stock and 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 19.2:20.2:Outstanding Anti-Dilutive OptionsSecurities
Weighted-average shares Weighted-average shares 
Quarter ended September 30,  Nine months ended September 30, Quarter ended June 30,  Six months ended June 30, 
(in millions)2018
 2017
 2018
 2017
2019
 2018
 2019
 2018
Options—
 1.8
 0.4
 2.0
Series L Convertible Preferred Stock (1)25.3
 25.3
 25.3
 25.3
Stock options (2)—
 —
 —
 0.5
(1)Calculated using the if-converted method.
(2)Calculated using the treasury stock method.


Table 19.320.3 presents dividends declared per common share.
Table 19.3:20.3:Dividends Declared Per Common Share
 Quarter ended June 30,  Six months ended June 30, 
 2019
 2018
 2019
 2018
Per common share$0.450
 0.390
 0.900
 0.780

 Quarter ended September 30,  Nine months ended September 30, 
 2018
 2017
 2018
 2017
Per common share$0.430
 0.390
 1.210
 1.150
Note 20: Other Comprehensive Income (continued)



Note 20:21: Other Comprehensive Income
Table 20.121.1 provides the components of other comprehensive income (OCI),OCI, reclassifications to net income by income statement line item, and the related tax effects.


Table 20.1:21.1:Summary of Other Comprehensive Income
 Quarter ended September 30,  Nine months ended September 30, 
 2018  2017  2018  2017 
(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

Debt securities (1):                       
Net unrealized gains (losses) arising during the period$(1,468) 360
 (1,108) 891
 (353) 538
 (5,528) 1,360
 (4,168) 2,825
 (1,075) 1,750
Reclassification of net (gains) losses to net income:          

            
Interest income on debt securities (2)109
 (27) 82
 70
 (26) 44
 268
 (66) 202
 122
 (46) 76
Net gains on debt securities(57) 15
 (42) (166) 62
 (104) (99) 25
 (74) (322) 119
 (203)
Net gains from equity securities (3)—
 —
 —
 (106) 41
 (65) —
 —
 —
 (323) 120
 (203)
Other noninterest income(1) —
 (1) 2
 —
 2
 (1) —
 (1) 1
 —
 1
Subtotal reclassifications to net income51

(12)
39
 (200) 77
 (123) 168
 (41) 127
 (522) 193
 (329)
Net change(1,417)
348

(1,069) 691
 (276) 415
 (5,360) 1,319
 (4,041) 2,303
 (882) 1,421
Derivatives and hedging activities:                       
Fair Value Hedges:                       
Change in fair value of excluded components on fair value hedges (4)(21) 5
 (16) 72
 (26) 46
 (147) 36
 (111) (254) 96
 (158)
Cash Flow Hedges:                       
Net unrealized gains (losses) arising during the period on cash flow hedges(3) —
 (3) 32
 (12) 20
 (269) 66
 (203) 272
 (103) 169
Reclassification of net (gains) losses to net income on cash flow hedges:          

            
Interest income on loans78
 (19) 59
 (107) 42
 (65) 215
 (53) 162
 (468) 178
 (290)
Interest expense on long-term debt1
 —
 1
 2
 (1) 1
 1
 —
 1
 8
 (3) 5
Subtotal reclassifications to net income79

(19)
60

(105)
41

(64)
216

(53)
163

(460)
175

(285)
Net change55

(14)
41
 (1) 3
 2
 (200)
49

(151) (442)
168

(274)
Defined benefit plans adjustments:                       
Net actuarial and prior service gains arising during the period—
 —
 —
 11
 (5) 6
 6
 (2) 4
 4
 (2) 2
Reclassification of amounts to net periodic benefit costs (5):                       
Amortization of net actuarial loss32
 (8) 24
 37
 (13) 24
 95
 (23) 72
 114
 (43) 71
Settlements and other(3) 2
 (1) 4
 (1) 3
 (5) 3
 (2) 6
 —
 6
Subtotal reclassifications to net periodic benefit costs29

(6)
23
 41
 (14) 27
 90
 (20) 70
 120
 (43) 77
Net change29

(6)
23
 52
 (19) 33
 96
 (22) 74
 124
 (45) 79
Foreign currency translation adjustments:                       
Net unrealized gains (losses) arising during the period(9) 2
 (7) 39
 3
 42
 (94) —
 (94) 86
 6
 92
Net change(9)
2

(7) 39
 3
 42
 (94) —
 (94) 86
 6
 92
Other comprehensive income (loss)$(1,342)
330

(1,012) 781

(289)
492
 (5,558) 1,346
 (4,212) 2,071
 (753) 1,318
Less: Other comprehensive loss from noncontrolling interests, net of tax    —
     (34)     (1)     (29)
Wells Fargo other comprehensive income (loss), net of tax    $(1,012)     526
     (4,211)     1,347
 Quarter ended June 30,  Six months ended June 30, 
 2019  2018  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

Debt securities:                       
Net unrealized gains (losses) arising during the period$1,709
 (422) 1,287
 (617) 152
 (465) 4,540
 (1,117) 3,423
 (4,060) 1,000
 (3,060)
Reclassification of net (gains) losses to net income:          

            
Interest income on debt securities (1)61
 (15) 46
 90
 (22) 68
 106
 (26) 80
 159
 (39) 120
Net gains on debt securities(20) 5
 (15) (41) 10
 (31) (145) 36
 (109) (42) 10
 (32)
Other noninterest income(2) 1
 (1) —
 —
 —
 (3) 1
 (2) —
 —
 —
Subtotal reclassifications to net income39

(9)
30
 49
 (12) 37
 (42) 11
 (31) 117
 (29) 88
Net change1,748

(431)
1,317
 (568) 140
 (428) 4,498
 (1,106) 3,392
 (3,943) 971
 (2,972)
Derivative and hedging activities:                       
Fair Value Hedges:                       
Change in fair value of excluded components on fair value hedges (2)56
 (14) 42
 (150) 37
 (113) 30
 (7) 23
 (126) 31
 (95)
Cash Flow Hedges:                       
Net unrealized gains (losses) arising during the period on cash flow hedges1
 —
 1
 —
 —
 —
 (8) 2
 (6) (266) 66
 (200)
Reclassification of net losses to net income on cash flow hedges:          

            
Interest income on loans77
 (19) 58
 77
 (19) 58
 155
 (38) 117
 137
 (34) 103
Interest expense on long-term debt2
 (1) 1
 —
 —
 —
 3
 (1) 2
 —
 —
 —
Subtotal reclassifications to net income79

(20)
59

77

(19)
58

158

(39)
119

137

(34)
103
Net change136

(34)
102
 (73) 18
 (55) 180

(44)
136
 (255)
63

(192)
Defined benefit plans adjustments:                       
Net actuarial and prior service gains (losses) arising during the period—
 —
 —
 —
 —
 —
 (4) 1
 (3) 6
 (2) 4
Reclassification of amounts to non interest expense (3):                       
Amortization of net actuarial loss36
 (9) 27
 31
 (7) 24
 71
 (17) 54
 63
 (15) 48
Settlements and other(3) 2
 (1) (2) —
 (2) (3) 2
 (1) (2) 1
 (1)
Subtotal reclassifications to non interest expense33

(7)
26
 29
 (7) 22
 68
 (15) 53
 61
 (14) 47
Net change33

(7)
26
 29
 (7) 22
 64
 (14) 50
 67
 (16) 51
Foreign currency translation adjustments:                       
Net unrealized gains (losses) arising during the period14
 (1) 13
 (83) 3
 (80) 56
 (3) 53
 (85) (2) (87)
Net change14

(1)
13
 (83) 3
 (80) 56
 (3) 53
 (85) (2) (87)
Other comprehensive income (loss)$1,931

(473)
1,458
 (695)
154

(541) 4,798
 (1,167) 3,631
 (4,216) 1,016
 (3,200)
Less: Other comprehensive loss from noncontrolling interests, net of tax    —
     (1)     —
     (1)
Wells Fargo other comprehensive income (loss), net of tax    $1,458
     (540)     3,631
     (3,199)
(1)
The quarter and nine months ended ended September 30, 2017 includes net unrealized gains (losses) arising during the period from equity securities of $(13) million and $113 million and reclassification of net (gains) losses to net income related to equity securities of $(106) million and $(323) million, respectively. With the adoption in first quarter 2018 of ASU 2016-01, the quarter and nine months ended September 30, 2018 reflects net unrealized gains (losses) arising during the period and reclassification of net (gains) losses to net income from only debt securities.
(2)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.
(3)Net gains from equity securities is presented for table presentation purposes. After adoption of ASU 2016-01 on January 1, 2018, this line does not contain balances as realized and unrealized gains and losses on marketable equity securities are recorded in earnings.
(4)(2)Represents changes in fair value of cross-currency swaps attributable to changes in cross-currency basis spreads, which are excluded from the assessment of effectiveness recorded in other comprehensive income.
(5)(3)These items are included in the computation of net periodic benefit cost which is recorded in employee benefits expense (see Note 1819 (Employee Benefits) for additional details)more information).



Note 21: Other Comprehensive Income (continued)


Table 20.2:21.2:Cumulative OCI Balances
(in millions)
Debt
securities

 
Derivative
and
hedging
activities

 
Defined
benefit
plans
adjustments

 
Foreign
currency
translation
adjustments

 
Cumulative
other
compre-
hensive
income

Quarter ended June 30, 2019         
Balance, beginning of period$(566) (651) (2,272) (193) (3,682)
Net unrealized gains arising during the period1,287
 43
 —
 13
 1,343
Amounts reclassified from accumulated other comprehensive income30
 59
 26
 —
 115
Net change1,317
 102
 26
 13
 1,458
Less: Other comprehensive income from noncontrolling interests—
 —
 —
 —
 —
Balance, end of period$751
 (549) (2,246) (180) (2,224)
Quarter ended June 30, 2018         
Balance, beginning of period$(2,491) (555) (1,779) (96) (4,921)
Net unrealized losses arising during the period(465) (113) —
 (80) (658)
Amounts reclassified from accumulated other comprehensive income37
 58
 22
 —
 117
Net change(428) (55) 22
 (80) (541)
Less: Other comprehensive loss from noncontrolling interests—
 —
 —
 (1) (1)
Balance, end of period$(2,919) (610) (1,757) (175) (5,461)
Six months ended June 30, 2019         
Balance, beginning of period$(3,122) (685) (2,296) (233) (6,336)
Transition adjustment (1)481
 —
 —
 —
 481
Balance, January 1, 2019(2,641) (685) (2,296) (233) (5,855)
Net unrealized gains (losses) arising during the period3,423
 17
 (3) 53
 3,490
Amounts reclassified from accumulated other comprehensive income(31) 119
 53
 —
 141
Net change3,392
 136
 50
 53
 3,631
Less: Other comprehensive income from noncontrolling interests—
 —
 —
 —
 —
Balance, end of period$751
 (549) (2,246) (180) (2,224)
Six months ended June 30, 2018         
Balance, beginning of period$171
 (418) (1,808) (89) (2,144)
Transition adjustment (2)(118) —
 —
 —
 (118)
Balance, January 1, 201853
 (418) (1,808) (89) (2,262)
Net unrealized gains (losses) arising during the period(3,060) (295) 4
 (87) (3,438)
Amounts reclassified from accumulated other comprehensive income88
 103
 47
 —
 238
Net change(2,972) (192) 51
 (87) (3,200)
Less: Other comprehensive loss from noncontrolling interests—
 —
 —
 (1) (1)
Balance, end of period$(2,919) (610) (1,757) (175) (5,461)
(in millions)
Debt
securities (1)

 
Derivatives
and
hedging
activities

 
Defined
benefit
plans
adjustments

 
Foreign
currency
translation
adjustments

 
Cumulative
other
compre-
hensive
income

Quarter ended September 30, 2018         
Balance, beginning of period$(2,919) (610) (1,757) (175) (5,461)
Reclassification of certain tax effects to retained earnings (2)31
 (87) (353) 9
 (400)
Net unrealized losses arising during the period(1,108) (19) —
 (7) (1,134)
Amounts reclassified from accumulated other comprehensive income39
 60
 23
 —
 122
Net change(1,038) (46) (330) 2
 (1,412)
Balance, end of period$(3,957) (656) (2,087) (173) (6,873)
Quarter ended September 30, 2017         
Balance, beginning of period$(96) (19) (1,897) (136) (2,148)
Net unrealized gains arising during the period538
 66
 6
 42
 652
Amounts reclassified from accumulated other comprehensive income(123) (64) 27
 —
 (160)
Net change415
 2
 33
 42
 492
Less: Other comprehensive loss from noncontrolling interests(34) —
 —
 —
 (34)
Balance, end of period$353
 (17) (1,864) (94) (1,622)
Nine months ended September 30, 2018         
Balance, beginning of period$171
 (418) (1,808) (89) (2,144)
Transition adjustment (3)(118) —
 —
 —
 (118)
Balance, January 1, 201853
 (418) (1,808) (89) (2,262)
Reclassification of certain tax effects to retained earnings (2)31
 (87) (353) 9
 (400)
Net unrealized gains (losses) arising during the period(4,168) (314) 4
 (94) (4,572)
Amounts reclassified from accumulated other comprehensive income127
 163
 70
 —
 360
Net change(4,010) (238) (279) (85) (4,612)
Less: Other comprehensive loss from noncontrolling interests—
 —
 —
 (1) (1)
Balance, end of period$(3,957) (656) (2,087) (173) (6,873)
Nine months ended September 30, 2017         
Balance, beginning of period$(1,099) 89
 (1,943) (184) (3,137)
Transition adjustment (4)—
 168
 —
 —
 168
Balance, January 1, 2017(1,099) 257
 (1,943) (184) (2,969)
Net unrealized gains arising during the period1,750
 11
 2
 92
 1,855
Amounts reclassified from accumulated other comprehensive income(329) (285) 77
 —
 (537)
Net change1,421
 (274) 79
 92
 1,318
Less: Other comprehensive income (loss) from noncontrolling interests(31) —
 —
 2
 (29)
Balance, end of period$353
 (17) (1,864) (94) (1,622)

(1)
The quarter and nine months ended ended September 30, 2017 includes net unrealized gains (losses) arising during the period from equity securities of $(13) million and $113 million and reclassification of net (gains) losses to net income related to equity securities of $(106) million and $(323) million, respectively. With the adoption in first quarter 2018 of ASU 2016-01, the quarter and nine months ended September 30, 2018 reflects net unrealized gains (losses) arising during the period and reclassification of net (gains) losses to net income from only debt securities.
(2)
Represents the reclassification from other comprehensive income to retained earnings as a result of the adoption of ASU 2018-02 – Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, in the third quarter of 2018. For additional information, see Note 1.
(3)
The transition adjustment relates to the adoption of ASU 2016-012017-08 –Financial Instruments Receivables – Overall Nonrefundable Fees and Other Costs (Subtopic 825-10)310-20): Recognition and Measurement of Financial Assets and Financial LiabilitiesPremium Amortization on Purchased Callable Debt Securities. See Note 1 (Summary of Significant Accounting Policies) for more information.
(4)(2)
The transition adjustment relates to the adoption of ASU 2017-12, Derivatives2016-01 – Financial Instruments – Overall (Subtopic 825-10): Recognition and Hedging (Topic 815): Targeted Improvements toMeasurement of Financial Assets and Financial Liabilities. See Note 1 (Summary of Significant Accounting Policies) for Hedging Activities.more information.




Note 21:22: 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. Effective first quarter 2018, assets and liabilities receive a funding charge or
credit that considers interest rate risk, liquidity risk, and other product characteristics on a more granular level. This methodology change affects results across all three of our reportable operating segments and prior period operating segment results have been revised to reflect this methodology change. Our previously reported consolidated financial results were not impacted by the methodology change; however, in connection with the adoption of ASU 2016-01 in first quarter 2018, certain reclassifications have occurred within noninterest income. For a description of our operating segments see Note 2526 (Operating Segments) to Financial Statements in our 20172018 Form 10-K. Table 21.122.1 presents our results by operating segment.
Table 21.1:22.1: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)2018
 2017
 2018
 2017
 2018
 2017
 2018
 2017
 2018
 2017
2019
 2018
 2019
 2018
 2019
 2018
 2019
 2018
 2019
 2018
Quarter ended                   
Quarter ended June 30,                   
Net interest income (2)$7,066
 7,346
 4,535
 4,693
 1,037
 1,111
 (543) (609) 12,095
 12,541
Provision (reversal of provision) for credit losses479
 484
 28
 (36) (1) (2) (3) 6
 503
 452
Noninterest income4,739
 4,460
 2,530
 2,504
 3,013
 2,840
 (793) (792) 9,489
 9,012
Noninterest expense7,212
 7,290
 3,882
 4,219
 3,246
 3,361
 (891) (888) 13,449
 13,982
Income (loss) before income tax expense (benefit)4,114
 4,032
 3,155
 3,014
 805
 592
 (442) (519) 7,632
 7,119
Income tax expense (benefit)838
 1,413
 365
 379
 201
 147
 (110) (129) 1,294
 1,810
Net income (loss) before noncontrolling interests3,276
 2,619
 2,790
 2,635
 604
 445
 (332) (390) 6,338
 5,309
Less: Net income from noncontrolling interests129
 123
 1
 —
 2
 —
 —
 —
 132
 123
Net income (loss) (3)$3,147
 2,496
 2,789
 2,635
 602
 445
 (332) (390) 6,206
 5,186
Average loans$457.7
 463.8
 474.0
 464.7
 75.0
 74.7
 (59.2) (59.1) 947.5
 944.1
Average assets1,024.8
 1,034.3
 852.2
 826.4
 83.8
 84.0
 (60.2) (59.8) 1,900.6
 1,884.9
Average deposits777.6
 760.6
 410.4
 414.0
 143.5
 167.1
 (62.5) (70.4) 1,269.0
 1,271.3
Six months ended June 30,                   
Net interest income (2)$7,338
 7,154
 4,726
 4,763
 1,102
 1,177
 (594) (645) 12,572
 12,449
$14,314
 14,541
 9,069
 9,225
 2,138
 2,223
 (1,115) (1,210) 24,406
 24,779
Provision (reversal of provision) for credit losses547
 650
 26
 69
 6
 (1) 1
 (1) 580
 717
1,189
 702
 162
 (56) 3
 (8) (6) 5
 1,348
 643
Noninterest income4,478
 4,366
 2,578
 2,741
 3,124
 3,079
 (811) (786) 9,369
 9,400
9,241
 9,095
 5,107
 5,251
 5,991
 5,970
 (1,552) (1,608) 18,787
 18,708
Noninterest expense7,467
 7,852
 3,935
 4,234
 3,243
 3,102
 (882) (837) 13,763
 14,351
14,901
 15,992
 7,720
 8,197
 6,549
 6,651
 (1,805) (1,816) 27,365
 29,024
Income (loss) before income tax expense (benefit)3,802
 3,018
 3,343
 3,201
 977
 1,155
 (524) (593) 7,598
 6,781
7,465
 6,942
 6,294
 6,335
 1,577
 1,550
 (856) (1,007) 14,480
 13,820
Income tax expense (benefit)925
 1,079
 475
 894
 244
 433
 (132) (225) 1,512
 2,181
1,262
 2,222
 734
 827
 393
 386
 (214) (251) 2,175
 3,184
Net income (loss) before noncontrolling interests2,877
 1,939
 2,868
 2,307
 733
 722
 (392) (368) 6,086
 4,600
6,203
 4,720
 5,560
 5,508
 1,184
 1,164
 (642) (756) 12,305
 10,636
Less: Net income (loss) from noncontrolling interests61
 62
 17
 (7) 1
 3
 —
 —
 79
 58
233
 311
 1
 (2) 5
 5
 —
 —
 239
 314
Net income (loss) (3)$2,816
 1,877
 2,851
 2,314
 732
 719
 (392) (368) 6,007
 4,542
$5,970
 4,409
 5,559
 5,510
 1,179
 1,159
 (642) (756) 12,066
 10,322
Average loans$460.9
 473.7
 462.8
 463.7
 74.6
 72.4
 (58.8) (57.5) 939.5
 952.3
$457.9
 467.1
 475.2
 464.9
 74.7
 74.3
 (59.1) (58.8) 948.7
 947.5
Average assets1,024.9
 1,089.6
 827.2
 824.2
 83.8
 83.2
 (59.6) (58.5) 1,876.3
 1,938.5
1,020.1
 1,048.0
 848.4
 827.8
 83.5
 84.1
 (60.1) (59.6) 1,891.9
 1,900.3
Average deposits760.9
 734.6
 413.6
 463.4
 159.8
 184.4
 (67.9) (76.0) 1,266.4
 1,306.4
771.6
 754.1
 410.1
 429.9
 148.3
 172.5
 (64.5) (72.3) 1,265.5
 1,284.2
Nine months ended Sep 30,                   
Net interest income (2)$21,879
 21,419
 13,951
 14,253
 3,325
 3,489
 (1,804) (1,917) 37,351
 37,244
Provision (reversal of provision) for credit losses1,249
 1,919
 (30) (39) (2) 2
 6
 (5) 1,223
 1,877
Noninterest income13,573
 13,879
 7,829
 8,307
 9,094
 9,250
 (2,419) (2,341) 28,077
 29,095
Noninterest expense23,459
 22,399
 12,132
 12,437
 9,894
 9,377
 (2,698) (2,529) 42,787
 41,684
Income (loss) before income tax expense (benefit)10,744
 10,980
 9,678
 10,162
 2,527
 3,360
 (1,531) (1,724) 21,418
 22,778
Income tax expense (benefit)3,147
 3,316
 1,302
 2,642
 630
 1,255
 (383) (654) 4,696
 6,559
Net income (loss) before noncontrolling interests7,597
 7,664
 8,376
 7,520
 1,897
 2,105
 (1,148) (1,070) 16,722
 16,219
Less: Net income (loss) from noncontrolling interests372
 198
 15
 (21) 6
 10
 —
 —
 393
 187
Net income (loss) (3)$7,225
 7,466
 8,361
 7,541
 1,891
 2,095
 (1,148) (1,070) 16,329
 16,032
Average loans$465.0
 476.5
 464.2
 466.3
 74.4
 71.6
 (58.8) (56.8) 944.8
 957.6
Average assets1,040.2
 1,089.6
 827.6
 817.9
 84.0
 82.5
 (59.6) (57.8) 1,892.2
 1,932.2
Average deposits756.4
 726.8
 424.4
 463.7
 168.2
 190.6
 (70.8) (78.8) 1,278.2
 1,302.3
(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 as well as interest credits for any funding of a segment available to be provided to other segments. The cost of liabilities includes actual interest expense on segment liabilities as well as funding charges for any funding provided from 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 22:23: 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 22.123.1 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 Standardized Approach applies assigned risk weights to broad risk categories, while the calculation of risk-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 capital rules 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 SeptemberJune 30, 2018,2019, 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 22.1:23.1:Regulatory Capital Information
Wells Fargo & Company Wells Fargo Bank, N.A.Wells Fargo & Company Wells Fargo Bank, N.A.
September 30, 2018   December 31, 2017   September 30, 2018   December 31, 2017June 30, 2019   December 31, 2018   June 30, 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$148,855
 148,855
 154,765
 154,765
 141,459
 141,459
 143,292
 143,292
 $149,183
 149,183
 146,363
 146,363
 146,505
 146,505
 142,685
 142,685
 
Tier 1170,342
 170,342
 178,209
 178,209
 141,459
 141,459
 143,292
 143,292
 170,675
 170,675
 167,866
 167,866
 146,505
 146,505
 142,685
 142,685
 
Total201,616
 209,924
 210,333
 220,097
 154,468
 162,353
 156,661
 165,734
 200,810
 208,817
 198,798
 207,041
 159,090
 166,648
 155,558
 163,380
 
Assets:                                
Risk-weighted$1,189,464
 1,250,215
 1,199,545
 1,260,663
 1,082,515
 1,162,179
 1,090,360
 1,169,863
 
Adjusted average (1)1,847,338
 1,847,338
 1,905,568
 1,905,568
 1,647,541
 1,647,541
 1,708,828
 1,708,828
 
Risk-weighted assets$1,182,838
 1,246,683
 1,177,350
 1,247,210
 1,059,642
 1,144,959
 1,058,653
 1,154,182
 
Adjusted average assets (1)1,871,806
 1,871,806
 1,850,299
 1,850,299
 1,654,994
 1,654,994
 1,652,009
 1,652,009
 
Regulatory capital ratios:                                
Common equity tier 1 capital12.51%
11.91
* 12.90
 12.28
* 13.07

12.17
* 13.14

12.25
*12.61% 11.97
* 12.43
 11.74
* 13.83
 12.80
* 13.48
 12.36
*
Tier 1 capital14.32

13.63
* 14.86
 14.14
* 13.07

12.17
* 13.14

12.25
*14.43
 13.69
* 14.26
 13.46
* 13.83
 12.80
* 13.48
 12.36
*
Total capital16.95

16.79
* 17.53
 17.46
* 14.27

13.97
* 14.37

14.17
*16.98
 16.75
* 16.89
 16.60
* 15.01
 14.56
* 14.69
 14.16
*
Tier 1 leverage (1)9.22
 9.22
 9.35
 9.35
 8.59
 8.59
 8.39
 8.39
 9.12
 9.12
 9.07
 9.07
 8.85
 8.85
 8.64
 8.64
 
Wells Fargo & Company  Wells Fargo Bank, N.A.  
June 30, 2019  December 31, 2018  June 30, 2019  December 31, 2018  
Supplementary leverage: (2)                
Total leverage exposure$2,202,607  2,174,564  1,964,107  1,957,276  
Supplementary leverage ratio7.75% 7.72  7.46  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 quarterlytotal 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 total average assets, less goodwill and other permitted Tier 1 capital deductions (net of deferred tax liabilities), plus certain off-balance sheet exposures.
Table 22.223.2 presents the minimum required regulatory capital ratios under Transition Requirements to which the Company and the Bank were subject as of SeptemberJune 30, 20182019, and December 31, 2017.2018.
 


Table 22.2:23.2: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, 2018
 December 31, 2017 September 30, 2018 December 31, 2017June 30, 2019
 December 31, 2018 June 30, 2019 December 31, 2018
Regulatory capital ratios:       
Common equity tier 1 capital7.875% 6.750 6.375 5.7509.000% 7.875 7.000 6.375
Tier 1 capital9.375
 8.250 7.875 7.25010.500
 9.375 8.500 7.875
Total capital11.375
 10.250 9.875 9.25012.500
 11.375 10.500 9.875
Tier 1 leverage4.000
 4.000 4.000 4.0004.000
 4.000 4.000 4.000
Supplementary leverage5.000
 5.000 6.000 6.000
(1)
At SeptemberJune 30, 2018,2019, under transition requirements, the CET1, tier 1 and total capital minimum ratio requirements for Wells Fargo & Company include a capital conservation buffer of 1.875%2.500% and a global systemically important bank (G-SIB) surcharge of 1.500%2.000%. Only the 1.875%2.500% capital conservation buffer applies to the Bank at SeptemberJune 30, 2018.
2019.





Glossary of Acronyms
    
ABSAsset-backed securityG-SIBGlobally systemic important bank
ACLAllowance for credit lossesHAMPHQLAHome Affordability Modification ProgramHigh-quality liquid assets
ALCOAsset/Liability Management CommitteeHUDHTMU.S. Department of Housing and Urban DevelopmentHeld to maturity
ARM
Adjustable-rate mortgageLCRLiquidity coverage ratio
ASC
Accounting Standards CodificationLHFSLoans held for sale
ASUAccounting Standards UpdateLIBORLondon Interbank Offered Rate
AUAAssets under administrationLIHTCLow income housing tax credit
AUMAssets under managementLOCOMLower of cost or fair value
AVMAutomated valuation modelLTVLoan-to-value
BCBSBasel Committee on Bank SupervisionMBSMortgage-backed security
BCFPBureau of Consumer Financial ProtectionMHAMaking Home Affordable programs
BHCBank holding companyMLHFSMortgage loans held for sale
CCARComprehensive Capital Analysis and ReviewMSRMortgage servicing right
CDCertificate of depositMTNNAVMedium-term noteNet asset value
CDOCollateralized debt obligationNAVNPANetNonperforming asset value
CDSCredit default swapsNPANonperforming asset
CECLCurrent expected credit lossOCCOffice of the Comptroller of the Currency
CET1CECLCommon Equity Tier 1Current expected credit lossOCIOther comprehensive income
CLOCET1Collateralized loan obligationCommon Equity Tier 1OTCOver-the-counter
CLTVCFPBCombined loan-to-valueConsumer Financial Protection BureauOTTIOther-than-temporary impairment
CMBSCLOCommercial mortgage-backed securitiesCollateralized loan obligationPCI LoansPurchased credit-impaired loans
CPICLTVCollateral protection insuranceCombined loan-to-valuePTPPPre-tax pre-provision profit
CPPCPICapital Purchase ProgramCollateral protection insuranceRBCRisk-based capital
CRECPPCommercial real estateCapital Purchase ProgramRMBSResidential mortgage-backed securities
DPDCREDays past dueCommercial real estateROAWells Fargo net income to average total assets
ESOPDPDEmployee Stock Ownership PlanDays past dueROEWells Fargo net income applicable to common stock
FASESOPStatement of Financial Accounting StandardsEmployee Stock Ownership Plan to average Wells Fargo common stockholders'stockholders’ equity
FASBFASStatement of Financial Accounting Standards BoardROTCEReturn on average tangible common equity
FDICFASBFederal Deposit Insurance CorporationFinancial Accounting Standards BoardRWAsRisk-weighted assets
FFELPFDICFederal Family Education Loan ProgramDeposit Insurance CorporationSECSecurities and Exchange Commission
FHAFederal Housing AdministrationS&PStandard & Poor’s Global Ratings Services
FHLBFederal Home Loan BankSLRSupplementary leverage ratio
FHLMCFederal Home Loan Mortgage CorporationSPESOFRSpecial purpose entitySecured Overnight Financing Rate
FICOFair Isaac Corporation (credit rating)TARPSPETroubled Asset Relief ProgramSpecial purpose entity
FNMAFederal National Mortgage AssociationTDRTroubled debt restructuring
FRBBoard of Governors of the Federal Reserve SystemTLACTotal Loss Absorbing Capacity
GAAPGenerally accepted accounting principlesVADepartment of Veterans Affairs
GNMAGovernment National Mortgage AssociationVaRValue-at-Risk
GSEGovernment-sponsored entityVIEVariable interest entity
G-SIBGlobally systemic important bankWIMWealth and Investment Management




PART II – OTHER INFORMATION


Item 1.            Legal Proceedings
 
Information in response to this item can be found in Note 1314 (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 SeptemberJune 30, 2018.2019.
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
July43,844,808
 $55.60
 290,628,420
August53,449,561
 58.68
 237,178,859
September49,192,674
 57.09
 187,986,185
Total146,487,043
    
      
Calendar monthTotal number
of shares
repurchased (1)
 Weighted-average
price paid per share
 Maximum number of
shares that may yet
be repurchased under
the authorization
April28,673,471
 $47.86
 269,297,234
May41,151,107
 46.79
 228,146,127
June35,028,166
 45.68
 193,117,961
Total104,852,744
    
      
(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 JanuaryOctober 23, 2018. In addition, the Company publicly announced on July 23, 2019, that the Board of Directors authorized the repurchase of an additional 350 million shares of common stock. Unless modified or revoked by the Board, this authorization doesthese authorizations do not expire.
The following table shows Company repurchases of the warrants for each calendar month in the quarter ended September 30, 2018.

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.



Item 6.Exhibits
 
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 
3(a)
 
Restated Certificate of Incorporation, as amended and in effect on the date hereof.
 Filed herewith.Incorporated by reference to Exhibit 3(a) to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019.
3(b)
 
By-Laws.
 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.  
31(a)10(a)
 
Long-Term Incentive Compensation Plan (as amended and restated on April 23, 2019)
Incorporated by reference to Exhibit 10(b) to the Company’s Current Report on Form 8-K filed April 26, 2019.
 Form of Restricted Share Rights Award Agreement:
 For grants on or after April 7, 2019.
Filed herewith.
31(a)
Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 Filed herewith.
31(b)
 
Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 Filed herewith.
32(a)
 
Certification of Periodic Financial Report by Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. § 1350.
 Furnished herewith.
32(b)
 
Certification of Periodic Financial Report by Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. § 1350.
 Furnished herewith.
101.INS Inline XBRL Instance Document Filed herewith.The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
101.SCH Inline XBRL Taxonomy Extension Schema Document Filed herewith.
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document Filed herewith.
101.DEF Inline XBRL Taxonomy Extension Definitions Linkbase Document Filed herewith.
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document Filed herewith.
101.PRE Inline 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: November 6, 2018                                                        August 2, 2019                                                        WELLS FARGO & COMPANY
 
 
By:       /s/ RICHARD D. LEVY                                 
Richard D. Levy
Executive Vice President and Controller
(Principal Accounting Officer)


178165