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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|
| |
☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2019March 31, 2020
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, California California9416394104
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: 1-866-249-3302
Securities registered pursuant to Section 12(b) of the Act:
|
| | |
Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered |
Common Stock, par value $1-2/3 | WFC | NYSE |
7.5% Non-Cumulative Perpetual Convertible Class A Preferred Stock, Series L | WFC.PRL | NYSE |
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series N | WFC.PRN | NYSE |
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series O | WFC.PRO | NYSE |
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series P | WFC.PRP | NYSE |
Depositary Shares, each representing a 1/1000th interest in a share of 5.85% Fixed-to-Floating Rate Non-Cumulative Perpetual Class A Preferred Stock, Series Q | WFC.PRQ | NYSE |
Depositary Shares, each representing a 1/1000th interest in a share of 6.625% Fixed-to-Floating Rate Non-Cumulative Perpetual Class A Preferred Stock, Series R | WFC.PRR | NYSE |
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series T | WFC.PRT | NYSE |
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series V | WFC.PRV | NYSE |
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series W | WFC.PRW | NYSE |
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series X | WFC.PRX | NYSE |
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series Y | WFC.PRY | NYSE |
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series Z | WFC.PRZ | NYSE |
Guarantee of 5.80% Fixed-to-Floating Rate Normal Wachovia Income Trust Securities of Wachovia Capital Trust III | WBTPWFC/TP | NYSE |
Guarantee of Medium-Term Notes, Series A, due October 30, 2028 of Wells Fargo Finance LLC | WFC/28A | NYSE |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically 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 ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ Accelerated filer ¨
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. ☐¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 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 |
| | JulyApril 24, 20192020 |
Common stock, $1-2/3 par value | | 4,406,107,0224,099,997,545 |
| | FORM 10-Q | FORM 10-Q | | FORM 10-Q | |
CROSS-REFERENCE INDEX | CROSS-REFERENCE INDEX | | CROSS-REFERENCE INDEX | |
PART I | Financial Information | | Financial Information | |
Item 1. | Financial Statements | Page | Financial Statements | Page |
| Consolidated Statement of Income | | Consolidated Statement of Income | |
| Consolidated Statement of Comprehensive Income | | Consolidated Statement of Comprehensive Income | |
| Consolidated Balance Sheet | | Consolidated Balance Sheet | |
| Consolidated Statement of Changes in Equity | | Consolidated Statement of Changes in Equity | |
| Consolidated Statement of Cash Flows | | Consolidated Statement of Cash Flows | |
| Notes to Financial Statements | | Notes to Financial Statements | |
| 1 |
| — | Summary of Significant Accounting Policies | | 1 |
| — | Summary of Significant Accounting Policies | |
| 2 |
| — | Business Combinations | | 2 |
| — | Business Combinations | |
| 3 |
| — | Cash, Loan and Dividend Restrictions | | 3 |
| — | Cash, Loan and Dividend Restrictions | |
| 4 |
| — | Trading Activities | | 4 |
| — | Trading Activities | |
| 5 |
| — | Available-for-Sale and Held-to-Maturity Debt Securities | | 5 |
| — | Available-for-Sale and Held-to-Maturity Debt Securities | |
| 6 |
| — | Loans and Allowance for Credit Losses | | 6 |
| — | Loans and Related Allowance for Credit Losses | |
| 7 |
| — | Leasing Activity | | 7 |
| — | Leasing Activity | |
| 8 |
| — | Equity Securities | | 8 |
| — | Equity Securities | |
| 9 |
| — | Other Assets | | 9 |
| — | Other Assets | |
| 10 |
| — | Securitizations and Variable Interest Entities | | 10 |
| — | Securitizations and Variable Interest Entities | |
| 11 |
| — | Mortgage Banking Activities | | 11 |
| — | Mortgage Banking Activities | |
| 12 |
| — | Intangible Assets | | 12 |
| — | Intangible Assets | |
| 13 |
| — | Guarantees, Pledged Assets and Collateral, and Other Commitments | | 13 |
| — | Guarantees, Pledged Assets and Collateral, and Other Commitments | |
| 14 |
| — | Legal Actions | | 14 |
| — | Legal Actions | |
| 15 |
| — | Derivatives | | 15 |
| — | Derivatives | |
| 16 |
| — | Fair Values of Assets and Liabilities | | 16 |
| — | Fair Values of Assets and Liabilities | |
| 17 |
| — | Preferred Stock | | 17 |
| — | Preferred Stock | |
| 18 |
| — | Revenue from Contracts with Customers | | 18 |
| — | Revenue from Contracts with Customers | |
| 19 |
| — | Employee Benefits | | 19 |
| — | Employee Benefits and Other Expenses | |
| 20 |
| — | Earnings Per Common Share | | 20 |
| — | Earnings and Dividends Per Common Share | |
| 21 |
| — | Other Comprehensive Income | | 21 |
| — | Other Comprehensive Income | |
| 22 |
| — | Operating Segments | | 22 |
| — | Operating Segments | |
| 23 |
| — | Regulatory and Agency Capital Requirements | | 23 |
| — | Regulatory and Agency Capital Requirements | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations (Financial Review) | | Management’s Discussion and Analysis of Financial Condition and Results of Operations (Financial Review) | |
| Summary Financial Data | | Summary Financial Data | |
| Overview | | Overview | |
| Earnings Performance | | Earnings Performance | |
| Balance Sheet Analysis | | Balance Sheet Analysis | |
| Off-Balance Sheet Arrangements | | Off-Balance Sheet Arrangements | |
| Risk Management | | Risk Management | |
| Capital Management | | Capital Management | |
| Regulatory Matters | | Regulatory Matters | |
| Critical Accounting Policies | | Critical Accounting Policies | |
| Current Accounting Developments | | Current Accounting Developments | |
| Forward-Looking Statements | | Forward-Looking Statements | |
| Risk Factors | | Risk Factors | |
| Glossary of Acronyms | | Glossary of Acronyms | |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | | Quantitative and Qualitative Disclosures About Market Risk | |
Item 4. | Controls and Procedures | | Controls and Procedures | |
| | | | |
PART II | Other Information | | Other Information | |
Item 1. | Legal Proceedings | | Legal Proceedings | |
Item 1A. | Risk Factors | | Risk Factors | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | | Unregistered Sales of Equity Securities and Use of Proceeds | |
Item 6. | Exhibits | | Exhibits | |
| | | | |
Signature | Signature | | Signature | |
PART I - FINANCIAL INFORMATION
FINANCIAL REVIEW
| | Summary Financial Data | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | % Change | | | | | | | | | | | | | | % Change | |
| Quarter ended | | | Jun 30, 2019 from | | | Six months ended | | | |
| Quarter ended | | | Mar 31, 2020 from | |
($ in millions, except per share amounts) | Jun 30, 2019 |
| | Mar 31, 2019 |
| | Jun 30, 2018 |
| | Mar 31, 2019 |
| | Jun 30, 2018 |
| | Jun 30, 2019 |
|
| Jun 30, 2018 |
| | % Change |
| Mar 31, 2020 |
| | Dec 31, 2019 |
| | Mar 31, 2019 |
| | Dec 31, 2019 |
| | Mar 31, 2019 |
|
For the Period | | | | | | | | | | | | | | | | | | | | | | | | |
Wells Fargo net income | $ | 6,206 |
| | 5,860 |
| | 5,186 |
| | 6 | % | | 20 |
| | $ | 12,066 |
| | 10,322 |
| | 17 | % | $ | 653 |
| | 2,873 |
| | 5,860 |
| | (77 | )% | | (89 | ) |
Wells Fargo net income applicable to common stock | 5,848 |
| | 5,507 |
| | 4,792 |
| | 6 |
| | 22 |
| | 11,355 |
| | 9,525 |
| | 19 |
| 42 |
| | 2,546 |
| | 5,507 |
| | (98 | ) | | (99 | ) |
Diluted earnings per common share | 1.30 |
| | 1.20 |
| | 0.98 |
| | 8 |
| | 33 |
| | 2.50 |
| | 1.94 |
| | 29 |
| 0.01 |
| | 0.60 |
| | 1.20 |
| | (98 | ) | | (99 | ) |
Profitability ratios (annualized): | | | | | | | | | | | | | | | | | | | | | | | | |
Wells Fargo net income to average assets (ROA) | 1.31 | % | | 1.26 |
| | 1.10 |
| | 4 |
| | 19 |
| | 1.29 | % | | 1.10 |
| | 17 |
| 0.13 | % | | 0.59 |
| | 1.26 |
| | (78 | ) | | (90 | ) |
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 |
| 0.10 |
| | 5.91 |
| | 12.71 |
| | (98 | ) | | (99 | ) |
Return on average tangible common equity (ROTCE) (1) | 15.78 |
| | 15.16 |
| | 12.62 |
| | 4 |
| | 25 |
| | 15.47 |
| | 12.62 |
| | 23 |
| 0.12 |
| | 7.08 |
| | 15.16 |
| | (98 | ) | | (99 | ) |
Efficiency ratio (2) | 62.3 |
| | 64.4 |
| | 64.9 |
| | (3 | ) | | (4 | ) | | 63.4 |
| | 66.7 |
| | (5 | ) | 73.6 |
| | 78.6 |
| | 64.4 |
| | (6 | ) | | 14 |
|
Total revenue | $ | 21,584 |
| | 21,609 |
| | 21,553 |
| | — |
| | — |
| | $ | 43,193 |
| | 43,487 |
| | (1 | ) | $ | 17,717 |
| | 19,860 |
| | 21,609 |
| | (11 | ) | | (18 | ) |
Pre-tax pre-provision profit (PTPP) (3) | 8,135 |
| | 7,693 |
| | 7,571 |
| | 6 |
| | 7 |
| | 15,828 |
| | 14,463 |
| | 9 |
| 4,669 |
| | 4,246 |
| | 7,693 |
| | 10 |
| | (39 | ) |
Dividends declared per common share | 0.45 |
| | 0.45 |
| | 0.39 |
| | — |
| | 15 |
| | 0.90 |
| | 0.78 |
| | 15 |
| 0.51 |
| | 0.51 |
| | 0.45 |
| | — |
| | 13 |
|
Average common shares outstanding | 4,469.4 |
| | 4,551.5 |
| | 4,865.8 |
| | (2 | ) | | (8 | ) | | 4,510.2 |
| | 4,875.7 |
| | (7 | ) | 4,104.8 |
| | 4,197.1 |
| | 4,551.5 |
| | (2 | ) | | (10 | ) |
Diluted average common shares outstanding | 4,495.0 |
| | 4,584.0 |
| | 4,899.8 |
| | (2 | ) | | (8 | ) | | 4,540.1 |
| | 4,916.1 |
| | (8 | ) | 4,135.3 |
| | 4,234.6 |
| | 4,584.0 |
| | (2 | ) | | (10 | ) |
Average loans | $ | 947,460 |
| | 950,010 |
| | 944,079 |
| | — |
| | — |
| | $ | 948,728 |
| | 947,532 |
| | — |
| $ | 965,046 |
| | 956,536 |
| | 950,010 |
| | 1 |
| | 2 |
|
Average assets | 1,900,627 |
| | 1,883,091 |
| | 1,884,884 |
| | 1 |
| | 1 |
| | 1,891,907 |
| | 1,900,304 |
| | — |
| 1,950,659 |
| | 1,941,843 |
| | 1,883,091 |
| | — |
| | 4 |
|
Average total deposits | 1,268,979 |
| | 1,262,062 |
| | 1,271,339 |
| | 1 |
| | — |
| | 1,265,539 |
| | 1,284,187 |
| | (1 | ) | 1,337,963 |
| | 1,321,913 |
| | 1,262,062 |
| | 1 |
| | 6 |
|
Average consumer and small business banking deposits (4) | 742,671 |
| | 739,654 |
| | 754,047 |
| | — |
| | (2 | ) | | 741,171 |
| | 754,898 |
| | (2 | ) | 779,521 |
| | 763,169 |
| | 739,654 |
| | 2 |
| | 5 |
|
Net interest margin | 2.82 | % | | 2.91 |
| | 2.93 |
| | (3 | ) | | (4 | ) | | 2.86 | % | | 2.89 |
| | (1 | ) | 2.58 | % | | 2.53 |
| | 2.91 |
| | 2 |
| | (11 | ) |
At Period End | | | | | | | | | | | | | | | | | | | | | | | | |
Debt securities | $ | 482,067 |
| | 483,467 |
| | 475,495 |
| | — |
| | 1 |
| | $ | 482,067 |
| | 475,495 |
| | 1 |
| $ | 501,563 |
| | 497,125 |
| | 483,467 |
| | 1 |
| | 4 |
|
Loans | 949,878 |
| | 948,249 |
| | 944,265 |
| | — |
| | 1 |
| | 949,878 |
| | 944,265 |
| | 1 |
| 1,009,843 |
| | 962,265 |
| | 948,249 |
| | 5 |
| | 6 |
|
Allowance for loan losses | 9,692 |
| | 9,900 |
| | 10,193 |
| | (2 | ) | | (5 | ) | | 9,692 |
| | 10,193 |
| | (5 | ) | 11,263 |
| | 9,551 |
| | 9,900 |
| | 18 |
| | 14 |
|
Goodwill | 26,415 |
| | 26,420 |
| | 26,429 |
| | — |
| | — |
| | 26,415 |
| | 26,429 |
| | — |
| 26,381 |
| | 26,390 |
| | 26,420 |
| | — |
| | — |
|
Equity securities | 61,537 |
| | 58,440 |
| | 57,505 |
| | 5 |
| | 7 |
| | 61,537 |
| | 57,505 |
| | 7 |
| 54,047 |
| | 68,241 |
| | 58,440 |
| | (21 | ) | | (8 | ) |
Assets | 1,923,388 |
| | 1,887,792 |
| | 1,879,700 |
| | 2 |
| | 2 |
| | 1,923,388 |
| | 1,879,700 |
| | 2 |
| 1,981,349 |
| | 1,927,555 |
| | 1,887,792 |
| | 3 |
| | 5 |
|
Deposits | 1,288,426 |
| | 1,264,013 |
| | 1,268,864 |
| | 2 |
| | 2 |
| | 1,288,426 |
| | 1,268,864 |
| | 2 |
| 1,376,532 |
| | 1,322,626 |
| | 1,264,013 |
| | 4 |
| | 9 |
|
Common stockholders’ equity | 177,235 |
| | 176,025 |
| | 181,386 |
| | 1 |
| | (2 | ) | | 177,235 |
| | 181,386 |
| | (2 | ) | 162,654 |
| | 166,669 |
| | 176,025 |
| | (2 | ) | | (8 | ) |
Wells Fargo stockholders’ equity | 199,042 |
| | 197,832 |
| | 205,188 |
| | 1 |
| | (3 | ) | | 199,042 |
| | 205,188 |
| | (3 | ) | 182,718 |
| | 187,146 |
| | 197,832 |
| | (2 | ) | | (8 | ) |
Total equity | 200,037 |
| | 198,733 |
| | 206,069 |
| | 1 |
| | (3 | ) | | 200,037 |
| | 206,069 |
| | (3 | ) | 183,330 |
| | 187,984 |
| | 198,733 |
| | (2 | ) | | (8 | ) |
Tangible common equity (1) | 148,864 |
| | 147,723 |
| | 152,580 |
| | 1 |
| | (2 | ) | | 148,864 |
| | 152,580 |
| | (2 | ) | 134,787 |
| | 138,506 |
| | 147,723 |
| | (3 | ) | | (9 | ) |
Capital ratios (5): | | | | | | | | | | | | | | | | | | | | | | | | |
Total equity to assets | 10.40 | % | | 10.53 |
| | 10.96 |
| | (1 | ) | | (5 | ) | | 10.40 | % | | 10.96 |
| | (5 | ) | 9.25 | % | | 9.75 |
| | 10.53 |
| | (5 | ) | | (12 | ) |
Risk-based capital: | | | | | | | | |
|
| | | | | |
|
| | | | | | | | |
|
|
Common Equity Tier 1 | 11.97 |
| | 11.92 |
| | 11.98 |
| | — |
| | — |
| | 11.97 |
| | 11.98 |
| | — |
| 10.67 |
| | 11.14 |
| | 11.92 |
| | (4 | ) | | (10 | ) |
Tier 1 capital | 13.69 |
| | 13.64 |
| | 13.83 |
| | — |
| | (1 | ) | | 13.69 |
| | 13.83 |
| | (1 | ) | 12.22 |
| | 12.76 |
| | 13.64 |
| | (4 | ) | | (10 | ) |
Total capital(6) | 16.75 |
| | 16.74 |
| | 16.98 |
| | — |
| | (1 | ) | | 16.75 |
| | 16.98 |
| | (1 | ) | 15.21 |
| | 15.75 |
| | 16.74 |
| | (3 | ) | | (9 | ) |
Tier 1 leverage | 9.12 |
| | 9.15 |
| | 9.51 |
| | — |
| | (4 | ) | | 9.12 |
| | 9.51 |
| | (4 | ) | 8.03 |
| | 8.31 |
| | 9.15 |
| | (3 | ) | | (12 | ) |
Common shares outstanding | 4,419.6 |
| | 4,511.9 |
| | 4,849.1 |
| | (2 | ) | | (9 | ) | | 4,419.6 |
| | 4,849.1 |
| | (9 | ) | 4,096.4 |
| | 4,134.4 |
| | 4,511.9 |
| | (1 | ) | | (9 | ) |
Book value per common share (6)(7) | $ | 40.10 |
| | 39.01 |
| | 37.41 |
| | 3 |
| | 7 |
| | $ | 40.10 |
| | 37.41 |
| | 7 |
| $ | 39.71 |
| | 40.31 |
| | 39.01 |
| | (1 | ) | | 2 |
|
Tangible book value per common share (6)(7) | 33.68 |
| | 32.74 |
| | 31.47 |
| | 3 |
| | 7 |
| | 33.68 |
| | 31.47 |
| | 7 |
| 32.90 |
| | 33.50 |
| | 32.74 |
| | (2 | ) | | — |
|
Team members (active, full-time equivalent) | 262,800 |
| | 262,100 |
| | 264,500 |
| | — |
| | (1 | ) | | 262,800 |
| | 264,500 |
| | (1 | ) | 262,800 |
| | 259,800 |
| | 262,100 |
| | 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(other than mortgage servicing rights) and goodwill and intangible assets associated with certain of ourother intangibles on 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’s use of equity. For additional information, including a corresponding reconciliation to GAAPgenerally accepted accounting principles (GAAP) financial measures, see the “Capital Management – Tangible Common Equity” section in this Report. |
| |
(2) | The efficiency ratio is noninterest expense divided by total revenue (net interest income and noninterest income). |
| |
(3) | Pre-tax pre-provision profit (PTPP) is total revenue less noninterest expense. Management believes that PTPP is a useful financial measure because it enables investors and others to assess the Company’s ability to generate capital to cover credit losses through a credit cycle. |
| |
(4) | Consumer and small business banking deposits are total deposits excluding mortgage escrow and wholesale deposits. |
| |
(5) | The risk-based capital ratios were calculated under the lower of the 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; accordingly,phased-in. Accordingly, the information presented reflects fully phased-in common equity tier 1 capital, tier 1 capital and risk-weighted assets, but reflects total capital still in accordance with Transition Requirements. See the “Capital Management” section and Note 23 (Regulatory and Agency Capital Requirements) to Financial Statements in this Report for additional information. |
| |
(6) | The total capital ratio for December 31, 2019, has been revised to the lower ratio under the Standardized Approach due to an increase in the previously disclosed total capital ratio under the Advanced Approach as a result of a decrease in risk-weighted assets (RWAs) due to the correction of duplicated operational loss amounts. |
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(7) | Book value per common share is common stockholders’ equity divided by common shares outstanding. Tangible book value per common share is tangible common equity divided by common shares outstanding. |
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, 2018 (20182019 (2019 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.
Overview
Wells Fargo & Company is a diversified, community-based financial services company with $1.92$1.98 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 7,6007,400 locations, more than 13,000 ATMs, digital (online, mobile and social), and contact centers (phone, email and correspondence), and we have offices in 3231 countries and territories to support customers who conduct business in the global economy. With approximately 263,000 active, full-time equivalent team members, we serve one in three households in the United States and ranked No. 29 on Fortune’s 2019 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 June 30, 2019.March 31, 2020.
Wells Fargo’s top priority remains meeting its regulatory requirements in order to build the right foundation for all that lies ahead. To do that, the Company is committing the resources necessary to ensure that we operate with the strongest business practices and controls, maintain the highest level of integrity, and have an appropriate culture in place.
In response to the COVID-19 pandemic, we have been working diligently to protect employee safety while continuing to carry out Wells Fargo’s role as a provider of critical and essential services to the public. We use our Vision, Values & Goals have taken comprehensive steps to guide us toward growthhelp customers, employees and success. Our vision is to satisfy our customers’ financial needs and help them succeed financially. We aspire to create deep and enduring relationships withcommunities.
For our customers, bywe have suspended residential property foreclosure activities, offered fee waivers, and provided payment deferrals, among other actions. We are also rapidly expanding digital access and deploying new tools, including changes to our ATMs and mobile technology for the convenience of our customers. We continue to work with regulatory agencies, government officials, and not-for-profit groups to identify other ways to assist customers facing financial challenges in the current environment.
For our employees, we have enabled approximately 180,000 to work remotely. For jobs that cannot be done from home, we have taken significant actions to help ensure employee safety, including adopting social distancing measures, staggering staff and shifts, and implementing an enhanced cleaning program. We are also making additional cash payments to employees whose roles require them to come into the office.
To support our communities, we are directing $175 million in charitable donations from the Wells Fargo Foundation to help address food, shelter, small business and housing stability, as well as providing them with an exceptional experience and by understanding their needs and deliveringhelp to public health organizations fighting to contain the most relevant products, services, advice, and guidance.spread of COVID-19.
We have five primary values, which are based on our visionstrong levels of capital 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.
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;liquidity, and we work as a team.
Innovation – create lasting valueremain focused on delivering for our customers and increased efficiency for our operationscommunities to get through innovative thinking, industry-leading technology, and a willingness to test and learn.these unprecedented times.
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 Company’s Board of Directors (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. TheThe 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 review of the enhancements and improvements provided for in the plans. Until this third-party review is complete and the plans are approved and implemented to the satisfaction of the FRB, the Company’s total consolidated assets as defined under the consent order will be limited to the level as of December 31, 2017. Compliance with this asset cap will beis measured on a two-quarter daily average basis to allow for management of temporary fluctuations. AsWhile our total consolidated assets of $1.98 trillion as of the end of secondfirst quarter 2019,2020 were in excess of our total consolidated assets as calculated pursuant to the requirements of the consent order, were below our level of total assets$1.95 trillion as of December 31, 2017. Additionally, after2017, we continued to operate in compliance with the asset cap because the two-quarter daily average for our assets of $1.943 trillion remained below the asset cap level. We are actively working to create balance sheet capacity to lend to and help our customers during these unprecedented and challenging times created by the COVID-19 pandemic. Due to the COVID-19 pandemic, on April 8, 2020, the FRB amended the consent order to allow the Company to exclude from the asset cap any on- balance sheet exposure resulting from loans made by the Company in connection with the Small Business Administration’s Paycheck Protection Program and the FRB’s Main Street Lending Program. As required under the amendment to the consent order, certain fees and other economic benefits received by the Company from loans made in connection with these programs shall be transferred to the U.S. Treasury or to non-profit organizations approved by the FRB that support small businesses. After removal of the asset cap, a second third-party review must also be conducted to assess the efficacy and sustainability of the
enhancements and improvements.
Consent Orders with the Consumer Financial Protection Bureau and Office of the Comptroller of the Currency Regarding Compliance Risk Management Program, Automobile Collateral Protection Insurance Policies, and Mortgage Interest Rate Lock Extensions
On April 20, 2018, the Company entered into consent orders with the Consumer Financial Protection Bureau (CFPB) and the Office of the Comptroller of the Currency (OCC) to pay an 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 (CPI) policies and certain mortgage interest rate lock extensions. As required by the consent orders, the Company submitted to the CFPB and OCC an enterprise-wide compliance risk management plan and a plan to enhance the Company’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, inIn September 2016, we announced settlements with the CFPB, the OCC, and the Office of the Los Angeles City Attorney, and entered into related consent orders with the CFPB and the OCC, in connection with allegations that some of our retail customers received products and services they did not request. As a result, it remains oura 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 2018resulting from these matters 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.providing remediation.
For additional information regarding retail sales practices matters, including related legal matters, see the “Risk Factors” section in our 20182019 Form 10-K and Note 14 (Legal Actions) to Financial Statements in this Report.
Additional Efforts to Rebuild TrustOther Customer Remediation Activities
Our priority of rebuilding trust has also included an effort to identify other areas or instances where customers may have experienced financial harm.harm, provide remediation as appropriate, and implement additional operational and control procedures. We are working with our regulatory agencies in this effort,effort. We have previously disclosed key areas of focus as part of our rebuilding trust efforts and weare in the process of providing remediation for those matters. We have accrued for the reasonably estimable remediation costs related to these matters,our rebuilding trust efforts, 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:
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• | Automobile Lending BusinessThe Company is reviewing practices concerning the origination, servicing, and collection of consumer automobile loans, including matters related to certain insurance products. 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 understandingour ongoing reviews continue, it is possible that the borrowers did not have physical damage insurance coverage on their automobiles as required during the term of their automobile loans). The Company is in the process of providing 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. In addition, 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 require 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.
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• | 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.
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• | 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.
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• | 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
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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 Board substantially completed its review and did not uncover evidence of systemic or widespread issues in these businesses. Federal government agencies continue to review this matter.
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• | 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.
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• | 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.
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• | 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.
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• | 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.
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Separately, the Company expects to refund certain monthly service fees that were charged in the past on certain consumer deposit accounts prior to an initial deposit being made by the customer. Under the Company’s current processes, which have been in place for several years,future we would no longer assess a monthly service fee on such accounts prior to an initial deposit by the customer.
may identify additional items or areas of potential concern. 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 20182019 Form 10-K and Note 14 (Legal Actions) to Financial Statements in this Report.
Financial Performance
Wells Fargo net income was $6.2 billion$653 million in secondfirst quarter 20192020 with diluted earnings per common share (EPS) of $1.30,$0.01, compared with $5.2$5.9 billion and $0.98,$1.20, respectively, a year ago. In secondOur results in first quarter 2019:2020 were impacted by a $4.0 billion provision for credit losses and an impairment of debt and equity securities of $950 million driven by economic and market conditions. Financial performance items for first quarter 2020 compared with the same period a year ago included:
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• | revenue wasof $21.617.7 billion,up$31 million compared with a year ago, with net interest income down $4463.9 billion, with net interest income of $11.3 billion, down$999 million, or 8%, and noninterest income of up$6.4 billion, down $477 million2.9 billion, or 31%; |
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• | thea net interest margin wasof 2.82%2.58%, down 1133 basis points from a year ago primarily due to balance sheet mix and repricing;points;
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• | noninterest expense wasof $13.413.0 billion, down $533868 million from a year ago primarily due to lower remediation expense, core deposit and other intangibles expense, and FDIC and other deposit assessments expense;, or 6%; |
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• | an efficiency ratio of 73.6%, compared with 64.4%; |
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• | average loans wereof $947.5965.0 billion, up $3.415.0 billion from a year ago;; |
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• | average deposits wereof $1.31.34 trillion, downup $2.475.9 billion from a year ago; |
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• | 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;;
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• | our credit results remained strong with a net loan charge-off rate of 0.28%0.38% (annualized) of average loans, in second quarter 2019, compared with 0.26%0.30% (annualized) a year ago;;
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• | nonaccrual loans of $5.96.2 billion were, down $1.2 billion749 million, or 17%11%, from a year ago;; and |
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• | we returned $6.1 billion to shareholders through common stock dividends and net share repurchases, an increasereturn on assets (ROA) of 52%0.13% and return on equity (ROE) of 0.10%, down from the $4.0 billion1.26% we returned inand second12.71% quarter 2018 and the 16th consecutive quarter of returning more than $3 billion., respectively.
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Balance Sheet and Liquidity
Our balance sheet remained strong during secondfirst quarter 20192020 with strong credit quality and solid levels of liquidity and capital. Our total assets were $1.92$1.98 trillion at June 30, 2019.March 31, 2020. Cash and other short-term investments increased $23.1decreased $6.1 billion from December 31, 2018,2019, reflecting an increase inlower federal funds sold and securities purchased under resale agreements.agreements, partially offset by an increase in cash balances. Debt securities were $482.1 billion at June 30, 2019, a decrease of $2.6increased $4.4 billion from December 31, 2018,2019, predominantly due to an increase in held-to-maturity debt securities, partially offset by a decreasedecline in available-for-sale debt securities. Loans were down $3.2increased $47.6 billion from December 31, 2018, driven by declines2019, predominantly due to increases in real estate 1-4 family junior lien mortgage, commercial and industrial commercialloans driven by draws of revolving lines and origination of new lending facilities due to the impact of the COVID-19 pandemic on economic and market conditions. The increase in loans was partially offset by a decrease in credit card loans primarily due to seasonality and fewer new account openings, and declines in consumer real estate construction,mortgages and other revolving credit and installment loans, partiallyas originations and draws of existing lines were more than offset by increases in real estate 1-4 family first mortgage and commercial real estate mortgage loans.paydowns.
Average deposits in secondfirst quarter 2020 were $1.34 trillion, up $75.9 billion from first quarter 2019, were $1.3 trillion, down $2.4 billionwhich reflected growth from second quarter 2018 reflecting lower Wealth and Investment Management and Wholesale Banking deposits as customers allocated more cash into higher yielding liquid alternatives. Our average deposit cost in second quarter 2019 was 70 basis points, up 30 basis points from a year ago, driven by an increase in Wholesale Banking and Wealth and Investment Management deposit rates, unfavorable deposit mix shifts and retail banking deposit campaign pricing for new deposits.campaigns, as well as the inflow of deposits associated with corporate and commercial loan draws.
Credit Quality
Solid overall credit results continued in second quarter 2019 as losses remained low and we continuedCredit quality declined due to originate high quality loans, reflectingthe COVID-19 pandemic’s effect on market conditions, which impacted our long-term risk focus. customer base.
Net loan charge-offs were $653$909 million, or 0.28%0.38% (annualized) of average loans, in secondfirst quarter 2019,2020, compared with $602$695 million a year ago (0.26%(0.30%) (annualized). The increase in net charge-offs in second quarter 2019, compared with a year ago, was predominantly driven by higher losses in the commercial and industrial portfolio and the credit card portfolio, partially offset by declines in the automobile portfolio.
Our commercial portfolio net loan charge-offs were $165$324 million, or 1325 basis points (annualized) of average commercial loans, in secondfirst quarter 2019,2020, compared with net loan charge-offs of $67$145 million, or 511 basis points (annualized), a year ago. Netago, predominantly driven by increased losses in our commercial and industrial loan portfolio primarily related to higher oil and gas net charge-offs reflecting significant declines in oil prices. Our consumer credit losses decreased to 45portfolio net loan charge-offs were $585 million, or 53 basis points (annualized) of average consumer loans, in second first
quarter 2019 from 492020, compared with net loan charge-offs of $550 million, or 51 basis points (annualized), a year ago, primarily driven by increased losses in second quarter 2018.our credit card portfolio.
The allowance for credit losses as(ACL) for loans of June 30, 2019, decreased $507 million$12.0 billion at March 31, 2020, increased $1.2 billion, compared with a year ago, and decreased $104 millionincreased $1.6 billion from December 31, 2018.2019. We had a $150 million release$2.9 billion increase in the allowance for credit losses for loans in both secondfirst quarter 20192020, partially offset by a $1.3 billion decline as a result of our adoption on January 1, 2020, of Accounting Standards Update (ASU) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (CECL), compared with a $150 million increase in the allowance in the same period a year ago. The increase in the allowance for credit losses for loans reflected forecasted credit deterioration due to the COVID-19 pandemic and 2018.credit weakness in the oil and gas portfolio due to the recent sharp declines in oil prices. The allowance coverage for total loans was 1.12%1.19% at June 30, 2019,March 31, 2020, compared with 1.18%1.14% a year ago and 1.12%1.09% at December 31, 2018.2019. The allowance covered 4.03.3 times annualized secondnet loan charge-offs in first quarter net charge-offs,2020, compared with 4.63.8 times a year ago. Future allowance levels will be based on a variety of factors, including loan growth, portfolio performance and general economic conditions.in first quarter 2019. Our provision for loan losses was $503 million$3.8 billion in secondfirst quarter 2019,2020, up from $452$845 million a year ago.ago, which reflected an increase in the allowance for credit losses for loans due to forecasted credit deterioration due to the COVID-19 pandemic, and higher net loan charge-offs primarily due to the impact of the recent sharp decline in oil prices on our oil and gas portfolio.
Nonperforming assets decreased $1.0 billion, or 14%, from(NPAs) at March 31, 2019, and $6482020, of $6.4 billion, increased $759 million, or 9%13%, from December 31, 2018,2019, and represented 0.66%0.63% of total loans at June 30, 2019.March 31, 2020. Nonaccrual loans decreased $983 million from March 31, 2019, and $574increased $810 million from December 31, 2018,2019, driven by a declineincreases in consumer nonaccruals fromcommercial and industrial, and commercial real estate mortgage as the reclassificationeffect of $373 million inthe COVID-19 pandemic on market conditions began to impact our customer base. In addition, real estate 1-4 family first mortgage nonaccrual loans to mortgageincreased primarily as a result of our adoption of CECL, which required the reclassification of purchased credit-impaired loans held for sale (MLHFS) in second quarter 2019, as well as other broad-based improvement across several commercial industry categories.nonaccruing based on performance. Foreclosed assets decreased $59 million from March 31, 2019, and $74$51 million from December 31, 2018.2019. For information on how we are assisting our customers in response to the COVID-19 pandemic, see the “Risk Management – Credit Risk Management” section in this Report.
Capital
Our financial performance in second quarter 2019 allowed us to maintainWe maintained a solid capital position in first quarter 2020, with total equity of $200.0$183.3 billion at June 30, 2019,March 31, 2020, compared with $197.1$188.0 billion at December 31, 2018.2019. We returned $6.1 billion to shareholders in second quarter 2019 through common stock dividends and net share repurchases, which was 52% more than the $4.0 billion we returned in second quarter 2018. Our net payout ratio (which is the ratio of (i) common stock dividends and share repurchases less issuances and stock compensation-related items, divided by (ii) net income applicable to common stock) was 104%. We continued to reducereduced our common shares outstanding by 38.0 million shares through the repurchase of 104.975.4 million common shares, net of issuances, in the quarter. We expectOn March 15, 2020, we, along with the other members of the Financial Services Forum (which consists of the eight largest and most diversified financial institutions headquartered in the U.S.), decided to reduce our common shares outstanding throughtemporarily suspend share repurchases throughoutfor the remainder of 2019.the first quarter and for second quarter 2020. This decision is consistent with our objective to use our significant capital and liquidity to provide support to individuals, small businesses, and the broader economy through lending and other important services.
In first quarter 2020, we issued $2.0 billion of Non-Cumulative Perpetual Class A Preferred Stock, Series Z. Additionally, we redeemed the remaining $1.8 billion of our Fixed-to-Floating Rate Non-Cumulative Perpetual Class A Preferred Stock, Series K. We also redeemed $669 million of our Non-Cumulative Perpetual Class A Preferred Stock, Series T.
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 11.97%10.67% at June 30, 2019, upMarch 31, 2020, down from 11.74%11.14% at December 31, 2018, and well2019, but still above our internal target of 10% and the regulatory minimum of 9%. As of June 30, 2019,March 31, 2020, our eligible external total loss absorbing capacity (TLAC) as a percentage of total risk-weighted assets was 24.09%23.27%, compared with the required minimum of 22.0%. Likewise, our other regulatory capital ratios remained strong. See the “Capital Management” section in this Report for more information regarding our capital, including the calculation of our regulatory capital amounts.
Earnings Performance (continued)
Wells Fargo net income for secondfirst quarter 20192020 was $6.2 billion$653 million ($1.300.01 diluted earnings per common share), compared with $5.2$5.9 billion ($0.981.20 diluted per share) for secondfirst quarter 2018. Our financial performance in second quarter 2019 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 provision for credit losses.2019. Net income decreased in secondfirst quarter 2019 benefited from a net discrete income tax benefit of $14 million, compared with a net discrete income tax expense of $481 million for the same period a year ago. Net income for the first half of 2019 was $12.1 billion, compared with $10.3 billion for the same period a year ago. The increase in net income in the first half of 2019,2020, compared with the same period a year ago, was driven bydue to a $79$999 million decrease in net interest income, a $3.2 billion increase in our provision for credit losses, and a $2.9 billion decrease in noninterest income, partially offset by a $1.7 billion$868 million decrease in noninterest expense, and a $1.0 billion decline$722 million decrease in income tax expense, partially offset by a $373 million decrease in net interest income, and a $705 million increase in our provision for credit losses. Net income in the first half of 2019 benefited from a net discrete income tax benefit of $311 million, compared with a net discrete income tax expense of $618 million for the same period a year ago.expense.
Revenue, the sum of net interest income and noninterest income, was $17.7 billion in first quarter 2020, compared with $21.6 billion in both the second quarter of 2019 and 2018. Revenue was flat in second quarter 2019, compared with the same period a year 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 decline in revenue in the first half of 2019, compared with the same period a year ago, was predominantly due to a decline in net interest income. In the first half of 2019 and 2018, netago. Net interest income represented 64% of revenue in first quarter 2020, compared with 57% of revenue.in first quarter 2019. Noninterest income was $18.8 billion in the first half of 2019, representing 43%represented 36% of revenue in first quarter 2020, compared with $18.7 billion and 43% in the first half of 2018.quarter 2019.
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% federal statutory tax rate for the periods ending June 30, 2019March 31, 2020 and 2018.2019.
Net interest income and the net interest margin in any one period can be significantly affected by a variety of factors including the mix andof earning assets in our portfolio, the overall size of our earning assets portfolio, and the cost of funding those assets. In addition, variable sources of interest income, such as loan fees, periodic dividends, and collection of interest on nonaccrual loans, can fluctuate from period to period.
Net interest income on a taxable-equivalent basis was $12.3 billion and $24.7$11.5 billion in the secondfirst quarter and first half of 2019, respectively,2020, compared with $12.7 billion and
$25.1$12.5 billion for the same periodsperiod a year ago. Net interest margin on a taxable-equivalent basis was 2.82% and 2.86%2.58% in the secondfirst quarter and first half of 2019,2020, compared with 2.93% and 2.89%2.91% for the same periodsperiod a year ago. The decrease in net interest income and net interest margin in the secondfirst quarter and first half of 2019,2020, compared with the same periodsperiod a year ago, was driven by:
by unfavorable impacts of growth,repricing due to lower market rates and changes in mix of earning assets and repricing; andfunding sources, including sales of high yielding Pick-a-Pay loans in 2019, as well as higher costs on promotional retail banking deposits.
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$49.8 billion in the secondfirst quarter 2020 compared with the same period a year ago. The change was driven by increases in:
| |
• | average federal funds sold and securities purchased under resale agreements of $18.124.0 billion; |
| |
• | average loans of $15.0 billion; |
| |
• | average debt securities of $4.28.5 billion; |
| |
• | average mortgage loans held for sale of $6.5 billion; |
| |
• | average equity securities of $4.5 billion; and |
| |
• | average loansother earning assets of $3.43.0 billion;
|
partially offset by decreases in:
| |
• | average interest-earning deposits with banks of $13.811.3 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.
|
Average earning assets decreased $11.5 billion in the first half of 2019 compared with the same period a year ago. The change was driven by decreases in:
| |
• | 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 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 billion377 million.
|
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$1.34 trillion in both the secondfirst quarter and first half of 2019, respectively,2020, compared with $1.27 trillion and $1.28$1.26 trillion in the same periodsperiod a year ago, and represented 134%139% of average loans in secondfirst quarter 2019 and2020, compared with 133% in the first half of 2019, compared with 135% in second quarter 2018 and 136% in the first half of 2018.2019. Average deposits were 73%75% of average earning assets in both the secondfirst quarter and first half of 2019,2020, compared with 73% in both the periodssame period a year ago. The average deposit cost for secondfirst quarter 20192020 was 7052 basis points, up 30down 13 basis points from a year ago, drivenreflecting the lower interest rate environment, partially offset by an increase in Wholesale Banking and WIM deposit rates, unfavorable deposit mix shifts, and retail banking deposit campaignpromotional pricing for new deposits.
Earnings Performance (continued)
Table 1: Average Balances, Yields and Rates Paid (Taxable-Equivalent Basis) (1)(2)
| | | Quarter ended June 30, | | Quarter ended March 31, | |
| | | | | 2019 |
| | | | | | 2018 |
| | | | | 2020 |
| | | | | | 2019 |
|
(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 | $ | 141,045 |
| | 2.33 | % | | $ | 819 |
| | 154,846 |
| | 1.75 | % | | $ | 676 |
| $ | 129,522 |
| | 1.18 | % | | $ | 381 |
| | 140,784 |
| | 2.33 | % | | $ | 810 |
|
Federal funds sold and securities purchased under resale agreements | 98,130 |
| | 2.44 |
| | 598 |
| | 80,020 |
| | 1.73 |
| | 344 |
| 107,555 |
| | 1.42 |
| | 380 |
| | 83,539 |
| | 2.40 |
| | 495 |
|
Debt securities (3): | | | | | | | | | | | | |
Debt securities (2): | | | | | | | | | | | | |
Trading debt securities | 86,514 |
| | 3.45 |
| | 746 |
| | 80,661 |
| | 3.45 |
| | 695 |
| 101,062 |
| | 3.05 |
| | 770 |
| | 89,378 |
| | 3.58 |
| | 798 |
|
Available-for-sale debt securities: | | | | | | | | | | | | | | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | 15,402 |
| | 2.21 |
| | 85 |
| | 6,425 |
| | 1.66 |
| | 27 |
| 10,781 |
| | 1.40 |
| | 38 |
| | 14,070 |
| | 2.14 |
| | 74 |
|
Securities of U.S. states and political subdivisions | 45,769 |
| | 4.02 |
| | 460 |
| | 47,388 |
| | 3.91 |
| | 464 |
| 38,950 |
| | 3.43 |
| | 334 |
| | 48,342 |
| | 4.02 |
| | 486 |
|
Mortgage-backed securities: | | | | | | | | | | | | | | | | | | | | | | |
Federal agencies | 149,761 |
| | 2.99 |
| | 1,120 |
| | 154,929 |
| | 2.75 |
| | 1,065 |
| 158,639 |
| | 2.68 |
| | 1,062 |
| | 151,494 |
| | 3.10 |
| | 1,173 |
|
Residential and commercial | 5,562 |
| | 4.02 |
| | 56 |
| | 8,248 |
| | 4.86 |
| | 101 |
| 4,648 |
| | 2.82 |
| | 33 |
| | 5,984 |
| | 4.31 |
| | 64 |
|
Total mortgage-backed securities | 155,323 |
| | 3.03 |
| | 1,176 |
| | 163,177 |
| | 2.86 |
| | 1,166 |
| 163,287 |
| | 2.68 |
| | 1,095 |
| | 157,478 |
| | 3.14 |
| | 1,237 |
|
Other debt securities | 45,063 |
| | 4.40 |
| | 494 |
| | 47,009 |
| | 4.33 |
| | 506 |
| 39,541 |
| | 3.48 |
| | 343 |
| | 46,788 |
| | 4.46 |
| | 517 |
|
Total available-for-sale debt securities | 261,557 |
| | 3.39 |
| | 2,215 |
| | 263,999 |
| | 3.28 |
| | 2,163 |
| 252,559 |
| | 2.87 |
| | 1,810 |
| | 266,678 |
| | 3.48 |
| | 2,314 |
|
Held-to-maturity debt securities: | | | | | | | | | | | | | | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | 44,762 |
| | 2.19 |
| | 244 |
| | 44,731 |
| | 2.19 |
| | 244 |
| 45,937 |
| | 2.19 |
| | 251 |
| | 44,754 |
| | 2.20 |
| | 243 |
|
Securities of U.S. states and political subdivisions | 6,958 |
| | 4.06 |
| | 71 |
| | 6,255 |
| | 4.34 |
| | 68 |
| 13,536 |
| | 3.84 |
| | 130 |
| | 6,158 |
| | 4.03 |
| | 62 |
|
Federal agency and other mortgage-backed securities | 95,506 |
| | 2.64 |
| | 632 |
| | 94,964 |
| | 2.33 |
| | 552 |
| 98,394 |
| | 2.55 |
| | 628 |
| | 96,004 |
| | 2.74 |
| | 656 |
|
Other debt securities | 58 |
| | 3.86 |
| | — |
| | 584 |
| | 4.66 |
| | 7 |
| 24 |
| | 3.10 |
| | — |
| | 61 |
| | 3.96 |
| | 1 |
|
Total held-to-maturity debt securities | 147,284 |
| | 2.57 |
| | 947 |
| | 146,534 |
| | 2.38 |
| | 871 |
| 157,891 |
| | 2.56 |
| | 1,009 |
| | 146,977 |
| | 2.63 |
| | 962 |
|
Total debt securities | 495,355 |
| | 3.16 |
| | 3,908 |
| | 491,194 |
| | 3.04 |
| | 3,729 |
| 511,512 |
| | 2.81 |
| | 3,589 |
| | 503,033 |
| | 3.25 |
| | 4,074 |
|
Mortgage loans held for sale (4)(3) | 18,464 |
| | 4.22 |
| | 195 |
| | 18,788 |
| | 4.22 |
| | 198 |
| 20,361 |
| | 3.87 |
| | 197 |
| | 13,898 |
| | 4.37 |
| | 152 |
|
Loans held for sale (4)(3) | 1,642 |
| | 4.80 |
| | 20 |
| | 3,481 |
| | 5.48 |
| | 48 |
| 1,485 |
| | 3.17 |
| | 12 |
| | 1,862 |
| | 5.25 |
| | 24 |
|
Loans: | | | | | | | | | | | | | | | | | | | | | | |
Commercial loans: | | | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial – U.S. | 285,084 |
| | 4.47 |
| | 3,176 |
| | 275,259 |
| | 4.16 |
| | 2,851 |
| 288,502 |
| | 3.55 |
| | 2,546 |
| | 286,577 |
| | 4.48 |
| | 3,169 |
|
Commercial and industrial – Non U.S. | 62,905 |
| | 3.90 |
| | 611 |
| | 59,716 |
| | 3.51 |
| | 524 |
| |
Commercial and industrial – non U.S. | | 70,659 |
| | 3.16 |
| | 556 |
| | 62,821 |
| | 3.90 |
| | 604 |
|
Real estate mortgage | 121,869 |
| | 4.58 |
| | 1,390 |
| | 123,982 |
| | 4.27 |
| | 1,319 |
| 121,788 |
| | 3.92 |
| | 1,187 |
| | 121,417 |
| | 4.58 |
| | 1,373 |
|
Real estate construction | 21,568 |
| | 5.36 |
| | 288 |
| | 23,637 |
| | 4.88 |
| | 287 |
| 20,277 |
| | 4.54 |
| | 229 |
| | 22,435 |
| | 5.43 |
| | 301 |
|
Lease financing | 19,133 |
| | 4.71 |
| | 226 |
| | 19,266 |
| | 4.48 |
| | 216 |
| 19,288 |
| | 4.40 |
| | 212 |
| | 19,391 |
| | 4.61 |
| | 224 |
|
Total commercial loans | 510,559 |
| | 4.47 |
| | 5,691 |
| | 501,860 |
| | 4.15 |
| | 5,197 |
| 520,514 |
| | 3.65 |
| | 4,730 |
| | 512,641 |
| | 4.48 |
| | 5,671 |
|
Consumer loans: | | | | | | | | | | | | | | | | | | | | | | |
Real estate 1-4 family first mortgage | 286,169 |
| | 3.88 |
| | 2,776 |
| | 283,101 |
| | 4.06 |
| | 2,870 |
| 293,556 |
| | 3.61 |
| | 2,650 |
| | 285,214 |
| | 3.96 |
| | 2,821 |
|
Real estate 1-4 family junior lien mortgage | 32,609 |
| | 5.75 |
| | 468 |
| | 37,249 |
| | 5.32 |
| | 495 |
| 28,905 |
| | 5.14 |
| | 370 |
| | 33,791 |
| | 5.75 |
| | 481 |
|
Credit card | 38,154 |
| | 12.65 |
| | 1,204 |
| | 35,883 |
| | 12.66 |
| | 1,133 |
| 39,756 |
| | 12.21 |
| | 1,207 |
| | 38,182 |
| | 12.88 |
| | 1,212 |
|
Automobile | 45,179 |
| | 5.23 |
| | 589 |
| | 48,568 |
| | 5.18 |
| | 628 |
| 48,258 |
| | 4.96 |
| | 596 |
| | 44,833 |
| | 5.19 |
| | 574 |
|
Other revolving credit and installment | 34,790 |
| | 7.12 |
| | 617 |
| | 37,418 |
| | 6.62 |
| | 617 |
| 34,057 |
| | 6.32 |
| | 534 |
| | 35,349 |
| | 7.14 |
| | 623 |
|
Total consumer loans | 436,901 |
| | 5.18 |
| | 5,654 |
| | 442,219 |
| | 5.20 |
| | 5,743 |
| 444,532 |
| | 4.83 |
| | 5,357 |
| | 437,369 |
| | 5.26 |
| | 5,711 |
|
Total loans (4)(3) | 947,460 |
| | 4.80 |
| | 11,345 |
| | 944,079 |
| | 4.64 |
| | 10,940 |
| 965,046 |
| | 4.20 |
| | 10,087 |
| | 950,010 |
| | 4.84 |
| | 11,382 |
|
Equity securities | 35,215 |
| | 2.70 |
| | 237 |
| | 37,330 |
| | 2.38 |
| | 222 |
| 37,532 |
| | 2.22 |
| | 208 |
| | 33,080 |
| | 2.56 |
| | 211 |
|
Other | 4,693 |
| | 1.76 |
| | 20 |
| | 5,518 |
| | 1.48 |
| | 21 |
| 7,431 |
| | 0.77 |
| | 14 |
| | 4,416 |
| | 1.63 |
| | 18 |
|
Total earning assets | $ | 1,742,004 |
| | 3.94 | % | | $ | 17,142 |
| | 1,735,256 |
| | 3.73 | % | | $ | 16,178 |
| $ | 1,780,444 |
| | 3.35 | % | | $ | 14,868 |
| | 1,730,622 |
| | 4.00 | % | | $ | 17,166 |
|
Funding sources | | | | | | | | | | | | | | | | | | | | | | |
Deposits: | | | | | | | | | | | | | | | | | | | | | | |
Interest-bearing checking | $ | 57,549 |
| | 1.46 | % | | $ | 210 |
| | 80,324 |
| | 0.90 | % | | $ | 181 |
| $ | 63,086 |
| | 0.86 | % | | $ | 135 |
| | 56,253 |
| | 1.42 | % | | $ | 197 |
|
Market rate and other savings | 690,677 |
| | 0.59 |
| | 1,009 |
| | 676,668 |
| | 0.26 |
| | 434 |
| 762,138 |
| | 0.52 |
| | 978 |
| | 688,568 |
| | 0.50 |
| | 847 |
|
Savings certificates | 30,620 |
| | 1.62 |
| | 124 |
| | 20,033 |
| | 0.43 |
| | 21 |
| 30,099 |
| | 1.47 |
| | 110 |
| | 25,231 |
| | 1.26 |
| | 78 |
|
Other time deposits | 96,887 |
| | 2.61 |
| | 630 |
| | 82,061 |
| | 2.26 |
| | 465 |
| 81,978 |
| | 1.74 |
| | 356 |
| | 97,830 |
| | 2.67 |
| | 645 |
|
Deposits in foreign offices | 51,875 |
| | 1.86 |
| | 240 |
| | 51,474 |
| | 1.30 |
| | 167 |
| |
Deposits in non-U.S. offices | | 53,335 |
| | 1.23 |
| | 163 |
| | 55,443 |
| | 1.89 |
| | 259 |
|
Total interest-bearing deposits | 927,608 |
| | 0.96 |
| | 2,213 |
| | 910,560 |
| | 0.56 |
| | 1,268 |
| 990,636 |
| | 0.71 |
| | 1,742 |
| | 923,325 |
| | 0.89 |
| | 2,026 |
|
Short-term borrowings | 114,754 |
| | 2.26 |
| | 646 |
| | 103,795 |
| | 1.54 |
| | 398 |
| 102,977 |
| | 1.14 |
| | 292 |
| | 108,651 |
| | 2.23 |
| | 597 |
|
Long-term debt | 236,734 |
| | 3.21 |
| | 1,900 |
| | 223,800 |
| | 2.97 |
| | 1,658 |
| 229,002 |
| | 2.17 |
| | 1,240 |
| | 233,172 |
| | 3.32 |
| | 1,927 |
|
Other liabilities | 24,314 |
| | 2.18 |
| | 132 |
| | 28,202 |
| | 2.12 |
| | 150 |
| 30,199 |
| | 1.90 |
| | 142 |
| | 25,292 |
| | 2.28 |
| | 143 |
|
Total interest-bearing liabilities | 1,303,410 |
| | 1.50 |
| | 4,891 |
| | 1,266,357 |
| | 1.10 |
| | 3,474 |
| 1,352,814 |
| | 1.01 |
| | 3,416 |
| | 1,290,440 |
| | 1.47 |
| | 4,693 |
|
Portion of noninterest-bearing funding sources | 438,594 |
| | — |
| | — |
| | 468,899 |
| | — |
| | — |
| 427,630 |
| | — |
| | — |
| | 440,182 |
| | — |
| | — |
|
Total funding sources | $ | 1,742,004 |
| | 1.12 |
| | 4,891 |
| | 1,735,256 |
| | 0.80 |
| | 3,474 |
| $ | 1,780,444 |
| | 0.77 |
| | 3,416 |
| | 1,730,622 |
| | 1.09 |
| | 4,693 |
|
Net interest margin and net interest income on a taxable-equivalent basis (5)(4) | | | 2.82 | % | | $ | 12,251 |
| | | | 2.93 | % | | $ | 12,704 |
| | | 2.58 | % | | $ | 11,452 |
| | | | 2.91 | % | | $ | 12,473 |
|
Noninterest-earning assets | | | | | | | | | | | | | | | | | | | | | | |
Cash and due from banks | $ | 19,475 |
| | | | | | 18,609 |
| | | | | $ | 20,571 |
| | | | | | 19,614 |
| | | | |
Goodwill | 26,415 |
| | | | | | 26,444 |
| | | | | 26,387 |
| | | | | | 26,420 |
| | | | |
Other | 112,733 |
| | | | | | 104,575 |
| | | | | 123,257 |
| | | | | | 106,435 |
| | | | |
Total noninterest-earning assets | $ | 158,623 |
| | | | | | 149,628 |
| | | | | $ | 170,215 |
| | | | | | 152,469 |
| | | | |
Noninterest-bearing funding sources | | | | | | | | | | | | | | | | | | | | | | |
Deposits | $ | 341,371 |
| | | | | | 360,779 |
| | | | | $ | 347,327 |
| | | | | | 338,737 |
| | | | |
Other liabilities | 56,161 |
| | | | | | 51,681 |
| | | | | 62,348 |
| | | | | | 55,565 |
| | | | |
Total equity | 199,685 |
| | | | | | 206,067 |
| | | | | 188,170 |
| | | | | | 198,349 |
| | | | |
Noninterest-bearing funding sources used to fund earning assets | (438,594 | ) | | | | | | (468,899 | ) | | | | | (427,630 | ) | | | | | | (440,182 | ) | | | | |
Net noninterest-bearing funding sources | $ | 158,623 |
| | | | | | 149,628 |
| | | | | $ | 170,215 |
| | | | | | 152,469 |
| | | | |
Total assets | $ | 1,900,627 |
| | | | | | 1,884,884 |
| | | | | $ | 1,950,659 |
| | | | | | 1,883,091 |
| | | | |
| | | | | | | | | | | | |
Average prime rate | | | | 4.41 | % | | | | | | 5.50 | % | | |
Average three-month London Interbank Offered Rate (LIBOR) | | | | 1.53 |
| | | | | | 2.69 |
| | |
| |
(1) | Our average prime rate was 5.50% and 4.80% for the quarters ended June 30, 2019 and 2018, respectively, and 5.50% and 4.66%, for the first half of 2019 and 2018, respectively. The average three-month London Interbank Offered Rate (LIBOR) was 2.51% and 2.34% for the quarters ended June 30, 2019 and 2018, respectively, and 2.60% and 2.13% for the first half of 2019 and 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)(2) | 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. |
|
| | | | | | | | | | | | | | | | | | | | |
| Six months ended June 30, | |
| | | | | 2019 |
| | | | | | 2018 |
|
(in millions) | Average balance |
| | Yields/ rates |
| | Interest income/ expense |
| | Average balance |
| | Yields/ rates |
| | Interest income/ expense |
|
Earning assets | | | | | | | | | | | |
Interest-earning deposits with banks | $ | 140,915 |
| | 2.33 | % | | $ | 1,629 |
| | 163,520 |
| | 1.61 | % | | $ | 1,308 |
|
Federal funds sold and securities purchased under resale agreements | 90,875 |
| | 2.42 |
| | 1,093 |
| | 79,083 |
| | 1.57 |
| | 615 |
|
Debt securities (3): | | | | | | | | | | | |
Trading debt securities | 87,938 |
| | 3.52 |
| | 1,544 |
| | 79,693 |
| | 3.35 |
| | 1,332 |
|
Available-for-sale debt securities: | | | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | 14,740 |
| | 2.18 |
| | 159 |
| | 6,426 |
| | 1.66 |
| | 53 |
|
Securities of U.S. states and political subdivisions | 47,049 |
| | 4.02 |
| | 946 |
| | 48,665 |
| | 3.64 |
| | 885 |
|
Mortgage-backed securities: | | | | | | | | | | | |
Federal agencies | 150,623 |
| | 3.04 |
| | 2,293 |
| | 156,690 |
| | 2.73 |
| | 2,141 |
|
Residential and commercial | 5,772 |
| | 4.17 |
| | 120 |
| | 8,558 |
| | 4.48 |
| | 192 |
|
Total mortgage-backed securities | 156,395 |
| | 3.09 |
| | 2,413 |
| | 165,248 |
| | 2.82 |
| | 2,333 |
|
Other debt securities | 45,920 |
| | 4.43 |
| | 1,011 |
| | 47,549 |
| | 4.02 |
| | 950 |
|
Total available-for-sale debt securities | 264,104 |
| | 3.44 |
| | 4,529 |
| | 267,888 |
| | 3.16 |
| | 4,221 |
|
Held-to-maturity debt securities: | | | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | 44,758 |
| | 2.20 |
| | 487 |
| | 44,727 |
| | 2.20 |
| | 487 |
|
Securities of U.S. states and political subdivisions | 6,560 |
| | 4.05 |
| | 133 |
| | 6,257 |
| | 4.34 |
| | 136 |
|
Federal agency and other mortgage-backed securities | 95,753 |
| | 2.69 |
| | 1,288 |
| | 92,888 |
| | 2.35 |
| | 1,093 |
|
Other debt securities | 60 |
| | 3.91 |
| | 1 |
| | 639 |
| | 3.89 |
| | 12 |
|
Total held-to-maturity debt securities | 147,131 |
| | 2.60 |
| | 1,909 |
| | 144,511 |
| | 2.40 |
| | 1,728 |
|
Total debt securities | 499,173 |
| | 3.20 |
| | 7,982 |
| | 492,092 |
| | 2.96 |
| | 7,281 |
|
Mortgage loans held for sale (4) | 16,193 |
| | 4.28 |
| | 347 |
| | 18,598 |
| | 4.06 |
| | 377 |
|
Loans held for sale (4) | 1,752 |
| | 5.04 |
| | 44 |
| | 2,750 |
| | 5.28 |
| | 72 |
|
Loans: | | | | | | | | | | | |
Commercial loans: | | | | | | | | | | | |
Commercial and industrial – U.S. | 285,827 |
| | 4.47 |
| | 6,345 |
| | 273,658 |
| | 4.00 |
| | 5,435 |
|
Commercial and industrial – Non U.S. | 62,863 |
| | 3.90 |
| | 1,215 |
| | 59,964 |
| | 3.37 |
| | 1,003 |
|
Real estate mortgage | 121,644 |
| | 4.58 |
| | 2,763 |
| | 125,085 |
| | 4.16 |
| | 2,581 |
|
Real estate construction | 21,999 |
| | 5.40 |
| | 589 |
| | 24,041 |
| | 4.70 |
| | 561 |
|
Lease financing | 19,261 |
| | 4.66 |
| | 450 |
| | 19,266 |
| | 4.89 |
| | 471 |
|
Total commercial loans | 511,594 |
| | 4.48 |
| | 11,362 |
| | 502,014 |
| | 4.03 |
| | 10,051 |
|
Consumer loans: | | | | | | | | | | | |
Real estate 1-4 family first mortgage | 285,694 |
| | 3.92 |
| | 5,597 |
| | 283,651 |
| | 4.04 |
| | 5,722 |
|
Real estate 1-4 family junior lien mortgage | 33,197 |
| | 5.75 |
| | 949 |
| | 38,042 |
| | 5.23 |
| | 988 |
|
Credit card | 38,168 |
| | 12.76 |
| | 2,416 |
| | 36,174 |
| | 12.71 |
| | 2,280 |
|
Automobile | 45,007 |
| | 5.21 |
| | 1,163 |
| | 50,010 |
| | 5.17 |
| | 1,283 |
|
Other revolving credit and installment | 35,068 |
| | 7.13 |
| | 1,240 |
| | 37,641 |
| | 6.54 |
| | 1,221 |
|
Total consumer loans | 437,134 |
| | 5.22 |
| | 11,365 |
| | 445,518 |
| | 5.18 |
| | 11,494 |
|
Total loans (4) | 948,728 |
| | 4.82 |
| | 22,727 |
| | 947,532 |
| | 4.57 |
| | 21,545 |
|
Equity securities | 34,154 |
| | 2.63 |
| | 448 |
| | 38,536 |
| | 2.37 |
| | 455 |
|
Other | 4,555 |
| | 1.69 |
| | 38 |
| | 5,765 |
| | 1.34 |
| | 40 |
|
Total earning assets | $ | 1,736,345 |
| | 3.97 | % | | $ | 34,308 |
| | 1,747,876 |
| | 3.64 | % | | $ | 31,693 |
|
Funding sources | | | | | | | | | | | |
Deposits: | | | | | | | | | | | |
Interest-bearing checking | $ | 56,905 |
| | 1.44 | % | | $ | 407 |
| | 74,084 |
| | 0.84 | % | | $ | 310 |
|
Market rate and other savings | 689,628 |
| | 0.54 |
| | 1,856 |
| | 677,861 |
| | 0.24 |
| | 802 |
|
Savings certificates | 27,940 |
| | 1.46 |
| | 202 |
| | 20,025 |
| | 0.38 |
| | 38 |
|
Other time deposits | 97,356 |
| | 2.64 |
| | 1,275 |
| | 79,340 |
| | 2.06 |
| | 812 |
|
Deposits in foreign offices | 53,649 |
| | 1.88 |
| | 499 |
| | 73,023 |
| | 1.09 |
| | 396 |
|
Total interest-bearing deposits | 925,478 |
| | 0.92 |
| | 4,239 |
| | 924,333 |
| | 0.51 |
| | 2,358 |
|
Short-term borrowings | 111,719 |
| | 2.24 |
| | 1,243 |
| | 102,793 |
| | 1.39 |
| | 710 |
|
Long-term debt | 234,963 |
| | 3.27 |
| | 3,827 |
| | 224,924 |
| | 2.88 |
| | 3,234 |
|
Other liabilities | 24,801 |
| | 2.23 |
| | 275 |
| | 28,065 |
| | 2.02 |
| | 282 |
|
Total interest-bearing liabilities | 1,296,961 |
| | 1.49 |
| | 9,584 |
| | 1,280,115 |
| | 1.03 |
| | 6,584 |
|
Portion of noninterest-bearing funding sources | 439,384 |
| | | | — |
| | 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 | $ | 19,544 |
| | | | | | 18,730 |
| | | | |
Goodwill | 26,417 |
| | | | | | 26,480 |
| | | | |
Other | 109,601 |
| | | | | | 107,218 |
| | | | |
Total noninterest-earning assets | $ | 155,562 |
| | | | | | 152,428 |
| | | | |
Noninterest-bearing funding sources | | | | | | | | | | | |
Deposits | $ | 340,061 |
| | | | | | 359,854 |
| | | | |
Other liabilities | 55,864 |
| | | | | | 54,212 |
| | | | |
Total equity | 199,021 |
| | | | | | 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 |
| | | | |
| | | | | | | | | | | |
| |
(4)(3) | Nonaccrual loans and related income are included in their respective loan categories. |
| |
(5)(4) | Includes taxable-equivalent adjustments of $156$140 million and $163$162 million for the quarters ended June 30, 2019March 31, 2020 and 2018, respectively, and $318 million and $330 million for the first half of 2019 and 2018,, respectively, predominantly related to tax-exempt income on certain loans and securities. The federal statutory tax rate utilized was 21% for the periods presented. |
Noninterest Income
Table 2: Noninterest Income
| | | Quarter ended June 30, | | | % |
| | Six months ended June 30, | | | % |
| Quarter ended Mar 31, | | | % |
|
(in millions) | 2019 |
| | 2018 |
| | Change |
| | 2019 |
| | 2018 |
| | Change |
| 2020 |
| | 2019 |
| | Change |
|
Service charges on deposit accounts | $ | 1,206 |
| | 1,163 |
| | 4 | % | | $ | 2,300 |
| | 2,336 |
| | (2 | )% | $ | 1,209 |
| | 1,094 |
| | 11 | % |
Trust and investment fees: | | | | | | | | | | | | | | | | |
Brokerage advisory, commissions and other fees | 2,318 |
| | 2,354 |
| | (2 | ) | | 4,511 |
| | 4,757 |
| | (5 | ) | 2,482 |
| | 2,193 |
| | 13 |
|
Trust and investment management | 795 |
| | 835 |
| | (5 | ) | | 1,581 |
| | 1,685 |
| | (6 | ) | 701 |
| | 786 |
| | (11 | ) |
Investment banking | 455 |
| | 486 |
| | (6 | ) | | 849 |
| | 916 |
| | (7 | ) | 391 |
| | 394 |
| | (1 | ) |
Total trust and investment fees | 3,568 |
| | 3,675 |
| | (3 | ) | | 6,941 |
| | 7,358 |
| | (6 | ) | 3,574 |
| | 3,373 |
| | 6 |
|
Card fees | 1,025 |
| | 1,001 |
| | 2 |
| | 1,969 |
| | 1,909 |
| | 3 |
| 892 |
| | 944 |
| | (6 | ) |
Other fees: | | | | | | | | | | |
| | | | |
|
Lending related charges and fees (1) | 349 |
| | 376 |
| | (7 | ) | | 696 |
| | 756 |
| | (8 | ) | 328 |
| | 347 |
| | (5 | ) |
Cash network fees | 117 |
| | 120 |
| | (3 | ) | | 226 |
| | 246 |
| | (8 | ) | 106 |
| | 109 |
| | (3 | ) |
Commercial real estate brokerage commissions | 105 |
| | 109 |
| | (4 | ) | | 186 |
| | 194 |
| | (4 | ) | 1 |
| | 81 |
| | (99 | ) |
Wire transfer and other remittance fees | 121 |
| | 121 |
| | — |
| | 234 |
| | 237 |
| | (1 | ) | 110 |
| | 113 |
| | (3 | ) |
All other fees | 108 |
| | 120 |
| | (10 | ) | | 228 |
| | 213 |
| | 7 |
| 87 |
| | 120 |
| | (28 | ) |
Total other fees | 800 |
| | 846 |
| | (5 | ) | | 1,570 |
|
| 1,646 |
| | (5 | ) | 632 |
|
| 770 |
| | (18 | ) |
Mortgage banking: | | | | | | | | | | |
| | | | |
|
Servicing income, net | 277 |
| | 406 |
| | (32 | ) | | 641 |
| | 874 |
| | (27 | ) | 271 |
| | 364 |
| | (26 | ) |
Net gains on mortgage loan origination/sales activities | 481 |
| | 364 |
| | 32 |
| | 825 |
| | 830 |
| | (1 | ) | 108 |
| | 344 |
| | (69 | ) |
Total mortgage banking | 758 |
| | 770 |
| | (2 | ) | | 1,466 |
|
| 1,704 |
| | (14 | ) | 379 |
|
| 708 |
| | (46 | ) |
Insurance | 93 |
| | 102 |
| | (9 | ) | | 189 |
| | 216 |
| | (13 | ) | 95 |
| | 96 |
| | (1 | ) |
Net gains from trading activities | 229 |
| | 191 |
| | 20 |
| | 586 |
| | 434 |
| | 35 |
| 64 |
| | 357 |
| | (82 | ) |
Net gains on debt securities | 20 |
| | 41 |
| | (51 | ) | | 145 |
| | 42 |
| | 245 |
| 237 |
| | 125 |
| | 90 |
|
Net gains from equity securities | 622 |
| | 295 |
| | 111 |
| | 1,436 |
| | 1,078 |
| | 33 |
| |
Net gains (losses) from equity securities | | (1,401 | ) | | 814 |
| | NM |
|
Lease income | 424 |
| | 443 |
| | (4 | ) | | 867 |
| | 898 |
| | (3 | ) | 352 |
| | 443 |
| | (21 | ) |
Life insurance investment income | 167 |
| | 162 |
| | 3 |
| | 326 |
| | 326 |
| | — |
| 161 |
| | 159 |
| | 1 |
|
All other | 577 |
| | 323 |
| | 79 |
| | 992 |
| | 761 |
| | 30 |
| 211 |
| | 415 |
| | (49 | ) |
Total | $ | 9,489 |
| | 9,012 |
| | 5 |
| | $ | 18,787 |
|
| 18,708 |
| | — |
| $ | 6,405 |
|
| 9,298 |
| | (31 | ) |
| |
(1) | Represents combined amount of previously reported “Charges and fees on loans” and “Letters of credit fees”. |
NM – Not meaningful
Noninterest income was $9.5$6.4 billion, and $18.8 billionor 36% of revenue, in the secondfirst quarter and first half of 2019, respectively,2020, compared with $9.0$9.3 billion, and $18.7 billion for the same periods a year ago. This income represented 44% of revenue for second quarter 2019 andor 43% of revenue, for the first half of 2019, compared with 42% and 43% for the same periodsperiod a year ago. The increasedecrease in noninterest income in the secondfirst quarter and first half of 2019, compared with the same periods a year ago, was predominantly driven by higher net gains from equity securities and higher all other income. The increase in the first half of 2019,2020, compared with the same period a year ago, also reflected higherwas predominantly due to lower other fees, mortgage banking income, net gains from trading activities, and debt securities. The increases in both periods werenet losses from equity securities, partially offset by lowerhigher service charges on deposit accounts, and trust and investment fees and lower mortgage banking income.fees. For more information on our performance obligations and the nature of services performed for certain of our revenues discussed below, see Note 18 (Revenue from Contracts with Customers) to Financial Statements in this Report.
Service charges on deposit accounts wereincreased to $1.2 billion and
$2.3 billionin the second quarter and first half of 2019quarter 2020, respectively, flat compared with $1.1 billion for the same periodsperiod a year ago. agoIn second, driven by higher overdraft fees and higher treasury management fees due to the impact of a lower earnings credit rate applied to commercial accounts given the lower interest rate environment. Overdraft fees were higher due to one additional day in first quarter 2019,2020, compared with the same period a year ago, higher consumeras well as fee waivers and reversals for customers affected by our data center system outage and the government shutdown in first quarter 2019. As part of our actions to support customers during the COVID-19 pandemic, we have provided certain fee waivers and reversals to our customers, which may negatively impact income from service charges due to growthon deposit accounts 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 returnedfuture periods.
items fees. The decline in treasury management fees in both the second quarter and first half of 2019, compared with the same periods a year ago, was primarily due to the impact of a higher earnings credit rate applied to commercial accounts due to increased interest rates.
Brokerage advisory, commissions and other fees decreasedincreased to $2.3 billion and $4.52.5 billion in the second quarter and first half of 2019quarter 2020, respectively, compared with $2.4 billion and $4.82.2 billion for the same periodsperiod a year ago. agoThe decreases in both periods, compared with the same periods a year ago, were, due to lowerhigher asset-based fees and lowerhigher transactional commission revenue. Retail brokerage client assets totaled $1.4 trillion at March 31, 2020, compared with $1.6 trillion at both June 30, 2019 and 2018, with allMarch 31, 2019. Asset-based fees are generally calculated on the market value of the assets as of the beginning of each quarter. All retail brokerage services are 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 largelyfees decreased to $701 million in first quarter 2020, from client$786 million for the same period a year ago, predominantly driven by lower trust fees due to the sale of our Institutional Retirement and Trust (IRT) business in 2019.
Our assets under management (AUM) for which fees are based on a tiered scale relative to market valuetotaled $693.1 billion at March 31, 2020, compared with $661.1 billion at March 31, 2019. Substantially all of the assets, and clientour AUM is managed by our WIM operating segment. Our assets under administration (AUA), for which fees totaled $1.7 trillion at both March 31, 2020 and 2019. Management believes that AUM and AUA are generally based onuseful metrics because they allow investors and others to assess how changes in asset amounts may impact the extentgeneration of services to administer the assets. Trust and investment management fees declined to $795 million and $1.6 billion in the second quarter and first half of 2019, respectively, from $835 million and $1.7 billion for the samecertain asset-based fees.
Earnings Performance (continued)
periods a year ago. The decreases in both periods, compared with the same periods a year ago, were due to lower trust fees, investment management fees, and mutual fund asset fees, driven by lower average assets under management.
Our AUM totaled $682.0and AUA included IRT client assets of $19 billion and $797 billion, respectively, at March 31, 2020, which we continue to administer at the direction of the buyer pursuant to a transition services agreement that will terminate no later than July 2021.
AJune 30, 2019, compared with $677.7 billion at June 30, 2018, with substantially all of our AUM managed by our WIM operating segment. Additionaldditional 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 June 30, 2019, compared with $1.7 trillion at June 30, 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 bankingCard fees decreased to $455 million and $849$892 million in the second quarter and first half of 2019quarter 2020, respectively, fromcompared with $486944 millionfor the same period a year ago, due to higher rewards costs and lower interchange fees driven by decreased purchase activity due to the impact of the COVID-19 pandemic on consumer spending, partially offset by strong purchase volume early in the quarter.
Other fees decreased to and $916632 million in first quarter 2020, compared with $770 million for the same periods in 2018, primarily due to lower equity and debt originations. The decrease in the first half of 2019, compared with the same period a year ago, was partially offsetlargely driven by higher advisory fees.
Card fees were $1.0 billion the sale of our commercial real estate brokerage business, Eastdil Secured (Eastdil), in fourth quarter 2019 and $2.0 billion in the second quarter and first half of 2019, respectively, compared with $1.0 billionand $1.9 billion for the same periods a year ago. The increase in the first half of 2019, compared with the same period a year ago, was predominantlylower business payroll income due to higher interchange fees driven by increased purchase activity, partially offset by higher rewards costs.
Other fees decreased to $800 million and $1.57 billion the sale of our Business Payroll Services business in the secondfirst quarter and first half of 2019, respectively, from $846 million and $1.65 billion for the same periods a year ago, driven primarily by lower lending related charges and fees. The first half of 2019, compared with the same period a year ago, was also impacted by lower cash network fees.2019.
Mortgage banking noninterest income, consisting of net servicing income and net gains on mortgage loan origination/ sales activities, totaled $758decreased to $379 million and $1.5 billion in the second quarter and first half of 2019quarter 2020, respectively, compared with $770$708 million and $1.7 billion for the same periodsperiod a year ago. For more information, see Note 11 (Mortgage Banking Activities) to Financial Statements in this Report.
Net servicing income decreased to $271 million in first quarter 2020, compared with $364 million for the same period a year ago driven by a decrease in contractually specified fees as a result of sales of mortgage servicing rights (MSRs) in 2019 and continued prepayments, as well as higher unreimbursed servicing costs due to the expected impact of the COVID-19 pandemic, such as extended foreclosure timelines and higher defaults. In addition to servicing fees, net mortgage loan servicing income includes amortization of commercial mortgage servicing rights (MSRs),MSRs, changes in the fair value of residential MSRs, during the period, as well as changes in the fair value of derivatives (economic hedges) used to hedge the residential MSRs. Net servicing income of $277 million for second quarter 2019 included a $77 million net MSR valuation gain ($1.1 billion
decrease in theThe total fair value of theour residential MSRs and a $1.2 billion hedge gain). Net servicing income of $406 million for seconddeclined in first quarter 2018 included a $26 million net MSR valuation gain ($345 million increase in the fair value of the MSRs and a $319 million hedge loss). For the first half of 2019, net servicing income of $641 million included a $148 million net MSR valuation gain ($2.0 billion decrease in the fair value of the MSRs and a $2.1 billion hedge gain), and for the first half of 2018, net servicing income of $874 million included a $136 million net MSR valuation gain ($1.7 billion increase in the fair value of the MSRs and a $1.5 billion hedge loss). The reduction in net servicing income for the second quarter and first half of 2019,2020, compared with the same periodsperiod a year ago, also reflecteddriven by lower mortgage interest rates and higher prepayments, which were substantially offset by hedge gains. In addition, the fair value decline in first quarter 2020 included assumption updates attributable to higher prepayment estimates. Table 2a presents the components of the market-related valuation changes to our residential MSRs, net servicing fees due to servicing portfolio runoff and sales.of hedge results.
Table 2a: Market-Related Valuation Changes on Residential MSRs, Net of Hedge Results
|
| | | | | | |
| Quarter ended Mar 31, | |
(in millions) | 2020 |
| | 2019 |
|
MSR valuation losses | $ | (3,257 | ) | | (891 | ) |
Net derivative gains from economic hedges of residential MSRs | 3,400 |
| | 962 |
|
Net MSR valuation gain | $ | 143 |
| | 71 |
|
Our portfolio of loans serviced for others was $1.66$1.6 trillion at June 30, 2019,both March 31, 2020, and $1.71 trillion at December 31, 2018.2019. At June 30, 2019,March 31, 2020, the ratio of combined residential and commercial MSRs to related loans serviced for others was 0.82%0.60%, compared with 0.94%0.79% at December 31, 20182019. 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 $481 million and $825decreased to $108 million in the second quarter and first half of 2019quarter 2020, respectively, compared with $364$344 million and $830 million for the same periods a year ago. The increase in second quarter 2019, compared with the same period a year ago, was primarily due toas gains from higher productionresidential real estate origination volumes and margins. The decrease in first quarter 2020 were more than offset by losses driven by the first halfimpact of 2019, comparedinterest rate volatility on hedging activities associated with the same period a year ago, was predominantly due to lowerour residential mortgage loans held for sale mortgage loan origination volumes, partially offset by higher marginsportfolio and a higher repurchase reserve release in 2019.pipeline, as well as valuation losses on certain residential and commercial loans held for sale due to market conditions.
The production margin on residential held-for-sale mortgage loan originations, which represents net gains on residential mortgage loan origination/sales activities divided by total residential held-for-sale mortgage loan originations, provides a measure of the profitability of our residential mortgage origination activity. Table 2a2b presents the information used in determining the production margin.
Table 2a:2b: Selected Mortgage Production Data
| | | | Quarter ended June 30, | | | Six months ended June 30, | | | Quarter ended March 31, | |
| | 2019 |
| 2018 |
| | 2019 |
| 2018 |
| | 2020 |
| 2019 |
|
Net gains on mortgage loan origination/sales activities (in millions): | | | | | | | | | |
Residential | (A) | $ | 322 |
| 281 |
| | $ | 554 |
| 605 |
| (A) | $ | 360 |
| 232 |
|
Commercial | | 83 |
| 49 |
| | 130 |
| 125 |
| | 23 |
| 47 |
|
Residential pipeline and unsold/repurchased loan management (1) | | 76 |
| 34 |
| | 141 |
| 100 |
| | (275 | ) | 65 |
|
Total | | $ | 481 |
| 364 |
| | $ | 825 |
| 830 |
| | $ | 108 |
| 344 |
|
Residential real estate originations (in billions): | | | | | | | | | |
Held-for-sale | (B) | $ | 33 |
| 37 |
| | $ | 55 |
| 71 |
| (B) | $ | 33 |
| 22 |
|
Held-for-investment | | 20 |
| 13 |
| | 31 |
| 22 |
| | 15 |
| 11 |
|
Total | | $ | 53 |
| 50 |
| | $ | 86 |
| 93 |
| | $ | 48 |
| 33 |
|
Production margin on residential held-for-sale mortgage loan originations | (A)/(B) | 0.98 | % | 0.77 |
| | 1.01 | % | 0.86 |
| (A)/(B) | 1.08 | % | 1.05 | % |
| |
(1) | PrimarilyPredominantly includes the results of Government 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 0.98% and 1.01%1.08% for the second quarter and first half of 2019quarter 2020, respectively, compared with 0.77% and 0.86%1.05% for the same periodsperiod a year ago. The increase in production margin in the second quarter and first half of 2019, quarter 2020,compared with the same periodsperiod a year ago, was predominantly due to higher margins in both our retail and correspondent production channel, andas well as a shift to more retail origination volume, which has a higher margin. The higher production margin.margin was reduced by valuation losses on residential mortgage loans held for sale, particularly non-agency loans.
Mortgage applications were $90increased to $108 billion and $154 billion for the second quarter andin first half of 2019quarter 2020, respectively, compared with $67 billion and $125$64 billion for the same periodsperiod a year ago. The 1-4 family first mortgage unclosed application pipeline was $44$62 billion at June 30, 2019,March 31, 2020, compared with $26$32 billion at June 30, 2018.March 31, 2019. 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 11 (Mortgage Banking Activities) and Note 16 (Fair Values of Assets and Liabilities) to Financial Statements in this Report.
Insurance income was $93 million and $189 million in the second quarter and first half of 2019, respectively, compared with $102 million and $216 million in the same periods a year ago. The decrease in the first half of 2019, compared with the same period a year ago, was largely driven by the wind down of 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 $229 million and $586decreased to $64 million in the second quarter and first half of 2019quarter 2020, respectively, compared with $191 million and $434$357 million in the same periodsperiod a year ago. The increasedecrease in the second quarter and first half of 2019quarter 2020, compared with the same periodsperiod a year ago, was predominantlyreflected trading volatility created by the COVID-19 pandemic. We had lower income in first quarter 2020 from the Corporatewider
credit spreads for asset-backed securities and Investment Banking business in our Wholesale operating segment driven by highercredit trading, as well as lower trading volumes on residential mortgage-backedasset-backed securities, (RMBS), partially offset by increased demand for interest rate products due to lower equity trading 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.interest rates. Net gains from trading activities do not includeexclude interest and dividend income and expense on trading securities. Those amounts securities, which are reported within interest income from debt and equity securities and other interest expense. income. 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 andlosses from equity securities totaled $642 million and $1.6were $1.4 billion in the second quarter and first halfquarter 2020 and included $621 million of 2019, respectively, compared with $336 million and $1.1 billion for the same periods a year ago, after other-than-temporary impairment (OTTI) write-downs of $38 million and $119 million for the second quarter anddeferred compensation plan investment losses (largely offset in employee benefits expense). Net losses from equity securities in first halfquarter 2020 also included nonmarketable equity securities impairments of 2019, respectively, compared with $245$935 million, and $275 million for the same periods a year ago. reflecting lower market valuations. The increase in net gainsimpairments on debt and equity securities in the second quarterventure capital, private equity and certain wholesale businesses represented 17% of the carrying values of these businesses’ portfolio investments subject to the impairment assessment. 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
Lease income decreased to $352 million in the first half of 2019,quarter 2020, compared with $443 million for the same period a year ago, also reflected higher net gains on debt securities. The decrease in OTTIdriven by reductions in the second quarter and first halfsize of 2019, compared with same periods a year ago, was predominantly driven by a $214 million impairment related to the sale of our ownership stake in The Rock Creek Group, LP (RockCreek) in second quarter 2018.
Lease income was $424 million and $867 million in the second quarter and first half of 2019, respectively, compared with $443 million and $898 million for the same periods a year ago. The decreases in the second quarter and first half of 2019, compared with the same periods a year ago, were driven by lower 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.leasing portfolio.
All other income was $577 million and $992decreased to $211 million in the second quarter and first half of 2019quarter 2020, respectively, compared with $323 million and $761$415 million for the same periodsperiod a year ago. All other income includes hedge accounting resultsincome or losses from equity method investments, including low-income housing tax credit investments (excluding related totax credits recorded in income tax expense), foreign currency adjustments and related hedges of foreign currency risk, the results ofrisks, and certain economic hedges, losses on low income housing tax credit investments, foreign currency adjustments, and income from investments accounted for under the equity method, any of which can cause decreases and net losseshedges. The decrease in other income. Allall other income included $721 million and $1.3 billion ofwas driven by higher income in first quarter 2019 from gains fromon the sales of purchased credit-impaired (PCI) Pick-a-Pay loans in the second quarter andfirst half of 2019, respectively, compared with $479 million and $1.1 billion for the same periods a year ago. The increase in all other income in the first half of 2019, compared with the same period a year ago, also reflected a pre-tax gain fromon the sale of our Business Payroll Services business, partially offset by transition services fees in first quarter 2019 and a loss related to2020 associated with the sale of certain assetsour IRT business and liabilitiesgains on the sales of Reliable Financial Services, Inc. (a subsidiary of Wells Fargo’s automobile financing business)loans reclassified to held for sale in 2019 and sold in first quarter 2018, partially offset by a pretax gain from the sale of Wells Fargo Shareowner Services in first quarter 2018.2020.
Earnings Performance (continued)
Noninterest Expense
Table 3: Noninterest Expense
| | | Quarter ended June 30, | | | % |
| | Six months ended June 30, | | | % |
| Quarter ended Mar 31, | | | % |
|
(in millions) | 2019 |
| | 2018 |
| | Change |
| | 2019 |
| | 2018 |
| | Change |
| 2020 |
| | 2019 |
| | Change |
|
Salaries | $ | 4,541 |
| | 4,465 |
| | 2 | % | | $ | 8,966 |
| | 8,828 |
| | 2 | % | $ | 4,721 |
| | 4,425 |
| | 7 | % |
Commission and incentive compensation | 2,597 |
| | 2,642 |
| | (2 | ) | | 5,442 |
| | 5,410 |
| | 1 |
| 2,463 |
| | 2,845 |
| | (13 | ) |
Employee benefits | 1,336 |
| | 1,245 |
| | 7 |
| | 3,274 |
| | 2,843 |
| | 15 |
| 1,130 |
| | 1,938 |
| | (42 | ) |
Equipment | 607 |
| | 550 |
| | 10 |
| | 1,268 |
| | 1,167 |
| | 9 |
| |
Technology and equipment | | 661 |
| | 661 |
| | — |
|
Net occupancy (1) | 719 |
| | 722 |
| | — |
| | 1,436 |
| | 1,435 |
| | — |
| 715 |
| | 717 |
| | — |
|
Core deposit and other intangibles | 27 |
| | 265 |
| | (90 | ) | | 55 |
| | 530 |
| | (90 | ) | 23 |
| | 28 |
| | (18 | ) |
FDIC and other deposit assessments | 144 |
| | 297 |
| | (52 | ) | | 303 |
| | 621 |
| | (51 | ) | 118 |
| | 159 |
| | (26 | ) |
Operating losses | | 464 |
| | 238 |
| | 95 |
|
Outside professional services | 821 |
| | 881 |
| | (7 | ) | | 1,499 |
| | 1,702 |
| | (12 | ) | 727 |
| | 678 |
| | 7 |
|
Contract services | 624 |
| | 536 |
| | 16 |
| | 1,187 |
| | 983 |
| | 21 |
| 630 |
| | 563 |
| | 12 |
|
Operating losses | 247 |
| | 619 |
| | (60 | ) | | 485 |
| | 2,087 |
| | (77 | ) | |
Leases (2) | 311 |
| | 311 |
| | — |
| | 597 |
| | 631 |
| | (5 | ) | 260 |
| | 286 |
| | (9 | ) |
Advertising and promotion | 329 |
| | 227 |
| | 45 |
| | 566 |
| | 380 |
| | 49 |
| 181 |
| | 237 |
| | (24 | ) |
Outside data processing | 175 |
| | 164 |
| | 7 |
| | 342 |
| | 326 |
| | 5 |
| 165 |
| | 167 |
| | (1 | ) |
Travel and entertainment | 163 |
| | 157 |
| | 4 |
| | 310 |
| | 309 |
| | — |
| 93 |
| | 147 |
| | (37 | ) |
Postage, stationery and supplies | 119 |
| | 121 |
| | (2 | ) | | 241 |
| | 263 |
| | (8 | ) | 129 |
| | 122 |
| | 6 |
|
Telecommunications | 93 |
| | 88 |
| | 6 |
| | 184 |
| | 180 |
| | 2 |
| 92 |
| | 91 |
| | 1 |
|
Foreclosed assets | 35 |
| | 44 |
| | (20 | ) | | 72 |
| | 82 |
| | (12 | ) | 29 |
| | 37 |
| | (22 | ) |
Insurance | 25 |
| | 24 |
| | 4 |
| | 50 |
| | 50 |
| | — |
| 25 |
| | 25 |
| | — |
|
All other | 536 |
| | 624 |
| | (14 | ) | | 1,088 |
| | 1,197 |
| | (9 | ) | 422 |
| | 552 |
| | (24 | ) |
Total | $ | 13,449 |
| | 13,982 |
| | (4 | ) | | $ | 27,365 |
| | 29,024 |
| | (6 | ) | $ | 13,048 |
| | 13,916 |
| | (6 | ) |
| |
(1) | Represents expenses for both leased and owned properties. |
| |
(2) | Represents expenses for assets we lease to customers. |
Noninterest expense was $13.4$13.0 billion in secondfirst quarter 2019, down 4% from $14.0 billion a year ago, and $27.4 billion in the first half of 2019,2020, down 6% from the same period a year ago. The decrease$13.9 billion in second quarter 2019, compared with the same period a year ago, was due todriven by lower operating losses, core depositpersonnel expenses, advertising and promotions expense, travel and entertainment expense, and other intangibles expense, and FDIC and other deposit assessments, partially offset by higher personneloperating losses, and advertisingoutside professional 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.contract services expense.
Personnel expenses, which include salaries, commissions, incentive compensation, and employee benefits, were up $122down $894 million, or 1%10%, in secondfirst quarter 2019, compared with the
same period a year ago, and up $601 million, or 4%, in the first half of 2019, compared with the same period a year ago. The increase in second quarter 2019,2020, compared with the same period a year ago, was due to annual salary increases and higherlower employee benefits expense from lower deferred compensation costs (offsetexpense (largely offset in net gainslosses from equity securities), partially offset by and lower incentive compensation and lower staffing levels. The increase in the first half of 2019, compared with the same period a year ago, was due tocommissions, partially offset by higher deferred compensation costs (offset in net gains from equity securities), annual salary increases andsalaries driven by the impact of staffing mix changes.changes and annual salary increases, as well as one additional payroll day in the quarter. Table 3a presents results for our deferred compensation plan and related investments.
The decrease in incentive compensation and commissions was due to lower stock incentive compensation expense and lower annual bonus expense, partially offset by higher revenue-related incentive compensation. We have provided various types of financial support to our employees in response to the COVID-19 pandemic, including additional cash payments for our employees who continue to serve customers, enhanced childcare, and other extended benefits. These additional benefits did not meaningfully impact our expenses in first quarter 2020, but are expected to have a greater impact beginning in second quarter 2020 and throughout the remainder of the year. See the “Financial Review – Overview” section in this Report for more information on the actions we have taken to support our employees during the COVID-19 pandemic.
Table 3a: Deferred Compensation Plan and Related Investments
| | | Quarter ended | | | Six months ended | | Quarter ended Mar 31, | |
(in millions) | Jun 30, 2019 |
| | Jun 30, 2018 |
| | Jun 30, 2019 |
| | Jun 30, 2018 |
| 2020 |
| | 2019 |
|
Net interest income | $ | 18 |
| | 13 |
| | $ | 31 |
| | 23 |
| $ | 12 |
| | 13 |
|
Net gains (losses) from equity securities | 87 |
| | 37 |
| | 432 |
| | 31 |
| (621 | ) | | 345 |
|
Total revenue from deferred compensation plan investments | 105 |
| | 50 |
| | 463 |
| | 54 |
| |
Total revenue (losses) from deferred compensation plan investments | | (609 | ) | | 358 |
|
Employee benefits expense (1) | 114 |
| | 53 |
| | 471 |
| | 57 |
| (598 | ) | | 357 |
|
Income (loss) before income tax expense | $ | (9 | ) | | (3 | ) | | $ | (8 | ) | | (3 | ) | $ | (11 | ) | | 1 |
|
| |
(1) | Represents change in deferred compensation plan liability. |
Equipment expense wasOperating losses were up $57$226 million, or 10%95%, in secondfirst quarter 2019,2020, compared with the same period a year ago, and up $101 million, or 9%, in the first half of 2019, compared with the same period a year ago, in each case due to higher computer software licensinglitigation and maintenance and depreciation expense, partially offset by lower small furniture and equipment expense.remediation accruals.
Core deposit and other intangibles expense was down $238 million, or 90%, in second quarter 2019, compared with the same period a year ago, and down $475 million, or 90%, in the first half of 2019, compared with the same period a year ago, in each case due to lower amortization expense reflecting the end of the 10-year amortization period on Wachovia intangibles.
Federal Deposit Insurance Corporation (FDIC) and other 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 completion of the FDIC temporary surcharge, which ended September 30, 2018.
Outside professional and contract services expense was up $28$116 million, or 2%9%, in secondfirst quarter 2019,2020, compared with the
same period a year ago, and up $1 million in the first half of 2019, compared with the same period a year ago, reflectinglargely due to an increase in project spending, partially offset by lower legal expenses in both periods.expenses.
Operating losses wereAdvertising and promotion expense was down $372$56 million, or 60%24%, in secondfirst quarter 2019,2020, compared with the same period a year ago, due to decreases in marketing and brand campaign volumes.
Travel and entertainment was down $1.6 billion,$54 million, or 77%37%, in the first half of 2019, compared with the same period a year ago. The decrease in second quarter 2019,2020, compared with the same period a year ago, reflected lower remediationdriven by a reduction in business travel and company events due to ongoing expense whilemanagement initiatives, as well as the decreaseimpact of the COVID-19 pandemic.
All other expense was down $130 million, or 24%, in the first half of 2019,quarter 2020, compared with the same period a year ago, was driven by lower 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 marketinghigher gains on the extinguishment of debt, lower pension benefit plan expenses, 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 62.3% in second quarter 2019, compared with 64.9% in second quarter 2018.insurance claims reserve.
Income Tax Expense
Income tax expense was $159 million in first quarter 2020, down 82% from $881 million in the same period a year ago, driven by lower income. Our effective income tax rate was 17.3% and 15.3%19.5% for the secondfirst quarter and first half of 2019, respectively,2020, compared with 25.9% and 23.6%13.1% for the same periods in 2018.period a year ago. The effective income tax rate for the first half of 2019quarter 2020 reflected net discrete income tax expense of $141 million driven by the accounting for stock compensation activity, the net impact of accounting for uncertain tax positions, and the outcome of U.S. federal income tax examinations. The lower rate in first quarter 2019 was related to net discrete income tax benefits of $297 million related mostly to the results of U.S. federal and state income tax examinations. The rate in second quarter 2018 reflected a net discrete income tax expense of $481 million mostly related to state income taxes driven byexaminations and the U.S. Supreme Court decision in South Dakota v. Wayfair. The rateaccounting for the first half of 2018 reflected the non-tax deductible treatment of an $800 million discrete litigation accrual recorded as noninterest expense in first quarter 2018 in connection with the consent orders entered into with the CFPB and OCC on April 20, 2018.stock compensation activity.
Operating Segment Results
We areAs of March 31, 2020, we were organized for management reporting purposes into three operating segments: Community Banking; Wholesale Banking; and Wealth and Investment Management (WIM). These segments are defined by product type and customer segment and their results are based on our management accountingreporting process. The management reporting process is based on U.S. GAAP with specific adjustments, such as for which therefunds transfer pricing for asset/liability management, for shared revenues and expenses, and tax-equivalent adjustments to consistently reflect income from taxable and tax-exempt sources. On February 11, 2020, we announced a new organizational structure with five principal lines of business: Consumer and Small Business Banking; Consumer Lending; Commercial Banking; Corporate and Investment Banking; and Wealth and Investment
Management. This new organizational structure is no comprehensive, authoritativeintended to help drive operating, control, and business performance. The Company is currently in the process of transitioning to this new organizational structure, including identifying leadership for some of these principal business lines and aligning management reporting and allocation methodologies. These changes will not impact the consolidated financial accounting guidance equivalentresults of the Company, but are expected to generally accepted accounting principles (GAAP).result in changes to our operating segments. We will update our operating segment disclosures, including comparative financial results, when the Company completes its transition and is managed in accordance with the new organizational structure. 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 accountingreporting process, see Note 22 (Operating Segments) to Financial Statements in this Report.
We perform a goodwill impairment assessment annually in the fourth quarter. However, in first quarter 2020, we performed an interim, quantitative impairment assessment of our goodwill given deteriorated macroeconomic conditions from the impact of the COVID-19 pandemic. These market conditions led to a sharp decline in share prices for Wells Fargo and other companies across many industries. As part of our interim assessment, we updated our assumptions used in both the income and market approaches for estimating fair values of our reporting units. The update to assumptions incorporated current market-based information such as price-earnings information and a regular update to our internal enterprise-wide forecasts, which reflected lower interest rates and higher expected credit losses, as well as a weaker macroeconomic outlook. While we observed declines in the fair values of our reporting units and the amount of excess fair value over the carrying amount of our reporting units, we did not have evidence of goodwill impairment. Due to the impact of the market disruption on our investment banking fees and trading activities, our corporate and investment banking reporting unit, included within the Wholesale Banking operating segment, had the smallest difference between fair value and carrying value. Given the uncertainty of the severity or length of the current economic downturn, we will continue to monitor market conditions for circumstances that could have a further negative effect on our estimated fair values on our reporting units.
In connection with the planned change to our operating segment disclosures, we will realign our goodwill to the reporting units that underlie our operating segments. We will reassess goodwill for impairment at the time of the realignment.
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) | | 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
| |
Quarter ended June 30, | | | | | | | | | | | | | | | | | | | | | |
balance sheet data in billions) | | | 2020 |
| | 2019 |
| | 2020 |
| | 2019 |
| | 2020 |
| | 2019 |
| | 2020 |
| | 2019 |
| | 2020 |
| | 2019 |
|
Quarter ended Mar 31, | | | | | | | | | | | | | | | | | | | | | |
Revenue | | $ | 11,805 |
| | 11,806 |
| | 7,065 |
| | 7,197 |
| | 4,050 |
| | 3,951 |
| | (1,336 | ) | | (1,401 | ) | | 21,584 |
| | 21,553 |
| | $ | 9,496 |
| | 11,750 |
| | 5,817 |
| | 7,111 |
| | 3,715 |
| | 4,079 |
| | (1,311 | ) | | (1,331 | ) | | 17,717 |
| | 21,609 |
|
Provision (reversal of provision) for credit losses | | 479 |
| | 484 |
| | 28 |
| | (36 | ) | | (1 | ) | | (2 | ) | | (3 | ) | | 6 |
| | 503 |
| | 452 |
| | 1,718 |
| | 710 |
| | 2,288 |
| | 134 |
| | 8 |
| | 4 |
| | (9 | ) | | (3 | ) | | 4,005 |
| | 845 |
|
Noninterest expense | | 7,212 |
| | 7,290 |
| | 3,882 |
| | 4,219 |
| | 3,246 |
| | 3,361 |
| | (891 | ) | | (888 | ) | | 13,449 |
| | 13,982 |
| |
Net income (loss) | | 3,147 |
| | 2,496 |
| | 2,789 |
| | 2,635 |
| | 602 |
| | 445 |
| | (332 | ) | | (390 | ) | | 6,206 |
| | 5,186 |
| | 155 |
| | 2,823 |
| | 311 |
| | 2,770 |
| | 463 |
| | 577 |
| | (276 | ) | | (310 | ) | | 653 |
| | 5,860 |
|
| | | | | | | | | | | | | | | | | | | | | |
Average loans | | $ | 457.7 |
| | 463.8 |
| | 474.0 |
| | 464.7 |
| | 75.0 |
| | 74.7 |
| | (59.2 | ) | | (59.1 | ) | | 947.5 |
| | 944.1 |
| | $ | 462.6 |
| | 458.2 |
| | 484.5 |
| | 476.4 |
| | 78.5 |
| | 74.4 |
| | (60.6 | ) | | (59.0 | ) | | 965.0 |
| | 950.0 |
|
Average deposits | | 777.6 |
| | 760.6 |
| | 410.4 |
| | 414.0 |
| | 143.5 |
| | 167.1 |
| | (62.5 | ) | | (70.4 | ) | | 1,269.0 |
| | 1,271.3 |
| | 798.6 |
| | 765.6 |
| | 456.6 |
| | 409.8 |
| | 151.4 |
| | 153.2 |
| | (68.6 | ) | | (66.5 | ) | | 1,338.0 |
| | 1,262.1 |
|
Six months ended June 30, | | | | | | | | | | | | | | | | | | | | | |
Revenue | | $ | 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 | | 1,189 |
| | 702 |
| | 162 |
| | (56 | ) | | 3 |
| | (8 | ) | | (6 | ) | | 5 |
| | 1,348 |
| | 643 |
| |
Noninterest expense | | 14,901 |
| | 15,992 |
| | 7,720 |
| | 8,197 |
| | 6,549 |
| | 6,651 |
| | (1,805 | ) | | (1,816 | ) | | 27,365 |
| | 29,024 |
| |
Net income (loss) | | 5,970 |
| | 4,409 |
| | 5,559 |
| | 5,510 |
| | 1,179 |
| | 1,159 |
| | (642 | ) | | (756 | ) | | 12,066 |
| | 10,322 |
| |
Average loans | | $ | 457.9 |
| | 467.1 |
| | 475.2 |
| | 464.9 |
| | 74.7 |
| | 74.3 |
| | (59.1 | ) | | (58.8 | ) | | 948.7 |
| | 947.5 |
| |
Average deposits | | 771.6 |
| | 754.1 |
| | 410.1 |
| | 429.9 |
| | 148.3 |
| | 172.5 |
| | (64.5 | ) | | (72.3 | ) | | 1,265.5 |
| | 1,284.2 |
| |
Goodwill | | | 16.7 |
| | 16.7 |
| | 8.4 |
| | 8.4 |
| | 1.3 |
| | 1.3 |
| | — |
| | — |
| | 26.4 |
| | 26.4 |
|
| |
(1) | Includes the elimination of certain items that are included in more than one business segment, substantially all of which substantially represents products and services for WIM customers served through Community Banking distribution channels. |
Earnings Performance (continued)
Community Bankingoffers a complete line of diversified financial products and services for consumers and small businesses includingwith annual sales generally up to $5 million in which the owner generally is the financial decision maker. These financial products and services include 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 have substantially completed the wind down of our personal insurance business, and we expect to fully exit this business by the end of 2019.
Table 4a provides additional financial information for Community Banking.
Table 4a: Community Banking
| | | Quarter ended June 30, | | | | | Six months ended June 30, | | | | Quarter ended Mar 31, | | | |
(in millions, except average balances which are in billions) | 2019 |
| | 2018 |
| | % Change | | 2019 |
| | 2018 |
| | % Change |
| 2020 |
| | 2019 |
| | % Change |
|
Net interest income | $ | 7,066 |
| | 7,346 |
| | (4 | )% | | $ | 14,314 |
| | 14,541 |
| | (2 | )% | $ | 6,787 |
| | 7,248 |
| | (6 | )% |
Noninterest income: | | | | | | | | | | | | | | | | |
Service charges on deposit accounts | 704 |
| | 632 |
| | 11 |
| | 1,314 |
| | 1,271 |
| | 3 |
| 700 |
| | 610 |
| | 15 |
|
Trust and investment fees: | | | | | | | | | | |
| | | | |
|
Brokerage advisory, commissions and other fees (1) | 480 |
| | 465 |
| | 3 |
| | 929 |
| | 943 |
| | (1 | ) | 518 |
| | 449 |
| | 15 |
|
Trust and investment management (1) | 199 |
| | 220 |
| | (10 | ) | | 409 |
| | 453 |
| | (10 | ) | 194 |
| | 210 |
| | (8 | ) |
Investment banking (2) | (18 | ) | | — |
| | NM |
| | (38 | ) | | (10 | ) | | NM |
| (99 | ) | | (20 | ) | | NM |
|
Total trust and investment fees | 661 |
| | 685 |
| | (4 | ) | | 1,300 |
| | 1,386 |
| | (6 | ) | 613 |
| | 639 |
| | (4 | ) |
Card fees | 929 |
| | 904 |
| | 3 |
| | 1,787 |
| | 1,725 |
| | 4 |
| 809 |
| | 858 |
| | (6 | ) |
Other fees | 335 |
| | 348 |
| | (4 | ) | | 667 |
| | 675 |
| | (1 | ) | 285 |
| | 332 |
| | (14 | ) |
Mortgage banking | 655 |
| | 695 |
| | (6 | ) | | 1,296 |
| | 1,537 |
| | (16 | ) | 340 |
| | 641 |
| | (47 | ) |
Insurance | 11 |
| | 16 |
| | (31 | ) | | 22 |
| | 44 |
| | (50 | ) | 11 |
| | 11 |
| | — |
|
Net (losses) gains from trading activities | (11 | ) | | 24 |
| | NM |
| | (6 | ) | | 23 |
| | NM |
| |
Net gains (losses) on debt securities | 15 |
| | (2 | ) | | 850 |
| | 52 |
| | (2 | ) | | NM |
| |
Net gains from equity securities (3) | 471 |
| | 409 |
| | 15 |
| | 1,072 |
| | 1,093 |
| | (2 | ) | |
Net gains from trading activities | | 29 |
| | 5 |
| | 480 |
|
Net gains on debt securities | | 194 |
| | 37 |
| | 424 |
|
Net gains (losses) from equity securities (3) | | (1,028 | ) | | 601 |
| | NM |
|
Other income of the segment | 969 |
| | 749 |
| | 29 |
| | 1,737 |
| | 1,343 |
| | 29 |
| 756 |
| | 768 |
| | (2 | ) |
Total noninterest income | 4,739 |
| | 4,460 |
| | 6 |
| | 9,241 |
| | 9,095 |
| | 2 |
| 2,709 |
| | 4,502 |
| | (40 | ) |
| | | | | | | | | | |
| | | | |
|
Total revenue | 11,805 |
| | 11,806 |
| | — |
| | 23,555 |
| | 23,636 |
| | — |
| 9,496 |
| | 11,750 |
| | (19 | ) |
| | | | | | | | | | |
| | | | |
|
Provision for credit losses | 479 |
| | 484 |
| | (1 | ) | | 1,189 |
| | 702 |
| | 69 |
| 1,718 |
| | 710 |
| | 142 |
|
Noninterest expense: | | | | | | | | | | |
| | | | |
|
Personnel expense | 5,436 |
| | 5,400 |
| | 1 |
| | 11,417 |
| | 10,911 |
| | 5 |
| 5,455 |
| | 5,981 |
| | (9 | ) |
Equipment | 584 |
| | 525 |
| | 11 |
| | 1,225 |
| | 1,121 |
| | 9 |
| |
Technology and equipment | | 645 |
| | 641 |
| | 1 |
|
Net occupancy | 542 |
| | 542 |
| | — |
| | 1,084 |
| | 1,076 |
| | 1 |
| 529 |
| | 542 |
| | (2 | ) |
Core deposit and other intangibles | — |
| | 102 |
| | (100 | ) | | 1 |
| | 203 |
| | (100 | ) | 1 |
| | 1 |
| | — |
|
FDIC and other deposit assessments | 94 |
| | 155 |
| | (39 | ) | | 200 |
| | 336 |
| | (40 | ) | 68 |
| | 106 |
| | (36 | ) |
Outside professional services | 387 |
| | 430 |
| | (10 | ) | | 703 |
| | 827 |
| | (15 | ) | 442 |
| | 316 |
| | 40 |
|
Operating losses | 197 |
| | 287 |
| | (31 | ) | | 416 |
| | 1,727 |
| | (76 | ) | 454 |
| | 219 |
| | 107 |
|
Other expense of the segment | (28 | ) | | (151 | ) | | 81 |
| | (145 | ) | | (209 | ) | | 31 |
| (478 | ) | | (117 | ) | | NM |
|
Total noninterest expense | 7,212 |
| | 7,290 |
| | (1 | ) | | 14,901 |
| | 15,992 |
| | (7 | ) | 7,116 |
| | 7,689 |
| | (7 | ) |
Income before income tax expense and noncontrolling interests | 4,114 |
| | 4,032 |
| | 2 |
| | 7,465 |
| | 6,942 |
| | 8 |
| 662 |
| | 3,351 |
| | (80 | ) |
Income tax expense | 838 |
| | 1,413 |
| | (41 | ) | | 1,262 |
| | 2,222 |
| | (43 | ) | 644 |
| | 424 |
| | 52 |
|
Net income from noncontrolling interests (4) | 129 |
| | 123 |
| | 5 |
| | 233 |
| | 311 |
| | (25 | ) | |
Less: Net income (loss) from noncontrolling interests (4) | | (137 | ) | | 104 |
| | NM |
|
Net income | $ | 3,147 |
| | 2,496 |
| | 26 |
| | $ | 5,970 |
| | 4,409 |
| | 35 |
| $ | 155 |
| | 2,823 |
| | (95 | ) |
Average loans | $ | 457.7 |
| | 463.8 |
| | (1 | ) | | $ | 457.9 |
| | 467.1 |
| | (2 | ) | $ | 462.6 |
| | 458.2 |
| | 1 |
|
Average deposits | 777.6 |
| | 760.6 |
| | 2 |
| | 771.6 |
| | 754.1 |
| | 2 |
| 798.6 |
| | 765.6 |
| | 4 |
|
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 eliminated in consolidation. |
| |
(2) | Includes syndication and underwriting fees paid to Wells Fargo Securities for services related to the issuance of our corporate securities which are offset in our Wholesale Banking segment and eliminated in consolidation. |
| |
(3) | MostlyPrimarily 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 $3.1 billion, up $651$155 million or 26%, from secondin first quarter 2018, and $6.0 billion for the first half of 2019, up $1.62020, down $2.7 billion, or 35%95%, compared with the same period a year ago.
Revenue of $9.5 billion in first quarter 2020, decreased $2.3 billion, or 19%, compared with the same period a year ago. RevenueThe decrease in revenue was due to net losses on equity securities (including lower deferred compensation plan investment results, which were largely offset in employee benefits expense), lower card fees driven by higher rewards costs and the impact of $11.8 billion was flat compared with secondthe COVID-19 pandemic on consumer spending, lower net interest income reflecting the lower interest rate environment, and lower mortgage banking income. These decreases were partially offset by higher gains on debt securities and service charges on deposit accounts due to one additional day in first quarter 20182020, and was $23.6 billion for thethat first half of 2019, a decrease of $81 million compared with the same period a year ago. Revenue in second quarter 2019 was flat,included a higher level of fee waivers for customers affected by our data center system outage and the government shutdown.
The provision for credit losses in first quarter 2020 increased $1.0 billion compared with the same period a year ago, as lower net interest income, mortgage banking income, and net gains from trading activities were offset by higher gains from the sales of Pick-a-Pay PCI mortgage loans, service charges on deposit accounts, and net gains from equity securities. The decrease in revenuepredominantly due to a $1.0 billion increase in the allowance for credit losses in first halfquarter 2020 reflecting expected credit deterioration due to the impact of 2019,the COVID-19 pandemic.
Noninterest expense of $7.1 billion in first quarter 2020, decreased $573 million, or 7%, compared with the same period a year ago, waspredominantly due to lower mortgage banking income,personnel expenses driven by lower deferred compensation expense (largely offset by net interest income,losses from equity securities) and trust and investment fees,lower other expenses, partially offset by higher gainsoperating losses driven by an increase in remediation accruals and higher outside professional services expense.
Income tax expense of $644 million in first quarter 2020, increased $220 million from first quarter 2019, driven by a higher effective income tax rate of 19.5% and included net discrete income tax expense of $141 million driven by the salesaccounting for
stock compensation activity, the net impact of Pick-a-Pay PCI mortgage loans, card fees,accounting for uncertain tax positions, and net gains from debt securities. the outcome of U.S. federal income tax examinations.
Average loans of $457.7$462.6 billion in second
first quarter 2019 decreased $6.12020, increased $4.4 billion, or 1%, from secondcompared with first quarter 2018, and average loans of $457.9 billion in the first half of 2019 decreased $9.2 billion, or 2%, from the first half of 2018.2019. The declineincrease in average loans for both periodsfrom first quarter 2019 was predominantly due to lower junior lien mortgageshigher real estate 1-4 family first mortgage loans and automobile loans, partially offset by higher real estate 1-4 family first mortgages and credit cards. lower junior lien mortgage loans.
Average deposits of $777.6$798.6 billion in secondfirst quarter 2020 increased $33.0 billion, or 4%, from first quarter 2019 increased $17.0 billion, or 2%,reflecting growth from second quarter 2018, and increased $17.5 billion, or 2%, from the first half of 2018.
Noninterest expense was $7.2 billion in second quarter 2019, down $78 million, or 1%, from second quarter 2018, and $14.9 billion in the first half of 2019, down $1.1 billion, or 7%, from the first half of 2018. The decrease in noninterest expense for both periods was predominantly due to lower operating losses, coreretail banking deposit and other intangibles amortization, FDIC expense, and outside professional services, partially offset by higher personnel, equipment, contract services, and advertising
and promotion expense. The provision for credit losses was down $5 million from second quarter 2018 and up $487 million from the first half of 2018. The increase in the provision for credit losses in the first half of 2019, compared with the same period a year 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 $575 million from second quarter 2018, 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 $960 million in the first half of 2019, compared with the same period a year ago, driven by net discrete income tax benefits in the first half of 2019 related mostly to the results ofcampaigns.
U.S. federal and state income tax examinations as well as the aforementioned net discrete income tax expense 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.million and to financial institutions globally. Products and businesses include Commercial Banking, Commercial Real Estate, Corporate and Investment Banking, Credit Investment Portfolio, Treasury Management, and Commercial Capital. Table 4b provides additional financial information for Wholesale Banking.
Table 4b: Wholesale Banking
| | | Quarter ended June 30, | | | | | Six months ended June 30, | | | | Quarter ended Mar 31, | | | |
(in millions, except average balances which are in billions) | 2019 |
| | 2018 |
| | % Change | | 2019 |
| | 2018 |
| | % Change |
| 2020 |
| | 2019 |
| | % Change |
|
Net interest income | $ | 4,535 |
| | 4,693 |
| | (3 | )% | | $ | 9,069 |
| | 9,225 |
| | (2 | )% | $ | 4,136 |
| | 4,534 |
| | (9 | )% |
Noninterest income: | | | | | | | | | | | | | | | | |
Service charges on deposit accounts | 502 |
| | 530 |
| | (5 | ) | | 985 |
| | 1,064 |
| | (7 | ) | 508 |
| | 483 |
| | 5 |
|
Trust and investment fees: | | | | | | | | | | |
| | | | |
|
Brokerage advisory, commissions and other fees | 74 |
| | 78 |
| | (5 | ) | | 152 |
| | 145 |
| | 5 |
| 90 |
| | 78 |
| | 15 |
|
Trust and investment management | 117 |
| | 110 |
| | 6 |
| | 231 |
| | 223 |
| | 4 |
| 131 |
| | 114 |
| | 15 |
|
Investment banking | 475 |
| | 485 |
| | (2 | ) | | 887 |
| | 925 |
| | (4 | ) | 490 |
| | 412 |
| | 19 |
|
Total trust and investment fees | 666 |
| | 673 |
| | (1 | ) | | 1,270 |
| | 1,293 |
| | (2 | ) | 711 |
| | 604 |
| | 18 |
|
Card fees | 95 |
| | 96 |
| | (1 | ) | | 181 |
| | 183 |
| | (1 | ) | 83 |
| | 86 |
| | (3 | ) |
Other fees | 464 |
| | 496 |
| | (6 | ) | | 901 |
| | 968 |
| | (7 | ) | 346 |
| | 437 |
| | (21 | ) |
Mortgage banking | 104 |
| | 75 |
| | 39 |
| | 172 |
| | 168 |
| | 2 |
| 40 |
| | 68 |
| | (41 | ) |
Insurance | 75 |
| | 78 |
| | (4 | ) | | 153 |
| | 157 |
| | (3 | ) | 75 |
| | 78 |
| | (4 | ) |
Net gains from trading activities | 226 |
| | 154 |
| | 47 |
| | 559 |
| | 379 |
| | 47 |
| 41 |
| | 333 |
| | (88 | ) |
Net gains on debt securities | 5 |
| | 42 |
| | (88 | ) | | 93 |
| | 43 |
| | 116 |
| 43 |
| | 88 |
| | (51 | ) |
Net gains from equity securities | 116 |
| | 89 |
| | 30 |
| | 193 |
| | 182 |
| | 6 |
| |
Net gains (losses) from equity securities | | (95 | ) | | 77 |
| | NM |
|
Other income of the segment | 277 |
| | 271 |
| | 2 |
| | 600 |
| | 814 |
| | (26 | ) | (71 | ) | | 323 |
| | NM |
|
Total noninterest income | 2,530 |
| | 2,504 |
| | 1 |
| | 5,107 |
| | 5,251 |
| | (3 | ) | 1,681 |
| | 2,577 |
| | (35 | ) |
| | | | | | | | | | |
| | | | |
|
Total revenue | 7,065 |
| | 7,197 |
| | (2 | ) | | 14,176 |
| | 14,476 |
| | (2 | ) | 5,817 |
| | 7,111 |
| | (18 | ) |
| | | | | | | | | | |
| | | | |
|
Provision (reversal of provision) for credit losses | 28 |
| | (36 | ) | | 178 |
| | 162 |
| | (56 | ) | | 389 |
| |
Provision for credit losses | | 2,288 |
| | 134 |
| | NM |
|
Noninterest expense: | | | | | | | | | | |
| | | | |
|
Personnel expense | 1,384 |
| | 1,386 |
| | — |
| | 2,894 |
| | 2,922 |
| | (1 | ) | 1,383 |
| | 1,510 |
| | (8 | ) |
Equipment | 10 |
| | 14 |
| | (29 | ) | | 19 |
| | 26 |
| | (27 | ) | |
Technology and equipment | | 9 |
| | 9 |
| | — |
|
Net occupancy | 96 |
| | 100 |
| | (4 | ) | | 191 |
| | 200 |
| | (5 | ) | 104 |
| | 95 |
| | 9 |
|
Core deposit and other intangibles | 23 |
| | 94 |
| | (76 | ) | | 47 |
| | 189 |
| | (75 | ) | 19 |
| | 24 |
| | (21 | ) |
FDIC and other deposit assessments | 44 |
| | 122 |
| | (64 | ) | | 89 |
| | 244 |
| | (64 | ) | 44 |
| | 45 |
| | (2 | ) |
Outside professional services | 231 |
| | 255 |
| | (9 | ) | | 415 |
| | 488 |
| | (15 | ) | 101 |
| | 184 |
| | (45 | ) |
Operating losses | 10 |
| | 208 |
| | (95 | ) | | 11 |
| | 216 |
| | (95 | ) | 4 |
| | 1 |
| | 300 |
|
Other expense of the segment | 2,084 |
| | 2,040 |
| | 2 |
| | 4,054 |
| | 3,912 |
| | 4 |
| 2,099 |
| | 1,970 |
| | 7 |
|
Total noninterest expense | 3,882 |
| | 4,219 |
| | (8 | ) | | 7,720 |
| | 8,197 |
| | (6 | ) | 3,763 |
| | 3,838 |
| | (2 | ) |
Income before income tax expense and noncontrolling interests | 3,155 |
| | 3,014 |
| | 5 |
| | 6,294 |
| | 6,335 |
| | (1 | ) | |
Income tax expense | 365 |
| | 379 |
| | (4 | ) | | 734 |
| | 827 |
| | (11 | ) | |
Net loss from noncontrolling interests | 1 |
| | — |
| | NM |
| | 1 |
| | (2 | ) | | 150 |
| |
Income (loss) before income tax expense (benefit) and noncontrolling interests | | (234 | ) | | 3,139 |
| | NM |
|
Income tax expense (benefit) (1) | | (546 | ) | | 369 |
| | NM |
|
Less: Net income from noncontrolling interests | | 1 |
| | — |
| | NM |
|
Net income | $ | 2,789 |
| | 2,635 |
| | 6 |
| | $ | 5,559 |
| | 5,510 |
| | 1 |
| $ | 311 |
| | 2,770 |
| | (89 | ) |
Average loans | $ | 474.0 |
| | 464.7 |
| | 2 |
| | $ | 475.2 |
| | 464.9 |
| | 2 |
| $ | 484.5 |
| | 476.4 |
| | 2 |
|
Average deposits | 410.4 |
| | 414.0 |
| | (1 | ) | | 410.1 |
| | 429.9 |
| | (5 | ) | 456.6 |
| | 409.8 |
| | 11 |
|
NM – Not meaningful
| |
(1) | Income tax expense for our Wholesale Banking operating segment included income tax credits related to low-income housing and renewable energy investments of $491 million and $427 million for the first quarter 2020 and 2019, respectively. |
Wholesale Banking reported net income of $2.8$311 million in first quarter 2020, down $2.5 billion, in second quarter 2019, up $154 million, or 6%, from second quarter 2018. In the first half of 2019, net income of $5.6 billion increased $49.0 million, or 1%89%, from the same period a year ago. Revenue
Net interest income of $4.1 billion in first quarter 2020 decreased $132$398 million, or 9%, from first quarter 2019, due to the impact of the lower interest rate environment, partially offset by higher loan and deposit volumes and increased spreads on trading assets.
Noninterest income decreased $896 million, or 35%, from first quarter 2019, predominantly due to lower market sensitive revenue (represents net gains (losses) from trading activities, debt securities, and equity securities), lower other income from higher amortization on renewable energy and community lending
investments and lower operating lease income, as well as lower other fees related to our sale of Eastdil in fourth quarter 2019.
The provision for credit losses increased $2.2 billion from first quarter 2019, predominantly due to a $2.1 billion increase in the allowance for credit losses reflecting forecasted credit deterioration due to the COVID-19 pandemic and higher charge-offs in the oil and gas portfolio driven by the significant decline in oil prices.
Noninterest expense decreased $75 million, or 2%, from secondfirst quarter 2018, largely due to2019, reflecting the sale of Eastdil, as well as lower net interest incomepersonnel expense, lease expense within other noninterest expense, and treasury management fees,travel expense within other noninterest expense, partially offset by higher market sensitive revenueregulatory and mortgage banking fees. Revenue decreased $300 million, or 2%, from the first half of 2018, predominantly due to the gainrisk related to the sale of Wells Fargo Shareowner Services in first quarter 2018 and lower net interest income, partially offset by higher market sensitive revenue. Net interest income decreased $158 million, or 3%, from second quarter 2018, and $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 half of 2018 predominantly due to the gain related to the sale of Wells Fargo Shareowner Services in first quarter 2018, lower treasury management fees, loan fees, and investment banking fees, partially offset by higher market sensitive revenue. Average loans of $474.0 billion in second quarter 2019 increased $9.3 billion, or 2%, from second quarter 2018, and average loans ofexpense within other noninterest expense.
Earnings Performance (continued)
$475.2Average loans of $484.5 billion in the first half of 2019quarter 2020 increased $10.3$8.1 billion, or 2%, from first quarter 2019, on broad-based growth across the first halflines of 2018, as growth in commercial and industrial loans was partially offsetbusinesses driven by lower commercial real estate loans.draws of revolving lines due to the economic slowdown associated with the COVID-19 pandemic. Average deposits of $410.4$456.6 billion in secondfirst quarter 2020 increased $46.8 billion, or 11%, from first quarter 2019, decreased $3.6 billion, or 1%, from second quarter 2018,reflecting an inflow of deposits associated with corporate and average deposits of $410.1 billion in the first half of 2019 decreased $19.8 billion, or 5%, from the first half of 2018. The decline in average deposits for both periods was driven by declines 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. Noninterest expense decreased $337 million, or 8%, from second quarter 2018, and decreased $477 million, or 6%, from the first half of 2018 as lower operating losses, FDIC expense, and core deposit and other intangibles amortization, were partially offset by higher regulatory, risk, and technology expenses. The provision for credit losses increased $64 million from second quarter 2018, and $218 million from the first half of 2018, reflecting higher charge-offs and lower recoveries.
loan draws.
Wealth and Investment Management provides a full range of personalized wealth management, investment and retirement products and services to clients across U.S. basedU.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 sale of our IRT sale,business, including its anticipated impact on our AUAAUM and associated revenue and expenses,AUA, see the “Noninterest“Earnings Performance – Noninterest Income” section in this Report. Table 4c provides additional financial information for WIM.
Table 4c: Wealth and Investment Management | | | Quarter ended June 30, | | | | | Six months ended June 30, | | | | Quarter ended Mar 31, | | | |
(in millions, except average balances which are in billions) | 2019 |
| | 2018 |
| | % Change | | 2019 |
| | 2018 |
| | % Change |
| 2020 |
| | 2019 |
| | % Change |
|
Net interest income | $ | 1,037 |
| | 1,111 |
| | (7 | )% | | $ | 2,138 |
| | 2,223 |
| | (4 | )% | $ | 867 |
| | 1,101 |
| | (21 | )% |
Noninterest income: | | | | | | | | | | | | | | | | |
Service charges on deposit accounts | 4 |
| | 5 |
| | (20 | ) | | 8 |
| | 9 |
| | (11 | ) | 5 |
| | 4 |
| | 25 |
|
Trust and investment fees: | | | | | | | | | | | | | | | | |
Brokerage advisory, commissions and other fees | 2,248 |
| | 2,284 |
| | (2 | ) | | 4,372 |
| | 4,628 |
| | (6 | ) | 2,397 |
| | 2,124 |
| | 13 |
|
Trust and investment management | 687 |
| | 731 |
| | (6 | ) | | 1,363 |
| | 1,474 |
| | (8 | ) | 582 |
| | 676 |
| | (14 | ) |
Investment banking | (1 | ) | | 1 |
| | NM |
| | 4 |
| | 1 |
| | 300 |
| 1 |
| | 5 |
| | (80 | ) |
Total trust and investment fees | 2,934 |
| | 3,016 |
| | (3 | ) | | 5,739 |
| | 6,103 |
| | (6 | ) | 2,980 |
| | 2,805 |
| | 6 |
|
Card fees | 2 |
| | 2 |
| | — |
| | 3 |
| | 3 |
| | — |
| 1 |
| | 1 |
| | — |
|
Other fees | 4 |
| | 5 |
| | (20 | ) | | 8 |
| | 9 |
| | (11 | ) | 4 |
| | 4 |
| | — |
|
Mortgage banking | (3 | ) | | (2 | ) | | (50 | ) | | (6 | ) | | (5 | ) | | (20 | ) | (3 | ) | | (3 | ) | | — |
|
Insurance | 17 |
| | 18 |
| | (6 | ) | | 34 |
| | 36 |
| | (6 | ) | 19 |
| | 17 |
| | 12 |
|
Net gains from trading activities | 13 |
| | 13 |
| | — |
| | 32 |
| | 32 |
| | — |
| |
Net gains (losses) from trading activities | | (7 | ) | | 19 |
| | NM |
|
Net gains on debt securities | — |
| | 1 |
| | (100 | ) | | — |
| | 1 |
| | (100 | ) | — |
| | — |
| | NM |
|
Net gains (losses) from equity securities | 35 |
| | (203 | ) | | 117 |
| | 171 |
| | (197 | ) | | 187 |
| (278 | ) | | 136 |
| | NM |
|
Other income of the segment | 7 |
| | (15 | ) | | 147 |
| | 2 |
| | (21 | ) | | 110 |
| 127 |
| | (5 | ) | | NM |
|
Total noninterest income | 3,013 |
| | 2,840 |
| | 6 |
| | 5,991 |
| | 5,970 |
| | — |
| 2,848 |
| | 2,978 |
| | (4 | ) |
| | | | | | | | | | | | | | | | |
Total revenue | 4,050 |
| | 3,951 |
| | 3 |
| | 8,129 |
| | 8,193 |
| | (1 | ) | 3,715 |
| | 4,079 |
| | (9 | ) |
| | | | | | | | | | | | | | | | |
Provision (reversal of provision) for credit losses | (1 | ) | | (2 | ) | | 50 |
| | 3 |
| | (8 | ) | | 138 |
| |
Provision for credit losses | | 8 |
| | 4 |
| | 100 |
|
Noninterest expense: | | | | | | | | | | | | | | | | |
Personnel expense | 2,112 |
| | 2,037 |
| | 4 |
| | 4,309 |
| | 4,202 |
| | 3 |
| 1,950 |
| | 2,197 |
| | (11 | ) |
Equipment | 14 |
| | 11 |
| | 27 |
| | 25 |
| | 21 |
| | 19 |
| |
Technology and equipment | | 7 |
| | 11 |
| | (36 | ) |
Net occupancy | 112 |
| | 110 |
| | 2 |
| | 224 |
| | 219 |
| | 2 |
| 113 |
| | 112 |
| | 1 |
|
Core deposit and other intangibles | 4 |
| | 69 |
| | (94 | ) | | 7 |
| | 138 |
| | (95 | ) | 3 |
| | 3 |
| | — |
|
FDIC and other deposit assessments | 12 |
| | 34 |
| | (65 | ) | | 26 |
| | 70 |
| | (63 | ) | 12 |
| | 14 |
| | (14 | ) |
Outside professional services | 210 |
| | 202 |
| | 4 |
| | 394 |
| | 400 |
| | (2 | ) | 191 |
| | 184 |
| | 4 |
|
Operating losses | 43 |
| | 127 |
| | (66 | ) | | 64 |
| | 149 |
| | (57 | ) | 9 |
| | 21 |
| | (57 | ) |
Other expense of the segment | 739 |
| | 771 |
| | (4 | ) | | 1,500 |
| | 1,452 |
| | 3 |
| 818 |
| | 761 |
| | 7 |
|
Total noninterest expense | 3,246 |
| | 3,361 |
| | (3 | ) | | 6,549 |
| | 6,651 |
| | (2 | ) | 3,103 |
| | 3,303 |
| | (6 | ) |
Income before income tax expense and noncontrolling interests | 805 |
| | 592 |
| | 36 |
| | 1,577 |
| | 1,550 |
| | 2 |
| 604 |
| | 772 |
| | (22 | ) |
Income tax expense | 201 |
| | 147 |
| | 37 |
| | 393 |
| | 386 |
| | 2 |
| 153 |
| | 192 |
| | (20 | ) |
Net income from noncontrolling interests | 2 |
| | — |
| | NM |
| | 5 |
| | 5 |
| | — |
| |
Less: Net income (loss) from noncontrolling interests | | (12 | ) | | 3 |
| | NM |
|
Net income | $ | 602 |
| | 445 |
| | 35 |
| | $ | 1,179 |
| | 1,159 |
| | 2 |
| $ | 463 |
| | 577 |
| | (20 | ) |
Average loans | $ | 75.0 |
| | 74.7 |
| | — |
| | $ | 74.7 |
| | 74.3 |
| | 1 |
| $ | 78.5 |
| | 74.4 |
| | 6 |
|
Average deposits | 143.5 |
| | 167.1 |
| | (14 | ) | | 148.3 |
| | 172.5 |
| | (14 | ) | 151.4 |
| | 153.2 |
| | (1 | ) |
NM – Not meaningful
WIM reported net income of $602$463 million in secondfirst quarter 2020, down $114 million, or 20%, from first quarter 2019.
Net interest income of $867 million in first quarter 2020 decreased $234 million, or 21%, from first quarter 2019, up $157driven by lower interest rates.
Noninterest income of $2.8 billion in first quarter 2020 decreased $130 million or 35%, from second quarter 2018. Net income for the first half of 2019 was $1.2 billion, up $20 million, or 2%, from the same period a year ago. Revenue was up $99 million, or 3%, from second quarter 2018, and down $64 million, or 1%, from the first half of 2018.Revenue in second
quarter 2019, was uppredominantly driven by net losses from second quarter 2018 largely due to the 2018 impairment on the sale of our ownership stakeequity securities driven by a decline in RockCreek and higher deferred compensation plan investments (offset ininvestment results (largely offset by lower employee benefits expense), partially offset by lower trusthigher retail brokerage advisory fees (priced at the beginning of the quarter) and investment fees and lower net interest income. Revenuehigher brokerage transaction revenue.
Noninterest expense of $3.1 billion in the first half ofquarter 2020 decreased $200 million, or 6%, from first quarter 2019, was down from the first half of 2018
predominantly due to lower trust and investment fees andpersonnel expense driven by 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%expense (largely offset by net losses 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)equity securities), 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 lower market valuations at the end of 2018. higher broker commissions within personnel expense.
Average loans of $75.0$78.5 billion in secondfirst quarter 2019 were flat compared with the same period a year ago, while average loans of $74.72020 increased $4.1 billion, in theor 6%, from first half ofquarter 2019, increased 1% from the same period a year ago, driven by growth in nonconforming mortgage loans. Average deposits of $143.5$151.4 billion in secondfirst quarter 20192020 decreased $23.6$1.8 billion, or 14%, from second quarter 2018, and average deposits of $148.3 billion in the first half of 2019 decreased $24.2 billion, or 14%, from the first half of 2018, as customers continued to allocate more cash into higher yielding liquid alternatives. Noninterest expense was down 3% from second quarter 2018, and down 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 compensation1%.
plan expense (offset in net gains from equity securities). Second quarter 2018 operating losses included $114 million of non-litigation expense related to fee calculations within certain fiduciary and custody accounts in our wealth management business. The provision for credit losses increased $1 million from second quarter 2018 and $11 million from the first half of 2018.
The following discussions provide additional information for client assets we oversee in our retail brokerage advisory and trust and investment management business lines.
Retail Brokerage Client AssetsBrokerage advisory, commissions and other fees are received for providing full-service and discount brokerage services predominantly to retail brokerage clients. Offering advisory account relationships to our brokerage clients is an important component of our broader strategy of meeting their financial needs. Although a majority of our retail brokerage client assets are in accounts that earn brokerage commissions,
the fees from those accounts generally represent transactional commissions based on the number and size of transactions executed at the client’s direction. Fees from advisory accounts are based on a percentage of the market value of the assets as of the beginning of the quarter, which vary across the account types based on the distinct services provided, and are affected by investment performance as well as asset inflows and outflows. A majority of our brokerage advisory, commissions and other fee income is earned from advisory accounts. Table 4d shows advisory account client assets as a percentage of total retail brokerage client assets at June 30, 2019March 31, 2020 and 2018.2019.
Table 4d: Retail Brokerage Client Assets
| | | June 30, | | March 31, | |
($ in billions) | 2019 |
| | 2018 |
| 2020 |
| | 2019 |
|
Retail brokerage client assets | $ | 1,620.5 |
| | 1,623.7 |
| $ | 1,397.9 |
| | 1,600.6 |
|
Advisory account client assets | 561.3 |
| | 542.6 |
| 498.8 |
| | 546.7 |
|
Advisory account client assets as a percentage of total client assets | 35 | % | | 33 |
| 36 | % | | 34 |
|
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. For secondfirst quarter 2020and 2019, and 2018, the
average fee rate by account type ranged from 80 to 120 basis points. Table 4e presents retail brokerage advisory account client assets activity by account type for the secondfirst quarter 2020 and first half of 2019 and 2018.2019.
Earnings Performance (continued)
Table 4e: Retail Brokerage Advisory Account Client Assets
| | | Quarter ended | | | Six months ended | | Quarter ended | |
(in billions) | Balance, beginning of period |
| Inflows (1) |
| Outflows (2) |
| Market impact (3) |
| Balance, end of period |
| | Balance, beginning of period |
| Inflows (1) |
| Outflows (2) |
| Market impact (3) |
| Balance, end of period |
| Balance, beginning of period |
| Inflows (1) |
| Outflows (2) |
| Market impact (3) |
| Balance, end of period |
|
June 30, 2019 | | | | | | |
March 31, 2020 | | | |
Client directed (4) | $ | 163.6 |
| 8.6 |
| (9.7 | ) | 3.7 |
| 166.2 |
| | $ | 151.5 |
| 16.5 |
| (19.0 | ) | 17.2 |
| 166.2 |
| $ | 169.4 |
| 10.1 |
| (9.6 | ) | (27.2 | ) | 142.7 |
|
Financial advisor directed (5) | 156.9 |
| 8.6 |
| (8.7 | ) | 6.4 |
| 163.2 |
| | 141.9 |
| 16.1 |
| (16.4 | ) | 21.6 |
| 163.2 |
| 176.3 |
| 10.7 |
| (8.6 | ) | (26.0 | ) | 152.4 |
|
Separate accounts (6) | 148.3 |
| 6.2 |
| (8.0 | ) | 5.4 |
| 151.9 |
| | 136.4 |
| 11.8 |
| (14.9 | ) | 18.6 |
| 151.9 |
| 160.1 |
| 6.8 |
| (8.5 | ) | (24.2 | ) | 134.2 |
|
Mutual fund advisory (7) | 77.9 |
| 2.9 |
| (3.5 | ) | 2.7 |
| 80.0 |
| | 71.3 |
| 5.7 |
| (6.7 | ) | 9.7 |
| 80.0 |
| 83.7 |
| 3.2 |
| (4.5 | ) | (12.9 | ) | 69.5 |
|
Total advisory client assets | $ | 546.7 |
| 26.3 |
| (29.9 | ) | 18.2 |
| 561.3 |
| | $ | 501.1 |
| 50.1 |
| (57.0 | ) | 67.1 |
| 561.3 |
| $ | 589.5 |
| 30.8 |
| (31.2 | ) | (90.3 | ) | 498.8 |
|
June 30, 2018 | | | | | | |
March 31, 2019 | | | |
Client directed (4) | $ | 168.4 |
| 8.2 |
| (11.1 | ) | 2.0 |
| 167.5 |
| | $ | 170.9 |
| 17.6 |
| (20.3 | ) | (0.7 | ) | 167.5 |
| $ | 151.5 |
| 7.9 |
| (9.3 | ) | 13.5 |
| 163.6 |
|
Financial advisor directed (5) | 148.6 |
| 7.5 |
| (9.5 | ) | 3.4 |
| 150.0 |
| | 147.0 |
| 15.6 |
| (16.5 | ) | 3.9 |
| 150.0 |
| 141.9 |
| 7.5 |
| (7.7 | ) | 15.2 |
| 156.9 |
|
Separate accounts (6) | 146.6 |
| 5.6 |
| (7.0 | ) | 2.0 |
| 147.2 |
| | 149.1 |
| 12.4 |
| (14.3 | ) | — |
| 147.2 |
| 136.4 |
| 5.6 |
| (6.9 | ) | 13.2 |
| 148.3 |
|
Mutual fund advisory (7) | 76.8 |
| 3.2 |
| (3.3 | ) | 1.2 |
| 77.9 |
| | 75.8 |
| 7.2 |
| (6.3 | ) | 1.2 |
| 77.9 |
| 71.3 |
| 2.8 |
| (3.2 | ) | 7.0 |
| 77.9 |
|
Total advisory client assets | $ | 540.4 |
| 24.5 |
| (30.9 | ) | 8.6 |
| 542.6 |
| | $ | 542.8 |
| 52.8 |
| (57.4 | ) | 4.4 |
| 542.6 |
| $ | 501.1 |
| 23.8 |
| (27.1 | ) | 48.9 |
| 546.7 |
|
| |
(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. |
Earnings Performance (continued)
Trust and Investment Client Assets Under Management We earn trust and investment management fees from managing and administering assets, including mutual funds, institutional separate accounts, and personal trust employee benefit trust and agency assets, through our asset management and wealth andbusinesses. Prior to the sale of our IRT business, which closed on July 1, 2019, we also earned fees from managing employee benefit trusts through the retirement businesses.business. 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 managesaccounts, and
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. For additional information on the sale of our IRT business, including its impact on our AUM and AUA, see the “Earnings Performance – Noninterest Income” section in this Report. Table 4f presents AUM activity for the secondfirst quarter 2020 and first half of 2019 and 2018.2019.
Table 4f: WIM Trust and Investment – Assets Under Management
| | | Quarter ended | |
| Six months ended | | Quarter ended | |
(in billions) | Balance, beginning of period |
| Inflows (1) |
| Outflows (2) |
| Market impact (3) |
| Balance, end of period |
| | Balance, beginning of period |
| Inflows (1) |
| Outflows (2) |
| Market impact (3) |
| Balance, end of period |
| Balance, beginning of period |
| Inflows (1) |
| Outflows (2) |
| Market impact (3) |
| Balance, end of period |
|
June 30, 2019 | | | | | | |
March 31, 2020 | | | |
Assets managed by WFAM (4): | | |
|
| | | | | |
Money market funds (5) | $ | 109.5 |
| 10.3 |
| — |
| — |
| 119.8 |
| | $ | 112.4 |
| 7.4 |
| — |
| — |
| 119.8 |
| $ | 130.6 |
| 35.6 |
| — |
| — |
| 166.2 |
|
Other assets managed | 367.0 |
| 22.2 |
| (23.0 | ) | 9.1 |
| 375.3 |
| | 353.5 |
| 41.5 |
| (44.9 | ) | 25.2 |
| 375.3 |
| 378.2 |
| 26.2 |
| (28.6 | ) | (24.2 | ) | 351.6 |
|
Assets managed by Wealth and Retirement (6) | 181.4 |
| 8.2 |
| (11.2 | ) | 3.5 |
| 181.9 |
| | 170.7 |
| 17.4 |
| (21.6 | ) | 15.4 |
| 181.9 |
| |
Assets managed by Wealth and IRT (6) | | 187.4 |
| 7.8 |
| (10.6 | ) | (21.8 | ) | 162.8 |
|
Total assets under management | $ | 657.9 |
| 40.7 |
| (34.2 | ) | 12.6 |
| 677.0 |
| | $ | 636.6 |
| 66.3 |
| (66.5 | ) | 40.6 |
| 677.0 |
| $ | 696.2 |
| 69.6 |
| (39.2 | ) | (46.0 | ) | 680.6 |
|
June 30, 2018 | | | | | | |
March 31, 2019 | | | |
Assets managed by WFAM (4): |
| |
| |
| | | | | |
Money market funds (5) | $ | 105.0 |
| 2.7 |
| — |
| — |
| 107.7 |
| | $ | 108.2 |
| — |
| (0.5 | ) | — |
| 107.7 |
| $ | 112.4 |
| — |
| (2.9 | ) | — |
| 109.5 |
|
Other assets managed | 391.8 |
| 20.9 |
| (27.3 | ) | 1.1 |
| 386.5 |
| | 395.7 |
| 46.6 |
| (56.5 | ) | 0.7 |
| 386.5 |
| 353.5 |
| 19.3 |
| (21.9 | ) | 16.1 |
| 367.0 |
|
Assets managed by Wealth and Retirement (6) | 183.3 |
| 9.1 |
| (10.3 | ) | 1.1 |
| 183.2 |
| | 186.2 |
| 19.5 |
| (21.7 | ) | (0.8 | ) | 183.2 |
| |
Assets managed by Wealth and IRT (6) | | 170.7 |
| 9.2 |
| (10.4 | ) | 11.9 |
| 181.4 |
|
Total assets under management | $ | 680.1 |
| 32.7 |
| (37.6 | ) | 2.2 |
| 677.4 |
| | $ | 690.1 |
| 66.1 |
| (78.7 | ) | (0.1 | ) | 677.4 |
| $ | 636.6 |
| 28.5 |
| (35.2 | ) | 28.0 |
| 657.9 |
|
| |
(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 $4.5$4.9 billion and $5.2$4.8 billion as of June 30, 2019March 31, 2020 and 2018,2019, respectively, of client assets invested in proprietary funds managed by WFAM. |
At June 30, 2019,March 31, 2020, our assets totaled $1.92$1.98 trillion, up $27.5$53.8 billion from December 31, 2018. The asset2019. Asset growth was drivenreflected increases in debt securities and loans of $4.4 billion and $47.6 billion, respectively, partially offset by increasesa $15.7 billion decrease in federal funds sold and securities purchased under resale agreements, and a $14.2 billion decrease in equity securities, which increased by $31.9 billion and $6.4 billion, respectively, from December 31, 2018. Liabilities totaled $1.72 trillion, up $24.5 billion from December 31, 2018. The increase in liabilities was due to increases in short-term borrowings and long-term debt, which increased by $9.6 billion and $12.4 billion, respectively, from December 31, 2018. Total equity increased by $3.0 billion from December 31, 2018, predominantly due to a $4.1 billion increasesecurities.
in cumulative other comprehensive income driven largely by the increase in fair value of available-for-sale debt securities, and a $6.4 billion increase in retained earnings, net of dividends 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 23 (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
| | | June 30, 2019 | | | December 31, 2018 | | March 31, 2020 | | | December 31, 2019 | |
(in millions) | Amortized cost |
| | Net unrealized gain (loss) |
| | Fair value |
| | Amortized cost |
| | Net unrealized gain (loss) |
| | Fair value |
| Amortized cost, net (1) |
| | Net unrealized gain (loss) |
| | Fair value |
| | Amortized cost |
| | Net unrealized gain (loss) |
| | Fair value |
|
Available-for-sale(2) | 263,458 |
| | 2,525 |
| | 265,983 |
| | 272,471 |
| | (2,559 | ) | | 269,912 |
| 248,187 |
| | 3,042 |
| | 251,229 |
| | 260,060 |
| | 3,399 |
| | 263,459 |
|
Held-to-maturity(3) | 145,876 |
| | 1,988 |
| | 147,864 |
| | 144,788 |
| | (2,673 | ) | | 142,115 |
| 169,909 |
| | 7,653 |
| | 177,562 |
| | 153,933 |
| | 2,927 |
| | 156,860 |
|
Total (1) | $ | 409,334 |
| | 4,513 |
| | 413,847 |
| | 417,259 |
| | (5,232 | ) | | 412,027 |
| $ | 418,096 |
| | 10,695 |
| | 428,791 |
| | 413,993 |
| | 6,326 |
| | 420,319 |
|
| |
(1) | Represents amortized cost of the securities, net of the allowance for credit losses, of $161 million related to available-for-sale debt securities and $11 million related to held-to-maturity debt securities at March 31, 2020. The allowance for credit losses related to available-for-sale and held-to-maturity debt securities was $0 at December 31, 2019, due to our adoption of CECL on January 1, 2020. For more information, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report. |
| |
(2) | Available-for-sale debt securities are carried on the balance sheet at fair value. value, which includes the allowance for credit losses, subsequent to the adoption of CECL on January 1, 2020. |
| |
(3) | Held-to-maturity debt securities are carried on the balance sheet at amortized cost.cost, net of allowance for credit losses, subsequent to the adoption of CECL on January 1, 2020. |
Table 5 presents a summary of our available-for-sale and held-to-maturity debt securities, which decreased $2.8increased $3.7 billion in balance sheet carrying value from December 31, 2018, largely2019, predominantly due to higher net declines in securities of U.S. states and political subdivisions and collateralized debt obligations, partially offset by net purchases of U.S. Treasury and federal agency debt securities.unrealized gains.
The total net unrealized gains on available-for-sale debt securities were $2.5$3.0 billion at June 30, 2019, upMarch 31, 2020, down from net unrealized lossesgains of $2.6$3.4 billion at December 31, 2018,2019, driven by wider credit spreads, which were primarily due tooffset by lower U.S. interest rates. For a discussion of our investment management objectives and practices, see the “Balance Sheet Analysis” section in our 20182019 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 analyzeAfter adoption of CECL, we recorded an allowance for credit losses on available-for-sale and held-to-maturity debt securities. Total provision for credit losses on debt securities for OTTI quarterly or more often if a potential loss-triggering event occurs. In thewas $172 million in first half of 2019, we recognized $52 million of OTTI write-downs on debt securities.quarter 2020. For a discussion of our OTTI accounting policies relating to the allowance for credit losses on debt securities and underlying considerations and analysis, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2018 Form 10-K and Note 5 (Available-for-Sale and Held-to-Maturity Debt Securities) to Financial Statements in this Report.
At June 30, 2019,March 31, 2020, debt securities included $53.0$52.4 billion of municipal bonds, of which 96.1%97.2% were rated “A-” or better based predominantly 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.evaluation of the appropriateness of the allowance for credit losses on debt securities.
The weighted-average expected maturity of debt securities available-for-sale was 5.04.2 years at June 30, 2019.March 31, 2020. The expected remaining maturity is shorter than the remaining contractual maturity for the 61%66% of this portfolio that is mortgage-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 SaleAvailable-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 June 30, 2019 | | | | | |
At March 31, 2020 | | | | | |
Actual | $ | 161.3 |
| | 1.4 |
| | 4.5 | $ | 164.6 |
| | 5.5 |
| | 3.5 |
Assuming a 200 basis point: | | | | | | | | |
Increase in interest rates | 146.0 |
| | (13.9 | ) | | 6.8 | 150.2 |
| | (8.9 | ) | | 5.6 |
Decrease in interest rates | 170.7 |
| | 10.8 |
| | 3.3 | 168.2 |
| | 9.1 |
| | 3.2 |
The weighted-average expected remaining maturity of debt securities held-to-maturity (HTM) was 4.5 years at June 30, 2019.March 31, 2020. 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.earnings. 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 $3.2increased $47.6 billion from December 31, 2018, with a decline2019, due to an increase in bothcommercial loans.
Commercial loans increased $52.0 billion from December 31, 2019, predominantly driven by growth in our commercial and consumer loans. industrial loan portfolio, reflecting significant draws on revolving
lines of credit and additional funding requests within our Corporate & Investment Banking and Commercial Banking businesses due to the impact of COVID-19.
Consumer loans were down $2.1$4.4 billion from December 31, 2018, as growth2019, primarily due to a decrease in the real estate 1-4 family first mortgagecredit card portfolio due to seasonality and automobile loan portfolios was more than offset byfewer new accounts and lower consumer spending as a result of the saleimpact of $3.5 billion of Pick-a-Pay PCI loans, the
reclassification of $1.8 billion of real estate 1-4 family first mortgage loans to MLHFS, and a decline in junior lien mortgage loans as paydowns continued to exceed originations in the first half of 2019. Commercial loans were down $1.2 billion from December 31, 2018, as growth in our credit investment portfolio was more than offset by declines across several commercial industry categories.COVID-19.
Table 7: Loan Portfolios
| | (in millions) | June 30, 2019 |
| | December 31, 2018 |
| March 31, 2020 |
| | December 31, 2019 |
|
Commercial | $ | 512,245 |
| | 513,405 |
| $ | 567,735 |
| | 515,719 |
|
Consumer | 437,633 |
| | 439,705 |
| 442,108 |
| | 446,546 |
|
Total loans | $ | 949,878 |
| | 953,110 |
| $ | 1,009,843 |
| | 962,265 |
|
Change from prior year-end | $ | (3,232 | ) | | (3,660 | ) | $ | 47,578 |
| | 9,155 |
|
A discussion of averageAverage 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 Related Allowance for Credit Losses) to Financial Statements in this Report.
Table 8 showsSee the “Balance Sheet Analysis – Loan Portfolios” section in our 2019 Form 10-K for information regarding 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
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 |
|
Selected loan maturities: | | | | | | | | | | | | | | | | |
Commercial and industrial | | $ | 109,939 |
| | 210,083 |
| | 28,824 |
| | 348,846 |
| | 109,566 |
| | 213,425 |
| | 27,208 |
| | 350,199 |
|
Real estate mortgage | | 16,089 |
| | 65,324 |
| | 41,595 |
| | 123,008 |
| | 16,413 |
| | 63,648 |
| | 40,953 |
| | 121,014 |
|
Real estate construction | | 9,663 |
| | 10,575 |
| | 829 |
| | 21,067 |
| | 9,958 |
| | 11,343 |
| | 1,195 |
| | 22,496 |
|
Total selected loans | | $ | 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 | | $ | 17,815 |
| | 26,912 |
| | 28,872 |
| | 73,599 |
| | 17,619 |
| | 28,545 |
| | 28,163 |
| | 74,327 |
|
Loans at floating/variable interest rates | | 117,876 |
| | 259,070 |
| | 42,376 |
| | 419,322 |
| | 118,318 |
| | 259,871 |
| | 41,193 |
| | 419,382 |
|
Total selected loans | | $ | 135,691 |
| | 285,982 |
| | 71,248 |
| | 492,921 |
| | 135,937 |
| | 288,416 |
| | 69,356 |
| | 493,709 |
|
Deposits
Deposits were $1.3$1.4 trillion at June 30, 2019,March 31, 2020, up $2.3$53.9 billion from December 31, 2018, due2019, reflecting growth across all deposit gathering businesses driven by seasonality, customers’ flight to anquality following the emergence of COVID-19, as well as the inflow of deposits associated with corporate and commercial loan draws. The increase in mortgage escrow deposits reflecting an inflow of higher mortgage payoffs to be remitted to investors in accordance with servicing contracts,was partially offset by a decreaseactions taken to manage to the asset cap resulting in consumer and small business banking deposits. The decreasedeclines in consumer and small business banking deposits was driven by seasonality as well as higher balance customers moving a portion of those balances to other
higher rate liquid alternatives, partially offsettime deposits driven by growth inlower brokered certificates of deposit (CDs) and high-yield savings that was driven by an increasedeposits in promotional activity. non-U.S. offices.
Table 98 provides additional information regarding deposits. Information regarding the impact of deposits on net interest income and a comparison of average deposit balances is provided in the “Earnings Performance – Net Interest Income” section and Table 1 earlier in this Report.
Table 9:8: Deposits
| | ($ in millions) | Jun 30, 2019 |
| | % of total deposits |
| | Dec 31, 2018 |
| | % of total deposits |
| |
% Change |
| Mar 31, 2020 |
| | % of total deposits |
| | Dec 31, 2019 |
| | % of total deposits |
| |
% Change |
|
Noninterest-bearing | $ | 340,813 |
| | 26 | % | | $ | 349,534 |
| | 27 | % | | (2 | ) | $ | 379,678 |
| | 28 | % | | $ | 344,496 |
| | 26 | % | | 10 |
|
Interest-bearing checking | 54,722 |
| | 4 |
| | 56,797 |
| | 4 |
| | (4 | ) | 71,668 |
| | 5 |
| | 62,814 |
| | 5 |
| | 14 |
|
Market rate and other savings | 713,219 |
| | 56 |
| | 703,338 |
| | 55 |
| | 1 |
| 781,051 |
| | 57 |
| | 751,080 |
| | 57 |
| | 4 |
|
Savings certificates | 32,379 |
| | 3 |
| | 22,648 |
| | 2 |
| | 43 |
| 28,431 |
| | 2 |
| | 31,715 |
| | 2 |
| | (10 | ) |
Other time deposits | 93,868 |
| | 7 |
| | 95,602 |
| | 7 |
| | (2 | ) | 72,928 |
| | 5 |
| | 78,609 |
| | 6 |
| | (7 | ) |
Deposits in foreign offices (1) | 53,425 |
| | 4 |
| | 58,251 |
| | 5 |
| | (8 | ) | |
Deposits in non-U.S. offices (1) | | 42,776 |
| | 3 |
| | 53,912 |
| | 4 |
| | (21 | ) |
Total deposits | $ | 1,288,426 |
| | 100 | % | | $ | 1,286,170 |
| | 100 | % | | — |
| $ | 1,376,532 |
| | 100 | % | | $ | 1,322,626 |
| | 100 | % | | 4 |
|
| |
(1) | Includes Eurodollar sweep balances of $26.4$22.0 billion and $31.8$34.2 billion at June 30, 2019,March 31, 2020, and December 31, 2018,2019, respectively. |
Fair Value of Financial Instruments
We use fair value measurements to record fair value adjustments to certain financial instruments and to determine fair value disclosures. See the “Critical Accounting Policies” section in our 20182019 Form 10-K and Note 16 (Fair Values of Assets and Liabilities) to Financial Statements in this Report for a description of our critical accounting policy related to fair value of financial instruments and a discussion of our fair value measurement techniques.
Table 109 presents the summary of the fair value of financial instruments recorded at fair value on a recurring basis, and the amounts measured using significant Level 3 inputs (before derivative netting adjustments). The fair value of the remaining assets and liabilities were measured using valuation methodologies involving market-based or market-derived information (collectively Level 1 and 2 measurements).
Table 10:9: Fair Value Level 3 Summary
| | | June 30, 2019 | | | December 31, 2018 | | March 31, 2020 | | | December 31, 2019 | |
($ 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 | $ | 415.1 |
| | 24.9 |
| | 408.4 |
| | 25.3 |
| $ | 411.5 |
| | 23.3 |
| | 428.6 |
| | 24.3 |
|
As a percentage of total assets | 22 | % | | 1 |
| | 22 |
| | 1 |
| 21 | % | | 1 |
| | 22 |
| | 1 |
|
Liabilities carried at fair value | $ | 24.4 |
| | 2.3 |
| | 28.2 |
| | 1.6 |
| $ | 33.2 |
| | 1.3 |
| | 26.5 |
| | 1.8 |
|
As a percentage of total liabilities | 1 | % | | * |
| | 2 |
| | * |
| 2 | % | | * |
| | 2 |
| | * |
|
* Less than 1%.
| |
(1) | Before derivative netting adjustments. |
See Note 16 (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 $200.0$183.3 billion at June 30, 2019,March 31, 2020, compared with $197.1$188.0 billion at December 31, 2018.2019. The increasedecrease was predominantly driven by a $4.1common stock repurchases of $3.4 billion, increase in cumulative other comprehensive income primarily due to a decrease in U.S. interest rates resulting in an increase in the valuepreferred stock redemptions of available-for-sale debt securities,$2.5 billion, and a $6.4dividends of $2.4 billion, increase in retained earnings net of dividends paid, partially offset by a $7.6the issuance of preferred stock of $2.0 billion increase in treasury stock.and net income of $653 million.
|
|
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. For additional information on our contractual obligations that may require future cash payments, see the “Off-Balance Sheet Arrangements – Contractual Cash Obligations” section in our 2019 Form 10-K.
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 makeenter into commitments, we are exposed to credit risk. However, theThe 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.are not funded. For more information, on lending commitments, see Note 6 (Loans and Related Allowance for Credit Losses) to Financial Statements in this Report.
Commitments to Purchase Debt and Equity Securities
We also enter into commitments to purchase securities under resale agreements. For more information on commitments to purchase securities under resale agreements, see Note 13 (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’ funding, liquidity or other future needs. For more information, see the “Off-Balance Sheet Arrangements – Contractual Cash Obligations” section in our 2018 Form 10-K and Note 13 (Guarantees, Pledged Assets and Collateral, and Other Commitments) to Financial Statements in this Report.
Transactions with Unconsolidated Entities
In the normal course of business, we enter into various types of on- and off-balance sheet transactions with special purpose entities (SPEs), which are corporations, trusts, limited liability companies or partnerships that are established for a limited purpose. Generally, SPEs are formed in connection with securitization transactions and are considered variable interest entities (VIEs). For more information, on securitizations, including sales proceeds and cash flows from securitizations, see Note 10 (Securitizations and Variable Interest Entities) to Financial Statements in this Report.
Guarantees and Certain ContingentOther 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,direct pay letters of credit, written put options, recourse obligations, exchange and clearing house guarantees, indemnifications, and other types of similar arrangements. For more information, on guarantees and certain contingent arrangements, see Note 13 (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 15 (Derivatives) to Financial Statements in this Report.
Wells Fargo manages a variety of risks that can significantly affect our financial performance and our ability to meet the expectations of our customers, 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. For more information about how we manage risk, see the “Risk Management” section in our 20182019 Form 10-K. The discussion that follows supplements our discussion of the management of certain risks contained in the “Risk Management” section in our 20182019 Form 10-K.
Credit Risk Management
We define credit risk as the risk of loss associated with a borrower or counterparty default (failure to meet obligations in accordance with agreed upon terms). Credit risk exists with many of our assets and exposures such as debt security holdings, certain derivatives, and loans.
The Board’s Credit Committee has primary oversight responsibility for credit risk. At the management level, the Corporate Credit function,Risk, which is part of Corporatethe Company’s Independent Risk Management (IRM) organization, has primary oversight responsibility for credit risk. The Corporate Credit functionRisk reports to the Chief Risk Officer (CRO) and also provides periodic reportingreports related to credit risk to the Board’s Credit Committee.
Actions to Support Customers During the COVID-19 Pandemic
In response to the COVID-19 pandemic, we have provided accommodations to our customers, including fee reversals for consumer and small business deposit customers, and fee waivers, payment deferrals, and other expanded assistance for mortgage, credit card, automobile, small business, personal and commercial lending customers. We have also provided significant credit to our customers. In March 2020, our commercial customers drew over $80 billion on revolving lines of credit.
From March 9 through April 24, 2020, we helped more than 1.7 million consumer, small business, and commercial customers by deferring payments, reversing and waiving fees, and offering maturity date extensions. We deferred approximately 1.4 million payments, representing more than $4.6 billion of principal and interest payments, of which approximately 50% related to real estate 1-4 family mortgage loans that we service for others. Additionally, we provided over 1.8 million fee waivers exceeding $75 million. For commercial distribution and automobile finance customers, we provided over 175,000 maturity date extensions, representing approximately $6.3 billion of outstanding principal and interest. The accommodations provided to our customers were not limited to customers that were past due. In addition, we do not plan on retaining fees from loans made in connection with the Paycheck Protection Program.
On March 25, 2020, the U.S. Senate approved the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), a bill designed to provide a wide range of economic relief to consumers and businesses in the U.S. In addition, the Risk & Control CommitteeCARES Act provides banks optional, temporary relief from accounting for each business group and enterprise function reports credit risk matterscertain loan modifications as troubled debt restructurings (TDRs). The modifications must be related to the Enterprise Risk & Control Committee.adverse effects of COVID-19 and certain other criteria are required to be met to apply the relief. In first quarter 2020, we elected to apply the TDR relief provided by the CARES Act, which expires no later than December 31, 2020.
On April 7, 2020, federal banking regulators issued the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised) (the Interagency Statement). The
Interagency Statement provides additional TDR relief as it clarifies that it is not necessary to consider the impact of COVID-19 on the financial condition of a borrower in connection with short-term (e.g., six months) loan modifications related to COVID-19 provided the borrower is current at the date the modification program is implemented. For additional information regarding the TDR relief provided by the CARES Act and the clarifying TDR accounting guidance from the Interagency Statement, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report
The TDR relief provided under the CARES Act, as well as from the Interagency Statement, does not change our processes for monitoring the credit quality of our loan portfolios or for updating our measurement of the allowance for credit losses for loans based on expected losses.
Additionally, our election to apply the TDR relief provided by the CARES Act and the Interagency Statement impacts our regulatory capital ratios as these loan modifications related to COVID-19 are not adjusted to a higher risk-weighting normally required with TDR classification.
Loan Portfolios
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 1110 presents our total loans outstanding by portfolio segment and class of financing receivable.
Table 11:10: Total Loans Outstanding by Portfolio Segment and Class of Financing Receivable
| | (in millions) | Jun 30, 2019 |
| | Dec 31, 2018 |
| Mar 31, 2020 |
| | Dec 31, 2019 |
|
Commercial: | | | | | | |
Commercial and industrial | $ | 348,846 |
| | 350,199 |
| $ | 405,020 |
| | 354,125 |
|
Real estate mortgage | 123,008 |
| | 121,014 |
| 122,767 |
| | 121,824 |
|
Real estate construction | 21,067 |
| | 22,496 |
| 20,812 |
| | 19,939 |
|
Lease financing | 19,324 |
| | 19,696 |
| 19,136 |
| | 19,831 |
|
Total commercial | 512,245 |
| | 513,405 |
| 567,735 |
| | 515,719 |
|
Consumer: | | | | | | |
Real estate 1-4 family first mortgage | 286,427 |
| | 285,065 |
| 292,920 |
| | 293,847 |
|
Real estate 1-4 family junior lien mortgage | 32,068 |
| | 34,398 |
| 28,527 |
| | 29,509 |
|
Credit card | 38,820 |
| | 39,025 |
| 38,582 |
| | 41,013 |
|
Automobile | 45,664 |
| | 45,069 |
| 48,568 |
| | 47,873 |
|
Other revolving credit and installment | 34,654 |
| | 36,148 |
| 33,511 |
| | 34,304 |
|
Total consumer | 437,633 |
| | 439,705 |
| 442,108 |
| | 446,546 |
|
Total loans | $ | 949,878 |
| | 953,110 |
| $ | 1,009,843 |
| | 962,265 |
|
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
Risk Management - Credit Risk Management (continued)
Merger and acquisition activities
Reputation risk
Our credit risk management oversight process is governed centrally, but provides for decentralized management and accountability by our lines of business. Our overall credit process includes comprehensive credit policies, disciplined credit underwriting, frequent and detailed risk measurement and modeling, extensive credit training programs, and a continual loan review and audit process.
A key to our credit risk management is adherence to a well-controlled underwriting process, which we believe is appropriate for the needs of our customers as well as investors who purchase the loans or securities collateralized by the loans.
Credit Quality Overview SolidcreditCredit quality continued in secondfirst quarter 2019, as2020 declined due to the effect of the COVID-19 pandemic on market conditions, which impacted our net charge-off rate remained low at 0.28% (annualized) of average total loans. Secondcustomer base. First quarter 20192020 results reflected:
| |
• | Nonaccrual loans were $5.96.2 billion at June 30, 2019March 31, 2020, downup from $6.55.3 billion at December 31, 20182019., largely driven by a $585 million increase in commercial real estate and commercial and industrial nonaccrual loans, as the effect of the COVID-19 pandemic on market conditions began to impact our customer base. Commercial nonaccrual loans increased to $2.52.9 billion at June 30, 2019March 31, 2020, compared with $2.22.3 billion at December 31, 20182019, and consumer nonaccrual loans declinedincreased to $3.53.3 billion at June 30, 2019March 31, 2020, compared with $4.33.1 billion at December 31, 20182019. 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%0.61% of total loans at June 30, 2019March 31, 2020, compared with 0.68%0.56% at December 31, 20182019. |
| |
• | 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. Netloan charge-offs (annualized) as a percentage of our average commercial and consumer loan portfolios were 0.13%0.25% and 0.45%0.53% in secondfirst quarter 2019 and 0.12% and 0.48% in the first half of 20192020, respectively, compared with 0.05%0.11% and 0.49%0.51% in secondfirst quarter 2018 and 0.06% and 0.54% in the first half of 20182019. |
| |
• | Loans that are not government insured/guaranteed and 90 days or more past due and still accruing were $4153 million and $739828 million in our commercial and consumer portfolios, respectively, at June 30, 2019March 31, 2020, compared with $9478 million and $885855 million at December 31, 20182019. |
| |
• | Our provision for credit losses for loans was $503 million and $1.33.8 billion in the second quarter and first half of 2019quarter 2020, respectively, compared with $452 million and $643845 million for the same periodsperiod a year ago. The increase in provision for credit losses for loans in secondfirst quarter 2019,2020, compared with the same period a year ago, primarily reflected loan growth. Thean increase in the first half of 2019, compared with the same period a year ago, wasallowance for credit losses for loans due to an allowance buildforecasted credit deterioration from the impact of the COVID-19 pandemic, and higher net loan charge-offs primarily due to the impact of the recent sharp decline in first quarter 2019 reflecting a higher probability of slightly less favorable economic conditions, compared with an allowanceoil prices on our oil and gas portfolio. |
release in first quarter 2018 reflecting improvement in our outlook for 2017 hurricane-related losses.
| |
• | The allowance for credit losses for loans totaled $10.612.0 billion, or 1.12%1.19% of total loans, at June 30, 2019March 31, 2020, downup from $10.710.5 billion, or 1.12%1.09%, at December 31, 20182019. |
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. A nonaccretable difference is established for PCI loans to absorb losses expected on the contractual amounts of those loans. Amounts absorbed by the nonaccretable difference do not affect the income statement or the allowance for credit losses. The carrying value of PCI loans at June 30, 2019, totaled $1.2 billion, compared with $5.0 billion at December 31, 2018. The decline in carrying value was due to the sale of $3.5 billion of Pick-a-Pay PCI 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 2018 Form 10-K, and Note 6 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.
Significant Loan Portfolio Reviews Measuring and monitoring our credit risk is an ongoing process that tracks delinquencies, collateral values, 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 Related Allowance for Credit Losses) to Financial Statements in this Report for more analysis and credit metric information for each of the following portfolios.
COMMERCIAL AND INDUSTRIAL LOANS AND LEASE FINANCING For purposes of portfolio risk management, we aggregate commercial and industrial loans and lease financing according to market segmentation and standard industry codes. We generally subject commercial and industrial loans and lease financing to individual risk assessment using our internal borrower and collateral quality ratings. Our ratings are aligned to regulatoryfederal banking regulators’ definitions of pass and criticized categories with the criticized segmented amongcategory including special mention, substandard, doubtful, and loss categories.
The commercial and industrial loans and lease financing portfolio totaled $368.2$424.2 billion, or 39%42% of total loans, at June 30, 2019.March 31, 2020. The net charge-off rate (annualized) for this portfolio was 0.18% and 0.17%0.36% in the secondfirst quarter and first half of 2019, respectively,2020, compared with 0.08% and 0.10%0.16% for the same periodsperiod a year ago. At June 30,March 31, 2020, and December 31, 2019, 0.46%0.45% and 0.44% of this portfolio was nonaccruing, compared with 0.43% atrespectively. Nonaccrual loans in this portfolio increased $270 million from December 31, 2018, reflecting an increase of $121 million in nonaccrual loans2019, due to athe effect of the COVID-19 pandemic on market conditions, which impacted our customer in the utilities industry, as well as increases in the oil, gas and pipelines portfolio, partially offset by improvement across various industry categories. At June 30, 2019, $15.9base. Also, $20.5 billion of the commercial and industrial loan and lease financing loans wereportfolio was internally classified as criticized in accordance with regulatory guidance at March 31, 2020, compared with $15.8$16.6 billion at December 31, 2018.2019, reflecting the effect of the COVID-19 pandemic on market conditions, which impacted our customer base.
MostThe majority 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 1211 provides a breakout ofour commercial and industrial loans and lease financing by industry, and includes foreignnon-U.S. loans of $64.5$79.9 billion and $63.7$71.7 billion at June 30, 2019,March 31, 2020, and December 31, 2018,2019, respectively. Significant industry concentrations of foreignnon-U.S. loans include $26.9included $36.8 billion and $25.6$31.2 billion in the financials except banks category, $17.0and $20.2 billion and $18.1$19.9 billion in the banks category at March 31, 2020, and $1.5 billion and $1.2 billion in theDecember 31, 2019, respectively. The oil, gas and pipelines category included $1.6 billion of non-U.S. loans at June 30, 2019,both March 31, 2020, and December 31, 2018, respectively.2019. The industry categories were updated in 2019, to align with industry groupings that our regulators use to monitor industry concentration risks.are based on the North American Industry Classification System.
Loans to financials except banks, our largest industry concentration, were $107.3$126.3 billion, or 11%13% of total outstanding loans, at June 30, 2019,March 31, 2020, compared with $105.9$117.3 billion, or 11%12% of total outstanding loans, at December 31, 2018. These are predominantly2019. This industry category is comprised of loans to investment firms, financial vehicles, and non-bank creditors. A significant portion of this industry category consists of loans to entitiescreditors, including those that invest in financial assets backed predominantly by commercial or residential real estate or consumer loan assets and are repaid from asset cash flows or the sale of the assets. We limithad $83.1 billion and $75.2 billion of loans originated by our loan amountsAsset Backed Finance (ABF) lines of business at March 31, 2020, and December 31, 2019, respectively. These ABF loans are limited to a percentage of the value of the underlying financial assets considering underlying credit risk, asset duration, and ongoing performance. These ABF loans may also have other features to manage credit risk such as cross-collateralization, credit enhancements, and contractual re-margining of collateral supporting the loans. Loans to financials except banks included
collateralized loan obligations (CLOs) in loan form of $7.7 billion and $7.0 billion at March 31, 2020, and December 31, 2019, respectively.
Oil, gas and pipelines loans were $13.6totaled $14.3 billion, or 1% of total outstanding loans, at June 30, 2019,March 31, 2020, compared with $12.8$13.6 billion, or 1% of total outstanding loans, at December 31, 2018.2019. Oil, gas and pipelines loans included $9.5 billion and $9.2 billion of senior secured loans outstanding at March 31, 2020 and December 31, 2019, respectively. Oil, gas and pipelines nonaccrual loans increaseddecreased to $636$549 million at June 30, 2019, March 31, 2020,
compared with $417$615 million at December 31, 2018,2019, due to weaker portfoliohigher net loan charge-offs, as well as loan payments, partially offset by new downgrades to nonaccrual status in first quarter 2020.
In addition to the oil, gas and pipelines category, industries with escalated credit performance.monitoring include retail, entertainment and recreation, transportation services, and commercial real estate. Table 11 and Table 12 include information about our exposure to certain sectors of these industries, including those that have been significantly affected by the COVID-19 pandemic.
Table 12:11: Commercial and Industrial Loans and Lease Financing by Industry (1)
| | | June 30, 2019 | | | December 31, 2018 | | March 31, 2020 | | | December 31, 2019 | |
(in millions) | Nonaccrual loans |
| | Total portfolio |
| | % of total loans |
| | Nonaccrual loans |
| | Total portfolio |
| | % of total loans |
| |
($ in millions) | | Nonaccrual loans |
| | Loans outstanding |
| | % of total loans |
| | Total commitments (1) |
| | Nonaccrual loans |
| | Loans outstanding |
| | % of total loans |
| | Total commitments (1) |
|
Financials except banks | $ | 160 |
| | 107,292 |
| | 11 | % | | $ | 305 |
| | 105,925 |
| | 11 | % | $ | 95 |
| | 126,270 |
| | 13 | % | | 204,143 |
| | $ | 112 |
| | 117,312 |
| | 12 | % | | 200,848 |
|
Equipment, machinery and parts manufacturing | | 58 |
| | 25,054 |
| | 2 |
| | 44,641 |
| | 36 |
| | 23,457 |
| | 2 |
| | 42,040 |
|
Technology, telecom and media | 46 |
| | 24,648 |
| | 3 |
| | 26 |
| | 25,681 |
| | 3 |
| 57 |
| | 26,896 |
| | 3 |
| | 56,462 |
| | 28 |
| | 22,447 |
| | 2 |
| | 53,343 |
|
Real estate and construction | 43 |
| | 22,463 |
| | 2 |
| | 31 |
| | 23,380 |
| | 2 |
| 49 |
| | 27,222 |
| | 3 |
| | 48,977 |
| | 47 |
| | 22,011 |
| | 2 |
| | 48,217 |
|
Equipment, machinery and parts manufacturing | 66 |
| | 22,298 |
| | 2 |
| | 47 |
| | 20,850 |
| | 2 |
| |
Retail | 88 |
| | 20,351 |
| | 2 |
| | 87 |
| | 19,541 |
| | 2 |
| |
Banks | | — |
| | 20,282 |
| | 2 |
| | 20,948 |
| | — |
| | 20,070 |
| | 2 |
| | 20,728 |
|
Retail (2) | | 204 |
| | 27,844 |
| | 3 |
| | 43,801 |
| | 105 |
| | 19,923 |
| | 2 |
| | 41,938 |
|
Materials and commodities | 94 |
| | 19,599 |
| | 2 |
| | 136 |
| | 18,688 |
| | 2 |
| 57 |
| | 19,118 |
| | 2 |
| | 39,385 |
| | 33 |
| | 16,375 |
| | 2 |
| | 39,369 |
|
Banks | — |
| | 17,136 |
| | 2 |
| | — |
| | 18,407 |
| | 2 |
| |
Automobile related | 23 |
| | 16,673 |
| | 2 |
| | 16 |
| | 16,801 |
| | 2 |
| 24 |
| | 17,436 |
| | 2 |
| | 26,032 |
| | 24 |
| | 15,996 |
| | 2 |
| | 26,310 |
|
Food and beverage manufacturing | 5 |
| | 14,640 |
| | 2 |
| | 48 |
| | 15,448 |
| | 2 |
| 12 |
| | 16,908 |
| | 2 |
| | 31,004 |
| | 9 |
| | 14,991 |
| | 2 |
| | 29,172 |
|
Health care and pharmaceuticals | 24 |
| | 14,555 |
| | 2 |
| | 124 |
| | 15,529 |
| | 2 |
| 81 |
| | 18,785 |
| | 2 |
| | 32,230 |
| | 28 |
| | 14,920 |
| | 2 |
| | 30,168 |
|
Entertainment and recreation | 36 |
| | 13,644 |
| | 1 |
| | 33 |
| | 14,045 |
| | 1 |
| |
Oil, gas and pipelines | 636 |
| | 13,562 |
| | 1 |
| | 417 |
| | 12,840 |
| | 1 |
| 549 |
| | 14,287 |
| | 1 |
| | 34,443 |
| | 615 |
| | 13,562 |
| | 1 |
| | 35,445 |
|
Entertainment and recreation (3) | | 65 |
| | 16,163 |
| | 2 |
| | 20,532 |
| | 44 |
| | 13,462 |
| | 1 |
| | 19,854 |
|
Transportation services(4) | 88 |
| | 11,797 |
| | 1 |
| | 176 |
| | 12,029 |
| | 1 |
| 336 |
| | 11,901 |
| | 1 |
| | 17,853 |
| | 224 |
| | 10,957 |
| | 1 |
| | 17,660 |
|
Commercial services | 50 |
| | 10,820 |
| | 1 |
| | 48 |
| | 10,591 |
| | 1 |
| 120 |
| | 12,684 |
| | 1 |
| | 22,989 |
| | 50 |
| | 10,455 |
| | 1 |
| | 22,713 |
|
Agribusiness | 61 |
| | 7,118 |
| | 1 |
| | 46 |
| | 7,996 |
| | 1 |
| 37 |
| | 6,994 |
| | * |
| | 12,137 |
| | 35 |
| | 7,539 |
| | * |
| | 12,901 |
|
Utilities | 224 |
| | 5,864 |
| | 1 |
| | 6 |
| | 5,756 |
| | 1 |
| 147 |
| | 8,598 |
| | * |
| | 21,545 |
| | 224 |
| | 5,995 |
| | * |
| | 19,390 |
|
Insurance and fiduciaries | | 1 |
| | 7,292 |
| | * |
| | 16,481 |
| | 1 |
| | 5,525 |
| | * |
| | 15,596 |
|
Government and education | 2 |
| | 5,765 |
| | 1 |
| | 3 |
| | 6,160 |
| | 1 |
| 7 |
| | 5,548 |
| | * |
| | 11,918 |
| | 6 |
| | 5,363 |
| | * |
| | 12,267 |
|
Other (2) | 51 |
| | 19,945 |
| | 2 |
| | 27 |
| | 20,228 |
| | 2 |
| |
Other (5) | | 11 |
| | 14,874 |
| | 1 |
| | 32,769 |
| | 19 |
| | 13,596 |
| | * |
| | 32,988 |
|
Total | $ | 1,697 |
| | 368,170 |
| | 39 | % | | $ | 1,576 |
| | 369,895 |
| | 39 | % | $ | 1,910 |
| | 424,156 |
| | 42 | % | | 738,290 |
| | $ | 1,640 |
| | 373,956 |
| | 39 | % | | 720,947 |
|
| |
(1) | Industry categories are based on the North American Industry Classification System and the amounts include foreign loans. The industry categories were updated in 2019 to align with industry groupings that our regulators use to monitor industry concentration risks. The amounts for December 31, 2018, have been reclassified to conform with the current period presentation.Total commitments consist of loans outstanding plus unfunded credit commitments, excluding issued letters of credit. |
| |
(2) | Loans outstanding to the restaurant sector were $5.8 billion and $4.3 billion and included $3.9 billion and $3.1 billion of loans outstanding to limited service restaurants at March 31, 2020, and December 31, 2019, respectively. |
| |
(3) | Less than 1% of loans outstanding and 1% of total commitments were to cruise lines at both March 31, 2020, and December 31, 2019. |
| |
(4) | Includes air transportation loans outstanding of $2.4 billion and $1.1 billion at March 31, 2020, and December 31, 2019, respectively. |
| |
(5) | No other single industry had total loans in excess of $5.0$5.0 billion and $4.5$4.7 billion at June 30, 2019March 31, 2020, and December 31, 2018,2019, 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 $8.1$7.8 billion of foreignnon-U.S. CRE loans, totaled $144.1$143.6 billion, or 15%14% of total loans, at June 30, 2019,March 31, 2020, and consisted of $123.0$122.8 billion of mortgage loans and $21.1$20.8 billion of construction loans.
Table 1312 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 27%26% and apartments at 17%18% of the portfolio. CRE nonaccrual loans totaled 0.5%0.67% of the CRE outstanding balance at June 30, 2019,March 31, 2020, compared with 0.4%0.43% at December 31, 2018.2019. The increase in CRE nonaccrual loans reflected the effect of the COVID-19 pandemic on market conditions, which impacted our customer base. At June 30, 2019,March 31, 2020, we had $4.2$4.1 billion of criticized CRE mortgage loans, compared with $4.5$3.8 billion at December 31, 2018,2019, and $184$222 million of criticized CRE construction loans, compared with $289$187 million at December 31, 2018.2019.
Table 13:12: CRE Loans by State and Property Type
| | | June 30, 2019 | | March 31, 2020 | |
| Real estate mortgage | | | | | Real estate construction | | | | | Total | | | | | | Real estate mortgage | | | | | Real estate construction | | | | | Total | | | | | % of total loans |
|
(in millions) | Nonaccrual loans |
| | Total portfolio |
| | Nonaccrual loans |
| | Total portfolio |
| | Nonaccrual loans |
| | Total portfolio |
| | % of total loans |
| |
($ in millions) | | Nonaccrual loans |
| | Total portfolio |
| | Nonaccrual loans |
| | Total portfolio |
| | Nonaccrual loans |
| | Total portfolio |
| | % of total loans |
|
By state: | | | | | | | | | | | | | | | | | | | | | | | | | |
California | $ | 142 |
| | 33,152 |
| | 9 |
| | 4,502 |
| | 151 |
| | 37,654 |
| | 4 | % | $ | 172 |
| | 31,837 |
| | 1 |
| | 4,446 |
| | 173 |
| | 36,283 |
| | 4 | % |
New York | 23 |
| | 11,926 |
| | 2 |
| | 2,387 |
| | 25 |
| | 14,313 |
| | 2 |
| 21 |
| | 12,676 |
| | 2 |
| | 1,861 |
| | 23 |
| | 14,537 |
| | 1 |
|
Florida | 19 |
| | 8,078 |
| | 3 |
| | 1,554 |
| | 22 |
| | 9,632 |
| | 1 |
| 22 |
| | 8,200 |
| | 1 |
| | 1,487 |
| | 23 |
| | 9,687 |
| | * |
|
Texas | 56 |
| | 7,833 |
| | 4 |
| | 1,437 |
| | 60 |
| | 9,270 |
| | 1 |
| 304 |
| | 7,848 |
| | 5 |
| | 1,393 |
| | 309 |
| | 9,241 |
| | * |
|
Arizona | 70 |
| | 4,632 |
| | — |
| | 312 |
| | 70 |
| | 4,944 |
| | 1 |
| |
Washington | | 11 |
| | 3,979 |
| | — |
| | 768 |
| | 11 |
| | 4,747 |
| | * |
|
North Carolina | 23 |
| | 3,663 |
| | 4 |
| | 904 |
| | 27 |
| | 4,567 |
| | * |
| 14 |
| | 3,868 |
| | — |
| | 617 |
| | 14 |
| | 4,485 |
| | * |
|
Georgia | 14 |
| | 3,908 |
| | — |
| | 517 |
| | 14 |
| | 4,425 |
| | * |
| 15 |
| | 3,901 |
| | — |
| | 465 |
| | 15 |
| | 4,366 |
| | * |
|
Washington | 17 |
| | 3,450 |
| | — |
| | 599 |
| | 17 |
| | 4,049 |
| | * |
| |
Illinois | 176 |
| | 3,477 |
| | — |
| | 348 |
| | 176 |
| | 3,825 |
| | * |
| |
Virginia | 8 |
| | 2,749 |
| | — |
| | 903 |
| | 8 |
| | 3,652 |
| | * |
| |
Arizona | | 40 |
| | 4,034 |
| | — |
| | 269 |
| | 40 |
| | 4,303 |
| | * |
|
Colorado | | 16 |
| | 3,298 |
| | — |
| | 546 |
| | 16 |
| | 3,844 |
| | * |
|
New Jersey | | 18 |
| | 2,962 |
| | — |
| | 682 |
| | 18 |
| | 3,644 |
| | * |
|
Other | 189 |
| | 40,140 |
| | 14 |
| | 7,604 |
| | 203 |
| | 47,744 |
| | (1) | | 5 |
| 311 |
| | 40,164 |
| | 12 |
| | 8,278 |
| | 323 |
| | 48,442 |
| | (1) | | 5 |
|
Total | $ | 737 |
| | 123,008 |
| | 36 |
| | 21,067 |
| | 773 |
| | 144,075 |
| | 15 | % | $ | 944 |
| | 122,767 |
| | 21 |
| | 20,812 |
| | 965 |
| | 143,579 |
| | 14 | % |
By property: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Office buildings | $ | 152 |
| | 36,237 |
| | 5 |
| | 2,618 |
| | 157 |
| | 38,855 |
| | 4 | % | $ | 140 |
| | 34,547 |
| | 5 |
| | 2,945 |
| | 145 |
| | 37,492 |
| | 4 | % |
Apartments | 13 |
| | 16,886 |
| | — |
| | 6,937 |
| | 13 |
| | 23,823 |
| | 3 |
| 12 |
| | 18,642 |
| | — |
| | 7,103 |
| | 12 |
| | 25,745 |
| | 3 |
|
Industrial/warehouse | 80 |
| | 15,711 |
| | 2 |
| | 1,303 |
| | 82 |
| | 17,014 |
| | 2 |
| 76 |
| | 15,929 |
| | 1 |
| | 1,471 |
| | 77 |
| | 17,400 |
| | 2 |
|
Retail (excluding shopping center) | 98 |
| | 15,072 |
| | 10 |
| | 349 |
| | 108 |
| | 15,421 |
| | 2 |
| 125 |
| | 14,089 |
| | 2 |
| | 223 |
| | 127 |
| | 14,312 |
| | 1 |
|
Shopping center | 83 |
| | 10,999 |
| | — |
| | 1,364 |
| | 83 |
| | 12,363 |
| | 1 |
| |
Hotel/motel | 86 |
| | 9,711 |
| | — |
| | 1,574 |
| | 86 |
| | 11,285 |
| | 1 |
| 79 |
| | 10,637 |
| | — |
| | 1,543 |
| | 79 |
| | 12,180 |
| | 1 |
|
Shopping Center | | 279 |
| | 10,707 |
| | — |
| | 1,361 |
| | 279 |
| | 12,068 |
| | 1 |
|
Mixed use properties (2) | 93 |
| | 6,705 |
| | — |
| | 447 |
| | 93 |
| | 7,152 |
| | 1 |
| 95 |
| | 6,087 |
| | — |
| | 545 |
| | 95 |
| | 6,632 |
| | * |
|
Institutional | 39 |
| | 3,478 |
| | — |
| | 1,888 |
| | 39 |
| | 5,366 |
| | 1 |
| 60 |
| | 3,934 |
| | 1 |
| | 2,041 |
| | 61 |
| | 5,975 |
| | * |
|
Collateral pool | — |
| | 2,428 |
| | — |
| | 7 |
| | — |
| | 2,435 |
| | * |
| — |
| | 2,514 |
| | — |
| | 200 |
| | — |
| | 2,714 |
| | * |
|
Agriculture | 80 |
| | 2,419 |
| | — |
| | 7 |
| | 80 |
| | 2,426 |
| | * |
| 70 |
| | 2,144 |
| | — |
| | 9 |
| | 70 |
| | 2,153 |
| | * |
|
Other | 13 |
| | 3,362 |
| | 19 |
| | 4,573 |
| | 32 |
| | 7,935 |
| | 1 |
| 8 |
| | 3,537 |
| | 12 |
| | 3,371 |
| | 20 |
| | 6,908 |
| | * |
|
Total | $ | 737 |
| | 123,008 |
| | 36 |
| | 21,067 |
| | 773 |
| | 144,075 |
| | 15 | % | $ | 944 |
| | 122,767 |
| | 21 |
| | 20,812 |
| | 965 |
| | 143,579 |
| | 14 | % |
(1)Includes 40 states; no state had loans in excess of $3.3 billion.$3.7 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 uses. |
FOREIGNNON-U.S LOANS AND COUNTRY RISK EXPOSURE We classifyOur classification of non-U.S. loans for financial statement and certain regulatory purposes as foreign primarilyis based on whether the borrower’s primary address is outside of the United States. At June 30, 2019, foreignMarch 31, 2020, non-U.S. loans totaled $73.0$88.0 billion, representing approximately 8%9% of our total consolidated loans outstanding, compared with $71.9$80.5 billion, or approximately 8% of total consolidated loans outstanding, at December 31, 2018. Foreign2019. Non-U.S. loans were approximately 4% of our consolidated total assets at both June 30, 2019March 31, 2020, and at December 31, 2018.2019.
COUNTRY RISK EXPOSURE Our country risk monitoring process incorporates centralized monitoring of economic, political, social, legal, and transfer risks in countries where we do or plan to do business, along with 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.agencies. We establish exposure limits for each country through a centralized oversight process based on customer needs, and inthrough consideration of the relevant economic, political, social, legal, and transfer risks.distinct risk of each country. 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 outside the U.S. based on our assessment of risk at June 30, 2019,March 31, 2020, was the United Kingdom, which totaled $27.7$37.6 billion, or approximately 1%2% of our total assets, and included $4.2$11.2 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 leavewithdrew from the European Union (Brexit) on March 29, 2017,January 31, 2020, and is currently subject to a
transition period during which the negotiation process leading toterms and conditions of its departure has been extended to October 31, 2019. We continue to implement plans for Brexit withexit are being negotiated. As the United Kingdom exits from the European Union, our primary goal is to continue to serve our 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.those locations. We have an existing authorized bank in Ireland and an asset management entity in Luxembourg. We also have obtained regulatory approval to establishAdditionally, we established a broker dealer in France. We plan to leverageare in the process of leveraging these entities in order to continue to serve clients in the European Union. In addition, we are implementingUnion and continue to take actions where possible to mitigate the impact of Brexit onupdate our supplier contracts, staffing and business operations in the United Kingdom and European Union.Union, including implementing new supplier contracts and staffing arrangements. For additional information on risks associated with Brexit, see the “Risk Factors” section in our 20182019 Form 10-K.
Table 1413 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. With respect to Table 14:13:
Lending exposure includes outstanding loans, unfunded credit commitments, and deposits with foreignnon-U.S. banks. These balances are presented prior to the deduction of allowance for credit losses or collateral received under the terms of the credit agreements, if any.
Securities exposure represents debt and equity securities of foreignnon-U.S. issuers. Long and short positions are netted, and net short positions are reflected as negative exposure.
Derivatives and other exposure represents foreign exchange contracts, derivative contracts, securities resale agreements, and securities lending agreements.
Table 13:Select Country Exposures
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2020 | |
| 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 | $ | 11,182 |
| | 22,815 |
| | — |
| | 1,672 |
| | 1 |
| | 1,968 |
| | 11,183 |
| | 26,455 |
| | 37,638 |
|
Canada | 4 |
| | 16,778 |
| | 2 |
| | 120 |
| | — |
| | 593 |
| | 6 |
| | 17,491 |
| | 17,497 |
|
Cayman Islands | — |
| | 8,952 |
| | — |
| | — |
| | — |
| | 328 |
| | — |
| | 9,280 |
| | 9,280 |
|
Ireland | 976 |
| | 4,857 |
| | — |
| | 122 |
| | — |
| | 68 |
| | 976 |
| | 5,047 |
| | 6,023 |
|
China | — |
| | 4,188 |
| | (13 | ) | | 444 |
| | 37 |
| | 35 |
| | 24 |
| | 4,667 |
| | 4,691 |
|
Bermuda | — |
| | 4,308 |
| | — |
| | 125 |
| | — |
| | 51 |
| | — |
| | 4,484 |
| | 4,484 |
|
Luxembourg | — |
| | 3,925 |
| | — |
| | 126 |
| | — |
| | 103 |
| | — |
| | 4,154 |
| | 4,154 |
|
Japan | 20 |
| | 1,304 |
| | 1,996 |
| | 143 |
| | — |
| | 256 |
| | 2,016 |
| | 1,703 |
| | 3,719 |
|
Guernsey | — |
| | 3,494 |
| | — |
| | 3 |
| | — |
| | 35 |
| | — |
| | 3,532 |
| | 3,532 |
|
Germany | — |
| | 2,787 |
| | 10 |
| | 45 |
| | 6 |
| | 59 |
| | 16 |
| | 2,891 |
| | 2,907 |
|
South Korea | — |
| | 2,546 |
| | 3 |
| | 84 |
| | — |
| | 15 |
| | 3 |
| | 2,645 |
| | 2,648 |
|
Netherlands | — |
| | 1,794 |
| | — |
| | 171 |
| | 14 |
| | 241 |
| | 14 |
| | 2,206 |
| | 2,220 |
|
France | — |
| | 1,847 |
| | — |
| | 94 |
| | 142 |
| | 13 |
| | 142 |
| | 1,954 |
| | 2,096 |
|
Brazil | — |
| | 2,062 |
| | 1 |
| | 3 |
| | 6 |
| | 8 |
| | 7 |
| | 2,073 |
| | 2,080 |
|
Chile | — |
| | 1,910 |
| | — |
| | 1 |
| | — |
| | — |
| | — |
| | 1,911 |
| | 1,911 |
|
India | — |
| | 1,683 |
| | — |
| | 114 |
| | — |
| | 1 |
| | — |
| | 1,798 |
| | 1,798 |
|
Switzerland | — |
| | 1,608 |
| | — |
| | 38 |
| | — |
| | 90 |
| | — |
| | 1,736 |
| | 1,736 |
|
Australia | — |
| | 1,505 |
| | — |
| | 68 |
| | — |
| | 17 |
| | — |
| | 1,590 |
| | 1,590 |
|
Singapore | — |
| | 1,304 |
| | — |
| | 24 |
| | — |
| | 88 |
| | — |
| | 1,416 |
| | 1,416 |
|
United Arab Emirates | — |
| | 1,286 |
| | — |
| | 82 |
| | — |
| | 4 |
| | — |
| | 1,372 |
| | 1,372 |
|
Total top 20 country exposures | $ | 12,182 |
| | 90,953 |
| | 1,999 |
| | 3,479 |
| | 206 |
| | 3,973 |
| | 14,387 |
| | 98,405 |
| | 112,792 |
|
Eurozone exposure: | | | | | | | | | | | | | | | | | |
Eurozone countries included in Top 20 above (2) | $ | 976 |
| | 15,210 |
| | 10 |
| | 558 |
| | 162 |
| | 484 |
| | 1,148 |
| | 16,252 |
| | 17,400 |
|
Spain | — |
| | 385 |
| | — |
| | 121 |
| | — |
| | 9 |
| | — |
| | 515 |
| | 515 |
|
Belgium | — |
| | 536 |
| | — |
| | (54 | ) | | — |
| | 4 |
| | — |
| | 486 |
| | 486 |
|
Austria | — |
| | 234 |
| | — |
| | 1 |
| | — |
| | — |
| | — |
| | 235 |
| | 235 |
|
Italy | — |
| | 108 |
| | — |
| | 19 |
| | — |
| | 1 |
| | — |
| | 128 |
| | 128 |
|
Other Eurozone exposure | — |
| | 93 |
| | — |
| | 27 |
| | — |
| | — |
| | — |
| | 120 |
| | 120 |
|
Total Eurozone exposure | $ | 976 |
| | 16,566 |
| | 10 |
| | 672 |
| | 162 |
| | 498 |
| | 1,148 |
| | 17,736 |
| | 18,884 |
|
| |
•(1) | Derivatives and other exposure represents foreign exchange contracts, derivative contracts, securities resale agreements, and securities lending agreements. This exposure isFor countries presented net of counterparty netting adjustments and reduced by the amount of cash collateral, if any. It includes credit default swaps (CDS) predominantly used for market making activities in the U.S.-based trading businesses, which sometimes results in sellingtable, total non-sovereign exposure comprises $56.0 billion exposure to financial institutions and purchasing protection on the identical reference entities. Generally, we do not use market instruments such as CDS$43.9 billion to hedge the credit risk of our investments or loan positions, although we do use them to manage risk in our trading businesses. Atnon-financial corporations at June 30, 2019, the gross notional amount of our CDS sold that reference assets in the Top 20 or Eurozone countries that contain non-sovereign debt was $280 million, which was offset by the notional amount of CDS purchased of $472 million. At June 30, 2019, the gross notional amount of our CDS sold that reference assets in the Top 20 or Eurozone countries that contain sovereign debt was $410 million, which was offset by the notional amount of CDS purchased of $390 millionMarch 31, 2020.
|
| |
(2) | Consists of exposure to Ireland, Luxembourg, Germany, Netherlands and France included in Top 20. |
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 |
|
Canada | 32 |
| | 17,696 |
| | 42 |
| | 258 |
| | — |
| | 112 |
| | 74 |
| | 18,066 |
| | 18,140 |
|
Cayman Islands | — |
| | 6,598 |
| | — |
| | 43 |
| | — |
| | 134 |
| | — |
| | 6,775 |
| | 6,775 |
|
Ireland | 62 |
| | 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 |
|
Chile | 1 |
| | 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 |
|
Japan | 311 |
| | 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 |
|
| |
(1) | For countries presented in the table, total non-sovereign exposure comprises $44.4 billion exposure to financial institutions and $44.2 billion to non-financial corporations at June 30, 2019. |
| |
(2) | Consists of exposure to Ireland, Netherlands, Luxembourg, Germany and France included in Top 20. |
| |
(3) | Includes non-sovereign exposure to Italy, Portugal, and Greece in the amount of $135 million, $19 million and $3 million, respectively. We had no sovereign exposure in these countries at June 30, 2019. |
REAL ESTATE 1-4 FAMILY FIRST AND JUNIOR LIEN MORTGAGE LOANS Our real estate 1-4 family mortgage loan portfolio is comprised of both first and junior lien mortgage loans, which are presented in Table 15.14.
Table 15:14: Real Estate 1-4 Family First and Junior Lien Mortgage Loans
| | | June 30, 2019 | | | December 31, 2018 | | March 31, 2020 | | | December 31, 2019 | |
(in millions) | Balance |
| | % of portfolio |
| | Balance |
| | % of portfolio |
| Balance |
| | % of portfolio |
| | Balance |
| | % of portfolio |
|
Real estate 1-4 family first mortgage | $ | 286,427 |
| | 90 | % | | $ | 285,065 |
| | 89 | % | $ | 292,920 |
| | 91 | % | | $ | 293,847 |
| | 91 | % |
Real estate 1-4 family junior lien mortgage | 32,068 |
| | 10 |
| | 34,398 |
| | 11 |
| 28,527 |
| | 9 |
| | 29,509 |
| | 9 |
|
Total real estate 1-4 family mortgage loans | $ | 318,495 |
| | 100 | % | | $ | 319,463 |
| | 100 | % | $ | 321,447 |
| | 100 | % | | $ | 323,356 |
| | 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.terms and some with adjustable-rate features. Interest-only loans were approximately 3% and 4% of total loans at June 30, 2019,both March 31, 2020, and December 31, 2018, respectively.2019. We believe we have manageable adjustable-rate mortgage (ARM) reset risk across our owned mortgage loan portfolios.portfolios, including ARM loans that have negative amortizing features that were acquired in prior business combinations. 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 haveIn connection with our adoption of CECL on January 1, 2020, our real estate 1-4 family mortgage purchased credit-impaired (PCI) loans, which had a carrying value of $568 million, were reclassified as purchased credit-deteriorated (PCD) loans. PCD loans are includedgenerally accounted for in the Pick-a-Pay portfolio which was acquired from Wachovia.same manner as non-PCD loans. For more information on PCD loans, see the “Risk Management – Credit Risk Management – Real Estate 1-4 Family First and Junior Lien Mortgage Loans – Pick-a-Pay Portfolio” sectionNote 1 (Summary of Significant Accounting Policies) to Financial Statements 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 2018 2019
Form 10-K. For more information on customer accommodations, including loan modifications, in response to the COVID-19 pandemic, see the “Risk Management – Credit Risk Management – Actions to Support Customers During the COVID-19 Pandemic” section in this Report.
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 whichon the mortgage portfolio exclude government insured/guaranteed loans, continued to improve in second quarter 2019 on the non-PCI mortgage portfolio.loans. Loans 30 days or more delinquent at June 30, 2019,March 31, 2020, totaled $3.4$3.6 billion, or 1% of total non-PCI mortgages, compared with $4.0$3.0 billion, or 1%, at December 31, 2018.2019. Loans with FICO scores lower than 640 totaled $8.3$7.5 billion, or 3%2% of total non-PCI mortgages at June 30, 2019,March 31, 2020, compared with $9.7$7.6 billion, or 3%2%, at December 31, 2018.2019. Mortgages with a LTV/CLTV greater than 100% totaled $3.3$2.5 billion at June 30, 2019,March 31, 2020, or 1% of total non-PCI mortgages, compared with $3.9$2.5 billion, or 1%, at December 31, 2018.2019. Information regarding credit quality indicators can be found in Note 6 (Loans and Related Allowance for Credit Losses) to Financial Statements in this Report.
Real estate 1-4 family first and junior lien mortgage loans by state are presented in Table 16.15. Our real estate 1-4 family non-PCI mortgage loans to borrowers in California represented 13% of total loans at June 30, 2019,March 31, 2020, located predominantly within the larger metropolitan areas, with no single California metropolitan area consisting of more than 5%4% 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 original appraisals adjusted for the change in Home Price Index (HPI) or estimates from automated valuation models (AVMs) to support property values. Additional information about appraisals and AVMs and our policy for their use can be
found in Note 6 (Loans and Related 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 20182019 Form 10-K.
Table 16:15: Real Estate 1-4 Family First and Junior Lien Mortgage Loans by State
| | | June 30, 2019 | | March 31, 2020 | |
(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): | | | | | | | | |
Real estate 1-4 family loans: | | | | | | | | |
California | $ | 113,523 |
| | 8,812 |
| | 122,335 |
| | 13 | % | $ | 118,484 |
| | 7,814 |
| | 126,298 |
| | 13 | % |
New York | 30,032 |
| | 1,612 |
| | 31,644 |
| | 3 |
| 31,801 |
| | 1,469 |
| | 33,270 |
| | 3 |
|
New Jersey | 13,923 |
| | 2,955 |
| | 16,878 |
| | 2 |
| 14,074 |
| | 2,667 |
| | 16,741 |
| | 2 |
|
Florida | 11,943 |
| | 2,853 |
| | 14,796 |
| | 2 |
| 11,675 |
| | 2,523 |
| | 14,198 |
| | 1 |
|
Washington | 10,380 |
| | 719 |
| | 11,099 |
| | 1 |
| 10,869 |
| | 644 |
| | 11,513 |
| | 1 |
|
Virginia | 8,627 |
| | 1,858 |
| | 10,485 |
| | 1 |
| 8,740 |
| | 1,645 |
| | 10,385 |
| | 1 |
|
Texas | 8,746 |
| | 626 |
| | 9,372 |
| | 1 |
| 8,954 |
| | 576 |
| | 9,530 |
| | 1 |
|
North Carolina | 5,883 |
| | 1,484 |
| | 7,367 |
| | 1 |
| 5,758 |
| | 1,338 |
| | 7,096 |
| | 1 |
|
Pennsylvania | 5,341 |
| | 1,792 |
| | 7,133 |
| | 1 |
| |
Colorado | | 6,357 |
| | 644 |
| | 7,001 |
| | 1 |
|
Other (1) | 65,496 |
| | 9,342 |
| | 74,838 |
| | 8 |
| 65,369 |
| | 9,207 |
| | 74,576 |
| | 7 |
|
Government insured/ guaranteed loans (2) | 11,374 |
| | — |
| | 11,374 |
| | 1 |
| 10,839 |
| | — |
| | 10,839 |
| | 1 |
|
Real estate 1-4 family loans (excluding PCI) | 285,268 |
| | 32,053 |
| | 317,321 |
| | 34 |
| |
Real estate 1-4 family PCI loans | 1,159 |
| | 15 |
| | 1,174 |
| | — |
| |
Total | $ | 286,427 |
| | 32,068 |
| | 318,495 |
| | 34 | % | $ | 292,920 |
| | 28,527 |
| | 321,447 |
| | 32 | % |
| |
(1) | Consists of 41 states; no statenone of which had loans in excess of $7.0 billion.$6.9 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 Portfolio Our total real estate 1-4 family first lien mortgage portfolio increased $1.9 billion and $1.4 billion(first mortgage) decreased $927 million in the secondfirst quarter and first half of 2019, respectively. The increase was the result of retaining mortgage2020. Mortgage loan originations of $19.8 billion and $30.4$14.3 billion in the secondfirst quarter and first half of 2019, respectively, partially2020 were more than offset by paydowns, $1.6 billion and $3.5 billion of sales of Pick-a-Pay PCI loans in the second quarter and first half of 2019, respectively, and the reclassification in second quarter 2019 of $1.8 billion of mortgage loans to MLHFS. In addition, 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 MLHFS in anticipation of the future issuance of residential mortgage-backed securities.paydowns.
The credit performance associated with our real estate 1-4 family first lien mortgage portfolio improved in second quarter
2019, as measured through net charge-offs and nonaccrual loans. Net loan charge-offs (annualized) as a percentage of average real estate 1-4 family first lien mortgage loans was a net recovery of 0.04% and 0.03%0.00% in the secondfirst quarter and first half of 2019, respectively,2020, compared with a net recovery of 0.03%0.02% for both the same periodsperiod a year ago. Nonaccrual loans were $2.4 billion at June 30, 2019, down $758March 31, 2020, up
$222 million from December 31, 2018.2019. The decreaseincrease in nonaccrual loans from December 31, 2018,2019 was driven by the reclassificationimplementation of nonaccrualCECL, which required PCI loans to MLHFSbe classified as nonaccruing based on performance. For additional information, see the “Risk Management – Credit Risk Management – Nonperforming Assets (Nonaccrual Loans and Foreclosed Assets)” section in anticipation of future sales, nonaccrual loan sales, and a reduction in inflows due to credit stabilization.this Report.
Table 1716 shows certain delinquency and loss information for the first lien mortgage portfolio and lists the top five states by outstanding balance.
Table 17:16: First Lien Mortgage Portfolio Performance
|
| | | | | | | | | | | | | | | | | | | | |
| Outstanding balance | | | % of loans 30 days or more past due | | Loss (recovery) rate (annualized) quarter ended | |
(in millions) | 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 | $ | 113,523 |
| 109,092 |
| | 0.55 | % | 0.68 | | (0.04 | ) | (0.03 | ) | (0.04 | ) | (0.05 | ) | (0.07 | ) |
New York | 30,032 |
| 28,954 |
| | 1.00 |
| 1.12 | | — |
| 0.02 |
| 0.02 |
| 0.04 |
| 0.09 |
|
New Jersey | 13,923 |
| 13,811 |
| | 1.60 |
| 1.91 | | (0.06 | ) | 0.08 |
| 0.05 |
| (0.02 | ) | 0.02 |
|
Florida | 11,943 |
| 12,350 |
| | 2.22 |
| 2.58 | | (0.11 | ) | (0.10 | ) | (0.18 | ) | (0.22 | ) | (0.15 | ) |
Washington | 10,380 |
| 9,677 |
| | 0.42 |
| 0.57 | | (0.03 | ) | (0.04 | ) | (0.06 | ) | (0.06 | ) | (0.06 | ) |
Other | 94,093 |
| 93,261 |
| | 1.40 |
| 1.70 | | (0.06 | ) | (0.02 | ) | (0.03 | ) | (0.03 | ) | (0.03 | ) |
Total | 273,894 |
| 267,145 |
| | 1.01 |
| 1.23 | | (0.04 | ) | (0.02 | ) | (0.03 | ) | (0.04 | ) | (0.04 | ) |
Government insured/guaranteed loans | 11,374 |
| 12,932 |
| | | | | | | | | |
PCI | 1,159 |
| 4,988 |
| | | | | | | | | |
Total first lien mortgages | $ | 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 is included in the consumer real estate 1-4 family first mortgage class of loans throughout this
Report. Pick-a-Pay option payment loans may have fixed or adjustable rates with payment options that include a minimum payment, an interest-only payment or fully amortizing payment (both 15 and 30 year options). Table 18 provides balances by types of loans as of June 30, 2019.
Table 18:Pick-a-Pay Portfolio
|
| | | | | | | | | | | | | |
| June 30, 2019 | | | December 31, 2018 | |
(in millions) | Adjusted unpaid principal balance (1) |
| | % of total |
| | Adjusted unpaid principal balance (1) |
| | % of total |
|
Option payment loans | $ | 5,618 |
| | 52 | % | | $ | 8,813 |
| | 50 | % |
Non-option payment adjustable-rate and fixed-rate loans | 2,433 |
| | 22 |
| | 2,848 |
| | 16 |
|
Full-term loan modifications | 2,783 |
| | 26 |
| | 6,080 |
| | 34 |
|
Total adjusted unpaid principal balance | $ | 10,834 |
| | 100 | % | | $ | 17,741 |
| | 100 | % |
Total carrying value | $ | 10,512 |
| | | | 16,115 |
| | |
|
| | | | | | | | | | | | | | | | | | | | |
| Outstanding balance | | | % of loans 30 days or more past due | | Loss (recovery) rate (annualized) quarter ended | |
(in millions) | Mar 31, 2020 |
| Dec 31, 2019 |
| | Mar 31, 2020 |
| Dec 31, 2019 | | Mar 31, 2020 |
| Dec 31, 2019 |
| Sep 30, 2019 |
| Jun 30, 2019 |
| Mar 31, 2019 |
|
California | $ | 118,484 |
| 118,256 |
| | 0.66 | % | 0.48 | | (0.01 | ) | (0.02 | ) | (0.01 | ) | (0.04 | ) | (0.03 | ) |
New York | 31,801 |
| 31,336 |
| | 1.11 |
| 0.83 | | (0.01 | ) | 0.02 |
| 0.01 |
| — |
| 0.02 |
|
New Jersey | 14,074 |
| 14,113 |
| | 1.65 |
| 1.40 | | — |
| 0.02 |
| 0.02 |
| (0.06 | ) | 0.08 |
|
Florida | 11,675 |
| 11,804 |
| | 2.36 |
| 1.81 | | (0.03 | ) | (0.06 | ) | (0.07 | ) | (0.11 | ) | (0.10 | ) |
Washington | 10,869 |
| 10,863 |
| | 0.40 |
| 0.29 | | (0.02 | ) | (0.02 | ) | — |
| (0.03 | ) | (0.04 | ) |
Other | 95,178 |
| 95,750 |
| | 1.36 |
| 1.20 | | 0.01 |
| (0.02 | ) | — |
| (0.06 | ) | (0.02 | ) |
Total | 282,081 |
| 282,122 |
| | 1.05 |
| 0.86 | | — |
| (0.02 | ) | (0.01 | ) | (0.04 | ) | (0.02 | ) |
Government insured/guaranteed loans | 10,839 |
| 11,170 |
| | | | | | | | | |
PCI (1) | N/A |
| 555 |
| | | | | | | | | |
Total first lien mortgages | $ | 292,920 |
| 293,847 |
| | | | | | | | | |
| |
(1) | Adjusted unpaid principal balance includes write-downs takenIn connection with our adoption of CECL on January 1, 2020, PCI loans where severe delinquency (normally 180 days) orwere reclassified as PCD loans and are therefore included with other indicationsnon-PCD loans in this table. For more information, see Note 1 (Summary of severe borrower financial stress exist that indicate there will be a loss of contractually due amounts upon final resolution of the loan.Significant Accounting Policies) to Financial Statements in this Report. |
The predominant portion of our remaining PCI loans is included in the Pick-a-Pay portfolio. Total carrying value of Pick-a-Pay PCI loans was $1.1 billion at June 30, 2019, compared with $4.9 billion at December 31, 2018. During second quarter 2019, we sold $1.9 billion of Pick-a-Pay PCI loans that resulted in a gain of $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 of our Pick-a-Pay PCI loan portfolio was $411 million ($594 million for all PCI loans) at June 30, 2019, compared with $2.8 billion ($3.0 billion for all PCI loans) at December 31, 2018. The estimated weighted-average life was approximately 5.2 years and 5.5 years at June 30, 2019 and December 31, 2018, respectively. The accretable yield percentage for Pick-a-Pay PCI loans for second quarter 2019 was 11.56%, and we expect the percentage to increase to approximately 12.24% for third quarter 2019.
For additional information on PCI loans, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2018 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 onlyinterest-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, forsuch as 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 lowerperformance 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 considers the inherent loss where the borrowerloan is delinquent on the corresponding first lien mortgage loans.
delinquent. Table 1917 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, 2018,2019, predominantly reflectsreflected loan paydowns. As of June 30, 2019, 6%March 31, 2020, 4% 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%, 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%1% of the junior lien mortgage portfolio at June 30, 2019.March 31, 2020. For additional information on consumer loans by LTV/CLTV, see Table 6.12 in Note 6 (Loans and Related Allowance for Credit Losses) to Financial Statements in this Report.
Table 19:17: 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) | 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 |
| Mar 31, 2020 |
| | Dec 31, 2019 |
| | Mar 31, 2020 |
| | Dec 31, 2019 | | Mar 31, 2020 |
| | Dec 31, 2019 |
| | Sep 30, 2019 |
| | Jun 30, 2019 |
| | Mar 31, 2019 |
|
California | $ | 8,812 |
| | 9,338 |
| | 1.64 | % | | 1.67 | | (0.40 | ) | | (0.39 | ) | | (0.33 | ) | | (0.51 | ) | | (0.56 | ) | $ | 7,814 |
| | 8,054 |
| | 1.65 | % | | 1.62 | | (0.36 | ) | | (0.44 | ) | | (0.51 | ) | | (0.40 | ) | | (0.39 | ) |
New Jersey | 2,955 |
| | 3,152 |
| | 2.77 |
| | 2.57 | | (0.07 | ) | | 0.12 |
| | 0.03 |
| | 0.24 |
| | 0.28 |
| 2,667 |
| | 2,744 |
| | 2.67 |
| | 2.74 | | 0.13 |
| | 0.07 |
| | 0.11 |
| | (0.07 | ) | | 0.12 |
|
Florida | 2,853 |
| | 3,140 |
| | 2.82 |
| | 2.73 | | (0.11 | ) | | (0.05 | ) | | 0.07 |
| | 0.12 |
| | (0.05 | ) | 2,523 |
| | 2,600 |
| | 2.76 |
| | 2.93 | | — |
| | (0.09 | ) | | (0.11 | ) | | (0.11 | ) | | (0.05 | ) |
Virginia | 1,858 |
| | 2,020 |
| | 2.03 |
| | 1.91 | | (0.17 | ) | | 0.14 |
| | 0.04 |
| | 0.16 |
| | 0.30 |
| 1,645 |
| | 1,712 |
| | 2.15 |
| | 1.97 | | 0.09 |
| | (0.02 | ) | | (0.23 | ) | | (0.17 | ) | | 0.14 |
|
Pennsylvania | 1,792 |
| | 1,929 |
| | 2.19 |
| | 2.10 | | (0.19 | ) | | 0.04 |
| | 0.25 |
| | 0.18 |
| | 0.13 |
| 1,618 |
| | 1,674 |
| | 2.18 |
| | 2.16 | | 0.11 |
| | (0.10 | ) | | (0.05 | ) | | (0.19 | ) | | 0.04 |
|
Other | 13,783 |
| | 14,802 |
| | 1.99 |
| | 2.12 | | (0.22 | ) | | (0.03 | ) | | (0.11 | ) | | (0.05 | ) | | (0.06 | ) | 12,260 |
| | 12,712 |
| | 2.06 |
| | 2.05 | | 0.01 |
| | (0.18 | ) | | (0.29 | ) | | (0.22 | ) | | (0.03 | ) |
Total | 32,053 |
|
| 34,381 |
| | 2.05 |
| | 2.08 | | (0.24 | ) | | (0.10 | ) | | (0.11 | ) | | (0.10 | ) | | (0.13 | ) | 28,527 |
| | 29,496 |
| | 2.08 |
| | 2.07 | | (0.07 | ) | | (0.21 | ) | | (0.28 | ) | | (0.24 | ) | | (0.11 | ) |
PCI(1) | 15 |
| | 17 |
| | | | | | | | | | | | | N/A |
| | 13 |
| | | | | | | | | | | | |
Total junior lien mortgages | $ | 32,068 |
| | 34,398 |
| | | | | | | | | | | | | $ | 28,527 |
| | 29,509 |
| | | | | | | | | | | | |
| |
(1) | In connection with our adoption of CECL on January 1, 2020, PCI loans were reclassified as PCD loans and are therefore included with other non-PCD loans in this table. For more information, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report. |
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,March 31, 2020, 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 June 2019,March 2020, approximately 46% of these borrowers paid only the minimum amount due and approximately 49%50% 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 onlyinterest-only payment feature, approximately 31%30% paid only the minimum amount due and approximately 63%66% 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 2018 reflects the outstanding balance of our portfolio of junior lien mortgages, including lines and loans, and first lien lines segregated into scheduled end of drawend-of-draw or end of termend-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 $94 million, because they are predominantly insured by the FHA, and it excludes PCI loans, which total $30 million, because their losses were generally reflected in our nonaccretable difference established at the date of acquisition. At June 30, 2019, $531March 31, 2020, $464 million, or 2%, of lines in their draw period were 30 days or more past due, compared with $431$395 million, or 4%5%, of amortizing lines of credit. Included in the amortizing amounts in Table 2018 is $51$53 million of end-of-term balloon payments which were past due. The unfunded credit commitments for junior and first lien lines totaled $59.6$58.1 billion at June 30, 2019.March 31, 2020.
Table 20:18: 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 June 30, 2019 |
| | Remainder of 2019 |
| | 2020 |
| | 2021 |
| | 2022 |
| | 2023 |
| | 2024 and thereafter (1) |
| | Amortizing |
| Outstanding balance March 31, 2020 |
| | Remainder of 2020 |
| | 2021 |
| | 2022 |
| | 2023 |
| | 2024 |
| | 2025 and thereafter (1) |
| | Amortizing |
|
Junior lien lines and loans | $ | 32,053 |
| | 165 |
| | 405 |
| | 984 |
| | 3,636 |
| | 2,501 |
| | 14,043 |
| | 10,319 |
| $ | 28,527 |
| | 218 |
| | 809 |
| | 3,177 |
| | 2,191 |
| | 1,769 |
| | 11,693 |
| | 8,670 |
|
First lien lines | 11,059 |
| | 58 |
| | 164 |
| | 460 |
| | 1,749 |
| | 1,307 |
| | 5,437 |
| | 1,884 |
| 10,210 |
| | 103 |
| | 395 |
| | 1,566 |
| | 1,186 |
| | 922 |
| | 4,368 |
| | 1,670 |
|
Total | $ | 43,112 |
| | 223 |
| | 569 |
| | 1,444 |
| | 5,385 |
| | 3,808 |
| | 19,480 |
| | 12,203 |
| $ | 38,737 |
| | 321 |
| | 1,204 |
| | 4,743 |
| | 3,377 |
| | 2,691 |
| | 16,061 |
| | 10,340 |
|
% of portfolios | 100 | % | | 1 |
| | 1 |
| | 3 |
| | 12 |
| | 9 |
| | 45 |
| | 29 |
| 100 | % | | 1 |
| | 3 |
| | 12 |
| | 9 |
| | 7 |
| | 41 |
| | 27 |
|
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 2028,2029, with annual scheduled amounts through 20282029 ranging from $2.1$1.8 billion to $5.3$4.6 billion and averaging $3.6$3.1 billion per year. |
CREDIT CARDS Our credit card portfolio totaled $38.8$38.6 billion at June 30, 2019,March 31, 2020, which represented 4% of our total outstanding loans. The net charge-off rate (annualized) for our credit card portfolio was 3.68%3.81% for secondfirst quarter 2019,2020, compared with 3.61%3.73% for secondfirst quarter 2018 and 3.71% and 3.65% for the first half of 2019 and 2018, respectively.2019.
AUTOMOBILE Our automobile portfolio predominantly composed of indirect loans, totaled $45.7$48.6 billion at June 30, 2019.March 31, 2020. The net charge-off rate (annualized) for our automobile portfolio was 0.46%0.68% for secondfirst quarter 2019,2020, compared with 0.93%0.82% for secondfirst quarter 2018 and 0.64% and 1.30% for the first half of 2019 and 2018, respectively.2019. The decreasesdecrease in the net charge-off rate in the secondfirst quarter and first half of 2019,2020, compared with the same periodsperiod in 2018, were2019, was driven by lower early losses on higher quality originations.
OTHER REVOLVING CREDIT AND INSTALLMENT Other revolving credit and installment loans, totaled $34.7$33.5 billion at June 30, 2019,March 31, 2020, and primarilylargely included student and securities-based loans. Our private student loan portfolio totaled $10.9$10.6 billion at June 30, 2019.March 31, 2020. The net charge-off rate (annualized) for other revolving credit and installment loans was 1.56%1.59% for secondfirst quarter 2019,2020, compared with 1.44%1.47% for secondfirst quarter 2018 and 1.52% for both the first half of 2019 and 2018.2019.
Risk Management - Credit Risk Management (continued)
NONPERFORMING ASSETS (NONACCRUAL LOANS AND FORECLOSED ASSETS) Table 2119 summarizes nonperforming assets (NPAs) for each of the last four quarters. Total NPAs decreased $1.0 billionincreased $759 million from firstfourth quarter 2019 to $6.3$6.4 billion. Nonaccrual loans decreased $983of $6.2 billion increased $810 million from firstfourth quarter 2019 to $5.9 billion,2019. Commercial nonaccrual loans increased predominantly due to an increase in commercial and industrial and real estate mortgage nonaccrual loans as a declineresult of the economic slowdown due to the COVID-19 pandemic impacting our customers. Consumer nonaccrual loans increased driven by higher nonaccruals in consumer nonaccruals from the reclassification of $373 million in real estate 1-4 family first mortgage portfolio, as our adoption of CECL required PCI loans to be classified as nonaccruing based on performance. Prior to January 1, 2020, PCI loans were excluded from nonaccrual loans because they continued to MLHFS,earn interest income from accretable yield, independent of performance in accordance with their contractual terms. However, as wella result of our adoption of CECL on January 1, 2020, $275 million of real estate 1-4 family mortgage loans were reclassified from PCI to PCD loans, and as other broad-based improvement across several commercial industry categories. Foreclosed assets of $377 milliona result, were downalso classified as nonaccrual loans given their contractual delinquency. For more information on PCD
$59 million from first quarter 2019. loans, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report.
For information about when we generally place loans on nonaccrual status, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 20182019 Form 10-K. Credit cardAs part of our actions to support customers during the COVID-19 pandemic, we have provided borrowers relief in the form of loan modifications. Loan delinquency status will not change during any payment deferral period and loans arethat were accruing at the time the relief was provided generally will not be placed on nonaccrual status but are generally fully charged off whenduring the loan reaches 180 days past due.deferral period. For additionalmore information on impaired loans,customer accommodations, including loan modifications, in response to the COVID-19 pandemic, see Note 6 (Loans and Allowance forthe “Risk Management – Credit Losses)Risk Management – Actions to Financial StatementsSupport Customers During the COVID-19 Pandemic” section in this Report.
Foreclosed assets of $252 million were down $51 million from fourth quarter 2019.
Table 21:19: Nonperforming Assets (Nonaccrual Loans and Foreclosed Assets)
| | | | June 30, 2019 | | | March 31, 2019 | | | December 31, 2018 | | | September 30, 2018 | | | March 31, 2020 | | | December 31, 2019 | | | September 30, 2019 | | | June 30, 2019 | |
($ 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 | | $ | 1,634 |
| | 0.47 | % | | $ | 1,986 |
| | 0.57 | % | | $ | 1,486 |
| | 0.42 | % | | $ | 1,555 |
| | 0.46 | % | | $ | 1,779 |
| | 0.44 | % | | $ | 1,545 |
| | 0.44 | % | | $ | 1,539 |
| | 0.44 | % | | $ | 1,634 |
| | 0.47 | % |
Real estate mortgage | | 737 |
| | 0.60 |
| | 699 |
| | 0.57 |
| | 580 |
| | 0.48 |
| | 603 |
| | 0.50 |
| | 944 |
| | 0.77 |
| | 573 |
| | 0.47 |
| | 669 |
| | 0.55 |
| | 737 |
| | 0.60 |
|
Real estate construction | | 36 |
| | 0.17 |
| | 36 |
| | 0.16 |
| | 32 |
| | 0.14 |
| | 44 |
| | 0.19 |
| | 21 |
| | 0.10 |
| | 41 |
| | 0.21 |
| | 32 |
| | 0.16 |
| | 36 |
| | 0.17 |
|
Lease financing | | 63 |
| | 0.33 |
| | 76 |
| | 0.40 |
| | 90 |
| | 0.46 |
| | 96 |
| | 0.49 |
| | 131 |
| | 0.68 |
| | 95 |
| | 0.48 |
| | 72 |
| | 0.37 |
| | 63 |
| | 0.33 |
|
Total commercial | | 2,470 |
| | 0.48 |
| | 2,797 |
| | 0.55 |
| | 2,188 |
| | 0.43 |
| | 2,298 |
| | 0.46 |
| | 2,875 |
| | 0.51 |
| | 2,254 |
| | 0.44 |
| | 2,312 |
| | 0.45 |
| | 2,470 |
| | 0.48 |
|
Consumer: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Real estate 1-4 family first mortgage(1) | | 2,425 |
| | 0.85 |
| | 3,026 |
| | 1.06 |
| | 3,183 |
| | 1.12 |
| | 3,267 |
| | 1.15 |
| | 2,372 |
| | 0.81 |
| | 2,150 |
| | 0.73 |
| | 2,261 |
| | 0.78 |
| | 2,425 |
| | 0.85 |
|
Real estate 1-4 family junior lien mortgage(1) | | 868 |
| | 2.71 |
| | 916 |
| | 2.77 |
| | 945 |
| | 2.75 |
| | 983 |
| | 2.78 |
| | 769 |
| | 2.70 |
| | 796 |
| | 2.70 |
| | 819 |
| | 2.66 |
| | 868 |
| | 2.71 |
|
Automobile | | 115 |
| | 0.25 |
| | 116 |
| | 0.26 |
| | 130 |
| | 0.29 |
| | 118 |
| | 0.26 |
| | 99 |
| | 0.20 |
| | 106 |
| | 0.22 |
| | 110 |
| | 0.24 |
| | 115 |
| | 0.25 |
|
Other revolving credit and installment | | 44 |
| | 0.13 |
| | 50 |
| | 0.14 |
| | 50 |
| | 0.14 |
| | 48 |
| | 0.13 |
| | 41 |
| | 0.12 |
| | 40 |
| | 0.12 |
| | 43 |
| | 0.12 |
| | 44 |
| | 0.13 |
|
Total consumer | | 3,452 |
| | 0.79 |
| | 4,108 |
| | 0.94 |
| | 4,308 |
| | 0.98 |
| | 4,416 |
| | 1.00 |
| | 3,281 |
| | 0.74 |
| | 3,092 |
| | 0.69 |
| | 3,233 |
| | 0.73 |
| | 3,452 |
| | 0.79 |
|
Total nonaccrual loans (2) | | 5,922 |
| | 0.62 |
| | 6,905 |
| | 0.73 |
| | 6,496 |
| | 0.68 |
| | 6,714 |
| | 0.71 |
| | 6,156 |
| | 0.61 |
| | 5,346 |
| | 0.56 |
| | 5,545 |
| | 0.58 |
| | 5,922 |
| | 0.62 |
|
Foreclosed assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Government insured/guaranteed (3)(2) | | 68 |
| | | | 75 |
| | | | 88 |
| | | | 87 |
| | | | 43 |
| | | | 50 |
| | | | 59 |
| | | | 68 |
| | |
Non-government insured/guaranteed | | 309 |
| | | | 361 |
| | | | 363 |
| | | | 435 |
| | | | 209 |
| | | | 253 |
| | | | 378 |
| | | | 309 |
| | |
Total foreclosed assets | | 377 |
| | | | 436 |
| | | | 451 |
| | | | 522 |
| | | | 252 |
| | | | 303 |
| | | | 437 |
| | | | 377 |
| | |
Total nonperforming assets | | $ | 6,299 |
| | 0.66 | % | | $ | 7,341 |
| | 0.77 | % | | $ | 6,947 |
| | 0.73 | % | | $ | 7,236 |
| | 0.77 | % | | $ | 6,408 |
| | 0.63 | % | | $ | 5,649 |
| | 0.59 | % | | $ | 5,982 |
| | 0.63 | % | | $ | 6,299 |
| | 0.66 | % |
Change in NPAs from prior quarter | | $ | (1,042 | ) | | | | 394 |
| | | | (289 | ) | | | | (389 | ) | | | | $ | 759 |
| | | | (333 | ) | | | | (317 | ) | | | | (1,042 | ) | | |
| |
(1) | Excludes PCI loans because they continue to earn interest income from accretable yield, independent of performance in accordance with their contractual terms. |
| |
(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. |
| |
(3)(2) | Consistent with regulatory reporting requirements, foreclosed real estate resulting from government insured/guaranteed loans are classified as nonperforming. 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. ForeclosureReceivables related to the foreclosure of certain government guaranteed residential real estate mortgage loans are excluded from this table and included in Accounts Receivable in Other Assets. For more information on foreclosed assets, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 20182019 Form 10-K. |
Table 2220 provides an analysis of the changes in nonaccrual loans.
Table 22:20: Analysis of Changes in Nonaccrual Loans
| | | Quarter ended | | Quarter ended | |
(in millions) | Jun 30, 2019 |
| | Mar 31, 2019 |
| | Dec 31, 2018 |
| | Sep 30, 2018 |
| | Jun 30, 2018 |
| Mar 31, 2020 |
| | Dec 31, 2019 |
| | Sep 30, 2019 |
| | Jun 30, 2019 |
| | Mar 31, 2019 |
|
Commercial nonaccrual loans | | | | | | | | | | | | | | | | | | |
Balance, beginning of period | $ | 2,797 |
| | 2,188 |
| | 2,298 |
| | 2,455 |
| | 2,409 |
| $ | 2,254 |
| | 2,312 |
| | 2,470 |
| | 2,797 |
| | 2,188 |
|
Inflows | 621 |
| | 1,238 |
| | 662 |
| | 774 |
| | 726 |
| 1,479 |
| | 652 |
| | 710 |
| | 621 |
| | 1,238 |
|
Outflows: | | | | | | | | | | | | | | | | | | |
Returned to accruing | (46 | ) | | (43 | ) | | (45 | ) | | (122 | ) | | (43 | ) | (56 | ) | | (124 | ) | | (52 | ) | | (46 | ) | | (43 | ) |
Foreclosures | (2 | ) | | (15 | ) | | (12 | ) | | — |
| | — |
| — |
| | — |
| | (78 | ) | | (2 | ) | | (15 | ) |
Charge-offs | (187 | ) | | (158 | ) | | (193 | ) | | (191 | ) | | (133 | ) | (360 | ) | | (201 | ) | | (194 | ) | | (187 | ) | | (158 | ) |
Payments, sales and other | (713 | ) | | (413 | ) | | (522 | ) | | (618 | ) | | (504 | ) | (442 | ) | | (385 | ) | | (544 | ) | | (713 | ) | | (413 | ) |
Total outflows | (948 | ) | | (629 | ) | | (772 | ) | | (931 | ) | | (680 | ) | (858 | ) | | (710 | ) | | (868 | ) | | (948 | ) | | (629 | ) |
Balance, end of period | 2,470 |
|
| 2,797 |
|
| 2,188 |
|
| 2,298 |
|
| 2,455 |
| 2,875 |
|
| 2,254 |
|
| 2,312 |
|
| 2,470 |
|
| 2,797 |
|
Consumer nonaccrual loans | | | | | | | | | | | | | | | | | | |
Balance, beginning of period | 4,108 |
| | 4,308 |
| | 4,416 |
| | 4,671 |
| | 4,930 |
| 3,092 |
| | 3,233 |
| | 3,452 |
| | 4,108 |
| | 4,308 |
|
Inflows | 437 |
| | 552 |
| | 569 |
| | 572 |
| | 578 |
| |
Inflows (1) | | 749 |
| | 473 |
| | 448 |
| | 437 |
| | 552 |
|
Outflows: | | | | | | | | | | | | | | | | | | |
Returned to accruing | (250 | ) | | (248 | ) | | (269 | ) | | (319 | ) | | (342 | ) | (254 | ) | | (227 | ) | | (274 | ) | | (250 | ) | | (248 | ) |
Foreclosures | (34 | ) | | (42 | ) | | (35 | ) | | (41 | ) | | (40 | ) | (21 | ) | | (29 | ) | | (32 | ) | | (34 | ) | | (42 | ) |
Charge-offs | (34 | ) | | (49 | ) | | (57 | ) | | (65 | ) | | (84 | ) | (48 | ) | | (45 | ) | | (44 | ) | | (34 | ) | | (49 | ) |
Payments, sales and other | (775 | ) | | (413 | ) | | (316 | ) | | (402 | ) | | (371 | ) | (237 | ) | | (313 | ) | | (317 | ) | | (775 | ) | | (413 | ) |
Total outflows | (1,093 | ) | | (752 | ) | | (677 | ) | | (827 | ) | | (837 | ) | (560 | ) | | (614 | ) | | (667 | ) | | (1,093 | ) | | (752 | ) |
Balance, end of period | 3,452 |
|
| 4,108 |
|
| 4,308 |
|
| 4,416 |
|
| 4,671 |
| 3,281 |
|
| 3,092 |
|
| 3,233 |
|
| 3,452 |
|
| 4,108 |
|
Total nonaccrual loans | $ | 5,922 |
| | 6,905 |
| | 6,496 |
| | 6,714 |
| | 7,126 |
| $ | 6,156 |
| | 5,346 |
| | 5,545 |
| | 5,922 |
| | 6,905 |
|
| |
(1) | In connection with our adoption of CECL on January 1, 2020, we classified $275 million of PCD loans as nonaccruing based on performance. |
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.
While nonaccrual loans are not free of loss content, we believe exposure to loss is significantly mitigated by the following factors at June 30, 2019:March 31, 2020:
| |
• | 85%94% of total commercial nonaccrual loans and 99% of total consumer nonaccrual loans are secured. Of the consumer nonaccrual loans, 95%96% are secured by real estate and 87%88% have a combined LTV (CLTV) ratio of 80% or less.
|
| |
• | losses of $284573 million and $1.1 billion985 million have already been recognized on 15%11% of commercial nonaccrual loans and 38%34% 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. |
| |
• | 70%73% of commercial nonaccrual loans were current on interest and 54%66% of commercial nonaccrual loans 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 $1.51.4 billion of consumer loans in bankruptcy or discharged in bankruptcy, and classified as nonaccrual, $1.0 billion905 million 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.
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 2321 provides a summary of foreclosed assets and an analysis of changes in foreclosed assets.
Table 23:21: Foreclosed Assets
| | (in millions) | Jun 30, 2019 |
| | Mar 31, 2019 |
| | Dec 31, 2018 |
| | Sep 30, 2018 |
| | Jun 30, 2018 |
| Mar 31, 2020 |
| | Dec 31, 2019 |
| | Sep 30, 2019 |
| | Jun 30, 2019 |
| | Mar 31, 2019 |
|
Summary by loan segment | | | | | | | | | | | | | | | | | | |
Government insured/guaranteed | $ | 68 |
| | 75 |
| | 88 |
| | 87 |
| | 90 |
| $ | 43 |
| | 50 |
| | 59 |
| | 68 |
| | 75 |
|
Commercial | 101 |
| | 124 |
| | 127 |
| | 201 |
| | 176 |
| 49 |
| | 62 |
| | 180 |
| | 101 |
| | 124 |
|
Consumer | 208 |
| | 237 |
| | 236 |
| | 234 |
| | 233 |
| 160 |
| | 191 |
| | 198 |
| | 208 |
| | 237 |
|
Total foreclosed assets | $ | 377 |
| | 436 |
| | 451 |
| | 522 |
| | 499 |
| $ | 252 |
| | 303 |
| | 437 |
| | 377 |
| | 436 |
|
Analysis of changes in foreclosed assets | | | | | | | | | | | | | | | | | | |
Balance, beginning of period | $ | 436 |
| | 451 |
| | 522 |
| | 499 |
| | 571 |
| $ | 303 |
| | 437 |
| | 377 |
| | 436 |
| | 451 |
|
Net change in government insured/guaranteed (1) | (7 | ) | | (13 | ) | | 1 |
| | (3 | ) | | (13 | ) | (7 | ) | | (9 | ) | | (9 | ) | | (7 | ) | | (13 | ) |
Additions to foreclosed assets (2) | 144 |
| | 193 |
| | 193 |
| | 209 |
| | 191 |
| 107 |
| | 126 |
| | 235 |
| | 144 |
| | 193 |
|
Reductions: | | | | | | | | | | | | | | | | | | |
Sales | (199 | ) | | (205 | ) | | (274 | ) | | (181 | ) | | (257 | ) | (154 | ) | | (250 | ) | | (155 | ) | | (199 | ) | | (205 | ) |
Write-downs and gains (losses) on sales | 3 |
| | 10 |
| | 9 |
| | (2 | ) | | 7 |
| 3 |
| | (1 | ) | | (11 | ) | | 3 |
| | 10 |
|
Total reductions | (196 | ) | | (195 | ) | | (265 | ) | | (183 | ) | | (250 | ) | (151 | ) | | (251 | ) | | (166 | ) | | (196 | ) | | (195 | ) |
Balance, end of period | $ | 377 |
| | 436 |
| | 451 |
| | 522 |
| | 499 |
| $ | 252 |
| | 303 |
| | 437 |
| | 377 |
| | 436 |
|
| |
(1) | Foreclosed government insured/guaranteed loans are temporarily transferred to and held by us as servicer, until reimbursement is received from FHA or VA. |
| |
(2) | Includes loans moved into foreclosed assets from nonaccrual status PCI loans transitioned directly to foreclosed assets and repossessed automobiles. |
Foreclosed assets at June 30, 2019,March 31, 2020, included $253$180 million of foreclosed residential real estate, of which 27%24% is predominantly FHA insured or VA guaranteed and expected to have minimal or no loss content. The remaining amount of foreclosed assets has been written down to estimated net realizable value. Of the $377$252 million in foreclosed assets at June 30, 2019, 67%March 31, 2020, 71% have been in the foreclosed assets portfolio one year or less.
As part of our actions to support customers during the COVID-19 pandemic, we have suspended certain mortgage foreclosure activities, which may affect the amount of our foreclosed assets for the remainder of the year. For additional information on loans in process of foreclosure, see Note 6 (Loans and Related Allowance for Credit Losses) to Financial Statements in this Report.
TROUBLED DEBT RESTRUCTURINGS (TDRs)
Table 24:22: Troubled Debt Restructurings (TDRs)
| | (in millions) | Jun 30, 2019 |
|
| Mar 31, 2019 |
|
| Dec 31, 2018 |
|
| Sep 30, 2018 |
|
| Jun 30, 2018 |
| Mar 31, 2020 |
|
| Dec 31, 2019 |
|
| Sep 30, 2019 |
|
| Jun 30, 2019 |
|
| Mar 31, 2019 |
|
Commercial: | | | | | | | | | | | | | | | | | | |
Commercial and industrial | $ | 1,294 |
| | 1,740 |
| | 1,623 |
| | 1,837 |
| | 1,792 |
| $ | 1,302 |
| | 1,183 |
| | 1,162 |
| | 1,294 |
| | 1,740 |
|
Real estate mortgage | 620 |
| | 681 |
| | 704 |
| | 782 |
| | 904 |
| 697 |
| | 669 |
| | 598 |
| | 620 |
| | 681 |
|
Real estate construction | 43 |
| | 45 |
| | 39 |
| | 49 |
| | 40 |
| 33 |
| | 36 |
| | 40 |
| | 43 |
| | 45 |
|
Lease financing | 31 |
| | 46 |
| | 56 |
| | 65 |
| | 50 |
| 10 |
| | 13 |
| | 16 |
| | 31 |
| | 46 |
|
Total commercial TDRs | 1,988 |
| | 2,512 |
| | 2,422 |
| | 2,733 |
| | 2,786 |
| 2,042 |
| | 1,901 |
| | 1,816 |
| | 1,988 |
| | 2,512 |
|
Consumer: | | | | | | | | | | | | | | | | | | |
Real estate 1-4 family first mortgage | 8,218 |
| | 10,343 |
| | 10,629 |
| | 10,967 |
| | 11,387 |
| 7,284 |
| | 7,589 |
| | 7,905 |
| | 8,218 |
| | 10,343 |
|
Real estate 1-4 family junior lien mortgage | 1,550 |
| | 1,604 |
| | 1,639 |
| | 1,689 |
| | 1,735 |
| 1,356 |
| | 1,407 |
| | 1,457 |
| | 1,550 |
| | 1,604 |
|
Credit Card | 486 |
| | 473 |
| | 449 |
| | 431 |
| | 410 |
| 527 |
| | 520 |
| | 504 |
| | 486 |
| | 473 |
|
Automobile | 85 |
| | 85 |
| | 89 |
| | 91 |
| | 81 |
| 76 |
| | 81 |
| | 82 |
| | 85 |
| | 85 |
|
Other revolving credit and installment | 159 |
| | 156 |
| | 154 |
| | 146 |
| | 141 |
| 172 |
| | 170 |
| | 167 |
| | 159 |
| | 156 |
|
Trial modifications | 127 |
| | 136 |
| | 149 |
| | 163 |
| | 200 |
| 108 |
| | 115 |
| | 123 |
| | 127 |
| | 136 |
|
Total consumer TDRs | 10,625 |
| | 12,797 |
| | 13,109 |
| | 13,487 |
| | 13,954 |
| 9,523 |
| | 9,882 |
| | 10,238 |
| | 10,625 |
| | 12,797 |
|
Total TDRs | $ | 12,613 |
| | 15,309 |
| | 15,531 |
| | 16,220 |
| | 16,740 |
| $ | 11,565 |
| | 11,783 |
| | 12,054 |
| | 12,613 |
| | 15,309 |
|
TDRs on nonaccrual status | $ | 3,058 |
| | 4,037 |
| | 4,058 |
| | 4,298 |
| | 4,454 |
| $ | 2,846 |
| | 2,833 |
| | 2,775 |
| | 3,058 |
| | 4,037 |
|
TDRs on accrual status: | | | | | | | | | | | | | | | | | | |
Government insured/guaranteed | 1,209 |
| | 1,275 |
| | 1,299 |
| | 1,308 |
| | 1,368 |
| 1,157 |
| | 1,190 |
| | 1,199 |
| | 1,209 |
| | 1,275 |
|
Non-government insured/guaranteed | 8,346 |
| | 9,997 |
| | 10,174 |
| | 10,614 |
| | 10,918 |
| 7,562 |
| | 7,760 |
| | 8,080 |
| | 8,346 |
| | 9,997 |
|
Total TDRs | $ | 12,613 |
| | 15,309 |
| | 15,531 |
| | 16,220 |
| | 16,740 |
| $ | 11,565 |
| | 11,783 |
| | 12,054 |
| | 12,613 |
| | 15,309 |
|
Table 2422 provides information regarding the recorded investment of loans modified in TDRs. The allowance for loan losses for TDRs was $1.1 billion$439 million and $1.2$1.0 billion at June 30, 2019,March 31, 2020, and December 31, 2018,2019, respectively. See Note 6 (Loans and Related 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. 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. As part of our actions to support customers during the COVID-19 pandemic, we have provided borrowers relief in the form of loan modifications. Under the CARES Act and the Interagency Statement, loan modifications related to the COVID-19 pandemic will not be classified as TDRs if they meet certain eligibility criteria. For more information on the CARES Act and the Interagency Statement, see the “Risk Management – Credit Risk Management – Actions to Support Customers During the COVID-19 Pandemic” section in this Report.
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 20182019 Form 10-K.
Table 2523 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 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 25:23: Analysis of Changes in TDRs
| | | | | | | Quarter ended | | | | | | Quarter ended | |
(in millions) | Jun 30, 2019 |
| | Mar 31, 2019 |
| | Dec 31, 2018 |
| | Sep 30, 2018 |
| | Jun 30, 2018 |
| Mar 31, 2020 |
| | Dec 31, 2019 |
| | Sep 30, 2019 |
| | Jun 30, 2019 |
| | Mar 31, 2019 |
|
Commercial TDRs | | | | | | | | | | | | | | | | | | |
Balance, beginning of quarter | $ | 2,512 |
| | 2,422 |
| | 2,733 |
| | 2,786 |
| | 2,740 |
| $ | 1,901 |
| | 1,816 |
| | 1,988 |
| | 2,512 |
| | 2,422 |
|
Inflows (1)(2) | 232 |
| | 539 |
| | 374 |
| | 588 |
| | 481 |
| |
Inflows (1) | | 452 |
| | 476 |
| | 293 |
| | 232 |
| | 539 |
|
Outflows | | | | | | | | | | | | | | | | | | |
Charge-offs | (37 | ) | | (44 | ) | | (88 | ) | | (92 | ) | | (41 | ) | (56 | ) | | (48 | ) | | (66 | ) | | (37 | ) | | (44 | ) |
Foreclosures | — |
| | — |
| | (2 | ) | | (13 | ) | | — |
| — |
| | (1 | ) | | — |
| | — |
| | — |
|
Payments, sales and other (3)(2) | (719 | ) | | (405 | ) | | (595 | ) | | (536 | ) | | (394 | ) | (255 | ) | | (342 | ) | | (399 | ) | | (719 | ) | | (405 | ) |
Balance, end of quarter | 1,988 |
| | 2,512 |
| | 2,422 |
| | 2,733 |
| | 2,786 |
| 2,042 |
| | 1,901 |
| | 1,816 |
| | 1,988 |
| | 2,512 |
|
Consumer TDRs | | | | | | | | | | | | | | | | | | |
Balance, beginning of quarter | 12,797 |
| | 13,109 |
| | 13,487 |
| | 13,954 |
| | 14,380 |
| 9,882 |
| | 10,238 |
| | 10,625 |
| | 12,797 |
| | 13,109 |
|
Inflows (1) | 336 |
| | 439 |
| | 379 |
| | 414 |
| | 467 |
| 312 |
| | 350 |
| | 360 |
| | 336 |
| | 439 |
|
Outflows | | | | | | | | | | | | | | | | | | |
Charge-offs | (61 | ) | | (60 | ) | | (57 | ) | | (56 | ) | | (56 | ) | (63 | ) | | (57 | ) | | (56 | ) | | (61 | ) | | (60 | ) |
Foreclosures | (74 | ) | | (86 | ) | | (90 | ) | | (116 | ) | | (133 | ) | (57 | ) | | (61 | ) | | (70 | ) | | (74 | ) | | (86 | ) |
Payments, sales and other (3)(2) | (2,364 | ) | | (593 | ) | | (595 | ) | | (672 | ) | | (706 | ) | (544 | ) | | (580 | ) | | (617 | ) | | (2,364 | ) | | (593 | ) |
Net change in trial modifications (4)(3) | (9 | ) | | (12 | ) | | (15 | ) | | (37 | ) | | 2 |
| (7 | ) | | (8 | ) | | (4 | ) | | (9 | ) | | (12 | ) |
Balance, end of quarter | 10,625 |
| | 12,797 |
| | 13,109 |
| | 13,487 |
| | 13,954 |
| 9,523 |
| | 9,882 |
| | 10,238 |
| | 10,625 |
| | 12,797 |
|
Total TDRs | $ | 12,613 |
| | 15,309 |
| | 15,531 |
| | 16,220 |
| | 16,740 |
| $ | 11,565 |
| | 11,783 |
| | 12,054 |
| | 12,613 |
| | 15,309 |
|
| |
(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 consist of normal amortization/accretion of loan basis adjustments and loans transferred to held-for-sale. Occasionally, loans that have been refinanced or restructured at market terms qualify as new loans, which are also included as other outflows. |
| |
(4)(3) | Net change in trial modifications includes: inflows of new TDRs entering the trial payment period, net of outflows for modifications that either (i) successfully perform and enter into a permanent modification, or (ii) did not successfully perform according to the terms of the trial period plan and are subsequently charged-off, foreclosed upon or otherwise resolved. |
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. Prior to January 1, 2020, PCI loans are not included inwere excluded from loans 90 days or more 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 continuecontinued to earn interest income from accretable yield, independent of performance in accordance with their contractual terms. In connection with our adoption of CECL, PCI loans were reclassified as PCD loans and classified as accruing or nonaccruing based on performance.
Excluding insured/guaranteed loans, loans
Loans 90 days or more past due and still accruing, excluding insured/guaranteed loans, at June 30, 2019,March 31, 2020, were down $199$52 million, or 20%6%, from December 31, 2018,2019 due to payoffs,
other loss mitigation activities, and credit stabilization.payoffs. Also, fluctuations from quarter to quarter aremay be 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 $6.5$6.1 billion at June 30, 2019,March 31, 2020, down from $7.7$6.4 billion at December 31, 2018, due to an improvement in delinquencies as well as a reduction in the portfolio.2019.
Table 2624 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 Related Allowance for Credit Losses) to Financial Statements in this Report.
Table 26:24: Loans 90 Days or More Past Due and Still Accruing
| | (in millions) | Jun 30, 2019 |
| | Mar 31, 2019 |
| | Dec 31, 2018 |
| | Sep 30, 2018 |
| | Jun 30, 2018 |
| Mar 31, 2020 |
| | Dec 31, 2019 |
| | Sep 30, 2019 |
| | Jun 30, 2019 |
| | Mar 31, 2019 |
|
Total (excluding PCI (1)): | $ | 7,258 |
| | 7,870 |
| | 8,704 |
| | 8,838 |
| | 9,087 |
| |
Total: | | $ | 7,023 |
| | 7,285 |
| | 7,130 |
| | 7,258 |
| | 7,870 |
|
Less: FHA insured/VA guaranteed (2)(1) | 6,478 |
| | 6,996 |
| | 7,725 |
| | 7,906 |
| | 8,246 |
| 6,142 |
| | 6,352 |
| | 6,308 |
| | 6,478 |
| | 6,996 |
|
Total, not government insured/guaranteed | $ | 780 |
| | 874 |
| | 979 |
| | 932 |
| | 841 |
| $ | 881 |
| | 933 |
| | 822 |
| | 780 |
| | 874 |
|
By segment and class, not government insured/guaranteed: Commercial: | | | | | | | | | | | | | | | | | | |
Commercial and industrial | $ | 17 |
| | 42 |
| | 43 |
| | 42 |
| | 23 |
| $ | 24 |
| | 47 |
| | 6 |
| | 17 |
| | 42 |
|
Real estate mortgage | 24 |
| | 20 |
| | 51 |
| | 56 |
| | 26 |
| 28 |
| | 31 |
| | 28 |
| | 24 |
| | 20 |
|
Real estate construction | — |
| | 5 |
| | — |
| | — |
| | — |
| 1 |
| | — |
| | — |
| | — |
| | 5 |
|
Total commercial | 41 |
|
| 67 |
|
| 94 |
|
| 98 |
|
| 49 |
| 53 |
|
| 78 |
|
| 34 |
|
| 41 |
|
| 67 |
|
Consumer: | | | | | | | | | | | | | | | | | | |
Real estate 1-4 family first mortgage | 108 |
| | 117 |
| | 124 |
| | 128 |
| | 132 |
| 128 |
| | 112 |
| | 100 |
| | 108 |
| | 117 |
|
Real estate 1-4 family junior lien mortgage | 27 |
| | 28 |
| | 32 |
| | 32 |
| | 33 |
| 25 |
| | 32 |
| | 35 |
| | 27 |
| | 28 |
|
Credit card | 449 |
| | 502 |
| | 513 |
| | 460 |
| | 429 |
| 528 |
| | 546 |
| | 491 |
| | 449 |
| | 502 |
|
Automobile | 63 |
| | 68 |
| | 114 |
| | 108 |
| | 105 |
| 69 |
| | 78 |
| | 75 |
| | 63 |
| | 68 |
|
Other revolving credit and installment | 92 |
| | 92 |
| | 102 |
| | 106 |
| | 93 |
| 78 |
| | 87 |
| | 87 |
| | 92 |
| | 92 |
|
Total consumer | 739 |
| | 807 |
|
| 885 |
|
| 834 |
|
| 792 |
| 828 |
| | 855 |
|
| 788 |
|
| 739 |
|
| 807 |
|
Total, not government insured/guaranteed | $ | 780 |
| | 874 |
|
| 979 |
|
| 932 |
|
| 841 |
| $ | 881 |
| | 933 |
|
| 822 |
|
| 780 |
|
| 874 |
|
| |
(1) | PCI loans totaled $156 million, $243 million, $370 million, $567 million, and $811 million at June 30, and March 31, 2019, and December 31, September 30, and June 30, 2018, respectively. |
| |
(2) | Represents loans whose repayments are predominantly insured by the FHA or guaranteed by the VA. |
Risk Management - Credit Risk Management (continued)
NET LOAN CHARGE-OFFS
Table 27:25: Net Loan Charge-offs
| | | | | | | | | | | | | | | | | Quarter ended | | | | | | | | | | | | | | | | Quarter ended | |
| Jun 30, 2019 | | | Mar 31, 2019 | | | Dec 31, 2018 | | | Sep 30, 2018 | | | Jun 30, 2018 | | Mar 31, 2020 | | | Dec 31, 2019 | | | Sep 30, 2019 | | | Jun 30, 2019 | | | Mar 31, 2019 | |
($ 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 | $ | 159 |
| | 0.18 | % | | $ | 133 |
| | 0.15 | % | | $ | 132 |
| | 0.15 | % | | $ | 148 |
| | 0.18 | % | | $ | 58 |
| | 0.07 | % | $ | 333 |
| | 0.37 | % | | $ | 168 |
| | 0.19 | % | | $ | 147 |
| | 0.17 | % | | $ | 159 |
| | 0.18 | % | | $ | 133 |
| | 0.15 | % |
Real estate mortgage | 4 |
| | 0.01 |
| | 6 |
| | 0.02 |
| | (12 | ) | | (0.04 | ) | | (1 | ) | | — |
| | — |
| | — |
| (2 | ) | | (0.01 | ) | | 4 |
| | 0.01 |
| | (8 | ) | | (0.02 | ) | | 4 |
| | 0.01 |
| | 6 |
| | 0.02 |
|
Real estate construction | (2 | ) | | (0.04 | ) | | (2 | ) | | (0.04 | ) | | (1 | ) | | (0.01 | ) | | (2 | ) | | (0.04 | ) | | (6 | ) | | (0.09 | ) | (16 | ) | | (0.32 | ) | | — |
| | — |
| | (8 | ) | | (0.14 | ) | | (2 | ) | | (0.04 | ) | | (2 | ) | | (0.04 | ) |
Lease financing | 4 |
| | 0.09 |
| | 8 |
| | 0.17 |
| | 13 |
| | 0.26 |
| | 7 |
| | 0.14 |
| | 15 |
| | 0.32 |
| 9 |
| | 0.19 |
| | 31 |
| | 0.63 |
| | 8 |
| | 0.17 |
| | 4 |
| | 0.09 |
| | 8 |
| | 0.17 |
|
Total commercial | 165 |
| | 0.13 |
| | 145 |
| | 0.11 |
| | 132 |
| | 0.10 |
| | 152 |
| | 0.12 |
| | 67 |
| | 0.05 |
| 324 |
| | 0.25 |
| | 203 |
| | 0.16 |
| | 139 |
| | 0.11 |
| | 165 |
| | 0.13 |
| | 145 |
| | 0.11 |
|
Consumer: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Real estate 1-4 family first mortgage | (30 | ) | | (0.04 | ) | | (12 | ) | | (0.02 | ) | | (22 | ) | | (0.03 | ) | | (25 | ) | | (0.04 | ) | | (23 | ) | | (0.03 | ) | (3 | ) | | — |
| | (3 | ) | | — |
| | (5 | ) | | (0.01 | ) | | (30 | ) | | (0.04 | ) | | (12 | ) | | (0.02 | ) |
Real estate 1-4 family junior lien mortgage | (19 | ) | | (0.24 | ) | | (9 | ) | | (0.10 | ) | | (10 | ) | | (0.11 | ) | | (9 | ) | | (0.10 | ) | | (13 | ) | | (0.13 | ) | (5 | ) | | (0.07 | ) | | (16 | ) | | (0.20 | ) | | (22 | ) | | (0.28 | ) | | (19 | ) | | (0.24 | ) | | (9 | ) | | (0.10 | ) |
Credit card | 349 |
| | 3.68 |
| | 352 |
| | 3.73 |
| | 338 |
| | 3.54 |
| | 299 |
| | 3.22 |
| | 323 |
| | 3.61 |
| 377 |
| | 3.81 |
| | 350 |
| | 3.48 |
| | 319 |
| | 3.22 |
| | 349 |
| | 3.68 |
| | 352 |
| | 3.73 |
|
Automobile | 52 |
| | 0.46 |
| | 91 |
| | 0.82 |
| | 133 |
| | 1.16 |
| | 130 |
| | 1.10 |
| | 113 |
| | 0.93 |
| 82 |
| | 0.68 |
| | 87 |
| | 0.73 |
| | 76 |
| | 0.65 |
| | 52 |
| | 0.46 |
| | 91 |
| | 0.82 |
|
Other revolving credit and installment | 136 |
| | 1.56 |
| | 128 |
| | 1.47 |
| | 150 |
| | 1.64 |
| | 133 |
| | 1.44 |
| | 135 |
| | 1.44 |
| 134 |
| | 1.59 |
| | 148 |
| | 1.71 |
| | 138 |
| | 1.60 |
| | 136 |
| | 1.56 |
| | 128 |
| | 1.47 |
|
Total consumer | 488 |
| | 0.45 |
| | 550 |
| | 0.51 |
| | 589 |
| | 0.53 |
| | 528 |
| | 0.47 |
| | 535 |
| | 0.49 |
| 585 |
| | 0.53 |
| | 566 |
| | 0.51 |
| | 506 |
| | 0.46 |
| | 488 |
| | 0.45 |
| | 550 |
| | 0.51 |
|
Total | $ | 653 |
| | 0.28 | % | | $ | 695 |
| | 0.30 | % | | $ | 721 |
| | 0.30 | % | | $ | 680 |
| | 0.29 | % | | $ | 602 |
| | 0.26 | % | $ | 909 |
| | 0.38 | % | | $ | 769 |
| | 0.32 | % | | $ | 645 |
| | 0.27 | % | | $ | 653 |
| | 0.28 | % | | $ | 695 |
| | 0.30 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
(1) | Quarterly net loan charge-offs (recoveries) as a percentage of average respective loans are annualized. |
Table 2725 presents net loan charge-offs for secondfirst quarter 20192020 and the previous four quarters. Net loan charge-offs in secondfirst quarter 20192020 were $653$909 million (0.28%(0.38% of average total loans outstanding), compared with $602$695 million (0.26%(0.30%) in secondfirst quarter 2018.2019.
The increase in commercial net charge-offs from second quarter 2018 was due to higher commercial and industrial net loan charge-offs in first quarter 2020 was driven by higher losses in our oil and lower recoveriesgas portfolio. The increase in consumer net loan charge-offs in first quarter 2020 was driven by higher losses in the commercial and industrial portfolio. Consumer net charge-offs decreased from the prior year predominantly due to a decrease in automobile net charge-offs, partially offset by an increase in credit card portfolio.
The COVID-19 pandemic may continue to impact the credit quality of our loan portfolio, including resulting in additional net loan charge-offs. For more information on customer accommodations in response to the COVID-19 pandemic, see the “Risk Management – Credit Risk Management – Actions to Support Customers During the COVID-19 Pandemic” section in this Report.
ALLOWANCE FOR CREDIT LOSSESTheWe maintain an allowance for credit losses which consists of the allowance for loan losses and the allowance for unfunded credit commitments,loans, which is management’s estimate of the expected credit losses inherent in the loan portfolio and unfunded credit commitments, at the balance sheet date, excluding loans and unfunded credit commitments carried at fair value. The detail of the changes in thevalue or held for sale. Additionally, we maintain an allowance for credit losses by portfolio segment (including charge-offsfor debt securities classified as either available-for-sale or held-to-maturity, other financial assets measured at amortized cost, net investments in leases, and recoveries by loan class) is in Note 6 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.other off-balance sheet credit exposures.
We apply a disciplined process and methodology to establish our allowance for credit losses each quarter. ThisThe process for establishing the allowance for credit losses for loans 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 and Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report. For additional information on our 2018 Form 10-K andallowance for credit losses for loans, see Note 6 (Loans and Related Allowance for Credit Losses) to Financial Statements in this Report, and for additional information on our allowance for credit losses for debt securities, see the “Balance Sheet Analysis – Available-For-Sale and Held-To-Maturity Debt Securities” section and Note 5 (Available-for-Sale and Held-to-Maturity Debt Securities) to Financial Statements in this Report.
Table 2826 presents the allocation of the allowance for credit losses for loans by loan segment and class for the most recent quarter end and last four year ends.
The detail of the changes in the allowance for credit losses for loans by portfolio segment
(including charge-offs and recoveries by loan class) is included in Note 6 (Loans and Related Allowance for Credit Losses) to Financial Statements in this Report.
Table 28:26: Allocation of the Allowance for Credit Losses (ACL) for Loans(1)
| | | Jun 30, 2019 | | | Dec 31, 2018 | | | Dec 31, 2017 | | | Dec 31, 2016 | | | Dec 31, 2015 | | Mar 31, 2020 | | | Dec 31, 2019 | | | Dec 31, 2018 | | | Dec 31, 2017 | | | Dec 31, 2016 | |
(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 |
| |
($ 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 |
|
Commercial: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | $ | 3,583 |
| | 37 | % | | $ | 3,628 |
| | 37 | % | | $ | 3,752 |
| | 35 | % | | $ | 4,560 |
| | 34 | % | | $ | 4,231 |
| | 33 | % | $ | 4,231 |
| | 40 | % | | $ | 3,600 |
| | 37 | % | | $ | 3,628 |
| | 37 | % | | $ | 3,752 |
| | 35 | % | | $ | 4,560 |
| | 34 | % |
Real estate mortgage | 1,275 |
| | 13 |
| | 1,282 |
| | 13 |
| | 1,374 |
| | 13 |
| | 1,320 |
| | 14 |
| | 1,264 |
| | 13 |
| 848 |
| | 12 |
| | 1,236 |
| | 13 |
| | 1,282 |
| | 13 |
| | 1,374 |
| | 13 |
| | 1,320 |
| | 14 |
|
Real estate construction | 1,122 |
| | 2 |
| | 1,200 |
| | 2 |
| | 1,238 |
| | 3 |
| | 1,294 |
| | 2 |
| | 1,210 |
| | 3 |
| 36 |
| | 2 |
| | 1,079 |
| | 2 |
| | 1,200 |
| | 2 |
| | 1,238 |
| | 3 |
| | 1,294 |
| | 2 |
|
Lease financing | 318 |
| | 2 |
| | 307 |
| | 2 |
| | 268 |
| | 2 |
| | 220 |
| | 2 |
| | 167 |
| | 1 |
| 164 |
| | 2 |
| | 330 |
| | 2 |
| | 307 |
| | 2 |
| | 268 |
| | 2 |
| | 220 |
| | 2 |
|
Total commercial | 6,298 |
| | 54 |
| | 6,417 |
| | 54 |
| | 6,632 |
| | 53 |
| | 7,394 |
| | 52 |
| | 6,872 |
| | 50 |
| 5,279 |
| | 56 |
| | 6,245 |
| | 54 |
| | 6,417 |
| | 54 |
| | 6,632 |
| | 53 |
| | 7,394 |
| | 52 |
|
Consumer: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Real estate 1-4 family first mortgage | 729 |
| | 30 |
| | 750 |
| | 30 |
| | 1,085 |
| | 30 |
| | 1,270 |
| | 29 |
| | 1,895 |
| | 30 |
| 836 |
| | 29 |
| | 692 |
| | 30 |
| | 750 |
| | 30 |
| | 1,085 |
| | 30 |
| | 1,270 |
| | 29 |
|
Real estate 1-4 family junior lien mortgage | 294 |
| | 3 |
| | 431 |
| | 3 |
| | 608 |
| | 4 |
| | 815 |
| | 5 |
| | 1,223 |
| | 6 |
| 125 |
| | 3 |
| | 247 |
| | 3 |
| | 431 |
| | 3 |
| | 608 |
| | 4 |
| | 815 |
| | 5 |
|
Credit card | 2,249 |
| | 4 |
| | 2,064 |
| | 4 |
| | 1,944 |
| | 4 |
| | 1,605 |
| | 4 |
| | 1,412 |
| | 4 |
| 3,481 |
| | 4 |
| | 2,252 |
| | 4 |
| | 2,064 |
| | 4 |
| | 1,944 |
| | 4 |
| | 1,605 |
| | 4 |
|
Automobile | 462 |
| | 5 |
| | 475 |
| | 5 |
| | 1,039 |
| | 5 |
| | 817 |
| | 6 |
| | 529 |
| | 6 |
| 1,016 |
| | 5 |
| | 459 |
| | 5 |
| | 475 |
| | 5 |
| | 1,039 |
| | 5 |
| | 817 |
| | 6 |
|
Other revolving credit and installment | 571 |
| | 4 |
| | 570 |
| | 4 |
| | 652 |
| | 4 |
| | 639 |
| | 4 |
| | 581 |
| | 4 |
| 1,285 |
| | 3 |
| | 561 |
| | 4 |
| | 570 |
| | 4 |
| | 652 |
| | 4 |
| | 639 |
| | 4 |
|
Total consumer | 4,305 |
| | 46 |
| | 4,290 |
| | 46 |
| | 5,328 |
| | 47 |
| | 5,146 |
| | 48 |
| | 5,640 |
| | 50 |
| 6,743 |
| | 44 |
| | 4,211 |
| | 46 |
| | 4,290 |
| | 46 |
| | 5,328 |
| | 47 |
| | 5,146 |
| | 48 |
|
Total | $ | 10,603 |
| | 100 | % | | $ | 10,707 |
| | 100 | % | | $ | 11,960 |
| | 100 | % | | $ | 12,540 |
| | 100 | % | | $ | 12,512 |
| | 100 | % | $ | 12,022 |
| | 100 | % | | $ | 10,456 |
| | 100 | % | | $ | 10,707 |
| | 100 | % | | $ | 11,960 |
| | 100 | % | | $ | 12,540 |
| | 100 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Jun 30, 2019 | | | Dec 31, 2018 | | | Dec 31, 2017 | | | Dec 31, 2016 | | | Dec 31, 2015 | | Mar 31, 2020 | | | Dec 31, 2019 | | | Dec 31, 2018 | | | Dec 31, 2017 | | | Dec 31, 2016 | |
Components: | | | | | | | | | | | | | | | | | | |
Allowance for loan losses | $ | 9,692 | | | 9,775 | | | 11,004 | | | 11,419 | | | 11,545 | | $ | 11,263 | | | 9,551 | | | 9,775 | | | 11,004 | | | 11,419 | |
Allowance for unfunded credit commitments | 911 | | | 932 | | | 956 | | | 1,121 | | | 967 | | 759 | | | 905 | | | 932 | | | 956 | | | 1,121 | |
Allowance for credit losses | $ | 10,603 | | | 10,707 | | | 11,960 | | | 12,540 | | | 12,512 | | |
Allowance for credit losses for loans | | $ | 12,022 | | | 10,456 | | | 10,707 | | | 11,960 | | | 12,540 | |
Allowance for loan losses as a percentage of total loans | 1.02 | % | | 1.03 | | | 1.15 | | | 1.18 | | | 1.26 | | 1.12 | % | | 0.99 | | | 1.03 | | | 1.15 | | | 1.18 | |
Allowance for loan losses as a percentage of total net charge-offs (1) | 370 | | | 356 | | | 376 | | | 324 | | | 399 | | |
Allowance for credit losses as a percentage of total loans | 1.12 | | | 1.12 | | | 1.25 | | | 1.30 | | | 1.37 | | |
Allowance for credit losses as a percentage of total nonaccrual loans | 179 | | | 165 | | | 156 | | | 126 | | | 115 | | |
Allowance for loan losses as a percentage of total net loan charge-offs (2) | | 308 | | | 346 | | | 356 | | | 376 | | | 324 | |
Allowance for credit losses for loans as a percentage of total loans | | 1.19 | | | 1.09 | | | 1.12 | | | 1.25 | | | 1.30 | |
Allowance for credit losses for loans as a percentage of total nonaccrual loans | | 195 | | | 196 | | | 165 | | | 156 | | | 126 | |
| |
(1) | Disclosure is not comparative due to our adoption of CECL on January 1, 2020. For more information, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report. |
| |
(2) | Total net loan charge-offs are annualized for quarter ended June 30, 2019.March 31, 2020. |
In addition to the allowance for credit losses, there was $595 million at June 30, 2019, and $480 million at December 31, 2018, of nonaccretable difference to absorb losses on PCI loans of $1.2 billion at June 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. 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 for loans 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 $104 million,for loans increased $1.6 billion, or 1%15%, from December 31, 2018, primarily2019, driven by strong overalla $2.9 billion increase in the allowance for credit losses for loans in first quarter 2020, partially offset by a $1.3 billion decline as a result of adopting CECL. The increase in the allowance for credit losses for loans reflected forecasted credit deterioration due to the COVID-19 pandemic and credit weakness in the oil and gas portfolio performance.due to the recent sharp declines in oil prices. Total provision for credit losses for loans was $503$3.8 billion in first quarter 2020, compared with $845 million in secondfirst quarter 2019, compared with $452 million in second quarter 2018.2019. The increase in the provision for credit losses for loans in secondfirst quarter 2019,2020, compared with
the same period a year ago, wasreflected an
increase in the allowance for credit losses for loans due to forecasted credit deterioration as a result of the impact of the COVID-19 pandemic and higher net loan growth, primarilycharge-offs largely in the oil and gas portfolio due to the recent sharp declines in oil prices.
In determining our allowance for credit card portfolio.losses for loans in first quarter 2020, our analysis considered multiple factors to evaluate the rapidly evolving impacts related to the COVID-19 pandemic. We evaluated a range of expected losses based on economic forecasts that projected both a limited and a severe downturn in economic conditions. In addition, we reviewed several alternative forecasts that included relatively longer yet less severe downturns, as well as relatively shorter yet deeper downturns followed by a significant rebound near the end of 2020. We also assessed the impact of the federal government’s recent economic stimulus programs coupled with expectations for customer accommodation activity of up to six months. Our
Risk Management - Credit Risk Management (continued)
forecasted view reflected a sustained recession through 2020 with a sustained increase in unemployment and decrease in gross domestic product (GDP) for the rest of the year. We also considered the estimated impact on certain industries that we expect to be directly and most adversely affected by the COVID-19 pandemic, as well as our exposure to the oil and gas industry and the potential for additional draws on commercial loan commitments.
Future amounts of the allowance for credit losses for loans will be based on a variety of factors, including loan balance changes, portfolio credit quality and mix changes, and changes in general economic conditions and expectations (including for unemployment and GDP), among other factors. Based on economic conditions at the end of first quarter 2020, it was difficult to estimate the length and severity of the economic downturn that may result from the COVID-19 pandemic and the impact of other factors that may influence the level of eventual losses and corresponding requirements for future amounts of the allowance for credit losses, including the impact of economic stimulus programs and customer accommodation activity. The ultimate impact of the COVID-19 pandemic will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic. The pandemic could continue to result in the recognition of credit losses in our loan portfolios and increases in our allowance for credit losses, particularly if the impact on the economy worsens.
We believe the allowance for credit losses for loans of $10.6$12.0 billion at June 30, 2019,March 31, 2020, was appropriate to cover expected credit losses, inherent in the loan portfolio, including unfunded credit commitments, at that date. The entire allowance is available to absorb expected credit losses inherent infrom the total loan portfolio. The allowance for credit losses for loans 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 for loans to changes in the economic and business environment, it is possible that we will incur incremental credit losses not anticipated as of the balance sheet date. Future allowance levels will be based on a variety of factors, including loan growth, portfolio performance and general economic conditions. Our process for determining the allowance for credit losses is discussed in the “Critical Accounting Policies – Allowance for Credit Losses” section and Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2018 Form 10-K.
LIABILITY FOR MORTGAGE LOAN REPURCHASE LOSSES For information on our repurchase liability, see the “Risk Management – Credit Risk Management – Liability For Mortgage Loan Repurchase Losses” section in our 20182019 Form 10-K.
RISKS RELATING TO SERVICING ACTIVITIES In addition to servicing loans in our portfolio, we act as servicer and/or master servicer of residential mortgage loans included in GSE-guaranteed mortgage securitizations, GNMA-guaranteed mortgage securitizations of FHA-insured/VA-guaranteed mortgages and private label mortgage securitizations, as well as for unsecuritized loans owned by institutional investors. In connection with our servicing activities, we 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.
As a servicer, we are required to advance certain delinquent payments of principal and interest on the mortgage loans we service. Due to an increase in customer requests for payment deferrals as a result of the COVID-19 pandemic, we expect the amount of principal and interest advances we are required to make as a servicer to increase, which may adversely impact our
net servicing income. The amount and timing of reimbursement of these advances varies by investor and the applicable servicing agreements in place.
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 20182019 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,management from finance, risk and business executives,groups, to oversee these risks and report on them periodicallyprovide periodic reports 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 29,27, indicating net interest income sensitivity relative to the Company’s base net interest income plan. Ramp scenarios assume interest rates move gradually in parallel across the yield curve relative to the base scenario in year one, and the full amount of the ramp is held as a constant differential to the base scenario in year two. The following describes the simulation assumptions for the scenarios presented in Table 29:27:
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 29:27: 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 Target | 2.50 | % | 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 Target | 2.50 | % | 1.50 | | 3.50 | | 4.50 |
10-year CMT (1) | 3.16 | | 2.16 | | 4.16 | | 5.16 |
|
| | | | | | | |
| | | Lower Rates (1) | | 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 | | $ | (1.3) - (0.8) | | 4.7 - 5.2 | | 4.0 - 4.5 |
Key Rates at Horizon End | | | | | | | |
Fed Funds Target | 0.27 | % | 0.00 | | 1.27 | | 2.27 |
10-year CMT (2) | 0.81 | | 0.00 | | 1.81 | | 2.81 |
Second Year of Forecasting Horizon | | | | | | | |
Net Interest Income Sensitivity to Base Scenario | | $ | (3.5) - (3.0) | | 6.8 - 7.3 | | 10.1 - 10.6 |
Key Rates at Horizon End | | | | | | | |
Fed Funds Target | 0.42 | % | 0.00 | | 1.42 | | 2.42 |
10-year CMT (2) | 0.89 | | 0.00 | | 1.89 | | 2.89 |
| |
(1) | U.S. interest rates are floored at zero where applicable in this scenario analysis |
| |
(2) | 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 isare predominantly driven by mortgage activity,banking activities, and may move in the opposite direction of our net interest income. Typically,Mortgage originations generally decline in response to higher interest rates mortgage activity, primarilyand generally increase, particularly refinancing activity, generally declines. And in response to lower interest rates, mortgage activity generally increases.rates. 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 bearingnoninterest-bearing deposits that reduce treasury management deposit service fees. Additionally, for the trading portfolio, our trading assets are (before the effects of certain economic hedges) 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 trading securities and loans, which, along with the effects of related economic hedges, are recorded in noninterest income.
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 June 30, 2019,March 31, 2020, and December 31, 2018,2019, are presented in Note 15 (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 20182019 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 MSRsHedge results may not continue at recent levels if the spread between short-term and long-term interest rates decreases,also be impacted as the overall level of hedges changes as interest rates change, or as there are other changes in the market for mortgage forwards that may affect the implied carry.carry on the MSRs.
The total carrying value of our residential and commercial MSRs was $13.5$9.5 billion at June 30, 2019,March 31, 2020, and $16.1$12.9 billion at December 31, 2018.2019. The weighted-average note rate on our portfolio of loans serviced for others was 4.33%4.20% at June 30, 2019,March 31, 2020, and 4.32%4.25% at December 31, 2018.2019. The carrying value of our total MSRs represented 0.82%0.60% and 0.79% of mortgage loans serviced for others at June 30, 2019,March 31, 2020 and 0.94% of mortgage loans serviced for others at December 31, 2018.
2019, respectively.
MARKET RISK Market risk is the risk of possible economic loss from adverse changes in market risk factors such as interest rates, credit spreads, foreign exchange rates, equity and commodity prices, and the risk of possible loss due to counterparty risk.exposure. This includesapplies to implied volatility risk, basis
Asset/Liability Management (continued)
risk, and market liquidity risk. Market riskIt 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 also reports key market risk matters to the Risk Committee.
At the management level, the Market and Counterparty Risk Management function, which is part of Corporate Risk,IRM, has primary oversight responsibility for market risk. The Market and Counterparty Risk Management function reports into the CRO and also provides periodic reportingreports 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 ACTIVITIES We 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.
Value-at-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 20182019 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 3028 shows the Company’s Trading General VaR by risk category. As presented in Table 30,28, average Company Trading General VaR was $20$33 million for the quarter ended June 30, 2019,March 31, 2020, compared with $15$31 million for the quarter ended MarchDecember 31, 2019, and $15 million for the quarter ended June 30, 2018.March 31, 2019. The increase in average as well as period end Company Trading General VaR for the quarter ended June 30, 2019,March 31, 2020, compared with the quarter ended June 30, 2018,March 31, 2019, was mainly driven by recent market volatility, in particular changes in portfolio composition.interest rate curves and a significant widening of credit spreads entering the 12-month historical lookback window used to calculate VaR.
Table 30:28: Trading 1-Day 99% General VaR by Risk Category
| | | | | Quarter ended | | | | Quarter ended | |
| June 30, 2019 | | | March 31, 2019 | | | June 30, 2018 | | March 31, 2020 | | | December 31, 2019 | | | March 31, 2019 | |
(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 | $ | 15 |
| | 15 |
| | 11 |
| | 18 |
| | 15 |
| | 15 |
| | 11 |
| | 19 |
| | 17 |
| | 18 |
| | 15 |
| | 20 |
| $ | 62 |
| | 28 |
| | 15 |
| | 75 |
| | 15 |
| | 18 |
| | 15 |
| | 26 |
| | 15 |
| | 15 |
| | 11 |
| | 19 |
|
Interest rate | 29 |
| | 37 |
| | 27 |
| | 49 |
| | 42 |
| | 34 |
| | 22 |
| | 44 |
| | 18 |
| | 17 |
| | 11 |
| | 24 |
| 84 |
| | 32 |
| | 5 |
| | 198 |
| | 14 |
| | 21 |
| | 9 |
| | 45 |
| | 42 |
| | 34 |
| | 22 |
| | 44 |
|
Equity | 4 |
| | 5 |
| | 4 |
| | 8 |
| | 5 |
| | 5 |
| | 4 |
| | 7 |
| | 8 |
| | 7 |
| | 5 |
| | 16 |
| 6 |
| | 7 |
| | 4 |
| | 10 |
| | 5 |
| | 5 |
| | 4 |
| | 8 |
| | 5 |
| | 5 |
| | 4 |
| | 7 |
|
Commodity | 2 |
| | 2 |
| | 1 |
| | 6 |
| | 2 |
| | 2 |
| | 1 |
| | 4 |
| | 1 |
| | 1 |
| | 1 |
| | 1 |
| 2 |
| | 2 |
| | 1 |
| | 6 |
| | 2 |
| | 2 |
| | 1 |
| | 4 |
| | 2 |
| | 2 |
| | 1 |
| | 4 |
|
Foreign exchange | 1 |
| | 1 |
| | 1 |
| | 1 |
| | 1 |
| | 1 |
| | 1 |
| | 1 |
| | 0 |
| | 0 |
| | 0 |
| | 1 |
| 2 |
| | 1 |
| | 1 |
| | 6 |
| | 1 |
| | 1 |
| | 1 |
| | 1 |
| | 1 |
| | 1 |
| | 1 |
| | 1 |
|
Diversification benefit (1) | (32 | ) | | (40 | ) | |
|
| | | | (46 | ) | | (42 | ) | | | | | | (29 | ) | | (28 | ) | | | | | (63 | ) | | (37 | ) | |
|
| | | | (13 | ) | | (16 | ) | | | | | | (46 | ) | | (42 | ) | | | | |
Company Trading General VaR | $ | 19 |
| | 20 |
| | | | | | 19 |
| | 15 |
| | | | | | 15 |
| | 15 |
| | | | | $ | 93 |
| | 33 |
| | | | | | 24 |
| | 31 |
| | | | | | 19 |
| | 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 – EQUITY SECURITIES We 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 OTTIother-than-temporary impairment
(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 investmentinvestments 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 14 (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 8 (Equity Securities) to Financial Statements in this Report.
Changes in equity market prices may also indirectly affect our net income by (1) the value of third party assets under management and, hence, fee income, (2) borrowers whose ability to repay principal and/or interest may be affected by the stock
market, or (3) brokerage activity, related commission income and other business activities. Each business line monitors and manages these indirect risks.
LIQUIDITY AND FUNDING The objective of effective liquidity management is to ensure that we can meet customer loan requests, customer deposit maturities/withdrawals and other cash commitments efficiently under both normal operating conditions and under periods of Wells Fargo-specific and/or market stress. To achieve this objective, the Board of Directors establishes liquidity guidelines that require sufficient asset-based liquidity to cover potential funding requirements and to avoid over-dependence on volatile, less reliable funding markets. These guidelines are monitored on a monthly basis by the Corporate ALCO and on a quarterly basis by the Board of Directors.Board. 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 We are subject to a rule, issued by the FRB, OCC and FDIC,Federal Deposit Insurance Corporation (FDIC), that implementedincludes 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 (IDIs) with total assets greater than $10 billion. In addition, rules issued by the FRB impose enhanced liquidity management standards on large bank holding companies (BHC) such as Wells 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 June 30, 2019,March 31, 2020, 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 3129 presents the Company’s quarterly average values for the daily-calculated LCR and its components calculated pursuant to the LCR rule requirements.
Table 31:29: Liquidity Coverage Ratio
| | (in millions, except ratio) | Average for Quarter ended June 30, 2019 |
| Average for Quarter ended March 31, 2020 |
|
HQLA (1)(2) | $ | 352,298 |
| $ | 381,950 |
|
Projected net cash outflows | 291,624 |
| 315,980 |
|
LCR | 121 | % | 121 | % |
(1) Excludes excess HQLA at Wells Fargo Bank, N.A.
(2) Net of applicable haircuts required under the LCR rule.
| |
(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 32.30. 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 institutionsIDIs 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 theour 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 32:30: Primary Sources of Liquidity
| | | June 30, 2019 | | | December 31, 2018 | | March 31, 2020 | | | December 31, 2019 | |
(in millions) | Total |
| | Encumbered |
| | Unencumbered |
| | Total |
| | Encumbered |
| | Unencumbered |
| Total |
| | Encumbered |
| | Unencumbered |
| | Total |
| | Encumbered |
| | Unencumbered |
|
Interest-earning deposits with banks | $ | 143,547 |
| | — |
| | 143,547 |
| | 149,736 |
| | — |
| | 149,736 |
| $ | 128,071 |
| | — |
| | 128,071 |
| | 119,493 |
| | — |
| | 119,493 |
|
Debt securities of U.S. Treasury and federal agencies | 60,655 |
| | 2,384 |
| | 58,271 |
| | 57,688 |
| | 1,504 |
| | 56,184 |
| 61,727 |
| | 3,785 |
| | 57,942 |
| | 61,099 |
| | 3,107 |
| | 57,992 |
|
Mortgage-backed securities of federal agencies (1) | 249,619 |
| | 34,627 |
| | 214,992 |
| | 244,211 |
| | 35,656 |
| | 208,555 |
| 271,644 |
| | 40,769 |
| | 230,875 |
| | 258,589 |
| | 41,135 |
| | 217,454 |
|
Total | $ | 453,821 |
| | 37,011 |
| | 416,810 |
| | 451,635 |
| | 37,160 |
| | 414,475 |
| $ | 461,442 |
| | 44,554 |
| | 416,888 |
| | 439,181 |
| | 44,242 |
| | 394,939 |
|
| |
(1) | Included in encumbered debt securities at June 30, 2019,March 31, 2020, were debt securities with a fair value of $2.1$1.7 billion, which were purchased in June 2019,March 2020, but settled in July 2019.April 2020. |
Asset/Liability Management (continued)
In addition to our primary sources of liquidity shown in
Table 32,30, 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, toAs of March 31, 2020, we also maintained approximately $273.5 billion of available borrowing capacity at various Federal Home Loan Banks and the extent not encumbered, may be pledged to obtain financing.Federal Reserve Discount Window.
Deposits have historically provided a sizable source of relatively low-cost funds. Deposits were 136% of total loans at June 30, 2019,March 31, 2020, and 135%137% at December 31, 2018.2019.
Additional funding is provided by long-term debt and short-term borrowings. Table 31 shows selected information for short-term borrowings, which generally mature in less than 30 days.
Table 31:Short-Term Borrowings
|
| | | | | | | | | | | | | | | |
| Quarter ended | |
(in millions) | Mar 31 2020 |
| | Dec 31, 2019 |
| | Sep 30, 2019 |
| | Jun 30, 2019 |
| | Mar 31, 2019 |
|
Balance, period end | | | | | | | | | |
Federal funds purchased and securities sold under agreements to repurchase | $ | 79,036 |
| | 92,403 |
| | 110,399 |
| | 102,560 |
| | 93,896 |
|
Other short-term borrowings | 13,253 |
| | 12,109 |
| | 13,509 |
| | 12,784 |
| | 12,701 |
|
Total | $ | 92,289 |
| | 104,512 |
| | 123,908 |
| | 115,344 |
| | 106,597 |
|
Average daily balance for period | | | | | | | | | |
Federal funds purchased and securities sold under agreements to repurchase | $ | 90,722 |
| | 103,614 |
| | 109,499 |
| | 102,557 |
| | 95,721 |
|
Other short-term borrowings | 12,255 |
| | 12,335 |
| | 12,343 |
| | 12,197 |
| | 12,930 |
|
Total | $ | 102,977 |
| | 115,949 |
| | 121,842 |
| | 114,754 |
| | 108,651 |
|
Maximum month-end balance for period | | | | | | | | | |
Federal funds purchased and securities sold under agreements to repurchase (1) | $ | 91,121 |
| | 111,727 |
| | 110,399 |
| | 105,098 |
| | 97,650 |
|
Other short-term borrowings (2) | 13,253 |
| | 12,708 |
| | 13,509 |
| | 12,784 |
| | 14,129 |
|
| |
(1) | Highest month-end balance in each of the last five quarters was in February 2020, and September, May and January 2019. |
| |
(2) | Highest month-end balance in each of the last five quarters was in March 2020, and September, June and February 2019. |
Long-Term Debt 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 33 shows selected information for short-term borrowings, which generally mature in less than 30 days.
Table 33:Short-Term Borrowings
|
| | | | | | | | | | | | | | | |
| Quarter ended | |
(in millions) | 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 | $ | 102,560 |
| | 93,896 |
| | 92,430 |
| | 92,418 |
| | 89,307 |
|
Other short-term borrowings | 12,784 |
| | 12,701 |
| | 13,357 |
| | 13,033 |
| | 15,189 |
|
Total | $ | 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 | $ | 102,557 |
| | 95,721 |
| | 93,483 |
| | 92,141 |
| | 89,138 |
|
Other short-term borrowings | 12,197 |
| | 12,930 |
| | 12,479 |
| | 13,331 |
| | 14,657 |
|
Total | $ | 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) | $ | 105,098 |
| | 97,650 |
| | 93,918 |
| | 92,531 |
| | 92,103 |
|
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 May and January 2019, and November, July and May 2018. |
| |
(2) | Highest month-end balance in each of the last five quarters was in June and February 2019, and December, July and May 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 $241.5 billion at June 30, 2019, increased $12.4 billion from December 31, 2018. We issued $15.8 billion and $33.1 billion of
long-term debt in the second quarter and first half of 2019, respectively. Table 34 provides the aggregate carrying value of long-term debt maturities (based on contractual payment dates) for the remainder of 2019 and the following years thereafter, as of June 30, 2019.
Table 34:Maturity of Long-Term Debt
|
| | | | | | | | | | | | | | | | | | | | | |
| June 30, 2019 | |
(in millions) | Remaining 2019 |
| | 2020 |
| | 2021 |
| | 2022 |
| | 2023 |
| | Thereafter |
| | Total |
|
Wells Fargo & Company (Parent Only) | | | | | | | | | | | | | |
Senior notes | $ | 1,280 |
| | 13,497 |
| | 18,146 |
| | 18,028 |
| | 11,092 |
| | 54,815 |
| | 116,858 |
|
Subordinated notes | — |
| | — |
| | — |
| | — |
| | 3,655 |
| | 23,619 |
| | 27,274 |
|
Junior subordinated notes | — |
| | — |
| | — |
| | — |
| | — |
| | 1,733 |
| | 1,733 |
|
Total long-term debt - Parent | $ | 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 | $ | 17,219 |
| | 30,630 |
| | 27,232 |
| | 2,148 |
| | 2,883 |
| | 181 |
| | 80,293 |
|
Subordinated notes | — |
| | — |
| | — |
| | — |
| | 1,041 |
| | 4,354 |
| | 5,395 |
|
Junior subordinated notes | — |
| | — |
| | — |
| | — |
| | — |
| | 357 |
| | 357 |
|
Securitizations and other bank debt | 1,302 |
| | 1,793 |
| | 861 |
| | 418 |
| | 108 |
| | 2,035 |
| | 6,517 |
|
Total long-term debt - Bank | $ | 18,521 |
| | 32,423 |
| | 28,093 |
| | 2,566 |
| | 4,032 |
| | 6,927 |
| | 92,562 |
|
Other consolidated subsidiaries | | | | | | | | | | | | | |
Senior notes | $ | 1,146 |
| | 66 |
| | 1,123 |
| | 12 |
| | 422 |
| | 248 |
| | 3,017 |
|
Securitizations and other bank debt | — |
| | — |
| | — |
| | — |
| | — |
| | 32 |
| | 32 |
|
Total long-term debt - Other consolidated subsidiaries | $ | 1,146 |
| | 66 |
| | 1,123 |
| | 12 |
| | 422 |
| | 280 |
| | 3,049 |
|
Total long-term debt | $ | 20,947 |
| | 45,986 |
| | 47,362 |
| | 20,606 |
| | 19,201 |
| | 87,374 |
| | 241,476 |
|
Parent In March 2019, the Securities and Exchange Commission (SEC) declared effective the Parent’s registration statement 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 securities is limited by the debt issuance authority granted by the Board. As of June 30, 2019, the Parent was authorized by the Board to issue up to $200 billion in outstanding long-term debt. The Parent’s long-term debt issuance authority granted by the Board includes debt
issued to affiliates and others. At June 30, 2019, the Parent had available $52.3 billion in long-term debt issuance authority, net of debt issued to affiliates. During the first half of 2019, the Parent issued $11.3 billion of senior notes, most of which were registered with the SEC. The Parent’s short-term debt issuance authority granted by the Board was limited to debt issued to affiliates, and was revoked by the Board at management’s request in January 2018.
The Parent’s proceedsProceeds 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. Long-term debt of $237.3 billion at March 31, 2020, increased $9.2 billion from December 31, 2019. We issued $18.9 billion of long-term debt in first quarter 2020 and $11.8 billion in April and May 2020. 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 Table 32 provides the aggregate carrying value of June 30, 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 maturities (based on contractual payment dates) for the remainder of 2020 and had available $98.9 billion in short-term debt issuance authority and $97.7 billion in long-term debt issuance authority. In April 2018, Wells Fargo Bank, N.A. established a $100 billion bank note program under which, subject to any other debt outstanding under the limits described above, it may issue $50 billion in outstanding short-term senior notes and $50 billion in outstanding long-term senior or subordinated notes. At June 30, 2019, Wells Fargo Bank, N.A. had remaining issuance capacity under the bank note program of $50.0 billion in short-term senior notes and $34.2 billion in long-term senior or subordinated notes. During the first half of 2019, Wells Fargo Bank, N.A. issued $6.7 billion of unregistered senior notes.
During the first half of 2019, Wells Fargo Bank, N.A. borrowed $8.5 billion from the Federal Home Loan Bank of Des Moines, andfollowing years thereafter, as of June 30, 2019, Wells Fargo Bank, N.A. had outstanding advancesMarch 31, 2020.
Table 32:Maturity of $45.9 billion across the Federal Home Loan Bank System. Federal Home Loan Bank advances are reflected as short-term borrowings or long-term debt on the Company’s balance sheet.Long-Term Debt
|
| | | | | | | | | | | | | | | | | | | | | |
| March 31, 2020 | |
(in millions) | Remaining 2020 |
| | 2021 |
| | 2022 |
| | 2023 |
| | 2024 |
| | Thereafter |
| | Total |
|
Wells Fargo & Company (Parent Only) | | | | | | | | | | | | | |
Senior notes | $ | 9,627 |
| | 17,802 |
| | 17,782 |
| | 11,192 |
| | 9,476 |
| | 72,658 |
| | 138,537 |
|
Subordinated notes | — |
| | — |
| | — |
| | 3,786 |
| | 770 |
| | 26,704 |
| | 31,260 |
|
Junior subordinated notes | — |
| | — |
| | — |
| | — |
| | — |
| | 1,940 |
| | 1,940 |
|
Total long-term debt – Parent | $ | 9,627 |
| | 17,802 |
| | 17,782 |
| | 14,978 |
| | 10,246 |
| | 101,302 |
| | 171,737 |
|
Wells Fargo Bank, N.A. and other bank entities (Bank) | | | | | | | | | | | | | |
Senior notes | $ | 12,373 |
| | 28,398 |
| | 5,636 |
| | 2,989 |
| | 6 |
| | 311 |
| | 49,713 |
|
Subordinated notes | — |
| | — |
| | — |
| | 1,010 |
| | — |
| | 4,923 |
| | 5,933 |
|
Junior subordinated notes | — |
| | — |
| | — |
| | — |
| | — |
| | 366 |
| | 366 |
|
Securitizations and other bank debt | 2,019 |
| | 1,207 |
| | 787 |
| | 264 |
| | 153 |
| | 1,890 |
| | 6,320 |
|
Total long-term debt – Bank | $ | 14,392 |
| | 29,605 |
| | 6,423 |
| | 4,263 |
| | 159 |
| | 7,490 |
| | 62,332 |
|
Other consolidated subsidiaries | | | | | | | | | | | | | |
Senior notes | $ | 135 |
| | 1,833 |
| | 187 |
| | 475 |
| | 127 |
| | 484 |
| | 3,241 |
|
Securitizations and other bank debt | — |
| | — |
| | — |
| | — |
| | — |
| | 32 |
| | 32 |
|
Total long-term debt – Other consolidated subsidiaries | $ | 135 |
| | 1,833 |
| | 187 |
| | 475 |
| | 127 |
| | 516 |
| | 3,273 |
|
Total long-term debt | $ | 24,154 |
| | 49,240 |
| | 24,392 |
| | 19,716 |
| | 10,532 |
| | 109,308 |
| | 237,342 |
|
Credit Ratings Investors in the long-term capital markets, as well as other market participants, generally will consider, among other factors, a company’s debt rating in making investment decisions. Rating agencies base their ratings on many quantitative and qualitative factors, including capital adequacy, liquidity, asset quality, business mix, the level and quality of earnings, and rating agency assumptions regarding the probability and extent of federal financial assistance or support for certain large financial institutions. Adverse changes in these factors could result in a reduction of our credit rating; however, our debt securities do not contain credit rating covenants.
On April 1, 2019, S&P Global Ratings affirmed 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 the ratingratings agencies with regard to our credit ratings during secondfirst quarter 2019.2020. On April 22, 2020, Fitch Ratings, Inc. (Fitch) affirmed the Company’s long-term and short-term issuer default ratings and revised the rating outlook to negative from stable as Fitch expects significant
operating environment headwinds from the disruption to economic activity and financial markets as a result of the COVID-19 pandemic. This rating action followed Fitch’s event-driven review of the commercially-oriented U.S. G-SIBs. Both the Parent and Wells Fargo Bank, N.A. remain among the highest-rated financial firms in the U.S.United States.
See the “Risk Factors” section in our 20182019 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 15 (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 June 30, 2019,March 31, 2020, are presented in Table 35.33.
Table 35:33: Credit Ratings as of June 30, 2019March 31, 2020
|
| | | | | | | |
| Wells Fargo & Company | | Wells Fargo Bank, N.A. |
| Senior debt | | Short-term borrowings | | Long-term deposits | | Short-term borrowings |
Moody’s | A2 | | P-1 | | Aa1 | | P-1 |
S&P Global Ratings | A- | | A-2 | | A+ | | A-1 |
Fitch Ratings, Inc. | A+ | | F1 | | AA | | F1+ |
DBRS Morningstar | AA (low) | | R-1 (middle) | | AA | | 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 futuresuitability and sustainability of LIBOR, it is expected that a transition away from the widespread useLondon Interbank Offered Rate (LIBOR), central banks and global regulators have called for financial market participants to prepare for the discontinuation of LIBOR to alternative benchmark rates will occur by the end of 2021. SeeLIBOR is a widely-referenced benchmark rate, which is published in five currencies and a range of tenors, and seeks to estimate the “Asset/Liability Management – Liquiditycost at which banks can borrow on an unsecured basis from other banks. We have a significant number of assets and Funding” sectionliabilities referenced to LIBOR and other interbank offered rates (IBORs), such as commercial loans, adjustable-rate mortgage loans, derivatives, debt securities, and long-term debt.
Accordingly, we established a LIBOR Transition Office (LTO) in ourFebruary 2018, Form 10-Kwith senior management and Board oversight. The LTO is responsible for additional information regarding ourdeveloping a coordinated strategy to transition productsthe IBOR-linked contracts and exposuresprocesses across Wells Fargo to alternative reference rates and serves as the primary conduit between Wells Fargo and relevant industry groups, such as the Alternative Reference Rates Committee (ARRC).
In addition, the Company is actively working with regulators, industry working groups (such as the ARRC) and trade associations that are developing guidance to facilitate an orderly transition away from LIBOR,the use of LIBOR. We are closely monitoring and seeking to follow the recommendations and guidance announced by such organizations, including those announced by the Bank of England’s Working Group on Sterling Risk-Free Reference Rates. We continue to assess the risks and related impacts associated with a transition away from IBORs. See the “Risk Factors” section in our 2018the 2019 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.
On March 12, 2020, the Financial Accounting Standards Board (FASB) issued ASU 2020-04 – Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Update) that provides temporary relief from existing GAAP accounting requirements for entities that perform activities related to reference rate reform. The relief provided by the Update is primarily related to contract modifications and hedge accounting relationships that are impacted by the Company’s reference rate reform activities. For additional information on the Update, see the “Current Accounting Developments” section in this Report.
For additional information on the amount of our IBOR-linked assets and liabilities, as well as the program structure and initiatives created by the LTO, see the “Risk Management – Asset/Liability Management – LIBOR Transition” section in our 2019 Form 10-K.
Capital Management (continued)
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 $6.4decreased $1.4 billion from December 31, 2018,2019, predominantly from Wells Fargo net incomeas a result of $12.1 billion, less common and preferred stock dividends of $4.8 billion.$2.5 billion, partially offset by $653 million of Wells Fargo net income. During secondfirst quarter 2019,2020, we issued 8.5 million shares$1.7 billion of common stock, excluding conversions of preferred shares. During secondfirst quarter 2019,2020, we repurchased 104.9 million shares $3.4 billionof common stock at a cost of $4.9 billion.stock. The amount of our repurchases are subject to various factors as discussed in the “Securities Repurchases” section below. On March 15, 2020, we suspended our share repurchase activities for the remainder of the first quarter and for second quarter 2020. For additional information about share repurchases, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report.
In January 2020, we issued $2.0 billion of our Preferred Stock, Series Z. In March 2020, we redeemed the remaining $1.8 billion of our Preferred Stock, Series K, and redeemed $669 million of our Preferred Stock, Series T. For more information, see Note 17 (Preferred Stock) to Financial Statements in this Report.
Regulatory Capital Guidelines
The Company and each of our insured depository institutionsIDIs 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 BCBS. The federal banking regulators’ capital rules, among other things, requirerequired on a fully phased-in basis:basis as of March 31, 2020:
a minimum Common Equity Tier 1 (CET1) ratio of 9.0%9.00%, comprised of a 4.5%4.50% minimum requirement plus a capital conservation buffer of 2.5%2.50% and for us, as a global systemically important bank (G-SIB), a capital surcharge to be calculated annually, which is 2.0% for 2019;of 2.00%;
a minimum tier 1 capital ratio of 10.5%10.50%, comprised of a 6.0%6.00% minimum requirement plus the capital conservation buffer of 2.5%2.50% and the G-SIB capital surcharge of 2.0%2.00%;
a minimum total capital ratio of 12.5%12.50%, comprised of a 8.0%8.00% minimum requirement plus the capital conservation buffer of 2.5%2.50% and the G-SIB capital surcharge of 2.0%2.00%;
a potential countercyclical buffer of up to 2.5%2.50% 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; and
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 BHCs.4.00%.
We were required to comply with the final
The Basel III capital rules beginning January 2014,requirements for calculating CET1 and tier 1 capital, along with certain provisions subject to phase-in periods. The entire Basel IIIrisk-weighted assets (RWAs), are fully phased-in. However, the requirements for determining tier 2 and total capital rulesare still in accordance with Transition Requirements and are scheduled
to be fully phased inphased-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 addEffective October 1, 2020, a stress capital buffer and a stress leverage bufferwill be added to the minimum capital and tier 1 leverage ratio requirements. The buffers wouldstress capital buffer will be calculated based on the decrease in a financial institution’s risk-based capital and tier 1 leverage ratios under the supervisory severely adverse scenario in the annual Comprehensive Capital Analysis and Review (CCAR), plus four quarters of planned common stock dividends. The stress capital buffer wouldwill replace the 2.5%current 2.50% capital conservation buffer under the Standardized Approach, whereasApproach. Because the stress leveragecapital buffer wouldwill be addedcalculated annually as part of CCAR and will be based on data that can differ over time, the amount of the buffer is subject to the current 4% minimum tier 1 leverage ratio.change in future years.
Because the Company has been designated asAs a G-SIB, we are also subject to the FRB'sFRB’s rule implementing the additional capital surcharge of between 1.0-4.5%1.00-4.50% 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 G-SIB surcharge became fully phased-in on January 1, 2019. Our 2019 G-SIB surcharge under method two is 2.0% of the Company’s risk-weighted assets (RWAs), which is the higher of method one and method two. Because the G-SIB capital 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, our CET1 ratio (fully phased-in) of 11.97% exceeded the minimum of 9.0% by 297 basis points at June 30, 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-based capital and related ratios as calculated under Basel III capital guidelines. ForAlthough we continue to report certain capital amounts and ratios in accordance with Transition Requirements 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.basis. For information about our capital requirements calculated in accordance with Transition Requirements, see Note 23 (Regulatory and Agency Capital Requirements) to Financial Statements in this Report.
Table 3634 summarizes our CET1, tier 1 capital, total capital, risk-weighted assetsRWAs and capital ratios on a fully phased-in basis at June 30, 2019March 31, 2020, and December 31, 2018. As of June 30, 2019, our CET1, tier 1, and total capital ratios were lower using RWAs calculated under the Standardized Approach.2019.
Table 36:34: Capital Components and Ratios (Fully Phased-In) (1)
| | | | June 30, 2019 | | | December 31, 2018 | | | | | | March 31, 2020 | | | December 31, 2019 | | |
(in millions, except ratios) | | Advanced Approach |
| | Standardized Approach |
| | | Advanced Approach |
| | Standardized Approach |
| | | Required Minimum Capital Ratios |
| | Advanced Approach |
| | Standardized Approach |
| | | Advanced Approach |
| | Standardized Approach |
| |
Common Equity Tier 1 | (A) | $ | 149,183 |
| | 149,183 |
| | 146,363 |
| | 146,363 |
| | (A) | | | $ | 134,751 |
| | 134,751 |
| | 138,760 |
| | 138,760 |
| |
Tier 1 Capital | (B) | 170,675 |
| | 170,675 |
| | 167,866 |
| | 167,866 |
| | (B) | | | 154,277 |
| | 154,277 |
| | 158,949 |
| | 158,949 |
| |
Total Capital(2) | (C) | 200,291 |
| | 208,298 |
| | 198,103 |
| | 206,346 |
| | (C) | | | 183,932 |
| | 191,985 |
| | 187,813 |
| | 195,703 |
| |
Risk-Weighted Assets(3) | (D) | 1,182,838 |
| | 1,246,683 |
| | 1,177,350 |
| | 1,247,210 |
| | (D) | | | 1,181,271 |
| | 1,262,808 |
| | 1,165,079 |
| | 1,245,853 |
| |
Common Equity Tier 1 Capital Ratio(3) | (A)/(D) | 12.61 | % | | 11.97 |
| * | | 12.43 |
| | 11.74 |
| * | (A)/(D) | 9.00 | % | | 11.41 | % | | 10.67 |
| * | | 11.91 |
| | 11.14 |
| * |
Tier 1 Capital Ratio(3) | (B)/(D) | 14.43 |
| | 13.69 |
| * | | 14.26 |
| | 13.46 |
| * | (B)/(D) | 10.50 |
| | 13.06 |
| | 12.22 |
| * | | 13.64 |
| | 12.76 |
| * |
Total Capital Ratio(3) | (C)/(D) | 16.93 |
|
| 16.71 |
| * | | 16.83 |
| | 16.54 |
| * | (C)/(D) | 12.50 |
| | 15.57 |
|
| 15.20 |
| * | | 16.12 |
| | 15.71 |
| * |
*Denotes the lowest capital ratio as determined under the Advanced and Standardized Approaches.
| |
(1) | See Table 35 for information regarding the calculation and components of CET1, tier 1 capital, total capital and RWAs. |
| |
(2) | Fully 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 3735 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 regulatorytotal capital amounts, including a corresponding reconciliation to GAAP financial measures. |
| |
(3) | RWAs and capital ratios for December 31, 2019, have been revised as a result of a decrease in RWAs under the Advanced Approach due to the correction of duplicated operational loss amounts. |
Table 3735 provides information regarding the calculation and composition of our risk-based capital under the Advanced and
Standardized Approaches at June 30, 2019March 31, 2020, and
December 31, 2018.2019.
Table 37:35: Risk-Based Capital Calculation and Components
| | | | June 30, 2019 | | | December 31, 2018 | | | March 31, 2020 | | | December 31, 2019 | |
(in millions) | | Advanced Approach |
| | Standardized Approach |
| | Advanced Approach |
| | Standardized Approach |
| | Advanced Approach |
| | Standardized Approach |
| | Advanced Approach |
| | Standardized Approach |
|
Total equity | | $ | 200,037 |
| | 200,037 |
| | 197,066 |
| | 197,066 |
| | $ | 183,330 |
| | 183,330 |
| | 187,984 |
| | 187,984 |
|
Adjustments: | |
| |
| | | | | |
| |
| | | | |
Preferred stock | | (23,021 | ) | | (23,021 | ) | | (23,214 | ) | | (23,214 | ) | | (21,347 | ) | | (21,347 | ) | | (21,549 | ) | | (21,549 | ) |
Additional paid-in capital on ESOP preferred stock | | (78 | ) | | (78 | ) | | (95 | ) | | (95 | ) | |
Additional paid-in capital on preferred stock | | | 140 |
| | 140 |
| | (71 | ) | | (71 | ) |
Unearned ESOP shares | | 1,292 |
| | 1,292 |
| | 1,502 |
| | 1,502 |
| | 1,143 |
| | 1,143 |
| | 1,143 |
| | 1,143 |
|
Noncontrolling interests | | (995 | ) | | (995 | ) | | (900 | ) | | (900 | ) | | (612 | ) | | (612 | ) | | (838 | ) | | (838 | ) |
Total common stockholders’ equity |
| 177,235 |
| | 177,235 |
| | 174,359 |
| | 174,359 |
|
| 162,654 |
| | 162,654 |
| | 166,669 |
| | 166,669 |
|
Adjustments: | | | | | | | | | | | | | | | | |
Goodwill | | (26,415 | ) | | (26,415 | ) | | (26,418 | ) | | (26,418 | ) | | (26,381 | ) | | (26,381 | ) | | (26,390 | ) | | (26,390 | ) |
Certain identifiable intangible assets (other than MSRs) | | (493 | ) | | (493 | ) | | (559 | ) | | (559 | ) | | (413 | ) | | (413 | ) | | (437 | ) | | (437 | ) |
Other assets (1) | | (2,251 | ) | | (2,251 | ) | | (2,187 | ) | | (2,187 | ) | |
Applicable deferred taxes (2) | | 788 |
| | 788 |
| | 785 |
| | 785 |
| |
Investment in certain subsidiaries and other | | 319 |
| | 319 |
| | 383 |
| | 383 |
| |
Common Equity Tier 1 (Fully Phased-In) |
| 149,183 |
| | 149,183 |
| | 146,363 |
| | 146,363 |
| |
Goodwill and other intangibles on nonmarketable equity securities (included in other assets) | | | (1,894 | ) | | (1,894 | ) | | (2,146 | ) | | (2,146 | ) |
Applicable deferred taxes related to goodwill and other intangible assets (1) | | | 821 |
| | 821 |
| | 810 |
| | 810 |
|
Other | | | (37 | ) | | (37 | ) | | 254 |
| | 254 |
|
Common Equity Tier 1 | |
| 134,751 |
| | 134,751 |
| | 138,760 |
| | 138,760 |
|
| | | | | | | | | | | | | | | | |
Common Equity Tier 1 (Fully Phased-In) | | $ | 149,183 |
| | 149,183 |
| | 146,363 |
| | 146,363 |
| |
Common Equity Tier 1 | | | $ | 134,751 |
| | 134,751 |
| | 138,760 |
| | 138,760 |
|
Preferred stock | | 23,021 |
| | 23,021 |
| | 23,214 |
| | 23,214 |
| | 21,347 |
| | 21,347 |
| | 21,549 |
| | 21,549 |
|
Additional paid-in capital on ESOP preferred stock | | 78 |
| | 78 |
| | 95 |
| | 95 |
| |
Additional paid-in capital on preferred stock | | | (140 | ) | | (140 | ) | | 71 |
| | 71 |
|
Unearned ESOP shares | | (1,292 | ) | | (1,292 | ) | | (1,502 | ) | | (1,502 | ) | | (1,143 | ) | | (1,143 | ) | | (1,143 | ) | | (1,143 | ) |
Other | | (315 | ) | | (315 | ) | | (304 | ) | | (304 | ) | | (538 | ) | | (538 | ) | | (288 | ) | | (288 | ) |
Total Tier 1 capital (Fully Phased-In) | (A) | 170,675 |
| | 170,675 |
| | 167,866 |
| | 167,866 |
| |
Total Tier 1 capital | | (A) | 154,277 |
| | 154,277 |
| | 158,949 |
| | 158,949 |
|
| | | | | | | | | | | | | | | | |
Long-term debt and other instruments qualifying as Tier 2 | | 27,223 |
| | 27,223 |
| | 27,946 |
| | 27,946 |
| | 25,836 |
| | 25,836 |
| | 26,515 |
| | 26,515 |
|
Qualifying allowance for credit losses (3)(2) | | 2,596 |
| | 10,603 |
| | 2,463 |
| | 10,706 |
| | 3,990 |
| | 12,043 |
| | 2,566 |
| | 10,456 |
|
Other | | (203 | ) | | (203 | ) | | (172 | ) | | (172 | ) | | (171 | ) | | (171 | ) | | (217 | ) | | (217 | ) |
Total Tier 2 capital (Fully Phased-In) | (B) | 29,616 |
| | 37,623 |
| | 30,237 |
| | 38,480 |
| (B) | 29,655 |
| | 37,708 |
| | 28,864 |
| | 36,754 |
|
Effect of Transition Requirements | | 519 |
| | 519 |
| | 695 |
| | 695 |
| | 136 |
| | 136 |
| | 520 |
| | 520 |
|
Total Tier 2 capital (Transition Requirements) | | $ | 30,135 |
| | 38,142 |
| | 30,932 |
| | 39,175 |
| | $ | 29,791 |
| | 37,844 |
| | 29,384 |
| | 37,274 |
|
| | | | | | | | | | | | | | | | |
Total qualifying capital (Fully Phased-In) | (A)+(B) | $ | 200,291 |
| | 208,298 |
| | 198,103 |
| | 206,346 |
| (A)+(B) | $ | 183,932 |
| | 191,985 |
| | 187,813 |
| | 195,703 |
|
Total Effect of Transition Requirements | | 519 |
| | 519 |
| | 695 |
| | 695 |
| | 136 |
| | 136 |
| | 520 |
| | 520 |
|
Total qualifying capital (Transition Requirements) | | $ | 200,810 |
| | 208,817 |
| | 198,798 |
| | 207,041 |
| | $ | 184,068 |
| | 192,121 |
| | 188,333 |
| | 196,223 |
|
| | | | | | | | | | | | | | | | |
Risk-Weighted Assets (RWAs) (4)(5): | | | | | | | | | |
Risk-Weighted Assets (RWAs) (3)(4): | | | | | | | | | |
Credit risk | | $ | 802,054 |
| | 1,203,474 |
| | 803,273 |
| | 1,201,246 |
| | $ | 802,686 |
| | 1,219,948 |
| | 790,784 |
| | 1,210,209 |
|
Market risk | | 43,209 |
| | 43,209 |
| | 45,964 |
| | 45,964 |
| | 42,860 |
| | 42,860 |
| | 35,644 |
| | 35,644 |
|
Operational risk(5) | | 337,575 |
| | — |
| | 328,113 |
| | N/A |
| | 335,725 |
| | — |
| | 338,651 |
| | — |
|
Total RWAs (Fully Phased-In) | | $ | 1,182,838 |
| | 1,246,683 |
| | 1,177,350 |
| | 1,247,210 |
| |
Total RWAs (5) | | | $ | 1,181,271 |
| | 1,262,808 |
| | 1,165,079 |
| | 1,245,853 |
|
| |
(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 determinedDetermined 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)(2) | 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%0.60% of Advanced credit RWAs, and under the Standardized Approach, the allowance for credit losses is includable in Tier 2 Capital up to 1.25% of Standardized credit RWAs, with any excess allowance for credit losses being deducted from total RWAs. |
| |
(4)(3) | RWAs calculated under the Advanced Approach utilize a risk-sensitive methodology, which relies upon the use of internal credit models based upon our experience with internal rating grades. Advanced Approach also includes an operational risk component, which reflects the risk of operating loss resulting from inadequate or failed internal processes or systems. |
| |
(5)(4) | 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. |
| |
(5) | Amounts for December 31, 2019, have been revised as a result of a decrease in RWAs under the Advanced Approach due to the correction of duplicated operational loss amounts. |
Capital Management (continued)
Table 3836 presents the changes in Common Equity Tier 1 under the Advanced Approach for the sixthree months ended June 30, 2019.March 31, 2020.
Table 38:36: Analysis of Changes in Common Equity Tier 1(Advanced Approach)
| | (in millions) | | | | |
Common Equity Tier 1 (Fully Phased-In) at December 31, 2018 | | $ | 146,363 |
| |
Common Equity Tier 1 at December 31, 2019 | | | $ | 138,760 |
|
Net income applicable to common stock | | 11,355 |
| | 42 |
|
Common stock dividends | | (4,069 | ) | | (2,096 | ) |
Common stock issued, repurchased, and stock compensation-related items | | (8,030 | ) | | (2,882 | ) |
Changes in cumulative other comprehensive income | | | (253 | ) |
Cumulative effect from change in accounting policies (1) | | | 991 |
|
Goodwill | | 3 |
| | 9 |
|
Certain identifiable intangible assets (other than MSRs) | | 67 |
| | 24 |
|
Other assets (1) | | (64 | ) | |
Applicable deferred taxes (2) | | 3 |
| |
Investment in certain subsidiaries and other | | 3,555 |
| |
Goodwill and other intangibles on nonmarketable equity securities (included in other assets) | | | 252 |
|
Applicable deferred taxes related to goodwill and other intangible assets (2) | | | 11 |
|
Other | | | (107 | ) |
Change in Common Equity Tier 1 | | 2,820 |
| | (4,009 | ) |
Common Equity Tier 1 (Fully Phased-In) at June 30, 2019 | | $ | 149,183 |
| |
Common Equity Tier 1 at March 31, 2020 | | | $ | 134,751 |
|
| |
(1) | Represents goodwill and other intangibles on nonmarketable equity securities, which are includedEffective January 1, 2020, we adopted CECL. For more information, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in other assets.this Report. |
| |
(2) | Applicable deferred taxes relate to goodwill and other intangible assets. They were determinedDetermined 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 3937 presents net changes in the components of RWAs under the Advanced and Standardized Approaches for the sixthree months ended June 30, 2019.March 31, 2020.
Table 39:37: Analysis of Changes in RWAs | | (in millions) | Advanced Approach |
| Standardized Approach |
| Advanced Approach |
| Standardized Approach |
|
RWAs (Fully Phased-In) at December 31, 2018 | $ | 1,177,350 |
| 1,247,210 |
| |
RWAs at December 31, 2019 (1) | | $ | 1,165,079 |
| 1,245,853 |
|
Net change in credit risk RWAs | (1,219 | ) | 2,228 |
| 11,902 |
| 9,739 |
|
Net change in market risk RWAs | (2,755 | ) | (2,755 | ) | 7,216 |
| 7,216 |
|
Net change in operational risk RWAs | 9,462 |
| — |
| (2,926 | ) | — |
|
Total change in RWAs | 5,488 |
| (527 | ) | 16,192 |
| 16,955 |
|
RWAs (Fully Phased-In) at June 30, 2019 | $ | 1,182,838 |
| 1,246,683 |
| |
RWAs at March 31, 2020 | | $ | 1,181,271 |
| 1,262,808 |
|
| |
(1) | Amount for December 31, 2019, has been revised as a result of a decease in RWAs under the Advanced Approach due to the correction of duplicated operational loss amounts. |
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(other than MSRs) and goodwill and intangible assets associated with certain of ourother intangibles on 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.outstanding; and
Return on average tangible common equity (ROTCE), which represents our annualized earnings contribution as a percentage of tangible common equity.
The methodology of determining tangible common equity may differ among companies. Management believes that tangible book value per common share and return on average tangible common equity, which utilize tangible common equity, are useful financial measures because they enable investors and others to assess the Company’s use of equity.
Table 4038 provides a reconciliation of these non-GAAP financial measures to GAAP financial measures.
Table 40:38: Tangible Common Equity
| | | | Balance at period end | | | Average balance | | | Balance at period end | | | Average balance | |
| | Quarter ended | | | Quarter ended | | | Six months ended | | | Quarter ended | | | Quarter ended | |
(in millions, except ratios) | | Jun 30, 2019 |
| Mar 31, 2019 |
| Jun 30, 2018 |
| | Jun 30, 2019 |
| Mar 31, 2019 |
| Jun 30, 2018 |
| | Jun 30, 2019 |
| Jun 30, 2018 |
| | Mar 31, 2020 |
| Dec 31, 2019 |
| Mar 31, 2019 |
| | Mar 31, 2020 |
| Dec 31, 2019 |
| Mar 31, 2019 |
|
Total equity | | $ | 200,037 |
| 198,733 |
| 206,069 |
| | 199,685 |
| 198,349 |
| 206,067 |
| | 199,021 |
| 206,123 |
| | $ | 183,330 |
| 187,984 |
| 198,733 |
| | 188,170 |
| 192,393 |
| 198,349 |
|
Adjustments: | | | | | | | | | | | | | | |
Preferred stock | | (23,021 | ) | (23,214 | ) | (25,737 | ) | | (23,023 | ) | (23,214 | ) | (26,021 | ) | | (23,118 | ) | (26,089 | ) | | (21,347 | ) | (21,549 | ) | (23,214 | ) | | (21,794 | ) | (21,549 | ) | (23,214 | ) |
Additional paid-in capital on ESOP preferred stock | | (78 | ) | (95 | ) | (116 | ) | | (78 | ) | (95 | ) | (129 | ) | | (87 | ) | (141 | ) | |
Additional paid-in capital on preferred stock | | | 140 |
| (71 | ) | (95 | ) | | 135 |
| (71 | ) | (95 | ) |
Unearned ESOP shares | | 1,292 |
| 1,502 |
| 2,051 |
| | 1,294 |
| 1,502 |
| 2,348 |
| | 1,397 |
| 2,428 |
| | 1,143 |
| 1,143 |
| 1,502 |
| | 1,143 |
| 1,143 |
| 1,502 |
|
Noncontrolling interests | | (995 | ) | (901 | ) | (881 | ) | | (939 | ) | (899 | ) | (919 | ) | | (919 | ) | (958 | ) | | (612 | ) | (838 | ) | (901 | ) | | (785 | ) | (945 | ) | (899 | ) |
Total common stockholders’ equity | (A) | | 177,235 |
| 176,025 |
| 181,386 |
| | 176,939 |
| 175,643 |
| 181,346 |
| | 176,294 |
| 181,363 |
| (A) | | 162,654 |
| 166,669 |
| 176,025 |
| | 166,869 |
| 170,971 |
| 175,643 |
|
Adjustments: | | | | |
| |
| | | | | | |
| |
|
Goodwill | | (26,415 | ) | (26,420 | ) | (26,429 | ) | | (26,415 | ) | (26,420 | ) | (26,444 | ) | | (26,417 | ) | (26,480 | ) | | (26,381 | ) | (26,390 | ) | (26,420 | ) | | (26,387 | ) | (26,389 | ) | (26,420 | ) |
Certain identifiable intangible assets (other than MSRs) | | (493 | ) | (522 | ) | (1,091 | ) | | (505 | ) | (543 | ) | (1,223 | ) | | (524 | ) | (1,355 | ) | | (413 | ) | (437 | ) | (522 | ) | | (426 | ) | (449 | ) | (543 | ) |
Other assets (1) | | (2,251 | ) | (2,131 | ) | (2,160 | ) | | (2,155 | ) | (2,159 | ) | (2,271 | ) | | (2,157 | ) | (2,252 | ) | |
Applicable deferred taxes (2) | | 788 |
| 771 |
| 874 |
| | 780 |
| 784 |
| 889 |
| | 782 |
| 911 |
| |
Goodwill and other intangibles on nonmarketable equity securities (included in other assets) | | | (1,894 | ) | (2,146 | ) | (2,131 | ) | | (2,152 | ) | (2,223 | ) | (2,159 | ) |
Applicable deferred taxes related to goodwill and other intangible assets (1) | | | 821 |
| 810 |
| 771 |
| | 818 |
| 807 |
| 784 |
|
Tangible common equity | (B) | | $ | 148,864 |
| 147,723 |
| 152,580 |
| | 148,644 |
| 147,305 |
| 152,297 |
| | 147,978 |
| 152,187 |
| (B) | | $ | 134,787 |
| 138,506 |
| 147,723 |
| | 138,722 |
| 142,717 |
| 147,305 |
|
Common shares outstanding | (C) | | 4,419.6 |
| 4,511.9 |
| 4,849.1 |
| | N/A |
| N/A |
| N/A |
| | N/A |
| N/A |
| (C) | | 4,096.4 |
| 4,134.4 |
| 4,511.9 |
| | N/A |
| N/A |
| N/A |
|
Net income applicable to common stock (3) | (D) | | N/A |
| N/A |
| N/A |
| | $ | 5,848 |
| 5,507 |
| 4,792 |
| | 11,355 |
| 9,525 |
| (D) | | N/A |
| N/A |
| N/A |
| | $ | 42 |
| 2,546 |
| 5,507 |
|
Book value per common share | (A)/(C) | | $ | 40.10 |
| 39.01 |
| 37.41 |
| | N/A |
| N/A |
| N/A |
| | N/A |
| N/A |
| (A)/(C) | | $ | 39.71 |
| 40.31 |
| 39.01 |
| | N/A |
| N/A |
| N/A |
|
Tangible book value per common share | (B)/(C) | | 33.68 |
| 32.74 |
| 31.47 |
| | N/A |
| N/A |
| N/A |
| | N/A |
| N/A |
| (B)/(C) | | 32.90 |
| 33.50 |
| 32.74 |
| | N/A |
| N/A |
| N/A |
|
Return on average common stockholders’ equity (ROE) (annualized) | (D)/(A) | | N/A |
| N/A |
| N/A |
| | 13.26 | % | 12.71 |
| 10.60 |
| | 12.99 |
| 10.59 |
| (D)/(A) | | N/A |
| N/A |
| N/A |
| | 0.10 | % | 5.91 |
| 12.71 |
|
Return on average tangible common equity (ROTCE) (annualized) | (D)/(B) | | N/A |
| N/A |
| N/A |
| | 15.78 |
| 15.16 |
| 12.62 |
| | 15.47 |
| 12.62 |
| (D)/(B) | | N/A |
| N/A |
| N/A |
| | 0.12 |
| 7.08 |
| 15.16 |
|
| |
(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 determinedDetermined 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 finalizedAs a rule that enhances the SLR requirements for BHCs, like Wells Fargo, and their insured depository institutions. The calculation of the SLR is Tier 1 capital divided by the Company’s 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. The rule, which became effective on January 1, 2018, requires a covered BHC, we are required to maintain a SLRsupplementary leverage ratio (SLR) of at least 5.0%5.00% (comprised of the 3.0%a 3.00% minimum requirement plus a supplementary leverage buffer of 2.0%2.00%) to avoid restrictions on capital distributions and discretionary bonus payments. The rule also requires that all of our insured depository institutionsOur IDIs are required to maintain a SLR of 6.0%at least 6.00% to be considered well-capitalized under applicable regulatory capital adequacy guidelines. In April 2018, the FRB and OCC proposed rules (the “Proposed SLR Rules”) that would replace the 2%2.00% supplementary leverage buffer with a buffer equal to one-half of the firm’sour G-SIB capital surcharge. The Proposed SLR Rules would similarly tailor the current 6%6.00% SLR requirement for our insured depository institutions.IDIs. In April 2020, the FRB issued an interim final rule that temporarily allows a BHC to exclude on-balance sheet amounts of U.S. Treasury securities and deposits at Federal Reserve Banks from the calculation of its total leverage exposure in the denominator of the SLR. The interim final rule became effective on April 1, 2020, and expires on March 31, 2021.
At June 30, 2019,March 31, 2020, our SLR for the Company was 7.7%. Based on our review, our current leverage levels would exceed6.84%, and we also exceeded the applicable SLR requirements for each of our insured depository institutions as well.IDIs. See Table 4139 for information regarding the calculation and components of the SLR.
Table 41:39: Supplementary Leverage Ratio
| | (in millions, except ratio) | | Quarter ended June 30, 2019 |
| | Quarter ended March 31, 2020 |
|
Tier 1 capital | (A) | $ | 170,675 |
| (A) | $ | 154,277 |
|
Total average assets | | 1,900,627 |
| | 1,950,659 |
|
Less: Goodwill and other permitted Tier 1 capital deductions (net of deferred tax liabilities) | | 28,821 |
| | 28,530 |
|
Total adjusted average assets | | 1,871,806 |
| | 1,922,129 |
|
Plus adjustments for off-balance sheet exposures: | | | | |
Derivatives (1) | | 68,229 |
| | 75,994 |
|
Repo-style transactions (2) | | 5,033 |
| | 4,613 |
|
Other (3) | | 257,539 |
| | 253,578 |
|
Total off-balance sheet exposures | | 330,801 |
| | 334,185 |
|
Total leverage exposure | (B) | $ | 2,202,607 |
| (B) | $ | 2,256,314 |
|
Supplementary leverage ratio | (A)/(B) | 7.7 | % | (A)/(B) | 6.84 | % |
| |
(1) | Adjustment represents derivatives and collateral netting exposures as defined for supplementary leverage ratio determination purposes. |
| |
(2) | Adjustment represents counterparty credit risk for repo-style transactions where Wells Fargo & Company is the principal (i.e., principal counterparty facing the client). |
| |
(3) | Adjustment represents credit equivalent amounts of other off-balance sheet exposures not already included as derivatives and repo-style transactions exposures. |
OTHER REGULATORY CAPITAL MATTERSTOTAL LOSS ABSORBING CAPACITY In December 2016, the FRB finalized rulesAs a G-SIB, we are required to address thehave a minimum amount of equity and unsecured long-term debt a U.S. G-SIB must hold to improve itsfor purposes of resolvability and resiliency, often referred to as Total Loss Absorbing Capacity (TLAC). Under the rules, which became effective on January 1, 2019, U.S. G-SIBs are 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%18.00% of RWAs and (ii) 7.5%7.50% of total leverage exposure (the denominator of the SLR calculation). Additionally, U.S. G-SIBs are required to maintain (i) a TLAC buffer equal to 2.5%2.50% of RWAs plus the firm’sour applicable G-SIB capital surcharge calculated under method one plus any applicable countercyclical buffer to be added to the 18%18.00% minimum and (ii) an external TLAC leverage buffer equal to 2.0%2.00% of total leverage exposure to be added to the
7.5% 7.50% minimum, in order to avoid restrictions on capital distributions and discretionary bonus payments. The rulesU.S. G-SIBs are also require U.S. G-SIBsrequired to have a minimum amount of eligible unsecured long-term debt equal to the greater of (i) 6.0%6.00% of RWAs plus the firm’sour applicable G-SIB capital surcharge calculated under method two
and (ii) 4.5%4.50% of the total leverage exposure. In addition, the rules 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%2.00% external TLAC leverage buffer would be replaced with a buffer equal to one-half of the firm’sour applicable G-SIB capital surcharge. Additionally, the Proposed SLR Rules would modifysurcharge, and the leverage component for calculating the minimum amount of eligible unsecured long-term debt would be modified from 4.5%4.50% of total leverage exposure to 2.5%2.50% of total leverage exposure plus one-half of the firm’sour applicable G-SIB capital surcharge. As of June 30, 2019,March 31, 2020, our eligible external TLAC as a percentage of total risk-weighted assets was 24.09%23.27% compared with a required minimum of 22.0%22.00%. 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, asOTHER REGULATORY CAPITAL AND LIQUIDITY MATTERS 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.
As a result of our adoption of CECL on January 1, 2020, our allowance for credit losses is now measured using an estimate of expected life-time credit losses methodology. Federal banking regulators issued rules permitting banking institutions whose capital levels decreased upon the adoption of CECL to phase in the adoption impact of CECL over a period of three years. Because we recognized a net reduction to our allowance for credit losses and a resulting increase to our capital levels upon the adoption of CECL, we were not eligible for this transition relief. In March 2020, federal banking regulators also issued rules that provide banking institutions an option to reduce any negative capital impact from the adoption of CECL and the difference between the allowance for credit losses under CECL and the previous incurred loss methodology. In first quarter 2020, we were not eligible for this transition relief.
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 capital 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%10.00%, which includes a 2%2.00% G-SIB capital 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 includingissued a final rule that will replace the current 2.50% capital conservation buffer under the Standardized Approach with 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 calculationImplementation 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%10.00% 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 when evaluating capital plans. The capital plan rule also limits 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.
Our 20192020 capital plan, which was submitted on April 4, 2019,3, 2020, 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 20192020 CCAR, the FRB also generated a supervisory stress test, which assumed a sharp decline in the economy and significant decline in asset pricing using the information provided by the Company to estimate performance. The FRB reviewedis expected to review the supervisory stress test results both as required under the Dodd-Frank Act using a common set of capital actions for all large BHCs and by taking into account the Company’s proposed capital actions. The FRB publishedhas indicated that it will publish its supervisory stress test results as required under the Dodd-Frank Act, onand the related CCAR results taking into account the Company’s proposed capital actions, by June 21, 2019. On June 27, 2019, the FRB notified us that it did not object to our capital plan included in the 2019 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 quarter30, 2020.
FederalConcurrently with CCAR, federal banking regulators also require large BHCs and banks to conduct their own stress tests to evaluate whether anthe 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. 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 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. On March 15, 2020, we, along with the other members of the Financial Services Forum, suspended our share repurchase activities for the remainder of the first quarter and for second quarter 2020.
In October 2018, the Board authorized the repurchase of 350 million shares of our common stock.
At June 30, 2019,March 31, 2020, we had remaining Board authority to repurchase approximately 193168 million shares, subject to regulatory and legal conditions. In July 2019, the Board authorized the repurchase of an additional 350 million shares of our common stock. For more information about share repurchases during secondfirst quarter 2019,2020, 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.
Regulatory Matters (continued)
Since the enactment of the Dodd-Frank Act in 2010, the U.S. financial services industry has been subject to a significant increase in regulation and regulatory oversight initiatives. This increased regulation and oversight has substantially changed how most U.S. financial services companies conduct business and has increased their regulatory compliance costs.
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 20182019 Form 10-K10-K.
REGULATORY DEVELOPMENTS RELATED TO COVID-19In response to the COVID-19 pandemic and related events, federal banking regulators have undertaken a number of measures to help stabilize the "Regulatory Matters" section in our 2019 First Quarter Report on Form 10-Q.
“LIVING WILL” REQUIREMENTS AND RELATED MATTERS Rules adopted bybanking sector, support the FRBbroader economy, and facilitate the FDIC under the Dodd-Frank Act require large financial institutions, includingability of banking organizations like Wells Fargo to preparecontinue lending to consumers and periodically revise resolution plans, so-called “living-wills”, that would facilitate their resolution inbusinesses. For example, following 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 stabilitypassage of the United States. We submitted our 2019 resolution planCoronavirus Aid, Relief and Economic Security Act (CARES Act) in March 2020, federal banking regulators issued interim final rules designed to encourage financial institutions to participate in stimulus measures, such as the Small Business Administration’s Paycheck Protection Program and the FRB’s Main Street Lending Program. Similarly, the FRB and FDIC on June 27, 2019. Our national bank subsidiary, Wells Fargo Bank, N.A. (the "Bank"), is also requiredlaunched a number of lending facilities designed 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 orenhance 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 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 rightsfunctioning of markets, including facilities covering money market mutual funds 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.term asset-backed securities loans. Federal banking regulators have also required measuresissued several joint interim final rules amending the regulatory capital and TLAC rules and other prudential regulations to facilitateease certain restrictions on banking organizations and encourage the continued operationuse of operating subsidiaries notwithstanding the failure of their parent companies, such as limitations on parent guarantees,certain FRB-established facilities in order to further promote lending to consumers and have issued guidancebusinesses.
encouraging institutionsIn addition, the OCC and the FRB have issued guidelines for banks and BHCs related to take legally binding measuresworking with customers affected by the COVID-19 pandemic, including guidance with respect to provide capitalwaiving fees, offering repayment accommodations, providing payment deferrals, and liquidity resources toincreasing daily withdrawal limits at automated teller machines. In addition, the federal government has instituted a moratorium on certain subsidiaries in order to facilitate an orderly resolution. In responsemortgage foreclosure activities. Any current or future rules, regulations, and guidance related to the regulators’ guidanceCOVID-19 pandemic and its impacts could require us to facilitate the orderly resolution of the Company, on June 28, 2017, the Parent entered into a 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”), andchange 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 distressbusiness practices, reduce our revenue and earnings, impose additional costs on us, or failure, the IHC will be obligated to use the transferred assets to provide capitalotherwise adversely affect our business operations 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 issuance of dividends, is expected to provide the Parent, during business as usual operating conditions, with the same access to cash necessary to service its debts, pay dividends, repurchase its shares, and perform its other obligations as it would have had if it had not entered into these arrangements and transferred any assets. If certain liquidity and/or capital metrics fall below defined triggers, 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 dividends to the Parent would be restricted, any of which could materially and adversely impact the Parent’s liquidity and its ability to satisfy its debts and other obligations, and could result in the commencement of bankruptcy proceedings by the Parent at an earlier time than might have otherwise occurred if the Support Agreement were not implemented. The respective obligations under the Support Agreement of the Parent, the IHC, the Bank, and the Related Support Entities are secured pursuant to a related security agreement.competitive position.
BROKER-DEALER STANDARDS OF CONDUCTCOMMUNITY REINVESTMENT ACT (CRA) RATING In June 2019,On May 4, 2020, we announced that we received an “Outstanding” rating from the SEC finalized a rule that requires broker-dealersOCC on our most recent CRA performance evaluation, which covers the years 2012 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 manner in which business is conducted with customers seeking investment advice and may affect certain investment product offerings.2018.
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Critical Accounting Policies |
Our significant accounting policies (see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 20182019 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’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 20182019 Form 10-K. In connection with our adoption ofCECL on January 1, 2020, we have updated our critical accounting policy for the allowance for credit losses.
Allowance for Credit Losses
We maintain an allowance for credit losses (ACL) for loans, which is management’s estimate of the expected credit losses in the loan portfolio and unfunded credit commitments, at the balance sheet date, excluding loans and unfunded credit commitments carried at fair value or held for sale. Additionally, we maintain an allowance for credit losses for debt securities classified as either held-to-maturity (HTM) or available-for-sale (AFS), other financial assets measured at amortized cost, net investments in leases, and other off-balance sheet credit exposures. In connection with our adoption of CECL, we updated our approach for estimating expected credit losses, which includes new areas for management judgment, described more fully below, and updated our accounting policies. For more information, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report.
For loans and HTM debt securities, the ACL is measured based on the remaining contractual term of the financial asset (including off-balance sheet credit exposures) adjusted, as appropriate, for prepayments and permitted extension options using historical experience, current conditions, and forecasted information. For AFS debt securities, the ACL is measured using a discounted cash flow approach and is limited to the difference between the fair value of the security and its amortized cost.
Changes in the ACL and, therefore, in the related provision for credit losses can materially affect net income. In applying the judgment and review required to determine the ACL, management considerations include the evaluation of past events, historical experience, changes in economic forecasts and conditions, customer behavior, collateral values, and the length of the initial loss forecast period, and other influences. From time to time, changes in economic factors or assumptions, business strategy, products or product mix, or debt security investment strategy, may result in a corresponding increase or decrease in our ACL. While our methodology attributes portions of the ACL to specific financial asset classes (loan and debt
security portfolios) or loan portfolio segments (commercial and consumer), the entire ACL is available to absorb credit losses of the company.
Judgment is specifically applied in:
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• | Economic assumptions and the length of the initial loss forecast period. Forecasted economic variables, such as gross domestic product (GDP), unemployment rate or collateral asset prices, are used to estimate expected credit losses. While many of these economic variables are evaluated at the macro-economy level, some economic variables may be forecasted at more granular levels, for example, using the metro statistical area (MSA) level for unemployment rates, home prices and commercial real estate prices. Quarterly, we assess the length of the initial loss forecast period and have currently set the period to one year. |
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• | Reversion of losses beyond the initial forecast period. We use a reversion approach to connect the losses estimated for our initial loss forecast period to the period of our historical loss expectations. We give consideration to the type of portfolio, point in the credit cycle, expected length of recessions and recoveries, as well as other relevant factors. During forecasted periods of expansionary economic conditions, we revert immediately to our historical loss expectations. However, when recessionary conditions are forecasted over the initial loss forecast period, we will utilize a linear reversion to the long-term average losses. The length of reversion period varies by asset type – one year for shorter contractual term loans such as commercial loans and two years for longer contractual term loans such as 1-4 family mortgage loans. We assess the reversion approach on a quarterly basis and the length of the reversion period by asset type annually. |
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• | Historical loss expectations. At the end of the reversion period, we incorporate the changes in economic variables observed during representative historical time periods that include both recessions and expansions. This analysis is used to compute average losses for any given portfolio and its associated credit characteristics. Annually, we assess the historical time periods and ensure the average loss estimates are representative of our historical loss experience. |
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• | Credit risk ratings applied to individual commercial loans, unfunded credit commitments, and debt securities. Individually assessed credit risk ratings are considered key credit variables in our modeled approaches to help assess probability of default and loss given default. Borrower quality ratings are aligned to the borrower’s financial strength and contribute to forecasted probability of default curves. Collateral quality ratings combined with forecasted collateral prices (as applicable) contribute to the forecasted severity of loss in the event of default. These credit risk ratings are reviewed by experienced senior credit officers and subjected to reviews by an internal team of credit risk specialists. |
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• | Usage of credit loss estimation models. We use internally developed models that incorporate credit attributes and economic variables to generate estimates of credit losses. Management uses a combination of judgement and quantitative analytics in the determination of segmentation, modeling approach, and variables that are leveraged in the models. These models are validated in |
accordance with the Company’s policies by an internal model validation group.We routinely assess our model performance and apply adjustments when necessary to improve the accuracy of loss estimation. We also assess our models for limitations against the company-wide risk inventory to help ensure that we appropriately capture known and emerging risks in our estimate of expected credit losses and apply overlays as needed.
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• | Valuation of collateral. The current fair value of collateral is utilized to assess the expected credit losses when a financial asset is considered to be collateral dependent. We apply judgment when valuing the collateral either through appraisals, evaluation of the cash flows of the property, or other quantitative techniques. Decreases in collateral valuations support incremental charge-downs and increases in collateral valuation are included in the allowance for credit losses as a negative allowance when the financial asset has been previously written-down below current recovery value. |
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• | Contractual term considerations. The remaining contractual term of a loan is adjusted for expected prepayments and certain expected extensions, renewals, or modifications. We extend the contractual term when we are not able to unconditionally cancel contractual renewals or extension options. We also incorporate into our allowance for credit losses any scenarios where we reasonably expect to provide an extension through a TDR. |
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• | Qualitative factors which may not be adequately captured in the loss models. These amounts represent management’s judgment of risks inherent in the processes and assumptions used in establishing the ACL. We also consider economic environmental factors, modeling assumptions and performance, process risk, and other subjective factors, including industry trends and emerging risk assessments. |
SensitivityThe ACL for loans is sensitive to changes in key assumptions which requires significant judgment to be used by management. Future amounts of the ACL for loans will be based on a variety of factors, including loan balance changes, portfolio credit quality, and general economic conditions. General economic conditions are forecasted using economic variables, which could have varying impacts on different financial assets or portfolios. Additionally, throughout numerous credit cycles, there are observed changes in economic variables such as the unemployment rate, GDP and real estate prices which may not move in a correlated manner as variables may move in opposite directions or differ across portfolios or geography.
In order to provide a sensitivity analysis, we developed two hypothetical scenarios by applying changes in economic variables to our loan portfolio, which affect the expected balances, credit quality, and mix. The outcomes of both scenarios were influenced by the length of the scenario periods, as well as the duration and timing of changes in economic variables within those scenarios. The scenarios reflect the impact of economic stress and corresponding adverse changes in economic variables for a longer period than the initial loss forecast period used to develop our current ACL for loans. Neither of the scenarios consider any benefit related to economic stimulus programs or other legislative or regulatory relief.
One hypothetical scenario represents an adverse scenario based on changes in economic variables experienced during the last credit crisis. Compared with the economic forecast used to develop our current ACL for loans, this adverse scenario reflects a more substantial and sustained increase in unemployment, a deeper and more sustained decline in GDP along with significant declines in consumer and commercial real estate prices. This adverse scenario resulted in an increase in the ACL for loans of $6.8 billion.
A second more severe scenario is similar to our annual Company-run stress test. Compared with the adverse scenario, the more severe scenario reflects a sustained but sharper increase in unemployment and a more significant and sustained decline in GDP. Declines in real estate prices are consistent with the adverse scenario, with additional stress to consumer and commercial real estate prices based on our regional and industry concentrations, as well as an idiosyncratic stress as a result of declines in oil and gas prices. The more severe scenario resulted in an increase in the ACL for loans of $11.3 billion.
The changes in economic variables in these scenarios were not contemplated in the economic forecast used to develop our current ACL for loans. In addition, these hypothetical increases in our ACL for loans represent changes to our quantitative estimate and do not incorporate the impact of management judgment for qualitative factors applied in the current ACL for loans, which may have an offsetting impact to the scenario results. Finally, if these hypothetical scenarios were to materialize, the increase in our ACL for loans may be recognized over time if actual loss expectations exceed our historical loss experience.
These sensitivity analyses are hypothetical scenarios and the results do not represent management’s view of expected credit losses at the balance sheet date. The sensitivity analyses exclude the ACL for debt securities given its size relative to the overall ACL. Management believes that the current estimate for the ACL for loans was appropriate at the balance sheet date. Because significant judgment is used, it is possible that others performing similar analyses could reach different conclusions.
Current Accounting Developments (continued)
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Current Accounting Developments |
Table 4241 provides the significant accounting updates applicable to us that have been issued by the FASBFinancial Accounting Standards Board (FASB) but are not yet effective.
Table 42:41: Current Accounting Developments – Issued Standards
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Standard | | Description | | Effective date and financial statement impact |
Accounting Standard Update (ASU or Update)ASU 2018-12 – Financial Services – Insurance (Topic 944):
Targeted Improvements to the Accounting for Long-Duration Contractsand subsequent related updates |
| 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 becomes effective on January 1, 2021.2022. Certain of our variable annuity reinsurance products meet the definition of market risk benefits and will require the associated insurance-relatedinsurance related reserves for these products to be measured at fair value as of the earliest period presented, with the cumulative effect on fair value for changes attributable to our own credit risk 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 on fair value forof our own credit, risk, will be recognized in the opening balance of retained earnings. As of June 30, 2019,March 31, 2020, we held $1.0$1.1 billion in insurance-related reserves of which $444$560 million was in scope of the Update. A total of $387$553 million was associated with products that meet the definition of market risk benefits, and of this amount, $21$65 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 primarilygenerally 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 toin the accounting for the liability forof 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, and are not expected to be material. |
ASU 2016-132020-04 – Financial InstrumentsReference Rate Reform (Topic 848) – Credit Losses (Topic 326): MeasurementFacilitation of Credit Lossesthe Effects of Reference Rate Reform on Financial Instruments and subsequent related UpdatesReporting | |
The Update provides temporary, optional relief to ease the potential burden of accounting for reference rate reform activities that affect contractual modifications of floating-rate financial instruments indexed to IBORs and hedge accounting relationships. Contractual modifications and changes to existing hedge accounting relationships must meet specific requirements to qualify for the relief. Upon election the guidance is applied consistently to all applicable instruments, where a qualifying contractual modification is accounted for as the continuation of an existing contract rather than a new contract. The optional relief facilitates the preservation of existing fair value and cash flow hedge relationships while amending certain contractual terms of hedge accounting relationships, and changes the accounting for credit losses measurement on loans and debt securities. For loans and held-to-maturity debt securities,way the Update requires a current expected credit loss (CECL) measurement to estimateamounts excluded from the allowance for credit losses (ACL)evaluation of hedge effectiveness are reported in earnings. Hedging relationships that qualify for the remaining estimated liferelief will not require discontinuation of the financial asset (including off-balance sheet credit exposures) using historical experience, current conditions,existing hedge accounting relationships. The election to apply the optional relief for existing fair value and reasonablecash flow hedge accounting relationships may be made on a hedge-by-hedge basis and supportable forecasts. The Update eliminates the existing guidance for PCI loans, but requires an allowance for purchased financial assets with more than insignificant deterioration since origination. In addition, the Update modifies the other-than-temporaryacross multiple reporting periods.
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.
| | We expect to adoptadopted the guidance in first quarteron April 1, 2020. Our implementation process includes loss forecasting model development, evaluation of technicalWe applied the guidance consistently to contractual amendments made to all applicable floating rate instruments indexed to IBORs. We elected to apply the guidance on an individual hedge-by-hedge basis for changes to hedge accounting topics, updates to our allowance documentation, reporting processes and related internal controls, and overall operational readiness for our adoptionrelationships. The financial statement impact of the Update which will continue throughout 2019, including parallel runs for CECL alongsidechange each period as contracts, existing and new, are impacted by reference rate reform activities and as our current allowance process. We are in the process of developing, validating, and implementing models usedexposure changes to estimate credit losses under CECL. We have completed substantially all of our loss forecasting models, and we expect to complete 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:
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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 troubled 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 $1.5 billion. The reduction reflects an expected decrease for commercial loans, given their short contractual maturities, partially offset by an expected increase for longer duration consumer loans and includes recoveries related to residential 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 assumptions and changes in our portfolio composition. We will continue to evaluate and refine the results of our loss estimates throughout 2019.
We will recognize an ACL for held-to-maturity and available-for-sale debt securities. The ACL on available-for-sale debt securities will be subject to a limitation based on the fair value of the debt securities. Based on the credit quality of our existing debt securities portfolio, we do not expect the ACL for held-to-maturity and available-for-sale debt securities to be 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, methodologyLIBOR 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.IBORs.
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In addition to the list above, theThe following Updates are applicable to us but are not expected to have a material impact on our consolidated financial statements:
ASU 2020-01 – Investments – Equity Securities (Topic 321),
Investments – Equity Method and Joint Ventures (Topic
323), and Derivatives and Hedging (Topic 815): Clarifying the
Interactions between Topic 321, Topic 323, and Topic 815 (a
consensus of the FASB Emerging Issues Task Force)
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• | ASU 2019-042019-12 – 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. |
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• | ASU 2018-17 – ConsolidationIncome Taxes (Topic 810)740): Targeted Improvements to Related Party GuidanceSimplifying the Accounting for Variable Interest EntitiesIncome Taxes
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• | 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)
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| |
• | 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.
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• | ASU 2017-04 – Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
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Forward-Looking Statements (continued)
|
|
Forward-Looking Statements |
This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.forward-looking statements. 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 our allowance levels;for credit losses; (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, ratios or targets and our estimated Common Equity Tier 1 ratio under Basel III capital standards;targets; (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) expectations regarding our effective income tax rate; (xiii) the outcome of contingencies, such as legal proceedings; and (xiii)(xiv) the Company’s plans, objectives and strategies.
Forward-looking statements are not based on historical facts but instead represent our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you, therefore, against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. While there is no assurance that any list of risks and uncertainties or risk factors is complete, important factors that could cause actual results to differ materially from those in the forward-looking statements include the following, without limitation:
current and future economic and market conditions, including the effects of declines in housing prices, high
unemployment rates, U.S. fiscal debt, budget and tax matters, geopolitical matters, and any slowdown in global economic growth;
the effect of the COVID-19 pandemic, including on our credit quality and business operations, as well as its impact on general economic and financial market conditions;
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 mortgage loan modification efforts, the amount of mortgage loan repurchase demands that we receive, any negative effects relating to our mortgage servicing, loan modification or foreclosure practices, and the effects of regulatory or judicial requirements or guidance impacting our mortgage banking business and 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 or in the level or composition of our assets or liabilities 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 onimpairments of 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-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;
changes to U.S. tax guidance and regulations, as well as the effect of discrete items on our effective income tax rate;
our ability to develop and execute effective business plans and strategies; and
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• | the other risk factors and uncertainties described under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 20182019., as supplemented by the “Risk Factors” section in this Report. |
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, 2018,2019, as supplemented by the “Risk Factors” section in this Report, as filed with the Securities and Exchange Commission and available on its website at www.sec.gov.
Any forward-looking statement made by us speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.
Forward-looking Non-GAAP Financial Measures. From time to time management may discuss forward-looking non-GAAP financial measures, such as forward-looking estimates or targets for return on average tangible common equity. We are unable to provide a reconciliation of forward-looking non-GAAP financial measures to their most directly comparable GAAP financial measures because we are unable to provide, without unreasonable effort, a meaningful or accurate calculation or estimation of amounts that would be necessary for the reconciliation due to the complexity and inherent difficulty in forecasting and quantifying future amounts or when they may occur. Such unavailable information could be significant to future results.
An investment in the Company involves risk, including the possibility that the value of the investment could fall substantially and that dividends or other distributions on the investment could be reduced or eliminated. For a discussion of risk factors that could adversely affect our financial results and condition, and the value of, and return on, an investment in the Company, we refer you to the “Risk Factors” section in our 20182019 Form 10-K.
The following risk factor supplements the “Risk Factors” section in our 2019 Form 10-K.
The COVID-19 pandemic has adversely impacted our business and financial results, and the ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, lowered equity market valuations, created significant volatility and disruption in financial markets, and increased unemployment levels. In addition, the pandemic has resulted in temporary closures of many businesses and the institution of social distancing and sheltering in place requirements in many states and communities. As a result, the demand for our products and services may be significantly impacted, which could adversely affect our revenue. Furthermore, the pandemic could continue to result in the recognition of credit losses in our loan portfolios and increases in our allowance for credit losses, particularly if businesses remain closed, the impact on the global economy worsens, or more customers draw on their lines of credit or seek additional loans to help finance their businesses. Similarly, because of changing economic and market conditions affecting issuers, we may be required to recognize further impairments on the securities we hold as well as reductions in other comprehensive income. Our business operations may be further disrupted if significant portions of our workforce are unable to work effectively, including because of illness, quarantines, government actions, or other restrictions in connection with the pandemic, and we have already temporarily closed certain of our branches and offices.
Moreover, the pandemic has created additional operational and compliance risks, including the need to quickly implement and execute new programs and procedures for the products and services we offer our customers, provide enhanced safety measures for our employees and customers, comply with rapidly changing regulatory requirements, address any increased risk of fraudulent activity, and protect the integrity and functionality of our systems and networks as a larger number of our employees work remotely. The pandemic could also result in downgrades to our credit ratings or credit outlook. In response to the pandemic, we have suspended residential property foreclosure sales, evictions, and involuntary automobile repossessions, and are offering fee waivers, payment deferrals, and other expanded assistance for credit card, automobile, mortgage, small business and personal lending customers, and future governmental actions may require these and other types of customer-related responses. In addition, we have temporarily suspended share repurchases and could take other capital actions in response to the COVID-19 pandemic. The extent to which the COVID-19 pandemic impacts our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic.
Controls and Procedures
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Disclosure Controls and Procedures |
The Company’s management evaluated the effectiveness, as of June 30, 2019,March 31, 2020, 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 June 30, 2019.March 31, 2020.
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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 secondfirst quarter 20192020 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, | | Quarter ended March 31, | |
(in millions, except per share amounts) | 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
| 2020 |
| | 2019 |
|
Interest income | | | | | | | | | | |
Debt securities | $ | 3,781 |
| | 3,594 |
| | 7,722 |
| | 7,008 |
| $ | 3,472 |
| | 3,941 |
|
Mortgage loans held for sale | 195 |
| | 198 |
| | 347 |
| | 377 |
| 197 |
| | 152 |
|
Loans held for sale | 20 |
| | 48 |
| | 44 |
| | 72 |
| 12 |
| | 24 |
|
Loans | 11,316 |
| | 10,912 |
| | 22,670 |
| | 21,491 |
| 10,065 |
| | 11,354 |
|
Equity securities | 236 |
| | 221 |
| | 446 |
| | 452 |
| 206 |
| | 210 |
|
Other interest income | 1,438 |
| | 1,042 |
| | 2,760 |
| | 1,962 |
| 775 |
| | 1,322 |
|
Total interest income | 16,986 |
| | 16,015 |
| | 33,989 |
| | 31,362 |
| 14,727 |
| | 17,003 |
|
Interest expense | | | | | | | | | | |
Deposits | 2,213 |
| | 1,268 |
| | 4,239 |
| | 2,358 |
| 1,742 |
| | 2,026 |
|
Short-term borrowings | 646 |
| | 398 |
| | 1,242 |
| | 709 |
| 291 |
| | 596 |
|
Long-term debt | 1,900 |
| | 1,658 |
| | 3,827 |
| | 3,234 |
| 1,240 |
| | 1,927 |
|
Other interest expense | 132 |
| | 150 |
| | 275 |
| | 282 |
| 142 |
| | 143 |
|
Total interest expense | 4,891 |
| | 3,474 |
| | 9,583 |
| | 6,583 |
| 3,415 |
| | 4,692 |
|
Net interest income | 12,095 |
| | 12,541 |
| | 24,406 |
|
| 24,779 |
| 11,312 |
|
| 12,311 |
|
Provision for credit losses | 503 |
| | 452 |
| | 1,348 |
| | 643 |
| |
Provision for credit losses: | | | | |
Debt securities (1) | | 172 |
| | — |
|
Loans | | 3,833 |
| | 845 |
|
Net interest income after provision for credit losses | 11,592 |
| | 12,089 |
| | 23,058 |
| | 24,136 |
| 7,307 |
| | 11,466 |
|
Noninterest income | | | | | | | | | | |
Service charges on deposit accounts | 1,206 |
| | 1,163 |
| | 2,300 |
| | 2,336 |
| 1,209 |
| | 1,094 |
|
Trust and investment fees | 3,568 |
| | 3,675 |
| | 6,941 |
| | 7,358 |
| 3,574 |
| | 3,373 |
|
Card fees | 1,025 |
| | 1,001 |
| | 1,969 |
| | 1,909 |
| 892 |
| | 944 |
|
Other fees | 800 |
| | 846 |
| | 1,570 |
| | 1,646 |
| 632 |
| | 770 |
|
Mortgage banking | 758 |
| | 770 |
| | 1,466 |
| | 1,704 |
| 379 |
| | 708 |
|
Insurance | 93 |
| | 102 |
| | 189 |
| | 216 |
| 95 |
| | 96 |
|
Net gains from trading activities | 229 |
| | 191 |
| | 586 |
| | 434 |
| 64 |
| | 357 |
|
Net gains on debt securities (1) | 20 |
| | 41 |
| | 145 |
| | 42 |
| |
Net gains from equity securities (2) | 622 |
| | 295 |
| | 1,436 |
| | 1,078 |
| |
Net gains on debt securities | | 237 |
| | 125 |
|
Net gains (losses) from equity securities | | (1,401 | ) | | 814 |
|
Lease income | 424 |
| | 443 |
| | 867 |
| | 898 |
| 352 |
| | 443 |
|
Other | 744 |
| | 485 |
| | 1,318 |
| | 1,087 |
| 372 |
| | 574 |
|
Total noninterest income | 9,489 |
| | 9,012 |
| | 18,787 |
| | 18,708 |
| 6,405 |
| | 9,298 |
|
Noninterest expense | | | | | | | | | | |
Salaries | 4,541 |
| | 4,465 |
| | 8,966 |
| | 8,828 |
| 4,721 |
| | 4,425 |
|
Commission and incentive compensation | 2,597 |
| | 2,642 |
| | 5,442 |
| | 5,410 |
| 2,463 |
| | 2,845 |
|
Employee benefits | 1,336 |
| | 1,245 |
| | 3,274 |
| | 2,843 |
| 1,130 |
| | 1,938 |
|
Equipment | 607 |
| | 550 |
| | 1,268 |
| | 1,167 |
| |
Technology and equipment | | 661 |
| | 661 |
|
Net occupancy | 719 |
| | 722 |
| | 1,436 |
| | 1,435 |
| 715 |
| | 717 |
|
Core deposit and other intangibles | 27 |
| | 265 |
| | 55 |
| | 530 |
| 23 |
| | 28 |
|
FDIC and other deposit assessments | 144 |
| | 297 |
| | 303 |
| | 621 |
| 118 |
| | 159 |
|
Other | 3,478 |
| | 3,796 |
| | 6,621 |
| | 8,190 |
| 3,217 |
| | 3,143 |
|
Total noninterest expense | 13,449 |
| | 13,982 |
| | 27,365 |
| | 29,024 |
| 13,048 |
| | 13,916 |
|
Income before income tax expense | 7,632 |
| | 7,119 |
| | 14,480 |
|
| 13,820 |
| 664 |
|
| 6,848 |
|
Income tax expense | 1,294 |
| | 1,810 |
| | 2,175 |
| | 3,184 |
| 159 |
| | 881 |
|
Net income before noncontrolling interests | 6,338 |
| | 5,309 |
| | 12,305 |
|
| 10,636 |
| 505 |
|
| 5,967 |
|
Less: Net income from noncontrolling interests | 132 |
| | 123 |
| | 239 |
| | 314 |
| |
Less: Net income (loss) from noncontrolling interests | | (148 | ) | | 107 |
|
Wells Fargo net income | $ | 6,206 |
| | 5,186 |
| | 12,066 |
|
| 10,322 |
| $ | 653 |
|
| 5,860 |
|
Less: Preferred stock dividends and other | 358 |
| | 394 |
| | 711 |
| | 797 |
| 611 |
| | 353 |
|
Wells Fargo net income applicable to common stock | $ | 5,848 |
| | 4,792 |
| | 11,355 |
| | 9,525 |
| $ | 42 |
| | 5,507 |
|
Per share information | | | | | | | | | | |
Earnings per common share | $ | 1.31 |
| | 0.98 |
| | 2.52 |
| | 1.95 |
| $ | 0.01 |
| | 1.21 |
|
Diluted earnings per common share | 1.30 |
| | 0.98 |
| | 2.50 |
| | 1.94 |
| 0.01 |
| | 1.20 |
|
Average common shares outstanding | 4,469.4 |
| | 4,865.8 |
| | 4,510.2 |
| | 4,875.7 |
| 4,104.8 |
| | 4,551.5 |
|
Diluted average common shares outstanding | 4,495.0 |
| | 4,899.8 |
| | 4,540.1 |
| | 4,916.1 |
| 4,135.3 |
| | 4,584.0 |
|
| |
(1) | Total other-than-temporary impairment (OTTI)Prior to our adoption of Accounting Standards Update (ASU) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (CECL), on January 1, 2020, provision for credit losses (reversal of losses) were $6 millionfrom debt securities was not applicable and $(3) million for second quarter 2019 and 2018, respectively. Of total OTTI, losses of $7 million and $8 million were recognized in earnings, and losses (reversal of losses) of $(1) million and $(11) million were recognizedis therefore presented as non-credit-related OTTI in other comprehensive income for second quarter 2019 and 2018, respectively. Total OTTI losses were $51 million and $14 million$0 for the first halfprior period. For more information, see Note 1 (Summary of 2019 and 2018, respectively. Of total OTTI, losses of $52 million and $18 million were recognizedSignificant Accounting Policies) to Financial Statements in earnings, and losses (reversal of losses) of $(1) million and $(4) million were recognized as non-credit-related OTTI in other comprehensive income for the first half of 2019 and 2018, respectively. |
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(2) | Includes OTTI losses of $31 million and $237 million for second quarter 2019 and 2018, respectively, and $67 million and $257 million for the first half of 2019 and 2018, respectively.this Report. |
The accompanying notes are an integral part of these statements.
| | Wells Fargo & Company and Subsidiaries | | | | | | | | | | | | |
Consolidated Statement of Comprehensive Income (Unaudited) | Consolidated Statement of Comprehensive Income (Unaudited) | | | | | Consolidated Statement of Comprehensive Income (Unaudited) |
| | Quarter ended June 30, | | | Six months ended June 30, | | | Quarter ended March 31, | |
(in millions) | | 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
| | 2020 |
| | 2019 |
|
Wells Fargo net income | | $ | 6,206 |
| | 5,186 |
| | 12,066 |
| | 10,322 |
| | $ | 653 |
| | 5,860 |
|
Other comprehensive income (loss), before tax: | | | | | | | | | | | | |
Debt securities: | | | | | | | | | | | | |
Net unrealized gains (losses) arising during the period | | 1,709 |
| | (617 | ) | | 4,540 |
| | (4,060 | ) | | (110 | ) | | 2,831 |
|
Reclassification of net (gains) losses to net income | | 39 |
| | 49 |
| | (42 | ) | | 117 |
| |
Reclassification of net gains to net income | | | (172 | ) | | (81 | ) |
Derivative and hedging activities: | | | | | | | | | | | | |
Net unrealized gains (losses) arising during the period | | 57 |
| | (150 | ) | | 22 |
| | (392 | ) | | 124 |
| | (35 | ) |
Reclassification of net losses to net income | | 79 |
| | 77 |
| | 158 |
| | 137 |
| | 58 |
| | 79 |
|
Defined benefit plans adjustments: | | | | | | | | | | | | |
Net actuarial and prior service gains (losses) arising during the period | | — |
| | — |
| | (4 | ) | | 6 |
| | 3 |
| | (4 | ) |
Amortization of net actuarial loss, settlements and other to net income | | 33 |
| | 29 |
| | 68 |
| | 61 |
| | 36 |
| | 35 |
|
Foreign currency translation adjustments: | | | | | | | | | | | | |
Net unrealized gains (losses) arising during the period | | 14 |
| | (83 | ) | | 56 |
| | (85 | ) | | (194 | ) | | 42 |
|
Other comprehensive income (loss), before tax | | 1,931 |
| | (695 | ) | | 4,798 |
| | (4,216 | ) | | (255 | ) | | 2,867 |
|
Income tax benefit (expense) related to other comprehensive income | | (473 | ) | | 154 |
| | (1,167 | ) | | 1,016 |
| | 1 |
| | (694 | ) |
Other comprehensive income (loss), net of tax | | 1,458 |
| | (541 | ) | | 3,631 |
| | (3,200 | ) | | (254 | ) | | 2,173 |
|
Less: Other comprehensive loss from noncontrolling interests | | — |
| | (1 | ) | | — |
| | (1 | ) | | (1 | ) | | — |
|
Wells Fargo other comprehensive income (loss), net of tax | | 1,458 |
| | (540 | ) | | 3,631 |
| | (3,199 | ) | | (253 | ) | | 2,173 |
|
Wells Fargo comprehensive income | | 7,664 |
| | 4,646 |
| | 15,697 |
| | 7,123 |
| | 400 |
| | 8,033 |
|
Comprehensive income from noncontrolling interests | | 132 |
| | 122 |
| | 239 |
| | 313 |
| |
Comprehensive income (loss) from noncontrolling interests | | | (149 | ) | | 107 |
|
Total comprehensive income | | $ | 7,796 |
| | 4,768 |
| | 15,936 |
| | 7,436 |
| | $ | 251 |
| | 8,140 |
|
The accompanying notes are an integral part of these statements.
| | Wells Fargo & Company and Subsidiaries | | | | | | |
Consolidated Balance Sheet | | | | | | |
(in millions, except shares) | Jun 30, 2019 |
| | Dec 31, 2018 |
| Mar 31, 2020 |
| | Dec 31, 2019 |
|
Assets | (Unaudited) |
| | | (Unaudited) |
| | |
Cash and due from banks | $ | 20,880 |
| | 23,551 |
| $ | 22,738 |
| | 21,757 |
|
Interest-earning deposits with banks | 143,547 |
| | 149,736 |
| 128,071 |
| | 119,493 |
|
Total cash, cash equivalents, and restricted cash | 164,427 |
| | 173,287 |
| 150,809 |
| | 141,250 |
|
Federal funds sold and securities purchased under resale agreements | 112,119 |
| | 80,207 |
| 86,465 |
| | 102,140 |
|
Debt securities: | | | | | | |
Trading, at fair value | 70,208 |
| | 69,989 |
| 80,425 |
| | 79,733 |
|
Available-for-sale, at fair value | 265,983 |
| | 269,912 |
| |
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 |
| |
Available-for-sale, at fair value (includes amortized cost of $248,187 and $260,060, net of allowance for credit losses of $161 and $0) (1) | | 251,229 |
| | 263,459 |
|
Held-to-maturity, at amortized cost, net of allowance for credit losses of $11 and $0 (fair value $177,562 and $156,860) (1) | | 169,909 |
| | 153,933 |
|
Mortgage loans held for sale (includes $16,665 and $16,606 carried at fair value) (2) | | 21,795 |
| | 23,342 |
|
Loans held for sale (includes $1,673 and $972 carried at fair value) (2) | | 1,883 |
| | 977 |
|
Loans (includes $160 and $171 carried at fair value) (2) | | 1,009,843 |
| | 962,265 |
|
Allowance for loan losses | (9,692 | ) | | (9,775 | ) | (11,263 | ) | | (9,551 | ) |
Net loans | 940,186 |
| | 943,335 |
| 998,580 |
| | 952,714 |
|
Mortgage servicing rights: | | | | | | |
Measured at fair value | 12,096 |
| | 14,649 |
| 8,126 |
| | 11,517 |
|
Amortized | 1,407 |
| | 1,443 |
| 1,406 |
| | 1,430 |
|
Premises and equipment, net | 9,435 |
| | 8,920 |
| 9,108 |
| | 9,309 |
|
Goodwill | 26,415 |
| | 26,418 |
| 26,381 |
| | 26,390 |
|
Derivative assets | 13,162 |
| | 10,770 |
| 25,023 |
| | 14,203 |
|
Equity securities (includes $35,950 and $29,556 carried at fair value) (1) | 61,537 |
| | 55,148 |
| |
Equity securities (includes $28,176 and $41,936 carried at fair value) (2) | | 54,047 |
| | 68,241 |
|
Other assets | 76,358 |
| | 79,850 |
| 96,163 |
| | 78,917 |
|
Total assets (2) | $ | 1,923,388 |
| | 1,895,883 |
| |
Total assets (3) | | $ | 1,981,349 |
| | 1,927,555 |
|
Liabilities | | | | | | |
Noninterest-bearing deposits | $ | 340,813 |
| | 349,534 |
| $ | 379,678 |
| | 344,496 |
|
Interest-bearing deposits | 947,613 |
| | 936,636 |
| 996,854 |
| | 978,130 |
|
Total deposits | 1,288,426 |
| | 1,286,170 |
| 1,376,532 |
| | 1,322,626 |
|
Short-term borrowings | 115,344 |
| | 105,787 |
| 92,289 |
| | 104,512 |
|
Derivative liabilities | 8,399 |
| | 8,499 |
| 15,618 |
| | 9,079 |
|
Accrued expenses and other liabilities | 69,706 |
| | 69,317 |
| 76,238 |
| | 75,163 |
|
Long-term debt | 241,476 |
| | 229,044 |
| 237,342 |
| | 228,191 |
|
Total liabilities (3) | 1,723,351 |
| | 1,698,817 |
| |
Total liabilities (4) | | 1,798,019 |
| | 1,739,571 |
|
Equity | | | | | | |
Wells Fargo stockholders’ equity: | | | | | | |
Preferred stock | 23,021 |
| | 23,214 |
| 21,347 |
| | 21,549 |
|
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 | 60,625 |
| | 60,685 |
| 59,849 |
| | 61,049 |
|
Retained earnings | 164,551 |
| | 158,163 |
| 165,308 |
| | 166,697 |
|
Cumulative other comprehensive income (loss) | (2,224 | ) | | (6,336 | ) | (1,564 | ) | | (1,311 | ) |
Treasury stock – 1,062,220,277 shares and 900,557,866 shares | (54,775 | ) | | (47,194 | ) | |
Treasury stock – 1,385,401,170 shares and 1,347,385,537 shares | | (70,215 | ) | | (68,831 | ) |
Unearned ESOP shares | (1,292 | ) | | (1,502 | ) | (1,143 | ) | | (1,143 | ) |
Total Wells Fargo stockholders’ equity | 199,042 |
| | 196,166 |
| 182,718 |
| | 187,146 |
|
Noncontrolling interests | 995 |
| | 900 |
| 612 |
| | 838 |
|
Total equity | 200,037 |
| | 197,066 |
| 183,330 |
| | 187,984 |
|
Total liabilities and equity | $ | 1,923,388 |
| | 1,895,883 |
| $ | 1,981,349 |
| | 1,927,555 |
|
| |
(1) | Prior to our adoption of CECL on January 1, 2020, the allowance for credit losses (ACL) related to available-for-sale (AFS) and held-to-maturity (HTM) debt securities was not applicable and is therefore presented as $0 at December 31, 2019. For more information, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report. |
| |
(2) | Parenthetical amounts represent assets and liabilities that we are required to carry at fair value or have elected the fair value option. |
| |
(2)(3) | Our consolidated assets at June 30, 2019,March 31, 2020, and December 31, 2018,2019, 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, $11$19 million and $139 million;$16 million; Interest-earning deposits with banks, $8$0 million and $8 million;$284 million; Debt securities, $60$616 million and $45 million;$540 million; Net loans, $13.6$13.1 billion and $13.6 billion;$13.2 billion; Derivative assets, $6 million and $1 million; Equity securities, $121$95 million and $85 million;$118 million; Other assets, $208$258 million and $221 million;$239 million; and Total assets, $14.0$14.1 billion and $14.1$14.4 billion, respectively. |
| |
(3)(4) | Our consolidated liabilities at June 30, 2019,March 31, 2020, and December 31, 2018,2019, include the following VIE liabilities for which the VIE creditors do not have recourse to Wells Fargo: Short-term borrowings, $300 million and $401 million; Derivative liabilities, $1$8 million and $0 million;$3 million; Accrued expenses and other liabilities, $201$230 million and $191 million;$235 million; Long-term debt, $748$235 million and $816 million;$587 million; and Total liabilities, $950$773 million and $1.0$1.2 billion, respectively. |
The accompanying notes are an integral part of these statements.
| | Wells Fargo & Company and Subsidiaries | | | | | | | | | | | | | | |
Consolidated Statement of Changes in Equity (Unaudited) | Consolidated Statement of Changes in Equity (Unaudited) | | | | | Consolidated Statement of Changes in Equity (Unaudited) | | | | |
| | | | | | | | | | | | | | |
| Preferred stock | | | Common stock | | Preferred stock | | | Common stock | |
(in millions, except shares) | Shares |
| | Amount |
| | Shares |
| | Amount |
| Shares |
| | Amount |
| | Shares |
| | Amount |
|
Balance March 31, 2019 | 9,377,211 |
| | $ | 23,214 |
| | 4,511,947,830 |
| | $ | 9,136 |
| |
Balance December 31, 2019 | | 7,492,169 |
| | $ | 21,549 |
| | 4,134,425,937 |
| | $ | 9,136 |
|
Cumulative effect from change in accounting policies (1) | | | | | | | | |
Balance January 1, 2020 | | 7,492,169 |
| | $ | 21,549 |
| | 4,134,425,937 |
| | $ | 9,136 |
|
Net income | | | | | | | | | | | | | | |
Other comprehensive income (loss), net of tax | | | | | | | | | | | | | | |
Noncontrolling interests | | | | | | | | | | | | | | |
Common stock issued | | | | | 8,491,923 |
| | | | | | | 37,351,887 |
| | |
Common stock repurchased | | | | | (104,852,744 | ) | | | | | | | (75,367,520 | ) | | |
Preferred stock redeemed | | (1,828,720 | ) | | (2,215 | ) | | | | |
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 | — |
| | — |
| | | | | 80,500 |
| | 2,013 |
| | | | |
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 | — |
| (1,748,220 | ) | | (202 | ) | | (38,015,633 | ) | | — |
|
Balance June 30, 2019 | 9,184,169 |
|
| $ | 23,021 |
|
| 4,419,591,197 |
|
| $ | 9,136 |
| |
Balance March 31, 2018 | 12,546,235 |
| | $ | 26,227 |
| | 4,873,882,481 |
| | $ | 9,136 |
| |
Balance March 31, 2020 | | 5,743,949 |
| | $ | 21,347 |
| | 4,096,410,304 |
| | $ | 9,136 |
|
Balance December 31, 2018 | | 9,377,216 |
| | $ | 23,214 |
| | 4,581,253,608 |
| | $ | 9,136 |
|
Cumulative effect from change in accounting policies (2) | | | | | | | | |
Balance January 1, 2019 | | 9,377,216 |
| | $ | 23,214 |
| | 4,581,253,608 |
| | $ | 9,136 |
|
Net income | | | | | | | | | | | | | | |
Other comprehensive income (loss), net of tax | | | | | | | | | | | | | | |
Noncontrolling interests | | | | | | | | | | | | | | |
Common stock issued | | | | | 1,834,029 |
| | | | | | | 28,057,901 |
| | |
Common stock repurchased (1) | | | | | (35,771,728 | ) | | | |
Common stock repurchased | | | | | | (97,363,710 | ) | | |
Preferred stock redeemed | | — |
| | — |
| | | | |
Preferred stock issued to ESOP | — |
| | — |
| | | | |
|
| |
|
| | | | |
Preferred stock released by ESOP | | | | | | | | |
| | | | | | |
Preferred stock converted to common shares | (490,251 | ) | | (490 | ) | | 9,123,072 |
| | | (5 | ) | | — |
| | 31 |
| | |
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 | ) |
| — |
| (5 | ) | | — |
| | (69,305,778 | ) | | — |
|
Balance June 30, 2018 | 12,055,984 |
|
| $ | 25,737 |
|
| 4,849,067,854 |
|
| $ | 9,136 |
| |
Balance March 31, 2019 | | 9,377,211 |
| | $ | 23,214 |
| | 4,511,947,830 |
| | $ | 9,136 |
|
| |
(1) | We adopted CECL effective January 1, 2020. For the quarter ended June 30, 2018, additional paid-in capital was reduced by $1.0 billion for the upfront payment relatedmore information, see Note 1 (Summary of Significant Accounting Policies) to a private forward repurchase transaction that settledFinancial Statements in third quarter 2018 and reduced our third quarter 2018 shares of common stock by 18.8 million shares upon settlement.this Report. |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | 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, 2018 | 9,377,216 |
| | $ | 23,214 |
| | 4,581,253,608 |
| | $ | 9,136 |
|
Cumulative effect from change in accounting policies (1) | | | | | | | |
Balance January 1, 2019 | 9,377,216 |
| | $ | 23,214 |
| | 4,581,253,608 |
| | $ | 9,136 |
|
Net income | | | | | | | |
Other comprehensive income (loss), net of tax | | | | | | | |
Noncontrolling interests | | | | | | | |
Common stock issued | | | | | 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, 2019 | 9,184,169 |
| | $ | 23,021 |
| | 4,419,591,197 |
| | $ | 9,136 |
|
Balance December 31, 2017 | 11,677,235 |
| | $ | 25,358 |
| | 4,891,616,628 |
| | $ | 9,136 |
|
Cumulative effect from change in accounting policies (2) | | | | | | | |
Balance January 1, 2018 | 11,677,235 |
| | $ | 25,358 |
| | 4,891,616,628 |
| | $ | 9,136 |
|
Net income | | | | | | | |
Other comprehensive income (loss), net of tax | | | | | | | |
Noncontrolling interests | | | | | | | |
Common stock issued | | | | | 30,259,788 |
| | |
Common stock repurchased (3) | | | | | (86,339,185 | ) | | |
Preferred stock issued to ESOP | 1,100,000 |
| | 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 change | 378,749 |
| | 379 |
| | (42,548,774 | ) | | — |
|
Balance June 30, 2018 | 12,055,984 |
| | $ | 25,737 |
| | 4,849,067,854 |
| | $ | 9,136 |
|
| |
(1)(2) | Effective 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 SecuritiesSecurities.. See Note 1 (Summary of Significant Accounting Policies) for more information. |
| |
(2) | 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) for more information.
|
| |
(3) | 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. |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | Three months ended March 31, | |
| | | | | | Wells Fargo stockholders’ equity | | | | | |
Additional paid-in capital |
| | Retained earnings |
| | Cumulative other comprehensive income |
| | Treasury stock |
| | Unearned ESOP shares |
| | Total Wells Fargo stockholders’ equity |
| | Noncontrolling interests |
| | Total equity |
|
61,049 |
| | 166,697 |
| | (1,311 | ) | | (68,831 | ) | | (1,143 | ) | | 187,146 |
| | 838 |
| | 187,984 |
|
| | 991 |
| |
|
| | | | | | 991 |
| | | | 991 |
|
61,049 |
| | 167,688 |
| | (1,311 | ) | | (68,831 | ) | | (1,143 | ) | | 188,137 |
| | 838 |
| | 188,975 |
|
| | 653 |
| | | | | | | | 653 |
| | (148 | ) | | 505 |
|
| | | | (253 | ) | | | | | | (253 | ) | | (1 | ) | | (254 | ) |
— |
| |
|
| |
|
| |
|
| |
|
| | — |
| | (77 | ) | | (77 | ) |
(17 | ) | | (308 | ) | |
|
| | 2,002 |
| |
|
| | 1,677 |
| | | | 1,677 |
|
— |
| |
|
| |
|
| | (3,407 | ) | |
|
| | (3,407 | ) | | | | (3,407 | ) |
17 |
| | (272 | ) | | | | | | | | (2,470 | ) | | | | (2,470 | ) |
— |
| |
|
| |
|
| |
|
| | — |
| | — |
| | | | — |
|
— |
| |
|
| |
|
| |
|
| | — |
| | — |
| | | | — |
|
— |
| |
|
| |
|
| | — |
| |
|
| | — |
| | | | — |
|
(45 | ) | |
|
| |
|
| |
|
| |
|
| | 1,968 |
| | | | 1,968 |
|
18 |
| | (2,114 | ) | |
|
| |
|
| |
|
| | (2,096 | ) | | | | (2,096 | ) |
|
| | (339 | ) | |
|
| |
|
| |
|
| | (339 | ) | | | | (339 | ) |
181 |
| |
|
| |
|
| |
|
| |
|
| | 181 |
| | | | 181 |
|
(1,354 | ) | |
|
| |
|
| | 21 |
| |
|
| | (1,333 | ) | | | | (1,333 | ) |
(1,200 | ) | | (2,380 | ) | | (253 | ) | | (1,384 | ) | | — |
| | (5,419 | ) | | (226 | ) | | (5,645 | ) |
59,849 |
| | 165,308 |
| | (1,564 | ) | | (70,215 | ) | | (1,143 | ) | | 182,718 |
| | 612 |
| | 183,330 |
|
60,685 |
| | 158,163 |
| | (6,336 | ) | | (47,194 | ) | | (1,502 | ) | | 196,166 |
| | 900 |
| | 197,066 |
|
| | (492 | ) | | 481 |
| | | | | | (11 | ) | | | | (11 | ) |
60,685 |
| | 157,671 |
| | (5,855 | ) | | (47,194 | ) | | (1,502 | ) | | 196,155 |
| | 900 |
| | 197,055 |
|
| | 5,860 |
| | |
| | | | | | 5,860 |
| | 107 |
| | 5,967 |
|
| | | | 2,173 |
| | | | | | 2,173 |
| | — |
| | 2,173 |
|
— |
| | |
| | |
| | |
| | | | — |
| | (106 | ) | | (106 | ) |
— |
| | (329 | ) | | |
| | 1,468 |
| | | | 1,139 |
| | | | 1,139 |
|
— |
| | | | |
| | (4,820 | ) | | | | (4,820 | ) | | | | (4,820 | ) |
| | — |
| | | | | | | | — |
| | | | — |
|
— |
| | | | |
| | | | — |
| | — |
| | | | — |
|
— |
| | | | |
| | | | — |
| | — |
| | | | — |
|
— |
| | | | |
| | — |
| | | | — |
| | | | — |
|
— |
| | | | |
| | |
| | | | — |
| | | | — |
|
19 |
| | (2,073 | ) | | |
| | |
| | | | (2,054 | ) | | | | (2,054 | ) |
| | (353 | ) | | |
| | |
| | | | (353 | ) | | | | (353 | ) |
544 |
| | | | |
| | | | | | 544 |
| | | | 544 |
|
(839 | ) | | |
| | |
| | 27 |
| | | | (812 | ) | | | | (812 | ) |
(276 | ) | | 3,105 |
| | 2,173 |
| | (3,325 | ) | | — |
| | 1,677 |
| | 1 |
| | 1,678 |
|
60,409 |
| | 160,776 |
| | (3,682 | ) | | (50,519 | ) | | (1,502 | ) | | 197,832 |
| | 901 |
| | 198,733 |
|
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | 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, | | Quarter ended March 31, | |
(in millions) | 2019 |
| | 2018 |
| 2020 |
| | 2019 |
|
Cash flows from operating activities: | | | | | | |
Net income before noncontrolling interests | $ | 12,305 |
| | 10,636 |
| $ | 505 |
| | 5,967 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Provision for credit losses | 1,348 |
| | 643 |
| 4,005 |
| | 845 |
|
Changes in fair value of MSRs, MLHFS and LHFS carried at fair value | 2,408 |
| | (787 | ) | 3,486 |
| | 1,144 |
|
Depreciation, amortization and accretion | 3,100 |
| | 2,835 |
| 1,868 |
| | 1,449 |
|
Other net (gains) | (1,360 | ) | | (6,285 | ) | |
Other net (gains) losses | | 7,638 |
| | (1,418 | ) |
Stock-based compensation | 1,388 |
| | 1,286 |
| 582 |
| | 902 |
|
Originations and purchases of mortgage loans held for sale | (63,836 | ) | | (80,948 | ) | (37,216 | ) | | (25,098 | ) |
Proceeds from sales of and paydowns on mortgage loans held for sale | 39,741 |
| | 60,898 |
| 31,922 |
| | 17,148 |
|
Net change in: | | | | | | |
Debt and equity securities, held for trading | 14,777 |
| | 16,371 |
| 20,413 |
| | 6,969 |
|
Loans held for sale | 619 |
| | (411 | ) | (731 | ) | | 728 |
|
Deferred income taxes | (821 | ) | | 1,118 |
| (1,448 | ) | | 312 |
|
Derivative assets and liabilities | (2,461 | ) | | 958 |
| (4,293 | ) | | (1,586 | ) |
Other assets | 7,194 |
| | 7,547 |
| (10,391 | ) | | 1,130 |
|
Other accrued expenses and liabilities | (7,120 | ) | | 520 |
| 933 |
| | (541 | ) |
Net cash provided by operating activities | 7,282 |
| | 14,381 |
| 17,273 |
| | 7,951 |
|
Cash flows from investing activities: | | | | | | |
Net change in: | | | | | | |
Federal funds sold and securities purchased under resale agreements | (31,912 | ) | | (1,161 | ) | 15,675 |
| | (18,414 | ) |
Available-for-sale debt securities: | | | | | | |
Proceeds from sales | 6,682 |
| | 6,151 |
| 11,843 |
| | 1,680 |
|
Prepayments and maturities | 17,657 |
| | 17,377 |
| 14,135 |
| | 6,001 |
|
Purchases | (18,306 | ) | | (26,300 | ) | (18,658 | ) | | (4,937 | ) |
Held-to-maturity debt securities: | | | | | | |
Paydowns and maturities | 5,145 |
| | 5,431 |
| 3,769 |
| | 2,123 |
|
Purchases | (154 | ) | | — |
| (19,141 | ) | | — |
|
Equity securities, not held for trading: | | | | | | |
Proceeds from sales and capital returns | 2,320 |
| | 3,337 |
| 1,115 |
| | 1,180 |
|
Purchases | (2,426 | ) | | (2,791 | ) | (3,338 | ) | | (1,352 | ) |
Loans: | | | | | | |
Loans originated by banking subsidiaries, net of principal collected | (7,008 | ) | | (445 | ) | (53,400 | ) | | 669 |
|
Proceeds from sales (including participations) of loans held for investment | 8,196 |
| | 7,879 |
| 1,959 |
| | 3,410 |
|
Purchases (including participations) of loans | (1,001 | ) | | (668 | ) | (342 | ) | | (331 | ) |
Principal collected on nonbank entities’ loans | 1,770 |
| | 3,229 |
| 3,837 |
| | 899 |
|
Loans originated by nonbank entities | (2,604 | ) | | (2,998 | ) | (2,348 | ) | | (1,318 | ) |
Proceeds from sales of foreclosed assets and short sales | 1,405 |
| | 1,954 |
| 500 |
| | 707 |
|
Other, net | 512 |
| | (284 | ) | 91 |
| | 657 |
|
Net cash provided (used) by investing activities | (19,724 | ) | | 10,711 |
| |
Net cash used by investing activities | | (44,303 | ) | | (9,026 | ) |
Cash flows from financing activities: | | | | | | |
Net change in: | | | | | | |
Deposits | 1,938 |
| | (67,101 | ) | 53,903 |
| | (22,161 | ) |
Short-term borrowings | 9,557 |
| | 1,240 |
| (12,223 | ) | | 810 |
|
Long-term debt: | | | | | | |
Proceeds from issuance | 33,091 |
| | 21,308 |
| 18,895 |
| | 17,338 |
|
Repayment | (26,357 | ) | | (22,305 | ) | (17,563 | ) | | (11,898 | ) |
Preferred stock: | | | | | | |
Proceeds from issuance | | 1,968 |
| | — |
|
Redeemed | | (2,470 | ) | | — |
|
Cash dividends paid | (711 | ) | | (872 | ) | (280 | ) | | (294 | ) |
Common stock: | | | | | | |
Proceeds from issuance | 242 |
| | 446 |
| 209 |
| | 181 |
|
Stock tendered for payment of withholding taxes | (272 | ) | | (311 | ) | (306 | ) | | (264 | ) |
Repurchased | (9,718 | ) | | (5,952 | ) | (3,407 | ) | | (4,820 | ) |
Cash dividends paid | (3,954 | ) | | (3,722 | ) | (2,032 | ) | | (1,997 | ) |
Net change in noncontrolling interests | (124 | ) | | (232 | ) | (29 | ) | | (83 | ) |
Other, net | (110 | ) | | (89 | ) | (76 | ) | | (56 | ) |
Net cash provided (used) by financing activities | 3,582 |
| | (77,590 | ) | 36,589 |
| | (23,244 | ) |
Net change in cash, cash equivalents, and restricted cash | (8,860 | ) | | (52,498 | ) | 9,559 |
| | (24,319 | ) |
Cash, cash equivalents, and restricted cash at beginning of period | 173,287 |
| | 215,947 |
| 141,250 |
| | 173,287 |
|
Cash, cash equivalents, and restricted cash at end of period | $ | 164,427 |
| | 163,449 |
| $ | 150,809 |
| | 148,968 |
|
Supplemental cash flow disclosures: | | | | | | |
Cash paid for interest | $ | 9,354 |
| | 6,352 |
| $ | 3,479 |
| | 4,401 |
|
Cash paid for income taxes | 2,516 |
| | 1,679 |
| 207 |
| | 126 |
|
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, 2018 (20182019 (2019 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 Related Allowance for Credit Losses));
valuations of residential mortgage servicing rights (MSRs) (Note 10 (Securitizations and Variable Interest Entities) and Note 11 (Mortgage Banking Activities));
valuations of financial instruments (Note 15 (Derivatives) and Note 16 (Fair Values of Assets and Liabilities));
liabilities for contingent litigation losses (Note 14 (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 20182019 Form 10-K.
Accounting Standards Adopted in 20192020
In first quarter 2019,2020, we adopted the following new accounting guidance:
| |
• | Accounting Standards Update (ASU or Update) 2018-162019-04 – Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging (Topic 815): Inclusion of the |
Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest RateHedging, and Topic 825, Financial Instruments. This Update includes guidance on recoveries of financial assets, which is included in the discussion for Hedge Accounting PurposesASU 2016-13 below.
| |
• | ASU 2017-082018-17 – Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20)Consolidation (Topic 810): Premium Amortization on Purchased Callable Debt SecuritiesTargeted Improvements to Related Party Guidance for Variable Interest Entities |
| |
• | ASU 2016-022018-15 – Leases (Topic 842)Intangibles – Goodwill and subsequent related Updates, including early adoption of ASU 2019-01Other – Leases (Topic 842)Internal-Use Software (Subtopic 350-40): Codification ImprovementsCustomer’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. |
| |
• | ASU 2017-04 – Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment |
| |
• | ASU 2016-13 – Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and related subsequent Updates |
ASU 2018-162018-17 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 Update is applied prospectively for qualifying new or re-designated hedging relationships entered into on or after adoption date.
We adoptedupdates the guidance used by decision-makers of VIEs. Indirect interests held through related parties in first quarter 2019.common control arrangements will be considered on a proportional basis for determining whether fees paid to decision-makers and service providers are variable interests. This is consistent with how indirect interests held through related parties under common control are considered for determining whether a reporting entity must consolidate a VIE. The adoptionUpdate did not have ana material impact as we did not designate SOFR OIS as a benchmark interest rate in any hedging relationships.on our consolidated financial statements.
ASU 2017-082018-15 clarifies the accounting for implementation costs related to a cloud computing arrangement that is a service contract and enhances disclosures around implementation costs for internal-use software and cloud computing arrangements. The guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). It also requires the expense related to the capitalized implementation costs be presented in the same line item in the statement of income as the fees associated with the hosting element of the arrangement and capitalized implementation costs be presented in the balance sheet in the same line item that a prepayment for the fees of the associated hosting arrangement are presented. The Update did not have a material impact on our consolidated financial statements.
ASU 2018-13 clarifies, eliminates and adds certain fair value measurement disclosure requirements for assets and liabilities, which affects our disclosures in Note 16 (Fair Values of Assets and Liabilities). Although the ASU became effective on January 1, 2020, it permitted early adoption of individual requirements without causing others to be early adopted and, as such, we partially adopted the Update during third quarter 2018 and the remainder of the requirements in first quarter 2020. The Update did not have a material impact on our consolidated financial statements.
ASU 2017-04 simplifies the goodwill impairment test by eliminating the requirement to assign the fair value of a reporting unit to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination. The Update requires that a goodwill impairment loss is recognized if the fair value of the reporting unit is less than the carrying amount, including goodwill. The goodwill impairment loss is limited to the amount of goodwill allocated to the reporting unit. The guidance did not change the qualitative assessment of goodwill. This guidance is applied on a prospective basis, and accordingly, the Update did not have a material impact on our consolidated financial statements.
ASU 2016-13 changes the accounting for the measurement of credit losses on loans and debt securities. For loans and held-to-maturity (HTM) debt securities, the Update requires a current expected credit loss (CECL) measurement to estimate the allowance for credit losses (ACL) for the remaining contractual term, adjusted for prepayments, of the financial asset (including off-balance sheet credit exposures) using historical experience, current conditions, and reasonable and supportable forecasts.
Also, the Update eliminates the existing guidance for purchased credit-impaired (PCI) loans, but requires an allowance for purchased financial assets with more than an insignificant deterioration of credit since origination. In addition, the Update modifies the other-than-temporary impairment (OTTI) model for available-for-sale (AFS) 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. Upon adoption, we recognized an overall decrease in our ACL of approximately $1.3 billion (pre-tax) as a cumulative effect adjustment from a change in accounting policies, which increased our retained earnings and regulatory capital amounts and ratios. Loans previously classified as PCI were automatically transitioned to purchased credit-deteriorated (PCD) classification. We recognized an ACL for these new PCD loans and made a corresponding adjustment to the loan balance, with no impact to net income or transition adjustment to retained earnings. For more information on the impact of CECL by type of financial asset, see Table 1.1 below.
Table 1.1:ASU 2016-13 Adoption Impact to Allowance for Credit Losses (1)
|
| | | | | | | | | | | | | | |
| | | Dec 31, 2019 |
| ASU 2016-13 Adoption Impact |
| | Jan 1, 2020 |
|
(in billions) | Balance Outstanding |
| ACL Balance |
| Coverage |
| ACL Balance |
| Coverage |
|
Total commercial (2) | $ | 515.7 |
| 6.2 |
| 1.2 | % | $ | (2.9 | ) | 3.4 |
| 0.7 | % |
| | | | | | |
Real estate 1-4 family mortgage (3) | 323.4 |
| 0.9 |
| 0.3 |
| — |
| 0.9 |
| 0.3 |
|
Credit card (4) | 41.0 |
| 2.3 |
| 5.5 |
| 0.7 |
| 2.9 |
| 7.1 |
|
Automobile (4) | 47.9 |
| 0.5 |
| 1.0 |
| 0.3 |
| 0.7 |
| 1.5 |
|
Other revolving credit and installment (4) | 34.3 |
| 0.6 |
| 1.6 |
| 0.6 |
| 1.2 |
| 3.5 |
|
Total consumer | 446.5 |
| 4.2 |
| 0.9 |
| 1.5 |
| 5.7 |
| 1.3 |
|
Total loans | 962.3 |
| 10.5 |
| 1.1 |
| (1.3 | ) | 9.1 |
| 0.9 |
|
Available-for-sale and held-to-maturity debt securities and other assets (5) | 420.0 |
| 0.1 |
| NM |
| — |
| 0.1 |
| NM |
|
Total | $ | 1,382.3 |
| 10.6 |
| NM |
| $ | (1.3 | ) | 9.3 |
| NM |
|
NM – Not meaningful
| |
(1) | Amounts presented in this table may not equal the sum of its components due to rounding. |
| |
(2) | Decrease reflecting shorter contractual maturities given limitation to contractual terms. |
| |
(3) | Impact reflects an increase due to longer contractual terms, offset by expectation of recoveries in collateral value on mortgage loans previously written down significantly below current recovery value. |
| |
(4) | Increase due to longer contractual terms or indeterminate maturities. |
| |
(5) | Excludes other financial assets in the scope of CECL that do not have an allowance for credit losses based on the nature of the asset. |
The adoption of ASU 2016-13 did not result in a change to accounting policies, except as noted herein. Our accounting policy for the ACL was updated and is now inclusive of loans, debt securities and other financing receivables. Other than the ACL and the elimination of PCI loans, there were no changes to accounting policies for loans as described in the 2019 Form 10-K. For debt securities, other than the policies with respect to the ACL, all of the current accounting policies, including those that changed as a result of CECL adoption, are included below under Debt Securities.
Debt Securities
Our investments in debt securities that are not held for trading purposes are classified as either debt securities available-for-sale (AFS) or held-to-maturity (HTM).
Investments in debt securities for which the Company does not have the positive intent and ability to hold to maturity are classified as AFS. AFS debt securities are measured at fair value, with unrealized gains and losses reported in cumulative other comprehensive income (OCI), net of the allowance for credit
losses and applicable income taxes. Investments in debt securities for which the Company has the positive intent and ability to hold to maturity are classified as HTM. HTM debt securities are measured at amortized cost, net of allowance for credit losses.
INTEREST INCOME AND GAIN/LOSS RECOGNITIONUnamortized premiums and discounts are recognized in interest income recognition modelover the contractual life of the security using the effective interest method, except for purchased callable debt securities carried at a premium. For purchased callable debt securities carried at a premium, as the premium will beis amortized into interest income to the earliest call date rather than to the contractual maturity date. Accounting for purchased callable debt securities held at a discount does not change, as the discount will continue to accrete to the contractual maturity date. The Update impacted our investments in purchased callable debt securities classified as available-for-sale (AFS) and held-to-maturity (HTM), which primarily consist of debt securities of U.S. states and political subdivisions.
We adopted the Update in first quarter 2019 and recorded a cumulative-effect adjustment as of January 1, 2019, that decreased total stockholders’ equity by $111 million. Retained earnings was reduced by $592 million which reflects both the incremental premium amortization under the new guidance from the acquisition date of our impacted AFS and HTM debt securities through the date of adoption and the fact that the incremental premium amortization is not deductible for federal income tax purposes. Other comprehensive income (OCI) was increased by $481 million which reflects the corresponding adjustment to the adoption date unrealized gain or loss of impacted AFS debt securities. Going forward, interest income recognized prior to the call date will be reduced because the premium will be amortized over a shorter period.
ASU 2016-02 modifies the guidance used by lessors and lessees to account for leasing transactions. For our transition to the new guidance, we elected several available practical expedients, including to not reassess the classification of our existing leases, any initial direct costs associated with our leases, or whether any existing contracts are or contain leases. In addition, we elected not to provide a comparative presentation for 2018 and 2017 financial statements.
We adopted the Update in first quarter 2019 and recorded a cumulative-effect adjustment that increased retained earnings by $100 million related to deferred gains on our prior sale-leaseback transactions. We also recognized operating lease right-of-use
(ROU) assets and liabilities, substantially all of which relate to our leasing of real estate as a lessee, of $4.9 billion and $5.6 billion, respectively.
Leasing Activity
AS LESSOR We lease equipment to our customers under financing or operating leases.
Financing leases are presented in loans and are recorded at the discounted amounts of lease payments receivable plus the estimated residual value of the leased asset. Leveraged leases, which are a form of financing leases, are reduced by related non-recourse debt from third-party investors. Lease payments receivable reflect contractual lease payments adjusted for renewal or termination options that we believe the customer is reasonably certain to exercise. The 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,As principal repayments are included in lease income within noninterest income.
Operating lease assets are presented in other assets, net of accumulated depreciation. Periodic depreciation expense is recordedreceived on securities (e.g., mortgage-backed securities (MBS)), a straight-line basis to the estimated residual value over the estimated useful lifeproportionate amount of the leased asset. On a periodic basis, operating lease assets are reviewed for impairment and impairment loss is recognized if the carrying amount of operating lease assets exceeds fair value and is not recoverable. The carrying amount of leased assets is deemed not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the lease payments and the estimated residual value upon the eventual disposition of the equipment. Depreciation of leased assets and impairment loss are presented in operating leases expense within other noninterest expense.
Operating lease rental income for leased assetsrelated premium or discount is recognized in lease income so that the effective interest rate on the remaining portion of the security continues unchanged.
We recognize realized gains and losses on the sale of debt securities in net gains (losses) on debt securities within noninterest income on a straight-line basis overusing 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 discount rate that we believe approximates a collateralized borrowing rate for the estimated duration of the lease. The discount rate is updated when re-measurement events occur. The related operating lease ROU assets may differ from operating lease liabilities due to initial direct costs, deferred or prepaid lease payments and lease incentives.
We present operating lease liabilities in accrued expenses and other liabilities and the related operating lease ROU assets in other assets. The amortization of operating lease ROU assets and the accretion of operating lease liabilities are reported together as fixed lease expense and are included in net occupancy expense within noninterest expense. The fixed lease expense is recognized on a straight-line basis over the life of the lease.
Some of our operating leases include variable lease payments which are periodic adjustments of our payments for the use of the asset based on changes in factors such as consumer price indices, fair market value, tax rates imposed by taxing authorities, or lessor cost of insurance. To the extent not included in operating lease liabilities and operating lease ROU assets, these variable lease payments are recognized as incurred in net occupancy expense within noninterest expense.
For substantially all of our leased assets, we account for consideration paid under the contract for maintenance or other services as lease payments. In addition, for certain asset classes, we have elected to exclude leases with original terms of less than one year from the operating lease ROU assets and lease liabilities. The related short-term lease expense is included in net occupancy expense.
Finance lease (formerly capital lease) liabilities are presented in long-term debt and the associated finance ROU assets are presented in premises and equipment.
specific identification method.
Note 1: Summary of Significant Accounting Policies (continued)
IMPAIRMENT AND CREDIT LOSSES Unrealized losses of AFS debt securities are driven by a number of factors, including changes in interest rates and credit spreads which impact most types of debt securities with additional considerations for certain types of debt securities:
Debt securities of U.S. Treasury and federal agencies, including federal agency MBS, are not impacted by credit movements given the explicit or implicit guarantees provided by the U.S. government.
Debt securities of U.S. states and political subdivisions are most impacted by changes in the relationship between municipal and term funding credit curves rather than by changes in the credit quality of the underlying securities.
Structured securities, such as MBS and collateralized loan obligations (CLO), are also impacted by changes in projected collateral losses of assets underlying the security.
For debt securities where fair value is less than amortized cost basis, we recognize impairment in earnings if we have the intent to sell the security or if it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. Impairment is recognized equal to the entire difference between the amortized cost basis and the fair value of the security and is classified as net gains (losses) from debt securities within noninterest income. Following the recognition of impairment, the security’s new amortized cost basis is the previous basis less impairment.
For debt securities where fair value is less than amortized cost basis where we did not recognize impairment in earnings, we set up an allowance for credit losses as of the balance sheet date. See “Allowance for Credit Losses” section in this Note.
TRANSFERS BETWEEN CATEGORIES OF DEBT SECURITIES AFS debt securities transferred to the HTM classification are recorded at fair value and the unrealized gains or losses resulting from the transfer of these securities continue to be reported in cumulative OCI. The cumulative OCI balance is amortized into earnings over the same period as the unamortized premiums and discounts using the effective interest method. Any allowance for credit losses previously recorded under the AFS model on securities transferred to HTM is reversed and an allowance for credit losses is subsequently recorded under the HTM debt security model.
NONACCRUAL AND PAST DUE, AND CHARGE-OFF POLICIES We generally place debt securities on nonaccrual status using factors similar to those described for loans. When we place a debt security on nonaccrual status, we reverse the accrued unpaid interest receivable against interest income and suspend the
amortization of premiums and accretion of discounts. If the ultimate collectability of the principal is in doubt on a nonaccrual debt security, any cash collected is first applied to reduce the security’s amortized cost basis to zero, followed by recovery of amounts previously charged off, and subsequently to interest income. Generally, we return a debt security to accrual status when all delinquent interest and principal become current under the contractual terms of the security and collectability of remaining principal and interest is no longer doubtful.
Our debt securities are considered past due when contractually required principal or interest payments have not been made on the due dates.
Our charge-off policy for debt securities are similar to those described for loans. Subsequent to charge-off, the debt security will be designated as nonaccrual and follow the process described above for any cash received.
Allowance for Credit Losses
The ACL is management’s estimate of the current expected credit losses in the loan portfolio and unfunded credit commitments, at the balance sheet date, excluding loans and unfunded credit commitments carried at fair value or held for sale. Additionally, we maintain an ACL on AFS and HTM debt securities, other financing receivables measured at amortized cost, and other off-balance sheet credit exposures. While we attribute portions of the allowance to specific financial asset classes (loan and debt security portfolios), loan portfolio segments (commercial and consumer) or major security type, the entire ACL is available to absorb credit losses of the Company.
Our ACL process involves procedures to appropriately consider the unique risk characteristics of our financial asset classes, portfolio segments, and major security types. For each loan portfolio segment and each major HTM debt security type, losses are estimated collectively for groups of loans or securities with similar risk characteristics. For loans and securities that do not share similar risk characteristics with other financial assets, the losses are estimated individually, which primarily includes our impaired large commercial loans and non-accruing HTM debt securities. For AFS debt securities, losses are estimated at the tax-lot level.
Our ACL amounts are influenced by a variety of factors, including changes in loan and debt security volumes, portfolio credit quality, and general economic conditions. General economic conditions are forecasted using economic variables which will create volatility as those variables change over time. See Table 1.2 for key economic variables used for our loan portfolios.
Table 1.2:Key Economic Variables
|
| | |
Loan Portfolio | | Key economic variables |
Total commercial | | • Gross domestic product • Commercial real estate asset prices, where applicable • Unemployment rate • Corporate investment-grade bond spreads |
Real estate 1-4 family mortgage | | • Home price index • Unemployment rate |
Other consumer (including credit card, automobile, and other revolving credit and installment) | | • Unemployment rate |
Our approach for estimating expected life-time credit losses for loans and debt securities includes the following key components:
An initial loss 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 term, adjusted for expected prepayments and
certain expected extensions, renewals, or modifications, by portfolio segment and class of financing receivables based on the changes 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.
Utilization of discounted cash flow (DCF) methods to measure credit impairment for loans modified in a troubled debt restructuring, unless they are collateral dependent and measured at the fair value of the collateral. The DCF methods obtain estimated life-time credit losses using the initial and historical mean loss forecast periods described above.
For AFS debt securities and certain beneficial interests classified as HTM, we utilize the DCF methods to measure the ACL, which incorporate expected credit losses using the conceptual components described above. The ACL on AFS debt securities is subject to a limitation based on the fair value of the debt securities (fair value floor).
The ACL for financial assets held at amortized cost and AFS debt securities will be reversible with immediate recognition of recovery in earnings if credit improves. The ACL for financial assets held at amortized cost is a valuation account that is deducted from, or added to, the amortized cost basis of the financial assets to present the net amount expected to be collected, which can include a negative allowance limited to the cumulative amounts previously charged off. For financial assets with an ACL estimated using DCF methods, changes in the ACL due to the passage of time are recorded in interest income. The ACL for AFS debt securities reflects the amount of unrealized loss related to expected credit losses, limited by the amount that fair value is less than the amortized cost basis, and cannot have an associated negative allowance.
For certain financial assets, such as residential real estate loans guaranteed by the Government National Mortgage Association (GNMA), an agency of the federal government, U. S. Treasury and Agency mortgage backed debt securities, as well as certain sovereign debt securities, the Company has not recognized an ACL as our expectation of nonpayment of the amortized cost basis, based on historical losses, adjusted for current conditions and reasonable and supportable forecasts, is zero.
A financial asset is collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. When a collateral-dependent financial asset is probable of foreclosure, we will measure the ACL based on the fair value of the collateral. If we intend to sell the underlying collateral, we will measure the ACL based on the collateral’s net realizable value (fair value of collateral, less estimated costs to sell). In most situations, based on our charge-off policies, we will immediately write-down the financial asset to the fair value of the collateral or net realizable value. For consumer loans, collateral-dependent financial assets may have collateral in the form of residential real estate, automobiles or other personal assets. For commercial loans, collateral-dependent financial assets may have collateral in the form of commercial real estate or other business assets.
In general, we do not record an ACL for accrued interest receivables, which are included in other assets. Uncollectible accrued interest is reversed through interest income in a timely manner in line with our non-accrual and past due policies for loans and debt securities. For consumer credit card and certain consumer lines of credit, we include an ACL for accrued interest
and fees since these loans are not placed on nonaccrual status and written off until the loan is 180 days past due.
COMMERCIAL LOAN PORTFOLIO SEGMENT ACL METHODOLOGYGenerally, commercial loans, which include net investments in lease financing, are assessed for estimated losses by grading each loan using various risk factors as identified through periodic reviews. 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 default and losses after default within each credit risk rating. These estimates are adjusted as appropriate based on additional analysis of long-term average loss experience compared with previously forecasted losses, external loss data or other risks identified from current economic conditions and credit quality trends. The estimated probability of default and severity at the time of default are applied to loan equivalent exposures to estimate losses for unfunded credit commitments.
CONSUMER LOAN PORTFOLIO SEGMENT ACL METHODOLOGYFor consumer loans, we determine the allowance at the individual loan level. When developing historical loss experience, we pool loans, generally by product types with similar risk characteristics, such as residential real estate mortgages and credit cards. As appropriate and to achieve greater accuracy, we may further stratify selected portfolios by sub-product, origination channel, vintage, loss type, geographic location and other predictive characteristics. We use pooled loan data such as historic delinquency and default and loss severity in the development of our consumer loan models, in addition to home price trends, unemployment trends, and other economic variables that may influence the frequency and severity of losses in the consumer portfolio.
AFS PORTFOLIO ACL METHODOLOGY We develop our ACL estimate for AFS debt securities by utilizing a security-level multi-scenario, probability-weighted discounted cash flow model based on a combination of past events, current conditions, as well as reasonable and supportable forecasts. The projected cash flows are discounted at the security’s effective interest rate, except for certain variable rate securities which are discounted using projections of future changes in interest rates, prepayable securities which are adjusted for estimated prepayments, and securities part of a fair value hedge which use hedge-adjusted assumptions. The ACL on an AFS debt security is limited to the difference between its amortized cost basis and fair value (fair value floor) and reversals of the allowance are permitted up to the amount previously recorded.
HTM PORTFOLIO ACL METHODOLOGY For most HTM debt securities, the ACL is measured using an expected loss model, similar to the methodology used for loans. Unlike AFS debt securities, the ACL on an HTM debt security is not limited to the fair value floor.
Certain beneficial interests categorized as HTM debt securities utilize a similar discounted cash flow model as described for AFS debt securities, without the limitation of the fair value floor.
OTHER QUALITATIVE FACTORSThe ACL includes amounts for qualitative factors which may not be adequately reflected in our loss models. These amounts represent management’s judgment
Note 1: Summary of Significant Accounting Policies (continued)
of risks in the processes and assumptions used in establishing the ACL. Generally, these amounts are established at a granular level below our loan portfolio segments. We also consider economic environmental factors, modeling assumptions and performance, process risk, and other subjective factors, including industry trends and emerging risk assessments.
OFF-BALANCE SHEET CREDIT EXPOSURES Our off-balance sheet credit exposures include unfunded loan commitments (generally in the form of revolving lines of credit), financial guarantees not accounted for as insurance contracts or derivatives, including standby letters of credit, and other similar instruments. For off-balance sheet credit exposures, we recognize an ACL associated with the unfunded amounts. We do not recognize an ACL for commitments that are unconditionally cancelable at our discretion. Additionally, we recognize an ACL for financial guarantees that create off-balance sheet credit exposure, such as loans sold with credit recourse and factoring guarantees. ACL for off-balance sheet credit exposures are reported as a liability in accrued expenses and other liabilities on our consolidated balance sheet.
OTHER FINANCIAL ASSETS Other financial assets are evaluated for expected credit losses. These other financial assets include accounts receivable for fees, receivables from government-sponsored entities, such as Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC), and GNMA, and other accounts receivable from high-credit quality counterparties, such as central clearing counterparties. Many of these financial assets are generally not expected to have an ACL as there is a zero loss expectation (for example, government guarantee) or no historical credit losses. Some financial assets, such as loans to employees, maintain an ACL that is presented on a net basis with the related amortized cost amounts in other assets on our consolidated balance sheet. Given the nature of these financial assets, provision for credit losses is not recognized separately from the regular income or expense associated with these financial assets.
Securities purchased under resale agreements are generally over-collateralized by securities or cash and are generally short-term in nature. We have elected the practical expedient for these financial assets given collateral maintenance provisions. These provisions require that we monitor the collateral value and customers are required to replenish collateral, if needed. Accordingly, we generally do not maintain an ACL for these financial assets.
PURCHASED CREDIT DETERIORATED FINANCIAL ASSETSFinancial assets acquired that are of poor credit quality and with more than an insignificant evidence of credit deterioration since their origination or issuance are PCD assets. PCD assets are recorded at their purchase price plus an ACL estimated at the time of acquisition. Under this approach, there is no provision for credit losses recognized at acquisition; rather, there is a gross-up of the purchase price of the financial asset for the estimate of expected credit losses and a corresponding ACL recorded. Changes in estimates of expected credit losses after acquisition are recognized as provision for credit losses (or reversal of provision for credit losses) in subsequent periods. In general, interest income recognition for PCD financial assets is consistent with interest income recognition for the similar non-PCD financial asset.
Troubled Debt Restructuring Relief
On March 25, 2020, the U.S. Senate approved the Coronavirus, Aid, Relief, and Economic Security Act (the CARES Act) providing optional, temporary relief from accounting for certain loan modifications as troubled debt restructurings (TDRs). Under the CARES Act, TDR relief is available to banks for loan modifications related to the adverse effects of Coronavirus Disease 2019 (COVID-19) (COVID-related modifications) granted to borrowers that are current as of December 31, 2019. TDR relief applies to COVID-related modifications made from March 1, 2020, until the earlier of December 31, 2020, or 60 days following the termination of the national emergency declared by the President of the United States. In first quarter 2020, we elected to apply the TDR relief provided by the CARES Act.
On April 7, 2020, federal banking regulators issued the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised) (the Interagency Statement). The guidance in the Interagency Statement provides additional TDR relief as it clarifies that it is not necessary to consider the impact of the COVID-19 pandemic on the financial condition of a borrower in connection with a short-term (e.g., six months) COVID-related modification provided the borrower is current at the date the modification program is implemented.
For COVID-related modifications in the form of payment deferrals, delinquency status will not advance and loans that were accruing at the time the relief is provided will generally not be placed on nonaccrual status during the deferral period. COVID-related modifications that do not meet the provisions of the CARES Act or the Interagency Statement will be assessed for TDR classification.
Share Repurchases
From time to timeDuring the first quarter of 2020 and 2019, we may enter into private forward repurchase contracts, written repurchase plans pursuant to Rule 10b5-1repurchased shares of the Securities Exchange Act of 1934, or a combination of the two to complement our open-market common stock repurchase strategies. 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 the 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 System (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 June 30, 2019.
Under a Rule 10b5-1 repurchase plan, paymentsplans. On March 15, 2020, we, along with the other members of the Financial Services Forum, suspended our share repurchase activities for the remainder of the first quarter and receiptfor second quarter 2020. For more information about share repurchases, see Note 1 (Summary 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.Significant Accounting Policies) in our 2019 Form 10-K.
Supplemental Cash Flow Information
Significant noncash activities are presented in Table 1.1.1.3.
Table 1.1:1.3: 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 MLHFS | 4,419 |
| | 3,053 |
|
Transfers from loans to LHFS | 92 |
| | 2,149 |
|
Transfers from available-for-sale debt securities to held-to-maturity debt securities | 6,071 |
| | 10,371 |
|
Operating lease ROU assets acquired with operating lease liabilities (1) | 5,302 |
| | — |
|
|
| | | | | | |
| Quarter ended March 31, | |
(in millions) | 2020 |
| | 2019 |
|
Trading debt securities retained from securitization of mortgage loans held for sale (MLHFS) | $ | 7,538 |
| | 8,875 |
|
Transfers from loans to MLHFS | 858 |
| | 1,292 |
|
Transfers from available-for-sale debt securities to held-to-maturity debt securities | — |
| | 2,407 |
|
Operating lease ROU assets acquired with operating lease liabilities (1) | 197 |
| | 5,127 |
|
| |
(1) | The six months ended June 30, 2019, balance includes $4.9 billion from adoption of ASU 2016-02 – Leases (Topic 842) and $402 millionIncludes amounts attributable to new leases and changes from modified leases. First quarter 2019 also includes $4.9 billion from adoption of ASU 2016-02 – Leases (Topic 842).
|
Subsequent Events
We have evaluated the effects of events that have occurred subsequent to June 30, 2019,March 31, 2020, and except as disclosed elsewhere in the footnotes, there have been no material events that would
events that would require recognition in our secondfirst quarter 20192020 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.
We completed noThere were 0 acquisitions during the first halfquarter 2020. As of 2019 andMarch 31, 2020, we had no business combinations0 pending as of June 30, 2019.
We closed the previously announced sale of our 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 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. 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.
acquisitions.
|
|
Note 3: Cash, Loan and Dividend Restrictions |
Cash and cash equivalents may be restricted as to usage or withdrawal. FRBFederal Reserve Board (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) | Jun 30, 2019 |
| | Dec 31, 2018 |
| Mar 31, 2020 |
| | Dec 31, 2019 |
|
Average required reserve balance for FRB (1) | $ | 11,179 |
| | 12,428 |
| $ | 11,932 |
| | 11,374 |
|
Reserve balance for non-U.S. central banks | 556 |
| | 517 |
| 1,133 |
| | 460 |
|
Segregated for benefit of brokerage customers under federal and other brokerage regulations | 956 |
| | 1,135 |
| 970 |
| | 733 |
|
Related to consolidated variable interest entities (VIEs) that can only be used to settle liabilities of VIEs | 19 |
| | 147 |
| 19 |
| | 300 |
|
| |
(1) | FRB required reserve balance representsRepresents average for the first half of 2019quarter 2020 and for the year ended December 31, 2018.2019. |
We have a state-chartered subsidiary bank that is subject to state regulations that limit dividends. Under these provisions and regulatory limitations, our national and state-chartered subsidiary banks could have declared additional dividends of $7.6$1.9 billion at June 30, 2019,March 31, 2020, without obtaining prior regulatory approval. We have elected to retain higher capital at our national and state-chartered subsidiary banks in order to meet internal capital policy minimums and regulatory requirements. 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”), Wells Fargo Bank, N.A., Wells Fargo Securities, LLC, Wells Fargo Clearing Services, LLC, and certain other direct and indirect subsidiaries 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 or if the Parent'sParent’s board of directors authorizes it to file a case under the U.S. Bankruptcy Code. Based on retained earnings at June 30, 2019,March 31, 2020, our nonbank subsidiaries could have declared additional dividends of $25.1$24.8 billion at June 30, 2019,March 31, 2020, without obtaining prior regulatory approval. For additional information see Note 3 (Cash, Loan and Dividend Restrictions) in our 20182019 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 redeemredemption of common or perpetual preferred stock as well as to raise the per share quarterly dividend from its current level of $0.51 per share as declared by the Company’s Board of Directors on July 23, 2019April 28, 2020, payable on SeptemberJune 1, 20192020.
|
|
Note 4: Trading Activities |
Table 4.1 presents a summary of our trading assets and liabilities measured at fair value through earnings.earnings.
Table 4.1: Trading Assets and Liabilities
| | | Jun 30, |
| | Dec 31, |
| Mar 31, |
| | Dec 31, |
|
(in millions) | 2019 |
| | 2018 |
| 2020 |
| | 2019 |
|
Trading assets: | | | | | | |
Debt securities | $ | 70,208 |
| | 69,989 |
| $ | 80,425 |
| | 79,733 |
|
Equity securities | 23,327 |
| | 19,449 |
| 13,573 |
| | 27,440 |
|
Loans held for sale | 1,118 |
| | 1,469 |
| 1,673 |
| | 972 |
|
Gross trading derivative assets | 34,683 |
| | 29,216 |
| 72,527 |
| | 34,825 |
|
Netting (1) | (22,827 | ) | | (19,807 | ) | (49,821 | ) | | (21,463 | ) |
Total trading derivative assets | 11,856 |
| | 9,409 |
| 22,706 |
| | 13,362 |
|
Total trading assets | 106,509 |
| | 100,316 |
| 118,377 |
| | 121,507 |
|
Trading liabilities: | | | | | | |
Short sale | 15,955 |
| | 19,720 |
| 17,603 |
| | 17,430 |
|
Gross trading derivative liabilities | 33,458 |
| | 28,717 |
| 67,891 |
| | 33,861 |
|
Netting (1) | (26,417 | ) | | (21,178 | ) | (53,598 | ) | | (26,074 | ) |
Total trading derivative liabilities | 7,041 |
| | 7,539 |
| 14,293 |
| | 7,787 |
|
Total trading liabilities | $ | 22,996 |
| | 27,259 |
| $ | 31,896 |
| | 25,217 |
|
| |
(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 also 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 June 30, | | | Six months ended June 30, | | Quarter ended March 31, | |
(in millions) | 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
| 2020 |
| | 2019 |
|
Interest income: | | | | | | | | | | |
Debt securities | $ | 740 |
| | 689 |
| | 1,533 |
| | 1,320 |
| $ | 766 |
| | 793 |
|
Equity securities | 143 |
| | 128 |
| | 258 |
| | 269 |
| 137 |
| | 115 |
|
Loans held for sale | 20 |
| | 15 |
| | 43 |
| | 23 |
| 12 |
| | 23 |
|
Total interest income | 903 |
| | 832 |
| | 1,834 |
| | 1,612 |
| 915 |
| | 931 |
|
Less: Interest expense | 127 |
| | 144 |
| | 263 |
| | 272 |
| 141 |
| | 136 |
|
Net interest income | 776 |
| | 688 |
| | 1,571 |
| | 1,340 |
| 774 |
| | 795 |
|
| | | | | | | | |
Net gains (losses) from trading activities (1): | | | | | | | | | | |
Debt securities | 401 |
| | (140 | ) | | 1,089 |
| | (639 | ) | 2,355 |
| | 688 |
|
Equity securities | 1,236 |
| | (635 | ) | | 3,303 |
| | (1,104 | ) | (4,401 | ) | | 2,067 |
|
Loans held for sale | (4 | ) | | 7 |
| | 10 |
| | 15 |
| (12 | ) | | 14 |
|
Derivatives (2) | (1,404 | ) | | 959 |
| | (3,816 | ) | | 2,162 |
| 2,122 |
| | (2,412 | ) |
Total net gains from trading activities | 229 |
| | 191 |
| | 586 |
| | 434 |
| 64 |
| | 357 |
|
Total trading-related net interest and noninterest income | $ | 1,005 |
| | 879 |
| | 2,157 |
| | 1,774 |
| $ | 838 |
| | 1,152 |
|
| |
(1) | Represents realized gains (losses) from our trading activities and unrealized gains (losses) due to changes in fair value of our trading positions. |
| |
(2) | 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. |
|
|
Note 5: Available-for-Sale and Held-to-Maturity Debt Securities |
Table 5.1 provides the amortized cost, net of the allowance for credit losses, 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.cost, net of allowance for credit losses. The net unrealized gains (losses) for
available-for-sale debt securities are reported on an after-tax basis as a component of cumulative OCI.OCI, net of the allowance for credit losses and applicable income taxes. Information on debt securities held for trading is included in Note 4 (Trading Activities).
Outstanding balances exclude accrued interest receivable on available-for-sale and held-to-maturity debt securities which are included in other assets. During the quarter ended March 31, 2020, we reversed accrued interest receivable on our available-for-sale and held-to-maturity debt securities by reversing interest income of $6 million. See Note 9 (Other Assets) for additional information on accrued interest receivable.
Table 5.1: Amortized CostAvailable-for-Sale and Fair ValueHeld-to-Maturity Debt Securities Outstanding
| | (in millions) | Amortized Cost |
| | Gross unrealized gains |
| | Gross unrealized losses |
| | Fair value |
| Amortized cost, net (1) |
| | Gross unrealized gains |
| | Gross unrealized losses |
| | Fair value |
|
June 30, 2019 | | | | | | | | |
March 31, 2020 | | | | | | | | |
Available-for-sale debt securities: | | | | | | | | |
Securities of U.S. Treasury and federal agencies | | $ | 10,952 |
| | 88 |
| | (4 | ) | | 11,036 |
|
Securities of U.S. states and political subdivisions (1)(2) | | 38,686 |
| | 206 |
| | (748 | ) | | 38,144 |
|
Mortgage-backed securities: | |
| |
| |
| | |
Federal agencies | | 154,390 |
| | 5,839 |
| | (15 | ) | | 160,214 |
|
Residential | | 820 |
| | — |
| | (44 | ) | | 776 |
|
Commercial | | 3,897 |
| | 10 |
| | (253 | ) | | 3,654 |
|
Total mortgage-backed securities | | 159,107 |
| | 5,849 |
| | (312 | ) | | 164,644 |
|
Corporate debt securities | | 6,092 |
| | 38 |
| | (275 | ) | | 5,855 |
|
Collateralized loan and other debt obligations | | 26,873 |
| | 63 |
| | (1,768 | ) | | 25,168 |
|
Other (3) | | 6,477 |
| | 19 |
| | (114 | ) | | 6,382 |
|
Total available-for-sale debt securities | | 248,187 |
| | 6,263 |
| | (3,221 | ) | | 251,229 |
|
Held-to-maturity debt securities: | | | | | | | | |
Securities of U.S. Treasury and federal agencies | | 48,569 |
| | 2,146 |
| | (24 | ) | | 50,691 |
|
Securities of U.S. states and political subdivisions | | 14,304 |
| | 344 |
| | (37 | ) | | 14,611 |
|
Federal agency and other mortgage-backed securities (4) | | 107,013 |
| | 5,268 |
| | (43 | ) | | 112,238 |
|
Other debt securities | | 23 |
| | — |
| | (1 | ) | | 22 |
|
Total held-to-maturity debt securities | | 169,909 |
| | 7,758 |
| | (105 | ) | | 177,562 |
|
Total(5) | | $ | 418,096 |
| | 14,021 |
| | (3,326 | ) | | 428,791 |
|
December 31, 2019 | | | | | | | | |
Available-for-sale debt securities: | | | | | | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | $ | 15,334 |
| | 2 |
| | (17 | ) | | 15,319 |
| $ | 14,948 |
| | 13 |
| | (1 | ) | | 14,960 |
|
Securities of U.S. states and political subdivisions (1)(2) | 44,205 |
| | 968 |
| | (78 | ) | | 45,095 |
| 39,381 |
| | 992 |
| | (36 | ) | | 40,337 |
|
Mortgage-backed securities: | | | | | | | | | | | | | | |
Federal agencies | 154,549 |
| | 1,617 |
| | (308 | ) | | 155,858 |
| 160,318 |
| | 2,299 |
| | (164 | ) | | 162,453 |
|
Residential | 1,241 |
| | 23 |
| | (1 | ) | | 1,263 |
| 814 |
| | 14 |
| | (1 | ) | | 827 |
|
Commercial | 4,140 |
| | 45 |
| | (5 | ) | | 4,180 |
| 3,899 |
| | 41 |
| | (6 | ) | | 3,934 |
|
Total mortgage-backed securities | 159,930 |
| | 1,685 |
| | (314 | ) | | 161,301 |
| 165,031 |
| | 2,354 |
| | (171 | ) | | 167,214 |
|
Corporate debt securities | 6,058 |
| | 208 |
| | (36 | ) | | 6,230 |
| 6,343 |
| | 252 |
| | (32 | ) | | 6,563 |
|
Collateralized loan and other debt obligations (2) | 32,944 |
| | 165 |
| | (114 | ) | | 32,995 |
| 29,693 |
| | 125 |
| | (123 | ) | | 29,695 |
|
Other (3) | 4,987 |
| | 70 |
| | (14 | ) | | 5,043 |
| 4,664 |
| | 50 |
| | (24 | ) | | 4,690 |
|
Total available-for-sale debt securities | 263,458 |
| | 3,098 |
| | (573 | ) | | 265,983 |
| 260,060 |
| | 3,786 |
| | (387 | ) | | 263,459 |
|
Held-to-maturity debt securities: | | | | | | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | 44,766 |
| | 574 |
| | (4 | ) | | 45,336 |
| 45,541 |
| | 617 |
| | (19 | ) | | 46,139 |
|
Securities of U.S. states and political subdivisions | 7,948 |
| | 182 |
| | (5 | ) | | 8,125 |
| 13,486 |
| | 286 |
| | (13 | ) | | 13,759 |
|
Federal agency and other mortgage-backed securities (4) | 93,105 |
| | 1,312 |
| | (71 | ) | | 94,346 |
| 94,869 |
| | 2,093 |
| | (37 | ) | | 96,925 |
|
Collateralized loan obligations | 57 |
| | — |
| | — |
| | 57 |
| |
Other debt securities | | 37 |
| | — |
| | — |
| | 37 |
|
Total held-to-maturity debt securities | 145,876 |
| | 2,068 |
| | (80 | ) | | 147,864 |
| 153,933 |
| | 2,996 |
| | (69 | ) | | 156,860 |
|
Total(5) | $ | 409,334 |
| | 5,166 |
| | (653 | ) | | 413,847 |
| $ | 413,993 |
| | 6,782 |
| | (456 | ) | | 420,319 |
|
December 31, 2018 | | | | | | | | |
Available-for-sale debt securities: | | | | | | | | |
Securities of U.S. Treasury and federal agencies | $ | 13,451 |
| | 3 |
| | (106 | ) | | 13,348 |
| |
Securities of U.S. states and political subdivisions (1)(2) | 48,994 |
| | 716 |
| | (446 | ) | | 49,264 |
| |
Mortgage-backed securities: | | | | | | | | |
Federal agencies | 155,974 |
| | 369 |
| | (3,140 | ) | | 153,203 |
| |
Residential | 2,638 |
| | 142 |
| | (5 | ) | | 2,775 |
| |
Commercial | 4,207 |
| | 40 |
| | (22 | ) | | 4,225 |
| |
Total mortgage-backed securities | 162,819 |
| | 551 |
| | (3,167 | ) | | 160,203 |
| |
Corporate debt securities | 6,230 |
| | 131 |
| | (90 | ) | | 6,271 |
| |
Collateralized loan and other debt obligations (2) | 35,581 |
| | 158 |
| | (396 | ) | | 35,343 |
| |
Other (3) | 5,396 |
| | 100 |
| | (13 | ) | | 5,483 |
| |
Total available-for-sale debt securities | 272,471 |
| | 1,659 |
| | (4,218 | ) | | 269,912 |
| |
Held-to-maturity debt securities: | | | | | | | | |
Securities of U.S. Treasury and federal agencies | 44,751 |
| | 4 |
| | (415 | ) | | 44,340 |
| |
Securities of U.S. states and political subdivisions | 6,286 |
| | 30 |
| | (116 | ) | | 6,200 |
| |
Federal agency and other mortgage-backed securities (4) | 93,685 |
| | 112 |
| | (2,288 | ) | | 91,509 |
| |
Collateralized loan obligations | 66 |
| | — |
| | — |
| | 66 |
| |
Total held-to-maturity debt securities | 144,788 |
| | 146 |
| | (2,819 | ) | | 142,115 |
| |
Total(5) | $ | 417,259 |
| | 1,805 |
| | (7,037 | ) | | 412,027 |
| |
| |
(1) | Represents amortized cost of the securities, net of the allowance for credit losses of $161 million related to available-for-sale debt securities and $11 million related to held-to-maturity debt securities at March 31, 2020. Prior to our adoption of CECL on January 1, 2020, the allowance for credit losses related to available-for-sale and held-to-maturity debt securities was not applicable and is therefore presented as $0 at December 31, 2019. For more information, see Note 1 (Summary of Significant Accounting Policies). |
| |
(2) | Includes investments in tax-exempt preferred debt securities issued by investment funds or trusts that predominantly invest in tax-exempt municipal securities. The amortized cost basisnet of allowance for credit losses and fair value of these types of securities was $5.8$5.8 billion each at June 30, 2019,both March 31, 2020, and $6.3 billion each at December 31, 2018. |
| |
(2) | Includes collateralized debt obligations (CDOs) with a cost basis and fair value of $521 million and $649 million, respectively, at June 30, 2019 and $662 million and $800 million, respectively, at December 31, 2018.. |
| |
(3) | LargelyPrimarily includes asset-backed securities collateralized by student loans. |
| |
(4) | Predominantly consists of federal agency mortgage-backed securities at both June 30, 2019March 31, 2020 and December 31, 2018.2019. |
| |
(5) | We held available-for-sale and held-to-maturity debt securities from Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC) that each exceeded 10% of stockholders’ equity, with an amortized cost of $102.4 billion and $88.4 billion and a fair value of $107.0 billion and $92.2 billion at March 31, 2020 and an amortized cost of $98.5 billion and $84.1 billion and a fair value of $100.3 billion and $85.5 billion at December 31, 2019, respectively. |
Table 5.2 details the breakout of purchases of and transfers to held-to-maturity debt securities by major category of security.
Table 5.2:Held-to-Maturity Debt Securities Purchases and Transfers
|
| | | | | | |
| Quarter ended March 31, | |
(in millions) | 2020 |
| | 2019 |
|
Purchases of held-to-maturity debt securities: | | | |
Securities of U.S. Treasury and federal agencies | $ | 3,016 |
| | — |
|
Securities of U.S. states and political subdivisions | 866 |
| | — |
|
Federal agency and other mortgage-backed securities | 15,925 |
| | 16 |
|
Total purchases of held-to-maturity debt securities | 19,807 |
| | 16 |
|
Transfers from available-for-sale debt securities to held-to-maturity debt securities: | | | |
Federal agency and other mortgage-backed securities | — |
| | 2,407 |
|
Total transfers from available-for-sale debt securities to held-to-maturity debt securities | $ | — |
| | 2,407 |
|
Table 5.3 shows the composition of interest income, provision for credit losses, and gross realized gains and losses
from sales and impairment write-downs included in earnings related to available-for-sale and held-to-maturity debt securities (pre-tax).
Table 5.3:Income Statement Impacts for Available-for-Sale and Held-to-Maturity Debt Securities
|
| | | | | | |
| Quarter ended March 31, | |
(in millions) | 2020 |
| | 2019 |
|
Interest income: | | | |
Available-for-sale | $ | 1,726 |
| | 2,201 |
|
Held-to-maturity | 980 |
| | 947 |
|
Total interest income (1) | 2,706 |
| | 3,148 |
|
Provision for credit losses (2): | | | |
Available-for-sale | 168 |
| | — |
|
Held-to-maturity | 4 |
| | — |
|
Total provision for credit losses | 172 |
| | — |
|
Realized gains and losses (3): | | | |
Gross realized gains | 256 |
| | 173 |
|
Gross realized losses | (4 | ) | | (3 | ) |
Impairment write-downs included in earnings: | | | |
Credit-related (4) | — |
| | (16 | ) |
Intent-to-sell | (15 | ) | | (29 | ) |
Total impairment write-downs included in earnings | (15 | ) | | (45 | ) |
Net realized gains | $ | 237 |
| | 125 |
|
| |
(1) | Total interest income from debt securities excludes interest income from trading debt securities, which is disclosed in Note 4 (Trading Activities). |
| |
(2) | Prior to our adoption of CECL on January 1, 2020, the provision for credit losses from debt securities was not applicable and is therefore presented as $0 for the prior period. For more information, see Note 1 (Summary of Significant Accounting Policies). |
| |
(3) | Realized gains and losses relate to available-for-sale debt securities. There were 0 realized gains or losses from held-to-maturity debt securities in all periods presented. |
| |
(4) | For the quarter ended March 31, 2020, credit-related impairment recognized in earnings is classified as provision for credit losses due to our adoption of CECLon January 1, 2020. For more information, see Note 1 (Summary of Significant Accounting Policies). |
Note 5: Available-for-Sale and Held-to-Maturity Debt Securities (continued)(continued)
Gross Credit Quality
We monitor credit quality of debt securities by evaluating various attributes and utilize such information in our evaluation of the appropriateness of the allowance for credit losses. The credit quality indicators that we most closely monitor include credit ratings and delinquency status and are based on information as of our financial statement date.
CREDIT RATINGS Credit ratings express opinions about the credit quality of a debt security. We determine the credit rating of a security according to the lowest credit rating made available by national recognized statistical rating organizations (NRSRO). Debt securities rated investment grade, that is those with ratings similar to BBB-/Baa3 or above, as defined by NRSRO, 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.
For debt securities not rated by the NRSRO, we determine an internal credit grade of the debt securities (used for credit risk management purposes) equivalent to the credit ratings assigned by major credit agencies. The fair value of available-for-sale debt securities categorized as investment grade based on internal credit grades was $1.2 billion at March 31, 2020, and $2.2 billion at December 31, 2019. Held-to-maturity debt securities categorized as investment grade based on internal credit grades are not significant. If an internal credit grade was not assigned, we categorized the debt security as non-investment grade.
Table 5.4 shows the percentage of fair value of available-for-sale debt securities and amortized cost of held-to-maturity debt securities determined by those rated investment grade, inclusive of those based on internal credit grades.
Table 5.4:Investment Grade Debt Securities
|
| | | | | | | | | | |
| Available-for-Sale | | | Held-to-Maturity | |
($ in millions) | Fair value |
| % investment grade |
| | Amortized cost |
| % investment grade |
|
March 31, 2020 | | | | | |
Total portfolio | $ | 251,229 |
| 99 | % | | 169,920 |
| 99 | % |
| | | | | |
Breakdown by category: | | | | | |
Securities of U.S. Treasury and federal agencies (1) | $ | 171,250 |
| 100 | % | | 154,734 |
| 100 | % |
Securities of U.S. states and political subdivisions | 38,144 |
| 99 |
| | 14,313 |
| 100 |
|
Collateralized loan obligations | 24,582 |
| 100 |
| | N/A |
| N/A |
|
All other debt securities (2) | 17,253 |
| 82 |
| | 873 |
| 7 |
|
December 31, 2019 | | | | | |
Total portfolio | $ | 263,459 |
| 99 | % | | 153,933 |
| 99 | % |
| | | | | |
Breakdown by category: | | | | | |
Securities of U.S. Treasury and federal agencies (1) | $ | 177,413 |
| 100 | % | | 139,619 |
| 100 | % |
Securities of U.S. states and political subdivisions | 40,337 |
| 99 |
| | 13,486 |
| 100 |
|
Collateralized loan obligations | 29,055 |
| 100 |
| | N/A |
| N/A |
|
All other debt securities (2) | 16,654 |
| 82 |
| | 828 |
| 4 |
|
| |
(1) | Includes federal agency mortgage-backed securities. |
| |
(2) | Includes non-agency mortgage-backed, corporate, and all other debt securities. |
DELINQUENCY STATUS AND NONACCRUAL DEBT SECURITIES Debt security issuers that are delinquent in payment of amounts due under contractual debt agreements have a higher probability of recognition of credit losses. As such, as part of our monitoring of the credit quality of the debt security portfolio, we consider whether debt securities we own are past due in payment of principal or interest payments and whether any securities have been placed into nonaccrual status.
We had 0 debt securities that were past due and still accruing at March 31, 2020 or December 31, 2019. The fair value of available-for-sale debt securities in nonaccrual status was $327 million and $110 million as of March 31, 2020 and
December 31, 2019, respectively. There were 0 held-to-maturity debt securities in nonaccrual status as of March 31, 2020 or December 31, 2019. Purchased debt securities with credit deterioration (PCD) are not considered to be in nonaccrual status, as payments from issuers of these securities remain current.
Table 5.5 presents detail of available-for-sale debt securities purchased with credit deterioration during the period. There were 0 held-to-maturity debt securities purchased with credit deterioration during the quarter ended March 31, 2020. The amounts presented are as of the date of the PCD assets were purchased.
Table 5.5: Debt Securities Purchased with Credit Deterioration |
| | | |
(in millions) | Quarter ended March 31, 2020 |
|
Available-for-sale debt securities purchased with credit deterioration (PCD): | |
Par value | $ | 164 |
|
Allowance for credit losses at acquisition | (11 | ) |
Discount (or premiums) attributable to other factors | 3 |
|
Purchase price of available-for-sale debt securities purchased with credit deterioration | $ | 156 |
|
Unrealized Losses and Fair Valueof Available-for-Sale Debt Securities
Table 5.25.6 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 other-than-temporaryrecorded credit impairment (OTTI) write-
downs are categorized as being “less than 12 months” or “12
“12 months or more” in a continuous loss position based on the point in time that the fair value declined to below the (1) for the current period presented, amortized cost basis and notnet of allowance for credit losses, or the (2) for the prior period of time since the credit-related OTTI write-down.presented, amortized cost basis.
Table 5.2:5.6: Gross Unrealized Losses and Fair Value – Available-for-Sale Debt Securities
| | | Less than 12 months | | | 12 months or more | | | Total | | Less than 12 months | | | 12 months or more | | | Total | |
(in millions) | Gross unrealized losses |
| | Fair value |
| | Gross unrealized losses |
| | Fair value |
| | Gross unrealized losses |
| | Fair value |
| Gross unrealized losses |
| | Fair value |
| | Gross unrealized losses |
| | Fair value |
| | Gross unrealized losses |
| | Fair value |
|
June 30, 2019 | | | | | | | | | | | | |
March 31, 2020 | | | | | | | | | | | | |
Available-for-sale debt securities: | | | | | | | | | | | | | | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | $ | (2 | ) | | 5,780 |
| | (15 | ) | | 5,511 |
| | (17 | ) | | 11,291 |
| $ | (4 | ) | | 615 |
| | — |
| | — |
| | (4 | ) | | 615 |
|
Securities of U.S. states and political subdivisions | (32 | ) | | 5,003 |
| | (46 | ) | | 2,696 |
| | (78 | ) | | 7,699 |
| (678 | ) | | 22,740 |
| | (70 | ) | | 1,490 |
| | (748 | ) | | 24,230 |
|
Mortgage-backed securities: | | | | | | | | | | |
| | | | | | | | |
|
| |
|
|
Federal agencies | (2 | ) | | 1,203 |
| | (306 | ) | | 32,179 |
| | (308 | ) | | 33,382 |
| (3 | ) | | 594 |
| | (12 | ) | | 737 |
| | (15 | ) | | 1,331 |
|
Residential | (1 | ) | | 180 |
| | — |
| | — |
| | (1 | ) | | 180 |
| (44 | ) | | 591 |
| | — |
| | — |
| | (44 | ) | | 591 |
|
Commercial | (3 | ) | | 837 |
| | (2 | ) | | 89 |
| | (5 | ) | | 926 |
| (228 | ) | | 3,275 |
| | (25 | ) | | 243 |
| | (253 | ) | | 3,518 |
|
Total mortgage-backed securities | (6 | ) | | 2,220 |
| | (308 | ) | | 32,268 |
| | (314 | ) | | 34,488 |
| (275 | ) | | 4,460 |
| | (37 | ) | | 980 |
| | (312 | ) | | 5,440 |
|
Corporate debt securities | (11 | ) | | 470 |
| | (25 | ) | | 281 |
| | (36 | ) | | 751 |
| (263 | ) | | 3,337 |
| | (12 | ) | | 129 |
| | (275 | ) | | 3,466 |
|
Collateralized loan and other debt obligations | (58 | ) | | 12,847 |
| | (56 | ) | | 7,239 |
| | (114 | ) | | 20,086 |
| (1,226 | ) | | 18,303 |
| | (542 | ) | | 6,442 |
| | (1,768 | ) | | 24,745 |
|
Other | (8 | ) | | 1,222 |
| | (6 | ) | | 246 |
| | (14 | ) | | 1,468 |
| (91 | ) | | 4,085 |
| | (23 | ) | | 618 |
| | (114 | ) | | 4,703 |
|
Total available-for-sale debt securities | (117 | ) | | 27,542 |
| | (456 | ) | | 48,241 |
| | (573 | ) | | 75,783 |
| $ | (2,537 | ) | | 53,540 |
| | (684 | ) | | 9,659 |
| | (3,221 | ) | | 63,199 |
|
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 | | | | | | | | | | | | |
December 31, 2019 | | | | | | | | | | | | |
Available-for-sale debt securities: | | | | | | | | | | | | | | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | $ | (1 | ) | | 498 |
| | (105 | ) | | 6,204 |
| | (106 | ) | | 6,702 |
| $ | — |
| | — |
| | (1 | ) | | 2,423 |
| | (1 | ) | | 2,423 |
|
Securities of U.S. states and political subdivisions | (73 | ) | | 9,746 |
| | (373 | ) | | 9,017 |
| | (446 | ) | | 18,763 |
| (10 | ) | | 2,776 |
| | (26 | ) | | 2,418 |
| | (36 | ) | | 5,194 |
|
Mortgage-backed securities: | | | | | | | | | | | | | | | | | | | | | | |
Federal agencies | (42 | ) | | 10,979 |
| | (3,098 | ) | | 112,252 |
| | (3,140 | ) | | 123,231 |
| (50 | ) | | 16,807 |
| | (114 | ) | | 10,641 |
| | (164 | ) | | 27,448 |
|
Residential | (3 | ) | | 398 |
| | (2 | ) | | 69 |
| | (5 | ) | | 467 |
| (1 | ) | | 149 |
| | — |
| | — |
| | (1 | ) | | 149 |
|
Commercial | (20 | ) | | 1,972 |
| | (2 | ) | | 79 |
| | (22 | ) | | 2,051 |
| (3 | ) | | 998 |
| | (3 | ) | | 244 |
| | (6 | ) | | 1,242 |
|
Total mortgage-backed securities | (65 | ) | | 13,349 |
| | (3,102 | ) | | 112,400 |
| | (3,167 | ) | | 125,749 |
| (54 | ) | | 17,954 |
| | (117 | ) | | 10,885 |
| | (171 | ) | | 28,839 |
|
Corporate debt securities | (64 | ) | | 1,965 |
| | (26 | ) | | 298 |
| | (90 | ) | | 2,263 |
| (9 | ) | | 303 |
| | (23 | ) | | 216 |
| | (32 | ) | | 519 |
|
Collateralized loan and other debt obligations | (388 | ) | | 28,306 |
| | (8 | ) | | 553 |
| | (396 | ) | | 28,859 |
| (13 | ) | | 5,070 |
| | (110 | ) | | 16,789 |
| | (123 | ) | | 21,859 |
|
Other | (7 | ) | | 819 |
| | (6 | ) | | 159 |
| | (13 | ) | | 978 |
| (12 | ) | | 1,587 |
| | (12 | ) | | 492 |
| | (24 | ) | | 2,079 |
|
Total available-for-sale debt securities | (598 | ) | | 54,683 |
| | (3,620 | ) | | 128,631 |
| | (4,218 | ) | | 183,314 |
| $ | (98 | ) | | 27,690 |
| | (289 | ) | | 33,223 |
| | (387 | ) | | 60,913 |
|
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 |
| |
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. In prior periods, credit impairment was recorded as a write-down to the amortized cost basis of the security. In the current period, credit impairment is recorded as an allowance for credit losses.
For descriptions of the factors we consider when analyzing debt securities for impairment as well as methodology and significant inputs used to measure credit losses, see Note 1 (Summary of Significant Accounting Policies) and Note 5 (Available-for-Sale and Held-to-Maturity Debt Securities) in our 2018 Form 10-K. There were no material changes to our methodologies for assessing impairment in the first half of 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 $9 million and $2.3 billion, respectively, at June 30, 2019, and $20 million and $5.2 billion, respectively, at December 31, 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 |
|
Note 5: Available-for-Sale and Held-to-Maturity Debt Securities (continued)(continued)
Allowance for Credit Losses for Debt Securities
Table 5.7 presents the allowance for credit losses on available-for-sale and held-to-maturity debt securities.
Table 5.7:Allowance for Credit Losses for Debt Securities |
| | | | | |
| Quarter ended March 31, 2020 | |
(in millions) | Available-for-Sale |
| Held-to-Maturity |
|
Balance, beginning of period (1) | $ | — |
| — |
|
Cumulative effect from change in accounting policies (2) | 24 |
| 7 |
|
Balance, beginning of period, adjusted | 24 |
| 7 |
|
Provision for credit losses | 168 |
| 4 |
|
Securities purchased with credit deterioration | 11 |
| — |
|
Reduction due to intent to sell | (11 | ) | — |
|
Charge-offs | (32 | ) | — |
|
Interest income (3) | 1 |
| — |
|
Balance, end of period (4) | $ | 161 |
| 11 |
|
| |
(1) | Prior to our adoption of CECL on January 1, 2020, the allowance for credit losses related to available-for-sale and held-to-maturity debt securities was not applicable and is therefore presented as $0 at December 31, 2019. For more information, see Note 1 (Summary of Significant Accounting Policies). |
| |
(2) | Represents the impact of adoption of CECL on January 1, 2020. For more information, see Note 1 (Summary of Significant Accounting Policies). |
| |
(3) | Certain debt securities with an allowance for credit losses calculated by discounting expected cash flows using the securities’ effective interest rate over its remaining life, recognize changes in the allowance for credit losses attributable to the passage of time as interest income. |
| |
(4) | Substantially all of allowance for credit losses for debt securities relates to corporate debt securities as of March 31, 2020. |
Contractual Maturities
Table 5.45.8 shows the remaining contractual maturities, amortized cost net of allowance for credit losses, fair value and contractual weighted-average effective yields (taxable-equivalent basis) of available-for-sale debt securities by contractual maturity.securities. The remaining contractual principal maturities for mortgage-backed securities (MBS)MBS do not
consider prepayments. Remaining expected maturities will differ
from contractual maturities because borrowers may have the right to prepay obligations before the underlying mortgages mature.
Table 5.4:5.8: Available-for SaleContractual Maturities – Available-for-Sale Debt Securities - Fair Value by Contractual Maturity
| | | | | Remaining contractual maturity | | |
| Total |
| | | | Within one year | | | After one year through five years | | | After five years through ten years | | | After ten years | | |
(in millions) | amount |
| | Yield |
| | Amount |
| | Yield |
| | Amount |
| | Yield |
| | Amount |
| | Yield |
| | Amount |
| | Yield |
| |
June 30, 2019 | | | | | | | | | | | | | | | | | | | | |
By remaining contractual maturity ($ in millions) | | Total |
| | Within one year |
| | After one year through five years |
| | After five years through ten years |
| | After ten years |
|
March 31, 2020 | | | | | | | | | | |
Available-for-sale debt securities (1): | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fair value: | | | | | | | | | | | | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | $ | 15,319 |
| | 1.94 | % | | $ | 5,521 |
| | 1.69 | % | | $ | 9,747 |
| | 2.08 | % | | $ | 51 |
| | 1.89 | % | | $ | — |
| | — | % | | | | | | | | | |
Amortized cost, net | | $ | 10,952 |
| | 8,023 |
| | 28 |
| | 45 |
| | 2,856 |
|
Fair value | | 11,036 |
| | 8,029 |
| | 29 |
| | 49 |
| | 2,929 |
|
Weighted average yield | | 2.10 | % | | 2.32 |
| | 1.97 |
| | 1.84 |
| | 1.49 |
|
Securities of U.S. states and political subdivisions | 45,095 |
| | 4.92 |
| | 2,016 |
| | 3.34 |
| | 5,135 |
| | 3.34 |
| | 4,322 |
| | 3.54 |
| | 33,622 |
| | 5.40 |
| | | | | | | | | |
Amortized cost, net | | 38,686 |
| | 3,940 |
| | 4,196 |
| | 4,034 |
| | 26,516 |
|
Fair value | | 38,144 |
| | 3,963 |
| | 4,244 |
| | 4,039 |
| | 25,898 |
|
Weighted average yield | | 3.15 |
| | 4.58 |
| | 3.20 |
| | 2.78 |
| | 2.98 |
|
Mortgage-backed securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Federal agencies | 155,858 |
| | 3.50 |
| | — |
| | — |
| | 137 |
| | 3.48 |
| | 1,665 |
| | 2.56 |
| | 154,056 |
| | 3.51 |
| | | | | | | | | |
Amortized cost, net | | 154,390 |
| | 2 |
| | 123 |
| | 1,944 |
| | 152,321 |
|
Fair value | | 160,214 |
| | 2 |
| | 128 |
| | 2,005 |
| | 158,079 |
|
Weighted average yield | | 3.19 |
| | 1.93 |
| | 3.06 |
| | 2.44 |
| | 3.20 |
|
Residential | 1,263 |
| | 2.80 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,263 |
| | 2.80 |
| | | | | | | | | |
Amortized cost, net | | 820 |
| | — |
| | — |
| | — |
| | 820 |
|
Fair value | | 776 |
| | — |
| | — |
| | — |
| | 776 |
|
Weighted average yield | | 3.19 |
| | — |
| | — |
| | — |
| | 3.19 |
|
Commercial | 4,180 |
| | 3.71 |
| | — |
| | — |
| | — |
| | — |
| | 342 |
| | 3.61 |
| | 3,838 |
| | 3.72 |
| | | | | | | | | |
Amortized cost, net | | 3,897 |
| | — |
| | 32 |
| | 194 |
| | 3,671 |
|
Fair value | | 3,654 |
| | — |
| | 31 |
| | 187 |
| | 3,436 |
|
Weighted average yield | | 2.62 |
| | — |
| | 2.49 |
| | 2.71 |
| | 2.62 |
|
Total mortgage-backed securities | 161,301 |
| | 3.50 |
| | — |
| | — |
| | 137 |
| | 3.48 |
| | 2,007 |
| | 2.74 |
| | 159,157 |
| | 3.51 |
| | | | | | | | | |
Amortized cost, net | | 159,107 |
| | 2 |
| | 155 |
| | 2,138 |
| | 156,812 |
|
Fair value | | 164,644 |
| | 2 |
| | 159 |
| | 2,192 |
| | 162,291 |
|
Weighted average yield | | 3.18 |
| | 1.93 |
| | 2.94 |
| | 2.46 |
| | 3.19 |
|
Corporate debt securities | 6,230 |
| | 5.01 |
| | 484 |
| | 6.17 |
| | 2,384 |
| | 5.00 |
| | 2,737 |
| | 4.69 |
| | 625 |
| | 5.59 |
| | | | | | | | | |
Amortized cost, net | | 6,092 |
| | 373 |
| | 2,048 |
| | 2,847 |
| | 824 |
|
Fair value | | 5,855 |
| | 355 |
| | 1,973 |
| | 2,755 |
| | 772 |
|
Weighted average yield | | 4.97 |
| | 4.12 |
| | 5.18 |
| | 5.03 |
| | 4.67 |
|
Collateralized loan and other debt obligations | 32,995 |
| | 3.96 |
| | — |
| | — |
| | 8 |
| | 5.02 |
| | 10,005 |
| | 4.03 |
| | 22,982 |
| | 3.93 |
| | | | | | | | | |
Amortized cost, net | | 26,873 |
| | — |
| | — |
| | 12,014 |
| | 14,859 |
|
Fair value | | 25,168 |
| | — |
| | — |
| | 11,362 |
| | 13,806 |
|
Weighted average yield | | 3.21 |
| | — |
| | — |
| | 3.29 |
| | 3.15 |
|
Other | 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 | $ | 265,983 |
| | 3.73 | % | | $ | 8,033 |
| | 2.38 | % | | $ | 18,160 |
| | 2.96 | % | | $ | 20,546 |
| | 3.75 | % | | $ | 219,244 |
| | 3.85 | % | |
Amortized cost, net | | 6,477 |
| | 2,021 |
| | 704 |
| | 1,296 |
| | 2,456 |
|
Fair value | | 6,382 |
| | 2,021 |
| | 685 |
| | 1,287 |
| | 2,389 |
|
Weighted average yield | | 1.51 |
| | (0.22 | ) | | 2.95 |
| | 1.41 |
| | 2.57 |
|
Total available-for-sale debt securities | | | | | | | | | | |
Amortized cost, net | | $ | 248,187 |
| | 14,359 |
| | 7,131 |
| | 22,374 |
| | 204,323 |
|
Fair value | | 251,229 |
| | 14,370 |
| | 7,090 |
| | 21,684 |
| | 208,085 |
|
Weighted average yield | | 3.13 | % | | 2.63 |
| | 3.75 |
| | 3.24 |
| | 3.14 |
|
| |
(1) | Weighted-average yields displayed by maturity bucket are weighted based on fair value and predominantly represent contractual coupon ratesamortized cost without effect for any related hedging derivatives.derivatives and are shown pre-tax. |
Note 5: Available-for-Sale and Held-to-Maturity Debt Securities (continued)
Table 5.55.9 shows the remaining contractual maturities, amortized cost net of allowance for credit losses, fair value, and
weighted-average effective yields of held-to-maturity debt securities by contractual maturity.securities.
Table 5.5:5.9: Contractual Maturities – Held-to-Maturity Debt Securities - Amortized Cost 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 |
| | Yield |
| | Amount |
| | Yield |
| | Amount |
| | Yield |
| | Amount |
| | Yield |
| | Amount |
| | Yield |
|
June 30, 2019 | | | | | | | | | | | | | | | | | | | |
Held-to-maturity debt securities (1): | | | | | | | | | | | | | | | | | | | |
Amortized cost: | | | | | | | | | | | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | $ | 44,766 |
| | 2.12 | % | | $ | — |
| | — | % | | $ | 34,667 |
| | 2.07 | % | | $ | 10,099 |
| | 2.28 | % | | $ | — |
| | — | % |
Securities of U.S. states and political subdivisions | 7,948 |
| | 4.97 |
| | — |
| | — |
| | 75 |
| | 6.05 |
| | 1,570 |
| | 4.89 |
| | 6,303 |
| | 4.98 |
|
Federal agency and other mortgage-backed securities | 93,105 |
| | 3.12 |
| | — |
| | — |
| | 15 |
| | 3.77 |
| | — |
| | — |
| | 93,090 |
| | 3.12 |
|
Collateralized loan obligations | 57 |
| | 3.78 |
| | — |
| | — |
| | — |
| | — |
| | 57 |
| | 3.78 |
| | — |
| | — |
|
Total held-to-maturity debt securities at amortized cost | $ | 145,876 |
| | 2.91 | % | | $ | — |
| | — | % | | $ | 34,757 |
| | 2.08 | % | | $ | 11,726 |
| | 2.64 | % | | $ | 99,393 |
| | 3.24 | % |
|
| | | | | | | | | | | | | | | |
By remaining contractual maturity ($ in millions) | Total |
| | Within one year |
| | After one year through five years |
| | After five years through ten years |
| | After ten years |
|
March 31, 2020 | | | | | | | | | |
Held-to-maturity debt securities (1): | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | | | | | | | | | |
Amortized cost, net | $ | 48,569 |
| | 8,336 |
| | 36,454 |
| | — |
| | 3,779 |
|
Fair value | 50,691 |
| | 8,494 |
| | 38,170 |
| | — |
| | 4,027 |
|
Weighted average yield | 2.14 | % | | 2.24 |
| | 2.18 |
| | — |
| | 1.56 |
|
Securities of U.S. states and political subdivisions | | | | | | | | | |
Amortized cost, net | 14,304 |
| | 11 |
| | 713 |
| | 1,724 |
| | 11,856 |
|
Fair value | 14,611 |
| | 11 |
| | 731 |
| | 1,794 |
| | 12,075 |
|
Weighted average yield | 2.71 |
| | 1.95 |
| | 2.22 |
| | 2.86 |
| | 2.72 |
|
Federal agency and other mortgage-backed securities | | | | | | | | | |
Amortized cost, net | 107,013 |
| | — |
| | 15 |
| | 104 |
| | 106,894 |
|
Fair value | 112,238 |
| | — |
| | 13 |
| | 111 |
| | 112,114 |
|
Weighted average yield | 2.96 |
| | — |
| | 2.99 |
| | 1.37 |
| | 2.96 |
|
Other debt securities | | | | | | | | | |
Amortized cost, net | 23 |
| | — |
| | — |
| | 23 |
| | — |
|
Fair value | 22 |
| | — |
| | — |
| | 22 |
| | — |
|
Weighted average yield | 3.01 |
| | — |
| | — |
| | 3.01 |
| | — |
|
Total held-to-maturity debt securities | | | | | | | | | |
Amortized cost, net | $ | 169,909 |
| | 8,347 |
| | 37,182 |
| | 1,851 |
| | 122,529 |
|
Fair value | 177,562 |
| | 8,505 |
| | 38,914 |
| | 1,927 |
| | 128,216 |
|
Weighted average yield | 2.70 | % | | 2.24 |
| | 2.18 |
| | 2.78 |
| | 2.89 |
|
| |
(1) | Weighted-average yields displayed by maturity bucket are weighted based on amortized cost and predominantly represent contractual coupon rates. are shown pre-tax. |
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 subdivisions | 8,125 |
| | — |
| | 75 |
| | 1,625 |
| | 6,425 |
|
Federal agency and other mortgage-backed securities | 94,346 |
| | — |
| | 15 |
| | — |
| | 94,331 |
|
Collateralized loan obligations | 57 |
| | — |
| | — |
| | 57 |
| | — |
|
Total held-to-maturity debt securities at fair value | $ | 147,864 |
| | — |
| | 35,052 |
| | 12,056 |
| | 100,756 |
|
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 |
|
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 half of 2019 and 2018.
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 |
|
Commercial | 3 |
| | 7 |
| | 17 |
| | 14 |
|
Corporate debt securities | — |
| | — |
| | 2 |
| | — |
|
Total debt securities OTTI write-downs included in earnings | $ | 7 |
| | 8 |
| | 52 |
| | 18 |
|
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 June 30, | | | Six months ended June 30, | |
(in millions) | 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
|
OTTI on debt securities | | | | | | | |
Recorded as part of gross realized losses: | | | | | | | |
Credit-related OTTI | $ | 7 |
| | 8 |
| | 23 |
| | 17 |
|
Intent-to-sell OTTI | — |
| | — |
| | 29 |
| | 1 |
|
Total recorded as part of gross realized losses | 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 | (1 | ) | | — |
| | (1 | ) | | (2 | ) |
Residential mortgage-backed securities | — |
| | — |
| | (1 | ) | | (1 | ) |
Commercial mortgage-backed securities | — |
| | (11 | ) | | 1 |
| | (1 | ) |
Total changes to OCI for non-credit-related OTTI | (1 | ) | | (11 | ) | | (1 | ) | | (4 | ) |
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 June 30, | | | Six months ended June 30, | |
(in millions) | 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
|
Credit loss recognized, beginning of period | $ | 232 |
| | 649 |
| | 562 |
| | 742 |
|
Additions: | | | | | | | |
For securities with initial credit impairments | 4 |
| | — |
| | 6 |
| | — |
|
For securities with previous credit impairments | 3 |
| | 8 |
| | 17 |
| | 17 |
|
Total additions | 7 |
| | 8 |
| | 23 |
| | 17 |
|
Reductions: | | | | | | | |
For securities sold, matured, or intended/required to be sold | (23 | ) | | (30 | ) | | (369 | ) | | (131 | ) |
For recoveries of previous credit impairments (1) | — |
| | (1 | ) | | — |
| | (2 | ) |
Total reductions | (23 | ) | | (31 | ) | | (369 | ) | | (133 | ) |
Credit loss recognized, end of period | $ | 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 Related Allowance for Credit Losses |
Table 6.1 presents total loans outstanding by portfolio segment and class of financing receivable. Outstanding balances include unearned income, net deferred loan fees or costs, and
unamortized discounts and premiums. These amounts were less than 1% of our total loans outstanding at June 30, 2019March 31, 2020, and December 31, 2018.2019.
Outstanding balances exclude accrued interest receivable on loans which are included in other assets. During the quarter ended
March 31, 2020, we reversed accrued interest receivable by reversing interest income of $9 million for our commercial portfolio segment and $63 million for our consumer portfolio segment. See Note 9 (Other Assets) for additional information on accrued interest receivable.
Table 6.1: Loans Outstanding
| | (in millions) | Jun 30, 2019 |
| | Dec 31, 2018 |
| Mar 31, 2020 |
| | Dec 31, 2019 |
|
Commercial: | | | | | | |
Commercial and industrial | $ | 348,846 |
| | 350,199 |
| $ | 405,020 |
| | 354,125 |
|
Real estate mortgage | 123,008 |
| | 121,014 |
| 122,767 |
| | 121,824 |
|
Real estate construction | 21,067 |
| | 22,496 |
| 20,812 |
| | 19,939 |
|
Lease financing | 19,324 |
| | 19,696 |
| 19,136 |
| | 19,831 |
|
Total commercial | 512,245 |
| | 513,405 |
| 567,735 |
| | 515,719 |
|
Consumer: | | | | | | |
Real estate 1-4 family first mortgage | 286,427 |
| | 285,065 |
| 292,920 |
| | 293,847 |
|
Real estate 1-4 family junior lien mortgage | 32,068 |
| | 34,398 |
| 28,527 |
| | 29,509 |
|
Credit card | 38,820 |
| | 39,025 |
| 38,582 |
| | 41,013 |
|
Automobile | 45,664 |
| | 45,069 |
| 48,568 |
| | 47,873 |
|
Other revolving credit and installment | 34,654 |
| | 36,148 |
| 33,511 |
| | 34,304 |
|
Total consumer | 437,633 |
| | 439,705 |
| 442,108 |
| | 446,546 |
|
Total loans | $ | 949,878 |
| | 953,110 |
| $ | 1,009,843 |
| | 962,265 |
|
Our foreignnon-U.S. loans are reported by respective class of financing receivable in the table above. Substantially all of our foreignnon-U.S. 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 non-U.S. commercial foreign loans outstanding by class of financing receivable.
Table 6.2: Non-U.S. Commercial Foreign Loans Outstanding
| | (in millions) | Jun 30, 2019 |
| | Dec 31, 2018 |
| Mar 31, 2020 |
| | Dec 31, 2019 |
|
Commercial foreign loans: | | | | |
Non-U.S. Commercial Loans | | | | |
Commercial and industrial | $ | 63,296 |
| | 62,564 |
| $ | 78,753 |
| | 70,494 |
|
Real estate mortgage | 6,801 |
| | 6,731 |
| 6,309 |
| | 7,004 |
|
Real estate construction | 1,287 |
| | 1,011 |
| 1,478 |
| | 1,434 |
|
Lease financing | 1,215 |
| | 1,159 |
| 1,120 |
| | 1,220 |
|
Total commercial foreign loans | $ | 72,599 |
| | 71,465 |
| |
Total non-U.S. commercial loans | | $ | 87,660 |
| | 80,152 |
|
Note 6: Loans and Related Allowance for Credit Losses (continued(continued))
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.sale. The table excludes PCI
loans, loans for which we have elected the fair value option and government insured/guaranteed real estate 1-4 family first mortgage loans because
their loan activity normally does not impact the allowanceACL. In first quarter 2020, we sold $709 million of 1-4 family first mortgage loans for credit losses.
a gain of $463 million, which is included in other noninterest income on our consolidated income statement. These whole loans were reclassified to MLHFS in 2019.
Table 6.3: Loan Purchases, Sales, and Transfers
| | | 2019 | | | 2018 | | 2020 | | | 2019 | |
(in millions) | Commercial |
| | Consumer |
| | Total |
| | Commercial |
| | Consumer |
| | Total |
| Commercial |
| | Consumer |
| | Total |
| | Commercial |
| | Consumer |
| | Total |
|
Quarter ended June 30, | | | | | | | | | | | | |
Quarter ended March 31, | | | | | | | | | | | | |
Purchases | $ | 670 |
| | 5 |
| | 675 |
| | 398 |
| | 7 |
| | 405 |
| $ | 341 |
| | 1 |
| | 342 |
| | 329 |
| | 3 |
| | 332 |
|
Sales | (535 | ) | | (153 | ) | | (688 | ) | | (294 | ) | | (88 | ) | | (382 | ) | (813 | ) | | (26 | ) | | (839 | ) | | (421 | ) | | (179 | ) | | (600 | ) |
Transfers (to) from MLHFS/LHFS | (89 | ) | | (1,852 | ) | | (1,941 | ) | | (100 | ) | | (72 | ) | | (172 | ) | 77 |
| | 2 |
| | 79 |
| | (3 | ) | | — |
| | (3 | ) |
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 | ) | |
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. The unfunded amount of these temporary advance arrangements totaled approximately $94 billion and $91$72.7 billion at June 30, 2019 and DecemberMarch 31, 2018, respectively.2020.
We issue commercial letters of credit to assist customers in purchasing goods or services, typically for international trade. At June 30, 2019,March 31, 2020, and December 31, 2018,2019, we had $1.0 billion$981.3 million and $919$862 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 13 (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, weare not funded. 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) | Jun 30, 2019 |
| | Dec 31, 2018 |
| Mar 31, 2020 |
| | Dec 31, 2019 |
|
Commercial: | | | | | | |
Commercial and industrial | $ | 329,751 |
| | 330,492 |
| $ | 314,135 |
| | 346,991 |
|
Real estate mortgage | 7,905 |
| | 6,984 |
| 9,360 |
| | 8,206 |
|
Real estate construction | 15,459 |
| | 16,400 |
| 17,236 |
| | 17,729 |
|
Total commercial | 353,115 |
| | 353,876 |
| 340,731 |
| | 372,926 |
|
Consumer: | | | | | | |
Real estate 1-4 family first mortgage | 43,427 |
| | 29,736 |
| 42,691 |
| | 34,391 |
|
Real estate 1-4 family junior lien mortgage | 37,454 |
| | 37,719 |
| 36,301 |
| | 36,916 |
|
Credit card | 113,306 |
| | 109,840 |
| 118,339 |
| | 114,933 |
|
Other revolving credit and installment | 26,676 |
| | 27,530 |
| 25,187 |
| | 25,898 |
|
Total consumer | 220,863 |
| | 204,825 |
| 222,518 |
| | 212,138 |
|
Total unfunded credit commitments | $ | 573,978 |
| | 558,701 |
| $ | 563,249 |
| | 585,064 |
|
Allowance for Credit Losses for Loans
Table 6.5 presents the allowance for credit losses for loans, which consists of the allowance for loan losses and the allowance for unfunded credit commitments. On January 1, 2020, we adopted CECL. Additional information on our adoption of CECL is included in Note 1 (Summary of Significant Accounting Policies). In first quarter 2020, after the adoption of CECL, we added a net $2.9 billion to our ACL for loans predominantly driven by the
expected impacts from the COVID-19 pandemic. These expected impacts were most significantly affected by anticipated changes to economic variables, as well as higher expected losses from certain industries in our commercial portfolio segment that we expect to be directly and most adversely affected by the COVID-19 pandemic. In addition, the increase included expected impacts on oil and gas loans due to lower oil prices and deteriorating credit trends.
Table 6.5: Allowance for Credit Losses for Loans
| | | Quarter ended June 30, | | | Six months ended June 30, | | Quarter ended March 31, | |
(in millions) | 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
| 2020 |
| | 2019 |
|
Balance, beginning of period | $ | 10,821 |
| | 11,313 |
| | 10,707 |
| | 11,960 |
| 10,456 |
| | 10,707 |
|
Cumulative effect from change in accounting policies (1) | | (1,337 | ) | | — |
|
Allowance for purchased credit-deteriorated (PCD) loans (2) | | 8 |
| | — |
|
Balance, beginning of period, adjusted | | 9,127 |
| | 10,707 |
|
Provision for credit losses | 503 |
| | 452 |
| | 1,348 |
| | 643 |
| 3,833 |
| | 845 |
|
Interest income on certain impaired loans (1) | (39 | ) | | (43 | ) | | (78 | ) | | (86 | ) | |
Interest income on certain loans (3) | | (38 | ) | | (39 | ) |
Loan charge-offs: | | | | | | | | | | |
Commercial: | | | | | | | | | | |
Commercial and industrial | (205 | ) | | (134 | ) | | (381 | ) | | (298 | ) | (377 | ) | | (176 | ) |
Real estate mortgage | (14 | ) | | (19 | ) | | (26 | ) | | (21 | ) | (3 | ) | | (12 | ) |
Real estate construction | — |
| | — |
| | (1 | ) | | — |
| — |
| | (1 | ) |
Lease financing | (12 | ) | | (20 | ) | | (23 | ) | | (37 | ) | (13 | ) | | (11 | ) |
Total commercial | (231 | ) | | (173 | ) | | (431 | ) | | (356 | ) | (393 | ) | | (200 | ) |
Consumer: | | | | | | | | | | |
Real estate 1-4 family first mortgage | (27 | ) | | (55 | ) | | (70 | ) | | (96 | ) | (23 | ) | | (43 | ) |
Real estate 1-4 family junior lien mortgage | (29 | ) | | (47 | ) | | (63 | ) | | (94 | ) | (30 | ) | | (34 | ) |
Credit card | (437 | ) | | (404 | ) | | (874 | ) | | (809 | ) | (471 | ) | | (437 | ) |
Automobile | (142 | ) | | (216 | ) | | (329 | ) | | (516 | ) | (156 | ) | | (187 | ) |
Other revolving credit and installment | (167 | ) | | (164 | ) | | (329 | ) | | (344 | ) | (165 | ) | | (162 | ) |
Total consumer | (802 | ) | | (886 | ) | | (1,665 | ) | | (1,859 | ) | (845 | ) | | (863 | ) |
Total loan charge-offs | (1,033 | ) | | (1,059 | ) | | (2,096 | ) | | (2,215 | ) | (1,238 | ) | | (1,063 | ) |
Loan recoveries: | | | | | | | | | | |
Commercial: | | | | | | | | | | |
Commercial and industrial | 46 |
| | 76 |
| | 89 |
| | 155 |
| 44 |
| | 43 |
|
Real estate mortgage | 10 |
| | 19 |
| | 16 |
| | 36 |
| 5 |
| | 6 |
|
Real estate construction | 2 |
| | 6 |
| | 5 |
| | 10 |
| 16 |
| | 3 |
|
Lease financing | 8 |
| | 5 |
| | 11 |
| | 10 |
| 4 |
| | 3 |
|
Total commercial | 66 |
| | 106 |
| | 121 |
| | 211 |
| 69 |
| | 55 |
|
Consumer: | | | | | | | | | | |
Real estate 1-4 family first mortgage | 57 |
| | 78 |
| | 112 |
| | 137 |
| 26 |
| | 55 |
|
Real estate 1-4 family junior lien mortgage | 48 |
| | 60 |
| | 91 |
| | 115 |
| 35 |
| | 43 |
|
Credit card | 88 |
| | 81 |
| | 173 |
| | 154 |
| 94 |
| | 85 |
|
Automobile | 90 |
| | 103 |
| | 186 |
| | 195 |
| 74 |
| | 96 |
|
Other revolving credit and installment | 31 |
| | 29 |
| | 65 |
| | 60 |
| 31 |
| | 34 |
|
Total consumer | 314 |
| | 351 |
| | 627 |
| | 661 |
| 260 |
| | 313 |
|
Total loan recoveries | 380 |
| | 457 |
| | 748 |
| | 872 |
| 329 |
| | 368 |
|
Net loan charge-offs | (653 | ) | | (602 | ) | | (1,348 | ) | | (1,343 | ) | (909 | ) | | (695 | ) |
Other | (29 | ) | | (10 | ) | | (26 | ) | | (64 | ) | 9 |
| | 3 |
|
Balance, end of period | $ | 10,603 |
| | 11,110 |
| | 10,603 |
| | 11,110 |
| 12,022 |
| | 10,821 |
|
Components: | | | | | | | | | | |
Allowance for loan losses | $ | 9,692 |
| | 10,193 |
| | 9,692 |
| | 10,193 |
| 11,263 |
| | 9,900 |
|
Allowance for unfunded credit commitments | 911 |
| | 917 |
| | 911 |
| | 917 |
| 759 |
| | 921 |
|
Allowance for credit losses | $ | 10,603 |
| | 11,110 |
| | 10,603 |
| | 11,110 |
| |
Allowance for credit losses for loans | | 12,022 |
| | 10,821 |
|
Net loan charge-offs (annualized) as a percentage of average total loans | 0.28 | % | | 0.26 |
| | 0.29 |
| | 0.29 |
| 0.38 |
| | 0.30 |
|
Allowance for loan losses as a percentage of total loans | 1.02 |
| | 1.08 |
| | 1.02 |
| | 1.08 |
| 1.12 |
| | 1.04 |
|
Allowance for credit losses as a percentage of total loans | 1.12 |
| | 1.18 |
| | 1.12 |
| | 1.18 |
| |
Allowance for credit losses for loans as a percentage of total loans | | 1.19 |
| | 1.14 |
|
| |
(1) | Certain impairedRepresents the overall decrease in our allowance for credit losses for loans as a result of our adoption of CECL on January 1, 2020. |
| |
(2) | Represents the allowance estimated for PCI loans that automatically became PCD loans with the adoption of CECL. For more information, see Note 1 (Summary of Significant Accounting Policies). |
| |
(3) | Loans with an allowance calculatedmeasured 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 Related Allowance for Credit Losses (continued(continued))
Table 6.6 summarizes the activity in the allowance for credit losses for loans by our commercial and consumer portfolio segments.
Table 6.6: Allowance for Credit Losses for Loans Activity by Portfolio Segment
| | | | | | | 2019 |
| | | | | | 2018 |
| | | | | 2020 |
| | | | | | 2019 |
|
(in millions) | Commercial |
| | Consumer |
| | Total |
| | Commercial |
| | Consumer |
| | Total |
| Commercial |
| | Consumer |
| | Total |
| | Commercial |
| | Consumer |
| | Total |
|
Quarter ended June 30, | | | | | | | | | | | | |
Quarter ended March 31, | | | | | | | | | | | | |
Balance, beginning of period | $ | 6,428 |
| | 4,393 |
| | 10,821 |
| | 6,708 |
| | 4,605 |
| | 11,313 |
| $ | 6,245 |
| | 4,211 |
| | 10,456 |
| | 6,417 |
| | 4,290 |
| | 10,707 |
|
Cumulative effect from change in accounting policies (1) | | (2,861 | ) | | 1,524 |
| | (1,337 | ) | | — |
| | — |
| | — |
|
Allowance for purchased credit-deteriorated (PCD) loans (2) | | — |
| | 8 |
| | 8 |
| | — |
| | — |
| | — |
|
Balance, beginning of period, adjusted | | 3,384 |
| | 5,743 |
| | 9,127 |
| | 6,417 |
| | 4,290 |
| | 10,707 |
|
Provision for credit losses | 46 |
| | 457 |
| | 503 |
| | 89 |
| | 363 |
| | 452 |
| 2,240 |
| | 1,593 |
| | 3,833 |
| | 164 |
| | 681 |
| | 845 |
|
Interest income on certain impaired loans | (14 | ) | | (25 | ) | | (39 | ) | | (14 | ) | | (29 | ) | | (43 | ) | |
Interest income on certain loans (3) | | (14 | ) | | (24 | ) | | (38 | ) | | (11 | ) | | (28 | ) | | (39 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
Loan charge-offs | (231 | ) | | (802 | ) | | (1,033 | ) | | (173 | ) | | (886 | ) | | (1,059 | ) | (393 | ) | | (845 | ) | | (1,238 | ) | | (200 | ) | | (863 | ) | | (1,063 | ) |
Loan recoveries | 66 |
| | 314 |
| | 380 |
| | 106 |
| | 351 |
| | 457 |
| 69 |
| | 260 |
| | 329 |
| | 55 |
| | 313 |
| | 368 |
|
Net loan charge-offs | (165 | ) | | (488 | ) | | (653 | ) | | (67 | ) | | (535 | ) | | (602 | ) | (324 | ) | | (585 | ) | | (909 | ) | | (145 | ) | | (550 | ) | | (695 | ) |
Other | 3 |
| | (32 | ) | | (29 | ) | | (5 | ) | | (5 | ) | | (10 | ) | (7 | ) | | 16 |
| | 9 |
| | 3 |
| | — |
| | 3 |
|
Balance, end of period | $ | 6,298 |
| | 4,305 |
| | 10,603 |
| | 6,711 |
| | 4,399 |
| | 11,110 |
| $ | 5,279 |
| | $ | 6,743 |
| | $ | 12,022 |
| | $ | 6,428 |
| | $ | 4,393 |
| | $ | 10,821 |
|
| | | | | | | | | | | | |
Six months ended June 30, | | | | | | | | | | | | |
Balance, beginning of period | $ | 6,417 |
| | 4,290 |
| | 10,707 |
| | 6,632 |
| | 5,328 |
| | 11,960 |
| |
Provision for credit losses | 210 |
| | 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 recoveries | 121 |
| | 627 |
| | 748 |
| | 211 |
| | 661 |
| | 872 |
| |
Net loan charge-offs | (310 | ) | | (1,038 | ) | | (1,348 | ) | | (145 | ) | | (1,198 | ) | | (1,343 | ) | |
Other | 6 |
| | (32 | ) | | (26 | ) | | (9 | ) | | (55 | ) | | (64 | ) | |
Balance, end of period | $ | 6,298 |
| | 4,305 |
| | 10,603 |
| | 6,711 |
| | 4,399 |
| | 11,110 |
| |
| |
(1) | Represents the overall decrease in our allowance for credit losses for loans as a result of our adoption of CECL on January 1, 2020. |
| |
(2) | Represents the allowance estimated for PCI loans that automatically became PCD loans with the adoption of CECL. For more information, see Note 1 (Summary of Significant Accounting Policies). |
| |
(3) | Loans with an allowance measured 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. |
Table 6.7 disaggregates our allowance for credit losses for loans and recorded investment in loans by impairment methodology. This is no longer relevant after December 31, 2019,
given our adoption of CECL on January 1, 2020, which has a single impairment methodology.
Table 6.7: Allowance for Credit Losses for Loans by Impairment Methodology
| | | Allowance for credit losses | | | Recorded investment in loans | | Allowance for credit losses for loans | | | Recorded investment in loans | |
(in millions) | Commercial |
| | Consumer |
| | Total |
| | Commercial |
| | Consumer |
| | Total |
| Commercial |
| | Consumer |
| | Total |
| | Commercial |
| | Consumer |
| | Total |
|
June 30, 2019 | | | | | | | | | | | | |
December 31, 2019 | | |
Collectively evaluated (1) | $ | 5,831 |
| | 3,436 |
| | 9,267 |
| | 508,798 |
| | 425,818 |
| | 934,616 |
| $ | 5,778 |
| | 3,364 |
| | 9,142 |
| | 512,586 |
| | 436,081 |
| | 948,667 |
|
Individually evaluated (2) | 467 |
| | 869 |
| | 1,336 |
| | 3,447 |
| | 10,641 |
| | 14,088 |
| 467 |
| | 847 |
| | 1,314 |
| | 3,133 |
| | 9,897 |
| | 13,030 |
|
PCI (3) | — |
| | — |
| | — |
| | — |
| | 1,174 |
| | 1,174 |
| — |
| | — |
| | — |
| | — |
| | 568 |
| | 568 |
|
Total | $ | 6,298 |
| | 4,305 |
| | 10,603 |
| | 512,245 |
| | 437,633 |
| | 949,878 |
| $ | 6,245 |
| | 4,211 |
| | 10,456 |
| | 515,719 |
| | 446,546 |
| | 962,265 |
|
December 31, 2018 | | |
Collectively evaluated (1) | $ | 5,903 |
| | 3,361 |
| | 9,264 |
| | 510,180 |
| | 421,574 |
| | 931,754 |
| |
Individually evaluated (2) | 514 |
| | 929 |
| | 1,443 |
| | 3,221 |
| | 13,126 |
| | 16,347 |
| |
PCI (3) | — |
| | — |
| | — |
| | 4 |
| | 5,005 |
| | 5,009 |
| |
Total | $ | 6,417 |
| | 4,290 |
| | 10,707 |
| | 513,405 |
| | 439,705 |
| | 953,110 |
| |
| |
(1) | Represents non-impaired loans evaluated collectively evaluated for impairment in accordance with Accounting Standards Codification (ASC) 450-20, Loss Contingencies, and pursuant to amendments by ASU 2010-20 regarding allowance for non-impaired loans. impairment. |
| |
(2) | Represents impaired loans evaluated individually evaluated for impairment in accordance with ASC 310-10, Receivables, and pursuant to amendments by ASU 2010-20 regarding allowance for impaired loans. impairment. |
| |
(3) | Represents the allowance for loan losses and related loan carrying value determined in accordance with ASC 310-30, Receivables – Loans and Debt Securities Acquired with Deteriorated Credit Quality 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 MarchDecember 31, 2019.
Amounts disclosed in the credit quality tables that follow are not comparative between reported periods due to our adoption of CECL on January 1, 2020. For more information, see Note 1 (Summary of Significant Accounting Policies).
COMMERCIAL CREDIT QUALITY INDICATORS In addition to monitoring commercial loan concentration risk, weWe 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.ratings, which is our primary credit quality indicator. Our ratings are aligned to Passfederal banking regulators’ definitions of pass and Criticizedcriticized categories with the criticized category including special mention, substandard, doubtful, and loss categories. The Criticized category includes Special Mention, Substandard, and Doubtful categories which are defined by bank regulatory
agencies.
Table 6.8 provides a breakdown of outstanding commercial loans by risk category. Criticized commercialIn connection with our adoption of CECL, credit quality information is provided with the year of origination for term loans. Revolving loans at June 30, 2019, included $2.5 billion on nonaccrual status that have been written downmay convert to net realizable value. For additional information on nonaccrualterm loans see Table 6.13.as a result of a contractual provision in the original loan agreement or if modified in a TDR.
Table 6.8: Commercial Loans Categories by Risk CategoryCategories and Vintage(1)
| | | | | | | | | | | | | | Term loans by origination year | | Revolving loans |
| | Revolving loans converted to term loans |
| | Total |
|
(in millions) | Commercial and industrial |
| | Real estate mortgage |
| | Real estate construction |
| | Lease financing |
| | Total |
| 2020 |
| | 2019 |
| | 2018 |
| | 2017 |
| | 2016 |
| | Prior |
| |
June 30, 2019 | | | | | | | | | | |
March 31, 2020 | | | | | | | | | | | | | | | | | | |
Commercial and industrial | | | | | | | | | | | | | | | | | | |
Pass | | $ | 32,531 |
| | 53,904 |
| | 23,788 |
| | 11,603 |
| | 7,815 |
| | 5,061 |
| | 250,893 |
| | 209 |
| | 385,804 |
|
Criticized | | 885 |
| | 1,053 |
| | 948 |
| | 721 |
| | 433 |
| | 458 |
| | 14,718 |
| | — |
| | 19,216 |
|
Total commercial and industrial | | 33,416 |
| | 54,957 |
| | 24,736 |
| | 12,324 |
| | 8,248 |
| | 5,519 |
| | 265,611 |
| | 209 |
| | 405,020 |
|
Real estate mortgage | | | | | | | | | | | | | | | | | | |
Pass | | 7,336 |
| | 31,320 |
| | 23,268 |
| | 14,577 |
| | 15,376 |
| | 21,087 |
| | 5,563 |
| | 128 |
| | 118,655 |
|
Criticized | | 60 |
| | 452 |
| | 515 |
| | 741 |
| | 546 |
| | 1,525 |
| | 273 |
| | — |
| | 4,112 |
|
Total real estate mortgage | | 7,396 |
| | 31,772 |
| | 23,783 |
| | 15,318 |
| | 15,922 |
| | 22,612 |
| | 5,836 |
| | 128 |
| | 122,767 |
|
Real estate construction | | | | | | | | | | | | | | | | | | |
Pass | | 1,293 |
| | 7,226 |
| | 5,528 |
| | 3,024 |
| | 1,290 |
| | 472 |
| | 1,750 |
| | 7 |
| | 20,590 |
|
Criticized | | 2 |
| | 98 |
| | 93 |
| | 6 |
| | 8 |
| | 14 |
| | 1 |
| | — |
| | 222 |
|
Total real estate construction | | 1,295 |
| | 7,324 |
| | 5,621 |
| | 3,030 |
| | 1,298 |
| | 486 |
| | 1,751 |
| | 7 |
| | 20,812 |
|
Lease financing | | | | | | | | | | | | | | | | | | |
Pass | | 1,439 |
| | 5,566 |
| | 3,769 |
| | 2,447 |
| | 1,844 |
| | 2,739 |
| | — |
| | — |
| | 17,804 |
|
Criticized | | 83 |
| | 422 |
| | 365 |
| | 196 |
| | 139 |
| | 127 |
| | — |
| | — |
| | 1,332 |
|
Total lease financing | | 1,522 |
| | 5,988 |
| | 4,134 |
| | 2,643 |
| | 1,983 |
| | 2,866 |
| | — |
| | — |
| | 19,136 |
|
Total commercial loans | | $ | 43,629 |
| | 100,041 |
| | 58,274 |
| | 33,315 |
| | 27,451 |
| | 31,483 |
| | 273,198 |
| | 344 |
| | 567,735 |
|
| | | | | | | | | | Commercial and industrial |
| | Real estate mortgage |
| | Real estate construction |
| | Lease financing |
| | Total |
|
December 31, 2019 | | | | | | | | | | | | | | | | | | |
By risk category: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | $ | 334,034 |
| | 118,768 |
| | 20,883 |
| | 18,225 |
| | 491,910 |
| | | | | | | | | $ | 338,740 |
| | 118,054 |
| | 19,752 |
| | 18,655 |
| | 495,201 |
|
Criticized | 14,812 |
| | 4,240 |
| | 184 |
| | 1,099 |
| | 20,335 |
| | | | | | | | | 15,385 |
| | 3,770 |
| | 187 |
| | 1,176 |
| | 20,518 |
|
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 |
| | | | | | | | | $ | 354,125 |
| | 121,824 |
| | 19,939 |
| | 19,831 |
| | 515,719 |
|
December 31, 2018 | | | | | | | | | | |
By risk category: | | | | | | | | | | |
Pass | $ | 335,412 |
| | 116,514 |
| | 22,207 |
| | 18,671 |
| | 492,804 |
| |
Criticized | 14,783 |
| | 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 |
| |
| |
(1) | Disclosure is not comparative due to our adoption of CECL on January 1, 2020. For more information, see Note 1 (Summary of Significant Accounting Policies). |
Note 6: Loans and Related Allowance for Credit Losses (continued)
Table 6.9 provides past due information for commercial loans, which we monitor as part of our credit risk management practices.
practices; however, delinquency is not a primary credit quality indicator for commercial loans.
Table 6.9: Commercial LoansLoan Categories by Delinquency Status
| | (in millions) | Commercial and industrial |
| | Real estate mortgage |
| | Real estate construction |
| | Lease financing |
| | Total |
| Commercial and industrial |
| | Real estate mortgage |
| | Real estate construction |
| | Lease financing |
| | Total |
|
June 30, 2019 | | | | | | | | | | |
March 31, 2020 | | | | | | | | | | |
By delinquency status: | | | | | | | | | | | | | | | | | | |
Current-29 days past due (DPD) and still accruing | $ | 346,688 |
| | 122,101 |
| | 20,854 |
| | 19,101 |
| | 508,744 |
| $ | 402,706 |
| | 121,621 |
| | 20,696 |
| | 18,793 |
| | 563,816 |
|
30-89 DPD and still accruing | 507 |
| | 146 |
| | 177 |
| | 160 |
| | 990 |
| 511 |
| | 174 |
| | 94 |
| | 212 |
| | 991 |
|
90+ DPD and still accruing | 17 |
| | 24 |
| | — |
| | — |
| | 41 |
| 24 |
| | 28 |
| | 1 |
| | — |
| | 53 |
|
Nonaccrual loans | 1,634 |
| | 737 |
| | 36 |
| | 63 |
| | 2,470 |
| 1,779 |
| | 944 |
| | 21 |
| | 131 |
| | 2,875 |
|
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 |
| $ | 405,020 |
| | 122,767 |
| | 20,812 |
| | 19,136 |
| | 567,735 |
|
December 31, 2018 | | | | | | | | | | |
December 31, 2019 | | | | | | | | | | |
By delinquency status: | | | | | | | | | | | | | | | | | | |
Current-29 DPD and still accruing | $ | 348,158 |
| | 120,176 |
| | 22,411 |
| | 19,443 |
| | 510,188 |
| $ | 352,110 |
| | 120,967 |
| | 19,845 |
| | 19,484 |
| | 512,406 |
|
30-89 DPD and still accruing | 508 |
| | 207 |
| | 53 |
| | 163 |
| | 931 |
| 423 |
| | 253 |
| | 53 |
| | 252 |
| | 981 |
|
90+ DPD and still accruing | 43 |
| | 51 |
| | — |
| | — |
| | 94 |
| 47 |
| | 31 |
| | — |
| | — |
| | 78 |
|
Nonaccrual loans | 1,486 |
| | 580 |
| | 32 |
| | 90 |
| | 2,188 |
| 1,545 |
| | 573 |
| | 41 |
| | 95 |
| | 2,254 |
|
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 |
| $ | 354,125 |
| | 121,824 |
| | 19,939 |
| | 19,831 |
| | 515,719 |
|
Note 6: Loans and Allowance for Credit Losses (continued)
CONSUMER CREDIT QUALITY INDICATORS We have various classes of consumer loans that present unique credit risks. Loan delinquency, FICO credit scores and LTV for loan types1-4 family mortgage loans are commonthe primary 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.
In connection with our adoption of CECL, credit quality information is provided with the year of origination for term loans. Revolving loans may convert to term loans as a result of a contractual provision in the original loan agreement or if modified in a TDR. The revolving loans converted to term loans in the credit card loan category represent credit card loans with modified terms that require payment over a specific term.
Table 6.10: Consumer LoansLoan Categories by Delinquency Status and Vintage (1)
| | | | | | | | | | | | | | | Term loans by origination year | | Revolving loans |
| | Revolving loans converted to term loans |
| | |
(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 |
| 2020 |
| | 2019 |
| | 2018 |
| | 2017 |
| | 2016 |
| | Prior |
| | | Total |
|
June 30, 2019 | | | | | | | | | | | | |
March 31, 2020 | | | | | | | | | | | | | | | | | | |
Real estate 1-4 family first mortgage | | | | | | | | | | | | | | | | | | |
By delinquency status: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Current-29 DPD | 271,144 |
| | 31,374 |
| | 37,925 |
| | 44,554 |
| | 34,383 |
| | 419,380 |
| $ | 14,238 |
| | 59,044 |
| | 25,047 |
| | 36,185 |
| | 41,121 |
| | 93,490 |
| | 7,981 |
| | 2,020 |
| | 279,126 |
|
30-59 DPD | 1,311 |
| | 250 |
| | 258 |
| | 808 |
| | 97 |
| | 2,724 |
| 14 |
| | 65 |
| | 30 |
| | 39 |
| | 64 |
| | 1,184 |
| | 38 |
| | 57 |
| | 1,491 |
|
60-89 DPD | 436 |
| | 115 |
| | 188 |
| | 232 |
| | 70 |
| | 1,041 |
| 2 |
| | 3 |
| | 6 |
| | 5 |
| | 8 |
| | 370 |
| | 20 |
| | 27 |
| | 441 |
|
90-119 DPD | 196 |
| | 63 |
| | 152 |
| | 69 |
| | 68 |
| | 548 |
| — |
| | — |
| | 3 |
| | — |
| | 6 |
| | 190 |
| | 8 |
| | 17 |
| | 224 |
|
120-179 DPD | 177 |
| | 70 |
| | 297 |
| | 1 |
| | 22 |
| | 567 |
| — |
| | — |
| | 1 |
| | 4 |
| | 7 |
| | 142 |
| | 11 |
| | 22 |
| | 187 |
|
180+ DPD | 630 |
| | 181 |
| | — |
| | — |
| | 14 |
| | 825 |
| — |
| | — |
| | 4 |
| | 7 |
| | 5 |
| | 466 |
| | 5 |
| | 125 |
| | 612 |
|
Government insured/guaranteed loans (1) | 11,172 |
| | — |
| | — |
| | — |
| | — |
| | 11,172 |
| |
Government insured/guaranteed loans (2) | | 2 |
| | 32 |
| | 150 |
| | 271 |
| | 498 |
| | 9,726 |
| | — |
| | — |
| | 10,679 |
|
Loans held at fair value | 202 |
| | — |
| | — |
| | — |
| | — |
| | 202 |
| — |
| | — |
| | — |
| | — |
| | — |
| | 160 |
| | — |
| | — |
| | 160 |
|
Total consumer loans (excluding PCI) | 285,268 |
| | 32,053 |
| | 38,820 |
| | 45,664 |
| | 34,654 |
| | 436,459 |
| |
Total consumer PCI loans (carrying value) (2) | 1,159 |
| | 15 |
| | — |
| | — |
| | — |
| | 1,174 |
| |
Total consumer loans | 286,427 |
| | 32,068 |
| | 38,820 |
| | 45,664 |
| | 34,654 |
| | 437,633 |
| |
December 31, 2018 | | | | | | | | | | | | |
Total real estate 1-4 family first mortgage | | 14,256 |
| | 59,144 |
| | 25,241 |
| | 36,511 |
| | 41,709 |
| | 105,728 |
| | 8,063 |
| | 2,268 |
| | 292,920 |
|
Real estate 1-4 family junior mortgage | | | | | | | | | | | | | | | | | | |
By delinquency status: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Current-29 DPD | 263,881 |
| | 33,644 |
| | 38,008 |
| | 43,604 |
| | 35,794 |
| | 414,931 |
| 8 |
| | 44 |
| | 51 |
| | 48 |
| | 39 |
| | 1,491 |
| | 19,178 |
| | 7,058 |
| | 27,917 |
|
30-59 DPD | 1,411 |
| | 247 |
| | 292 |
| | 1,040 |
| | 140 |
| | 3,130 |
| — |
| | — |
| | — |
| | — |
| | — |
| | 34 |
| | 76 |
| | 119 |
| | 229 |
|
60-89 DPD | 549 |
| | 126 |
| | 212 |
| | 314 |
| | 87 |
| | 1,288 |
| — |
| | — |
| | — |
| | 1 |
| | 1 |
| | 15 |
| | 28 |
| | 58 |
| | 103 |
|
90-119 DPD | 257 |
| | 74 |
| | 192 |
| | 109 |
| | 80 |
| | 712 |
| — |
| | — |
| | — |
| | — |
| | — |
| | 8 |
| | 19 |
| | 32 |
| | 59 |
|
120-179 DPD | 225 |
| | 77 |
| | 320 |
| | 2 |
| | 27 |
| | 651 |
| — |
| | — |
| | — |
| | — |
| | — |
| | 6 |
| | 17 |
| | 44 |
| | 67 |
|
180+ DPD | 822 |
| | 213 |
| | 1 |
| | — |
| | 20 |
| | 1,056 |
| — |
| | — |
| | — |
| | — |
| | 1 |
| | 16 |
| | 10 |
| | 125 |
| | 152 |
|
Government insured/guaranteed loans (1) | 12,688 |
| | — |
| | — |
| | — |
| | — |
| | 12,688 |
| |
Loans held at fair value | 244 |
| | — |
| | — |
| | — |
| | — |
| | 244 |
| |
Total consumer loans (excluding PCI) | 280,077 |
| | 34,381 |
| | 39,025 |
| | 45,069 |
| | 36,148 |
| | 434,700 |
| |
Total consumer PCI loans (carrying value) (2) | 4,988 |
| | 17 |
| | — |
| | — |
| | — |
| | 5,005 |
| |
Total real estate 1-4 family junior mortgage | | 8 |
| | 44 |
| | 51 |
| | 49 |
| | 41 |
| | 1,570 |
| | 19,328 |
| | 7,436 |
| | 28,527 |
|
Credit cards | | | | | | | | | | | | | | | | | | |
By delinquency status: | | | | | | | | | | | | | | | | | | |
Current-29 DPD | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 37,320 |
| | 259 |
| | 37,579 |
|
30-59 DPD | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 260 |
| | 18 |
| | 278 |
|
60-89 DPD | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 184 |
| | 13 |
| | 197 |
|
90-119 DPD | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 167 |
| | 14 |
| | 181 |
|
120-179 DPD | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 335 |
| | 10 |
| | 345 |
|
180+ DPD | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2 |
| | — |
| | 2 |
|
Total credit cards | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 38,268 |
| | 314 |
| | 38,582 |
|
Automobile | | | | | | | | | | | | | | | | | | |
By delinquency status: | | | | | | | | | | | | | | | | | | |
Current-29 DPD | | 6,334 |
| | 19,682 |
| | 9,085 |
| | 5,509 |
| | 4,857 |
| | 2,145 |
| | — |
| | — |
| | 47,612 |
|
30-59 DPD | | 8 |
| | 158 |
| | 134 |
| | 111 |
| | 168 |
| | 104 |
| | — |
| | — |
| | 683 |
|
60-89 DPD | | — |
| | 49 |
| | 40 |
| | 32 |
| | 53 |
| | 34 |
| | — |
| | — |
| | 208 |
|
90-119 DPD | | — |
| | 18 |
| | 13 |
| | 9 |
| | 15 |
| | 10 |
| | — |
| | — |
| | 65 |
|
120-179 DPD | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
180+ DPD | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total automobile | | 6,342 |
| | 19,907 |
| | 9,272 |
| | 5,661 |
| | 5,093 |
| | 2,293 |
| | — |
| | — |
| | 48,568 |
|
Other revolving credit and installment | | | | | | | | | | | | | | | | | | |
By delinquency status: | | | | | | | | | | | | | | | | | | |
Current-29 DPD | | 948 |
| | 3,580 |
| | 2,207 |
| | 1,468 |
| | 1,298 |
| | 5,751 |
| | 17,766 |
| | 202 |
| | 33,220 |
|
30-59 DPD | | 1 |
| | 9 |
| | 10 |
| | 12 |
| | 9 |
| | 66 |
| | 19 |
| | 7 |
| | 133 |
|
60-89 DPD | | — |
| | 5 |
| | 6 |
| | 5 |
| | 5 |
| | 32 |
| | 9 |
| | 4 |
| | 66 |
|
90-119 DPD | | — |
| | 4 |
| | 6 |
| | 6 |
| | 6 |
| | 31 |
| | 9 |
| | 3 |
| | 65 |
|
120-179 DPD | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 15 |
| | 2 |
| | 17 |
|
180+ DPD | | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| | 2 |
| | 7 |
| | 10 |
|
Total other revolving credit and installment | | 949 |
| | 3,598 |
| | 2,229 |
| | 1,491 |
| | 1,318 |
| | 5,881 |
| | 17,820 |
| | 225 |
| | 33,511 |
|
Total consumer loans | 285,065 |
| | 34,398 |
| | 39,025 |
| | 45,069 |
| | 36,148 |
| | 439,705 |
| $ | 21,555 |
| | 82,693 |
| | 36,793 |
| | 43,712 |
| | 48,161 |
| | 115,472 |
| | 83,479 |
| | 10,243 |
| | 442,108 |
|
(continued on following page)
Note 6: Loans and Related Allowance for Credit Losses (continued)
(continued from previous page)
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Real estate 1-4 family first mortgage |
| | Real estate 1-4 family junior lien mortgage |
| | Credit card |
| | Automobile |
| | Other revolving credit and installment |
| | Total |
|
December 31, 2019 | | | | | | | | | | | | | | | | | |
By delinquency status: | | | | | | | | | | | | | | | | | |
Current-29 DPD | | | | | | | $ | 279,722 |
| | 28,870 |
| | 39,935 |
| | 46,650 |
| | 33,981 |
| | 429,158 |
|
30-59 DPD | | | | | | | 1,136 |
| | 216 |
| | 311 |
| | 882 |
| | 140 |
| | 2,685 |
|
60-89 DPD | | | | | | | 404 |
| | 115 |
| | 221 |
| | 263 |
| | 81 |
| | 1,084 |
|
90-119 DPD | | | | | | | 197 |
| | 69 |
| | 202 |
| | 77 |
| | 74 |
| | 619 |
|
120-179 DPD | | | | | | | 160 |
| | 71 |
| | 343 |
| | 1 |
| | 18 |
| | 593 |
|
180+ DPD | | | | | | | 503 |
| | 155 |
| | 1 |
| | — |
| | 10 |
| | 669 |
|
Government insured/guaranteed loans (2) | | | | | | | 10,999 |
| | — |
| | — |
| | — |
| | — |
| | 10,999 |
|
Loans held at fair value | | | | | | | 171 |
| | — |
| | — |
| | — |
| | — |
| | 171 |
|
Total consumer loans (excluding PCI) | | | | | | | 293,292 |
| | 29,496 |
| | 41,013 |
| | 47,873 |
| | 34,304 |
| | 445,978 |
|
Total consumer PCI loans (carrying value) (3) | | | | | | | 555 |
| | 13 |
| | — |
| | — |
| | — |
| | 568 |
|
Total consumer loans | | | | | | | $ | 293,847 |
| | 29,509 |
| | 41,013 |
| | 47,873 |
| | 34,304 |
| | 446,546 |
|
| |
(1) | Disclosure is not comparative due to our adoption of CECL on January 1, 2020. For more information, see Note 1 (Summary of Significant Accounting Policies). |
| |
(2) | Represents loans whose repayments are predominantly insured by the FHAFederal Housing Administration (FHA) or guaranteed by the VA.Department of Veterans Affairs (VA). Loans insured/guaranteed by the FHA/VA and 90+ DPD totaled $6.5$6.1 billion at June 30, 2019,March 31, 2020, compared with $7.7$6.4 billion at December 31, 2018.2019. |
| |
(2)(3) | 23%26% of the adjusted unpaid principal balance for consumer PCI loans arewas 30+ DPD at June 30, 2019, compared with 18% at December 31, 2018.2019. |
Of the $1.9$2.0 billion of consumer loans not government insured/guaranteed that are 90 days or more past due at June 30, 2019, $739March 31, 2020, $828 million was accruing, compared with $2.4$1.9 billion past due and $885$855 million accruing at December 31, 2018.2019.
Real estate 1-4 family first mortgage loans 180 days or more past due totaled $630 million, or 0.2% of total first mortgages (excluding PCI), at June 30, 2019, compared with $822 million, or 0.3%, at December 31, 2018.
Table 6.11 provides a breakdown of our consumer portfolio by FICO. Substantially allof the scored consumer portfolio has an updated FICO of 680 and above, reflecting a strong current borrower credit profile. FICO is not available for certain loan types, or may not be required if we deem it unnecessary due to
strong collateral and other borrower attributes. Loans not requiring a FICO score totaled $8.9 billion and $9.1 billion at March 31, 2020 and December 31, 2019, respectively. Substantially all loans not requiring a FICO score are securities-based loans originated through retail brokerage, and totaled $8.6 billion at June 30, 2019, and $8.9 billion at December 31, 2018.brokerage.
Table 6.11: Consumer LoansLoan Categories by FICO and Vintage(1)
| | | | | | | | | | | | | | | Term loans by origination year | | Revolving loans |
| | Revolving loans converted to term loans |
| | |
(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 |
| 2020 |
| | 2019 |
| | 2018 |
| | 2017 |
| | 2016 |
| | Prior |
| | | Total |
|
June 30, 2019 | | | | | | | | | | | | |
March 31, 2020 | | | | | | | | | | | | | | | | | | |
By FICO: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Real estate 1-4 family first mortgage | | | | | | | | | | | | | | | | | | |
< 600 | | $ | 2 |
| | 27 |
| | 43 |
| | 60 |
| | 92 |
| | 2,643 |
| | 209 |
| | 229 |
| | 3,305 |
|
600-639 | | 10 |
| | 105 |
| | 67 |
| | 68 |
| | 128 |
| | 1,663 |
| | 148 |
| | 115 |
| | 2,304 |
|
640-679 | | 80 |
| | 481 |
| | 297 |
| | 311 |
| | 368 |
| | 3,075 |
| | 298 |
| | 171 |
| | 5,081 |
|
680-719 | | 458 |
| | 1,870 |
| | 905 |
| | 1,181 |
| | 1,301 |
| | 5,847 |
| | 665 |
| | 264 |
| | 12,491 |
|
720-759 | | 1,896 |
| | 6,104 |
| | 2,198 |
| | 2,901 |
| | 3,147 |
| | 9,491 |
| | 1,024 |
| | 291 |
| | 27,052 |
|
760-799 | | 6,242 |
| | 16,885 |
| | 5,542 |
| | 7,135 |
| | 7,458 |
| | 15,595 |
| | 1,609 |
| | 298 |
| | 60,764 |
|
800+ | | 5,522 |
| | 33,344 |
| | 15,917 |
| | 24,461 |
| | 28,544 |
| | 55,278 |
| | 3,824 |
| | 512 |
| | 167,402 |
|
No FICO available | | 45 |
| | 296 |
| | 122 |
| | 123 |
| | 173 |
| | 2,249 |
| | 286 |
| | 388 |
| | 3,682 |
|
Government insured/guaranteed loans (2) | | 1 |
| | 32 |
| | 150 |
| | 271 |
| | 498 |
| | 9,887 |
| | — |
| | — |
| | 10,839 |
|
Total real estate 1-4 family first mortgage | | 14,256 |
| | 59,144 |
| | 25,241 |
| | 36,511 |
| | 41,709 |
| | 105,728 |
| | 8,063 |
| | 2,268 |
| | 292,920 |
|
Real estate 1-4 family junior lien mortgage | | | | | | | | | | | | | | | | | | |
< 600 | | — |
| | — |
| | — |
| | — |
| | — |
| | 133 |
| | 370 |
| | 611 |
| | 1,114 |
|
600-639 | | — |
| | — |
| | — |
| | — |
| | — |
| | 82 |
| | 310 |
| | 361 |
| | 753 |
|
640-679 | | — |
| | — |
| | — |
| | — |
| | — |
| | 134 |
| | 686 |
| | 610 |
| | 1,430 |
|
680-719 | | — |
| | — |
| | — |
| | — |
| | — |
| | 250 |
| | 1,697 |
| | 1,102 |
| | 3,049 |
|
720-759 | | — |
| | — |
| | — |
| | — |
| | — |
| | 274 |
| | 2,751 |
| | 1,243 |
| | 4,268 |
|
760-799 | | — |
| | — |
| | — |
| | — |
| | — |
| | 228 |
| | 3,785 |
| | 1,198 |
| | 5,211 |
|
800+ | | — |
| | — |
| | — |
| | — |
| | — |
| | 359 |
| | 9,220 |
| | 2,009 |
| | 11,588 |
|
No FICO available | | 8 |
| | 44 |
| | 51 |
| | 49 |
| | 41 |
| | 110 |
| | 509 |
| | 302 |
| | 1,114 |
|
Total real estate 1-4 family junior lien mortgage | | 8 |
| | 44 |
| | 51 |
| | 49 |
| | 41 |
| | 1,570 |
| | 19,328 |
| | 7,436 |
| | 28,527 |
|
Credit Card | | | | | | | | | | | | | | | | | | |
< 600 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 3,117 |
| | 119 |
| | 3,236 |
|
600-639 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2,657 |
| | 49 |
| | 2,706 |
|
640-679 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 6,291 |
| | 61 |
| | 6,352 |
|
680-719 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 9,324 |
| | 53 |
| | 9,377 |
|
720-759 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 7,866 |
| | 24 |
| | 7,890 |
|
760-799 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 5,176 |
| | 6 |
| | 5,182 |
|
800+ | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 3,678 |
| | 1 |
| | 3,679 |
|
No FICO available | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 159 |
| | 1 |
| | 160 |
|
Total credit card | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 38,268 |
| | 314 |
| | 38,582 |
|
Automobile | | | | | | | | | | | | | | | | | | |
< 600 | | 419 |
| | 2,045 |
| | 1,163 |
| | 825 |
| | 1,082 |
| | 541 |
| | — |
| | — |
| | 6,075 |
|
600-639 | | 687 |
| | 1,849 |
| | 715 |
| | 425 |
| | 453 |
| | 216 |
| | — |
| | — |
| | 4,345 |
|
640-679 | | 1,031 |
| | 2,830 |
| | 1,168 |
| | 644 |
| | 596 |
| | 262 |
| | — |
| | — |
| | 6,531 |
|
680-719 | | 1,104 |
| | 3,383 |
| | 1,549 |
| | 885 |
| | 749 |
| | 318 |
| | — |
| | — |
| | 7,988 |
|
720-759 | | 1,045 |
| | 3,334 |
| | 1,554 |
| | 911 |
| | 723 |
| | 312 |
| | — |
| | — |
| | 7,879 |
|
760-799 | | 991 |
| | 3,335 |
| | 1,533 |
| | 890 |
| | 652 |
| | 270 |
| | — |
| | — |
| | 7,671 |
|
800+ | | 1,065 |
| | 3,112 |
| | 1,580 |
| | 1,064 |
| | 808 |
| | 349 |
| | — |
| | — |
| | 7,978 |
|
No FICO available | | — |
| | 19 |
| | 10 |
| | 17 |
| | 30 |
| | 25 |
| | — |
| | — |
| | 101 |
|
Total automobile | | 6,342 |
| | 19,907 |
| | 9,272 |
| | 5,661 |
| | 5,093 |
| | 2,293 |
| | — |
| | — |
| | 48,568 |
|
Other revolving credit and installment | | | | | | | | | | | | | | | | | | |
< 600 | 3,539 |
| | 1,297 |
| | 3,064 |
| | 6,442 |
| | 707 |
| | 15,049 |
| 3 |
| | 49 |
| | 65 |
| | 50 |
| | 47 |
| | 204 |
| | 219 |
| | 27 |
| | 664 |
|
600-639 | 2,559 |
| | 897 |
| | 2,670 |
| | 4,498 |
| | 677 |
| | 11,301 |
| 12 |
| | 66 |
| | 59 |
| | 40 |
| | 41 |
| | 198 |
| | 188 |
| | 15 |
| | 619 |
|
640-679 | 5,276 |
| | 1,720 |
| | 6,313 |
| | 6,386 |
| | 1,757 |
| | 21,452 |
| 51 |
| | 226 |
| | 169 |
| | 105 |
| | 96 |
| | 410 |
| | 525 |
| | 23 |
| | 1,605 |
|
680-719 | 12,898 |
| | 3,620 |
| | 9,415 |
| | 7,475 |
| | 3,283 |
| | 36,691 |
| 124 |
| | 472 |
| | 310 |
| | 195 |
| | 172 |
| | 719 |
| | 1,005 |
| | 29 |
| | 3,026 |
|
720-759 | 27,807 |
| | 4,947 |
| | 8,022 |
| | 7,051 |
| | 4,164 |
| | 51,991 |
| 191 |
| | 683 |
| | 399 |
| | 248 |
| | 226 |
| | 969 |
| | 1,169 |
| | 28 |
| | 3,913 |
|
760-799 | 61,007 |
| | 6,001 |
| | 5,323 |
| | 6,240 |
| | 4,999 |
| | 83,570 |
| 249 |
| | 857 |
| | 445 |
| | 288 |
| | 265 |
| | 1,179 |
| | 1,524 |
| | 18 |
| | 4,825 |
|
800+ | 157,049 |
| | 12,346 |
| | 3,879 |
| | 7,464 |
| | 8,011 |
| | 188,749 |
| 274 |
| | 1,024 |
| | 621 |
| | 452 |
| | 453 |
| | 2,118 |
| | 2,690 |
| | 44 |
| | 7,676 |
|
No FICO available | 3,759 |
| | 1,225 |
| | 134 |
| | 108 |
| | 2,434 |
| | 7,660 |
| 45 |
| | 221 |
| | 161 |
| | 113 |
| | 18 |
| | 84 |
| | 1,564 |
| | 41 |
| | 2,247 |
|
FICO not required | — |
| | — |
| | — |
| | — |
| | 8,622 |
| | 8,622 |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 8,936 |
| | — |
| | 8,936 |
|
Government insured/guaranteed loans (1) | 11,374 |
| | — |
| | — |
| | — |
| | — |
| | 11,374 |
| |
Total consumer loans (excluding PCI) | 285,268 |
| | 32,053 |
| | 38,820 |
| | 45,664 |
| | 34,654 |
| | 436,459 |
| |
Total consumer PCI loans (carrying value) (2) | 1,159 |
| | 15 |
| | — |
| | — |
| | — |
| | 1,174 |
| |
Total other revolving credit and installment | | 949 |
| | 3,598 |
| | 2,229 |
| | 1,491 |
| | 1,318 |
| | 5,881 |
| | 17,820 |
| | 225 |
| | 33,511 |
|
Total consumer loans | 286,427 |
| | 32,068 |
| | 38,820 |
| | 45,664 |
| | 34,654 |
| | 437,633 |
| $ | 21,555 |
| | 82,693 |
| | 36,793 |
| | 43,712 |
| | 48,161 |
| | 115,472 |
| | 83,479 |
| | 10,243 |
| | 442,108 |
|
December 31, 2018 | | | | | | | | | | |
|
| |
By FICO: | | | | | | | | | | |
| |
< 600 | 4,273 |
| | 1,454 |
| | 3,292 |
| | 7,071 |
| | 697 |
| | 16,787 |
| |
600-639 | 2,974 |
| | 994 |
| | 2,777 |
| | 4,431 |
| | 725 |
| | 11,901 |
| |
640-679 | 5,810 |
| | 1,898 |
| | 6,464 |
| | 6,225 |
| | 1,822 |
| | 22,219 |
| |
680-719 | 13,568 |
| | 3,908 |
| | 9,445 |
| | 7,354 |
| | 3,384 |
| | 37,659 |
| |
720-759 | 27,258 |
| | 5,323 |
| | 7,949 |
| | 6,853 |
| | 4,395 |
| | 51,778 |
| |
760-799 | 57,193 |
| | 6,315 |
| | 5,227 |
| | 5,947 |
| | 5,322 |
| | 80,004 |
| |
800+ | 151,465 |
| | 13,190 |
| | 3,794 |
| | 7,099 |
| | 8,411 |
| | 183,959 |
| |
No FICO available | 4,604 |
| | 1,299 |
| | 77 |
| | 89 |
| | 2,507 |
| | 8,576 |
| |
FICO not required | — |
| | — |
| | — |
| | — |
| | 8,885 |
| | 8,885 |
| |
Government insured/guaranteed loans (1) | 12,932 |
| | — |
| | — |
| | — |
| | — |
| | 12,932 |
| |
Total consumer loans (excluding PCI) | 280,077 |
| | 34,381 |
| | 39,025 |
| | 45,069 |
| | 36,148 |
| | 434,700 |
| |
Total consumer PCI loans (carrying value) (2) | 4,988 |
| | 17 |
| | — |
| | — |
| | — |
| | 5,005 |
| |
Total consumer loans | 285,065 |
| | 34,398 |
| | 39,025 |
| | 45,069 |
| | 36,148 |
| | 439,705 |
| |
(continued on next page)
Note 6: Loans and Related Allowance for Credit Losses (continued)
(continued from prior page)
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Real estate 1-4 family first mortgage |
| | Real estate 1-4 family junior lien mortgage |
| | Credit card |
| | Automobile |
| | Other revolving credit and installment |
| | Total |
|
December 31, 2019 | | | | | | | | | | | | | | | | | |
By FICO: | | | | | | | | | | | | | | | | | |
< 600 | | | | | | | $ | 3,264 |
| | 1,164 |
| | 3,373 |
| | 6,041 |
| | 704 |
| | 14,546 |
|
600-639 | | | | | | | 2,392 |
| | 782 |
| | 2,853 |
| | 4,230 |
| | 670 |
| | 10,927 |
|
640-679 | | | | | | | 5,068 |
| | 1,499 |
| | 6,626 |
| | 6,324 |
| | 1,730 |
| | 21,247 |
|
680-719 | | | | | | | 12,844 |
| | 3,192 |
| | 9,732 |
| | 7,871 |
| | 3,212 |
| | 36,851 |
|
720-759 | | | | | | | 27,879 |
| | 4,407 |
| | 8,376 |
| | 7,839 |
| | 4,097 |
| | 52,598 |
|
760-799 | | | | | | | 61,559 |
| | 5,483 |
| | 5,648 |
| | 7,624 |
| | 4,915 |
| | 85,229 |
|
800+ | | | | | | | 165,460 |
| | 11,851 |
| | 4,037 |
| | 7,900 |
| | 7,585 |
| | 196,833 |
|
No FICO available | | | | | | | 3,656 |
| | 1,118 |
| | 368 |
| | 44 |
| | 2,316 |
| | 7,502 |
|
FICO not required | | | | | | | — |
| | — |
| | — |
| | — |
| | 9,075 |
| | 9,075 |
|
Government insured/guaranteed loans (2) | | | | | | | 11,170 |
| | — |
| | — |
| | — |
| | — |
| | 11,170 |
|
Total consumer loans (excluding PCI) | | | | | | | 293,292 |
| | 29,496 |
| | 41,013 |
| | 47,873 |
| | 34,304 |
| | 445,978 |
|
Total consumer PCI loans (carrying value) (3) | | | | | | | 555 |
| | 13 |
| | — |
| | — |
| | — |
| | 568 |
|
Total consumer loans | | | | | | | $ | 293,847 |
| | 29,509 |
| | 41,013 |
| | 47,873 |
| | 34,304 |
| | 446,546 |
|
| |
(1) | Disclosure is not comparative due to our adoption of CECL on January 1, 2020. For more information, see Note 1 (Summary of Significant Accounting Policies). |
| |
(2) | Represents loans whose repayments are predominantly insured by the FHA or guaranteed by the VA. |
| |
(2)(3) | 44%41% of the adjusted unpaid principal balance for consumer PCI loans havehad FICO scores less than 680 and 16%19% where no FICO iswas available to us at June 30, 2019, compared with 45% and 15%, respectively, at December 31, 2018.2019. |
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 LoansLoan Categories by LTV/CLTV and Vintage(1)
| | | June 30, 2019 | | | December 31, 2018 | | Term loans by origination year | | Revolving loans |
| | Revolving loans converted to term loans |
| | |
(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 |
| 2020 |
| | 2019 |
| | 2018 |
| | 2017 |
| | 2016 |
| | Prior |
| | Total |
|
March 31, 2020 | | | | | | | | | | | | | | | | | | |
Real estate 1-4 family first mortgage | | | | | | | | | | | | | | | | | | |
By LTV/CLTV: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
0-60% | $ | 145,884 |
| | 15,004 |
| | 160,888 |
| | 147,666 |
| | 15,753 |
| | 163,419 |
| $ | 4,143 |
| | 16,842 |
| | 8,032 |
| | 14,961 |
| | 22,878 |
| | 76,122 |
| | 5,503 |
| | 1,644 |
| | 150,125 |
|
60.01-80% | 110,919 |
| | 10,452 |
| | 121,371 |
| | 104,477 |
| | 11,183 |
| | 115,660 |
| 9,526 |
| | 34,239 |
| | 14,133 |
| | 19,674 |
| | 17,326 |
| | 17,228 |
| | 1,672 |
| | 401 |
| | 114,199 |
|
80.01-100% | 14,763 |
| | 4,387 |
| | 19,150 |
| | 12,372 |
| | 4,874 |
| | 17,246 |
| 544 |
| | 7,791 |
| | 2,714 |
| | 1,412 |
| | 814 |
| | 1,757 |
| | 585 |
| | 155 |
| | 15,772 |
|
100.01-120% (1) | 1,052 |
| | 1,350 |
| | 2,402 |
| | 1,211 |
| | 1,596 |
| | 2,807 |
| |
> 120% (1) | 412 |
| | 480 |
| | 892 |
| | 484 |
| | 578 |
| | 1,062 |
| |
100.01-120% (2) | | — |
| | 80 |
| | 96 |
| | 86 |
| | 72 |
| | 310 |
| | 169 |
| | 39 |
| | 852 |
|
> 120% (2) | | — |
| | 47 |
| | 29 |
| | 27 |
| | 29 |
| | 124 |
| | 71 |
| | 14 |
| | 341 |
|
No LTV/CLTV available | 864 |
| | 380 |
| | 1,244 |
| | 935 |
| | 397 |
| | 1,332 |
| 42 |
| | 113 |
| | 87 |
| | 80 |
| | 92 |
| | 300 |
| | 63 |
| | 15 |
| | 792 |
|
Government insured/guaranteed loans (2) | 11,374 |
| | — |
| | 11,374 |
| | 12,932 |
| | — |
| | 12,932 |
| |
Government insured/guaranteed loans (3) | | 1 |
| | 32 |
| | 150 |
| | 271 |
| | 498 |
| | 9,887 |
| | — |
| | — |
| | 10,839 |
|
Total real estate 1-4 family first mortgage | | 14,256 |
| | 59,144 |
| | 25,241 |
| | 36,511 |
| | 41,709 |
| | 105,728 |
| | 8,063 |
| | 2,268 |
| | 292,920 |
|
Real estate 1-4 family junior lien mortgage | | | | | | | | | | | | | | | | | | |
By LTV/CLTV: | | | | | | | | | | | | | | | | | | |
0-60% | | — |
| | — |
| | — |
| | — |
| | — |
| | 634 |
| | 9,526 |
| | 4,023 |
| | 14,183 |
|
60.01-80% | | — |
| | — |
| | — |
| | — |
| | — |
| | 450 |
| | 6,827 |
| | 2,055 |
| | 9,332 |
|
80.01-100% | | — |
| | — |
| | — |
| | — |
| | — |
| | 290 |
| | 2,165 |
| | 971 |
| | 3,426 |
|
100.01-120% (2) | | — |
| | — |
| | — |
| | — |
| | — |
| | 102 |
| | 566 |
| | 262 |
| | 930 |
|
> 120% (2) | | — |
| | — |
| | — |
| | — |
| | — |
| | 33 |
| | 216 |
| | 80 |
| | 329 |
|
No LTV/CLTV available | | 8 |
| | 44 |
| | 51 |
| | 49 |
| | 41 |
| | 61 |
| | 28 |
| | 45 |
| | 327 |
|
Total real estate 1-4 family junior lien mortgage | | 8 |
| | 44 |
| | 51 |
| | 49 |
| | 41 |
| | 1,570 |
| | 19,328 |
| | 7,436 |
| | 28,527 |
|
Total | | $ | 14,264 |
| | 59,188 |
| | 25,292 |
| | 36,560 |
| | 41,750 |
| | 107,298 |
| | 27,391 |
| | 9,704 |
| | 321,447 |
|
December 31, 2019 | | | | | | | | | | | | | | 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% | | | | | | | | | | | | | | $ | 151,478 |
| | 14,603 |
| | 166,081 |
|
60.01-80% | | | | | | | | | | | | | | 114,795 |
| | 9,663 |
| | 124,458 |
|
80.01-100% | | | | | | | | | | | | | | 13,867 |
| | 3,574 |
| | 17,441 |
|
100.01-120% (2) | | | | | | | | | | | | | | 860 |
| | 978 |
| | 1,838 |
|
> 120% (2) | | | | | | | | | | | | | | 338 |
| | 336 |
| | 674 |
|
No LTV/CLTV available | | | | | | | | | | | | | | 784 |
| | 342 |
| | 1,126 |
|
Government insured/guaranteed loans (3) | | | | | | | | | | | | | | 11,170 |
| | — |
| | 11,170 |
|
Total consumer loans (excluding PCI) | 285,268 |
| | 32,053 |
| | 317,321 |
| | 280,077 |
| | 34,381 |
| | 314,458 |
| | | | | | | | | | | | | 293,292 |
| | 29,496 |
| | 322,788 |
|
Total consumer PCI loans (carrying value) (3) | 1,159 |
| | 15 |
| | 1,174 |
| | 4,988 |
| | 17 |
| | 5,005 |
| |
Total consumer PCI loans (carrying value) (4) | | | | | | | | | | | | | | 555 |
| | 13 |
| | 568 |
|
Total consumer loans | $ | 286,427 |
| | 32,068 |
| | 318,495 |
| | 285,065 |
| | 34,398 |
| | 319,463 |
| | | | | | | | | | | | | $ | 293,847 |
| | 29,509 |
| | 323,356 |
|
| |
(1) | Disclosure is not comparative due to our adoption of CECL on January 1, 2020. For more information, see Note 1 (Summary of Significant Accounting Policies). |
| |
(2) | 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)(3) | Represents loans whose repayments are predominantly insured by the FHA or guaranteed by the VA. |
| |
(3)(4) | 12%9% 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, 2018.2019. |
Note 6: Loans and Related Allowance for Credit Losses (continued)
NONACCRUAL LOANS Table 6.13 provides loans on nonaccrual status. PCIIn connection with our adoption of CECL, nonaccrual loans are excludedmay have an allowance for credit losses or a negative allowance for credit losses from this table because they continue to earn interest from accretable yield, independentexpected recoveries of performance in accordance with their contractual terms.amounts previously written off.
Table 6.13: Nonaccrual Loans(1)
| | | | | | | | | Amortized cost | | |
(in millions) | Jun 30, 2019 |
| | Dec 31, 2018 |
| Nonaccrual loans |
| | Nonaccrual loans without related allowance for credit losses (2) |
| | Recognized interest income |
|
March 31, 2020 | | | | | | |
Commercial: | | | | | | |
Commercial and industrial | | $ | 1,779 |
| | 243 |
| | 16 |
|
Real estate mortgage | | 944 |
| | 194 |
| | 8 |
|
Real estate construction | | 21 |
| | 5 |
| | 4 |
|
Lease financing | | 131 |
| | 10 |
| | — |
|
Total commercial | | 2,875 |
| | 452 |
| | 28 |
|
Consumer: | | | | | | |
Real estate 1-4 family first mortgage | | 2,372 |
| | 1,382 |
| | 44 |
|
Real estate 1-4 family junior lien mortgage | | 769 |
| | 431 |
| | 16 |
|
Automobile | | 99 |
| | — |
| | 3 |
|
Other revolving credit and installment | | 41 |
| | — |
| | 1 |
|
Total consumer | | 3,281 |
| | 1,813 |
| | 64 |
|
Total nonaccrual loans | | $ | 6,156 |
| | 2,265 |
| | 92 |
|
December 31, 2019 | | | | | | |
Commercial: | | | | | | | | |
Commercial and industrial | $ | 1,634 |
| | 1,486 |
| $ | 1,545 |
| | | | |
Real estate mortgage | 737 |
| | 580 |
| 573 |
| | | | |
Real estate construction | 36 |
| | 32 |
| 41 |
| | | | |
Lease financing | 63 |
| | 90 |
| 95 |
| | | | |
Total commercial | 2,470 |
| | 2,188 |
| 2,254 |
| | | |
|
|
Consumer: | | | | | | | | |
Real estate 1-4 family first mortgage | 2,425 |
| | 3,183 |
| 2,150 |
| | | | |
Real estate 1-4 family junior lien mortgage | 868 |
| | 945 |
| 796 |
| | | | |
Automobile | 115 |
| | 130 |
| 106 |
| | | | |
Other revolving credit and installment | 44 |
| | 50 |
| 40 |
| | | | |
Total consumer | 3,452 |
| | 4,308 |
| 3,092 |
| | | |
|
|
Total nonaccrual loans (excluding PCI) | $ | 5,922 |
| | 6,496 |
| $ | 5,346 |
| | | |
|
|
| |
(1) | Disclosure is not comparative due to our adoption of CECL on January 1, 2020. For more information, see Note 1 (Summary of Significant Accounting Policies). |
| |
(2) | Nonaccrual loans may not have an allowance for credit losses if the loss expectations are zero given solid collateral value. |
LOANS IN PROCESS OF FORECLOSURE Our recorded investment in consumer mortgage loans collateralized by residential real estate property that are in process of foreclosure was $3.7$3.4 billion and $4.6$3.5 billion at June 30, 2019,March 31, 2020, and December 31, 2018,2019, respectively, which included $2.9$2.7 billion and $3.2$2.8 billion, respectively, of loans that are government insured/guaranteed. Under the Consumer Financial Protection Bureau guidelines, we do not commence the foreclosure process on consumer real estate 1-4 family mortgage 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. In connection with our actions to support customers during the COVID-19 pandemic, we have suspended certain mortgage foreclosure activities.
LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING Certain loans 90 days or more past due as to interest or principal are still accruing, because they are (1) well-secured and in the process of collection or (2) real estate 1-4 family mortgage loans or consumer loans exempt under regulatory rules from being classified as nonaccrual until later delinquency, usually 120 days past due. PCI loans of $156 million at June 30, 2019, and $370 million at December 31, 2018, are not included in past due and still accruing loans even when they are 90 days or more contractually past due. 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) | Jun 30, 2019 |
| | Dec 31, 2018 |
| Mar 31, 2020 |
| | Dec 31, 2019 |
|
Total (excluding PCI): | $ | 7,258 |
| | 8,704 |
| |
Total: | | $ | 7,023 |
| | 7,285 |
|
Less: FHA insured/VA guaranteed (1) | 6,478 |
| | 7,725 |
| 6,142 |
| | 6,352 |
|
Total, not government insured/guaranteed | $ | 780 |
| | 979 |
| $ | 881 |
| | 933 |
|
By segment and class, not government insured/guaranteed: | | | | | | |
Commercial: | | | | | | |
Commercial and industrial | $ | 17 |
| | 43 |
| $ | 24 |
| | 47 |
|
Real estate mortgage | 24 |
| | 51 |
| 28 |
| | 31 |
|
Real estate construction | — |
| | — |
| 1 |
| | — |
|
Total commercial | 41 |
| | 94 |
| 53 |
| | 78 |
|
Consumer: | | | | | | |
Real estate 1-4 family first mortgage | 108 |
| | 124 |
| 128 |
| | 112 |
|
Real estate 1-4 family junior lien mortgage | 27 |
| | 32 |
| 25 |
| | 32 |
|
Credit card | 449 |
| | 513 |
| 528 |
| | 546 |
|
Automobile | 63 |
| | 114 |
| 69 |
| | 78 |
|
Other revolving credit and installment | 92 |
| | 102 |
| 78 |
| | 87 |
|
Total consumer | 739 |
| | 885 |
| 828 |
| | 855 |
|
Total, not government insured/guaranteed | $ | 780 |
| | 979 |
| $ | 881 |
| | 933 |
|
| |
(1) | Represents loans whose repayments are predominantly insured by the FHA or guaranteed by the VA. |
Note 6: Loans and Related Allowance for Credit Losses (continued(continued))
IMPAIRED LOANS In connection with our adoption of CECL, we no longer provide information on impaired loans. We have retained impaired loans information for the period ended December 31, 2019. Table 6.15 summarizes key information for impaired loans. Our impaired loans at December 31, 2019, predominantly includeincluded loans on nonaccrual status in the commercial portfolio segment and loans modified in a TDR, whether on accrual or nonaccrual status. These impairedImpaired loans generally havehad estimated losses which are included in the allowance for credit losses. We did have impaired loans with no allowance for credit losses when the loss
content has been previously recognized through charge-offs, and we do not anticipate additional charge-offssuch as collateral dependent loans, or losses, or certain
when loans are currently performing in accordance with their terms and for which no loss has been estimated. Impaired loans excludeexcluded PCI loans. loans and loans that had been fully charged off or otherwise had zero recorded investment.
Table 6.15 includesincluded trial modifications that totaled $127 million at June 30, 2019, and $149$115 million at December 31, 2018.2019.
For additional information on our legacy impaired loans and allowance for credit losses, see Note 1 (Summary of Significant Accounting Policies) in our 20182019 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 |
| | Impaired loans |
| | Impaired loans with related allowance for credit losses |
| | Related allowance for credit losses |
|
June 30, 2019 | | | | | | | | |
December 31, 2019 | | | | | | | | |
Commercial: | | | | | | | | | | | | | | |
Commercial and industrial | $ | 2,963 |
| | 2,169 |
| | 1,991 |
| | 303 |
| $ | 2,792 |
| | 2,003 |
| | 1,903 |
| | 311 |
|
Real estate mortgage | 1,297 |
| | 1,142 |
| | 1,078 |
| | 134 |
| 1,137 |
| | 974 |
| | 803 |
| | 110 |
|
Real estate construction | 82 |
| | 54 |
| | 53 |
| | 10 |
| 81 |
| | 51 |
| | 41 |
| | 11 |
|
Lease financing | 91 |
| | 82 |
| | 82 |
| | 20 |
| 131 |
| | 105 |
| | 105 |
| | 35 |
|
Total commercial | 4,433 |
| | 3,447 |
| | 3,204 |
| | 467 |
| 4,141 |
| | 3,133 |
| | 2,852 |
| | 467 |
|
Consumer: | | | | | | | | | | | | | | |
Real estate 1-4 family first mortgage (2) | 8,803 |
| | 8,307 |
| | 3,782 |
| | 451 |
| 8,107 |
| | 7,674 |
| | 4,433 |
| | 437 |
|
Real estate 1-4 family junior lien mortgage | 1,781 |
| | 1,603 |
| | 1,040 |
| | 174 |
| 1,586 |
| | 1,451 |
| | 925 |
| | 144 |
|
Credit card | 487 |
| | 486 |
| | 486 |
| | 194 |
| 520 |
| | 520 |
| | 520 |
| | 209 |
|
Automobile | 144 |
| | 85 |
| | 45 |
| | 9 |
| 138 |
| | 81 |
| | 42 |
| | 8 |
|
Other revolving credit and installment | 166 |
| | 160 |
| | 142 |
| | 41 |
| 178 |
| | 171 |
| | 155 |
| | 49 |
|
Total consumer (3)(1) | 11,381 |
| | 10,641 |
| | 5,495 |
| | 869 |
| 10,529 |
| | 9,897 |
| | 6,075 |
| | 847 |
|
Total impaired loans (excluding PCI) | $ | 15,814 |
| | 14,088 |
| | 8,699 |
| | 1,336 |
| $ | 14,670 |
| | 13,030 |
| | 8,927 |
| | 1,314 |
|
December 31, 2018 | | | | | | | | |
Commercial: | | | | | | | | |
Commercial and industrial | $ | 3,057 |
| | 2,030 |
| | 1,730 |
| | 319 |
| |
Real estate mortgage | 1,228 |
| | 1,032 |
| | 1,009 |
| | 154 |
| |
Real estate construction | 74 |
| | 47 |
| | 46 |
| | 9 |
| |
Lease financing | 146 |
| | 112 |
| | 112 |
| | 32 |
| |
Total commercial | 4,505 |
| | 3,221 |
| | 2,897 |
| | 514 |
| |
Consumer: | | | | | | | | |
Real estate 1-4 family first mortgage | 12,309 |
| | 10,738 |
| | 4,420 |
| | 525 |
| |
Real estate 1-4 family junior lien mortgage | 1,886 |
| | 1,694 |
| | 1,133 |
| | 183 |
| |
Credit card | 449 |
| | 449 |
| | 449 |
| | 172 |
| |
Automobile | 153 |
| | 89 |
| | 43 |
| | 8 |
| |
Other revolving credit and installment | 162 |
| | 156 |
| | 136 |
| | 41 |
| |
Total consumer (3) | 14,959 |
| | 13,126 |
| | 6,181 |
| | 929 |
| |
Total impaired loans (excluding PCI) | $ | 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) | IncludesIncluded the recorded investment of $1.2$1.2 billion at June 30, 2019, and $1.3 billion at December 31, 2018,2019 of government insured/guaranteed loans that are predominantly insured by the FHA or guaranteed by the VA and generally do not have an allowance.ACL. Impaired loans may also have limited, if any, allowanceACL when the recorded investment of the loan approximates estimated net realizable value as a result of charge-offs prior to a TDR modification. |
Commitments to lend additional funds on loans whose terms have been modified in a TDR amounted to $478 million and $513 million at June 30, 2019 and December 31, 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 |
| | | | | | |
| Year ended December 31, | |
| 2019 | |
(in millions) | Average recorded investment |
| | Recognized interest income |
|
Commercial: | | | |
Commercial and industrial | $ | 2,150 |
| | 129 |
|
Real estate mortgage | 1,067 |
| | 59 |
|
Real estate construction | 52 |
| | 6 |
|
Lease financing | 93 |
| | 1 |
|
Total commercial | 3,362 |
| | 195 |
|
Consumer: | | | |
Real estate 1-4 family first mortgage | 9,031 |
| | 506 |
|
Real estate 1-4 family junior lien mortgage | 1,586 |
| | 99 |
|
Credit card | 488 |
| | 64 |
|
Automobile | 84 |
| | 12 |
|
Other revolving credit and installment | 162 |
| | 13 |
|
Total consumer | 11,351 |
| | 694 |
|
Total impaired loans (excluding PCI) | $ | 14,713 |
| | 889 |
|
|
| | | |
Interest income: | |
Cash basis of accounting | $ | 241 |
|
Other (1) | 648 |
|
Total interest income | $ | 889 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended June 30, | | | Six months ended June 30, | |
| 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 |
|
Commercial: | | | | | | | | | | | | | | | |
Commercial and industrial | $ | 2,285 |
| | 50 |
| | 2,212 |
| | 43 |
| | 2,249 |
| | 73 |
| | 2,318 |
| | 79 |
|
Real estate mortgage | 1,116 |
| | 16 |
| | 1,299 |
| | 22 |
| | 1,079 |
| | 31 |
| | 1,266 |
| | 50 |
|
Real estate construction | 55 |
| | — |
| | 62 |
| | 1 |
| | 53 |
| | 2 |
| | 60 |
| | 2 |
|
Lease financing | 88 |
| | — |
| | 138 |
| | 1 |
| | 98 |
| | — |
| | 132 |
| | 1 |
|
Total commercial | 3,544 |
| | 66 |
| | 3,711 |
| | 67 |
| | 3,479 |
| | 106 |
| | 3,776 |
| | 132 |
|
Consumer: | | | | | | | | | | | | | | | |
Real estate 1-4 family first mortgage | 9,398 |
| | 128 |
| | 11,772 |
| | 167 |
| | 9,950 |
| | 281 |
| | 11,921 |
| | 339 |
|
Real estate 1-4 family junior lien mortgage | 1,630 |
| | 26 |
| | 1,832 |
| | 29 |
| | 1,654 |
| | 52 |
| | 1,861 |
| | 58 |
|
Credit card | 480 |
| | 16 |
| | 398 |
| | 12 |
| | 470 |
| | 31 |
| | 384 |
| | 22 |
|
Automobile | 86 |
| | 3 |
| | 82 |
| | 3 |
| | 87 |
| | 7 |
| | 83 |
| | 6 |
|
Other revolving credit and installment | 158 |
| | 3 |
| | 140 |
| | 3 |
| | 157 |
| | 7 |
| | 136 |
| | 5 |
|
Total consumer | 11,752 |
| | 176 |
| | 14,224 |
| | 214 |
| | 12,318 |
| | 378 |
| | 14,385 |
| | 430 |
|
Total impaired loans (excluding PCI) | $ | 15,296 |
| | 242 |
| | 17,935 |
| | 281 |
| | 15,797 |
| | 484 |
| | 18,161 |
| | 562 |
|
Interest income: | | | | | | | | | | | | | | | |
Cash basis of accounting | | | $ | 76 |
| | | | 84 |
| | | | 135 |
| | | | 165 |
|
Other (1) | | | 166 |
| | | | 197 |
| | | | 349 |
| | | | 397 |
|
Total interest income | | | $ | 242 |
| | | | 281 |
| | | | 484 |
| | | | 562 |
|
| |
(1) | IncludesIncluded 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 $12.6$11.6 billion and $15.5$11.8 billion at June 30, 2019March 31, 2020, and December 31, 2018,2019, respectively. We do not consider loan resolutions such as foreclosure or short sale to be a TDR. In addition, COVID-related modifications are generally not classified as TDRs due to the relief under the CARES Act. For more information on the TDR relief, see Note 1 (Summary of Significant Accounting Policies).
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.
Commitments to lend additional funds on loans whose terms have been modified in a TDR amounted to $403 million and $500 million at March 31, 2020, and December 31, 2019, respectively.
Note 6: Loans and Related Allowance for Credit Losses (continued(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 | |
(in millions) | Principal (2) |
| | Interest rate reduction |
| | Other concessions (3) |
| | Total |
| | Charge- offs (4) |
| | Weighted average interest rate reduction |
| | Recorded investment related to interest rate reduction (5) |
|
Quarter ended June 30, 2019 | | | | | | | | | | | | | |
Commercial: | | | | | | | | | | | | | |
Commercial and industrial | $ | — |
| | 34 |
| | 180 |
| | 214 |
| | 26 |
| | 0.34 | % | | $ | 34 |
|
Real estate mortgage | — |
| | 24 |
| | 95 |
| | 119 |
| | — |
| | 0.49 |
| | 24 |
|
Real estate construction | 13 |
| | — |
| | 13 |
| | 26 |
| | — |
| | — |
| | — |
|
Lease financing | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total commercial | 13 |
| | 58 |
| | 288 |
| | 359 |
| | 26 |
| | 0.40 |
| | 58 |
|
Consumer: | | | | | | | | | | | | | |
Real estate 1-4 family first mortgage | 28 |
| | 2 |
| | 181 |
| | 211 |
| | — |
| | 1.83 |
| | 19 |
|
Real estate 1-4 family junior lien mortgage | 1 |
| | 11 |
| | 21 |
| | 33 |
| | 1 |
| | 2.39 |
| | 11 |
|
Credit card | — |
| | 89 |
| | — |
| | 89 |
| | — |
| | 13.35 |
| | 89 |
|
Automobile | 2 |
| | 3 |
| | 14 |
| | 19 |
| | 8 |
| | 4.13 |
| | 3 |
|
Other revolving credit and installment | — |
| | 12 |
| | 1 |
| | 13 |
| | — |
| | 7.67 |
| | 12 |
|
Trial modifications (6) | — |
| | — |
| | 5 |
| | 5 |
| | — |
| | — |
| | — |
|
Total consumer | 31 |
| | 117 |
| | 222 |
| | 370 |
| | 9 |
| | 10.06 |
| | 134 |
|
Total | $ | 44 |
| | 175 |
| | 510 |
| | 729 |
| | 35 |
| | 7.17 | % | | $ | 192 |
|
Quarter ended June 30, 2018 | | | | | | | | | | | | | |
Commercial: | | | | | | | | | | | | | |
Commercial and industrial | $ | 3 |
| | 5 |
| | 449 |
| | 457 |
| | 14 |
| | 0.58 | % | | $ | 5 |
|
Real estate mortgage | — |
| | 11 |
| | 121 |
| | 132 |
| | — |
| | 0.67 |
| | 11 |
|
Real estate construction | — |
| | — |
| | 1 |
| | 1 |
| | — |
| | — |
| | — |
|
Lease financing | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total commercial | 3 |
| | 16 |
| | 571 |
| | 590 |
| | 14 |
| | 0.64 |
| | 16 |
|
Consumer: | | | | | | | | | | | | | |
Real estate 1-4 family first mortgage | 64 |
| | 8 |
| | 286 |
| | 358 |
| | 2 |
| | 2.26 |
| | 31 |
|
Real estate 1-4 family junior lien mortgage | 2 |
| | 12 |
| | 30 |
| | 44 |
| | 2 |
| | 1.66 |
| | 13 |
|
Credit card | — |
| | 83 |
| | — |
| | 83 |
| | — |
| | 13.19 |
| | 83 |
|
Automobile | 2 |
| | 4 |
| | 11 |
| | 17 |
| | 5 |
| | 6.49 |
| | 4 |
|
Other revolving credit and installment | — |
| | 10 |
| | 2 |
| | 12 |
| | — |
| | 7.95 |
| | 10 |
|
Trial modifications (6) | — |
| | — |
| | 17 |
| | 17 |
| | — |
| | — |
| | — |
|
Total consumer | 68 |
| | 117 |
| | 346 |
| | 531 |
| | 9 |
| | 9.17 |
| | 141 |
|
Total | $ | 71 |
| | 133 |
| | 917 |
| | 1,121 |
| | 23 |
| | 8.30 | % | | $ | 157 |
|
| | | 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) |
| |
Six months ended June 30, 2019 | | | | | | | | | | | | | | |
($ in millions) | | Principal (2) |
| | Interest rate reduction |
| | Other concessions (3) |
| | Total |
| | Charge- offs (4) |
| | Weighted average interest rate reduction |
| | Recorded investment related to interest rate reduction (5) |
|
Quarter ended March 31, 2020 | | | | | | | | | | | | | | |
Commercial: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | $ | — |
| | 45 |
| | 734 |
| | 779 |
| | 39 |
| | 0.42 | % | | $ | 45 |
| $ | 18 |
| | 15 |
| | 314 |
| | 347 |
| | 44 |
| | 0.65 | % | | $ | 15 |
|
Real estate mortgage | — |
| | 26 |
| | 168 |
| | 194 |
| | — |
| | 0.54 |
| | 26 |
| — |
| | 13 |
| | 152 |
| | 165 |
| | — |
| | 0.97 |
| | 13 |
|
Real estate construction | 13 |
| | — |
| | 16 |
| | 29 |
| | — |
| | — |
| | — |
| — |
| | — |
| | 6 |
| | 6 |
| | — |
| | 2.49 |
| | — |
|
Lease financing | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total commercial | 13 |
| | 71 |
| | 918 |
| | 1,002 |
| | 39 |
| | 0.47 |
| | 71 |
| 18 |
| | 28 |
| | 472 |
| | 518 |
| | 44 |
| | 0.82 |
| | 28 |
|
Consumer: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Real estate 1-4 family first mortgage | 63 |
| | 5 |
| | 475 |
| | 543 |
| | 1 |
| | 1.89 |
| | 38 |
| 21 |
| | 3 |
| | 166 |
| | 190 |
| | — |
| | 1.63 |
| | 17 |
|
Real estate 1-4 family junior lien mortgage | 3 |
| | 22 |
| | 46 |
| | 71 |
| | 2 |
| | 2.34 |
| | 23 |
| 1 |
| | 6 |
| | 14 |
| | 21 |
| | — |
| | 2.38 |
| | 6 |
|
Credit card | — |
| | 186 |
| | — |
| | 186 |
| | — |
| | 13.27 |
| | 186 |
| — |
| | 95 |
| | — |
| | 95 |
| | — |
| | 12.33 |
| | 95 |
|
Automobile | 4 |
| | 4 |
| | 26 |
| | 34 |
| | 14 |
| | 4.55 |
| | 4 |
| 2 |
| | 2 |
| | 10 |
| | 14 |
| | 6 |
| | 4.69 |
| | 2 |
|
Other revolving credit and installment | — |
| | 23 |
| | 4 |
| | 27 |
| | — |
| | 7.63 |
| | 23 |
| — |
| | 12 |
| | 2 |
| | 14 |
| | — |
| | 8.22 |
| | 12 |
|
Trial modifications (6) | — |
| | — |
| | 5 |
| | 5 |
| | — |
| | — |
| | — |
| — |
| | — |
| | 2 |
| | 2 |
| | — |
| | — |
| | — |
|
Total consumer | 70 |
| | 240 |
| | 556 |
| | 866 |
| | 17 |
| | 10.17 |
| | 274 |
| 24 |
| | 118 |
| | 194 |
| | 336 |
| | 6 |
| | 10.00 |
| | 132 |
|
Total | $ | 83 |
| | 311 |
| | 1,474 |
| | 1,868 |
| | 56 |
| | 8.18 | % | | $ | 345 |
| $ | 42 |
| | 146 |
| | 666 |
| | 854 |
| | 50 |
| | 8.38 | % | | $ | 160 |
|
Six months ended June 30, 2018 | | | | | | | | | | | | | | |
Quarter ended March 31, 2019 | | | | | | | | | | | | | | |
Commercial: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | $ | 3 |
| | 14 |
| | 937 |
| | 954 |
| | 20 |
| | 0.88 | % | | $ | 14 |
| $ | — |
| | 11 |
| | 554 |
| | 565 |
| | 13 |
| | 0.68 | % | | $ | 11 |
|
Real estate mortgage | — |
| | 17 |
| | 219 |
| | 236 |
| | — |
| | 0.89 |
| | 17 |
| — |
| | 2 |
| | 73 |
| | 75 |
| | — |
| | 0.95 |
| | 2 |
|
Real estate construction | — |
| | — |
| | 4 |
| | 4 |
| | — |
| | — |
| | — |
| — |
| | — |
| | 3 |
| | 3 |
| | — |
| | — |
| | — |
|
Lease financing | — |
| | — |
| | 39 |
| | 39 |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total commercial | 3 |
| | 31 |
| | 1,199 |
| | 1,233 |
| | 20 |
| | 0.88 |
| | 31 |
| — |
| | 13 |
| | 630 |
| | 643 |
| | 13 |
| | 0.73 |
| | 13 |
|
Consumer: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Real estate 1-4 family first mortgage | 110 |
| | 18 |
| | 592 |
| | 720 |
| | 3 |
| | 2.33 |
| | 66 |
| 35 |
| | 3 |
| | 294 |
| | 332 |
| | 1 |
| | 1.95 |
| | 19 |
|
Real estate 1-4 family junior lien mortgage | 3 |
| | 20 |
| | 58 |
| | 81 |
| | 3 |
| | 1.89 |
| | 22 |
| 2 |
| | 11 |
| | 25 |
| | 38 |
| | 1 |
| | 2.29 |
| | 12 |
|
Credit card | — |
| | 169 |
| | — |
| | 169 |
| | — |
| | 12.24 |
| | 169 |
| — |
| | 97 |
| | — |
| | 97 |
| | — |
| | 13.20 |
| | 97 |
|
Automobile | 3 |
| | 8 |
| | 25 |
| | 36 |
| | 14 |
| | 6.48 |
| | 8 |
| 2 |
| | 1 |
| | 12 |
| | 15 |
| | 6 |
| | 5.38 |
| | 1 |
|
Other revolving credit and installment | — |
| | 25 |
| | 4 |
| | 29 |
| | — |
| | 7.95 |
| | 25 |
| — |
| | 11 |
| | 3 |
| | 14 |
| | — |
| | 7.58 |
| | 11 |
|
Trial modifications (6) | — |
| | — |
| | 32 |
| | 32 |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total consumer | 116 |
| | 240 |
| | 711 |
| | 1,067 |
| | 20 |
| | 8.67 |
| | 290 |
| 39 |
| | 123 |
| | 334 |
| | 496 |
| | 8 |
| | 10.27 |
| | 140 |
|
Total | $ | 119 |
| | 271 |
| | 1,910 |
| | 2,300 |
| | 40 |
| | 7.92 | % | | $ | 321 |
| $ | 39 |
| | 136 |
| | 964 |
| | 1,139 |
| | 21 |
| | 9.44 | % | | $ | 153 |
|
| |
(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 $323$263 million and $381$360 million for the quarters ended June 30, 2019 and 2018, respectively, and $683 million and $884 million for the first halfquarter of 20192020 and 2018,2019, 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 deferring or legally forgiving principal (actual contingent or deferred)contingent) of $3$29 million and $14$3 million for the quarters ended June 30, 2019 and 2018, and $6 million and $17 million for the first halfquarter of 20192020 and 2018,2019, respectively. |
| |
(5) | Reflects the effect of reduced interest rates on loans with an interest rate concession as one of its 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 | | Recorded investment of defaults | |
| Quarter ended June 30, | | | Six months ended June 30, | | Quarter ended March 31, | |
(in millions) | 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
| 2020 |
| | 2019 |
|
Commercial: | | | | | | | | | | |
Commercial and industrial | $ | 25 |
| | 7 |
| | 48 |
| | 93 |
| $ | 185 |
| | 23 |
|
Real estate mortgage | 5 |
| | 14 |
| | 33 |
| | 40 |
| 21 |
| | 28 |
|
Real estate construction | — |
| | 16 |
| | 3 |
| | 16 |
| — |
| | 3 |
|
Total commercial | 30 |
| | 37 |
| | 84 |
| | 149 |
| 206 |
| | 54 |
|
Consumer: | | | | | | | | | | |
Real estate 1-4 family first mortgage | 13 |
| | 15 |
| | 24 |
| | 33 |
| 10 |
| | 11 |
|
Real estate 1-4 family junior lien mortgage | 4 |
| | 2 |
| | 9 |
| | 7 |
| 2 |
| | 5 |
|
Credit card | 21 |
| | 24 |
| | 42 |
| | 37 |
| 26 |
| | 21 |
|
Automobile | 4 |
| | 4 |
| | 7 |
| | 7 |
| 2 |
| | 3 |
|
Other revolving credit and installment | 1 |
| | 1 |
| | 3 |
| | 2 |
| 1 |
| | 2 |
|
Total consumer | 43 |
| | 46 |
| | 85 |
| | 86 |
| 41 |
| | 42 |
|
Total | $ | 73 |
| | 83 |
| | 169 |
| | 235 |
| $ | 247 |
| | 96 |
|
Purchased Credit-Impaired 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) | Jun 30, 2019 |
| | Dec 31, 2018 |
|
Total commercial | $ | — |
| | 4 |
|
Consumer: | | | |
Real estate 1-4 family first mortgage | 1,159 |
| | 4,988 |
|
Real estate 1-4 family junior lien mortgage | 15 |
| | 17 |
|
Total consumer | 1,174 |
| | 5,005 |
|
Total PCI loans (carrying value) | $ | 1,174 |
| | 5,009 |
|
Total PCI loans (unpaid principal balance) | $ | 1,952 |
| | 7,348 |
|
Note 7: Leasing Activity (continued)
The information below provides a summary of our leasing activities as a lessor and lessee. See Note 7 (Leasing Activities) in our 2019 Form 10-K for additional information about our leasing activities.
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.revenue.
Table 7.1: Leasing Revenue
| | | | | | | | Quarter ended March 31, | |
(in millions) | Quarter ended June 30, 2019 |
| Six months ended June 30, 2019 |
| 2020 |
|
| 2019 |
|
Interest income on lease financing | $ | 224 |
| 447 |
| $ | 211 |
| | 223 |
|
Other lease revenues: | | | | | |
Variable revenues on lease financing | 26 |
| 50 |
| 27 |
| | 24 |
|
Fixed revenues on operating leases | 357 |
| 730 |
| 314 |
| | 373 |
|
Variable revenues on operating leases | 14 |
| 32 |
| 13 |
| | 18 |
|
Other lease-related revenues (1) | 27 |
| 55 |
| (2 | ) | | 28 |
|
Lease income | 424 |
| 867 |
| 352 |
| | 443 |
|
Total leasing revenue | $ | 648 |
| 1,314 |
| $ | 563 |
| | 666 |
|
| |
(1) | Predominantly includes net gains (losses) 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 values | 4,244 |
|
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 |
|
2020 | 5,167 |
| 880 |
|
2021 | 4,004 |
| 591 |
|
2022 | 2,127 |
| 407 |
|
2023 | 1,219 |
| 269 |
|
Thereafter | 2,182 |
| 605 |
|
Total lease receivables | $ | 17,735 |
| 3,287 |
|
As a Lessee
Substantially all of our leases are operating leases. Table 7.47.2 presents balances for our operating leases.
Table 7.4:7.2: Operating Lease Right of Use (ROU) Assets and Lease Liabilities
| | (in millions) | Jun 30, 2019 |
| Mar 31, 2020 |
| Dec 31, 2019 |
|
ROU assets | $ | 4,776 |
| $ | 4,650 |
| 4,724 |
|
Lease liabilities | 5,302 |
| 5,224 |
| 5,297 |
|
Table 7.57.3 provides the composition of our lease costs, which are predominantly included in net occupancy expense.
Table 7.5:7.3: Lease Costs
| | | | | | | | Quarter ended March 31, | |
(in millions) | Quarter ended June 30, 2019 |
| Six months ended June 30, 2019 |
| 2020 |
| | 2019 |
|
Fixed lease expense - operating leases | $ | 291 |
| 588 |
| |
Fixed lease expense – operating leases | | $ | 291 |
| | 297 |
|
Variable lease expense | 80 |
| 153 |
| 66 |
| | 73 |
|
Other (1) | (9 | ) | (17 | ) | (14 | ) | | (8 | ) |
Total lease costs | $ | 362 |
| 724 |
| $ | 343 |
| | 362 |
|
| |
(1) | Predominantly includes sublease rental income and gains recognized from sale leaseback transactions.transactions and sublease rental income. |
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 |
|
2020 | 1,056 |
|
2021 | 880 |
|
2022 | 713 |
|
2023 | 577 |
|
Thereafter | 1,654 |
|
Total | $ | 6,054 |
|
Table 7.7:Lease Payments on Operating Leases Subsequent to Adoption of ASU 2016-02 - Leases
|
| | | |
(in millions, except for weighted averages) | June 30, 2019 |
|
Remainder of 2019 | $ | 566 |
|
2020 | 1,127 |
|
2021 | 947 |
|
2022 | 792 |
|
2023 | 654 |
|
Thereafter | 2,054 |
|
Total lease payments | 6,140 |
|
Less: imputed interest | 838 |
|
Total operating lease liabilities | $ | 5,302 |
|
Weighted average remaining lease term (in years) | 7.3 |
|
Weighted average discount rate | 3.2 | % |
Our operating leases predominantly expire within the next 15 years, with the longest lease expiring in 2105. We do not include renewal or termination options in the establishment of the lease term when we are not reasonably certain that we will exercise them. As of 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 8.1 provides a summary of our equity securities by business purpose and accounting method, including equity securities with readily determinable fair values (marketable) and those without readily determinable fair values (nonmarketable).
Table 8.1: Equity Securities
| | | Jun 30, |
| | Dec 31, |
| | | | | | |
(in millions) | 2019 |
| | 2018 |
| Mar 31, 2020 |
| | Dec 31, 2019 |
|
Held for trading at fair value: | | | | | | |
Marketable equity securities | $ | 23,327 |
| | 19,449 |
| $ | 13,573 |
| | 27,440 |
|
Not held for trading: | | | | | | |
Fair value: | | | | | | |
Marketable equity securities (1) | 5,379 |
| | 4,513 |
| 7,708 |
| | 6,481 |
|
Nonmarketable equity securities | 7,244 |
| | 5,594 |
| 6,895 |
| | 8,015 |
|
Total equity securities at fair value | 12,623 |
| | 10,107 |
| 14,603 |
| | 14,496 |
|
Equity method: | | | | | | |
Low-income housing tax credit investments | 11,162 |
| | 10,999 |
| 11,290 |
| | 11,343 |
|
Private equity | 3,352 |
| | 3,832 |
| 3,351 |
| | 3,459 |
|
Tax-advantaged renewable energy | 3,051 |
| | 3,073 |
| 3,991 |
| | 3,811 |
|
New market tax credit and other | 294 |
| | 311 |
| 387 |
| | 387 |
|
Total equity method | 17,859 |
|
| 18,215 |
| 19,019 |
|
| 19,000 |
|
Other: | | | | | | |
Federal Reserve Bank stock and other at cost (2) | 5,622 |
| | 5,643 |
| 4,512 |
| | 4,790 |
|
Private equity (3) | 2,106 |
| | 1,734 |
| 2,340 |
| | 2,515 |
|
Total equity securities not held for trading | 38,210 |
| | 35,699 |
| 40,474 |
| | 40,801 |
|
Total equity securities | $ | 61,537 |
| | 55,148 |
| $ | 54,047 |
| | 68,241 |
|
| |
(1) | Includes $3.5$3.1 billion and $3.2$3.8 billion at June 30, 2019,March 31, 2020, and December 31, 2018,2019, respectively, related to securities held as economic hedges of our deferred compensation plan obligations. |
| |
(2) | Includes $5.6$4.5 billion and $5.6$4.8 billion at June 30, 2019March 31, 2020, and December 31, 2018,2019, respectively, related to investments in Federal Reserve Bank and Federal Home Loan Bank stock. |
| |
(3) | Represents nonmarketable equity securities accounted for under the measurement alternative. |
Equity Securities Held for Trading
Equity securities held for trading purposes are marketable equity securities traded on organized exchanges. These securities are held as part of our customer accommodation trading activities. For more information on these activities, see Note 4 (Trading Activities).
Equity Securities Not Held for Trading
We also hold equity securities unrelated to trading activities. These securities include private equity and tax credit investments, securities held as economic hedges or to meet regulatory requirements (for example, Federal Reserve Bank and Federal Home Loan Bank stock). Equity securities not held for trading purposes are accounted for at either fair value, equity method, cost or the measurement alternative.
FAIR VALUE Marketable equity securities held for purposes other than trading primarilypartially consist of exchange-traded equity funds held to economically hedge obligations related to our deferred compensation plans and, to a lesser extent, other holdings of publicly traded equity securities held for investment purposes. We account for certain nonmarketable equity securities under the fair value method, and substantially all of these securities are economically hedged with equity derivatives.
EQUITY METHOD Our equity method investments consist of tax credit and private equity investments, the majority of which are our low-income housing tax credit (LIHTC) investments.
We invest in affordable housing projects that qualify for the LIHTC, which are designed to promote private development of low-income housing. These investments generate a return mostly through realization of federal tax credit and other tax benefits. In the secondfirst quarter and first half of 2019,2020, we recognized pre-tax losses of $298$339 million and $571 million, respectively, related to our LIHTC investments, compared with $287$273 million and $567 million, respectively, for the same periods a year ago.in first quarter 2019. These losses were recognized in other noninterest income. We also recognized total tax benefits of $376 million and $746$398 million in the secondfirst quarter and first half of 2019, respectively,2020, which included tax credits recorded to income taxes of $303 million and $605 million for the same periods, respectively.$314 million. In the secondfirst quarter and first half of 2018,2019, total tax benefits were $352$370 million, and $711 million, respectively, which included tax credits of $281 million and $571 million for the same periods, respectively.$302 million. We are periodically required to provide additional financial support during the investment period. A liability is recognized for unfunded commitments that are both legally binding and probable of funding. These commitments are predominantly funded within three years of initial investment. Our liability for these unfunded commitments was $3.9$4.2 billion at June 30, 2019,March 31, 2020, and $3.6$4.3 billion at December 31, 2018.2019. This liability for unfunded commitments is included in long-term debt.
OTHER The remaining portion of our nonmarketable equity securities portfolio consists of securities accounted for using the cost or measurement alternative method.alternative.
Note 8: Equity Securities (continued)
Realized Gains and Losses Not Held for Trading
Table 8.2 provides a summary of the net gains and losses from equity securities not held for trading. Gains and losses for securities held for trading are reported in net gains from trading activities.
Table 8.2: Net Gains (Losses) from Equity Securities Not Held for Trading
| | | Quarter ended June 30, | | | Six months ended June 30, | | Quarter ended March 31, | |
(in millions) | 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
| 2020 |
| | 2019 |
|
Net gains (losses) from equity securities carried at fair value: | | | | | | | | | | |
Marketable equity securities | $ | 264 |
| | 28 |
| | 641 |
| | 36 |
| $ | (803 | ) | | 377 |
|
Nonmarketable equity securities | 732 |
| | 594 |
| | 1,668 |
| | 703 |
| (1,104 | ) | | 936 |
|
Total equity securities carried at fair value | 996 |
| | 622 |
| | 2,309 |
| | 739 |
| (1,907 | ) | | 1,313 |
|
Net gains (losses) from nonmarketable equity securities not carried at fair value: | | | | | | | | | | |
Impairment write-downs | (31 | ) | | (237 | ) | | (67 | ) | | (257 | ) | (935 | ) | | (36 | ) |
Net unrealized gains related to measurement alternative observable transactions | 146 |
| | 35 |
| | 331 |
| | 263 |
| 222 |
| | 185 |
|
Net realized gains on sale | 169 |
| | 399 |
| | 406 |
| | 897 |
| — |
| | 237 |
|
All other | — |
| | 16 |
| | — |
| | 34 |
| — |
| | — |
|
Total nonmarketable equity securities not carried at fair value | 284 |
| | 213 |
| | 670 |
| | 937 |
| (713 | ) | | 386 |
|
Net losses from economic hedge derivatives (1) | (658 | ) | | (540 | ) | | (1,543 | ) | | (598 | ) | |
Total net gains from equity securities | $ | 622 |
| | 295 |
| | 1,436 |
| | 1,078 |
| |
Net gains (losses) from economic hedge derivatives (1) | | 1,219 |
| | (885 | ) |
Total net gains (losses) from equity securities not held for trading | | $ | (1,401 | ) | | 814 |
|
| |
(1) | Includes net gains (losses) on derivatives not designated as hedging instruments. |
Measurement Alternative
Table 8.3 provides additional information about the impairment write-downs and observable price adjustments related to
nonmarketable equity securities accounted for under the measurement alternative. Gains and losses related to these adjustments are also included in Table 8.2.
Table 8.3: Net Gains (Losses) from Measurement Alternative Equity Securities
| | | Quarter ended June 30, | | | Six months ended June 30, | | Quarter ended March 31, | |
(in millions) | 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
| 2020 |
| | 2019 |
|
Net gains (losses) recognized in earnings during the period: | | | | | | | | | | |
Gross unrealized gains due to observable price changes | $ | 157 |
| | 43 |
| | 342 |
| | 271 |
| $ | 222 |
| | 185 |
|
Gross unrealized losses due to observable price changes | (11 | ) | | (8 | ) | | (11 | ) | | (8 | ) | — |
| | — |
|
Impairment write-downs | (11 | ) | | (5 | ) | | (33 | ) | | (12 | ) | (354 | ) | | (22 | ) |
Realized net gains from sale | 102 |
| | 16 |
| | 125 |
| | 91 |
| 2 |
| | 23 |
|
Total net gains recognized during the period | $ | 237 |
| | 46 |
| | 423 |
| | 342 |
| |
Total net gains (losses) recognized during the period | | $ | (130 | ) | | 186 |
|
Table 8.4 presents cumulative carrying value adjustments to nonmarketable equity securities accounted for under the measurement alternative that were still held asat the end of the balance sheet date.each reporting period presented.
Table 8.4: Measurement Alternative Cumulative Gains (Losses)
| | | Jun 30, |
| | Dec 31, |
| | | | | |
(in millions) | 2019 |
| | 2018 |
| Mar 31, 2020 |
| | Dec 31, 2019 |
|
Cumulative gains (losses): | | | | | | |
Gross unrealized gains due to observable price changes | $ | 733 |
| | 415 |
| $ | 1,084 |
| | 973 |
|
Gross unrealized losses due to observable price changes | (36 | ) | | (25 | ) | (42 | ) | | (42 | ) |
Impairment write-downs | (52 | ) | | (33 | ) | (473 | ) | | (134 | ) |
Table 9.1 presents the components of other assets.
Table 9.1: Other Assets
| | (in millions) | Jun 30, 2019 |
| | Dec 31, 2018 |
| Mar 31, 2020 |
| | Dec 31, 2019 |
|
Corporate/bank-owned life insurance | $ | 19,912 |
| | 19,751 |
| $ | 20,128 |
| | 20,070 |
|
Accounts receivable (1) | 26,213 |
| | 34,281 |
| 46,762 |
| | 29,137 |
|
Interest receivable | 6,177 |
| | 6,084 |
| |
Interest receivable: | | | | |
AFS and HTM debt securities | | 1,705 |
| | 1,729 |
|
Loans | | 3,038 |
| | 3,099 |
|
Trading and other | | 708 |
| | 758 |
|
Customer relationship and other amortized intangibles | 479 |
| | 545 |
| 399 |
| | 423 |
|
Foreclosed assets: | | | | | | |
Residential real estate: | | | | | | |
Government insured/guaranteed | 68 |
| | 88 |
| |
Government insured/guaranteed (1) | | 43 |
| | 50 |
|
Non-government insured/guaranteed | 185 |
| | 229 |
| 137 |
| | 172 |
|
Other | 124 |
| | 134 |
| 72 |
| | 81 |
|
Operating lease assets (lessor) | 8,663 |
| | 9,036 |
| 8,124 |
| | 8,221 |
|
Operating lease ROU assets (lessee) (2) | 4,776 |
| | — |
| |
Operating lease ROU assets (lessee) | | 4,650 |
| | 4,724 |
|
Due from customers on acceptances | 272 |
| | 258 |
| 128 |
| | 253 |
|
Other | 9,489 |
| | 9,444 |
| 10,269 |
| | 10,200 |
|
Total other assets | $ | 76,358 |
| | 79,850 |
| $ | 96,163 |
| | 78,917 |
|
| |
(1) | Certain government-guaranteed residential real estate mortgage loans upon foreclosure are included in Accounts receivable. For more information, see Note 1 (Summary of Significant Accounting Policies) in our 20182019 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 10: Securitizations and Variable Interest Entities (continued)
|
|
Note 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 910 (Securitizations and Variable Interest Entities) in our 20182019 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 10.1 provides the classifications of assets and liabilities in our balance sheet for our transactions with VIEs.
Table 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 |
|
June 30, 2019 | | | | | | |
March 31, 2020 | | | | | | |
Cash and due from banks | $ | — |
| | 11 |
| | — |
| | 11 |
| $ | — |
| | 19 |
| | — |
| | 19 |
|
Interest-earning deposits with banks | — |
| | 8 |
| | — |
| | 8 |
| — |
| | — |
| | — |
| | — |
|
Debt securities: | | | | | | | | |
Debt securities (1): | | | | | | | | |
Trading debt securities | 2,072 |
| | 60 |
| | 200 |
| | 2,332 |
| 1,326 |
| | 316 |
| | — |
| | 1,642 |
|
Available-for-sale debt securities (1) | 1,879 |
| | — |
| | 68 |
| | 1,947 |
| 1,718 |
| | 300 |
| | — |
| | 2,018 |
|
Held-to-maturity debt securities | 560 |
| | — |
| | — |
| | 560 |
| 1,158 |
| | — |
| | — |
| | 1,158 |
|
Loans | 1,214 |
| | 13,602 |
| | 87 |
| | 14,903 |
| 2,196 |
| | 13,102 |
| | 77 |
| | 15,375 |
|
Mortgage servicing rights | 12,354 |
| | — |
| | — |
| | 12,354 |
| 8,709 |
| | — |
| | — |
| | 8,709 |
|
Derivative assets | 143 |
| | — |
| | — |
| | 143 |
| 269 |
| | 6 |
| | — |
| | 275 |
|
Equity securities | 11,211 |
| | 121 |
| | — |
| | 11,332 |
| 11,337 |
| | 95 |
| | — |
| | 11,432 |
|
Other assets | — |
| | 208 |
| | 2 |
| | 210 |
| 1,030 |
| | 258 |
| | — |
| | 1,288 |
|
Total assets | 29,433 |
| | 14,010 |
| | 357 |
| | 43,800 |
| 27,743 |
| | 14,096 |
| | 77 |
| | 41,916 |
|
Short-term borrowings | — |
| | — |
| | 263 |
| | 263 |
| — |
| | 500 |
| | — |
| | 500 |
|
Derivative liabilities | 1 |
| | 1 |
| (2) | — |
| | 2 |
| 2 |
| | 8 |
| | — |
| | 10 |
|
Accrued expenses and other liabilities | 198 |
| | 201 |
| (2) | 2 |
| | 401 |
| 154 |
| | 231 |
| | — |
| | 385 |
|
Long-term debt | 3,857 |
| | 748 |
| (2) | 85 |
| | 4,690 |
| 4,722 |
| | 235 |
| | 76 |
| | 5,033 |
|
Total liabilities | 4,056 |
| | 950 |
| | 350 |
| | 5,356 |
| 4,878 |
| | 974 |
| | 76 |
| | 5,928 |
|
Noncontrolling interests | — |
| | 41 |
| | — |
| | 41 |
| — |
| | 33 |
| | — |
| | 33 |
|
Net assets | $ | 25,377 |
| | 13,019 |
| | 7 |
| | 38,403 |
| $ | 22,865 |
| | 13,089 |
| | 1 |
| | 35,955 |
|
December 31, 2018 | | | | | | | | |
December 31, 2019 | | | | | | | | |
Cash and due from banks | $ | — |
| | 139 |
| | — |
| | 139 |
| $ | — |
| | 16 |
| | — |
| | 16 |
|
Interest-earning deposits with banks | — |
| | 8 |
| | — |
| | 8 |
| — |
| | 284 |
| | — |
| | 284 |
|
Debt securities: | | | | | | | | |
Debt securities (1): | | | | | | | | |
Trading debt securities | 2,110 |
| | 45 |
| | 200 |
| | 2,355 |
| 792 |
| | 339 |
| | — |
| | 1,131 |
|
Available-for-sale debt securities (1) | 2,686 |
| | — |
| | 317 |
| | 3,003 |
| 1,696 |
| | 201 |
| | — |
| | 1,897 |
|
Held-to-maturity debt securities | 510 |
| | — |
| | — |
| | 510 |
| 791 |
| | — |
| | — |
| | 791 |
|
Loans | 1,433 |
| | 13,564 |
| | 94 |
| | 15,091 |
| 2,127 |
| | 13,170 |
| | 80 |
| | 15,377 |
|
Mortgage servicing rights | 14,761 |
| | — |
| | — |
| | 14,761 |
| 11,884 |
| | — |
| | — |
| | 11,884 |
|
Derivative assets | 53 |
| | — |
| | — |
| | 53 |
| 142 |
| | 1 |
| | — |
| | 143 |
|
Equity securities | 11,041 |
| | 85 |
| | — |
| | 11,126 |
| 11,401 |
| | 118 |
| | — |
| | 11,519 |
|
Other assets | — |
| | 221 |
| | 6 |
| | 227 |
| 1,268 |
| | 239 |
| | — |
| | 1,507 |
|
Total assets | 32,594 |
| | 14,062 |
| | 617 |
| | 47,273 |
| 30,101 |
| | 14,368 |
| | 80 |
| | 44,549 |
|
Short-term borrowings | — |
| | — |
| | 493 |
| | 493 |
| — |
| | 401 |
| | — |
| | 401 |
|
Derivative liabilities | 26 |
| | — |
| (2) | — |
| | 26 |
| 1 |
| | 3 |
| | — |
| | 4 |
|
Accrued expenses and other liabilities | 231 |
| | 191 |
| (2) | 8 |
| | 430 |
| 189 |
| | 235 |
| | — |
| | 424 |
|
Long-term debt | 3,870 |
| | 816 |
| (2) | 93 |
| | 4,779 |
| 4,817 |
| | 587 |
| | 79 |
| | 5,483 |
|
Total liabilities | 4,127 |
| | 1,007 |
| | 594 |
| | 5,728 |
| 5,007 |
| | 1,226 |
| | 79 |
| | 6,312 |
|
Noncontrolling interests | — |
| | 34 |
| | — |
| | 34 |
| — |
| | 43 |
| | — |
| | 43 |
|
Net assets | $ | 28,467 |
| | 13,021 |
| | 23 |
| | 41,511 |
| $ | 25,094 |
| | 13,099 |
| | 1 |
| | 38,194 |
|
| |
(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.Government National Mortgage Association (GNMA). |
Transactions with Unconsolidated VIEs
Our transactions with unconsolidated VIEs include predominantly securitizations of residential and commercial 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,investments in tax credit structures, collateralized loan obligations (CLOs) backed by corporate loans, and other types of structured financing.structures. We have various forms of involvement with VIEs, including servicing, holding senior or subordinated interests, and 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 10.2 provides a summary of our exposure to unconsolidated VIEs with which we have significant continuing involvement but for which 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 includesinclude transactions where we were the sponsor or transferorservicer and also have other significant forms of continuing
involvement. Sponsorship includes transactions with unconsolidated VIEs where we solely or materially participated in the initial design or structuring of the entityVIE or marketing ofmarketed the transaction to investors. WhenWe consider investments in securities, loans, guarantees, liquidity agreements, commitments and certain derivatives to be other forms of continuing involvement that may be significant. We also include transactions where we transfertransferred assets to a VIE, and account for the transfer as a sale, we are consideredand service the transferor. We consider investments in securities (other than those held temporarily in trading), loans, guarantees, liquidity agreements, written options and servicing ofVIE collateral to beor have other forms of continuing involvement that may be significant.significant (as described above). We have excludedexclude certain transactions with unconsolidated VIEs from the balances presented in the following table where we have determined thatwhen our continuing involvement is not significant due to the temporary in nature and size of our variable interests, because we were not the transferor or because we were not involvedinsignificant in the design of the unconsolidated VIEs.size. 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 10.2: Unconsolidated VIEs
|
| | | | | | | | | | | | | | | | | | | |
| | | Carrying value – asset (liability) | |
(in millions) | Total VIE assets |
| | Debt and equity interests (1) |
| | Servicing assets |
| | Derivatives |
| | Other commitments and guarantees |
| | Net assets |
|
June 30, 2019 | | | | | | | | | | | |
Residential mortgage loan securitizations: | | | | | | | | | | | |
Conforming (2) | $ | 1,132,124 |
| | 2,367 |
| | 11,420 |
| | — |
| | (136 | ) | | 13,651 |
|
Other/nonconforming | 9,438 |
| | 37 |
| | 57 |
| | — |
| | — |
| | 94 |
|
Commercial mortgage securitizations | 154,690 |
| | 2,041 |
| | 877 |
| | 85 |
| | (42 | ) | | 2,961 |
|
Collateralized debt obligations: | | | | | | | | | | | |
Debt securities | 637 |
| | — |
| | — |
| | 4 |
| | (20 | ) | | (16 | ) |
Asset-based finance structures | 244 |
| | 143 |
| | — |
| | — |
| | — |
| | 143 |
|
Tax credit structures | 36,888 |
| | 12,232 |
| | — |
| | — |
| | (3,857 | ) | | 8,375 |
|
Collateralized loan obligations | 176 |
| | 1 |
| | — |
| | — |
| | — |
| | 1 |
|
Investment funds | 210 |
| | 49 |
| | — |
| | — |
| | — |
| | 49 |
|
Other (3) | 1,508 |
| | 66 |
| | — |
| | 53 |
| | — |
| | 119 |
|
Total | $ | 1,335,915 |
| | 16,936 |
| | 12,354 |
| | 142 |
| | (4,055 | ) | | 25,377 |
|
| | | Maximum exposure to loss | |
| | | Debt and equity interests (1) |
| | Servicing assets |
| | Derivatives |
| | Other commitments and guarantees |
| | Total exposure |
|
Residential mortgage loan securitizations: | | | | | | | | | | | |
Conforming | | | $ | 2,367 |
| | 11,420 |
| | — |
| | 902 |
| | 14,689 |
|
Other/nonconforming | | | 37 |
| | 57 |
| | — |
| | — |
| | 94 |
|
Commercial mortgage securitizations | | | 2,041 |
| | 877 |
| | 85 |
| | 12,007 |
| | 15,010 |
|
Collateralized debt obligations: | | | | | | | | | | | |
Debt securities | | | — |
| | — |
| | 4 |
| | 20 |
| | 24 |
|
Asset-based finance structures | | | 143 |
| | — |
| | — |
| | 71 |
| | 214 |
|
Tax credit structures | | | 12,232 |
| | — |
| | — |
| | 1,373 |
| | 13,605 |
|
Collateralized loan obligations | | | 1 |
| | — |
| | — |
| | — |
| | 1 |
|
Investment funds | | | 49 |
| | — |
| | — |
| | — |
| | 49 |
|
Other (3) | | | 66 |
| | — |
| | 54 |
| | 159 |
| | 279 |
|
Total | | | $ | 16,936 |
| | 12,354 |
| | 143 |
| | 14,532 |
| | 43,965 |
|
(continued on following page)
Note 10: Securitizations and Variable Interest Entities (continued)
(continued from previous page)
|
| | | | | | | | | | | | | | | | | | | |
| | | Carrying value – asset (liability) | |
(in millions) | Total VIE assets |
| | Debt and equity interests (1) |
| | Servicing assets |
| | Derivatives |
| | Other commitments and guarantees |
| | Net assets |
|
December 31, 2018 | | | | | | | | | | | |
Residential mortgage loan securitizations: | | | | | | | | | | | |
Conforming (2) | $ | 1,172,833 |
| | 2,377 |
| | 13,811 |
| | — |
| | (171 | ) | | 16,017 |
|
Other/nonconforming | 10,596 |
| | 453 |
| | 57 |
| | — |
| | — |
| | 510 |
|
Commercial mortgage securitizations | 153,350 |
| | 2,409 |
| | 893 |
| | (22 | ) | | (40 | ) | | 3,240 |
|
Collateralized debt obligations: | | | | | | | | | | | |
Debt securities | 659 |
| | — |
| | — |
| | 5 |
| | (20 | ) | | (15 | ) |
Asset-based finance structures | 304 |
| | 205 |
| | — |
| | — |
| | — |
| | 205 |
|
Tax credit structures | 35,185 |
| | 12,087 |
| | — |
| | — |
| | (3,870 | ) | | 8,217 |
|
Collateralized loan obligations | 2 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Investment funds | 185 |
| | 42 |
| | — |
| | — |
| | — |
| | 42 |
|
Other (3) | 1,688 |
| | 207 |
| | — |
| | 44 |
| | — |
| | 251 |
|
Total | $ | 1,374,802 |
| | 17,780 |
| | 14,761 |
| | 27 |
| | (4,101 | ) | | 28,467 |
|
| | | Maximum exposure to loss | |
| | | Debt and equity interests (1) |
| | Servicing assets |
| | Derivatives |
| | Other commitments and guarantees |
| | Total exposure |
|
Residential mortgage loan securitizations: | | | | | | | | | | | |
Conforming | | | $ | 2,377 |
| | 13,811 |
| | — |
| | 1,183 |
| | 17,371 |
|
Other/nonconforming | | | 453 |
| | 57 |
| | — |
| | — |
| | 510 |
|
Commercial mortgage securitizations | | | 2,409 |
| | 893 |
| | 28 |
| | 11,563 |
| | 14,893 |
|
Collateralized debt obligations: | | | | | | | | | | | |
Debt securities | | | — |
| | — |
| | 5 |
| | 20 |
| | 25 |
|
Asset-based finance structures | | | 205 |
| | — |
| | — |
| | 71 |
| | 276 |
|
Tax credit structures | | | 12,087 |
| | — |
| | — |
| | 1,420 |
| | 13,507 |
|
Collateralized loan obligations | | | — |
| | — |
| | — |
| | — |
| | — |
|
Investment funds | | | 42 |
| | — |
| | — |
| | — |
| | 42 |
|
Other (3) | | | 207 |
| | — |
| | 45 |
| | 158 |
| | 410 |
|
Total | | | $ | 17,780 |
| | 14,761 |
| | 78 |
| | 14,415 |
| | 47,034 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | | Carrying value – asset (liability) | |
(in millions) | Total VIE assets |
| | Debt and equity interests (1) |
| | Servicing assets and advances |
| | Derivatives |
| | Debt, guarantees, and other commitments |
| | Net assets |
|
March 31, 2020 | | | | | | | | | | | |
Residential mortgage loan securitizations: | | | | | | | | | | | |
Conforming (2) | $ | 1,082,170 |
| | 2,103 |
| | 8,607 |
| | — |
| | (649 | ) | | 10,061 |
|
Other/nonconforming | 5,226 |
| | 120 |
| | 89 |
| | — |
| | — |
| | 209 |
|
Commercial mortgage loan securitizations | 174,761 |
| | 2,440 |
| | 1,043 |
| | 196 |
| | (18 | ) | | 3,661 |
|
Tax credit structures | 39,499 |
| | 12,841 |
| | — |
| | — |
| | (4,201 | ) | | 8,640 |
|
Other asset-based finance structures | 1,314 |
| | 190 |
| | — |
| | 71 |
| | (8 | ) | | 253 |
|
Other | 1,118 |
| | 41 |
| | — |
| | — |
| | — |
| | 41 |
|
Total | $ | 1,304,088 |
| | 17,735 |
| | 9,739 |
| | 267 |
| | (4,876 | ) | | 22,865 |
|
| | | Maximum exposure to loss | |
| | | Debt and equity interests (1) |
| | Servicing assets and advances |
| | Derivatives |
| | Debt, guarantees, and other commitments |
| | Total exposure |
|
Residential mortgage loan securitizations: | | | | | | | | | | | |
Conforming (2) | | | $ | 1,582 |
| | 8,607 |
| | — |
| | 973 |
| | 11,162 |
|
Other/nonconforming | | | 120 |
| | 89 |
| | — |
| | — |
| | 209 |
|
Commercial mortgage loan securitizations | | | 2,440 |
| | 1,043 |
| | 196 |
| | 11,776 |
| | 15,455 |
|
Tax credit structures | | | 12,841 |
| | — |
| | — |
| | 1,684 |
| | 14,525 |
|
Other asset-based finance structures | | | 190 |
| | — |
| | 76 |
| | 79 |
| | 345 |
|
Other | | | 41 |
| | — |
| | — |
| | 157 |
| | 198 |
|
Total | | | $ | 17,214 |
| | 9,739 |
| | 272 |
| | 14,669 |
| | 41,894 |
|
| | | | | | | | | | | |
| | | Carrying value – asset (liability) | |
(in millions) | Total VIE assets |
| | Debt and equity interests (1) |
| | Servicing assets and advances |
| | Derivatives |
| | Debt, guarantees, and other commitments |
| | Net assets |
|
December 31, 2019 | | | | | | | | | | | |
Residential mortgage loan securitizations: | | | | | | | | | | | |
Conforming (2) | $ | 1,098,103 |
| | 1,528 |
| | 11,931 |
| | — |
| | (683 | ) | | 12,776 |
|
Other/nonconforming | 5,178 |
| | 6 |
| | 152 |
| | — |
| | — |
| | 158 |
|
Commercial mortgage loan securitizations | 169,736 |
| | 2,239 |
| | 1,069 |
| | 80 |
| | (43 | ) | | 3,345 |
|
Tax credit structures | 39,091 |
| | 12,826 |
| | — |
| | — |
| | (4,260 | ) | | 8,566 |
|
Other asset-based finance structures | 1,355 |
| | 157 |
| | — |
| | 61 |
| | (20 | ) | | 198 |
|
Other | 1,167 |
| | 51 |
| | — |
| | — |
| | — |
| | 51 |
|
Total | $ | 1,314,630 |
| | 16,807 |
| | 13,152 |
| | 141 |
| | (5,006 | ) | | 25,094 |
|
| | | Maximum exposure to loss | |
| | | Debt and equity interests (1) |
| | Servicing assets and advances |
| | Derivatives |
| | Debt, guarantees, and other commitments |
| | Total exposure |
|
Residential mortgage loan securitizations: | | | | | | | | | | | |
Conforming (2) | | | $ | 972 |
| | 11,931 |
| | — |
| | 937 |
| | 13,840 |
|
Other/nonconforming | | | 6 |
| | 152 |
| | — |
| | — |
| | 158 |
|
Commercial mortgage loan securitizations | | | 2,239 |
| | 1,069 |
| | 80 |
| | 11,667 |
| | 15,055 |
|
Tax credit structures | | | 12,826 |
| | — |
| | — |
| | 1,701 |
| | 14,527 |
|
Other asset-based finance structures | | | 157 |
| | — |
| | 63 |
| | 91 |
| | 311 |
|
Other | | | 51 |
| | — |
| | — |
| | 157 |
| | 208 |
|
Total | | | $ | 16,251 |
| | 13,152 |
| | 143 |
| | 14,553 |
| | 44,099 |
|
| |
(1) | Includes total equity interests of $11.2$11.3 billion and $11.0$11.4 billion at June 30, 2019,March 31, 2020, and December 31, 2018,2019, 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) | ExcludesCarrying values include assets and related liabilities with a recordedof $521 million and $556 million at March 31, 2020, and December 31, 2019, respectively, related to certain unexercised unconditional repurchase options. These amounts represent the carrying value on our balance sheet of $551 millionthe loans and $1.2 billion at June 30, 2019, and December 31, 2018, respectively, for certain delinquent loans that are eligible for repurchase from GNMA loan securitizations. The recorded carrying value represents the amountassociated debt that would be payable if the Companyoption was exercised to exercise the repurchase option. The carryingeligible loans from GNMA loan securitizations. These amounts are excluded from maximum exposure to loss as we are not obligated to exercise the table because the loans eligible for repurchase do not represent interests in the VIEs.options. |
| |
(3) | Includes structured financing and credit-linked note structures. |
Note 10: Securitizations and Variable Interest Entities (continued)
In Table 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)investment in the VIEs excluding the unconditional repurchase options that have not been exercised, 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 910 (Securitizations and Variable Interest Entities) in our 20182019 Form 10-K.
INVESTMENT 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 second quarter and first half of 2019 was $10 million and $20 million, respectively, compared with $12 million and $25 million, respectively, in the same periods of 2018.
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 we reported the debt securities issued to the VIEs as long-term junior subordinated debt with a carrying value of $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 VIEs are not included in the preceding table.
Loan Sales and Securitization Activity
We periodically transfer consumer and CREcommercial 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.enhancements. 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 10.3 presents information about transfers during the cash flowsperiod of assets to unconsolidated VIEs or third-party investors for ourwhich we recorded the transfers accounted for as sales in which weand have continuing involvement with the transferred financial assets.
Table 10.3:Cash Flows From Sales and Securitization Activity
|
| | | | | | |
| Mortgage loans | |
(in millions) | 2019 |
| | 2018 |
|
Quarter ended June 30, | | | |
Proceeds from securitizations and whole loan sales | $ | 39,697 |
| | 51,990 |
|
Fees from servicing rights retained | 786 |
| | 830 |
|
Cash flows from other interests held (1) | 133 |
| | 168 |
|
Repurchases of assets/loss reimbursements (2): | | | |
Non-agency securitizations and whole loan transactions | 1 |
| | 1 |
|
Agency securitizations (3) | 27 |
| | 19 |
|
Servicing advances, net of repayments | (54 | ) | | (7 | ) |
Six months ended June 30, | | | |
Proceeds from securitizations and whole loan sales | $ | 76,204 |
| | 102,577 |
|
Fees from servicing rights retained | 1,566 |
| | 1,675 |
|
Cash flows from other interests held (1) | 244 |
| | 353 |
|
Repurchases of assets/loss reimbursements (2): | | | |
Non-agency securitizations and whole loan transactions | 1 |
| | 2 |
|
Agency securitizations (3) | 44 |
| | 52 |
|
Servicing advances, net of repayments | (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. Second quarter and first half of 2019 exclude $1.3 billion and $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 $1.8 billion and $4.7 billion, respectively, in the same periods of 2018. These loans are predominantly insured by the FHA or guaranteed by the VA. |
In the second quarter and first half of 2019, we recognized net gains of $119 million and $180 million, respectively, from transfers accounted for as sales of financial assets, in which we have continuing involvement with the transferred assets, compared with $54 million and $112 million, respectively, in the same periods of 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 commercial mortgage securitizations, and residential mortgage securitizations where the loans were not already carried at fair value.
Sales with continuing involvement during the second quarter and first half of 2019 and 2018 largely related to securitizations of residential mortgages that are sold to the government-sponsored entities (GSEs), including FNMA, FHLMC and GNMA (conforming residential mortgage securitizations). During the second quarter and first half of 2019, we transferred $36.7 billion and $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 $47.7 billion and $95.0 billion, respectively, in the same periods of 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 half of 2019, we recorded a $707 million servicing asset, measured at fair value using a Level 3 measurement technique,assets, securities, of $3.4 billion, classified as Level 2, and a $8 million liability for repurchase losses which reflects management’s estimate of probable losses related to various representations and warranties for the loans
transferred, transferred. Each of these interests are initially measured at fair value. InServicing rights are classified as Level 3 measurements, and securities are initially predominantly classified as Level 2.
Sales with continuing involvement include securitizations of conforming residential mortgages that are sold to the first half of 2018, we recordedGSEs or GNMA. Substantially all transfers to these entities resulted in no gain or loss because the loans were already measured at fair value on a $988 million servicing asset, securities of $1.8 billion, and a $7 million liability.recurring basis.
Table 10.3:Transfers With Continuing Involvement
|
| | | | | | | | | | | | |
| Quarter ended March 31, | |
(in millions) | | | 2020 |
| | | | 2019 |
|
| Residential mortgages |
| | Commercial mortgages |
| | Residential mortgages |
| | Commercial mortgages |
|
Net gains (losses) on sale | $ | 52 |
| | 69 |
| | 14 |
| | 47 |
|
Asset balances sold | 47,857 |
| | 2,728 |
| | 34,103 |
| | 2,702 |
|
Servicing rights recognized | 446 |
| | 34 |
| | 320 |
| | 26 |
|
Securities recognized | 2,313 |
| | 62 |
| | 912 |
| | — |
|
Liability for repurchase losses recognized | 3 |
| | — |
| | 3 |
| | — |
|
Table 10.4 presents the key weighted-average assumptions we used to measure residential mortgage servicing rightsMSRs at the date of securitization.
Table 10.4: Residential Mortgage Servicing Rights
| | | Residential mortgage servicing rights | | Residential mortgage servicing rights | |
| 2019 |
| | 2018 |
| 2020 |
| | 2019 |
|
Quarter ended June 30, | | | | |
Quarter ended March 31, | | | | |
Prepayment speed (1) | 13.5 | % | | 10.7 |
| 12.7 | % | | 13.5 |
|
Discount rate | 7.5 |
| | 7.4 |
| 6.5 |
| | 8.1 |
|
Cost to service ($ per loan) (2) | $ | 121 |
| | 146 |
| $ | 91 |
| | 94 |
|
Six months ended June 30, | | | | |
Prepayment speed (1) | 13.5 | % | | 10.1 |
| |
Discount rate | 7.7 |
| | 7.4 |
| |
Cost to service ($ per loan) (2) | $ | 109 |
| | 132 |
| |
| |
(1) | The prepayment speed assumption for residential mortgage servicing rightsMSRs 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 ondue to changes in model assumptions and the mix of modified government-guaranteed loans sold to GNMA. |
During
Table 10.5 presents the second quarter and first half of 2019, we transferred $3.4 billion and $6.1 billion, respectively, in carrying value of commercial mortgagesproceeds related to unconsolidated VIEs and third-party investors and recorded the transfers accounted for as sales comparedin which we have continuing involvement with the transferred financial assets, as well as current period cash flows from continuing involvement with previous transfers accounted for as sales. Cash flows from other interests held predominantly include principal and interest payments received on retained bonds. Repurchases of assets represents cash paid to repurchase loans from investors under representation and warranty obligations or in connection with the exercise of cleanup calls on securitizations. Loss reimbursements is cash paid to reimburse investors for losses on individual loans that are already liquidated. Government insured loans are delinquent loans that we service and have exercised our option to purchase out of GNMA pools. These loans are insured by the FHA or guaranteed by the VA.
Note 10: SecuritizationsTable 10.5:Cash Inflows (Outflows) From Sales and Variable Interest Entities (Securitization Activitycontinued)
|
| | | | | | |
| Mortgage loans | |
(in millions) | 2020 |
| | 2019 |
|
Quarter ended March 31, | | | |
Proceeds from securitizations and whole loan sales | $ | 50,229 |
| | 36,507 |
|
Fees from servicing rights retained | 756 |
| | 780 |
|
Cash flows from other interests held | 167 |
| | 111 |
|
Repurchases of assets/loss reimbursements: | | | |
Non-agency securitizations and whole loan transactions | — |
| | — |
|
Government insured loans | (1,440 | ) | | (1,942 | ) |
Agency securitizations | (26 | ) | | (17 | ) |
Servicing advances, net of recoveries (1) | 33 |
| | 39 |
|
| |
(1) | Cash flows from servicing advances includes principal and interest payments to investors required by servicing agreements. |
with $4.4 billion and $7.5 billion, respectively, in the same periods of 2018. These transfers resulted in gains of $74 million and $121 million in the second quarter and first half of 2019, respectively, because the loans were carried at LOCOM, compared with gains of $60 million and $129 million in the same periods of 2018. In connection with these transfers, in the first half of 2019, we recorded a servicing asset of $59 million, initially measured at fair value using a Level 3 measurement technique, and no securities. In the first half of 2018, we recorded a servicing asset of $73 million and securities of $208 million.
Retained Interests from UnconsolidatedVIEs
Table 10.510.6 provides key economic assumptions and the sensitivity of the current fair value of residential mortgage servicing rightsMSRs and other interests held related to unconsolidated VIEs to
immediate adverse changes in those assumptions. Amounts for residential MSRs include purchased servicing rights as well as servicing rights resulting from the transfer of loans. See Note 16 (Fair Values of Assets and Liabilities) for additional information on key economic assumptions for residential MSRs. “Other interests held” relate towere obtained when we securitized residential and commercial mortgage loan securitizations.loans. Residential mortgage-backed securities retained
in securitizations issued through GSEs such as FNMA, FHLMC andor GNMA, are excluded from the table because these securities have a remote risk of credit loss due to the GSE or government guarantee. These securities also have economic characteristics similar to GSE or GNMA mortgage-backed securities that we purchase, which are not included in the table. Subordinated interests include only those bonds whose credit rating was below AAA by a major rating agency at issuance. Senior interests include only those bonds whose credit rating was AAA by a major rating agency at issuance. The information presented excludes trading positions held in inventory.
Table 10.5:10.6: Retained Interests from Unconsolidated VIEs
|
| | | | | | | | | | |
| | Other interests held | |
| Residential mortgage servicing rights |
| | Commercial | |
($ in millions, except cost to service amounts) | | Subordinated bonds |
| | Senior bonds |
|
Fair value of interests held at March 31, 2020 | $ | 8,126 |
| | 924 |
| | 326 |
|
Expected weighted-average life (in years) | 4.3 |
| | 7.1 |
| | 5.6 |
|
Key economic assumptions: | | | | | |
Prepayment speed assumption | 15.7 | % | | | | |
Decrease in fair value from: | | | | | |
10% adverse change | $ | 475 |
| | | | |
25% adverse change | 1,105 |
| | | | |
Discount rate assumption | 7.1 | % | | 5.4 |
| | 3.5 |
|
Decrease in fair value from: | | | | | |
100 basis point increase | $ | 293 |
| | 54 |
| | 16 |
|
200 basis point increase | 563 |
| | 103 |
| | 30 |
|
Cost to service assumption ($ per loan) | 112 |
| | | | |
Decrease in fair value from: | | | | | |
10% adverse change | 234 |
| | | | |
25% adverse change | 585 |
| | | | |
Credit loss assumption | | | 3.7 | % | | — |
|
Decrease in fair value from: | | | | | |
10% higher losses | | | $ | 28 |
| | — |
|
25% higher losses | | | 31 |
| | — |
|
Fair value of interests held at December 31, 2019 | $ | 11,517 |
| | 909 |
| | 352 |
|
Expected weighted-average life (in years) | 5.3 |
| | 7.3 |
| | 5.5 |
|
Key economic assumptions: | | | | | |
Prepayment speed assumption | 11.9 | % | | | | |
Decrease in fair value from: | | | | | |
10% adverse change | $ | 537 |
| | | | |
25% adverse change | 1,261 |
| | | | |
Discount rate assumption | 7.2 | % | | 4.0 |
| | 2.9 |
|
Decrease in fair value from: | | | | | |
100 basis point increase | $ | 464 |
| | 53 |
| | 16 |
|
200 basis point increase | 889 |
| | 103 |
| | 32 |
|
Cost to service assumption ($ per loan) | 102 |
| | | | |
Decrease in fair value from: | | | | | |
10% adverse change | 253 |
| | | | |
25% adverse change | 632 |
| | | | |
Credit loss assumption | | | 3.1 | % | | — |
|
Decrease in fair value from: | | | | | |
10% higher losses | | | $ | 1 |
| | — |
|
25% higher losses | | | 4 |
| | — |
|
Note 10: Securitizations and Variable Interest Entities (continued)
|
| | | | | | | | | | | | | |
| | | Other interests held | |
| Residential mortgage servicing rights (1) |
| | Interest-only strips |
| | Commercial | |
($ in millions, except cost to service amounts) | | | Subordinated bonds |
| | Senior bonds |
|
Fair value of interests held at June 30, 2019 | $ | 12,096 |
| | 14 |
| | 706 |
| | 302 |
|
Expected weighted-average life (in years) | 5.6 |
| | 3.4 |
| | 7.2 |
| | 5.3 |
|
Key economic assumptions: | | | | | | | |
Prepayment speed assumption (2) | 12.2 | % | | 18.8 |
| | | | |
Decrease in fair value from: | | | | | | | |
10% adverse change | $ | 526 |
| | 1 |
| | | | |
25% adverse change | 1,239 |
| | 1 |
| | | | |
Discount rate assumption | 7.4 | % | | 13.9 |
| | 3.5 |
| | 2.8 |
|
Decrease in fair value from: | | | | | | | |
100 basis point increase | $ | 499 |
| | — |
| | 41 |
| | 14 |
|
200 basis point increase | 954 |
| | — |
| | 79 |
| | 26 |
|
Cost to service assumption ($ per loan) | 104 |
| | | | | | |
Decrease in fair value from: | | | | | | | |
10% adverse change | 283 |
| | | | | | |
25% adverse change | 707 |
| | | | | | |
Credit loss assumption | | | | | 4.4 | % | | — |
|
Decrease in fair value from: | | | | | | | |
10% higher losses | | | | | $ | 2 |
| | — |
|
25% higher losses | | | | | 5 |
| | — |
|
Fair value of interests held at December 31, 2018 | $ | 14,649 |
| | 16 |
| | 668 |
| | 309 |
|
Expected weighted-average life (in years) | 6.5 |
| | 3.6 |
| | 7.0 |
| | 5.7 |
|
Key economic assumptions: | | | | | | | |
Prepayment speed assumption (2) | 9.9 | % | | 17.7 |
| | | | |
Decrease in fair value from: | | | | | | | |
10% adverse change | $ | 530 |
| | 1 |
| | | | |
25% adverse change | 1,301 |
| | 1 |
| | | | |
Discount rate assumption | 8.1 | % | | 14.5 |
| | 4.3 |
| | 3.7 |
|
Decrease in fair value from: | | | | | | | |
100 basis point increase | $ | 615 |
| | — |
| | 37 |
| | 14 |
|
200 basis point increase | 1,176 |
| | 1 |
| | 72 |
| | 28 |
|
Cost to service assumption ($ per loan) | 106 |
| | | | | | |
Decrease in fair value from: | | | | | | | |
10% adverse change | 316 |
| | | | | | |
25% adverse change | 787 |
| | | | | | |
Credit loss assumption | | | | | 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) | 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 MSRs included in the previous table, we have a small portfolio of commercial MSRs which are carried at lower of cost or market value (LOCOM) with a fair value of $1.5 billion and $1.9 billion and $2.3 billion at June 30, 2019,March 31, 2020, and December 31, 2018,2019, 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 valuevalues of thecommercial MSRs and commercial mortgage securitization bonds. Additionally, forbonds as commercial loans generally include contractual restrictions on prepayment. Servicing costs are not a driver of our commercial MSR portfolio,value as we are typically master/primary servicer, but notor master servicer; the special servicer, who is separately responsible for thehigher costs of servicing and workout of delinquent and foreclosed loans. Itloans is generally born by 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. servicer. The primary economic driver impacting the fair value of our commercial MSRs is forward interest rates, which are derived from market observable yield curves used to price capital markets instruments. Market interest rates significantly affect interest earned on custodial deposit balances. The sensitivity of the current fair value to an immediate adverse 25% change in the assumption about interest earned on deposit balances at June 30, 2019,March 31, 2020, and December 31, 2018,2019, results in a decrease in fair value of $231$146 million and $320$205 million, respectively. See Note 11 (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 10.610.7 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 10.6:10.7: Off-Balance Sheet Loans Sold or Securitized
| | | | | | | | | | | Net charge-offs | | | | | | | | | | Net charge-offs (2) | |
| Total loans | | | Delinquent loans and foreclosed assets (1) | | | Six months ended Jun 30, | | Total loans | | | Delinquent loans and foreclosed assets (1) | | | Quarter ended Mar 31, | |
(in millions) | Jun 30, 2019 |
| | Dec 31, 2018 |
| | Jun 30, 2019 |
| | Dec 31, 2018 |
| | 2019 |
| | 2018 |
| Mar 31, 2020 |
| | Dec 31, 2019 |
| | Mar 31, 2020 |
| | Dec 31, 2019 |
| | 2020 |
| | 2019 |
|
Commercial: | | | | | | | | | | | | | | | | | | | | | | |
Real estate mortgage | $ | 107,239 |
| | 105,173 |
| | 955 |
| | 1,008 |
| | 89 |
| | 151 |
| $ | 113,196 |
| | 112,507 |
| | 679 |
| | 776 |
| | 71 |
| | 79 |
|
Total commercial | 107,239 |
| | 105,173 |
| | 955 |
| | 1,008 |
| | 89 |
| | 151 |
| 113,196 |
| | 112,507 |
| | 679 |
| | 776 |
| | 71 |
| | 79 |
|
Consumer: | | | | | | | | | | | | | | | | | | | | | | |
Real estate 1-4 family first mortgage | 1,045,840 |
| | 1,097,128 |
| | 7,650 |
| | 8,947 |
| | 110 |
| | 250 |
| 986,570 |
| | 1,008,446 |
| | 6,326 |
| | 6,664 |
| | 31 |
| | 67 |
|
Real estate 1-4 family junior lien mortgage | | 12 |
| | 13 |
| | 2 |
| | 2 |
| | — |
| | — |
|
Total consumer | 1,045,840 |
| | 1,097,128 |
| | 7,650 |
| | 8,947 |
| | 110 |
| | 250 |
| 986,582 |
| | 1,008,459 |
| | 6,328 |
| | 6,666 |
| | 31 |
| | 67 |
|
Total off-balance sheet sold or securitized loans (2) | $ | 1,153,079 |
| | 1,202,301 |
| | 8,605 |
| | 9,955 |
| | 199 |
| | 401 |
| |
Total off-balance sheet sold or securitized loans (3) | | $ | 1,099,778 |
| | 1,120,966 |
| | 7,007 |
| | 7,442 |
| | 102 |
| | 146 |
|
| |
(1) | Includes $583$365 million and $675$492 million of commercial foreclosed assets and $507$354 million and $582$356 million of consumer foreclosed assets at June 30, 2019,March 31, 2020, and December 31, 2018,2019, respectively. |
| |
(2) | At June 30, 2019, and December 31, 2018, the table includes total loans of $1.1 trillion at both dates, delinquent loans of $5.7 billion and $6.4 billion, and foreclosed assets of $364 million and $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. |
| |
(3) | At March 31, 2020, and December 31, 2019, the table includes total loans of $1.0 trillion at both dates, delinquent loans of $5.2 billion at both dates, and foreclosed assets of $259 million and $251 million, respectively, for FNMA, FHLMC and GNMA. |
Note 10: Securitizations and Variable Interest Entities (continued)
Transactions with Consolidated VIEs and Secured Borrowings
Table 10.710.8 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 10.7:10.8: Transactions with Consolidated VIEs and Secured Borrowings
| | | | | Carrying value | | | | Carrying value | |
(in millions) | Total VIE assets |
| | Assets |
| | Liabilities |
| | Noncontrolling interests |
| | Net assets |
| Total VIE assets |
| | Assets |
| | Liabilities |
| | Noncontrolling interests |
| | Net assets |
|
June 30, 2019 | | | | | | | | | | |
March 31, 2020 | | | | | | | | | | |
Secured borrowings: | | | | | | | | | | | | | | | | | | |
Municipal tender option bond securitizations | $ | 263 |
| | 270 |
| | (265 | ) | | — |
| | 5 |
| |
Residential mortgage securitizations | 87 |
| | 87 |
| | (85 | ) | | — |
| | 2 |
| $ | 77 |
| | 77 |
| | (76 | ) | | — |
| | 1 |
|
Total secured borrowings | 350 |
| | 357 |
| | (350 | ) | | — |
| | 7 |
| 77 |
| | 77 |
| | (76 | ) | | — |
| | 1 |
|
Consolidated VIEs: | | | | | | | | | | | | | | | | | | |
Commercial and industrial loans and leases | 7,742 |
| | 7,728 |
| | (490 | ) | | (13 | ) | | 7,225 |
| 7,760 |
| | 7,755 |
| | (226 | ) | | (11 | ) | | 7,518 |
|
Nonconforming residential mortgage loan securitizations | 1,475 |
| | 1,288 |
| | (452 | ) | | — |
| | 836 |
| 679 |
| | 567 |
| | (236 | ) | | — |
| | 331 |
|
Commercial real estate loans | 4,794 |
| | 4,794 |
| | — |
| | — |
| | 4,794 |
| 5,022 |
| | 5,022 |
| | — |
| | — |
| | 5,022 |
|
Investment funds | 194 |
| | 194 |
| | (6 | ) | | (24 | ) | | 164 |
| |
Municipal tender option bond securitizations | | 500 |
| | 505 |
| | (502 | ) | | — |
| | 3 |
|
Other | 6 |
| | 6 |
| | (2 | ) | | (4 | ) | | — |
| 247 |
| | 247 |
| | (10 | ) | | (22 | ) | | 215 |
|
Total consolidated VIEs | 14,211 |
| | 14,010 |
| | (950 | ) | | (41 | ) | | 13,019 |
| 14,208 |
| | 14,096 |
| | (974 | ) | | (33 | ) | | 13,089 |
|
Total secured borrowings and consolidated VIEs | $ | 14,561 |
| | 14,367 |
| | (1,300 | ) | | (41 | ) | | 13,026 |
| $ | 14,285 |
| | 14,173 |
| | (1,050 | ) | | (33 | ) | | 13,090 |
|
December 31, 2018 | | | | | | | | | | |
December 31, 2019 | | | | | | | | | | |
Secured borrowings: | | | | | | | | | | | | | | | | | | |
Municipal tender option bond securitizations | $ | 627 |
| | 523 |
| | (501 | ) | | — |
| | 22 |
| |
Residential mortgage securitizations | 95 |
| | 94 |
| | (93 | ) | | — |
| | 1 |
| $ | 81 |
| | 80 |
| | (79 | ) | | — |
| | 1 |
|
Total secured borrowings | 722 |
| | 617 |
| | (594 | ) | | — |
| | 23 |
| 81 |
| | 80 |
| | (79 | ) | | — |
| | 1 |
|
Consolidated VIEs: | | | | | | | | | | | | | | | | | | |
Commercial and industrial loans and leases | 8,215 |
| | 8,204 |
| | (477 | ) | | (14 | ) | | 7,713 |
| 8,054 |
| | 8,042 |
| | (529 | ) | | (16 | ) | | 7,497 |
|
Nonconforming residential mortgage loan securitizations | 1,947 |
| | 1,732 |
| | (521 | ) | | — |
| | 1,211 |
| 935 |
| | 809 |
| | (290 | ) | | — |
| | 519 |
|
Commercial real estate loans | 3,957 |
| | 3,957 |
| | — |
| | — |
| | 3,957 |
| 4,836 |
| | 4,836 |
| | — |
| | — |
| | 4,836 |
|
Investment funds | 155 |
| | 155 |
| | (5 | ) | | (15 | ) | | 135 |
| |
Municipal tender option bond securitizations | | 401 |
| | 402 |
| | (401 | ) | | — |
| | 1 |
|
Other | 14 |
| | 14 |
| | (4 | ) | | (5 | ) | | 5 |
| 279 |
| | 279 |
| | (6 | ) | | (27 | ) | | 246 |
|
Total consolidated VIEs | 14,288 |
| | 14,062 |
| | (1,007 | ) | | (34 | ) | | 13,021 |
| 14,505 |
| | 14,368 |
| | (1,226 | ) | | (43 | ) | | 13,099 |
|
Total secured borrowings and consolidated VIEs | $ | 15,010 |
| | 14,679 |
| | (1,601 | ) | | (34 | ) | | 13,044 |
| $ | 14,586 |
| | 14,448 |
| | (1,305 | ) | | (43 | ) | | 13,100 |
|
We have raised financing through the securitization of certain financial assets in transactions with VIEs accounted for as secured borrowings. We also consolidate VIEs where we are the primary beneficiary. In certain transactions, we provide contractual support in the form of limited recourse and liquidity to facilitate the remarketing of short-term securities issued to third-party investors. Other than this limited contractual support, the assets of the VIEs are the sole source of repayment of the securities held by third parties.
For complete descriptions of our accounting for transfers accounted for as secured borrowings and involvementsinvolvement with consolidated VIEs, see Note 910 (Securitizations and Variable Interest Entities) in our 20182019 Form 10-K.
Other Transactions
In addition to the transactions included in the previous tables, we have used wholly-owned trust preferred security VIEs to issue debt securities or preferred equity exclusively to third-party investors. As the sole assets of the VIEs are receivables from us, we do not consolidate the VIEs 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 we reported the debt securities issued to the VIEs as long-term junior subordinated debt with a carrying value of $686 million and $2.1 billion at March 31, 2020, and December 31, 2019, respectively. During first quarter 2020, we liquidated certain of our trust preferred security VIEs. As part of these liquidations, the preferred securities issued by the trusts were canceled and junior subordinated debentures with a total carrying value of $1.4 billion were distributed to the preferred security holders. Prior to the liquidations, we held $10 million of these preferred securities, which were exchanged for junior subordinated debentures upon liquidation and subsequently retired with no impact to earnings. See Note 17 (Preferred Stock) for additional information about trust preferred securities.
Certain money market funds are also excluded from the previous tables because they are exempt from the consolidation analysis. We voluntarily waived a portion of our management fees for these money market funds to maintain a minimum level of daily net investment income. The amount of fees waived was $11 million and $10 million in first quarter 2020 and 2019, respectively.
Note 11: Mortgage Banking Activities (continued)
|
|
Note 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 activitysales and servicing.
We apply the amortization method to commercial MSRs and the fair value method to residential MSRs. Table 11.1 presents the changes in MSRs measured using the fair value method.
Table 11.1: Analysis of Changes in Fair Value MSRs
| | | Quarter ended June 30, | | | Six months ended June 30, | | Quarter ended March 31, | |
(in millions) | 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
| 2020 |
| | 2019 |
|
Fair value, beginning of period | $ | 13,336 |
| | 15,041 |
| | 14,649 |
| | 13,625 |
| $ | 11,517 |
| | 14,649 |
|
Servicing from securitizations or asset transfers (1) | 400 |
| | 486 |
| | 741 |
| | 1,059 |
| 461 |
| | 341 |
|
Sales and other (2) | (1 | ) | | (1 | ) | | (282 | ) | | (5 | ) | (31 | ) | | (281 | ) |
Net additions | 399 |
| | 485 |
| | 459 |
| | 1,054 |
| 430 |
| | 60 |
|
Changes in fair value: | | | | | | | | | | |
Due to changes in valuation model inputs or assumptions: | | | | | | | | | | |
Mortgage interest rates (3) | (1,153 | ) | | 376 |
| | (2,093 | ) | | 1,629 |
| (3,022 | ) | | (940 | ) |
Servicing and foreclosure costs (4) | (22 | ) | | 30 |
| | (10 | ) | | 64 |
| (73 | ) | | 12 |
|
Discount rates (5) | (109 | ) | | — |
| | (9 | ) | | — |
| 27 |
| | 100 |
|
Prepayment estimates and other (6) | 206 |
| | (61 | ) | | 143 |
| | (18 | ) | (189 | ) | | (63 | ) |
Net changes in valuation model inputs or assumptions | (1,078 | ) | | 345 |
| | (1,969 | ) | | 1,675 |
| (3,257 | ) | | (891 | ) |
Changes due to collection/realization of expected cash flows over time(7) | (561 | ) | | (460 | ) | | (1,043 | ) | | (943 | ) | (564 | ) | | (482 | ) |
Total changes in fair value | (1,639 | ) | | (115 | ) | | (3,012 | ) | | 732 |
| (3,821 | ) | | (1,373 | ) |
Fair value, end of period | $ | 12,096 |
| | 15,411 |
| | 12,096 |
| | 15,411 |
| $ | 8,126 |
| | 13,336 |
|
| |
(1) | Includes impacts associated with exercising cleanup calls on securitizations as well as 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 delinquent GNMA 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 otherupdates to 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. |
| |
(7) | Represents the reduction in the MSR fair value for the cash flows expected to be collected during the period, net of income accreted due to the passage of time. |
Table 11.2 presents the changes in amortized MSRs.
Table 11.2: Analysis of Changes in Amortized MSRs
| | | Quarter ended June 30, | | | Six months ended June 30, | | Quarter ended March 31, | |
(in millions) | 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
| 2020 |
| | 2019 |
|
Balance, beginning of period | $ | 1,427 |
| | 1,411 |
| | 1,443 |
| | 1,424 |
| $ | 1,430 |
| | 1,443 |
|
Purchases | 16 |
| | 22 |
| | 40 |
| | 40 |
| 8 |
| | 24 |
|
Servicing from securitizations or asset transfers | 33 |
| | 39 |
| | 59 |
| | 73 |
| 34 |
| | 26 |
|
Amortization | (69 | ) | | (65 | ) | | (135 | ) | | (130 | ) | (66 | ) | | (66 | ) |
Balance, end of period (1) | $ | 1,407 |
| | 1,407 |
| | 1,407 |
| | 1,407 |
| $ | 1,406 |
| | 1,427 |
|
Fair value of amortized MSRs: | | | | | | | | | | |
Beginning of period | $ | 2,149 |
| | 2,307 |
| | 2,288 |
| | 2,025 |
| $ | 1,872 |
| | 2,288 |
|
End of period | 1,897 |
| | 2,309 |
| | 1,897 |
| | 2,309 |
| 1,490 |
| | 2,149 |
|
| |
(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 no0 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 11.3 at unpaid principal balance for loans serviced and subserviced for others and at book value for owned loans serviced.
Table 11.3: Managed Servicing Portfolio
| | (in billions) | Jun 30, 2019 |
| | Dec 31, 2018 |
| Mar 31, 2020 |
| | Dec 31, 2019 |
|
Residential mortgage servicing: | | | | | | |
Serviced for others | $ | 1,107 |
| | 1,164 |
| |
Serviced and subserviced for others | | $ | 1,041 |
| | 1,065 |
|
Owned loans serviced | 340 |
| | 334 |
| 341 |
| | 343 |
|
Subserviced for others | 5 |
| | 4 |
| |
Total residential servicing | 1,452 |
| | 1,502 |
| 1,382 |
| | 1,408 |
|
Commercial mortgage servicing: | | | | | | |
Serviced for others | 548 |
| | 543 |
| |
Serviced and subserviced for others | | 573 |
| | 575 |
|
Owned loans serviced | 123 |
| | 121 |
| 124 |
| | 124 |
|
Subserviced for others | 9 |
| | 9 |
| |
Total commercial servicing | 680 |
| | 673 |
| 697 |
| | 699 |
|
Total managed servicing portfolio | $ | 2,132 |
| | 2,175 |
| $ | 2,079 |
| | 2,107 |
|
Total serviced for others | $ | 1,655 |
| | 1,707 |
| |
Total serviced for others, excluding subserviced for others | | $ | 1,602 |
| | 1,629 |
|
Ratio of MSRs to related loans serviced for others | 0.82 | % | | 0.94 |
| 0.60 | % | | 0.79 |
|
Table 11.4 presents the components of mortgage banking noninterest income.
Table 11.4: Mortgage Banking Noninterest Income
| |
| | Quarter ended June 30, | | | Six months ended June 30, | | | Quarter ended March 31, | |
(in millions) | | 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
| | 2020 |
| | 2019 |
|
Servicing income, net: | | | | | | | | | | | | |
Servicing fees: | | | | | | | | | | | | |
Contractually specified servicing fees | | $ | 846 |
| | 901 |
| | 1,686 |
| | 1,817 |
| | $ | 808 |
| | 840 |
|
Late charges | | 30 |
| | 42 |
| | 63 |
| | 86 |
| | 27 |
| | 33 |
|
Ancillary fees | | 38 |
| | 47 |
| | 76 |
| | 87 |
| | 30 |
| | 38 |
|
Unreimbursed direct servicing costs (1) | | (84 | ) | | (85 | ) | | (154 | ) | | (179 | ) | | (107 | ) | | (70 | ) |
Net servicing fees | | 830 |
| | 905 |
| | 1,671 |
| | 1,811 |
| | 758 |
| | 841 |
|
Changes in fair value of MSRs carried at fair value: | | | | | | | | | | | | |
Due to changes in valuation model inputs or assumptions (2) | (A) | (1,078 | ) | | 345 |
| | (1,969 | ) | | 1,675 |
| (A) | (3,257 | ) | | (891 | ) |
Changes due to collection/realization of expected cash flows over time(3) | | (561 | ) | | (460 | ) | | (1,043 | ) | | (943 | ) | | (564 | ) | | (482 | ) |
Total changes in fair value of MSRs carried at fair value | | (1,639 | ) | | (115 | ) | | (3,012 | ) | | 732 |
| | (3,821 | ) | | (1,373 | ) |
Amortization | | (69 | ) | | (65 | ) | | (135 | ) | | (130 | ) | | (66 | ) | | (66 | ) |
Net derivative gains (losses) from economic hedges (3) | (B) | 1,155 |
| | (319 | ) | | 2,117 |
| | (1,539 | ) | |
Net derivative gains from economic hedges (4) | | (B) | 3,400 |
| | 962 |
|
Total servicing income, net | | 277 |
| | 406 |
| | 641 |
| | 874 |
| | 271 |
| | 364 |
|
Net gains on mortgage loan origination/sales activities (4)(5) | | 481 |
| | 364 |
| | 825 |
| | 830 |
| | 108 |
| | 344 |
|
Total mortgage banking noninterest income | | $ | 758 |
| | 770 |
| | 1,466 |
| | 1,704 |
| | $ | 379 |
| | 708 |
|
Market-related valuation changes to MSRs, net of hedge results (3)(4) | (A)+(B) | $ | 77 |
| | 26 |
| | 148 |
| | 136 |
| (A)+(B) | $ | 143 |
| | 71 |
|
| |
(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 11.1 in this Note for more detail. |
| |
(3) | Represents the reduction in in the MSR fair value for the cash flows expected to be collected during the period, net of income accreted due to the passage of time. |
| |
(4) | Represents results from economic hedges used to hedge the risk of changes in fair value of MSRs. See Note 15 (Derivatives) for additional discussion and detail. |
| |
(4)(5) | Includes net gains (losses)losses of $(283)$(929) million and $(434)$(151) million in the secondfirst quarter 2020and first half of 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 12: Intangible Assets (continued)
|
|
Note 12: Intangible Assets |
Table 12.1 presents the gross carrying value of intangible assets and accumulated amortization.
Table 12.1: Intangible Assets
| | | June 30, 2019 | | | December 31, 2018 | | March 31, 2020 | | | December 31, 2019 | |
(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) | $ | 4,260 |
| | (2,853 | ) | | 1,407 |
| | 4,161 |
| | (2,718 | ) | | 1,443 |
| $ | 4,465 |
| | (3,059 | ) | | 1,406 |
| | 4,422 |
| | (2,992 | ) | | 1,430 |
|
Core deposit intangibles | — |
| | — |
| | — |
| | 12,834 |
| | (12,834 | ) | | — |
| |
Customer relationship and other intangibles | 3,937 |
| | (3,458 | ) | | 479 |
| | 3,994 |
| | (3,449 | ) | | 545 |
| 879 |
| | (480 | ) | | 399 |
| | 947 |
| | (524 | ) | | 423 |
|
Total amortized intangible assets | $ | 8,197 |
| | (6,311 | ) | | 1,886 |
| | 20,989 |
| | (19,001 | ) | | 1,988 |
| $ | 5,344 |
| | (3,539 | ) | | 1,805 |
| | 5,369 |
| | (3,516 | ) | | 1,853 |
|
Unamortized intangible assets: | | | | | | | | | | | | | | | | | | | | | | |
MSRs (carried at fair value) (2) | $ | 12,096 |
| | | | | | 14,649 |
| | | | | $ | 8,126 |
| | | | | | 11,517 |
| | | | |
Goodwill | 26,415 |
| | | | | | 26,418 |
| | | | | 26,381 |
| | | | | | 26,390 |
| | | | |
Trademark | 14 |
| | | | | | 14 |
| | | | | 14 |
| | | | | | 14 |
| | | | |
| |
(1) | Balances are excluded commencing in the period following full amortization. |
| |
(2) | See Note 11 (Mortgage Banking Activities) for additional information on MSRs. |
Table 12.2 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 June 30, 2019.March 31, 2020. Future amortization expense may vary from these projections.
Table 12.2: Amortization Expense for Intangible Assets
| | (in millions) | | Amortized MSRs |
| | Customer relationship and other intangibles |
| | Total |
| | 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 |
| |
Three months ended March 31, 2020 (actual) | | | $ | 67 |
| | 24 |
| | 91 |
|
Estimate for the remainder of 2020 | | | $ | 202 |
| | 71 |
| | 273 |
|
Estimate for year ended December 31, | Estimate for year ended December 31, | | | | | | Estimate for year ended December 31, | | | | | |
2020 | | 249 |
| | 95 |
| | 344 |
| |
2021 | | 213 |
| | 81 |
| | 294 |
| | 235 |
| | 81 |
| | 316 |
|
2022 | | 188 |
| | 68 |
| | 256 |
| | 210 |
| | 68 |
| | 278 |
|
2023 | | 159 |
| | 59 |
| | 218 |
| | 181 |
| | 59 |
| | 240 |
|
2024 | | 134 |
| | 48 |
| | 182 |
| | 156 |
| | 48 |
| | 204 |
|
2025 | | | 130 |
| | 39 |
| | 169 |
|
Note 12: Intangible Assets (continued)
Table 12.3 shows the allocation of goodwill to our reportable operating segments. We assess goodwill for impairment at a
reporting unit level, which is generally one level below the operating segments.
Table 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, 2018 | $ | 16,685 |
| | 8,450 |
| | 1,283 |
|
| 26,418 |
|
Foreign currency translation | — |
| | 2 |
| | — |
| | 2 |
|
March 31, 2019 | $ | 16,685 |
| | 8,452 |
| | 1,283 |
| | 26,420 |
|
December 31, 2019 | $ | 16,685 |
| | 8,429 |
| | 1,276 |
| | 26,390 |
|
Foreign currency translation | — |
| | (9 | ) | | — |
| | (9 | ) |
March 31, 2020 | $ | 16,685 |
| | 8,420 |
| | 1,276 |
| | 26,381 |
|
| |
(1) | At June 30, 2018, others assets included goodwill classified as held-for-sale of $155 million related to the sales agreements for Reliable Financial Services, Inc. and 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 22 (Operating Segments) for further information on management reporting.
|
|
Note 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 and direct pay letters of credit, securities lending and other indemnifications, written put options, recourse obligations, and other types of similar arrangements. For
arrangements. For complete descriptions of our guarantees, see Note 1516 (Guarantees, Pledged Assets and Collateral, and Other Commitments) in our 20182019 Form 10-K. Table 13.1 shows carrying value, maximum exposure to loss on our guarantees and the related non-investment grade amounts.
Table 13.1: Guarantees – Carrying Value and 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 |
|
June 30, 2019 | | | | | | | | | | | | | |
Standby letters of credit (1) | $ | 38 |
| | 14,078 |
| | 7,185 |
| | 3,901 |
| | 464 |
| | 25,628 |
| | 7,938 |
|
Securities lending and other indemnifications (2) | — |
| | — |
| | 1 |
| | — |
| | 849 |
| | 850 |
| | 1 |
|
Written put options (3) | (371 | ) | | 12,574 |
| | 11,682 |
| | 2,803 |
| | 386 |
| | 27,445 |
| | 15,882 |
|
Loans and MLHFS sold with recourse (4) | 53 |
| | 111 |
| | 634 |
| | 1,205 |
| | 10,597 |
| | 12,547 |
| | 9,318 |
|
Factoring guarantees (5) | — |
| | 639 |
| | — |
| | — |
| | — |
| | 639 |
| | 558 |
|
Other guarantees | 1 |
| | — |
| | — |
| | 3 |
| | 4,146 |
| | 4,149 |
| | 1 |
|
Total guarantees | $ | (279 | ) | | 27,402 |
| | 19,502 |
| | 7,912 |
| | 16,442 |
| | 71,258 |
| | 33,698 |
|
December 31, 2018 | | | | | | | | | | | | | |
Standby letters of credit (1) | $ | 40 |
| | 14,636 |
| | 7,897 |
| | 3,398 |
| | 497 |
| | 26,428 |
| | 8,027 |
|
Securities lending and other indemnifications (2) | — |
| | — |
| | 1 |
| | — |
| | 1,044 |
| | 1,045 |
| | 1 |
|
Written put options (3) | (185 | ) | | 17,243 |
| | 10,502 |
| | 3,066 |
| | 400 |
| | 31,211 |
| | 21,732 |
|
Loans and MLHFS sold with recourse (4) | 54 |
| | 104 |
| | 653 |
| | 1,207 |
| | 10,163 |
| | 12,127 |
| | 9,079 |
|
Factoring guarantees (5) | — |
| | 889 |
| | — |
| | — |
| | — |
| | 889 |
| | 751 |
|
Other guarantees | 1 |
| | — |
| | — |
| | 3 |
| | 2,959 |
| | 2,962 |
| | 1 |
|
Total guarantees | $ | (90 | ) | | 32,872 |
| | 19,053 |
| | 7,674 |
| | 15,063 |
| | 74,662 |
| | 39,591 |
|
|
| | | | | | | | | | | | | | | | | | | | | |
| | | 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 |
|
March 31, 2020 | | | | | | | | | | | | | |
Standby letters of credit | $ | 83 |
| | 12,016 |
| | 3,839 |
| | 2,756 |
| | 429 |
| | 19,040 |
| | 7,183 |
|
Direct pay letters of credit | — |
| | 1,674 |
| | 3,955 |
| | 836 |
| | 40 |
| | 6,505 |
| | 1,321 |
|
Written options (1) | 690 |
| | 18,799 |
| | 10,315 |
| | 2,387 |
| | 327 |
| | 31,828 |
| | 24,176 |
|
Loans and MLHFS sold with recourse (2) | 28 |
| | 111 |
| | 712 |
| | 1,333 |
| | 10,039 |
| | 12,195 |
| | 10,000 |
|
Exchange and clearing house guarantees | — |
| | — |
| | — |
| | — |
| | 5,054 |
| | 5,054 |
| | — |
|
Other guarantees and indemnifications (3) | 1 |
| | 610 |
| | 3 |
| | 1 |
| | 450 |
| | 1,064 |
| | 559 |
|
Total guarantees | $ | 802 |
| | 33,210 |
| | 18,824 |
| | 7,313 |
| | 16,339 |
| | 75,686 |
| | 43,239 |
|
December 31, 2019 | | | | | | | | | | | | | |
Standby letters of credit | $ | 36 |
| | 11,569 |
| | 4,460 |
| | 2,812 |
| | 467 |
| | 19,308 |
| | 7,104 |
|
Direct pay letters of credit | — |
| | 1,861 |
| | 3,815 |
| | 824 |
| | 105 |
| | 6,605 |
| | 1,184 |
|
Written options (1) | (345 | ) | | 17,088 |
| | 10,869 |
| | 2,341 |
| | 273 |
| | 30,571 |
| | 18,113 |
|
Loans and MLHFS sold with recourse (2) | 52 |
| | 114 |
| | 576 |
| | 1,356 |
| | 10,050 |
| | 12,096 |
| | 9,835 |
|
Exchange and clearing house guarantees | — |
| | — |
| | — |
| | — |
| | 4,817 |
| | 4,817 |
| | — |
|
Other guarantees and indemnifications (3) | 1 |
| | 785 |
| | 1 |
| | 3 |
| | 809 |
| | 1,598 |
| | 698 |
|
Total guarantees | $ | (256 | ) | | 31,417 |
| | 19,721 |
| | 7,336 |
| | 16,521 |
| | 74,995 |
| | 36,934 |
|
| |
(1) | Total maximum exposure to loss includes direct pay letters of credit (DPLCs) of $6.4 billion and $7.5 billion at June 30, 2019, and December 31, 2018, respectively. |
| |
(2) | Includes indemnifications provided to certain third-party clearing agents. Outstanding customer obligations under these arrangements were $90 million and $70 million with related collateral of $759 million and $974 million at June 30, 2019, and December 31, 2018, respectively. |
| |
(3) | Written put options, which are in the form of derivatives, are also included in the derivative disclosures in Note 15 (Derivatives). Carrying value net asset position is a result of certain deferred premium option trades. |
| |
(4)(2) | Represent recourse provided, predominantly to the GSEs, on loans sold under various programs and arrangements. |
| |
(5)(3) | ConsistsIncludes indemnifications provided to certain third-party clearing agents. Outstanding customer obligations under these arrangements were $27 million and $80 million with related collateral 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.$389 million and $696 million at March 31, 2020, and December 31, 2019, respectively. |
“Maximum exposure to loss” and “Non-investment grade” are required disclosures under GAAP. 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 13.1 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 is more representative of our exposure to loss than maximum exposure to loss. The carrying value represents the fair value of the guarantee, if any, and also includes an ACL for guarantees, if applicable.
Non-investment grade represents those guarantees on which we have a higher risk of performance 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 Related Allowance for Credit Losses).
Maximum exposure to loss representsThe Parent fully and unconditionally guarantees the estimated loss that would be incurred under an assumed hypothetical circumstance, despite what we believe is a remote possibility, where the valuepayment of our interestsprincipal, interest, and any associated collateral declines to zero. Maximum exposure to loss estimates in Table 13.1 do not reflect economic hedges or collateral we could use to offset or recover losses weother amounts that may incur under our guarantee agreements. Accordingly, this required disclosure is not an indicationbe due on securities that its 100% owned finance subsidiary, Wells Fargo Finance LLC, may issue. These guaranteed liabilities were $2.1 billion and $1.6 billion at March 31, 2020 and December 31, 2019, respectively. These guarantees rank on parity with all 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.Parent’s other unsecured and unsubordinated indebtedness.
Note 13: Guarantees, Pledged Assets and Collateral, and Other Commitments (continued)
Pledged Assets
Table 13.2 provides the carrying amount of on-balance sheet pledged assets and the fair value of other pledged collateral. Other pledged collateral is collateral we have received from third parties, have the right to repledge and is not recognized on our balance sheet.
TRADING RELATED ACTIVITY Our trading businesses may pledge debt and equity securities in connection with securities sold under agreements to repurchase (repurchase agreements) and securities lending arrangements. The collateral that we pledge related to our trading activities may include our own collateral as well as collateral that we have received from third parties and have the right to repledge. Substantially all of the trading activity pledged collateral is eligible to be repledged or sold by the secured party.
NON-TRADING RELATED ACTIVITYAs part of our liquidity management strategy, we may pledge variousloans, debt securities, and
other assets to secure trust and public deposits, borrowings and letters of credit from the Federal 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. TheSubstantially all of the non-trading activity pledged collateral is not eligible to be repledged or sold by the secured party.
VIE RELATED We pledge assets in connection with various types of collateral we pledge include securities issued by federal agencies, GSEs, domestic and foreign companies and various commercial and consumer loans. Table 13.2 provides the total carrying amount oftransactions entered into with VIEs. These pledged assets
by asset type and the fair value of pledged off-balance sheet securities for securities financings. The table excludes pledged consolidated VIE assets of $14.0 billion and $14.1 billion at June 30, 2019, and December 31, 2018, respectively, which can only be used to settle the liabilities of those entities. The tableWe also excludes $357 million and $617 million in assets pledged in transactions with VIE’s accountedhave loans recorded on our balance sheet which represent certain delinquent loans that are eligible for as secured borrowings at June 30, 2019, and December 31, 2018, respectively.repurchase from GNMA loan securitizations. See Note 10 (Securitizations and Variable Interest Entities) for additional information on consolidated VIE assets and VIEs accounted for as secured borrowings.
Table 13.2: Pledged Assets (1) | | (in millions) | Jun 30, 2019 |
| | Dec 31, 2018 |
| Mar 31, 2020 |
| | Dec 31, 2019 |
|
Related to trading activities: | | | | | | |
Debt securities | $ | 107,673 |
| | 96,616 |
| |
Repledged third-party owned debt and equity securities | | $ | 61,479 |
| | 60,083 |
|
Trading debt securities and other | | 39,828 |
| | 51,083 |
|
Equity securities | 10,594 |
| | 9,695 |
| 1,122 |
| | 1,379 |
|
Total pledged assets related to trading activities (1) | 118,267 |
| | 106,311 |
| |
Total pledged assets related to trading activities | | 102,429 |
| | 112,545 |
|
Related to non-trading activities: | | | | | | |
Debt securities and other (2) | 56,413 |
| | 62,438 |
| |
Mortgage loans held for sale and loans (3) | 413,882 |
| | 453,894 |
| |
Loans | | 400,111 |
| | 406,106 |
|
Debt securities: | | | | |
Available-for-sale | | 59,116 |
| | 61,126 |
|
Held-to-maturity | | 3,884 |
| | 3,685 |
|
Mortgage loans held for sale | | 1,877 |
| | 2,266 |
|
Total pledged assets related to non-trading activities | 470,295 |
| | 516,332 |
| 464,988 |
| | 473,183 |
|
Related to VIEs: | | | | |
Consolidated VIE assets | | 14,096 |
| | 14,368 |
|
VIEs accounted for as secured borrowings | | 77 |
| | 80 |
|
Loans eligible for repurchase from GNMA securitizations | | 533 |
| | 568 |
|
Total pledged assets related to VIEs | | 14,706 |
| | 15,016 |
|
Total pledged assets | $ | 588,562 |
| | 622,643 |
| $ | 582,123 |
| | 600,744 |
|
| |
(1) | Consists of pledged assets relatedPrior period amounts have been revised to trading activities of $45.9 billion and $45.5 billion at June 30, 2019, and December 31, 2018, respectively and off-balance sheet securities of $72.3 billion and $60.8 billion as ofconform with the same dates, respectively, that are pledged as collateral for repurchase agreements and other securities financings. Total pledged assets related to trading activities includes $118.2 billion and $106.2 billion at June 30, 2019, and December 31, 2018, respectively, under agreements that permit the secured parties to sell or repledge the collateral. |
| |
(2) | Includes carrying value of $3.5 billion and $4.2 billion (fair value of $3.5 billion and $4.1 billion) in collateral for repurchase agreements at June 30, 2019, and December 31, 2018, respectively, which are pledged under agreements that do not permit the secured parties to sell or repledge the collateral. Also includes $33 million and $68 million in collateral pledged under repurchase agreements at June 30, 2019, and December 31, 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 $2.0 billion and $7.4 billion at June 30, 2019, and December 31, 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 $551 million and $1.2 billion at June 30, 2019, and December 31, 2018, respectively, of pledged loans recorded on our balance sheet representing certain delinquent loans that are eligible for repurchase from GNMA loan securitizations.current period presentation. |
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 SECURITIES FINANCING ACTIVITIES Table 13.3 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 13.3, we also have balance sheet netting related to derivatives that is disclosed in Note 15 (Derivatives).
Table 13.3: Offsetting – Securities Financing Activities
| | (in millions) | Jun 30, 2019 |
| | Dec 31, 2018 |
| Mar 31, 2020 |
| | Dec 31, 2019 |
|
Assets: | | | | | | |
Resale and securities borrowing agreements | | | | | | |
Gross amounts recognized | $ | 146,096 |
| | 112,662 |
| $ | 128,844 |
| | 140,773 |
|
Gross amounts offset in consolidated balance sheet (1) | (15,248 | ) | | (15,258 | ) | (22,762 | ) | | (19,180 | ) |
Net amounts in consolidated balance sheet (2) | 130,848 |
| | 97,404 |
| 106,082 |
| | 121,593 |
|
Collateral not recognized in consolidated balance sheet (3) | (130,082 | ) | | (96,734 | ) | (105,136 | ) | | (120,786 | ) |
Net amount (4) | $ | 766 |
| | 670 |
| $ | 946 |
| | 807 |
|
Liabilities: | | | | | | |
Repurchase and securities lending agreements | | | | | | |
Gross amounts recognized (5) | $ | 116,900 |
| | 106,248 |
| $ | 101,516 |
| | 111,038 |
|
Gross amounts offset in consolidated balance sheet (1) | (15,248 | ) | | (15,258 | ) | (22,762 | ) | | (19,180 | ) |
Net amounts in consolidated balance sheet (6) | 101,652 |
| | 90,990 |
| 78,754 |
| | 91,858 |
|
Collateral pledged but not netted in consolidated balance sheet (7) | (101,476 | ) | | (90,798 | ) | (78,412 | ) | | (91,709 | ) |
Net amount (8) | $ | 176 |
| | 192 |
| $ | 342 |
| | 149 |
|
| |
(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) | Includes $112.1$86.4 billion and $80.1$102.1 billion classified on our consolidated balance sheet in federal funds sold and securities purchased under resale agreements at June 30, 2019,March 31, 2020, and December 31, 2018,2019, respectively. Also includes securities purchased under long-term resale agreements (generally one year or more) classified in loans, which totaled $18.8$19.7 billion and $17.3$19.5 billion, at June 30, 2019,March 31, 2020, and December 31, 2018,2019, respectively. |
| |
(3) | Represents the fair value of collateral we have received under enforceable MRAs or MSLAs, limited forin the table presentation purposesabove to the amount of the recognized asset due from each counterparty. At June 30, 2019,March 31, 2020, and December 31, 2018,2019, we have received total collateral with a fair value of $157.4$138.7 billion and $123.1$150.9 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 $73.4$61.1 billion at June 30, 2019,March 31, 2020, and $60.8$59.1 billion at December 31, 2018.2019. |
| |
(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 forin the table presentation purposesabove to the amount of the recognized liability owed to each counterparty. At June 30, 2019,March 31, 2020, and December 31, 2018,2019, we have pledged total collateral with a fair value of $119.6$103.4 billion and $108.8$113.3 billion, respectively, substantially all of which may be sold or repledged by the counterparty does not have the right to sell or repledge $3.5 billion as of June 30, 2019 and $4.4 billion as of December 31, 2018.counterparty. |
| |
(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’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 in various ways. Most of our collateral consists of highly liquid securities. In addition, we underwrite and monitor the financial strength of our counterparties, monitor the fair value of collateral pledged relative to contractually required repurchase amounts, and monitor that our collateral is properly returned through the clearing and settlement process in advance of our cash repayment. Table 13.4 provides the gross amounts recognized on the balance sheet (before the effects of offsetting) of our liabilities for repurchase and securities lending agreements disaggregated by underlying collateral type.
Note 13: Guarantees, Pledged Assets and Collateral, and Other Commitments (continued)
Table 13.4: Gross Obligations by Underlying Collateral Types of Gross ObligationsType
| | (in millions) | | Jun 30, 2019 |
| | Dec 31, 2018 |
| | Mar 31, 2020 |
| | Dec 31, 2019 |
|
Repurchase agreements: | | | | | | | | |
Securities of U.S. Treasury and federal agencies | | $ | 49,622 |
| | 38,408 |
| | $ | 50,787 |
| | 48,161 |
|
Securities of U.S. States and political subdivisions | | 97 |
| | 159 |
| | 89 |
| | 104 |
|
Federal agency mortgage-backed securities | | 43,346 |
| | 47,241 |
| | 32,027 |
| | 44,737 |
|
Non-agency mortgage-backed securities | | 1,754 |
| | 1,875 |
| | 1,263 |
| | 1,818 |
|
Corporate debt securities | | 8,132 |
| | 6,191 |
| | 10,048 |
| | 7,126 |
|
Asset-backed securities | | 2,258 |
| | 2,074 |
| | 1,460 |
| | 1,844 |
|
Equity securities | | 2,034 |
| | 992 |
| | 721 |
| | 1,674 |
|
Other | | 866 |
| | 340 |
| | 514 |
| | 705 |
|
Total repurchases | | 108,109 |
| | 97,280 |
| | 96,909 |
| | 106,169 |
|
Securities lending arrangements: | | | | | | | | |
Securities of U.S. Treasury and federal agencies | | 198 |
| | 222 |
| | 134 |
| | 163 |
|
Federal agency mortgage-backed securities | | — |
| | 2 |
| |
Corporate debt securities | | 483 |
| | 389 |
| | 364 |
| | 223 |
|
Equity securities (1) | | 8,094 |
| | 8,349 |
| | 4,100 |
| | 4,481 |
|
Other | | 16 |
| | 6 |
| | 9 |
| | 2 |
|
Total securities lending | | 8,791 |
| | 8,968 |
| | 4,607 |
| | 4,869 |
|
Total repurchases and securities lending | | $ | 116,900 |
| | 106,248 |
| | $ | 101,516 |
| | 111,038 |
|
| |
(1) | Equity securities are generally exchange traded and represent collateral received from third parties that has been repledged. We received the collateral through either re-hypothecated under margin lending agreements or obtained through contemporaneous securities borrowing transactions with other counterparties. |
Table 13.5 provides the contractual maturities of our gross obligations under repurchase and securities lending agreements.
Table 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 |
|
June 30, 2019 | | | | | | | | | | |
March 31, 2020 | | | | | | | | | | |
Repurchase agreements | $ | 96,487 |
| | 3,565 |
| | 3,938 |
| | 4,119 |
| | 108,109 |
| $ | 75,413 |
| | 7,681 |
| | 10,680 |
| | 3,135 |
| | 96,909 |
|
Securities lending arrangements | 8,643 |
| | — |
| | 148 |
| | — |
| | 8,791 |
| 4,392 |
| | 65 |
| | 150 |
| | — |
| | 4,607 |
|
Total repurchases and securities lending (1) | $ | 105,130 |
| | 3,565 |
| | 4,086 |
| | 4,119 |
| | 116,900 |
| $ | 79,805 |
| | 7,746 |
| | 10,830 |
| | 3,135 |
| | 101,516 |
|
December 31, 2018 | | |
December 31, 2019 | | |
Repurchase agreements | $ | 86,574 |
| | 3,244 |
| | 2,153 |
| | 5,309 |
| | 97,280 |
| $ | 79,793 |
| | 17,681 |
| | 4,825 |
| | 3,870 |
| | 106,169 |
|
Securities lending arrangements | 8,669 |
| | — |
| | 299 |
| | — |
| | 8,968 |
| 4,724 |
| | — |
| | 145 |
| | — |
| | 4,869 |
|
Total repurchases and securities lending (1) | $ | 95,243 |
| | 3,244 |
| | 2,452 |
| | 5,309 |
| | 106,248 |
| $ | 84,517 |
| | 17,681 |
| | 4,970 |
| | 3,870 |
| | 111,038 |
|
| |
(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 June 30, 2019, andMarch 31, 2020, and December 31, 2018,2019, we had commitments to purchase debt securities of $212$89 million and $335$18 million, respectively, and commitments to purchase equity securities of $2.1$2.7 billion and $2.5 billion, respectively.as of both periods.
As part of maintaining our memberships in certain clearing organizations, we are required to stand ready to provide liquidity to sustain market clearing activity in the event unforeseen events occur or are deemed likely to occur. Certain of these obligations are guarantees of other members’ performance and accordingly are included in Other guarantees and indemnifications in
Table 13.1.
Also, we have commitments to purchase loans and securities under resale agreements from certain counterparties, including central clearing organizations. We do not have any outstanding amounts funded, and theThe amount of our unfunded contractual commitments was $5.1$10.8 billion and $9.8$7.5 billion as of June 30, 2019,March 31, 2020, and December 31, 2018,2019, respectively.
Given the nature of these commitments, they are
excluded from Table 6.4 (Unfunded Credit Commitments) in Note 6 (Loans and Related Allowance for Credit Losses).
The Parent fully and unconditionally guarantees the payment of principal, interest, and any other amounts that may be due on securities that its 100% owned finance subsidiary, Wells Fargo Finance LLC, may issue. These guaranteed liabilities were $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.
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 LITIGATIONIn 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 three3 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 three3 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 three3 cases returned to the district court for further proceedings. On March 18, 2020, the Company reached a settlement in principle pursuant to which the Company will pay $20.8 million to resolve the cases, subject to final documentation of the settlement agreement.
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 Consumer Financial Protection Bureau (CFPB) to resolve, among other things, investigations by
the agencies into the Company’s compliance risk management program and its past practices involving certain automobile collateral protection insurance (CPI) policies and as
discussed below, certain mortgage interest rate lock extensions. The consent orders require remediation to customers and the payment of a total of $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 one1 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$547 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 preliminarygranted final approval hearing for August 5,of the settlement on November 21, 2019. A putative class of shareholders also filed a securities fraud class action against the Company and its executive officers alleging material misstatements and omissions of CPI-related information in the Company’s public disclosures. Former team members have alsoIn January 2020, the court dismissed this action as to all defendants except the Company and a former executive officer and limited the action to two alleged retaliation for raising concerns regarding automobile lending practices.misstatements. 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 require 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.related to the unused portion of guaranteed automobile protection (GAP) waiver or insurance agreements between the customer and dealer and, by assignment, the lender. 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 plaintiffs filed an amended complaint in November 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 state court granted preliminaryfinal approval of the settlement on July 12, 2019,January 15, 2020, and scheduled a final approval hearing for October 9, 2019.notice of appeal has been filed. These and other issues related to the origination, servicing, and collection of consumer automobile loans, including related insurance products, have also subjected the Company to formal or informal inquiries, investigations, or examinations from federal and state government agencies. In December 2018, the Company entered into an agreement with all 50 state Attorneys General and the District of Columbia to resolve an investigation into the Company’s retail sales practices, CPI and GAP, and mortgage interest rate lock matters, pursuant to which the Company paid $575 million.
CONSUMER DEPOSIT ACCOUNT RELATED REGULATORY INVESTIGATION The CFPB is conducting an investigation into
Note 14: Legal Actions (continued)
CONSUMER DEPOSIT ACCOUNT RELATED REGULATORY INVESTIGATION The CFPB is conducting an investigation into whether customers were unduly harmed by the Company’s 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. A former team member
CORONAVIRUS AID, RELIEF, AND ECONOMIC SECURITY ACT/PAYMENT PROTECTION PROGRAMPlaintiffs have filed putative class actions in state and federal court in Texas, California, and Colorado against the Company. The actions seek damages and injunctive relief related to the Company’s offering of Paycheck Protection Program (PPP) loans under the Coronavirus Aid, Relief, and Economic Security Act. The Company has brought aalso received formal and informal inquiries from federal and state court action alleging retaliation for raising concerns about these practices.governmental agencies regarding its offering of PPP loans.
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 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 BUSINESS Federal government agencies, including theThe United States Department of Justice (Department of Justice), are is investigating or examining certain activities in the Company’s foreign exchange business. 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 potential resolution of some of the matters. The Company is in the process of providing remediation tobusiness, including whether 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.customers. Previous investigations by other federal government agencies have been resolved.
INTERCHANGE LITIGATION Plaintiffs representing a putative class of merchants have filed putative class actions, and individual merchants have filed individual actions, against Wells Fargo Bank, N.A., Wells Fargo & Company, Wachovia Bank, N.A., and Wachovia Corporation regarding the interchange fees associated with Visa and MasterCard payment card transactions. Visa, MasterCard, and several other banks and bank holding companies are also named as defendants in these actions. These actions have been consolidated in the United States District Court for the Eastern District of New York. The amended and consolidated complaint asserts claims against defendants based on alleged violations of federal and state antitrust laws and seeks damages, as well as injunctive relief. Plaintiff merchants allege that Visa, MasterCard, and payment card issuing banks unlawfully 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 eight consecutive months. The district court granted final approval of the settlement, which was appealed to the United States Court of Appeals for the Second Circuit by settlement objector merchants. Other merchants opted out of the settlement and are pursuing several individual actions. On June 30, 2016, the Second Circuit vacated the settlement agreement and reversed and remanded the consolidated action to the United States District Court for the Eastern District of New York for further proceedings. On November 23, 2016, prior class counsel filed a petition to the United States Supreme Court, seeking review of the reversal of the settlement by the Second Circuit, and the Supreme Court denied the petition on March 27, 2017. On November 30, 2016, the district court appointed lead class counsel for a damages class and an equitable relief class. The parties have entered into a settlement agreement to resolve the money damages class claims pursuant to which defendants will pay a total of approximately $6.2 billion, which includes approximately $5.3 billion of funds remaining from the 2012 settlement and $900 million in additional funding. The Company’s allocated responsibility for the additional funding is approximately $94.5 million. The court granted preliminaryfinal approval of the settlement in Januaryon December 13, 2019, and scheduled a final approval hearingwhich was appealed to the United States Court of Appeals for November 7, 2019.the Second Circuit by settlement objector merchants. Several of the opt-out and direct action litigations werehave been 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 CREDITS Federal 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.
MOBILE DEPOSIT PATENT LITIGATION The Company is a defendant in two2 separate cases brought by United Services Automobile Association (USAA) in the United States District Court for the Eastern District of Texas alleging claims of patent infringement regarding mobile deposit capture technology patents held by USAA. Trial in the first case is scheduled for Novembercommenced on October 30, 2019, and trialresulted in a $200 million verdict against the Company. Trial in the second case is scheduled forcommenced on January 2020.
MORTGAGE INTEREST RATE LOCK MATTERS On April 20, 2018,6, 2020, and resulted in a $102.7 million verdict against the Company. The Company entered into consent orders with the OCC and CFPBhas filed post-trial motions to, resolve, among other things, investigations byvacate the agencies into the Company’s compliance risk management programverdicts, and its past practices involving certain automobile CPI policiesUSAA has filed post-trial motions seeking future royalty payments and certain mortgage interest rate lock extensions. The consent orders require remediation to customers and the payment of a total of $1.0 billion in civil money penalties to the agencies. The Company was named in a putative class action, filed in the United States District Courtdamages 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 concernswillful infringement.
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 consolidated 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. 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 putative class of mortgage borrowers have filed separate putative class actions, Hernandez v. Wells Fargo, et alal.., andCoordes v. Wells Fargo, et alal.., Ryder v. Wells Fargo, Liguori v. Wells Fargo, and Dore v. Wells Fargo, 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, the United States District Court for the Southern District of Ohio, the United States District Court for the Southern District of New York, and the United States District Court for the Western District of Pennsylvania, 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. The district court in the Hernandez case certified a nationwide breach of contract class for foreclosed borrowers and denied certification on claims pertaining to other impacted borrowers. In March 2020, the Company entered into an agreement pursuant to which the Company will pay $18.5 million to resolve the claims of the certified class in the Hernandez case.
MORTGAGE-RELATED REGULATORY INVESTIGATIONS Federal and state government agencies, including the Department of Justice, have been investigating or examining certain mortgage related activities of Wells Fargo and predecessor institutions. Wells Fargo, for itself and for predecessor institutions, has responded, or 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. In addition, the Company reached an agreement with the Attorney General of the State of Illinois in November 2018 pursuant to which the Company paid $17 million in restitution to certain Illinois state pension funds to resolve a 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.
NOMURA/NATIXIS MORTGAGE-RELATED LITIGATION In August 2014 and August 2015, Nomura Credit & Capital Inc. (Nomura) and Natixis Real Estate Holdings, LLC (Natixis) filed a total of 7 third-party complaints against Wells Fargo Bank, N.A., in New York state court. In the underlying first-party actions, Nomura and Natixis have been sued for alleged breaches of representations and warranties made in connection with residential mortgage-backed securities sponsored by them. In the third-party actions, Nomura and Natixis allege that Wells Fargo, as master servicer, primary servicer or securities administrator, failed to notify Nomura and Natixis of their own breaches, failed to properly oversee the primary servicers, and failed to adhere to accepted servicing practices. Natixis additionally alleges that Wells Fargo failed to perform default oversight duties. Wells Fargo has asserted counterclaims alleging that Nomura and Natixis failed to provide Wells Fargo notice of their representation and warranty breaches.
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’s favor and found that Wells Fargo had not waived its arbitration rights and remanded the case to the district court for further proceedings. On September 26, 2019, the district court entered an order granting Wells Fargo’s motion and dismissed the claims of unnamed class members in favor of arbitration. Plaintiffs filed a petition for rehearingappealed this decision 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 toof Appeals for the district court for further proceedings.Eleventh Circuit.
RETAIL SALES PRACTICES MATTERS Federal,A number of bodies or entities, including (a) 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;Labor, (b) state attorneys general, including the New York Attorney General;General, and prosecutors’ offices, as well as(c) 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 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. In October 2018, the Company entered into an agreement to resolve the New York Attorney General’s investigation pursuant to which the Company paid $65 million to the State of New York. In December 2018, the Company entered into an agreement with all 50 state Attorneys General and the District of Columbia to resolve an investigation into the Company’s retail sales practices, CPI and GAP, and mortgage interest rate lock matters, pursuant to which the Company paid $575 million. TheOn February 21, 2020, the Company has also engaged in preliminary and/or exploratory resolution discussionsentered into an agreement with the Department of Justice to resolve the Department of Justice’s criminal investigation into the Company’s retail sales practices, as well as a separate agreement to resolve the Department of Justice’s civil investigation. As part of the Department of Justice criminal settlement, no charges will be filed against the Company provided the Company abides by all the terms of the agreement. The Department of Justice criminal settlement also includes the Company’s agreement that the facts set forth in the settlement document constitute sufficient facts for the finding of criminal violations of statutes regarding bank records and personal information. On February 21, 2020, the Company also entered into an order to resolve the SEC’s investigation arising out of the Company’s retail sales practices. The SEC order contains a finding, to which the Company consented, that the facts set forth include violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. As part of the resolution of the Department of Justice and SEC investigations, the Company has agreed to make payments totaling $3.0 billion. In addition, as part of the settlements and included in the $3.0 billion amount, the Company has agreed to the creation of a $500 million Fair Fund for the benefit of investors who were harmed by the conduct covered in the SEC although there can be no assurance as to the outcome of these discussions.settlement.
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
Note 14: Legal Actions (continued)
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., pursuant to which the Company will pay $142 million 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’ 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’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 brought a consolidated securities fraud class action in the United States District Court for the Northern District of California alleging certain misstatements and omissions in the Company’s disclosures related to sales practices matters. The Company entered into a settlement agreement to resolve this matter pursuant to which the Company paid $480 million. The district court issued an order granting final approval of the settlement on December 20, 2018. Third, Wells Fargo shareholders have brought numerous shareholder derivative lawsuits asserting breach of fiduciary duty claims against, 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 are currently pending in the United States District Court for the Northern District of California and California state court foras coordinated proceedings. An additional lawsuit, assertingwhich asserts similar claims and is 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. PreliminaryThe federal court granted final approval of the settlementssettlement for its action on April 7, 2020. The state court granted final approval of the settlement for its action on January 15, 2020, and a notice of appeal 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.filed. Fourth, multiple employment litigation matters have been broughtare pending against Wells Fargo, including an(a) a purported 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 thatparticipants; this action has been dismissed and is now 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 were terminated for not meeting sales goals that has now been dismissed, and we have entered into a framework with plaintiffs’ counsel to address individual claims that have been asserted; various wage and hour class actions brought in federal and state court in California and Pennsylvania (which have been settled), and in New Jersey on behalf of non-exempt branch based team members alleging that sales pressure resulted in uncompensated overtime; and(b) multiple single plaintiffsingle-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 alleged that Wells Fargo Bank, N.A., as trustee, caused losses to investors and asserted causes of action based upon, among other things, the trustee’s alleged failure to notify and enforce repurchase obligations of mortgage loan sellers for purported breaches of representations and warranties, notify investors of alleged events of default, and abide by appropriate standards of care following alleged events of
default. Plaintiffs sought money damages in an unspecified amount, reimbursement of expenses, and equitable relief. In December 2014 and December 2015, certain other investors filed fouradditional complaints alleging similar claims against Wells Fargo Bank, N.A., in the Southern District of New York (Related Federal Cases). In January 2016, the Southern District of New York entered an order in connection with the Federal Court Complaint dismissing claims related to certain of the trusts at issue (Dismissed Trusts). The Company’s 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).
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). A complaint raising similar allegations to those in the Federal Court 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 setting aside reserves for legal fees and expenses in connection with the liquidation of eleven11 RMBS trusts at issue in the State Court Action (Declaratory Judgment Action). The complaint sought, among other relief, declarations that the Company is not entitled to indemnification, the advancement of funds, or the taking of reserves from trust funds for legal fees and expenses it incurs in defending the claims in the State Court Action.
In May 2019, the New York state court approved a settlement agreement among the Institutional Investor Plaintiffs and the Company pursuant to which, among other terms, the Company paid $43 million to resolve the Federal Court Complaint and the State Court Action. The settlement also resolved the Third Party Claims and 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 three3 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. TrialThe case is scheduled for February 2020.pending trial.
WHOLESALE BANKING CONSENT ORDER INVESTIGATION On November 19, 2015, the Company entered into a consent order with the OCC, pursuant to which the Wholesale Banking group was required to implement customer due diligence standards that include collection of current beneficial ownership information for certain business customers. The Company is responding to inquiries from various federal government agencies regarding potentially inappropriate conduct in connection with the collection of beneficial ownership information.
OUTLOOK As described above, the Company establishes accruals for legal actions when potential losses associated with the actions become probable and the costs can be reasonably estimated. The high end of the range of reasonably possible potential losses in excess of the Company’s accrual for probable and estimable losses was approximately $3.9$2.5 billion as of June 30, 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.2020. 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)
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 relationshiprelationships (fair value or cash flow hedge)hedges). 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 1718 (Derivatives) in our 20182019 Form 10-K.
Table 15.1 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 15.1: Notional or Contractual Amounts and Fair Values of Derivatives
| | | June 30, 2019 | | | December 31, 2018 | | March 31, 2020 | | | December 31, 2019 | |
| 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 | $ | 186,206 |
| | 2,559 |
| | 1,368 |
| | 177,511 |
| | 2,237 |
| | 636 |
| $ | 187,167 |
| | 3,715 |
| | 2,199 |
| | 182,789 |
| | 2,595 |
| | 1,237 |
|
Foreign exchange contracts (1) | 33,439 |
| | 540 |
| | 1,162 |
| | 34,176 |
| | 573 |
| | 1,376 |
| 31,800 |
| | 231 |
| | 1,812 |
| | 32,386 |
| | 341 |
| | 1,170 |
|
Total derivatives designated as qualifying hedging instruments | | | 3,099 |
| | 2,530 |
| | | | 2,810 |
| | 2,012 |
| | | 3,946 |
| | 4,011 |
| | | | 2,936 |
| | 2,407 |
|
Derivatives not designated as hedging instruments | | | | | | | | | | | | | | | | | | | | | | |
Economic hedges: | | | | | | | | | | | | | | | | | | | | | | |
Interest rate contracts (2) | 255,760 |
| | 692 |
| | 290 |
| | 173,215 |
| | 849 |
| | 369 |
| |
Interest rate contracts | | 358,717 |
| | 2,732 |
| | 1,766 |
| | 235,810 |
| | 207 |
| | 160 |
|
Equity contracts | 17,374 |
| | 1,213 |
| | 658 |
| | 13,920 |
| | 1,362 |
| | 79 |
| 16,614 |
| | 1,969 |
| | 106 |
| | 19,263 |
| | 1,126 |
| | 224 |
|
Foreign exchange contracts | 20,829 |
| | 212 |
| | 85 |
| | 19,521 |
| | 225 |
| | 80 |
| 46,486 |
| | 1,332 |
| | 233 |
| | 26,595 |
| | 118 |
| | 286 |
|
Credit contracts – protection purchased | 220 |
| | 38 |
| | — |
| | 100 |
| | 27 |
| | — |
| 499 |
| | 34 |
| | — |
| | 1,400 |
| | 27 |
| | — |
|
Subtotal | | | 2,155 |
| | 1,033 |
| | | | 2,463 |
| | 528 |
| | | 6,067 |
| | 2,105 |
| | | | 1,478 |
| | 670 |
|
Customer accommodation trading and other derivatives: | | | | | | | | | | | | | | | | | | | | | | |
Interest rate contracts | 11,130,569 |
| | 22,302 |
| | 18,979 |
| | 9,162,821 |
| | 15,349 |
| | 15,303 |
| 12,578,353 |
| | 52,162 |
| | 43,587 |
| | 11,117,542 |
| | 21,245 |
| | 17,969 |
|
Commodity contracts | 72,255 |
| | 1,424 |
| | 1,936 |
| | 66,173 |
| | 1,588 |
| | 2,336 |
| 85,629 |
| | 2,316 |
| | 6,838 |
| | 79,737 |
| | 1,421 |
| | 1,770 |
|
Equity contracts | 246,045 |
| | 6,164 |
| | 8,520 |
| | 217,890 |
| | 6,183 |
| | 5,931 |
| 316,754 |
| | 11,181 |
| | 10,248 |
| | 272,145 |
| | 7,410 |
| | 10,240 |
|
Foreign exchange contracts | 353,918 |
| | 4,803 |
| | 5,021 |
| | 364,982 |
| | 5,916 |
| | 5,657 |
| 343,627 |
| | 7,128 |
| | 7,979 |
| | 364,469 |
| | 4,755 |
| | 4,791 |
|
Credit contracts – protection sold | 10,507 |
| | 15 |
| | 80 |
| | 11,741 |
| | 76 |
| | 182 |
| 15,035 |
| | 13 |
| | 78 |
| | 12,215 |
| | 12 |
| | 65 |
|
Credit contracts – protection purchased | 20,784 |
| | 88 |
| | 17 |
| | 20,880 |
| | 175 |
| | 98 |
| 25,144 |
| | 106 |
| | 15 |
| | 24,030 |
| | 69 |
| | 18 |
|
Subtotal | | | 34,796 |
| | 34,553 |
| | | | 29,287 |
| | 29,507 |
| | | 72,906 |
| | 68,745 |
| | | | 34,912 |
| | 34,853 |
|
Total derivatives not designated as hedging instruments | | | 36,951 |
| | 35,586 |
| | | | 31,750 |
| | 30,035 |
| | | 78,973 |
| | 70,850 |
| | | | 36,390 |
| | 35,523 |
|
Total derivatives before netting | | | 40,050 |
| | 38,116 |
| | | | 34,560 |
| | 32,047 |
| | | 82,919 |
| | 74,861 |
| | | | 39,326 |
| | 37,930 |
|
Netting (3) | | | (26,888 | ) | | (29,717 | ) | | | | (23,790 | ) | | (23,548 | ) | | | (57,896 | ) | | (59,243 | ) | | | | (25,123 | ) | | (28,851 | ) |
Total | | | $ | 13,162 |
| | 8,399 |
| | | | 10,770 |
| | 8,499 |
| | | $ | 25,023 |
| | 15,618 |
| | | | 14,203 |
| | 9,079 |
|
| |
(1) | The notional amount for foreign exchange contracts at June 30, 2019, and December 31, 2018, excludes $10.0 billion and $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 15.2 for further information. |
Table 15.2 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 $35.1$73.1 billion and $34.9$69.2 billion of gross derivative assets and liabilities, respectively, at June 30, 2019,March 31, 2020, and $30.9$33.7 billion and $28.4$33.5 billion, respectively, at December 31, 2018,2019, with counterparties subject to enforceable master netting arrangements that are carried on theeligible for balance sheet netnetting adjustments. The majority of offsetting amounts.these amounts are interest rate contracts executed in over-the-counter (OTC) markets. The remaining gross derivative assets and liabilities of $5.0$9.8 billion and $3.2$5.7 billion, respectively, at June 30, 2019,March 31, 2020, and $3.7$5.6 billion and $3.6$4.4 billion, respectively, at December 31, 2018,2019, 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. Cash collateral receivables and payables that have not been offset against our derivatives were $4.4 billion and $6.4 billion, respectively, at March 31, 2020, and $6.3 billion and $1.4 billion, respectively, at December 31, 2019.
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 15.2 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-counterOTC 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 marketsthat are settled through a central clearing organization andwhether OTC or exchange-traded, are excluded from thisthat 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 13 (Guarantees, Pledged Assets and Collateral, and Other Commitments).
Note 15: Derivatives (continued)
Table 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) |
| | Net amounts |
| | Percent exchanged in over-the-counter market |
|
June 30, 2019 | | | | | | | | | | | | |
March 31, 2020 | | | | | | | | | | | | |
Derivative assets | | | | | | | | | | | | | | | | | | | | | | |
Interest rate contracts | $ | 25,553 |
| | (16,558 | ) | | 8,995 |
| | (313 | ) | | 8,682 |
| | 95 | % | $ | 58,609 |
| | (39,677 | ) | | 18,932 |
| | (1,302 | ) | | 17,630 |
| | 87 | % |
Commodity contracts | 1,424 |
| | (951 | ) | | 473 |
| | (1 | ) | | 472 |
| | 73 |
| 2,316 |
| | (1,534 | ) | | 782 |
| | (3 | ) | | 779 |
| | 62 |
|
Equity contracts | 7,377 |
| | (5,041 | ) | | 2,336 |
| | (34 | ) | | 2,302 |
| | 71 |
| 13,150 |
| | (9,929 | ) | | 3,221 |
| | (802 | ) | | 2,419 |
| | 66 |
|
Foreign exchange contracts | 5,555 |
| | (4,250 | ) | | 1,305 |
| | (8 | ) | | 1,297 |
| | 100 |
| 8,691 |
| | (6,660 | ) | | 2,031 |
| | (107 | ) | | 1,924 |
| | 100 |
|
Credit contracts – protection sold | 15 |
| | (9 | ) | | 6 |
| | — |
| | 6 |
| | 74 |
| 13 |
| | (13 | ) | | — |
| | — |
| | — |
| | 44 |
|
Credit contracts – protection purchased | 126 |
| | (79 | ) | | 47 |
| | (1 | ) | | 46 |
| | 99 |
| 140 |
| | (83 | ) | | 57 |
| | (3 | ) | | 54 |
| | 85 |
|
Total derivative assets | $ | 40,050 |
| | (26,888 | ) | | 13,162 |
| | (357 | ) | | 12,805 |
| | | $ | 82,919 |
| | (57,896 | ) | | 25,023 |
| | (2,217 | ) | | 22,806 |
| | |
Derivative liabilities | | | | | | | | | | | | | | | | | | | | | | |
Interest rate contracts | $ | 20,637 |
| | (18,046 | ) | | 2,591 |
| | (848 | ) | | 1,743 |
| | 95 | % | $ | 47,552 |
| | (42,276 | ) | | 5,276 |
| | (995 | ) | | 4,281 |
| | 87 | % |
Commodity contracts | 1,936 |
| | (738 | ) | | 1,198 |
| | — |
| | 1,198 |
| | 81 |
| 6,838 |
| | (1,689 | ) | | 5,149 |
| | (2 | ) | | 5,147 |
| | 90 |
|
Equity contracts | 9,178 |
| | (5,934 | ) | | 3,244 |
| | (214 | ) | | 3,030 |
| | 84 |
| 10,354 |
| | (7,546 | ) | | 2,808 |
| | (164 | ) | | 2,644 |
| | 56 |
|
Foreign exchange contracts | 6,268 |
| | (4,918 | ) | | 1,350 |
| | (197 | ) | | 1,153 |
| | 100 |
| 10,024 |
| | (7,661 | ) | | 2,363 |
| | (99 | ) | | 2,264 |
| | 100 |
|
Credit contracts – protection sold | 80 |
| | (75 | ) | | 5 |
| | (3 | ) | | 2 |
| | 99 |
| 78 |
| | (68 | ) | | 10 |
| | — |
| | 10 |
| | 87 |
|
Credit contracts – protection purchased | 17 |
| | (6 | ) | | 11 |
| | — |
| | 11 |
| | 98 |
| 15 |
| | (3 | ) | | 12 |
| | — |
| | 12 |
| | 69 |
|
Total derivative liabilities | $ | 38,116 |
| | (29,717 | ) | | 8,399 |
| | (1,262 | ) | | 7,137 |
| | | $ | 74,861 |
| | (59,243 | ) | | 15,618 |
| | (1,260 | ) | | 14,358 |
| | |
December 31, 2018 | | | | | | | | | | | | |
December 31, 2019 | | | | | | | | | | | | |
Derivative assets | | | | | | | | | | | | | | | | | | | | | | |
Interest rate contracts | $ | 18,435 |
| | (12,029 | ) | | 6,406 |
| | (80 | ) | | 6,326 |
| | 90 | % | $ | 24,047 |
| | (14,878 | ) | | 9,169 |
| | (445 | ) | | 8,724 |
| | 95 | % |
Commodity contracts | 1,588 |
| | (849 | ) | | 739 |
| | (4 | ) | | 735 |
| | 57 |
| 1,421 |
| | (888 | ) | | 533 |
| | (2 | ) | | 531 |
| | 80 |
|
Equity contracts | 7,545 |
| | (5,318 | ) | | 2,227 |
| | (755 | ) | | 1,472 |
| | 78 |
| 8,536 |
| | (5,570 | ) | | 2,966 |
| | (69 | ) | | 2,897 |
| | 65 |
|
Foreign exchange contracts | 6,714 |
| | (5,355 | ) | | 1,359 |
| | (35 | ) | | 1,324 |
| | 100 |
| 5,214 |
| | (3,722 | ) | | 1,492 |
| | (22 | ) | | 1,470 |
| | 100 |
|
Credit contracts – protection sold | 76 |
| | (73 | ) | | 3 |
| | — |
| | 3 |
| | 12 |
| 12 |
| | (9 | ) | | 3 |
| | — |
| | 3 |
| | 84 |
|
Credit contracts – protection purchased | 202 |
| | (166 | ) | | 36 |
| | (1 | ) | | 35 |
| | 78 |
| 96 |
| | (56 | ) | | 40 |
| | (1 | ) | | 39 |
| | 97 |
|
Total derivative assets | $ | 34,560 |
| | (23,790 | ) | | 10,770 |
| | (875 | ) | | 9,895 |
| | | $ | 39,326 |
| | (25,123 | ) | | 14,203 |
| | (539 | ) | | 13,664 |
| | |
Derivative liabilities | | | | | | | | | | | | | | | | | | | | | | |
Interest rate contracts | $ | 16,308 |
| | (13,152 | ) | | 3,156 |
| | (567 | ) | | 2,589 |
| | 92 | % | $ | 19,366 |
| | (16,595 | ) | | 2,771 |
| | (545 | ) | | 2,226 |
| | 94 | % |
Commodity contracts | 2,336 |
| | (727 | ) | | 1,609 |
| | (8 | ) | | 1,601 |
| | 85 |
| 1,770 |
| | (677 | ) | | 1,093 |
| | (2 | ) | | 1,091 |
| | 82 |
|
Equity contracts | 6,010 |
| | (3,877 | ) | | 2,133 |
| | (110 | ) | | 2,023 |
| | 75 |
| 10,464 |
| | (6,647 | ) | | 3,817 |
| | (319 | ) | | 3,498 |
| | 81 |
|
Foreign exchange contracts | 7,113 |
| | (5,522 | ) | | 1,591 |
| | (188 | ) | | 1,403 |
| | 100 |
| 6,247 |
| | (4,866 | ) | | 1,381 |
| | (169 | ) | | 1,212 |
| | 100 |
|
Credit contracts – protection sold | 182 |
| | (180 | ) | | 2 |
| | (2 | ) | | — |
| | 67 |
| 65 |
| | (60 | ) | | 5 |
| | (3 | ) | | 2 |
| | 98 |
|
Credit contracts – protection purchased | 98 |
| | (90 | ) | | 8 |
| | — |
| | 8 |
| | 11 |
| 18 |
| | (6 | ) | | 12 |
| | — |
| | 12 |
| | 93 |
|
Total derivative liabilities | $ | 32,047 |
| | (23,548 | ) | | 8,499 |
| | (875 | ) | | 7,624 |
| | | $ | 37,930 |
| | (28,851 | ) | | 9,079 |
| | (1,038 | ) | | 8,041 |
| | |
| |
(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 $301 million and $353 million related to derivative assets were $877 millionand $92$231 million and $152 milliondebit valuation adjustments related to derivative liabilities were $280 million and $100 millionat June 30, 2019,March 31, 2020, and December 31, 2018,2019, respectively. Cash collateral totaled $3.6$9.8 billion and $6.6$11.7 billion, netted against derivative assets and liabilities, respectively, at June 30, 2019,March 31, 2020, and $3.7$2.9 billion and $3.6$6.8 billion, respectively, at December 31, 2018.2019. |
| |
(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) | Over-the-counter percentages are calculated based on gross amounts recognized as of the respective balance sheet date. |
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 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 26 (Other Comprehensive Income) for the amounts recognized in other comprehensive income.
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. We also use cross-currency swaps to hedge variability in interest payments on fixed-rate foreign currency-denominated long-term debt due to changes in foreign exchange rates.
We estimate $247$218 million pre-tax of deferred net losses related to cash flow hedges in OCI at June 30, 2019,March 31, 2020, will be reclassified into net interest income during the next twelve months. The deferred losses expected to be reclassified into net
interest income are predominantly related to discontinued hedges of floating rate loans. For cash flow hedges as of June 30, 2019,March 31, 2020, we are hedging our foreign currency exposure to the variability of future cash flows for all forecasted transactions for a maximum of 710 years. For more information on our accounting
hedges, see Note 1 (Summary of Significant
Accounting Policies) and Note 1618 (Derivatives) in our 20182019 Form 10-K.
Table 15.3 showsand Table 15.4 show the net gains (losses) related to derivatives in fair value and cash flow hedging relationships.relationships, respectively.
Table 15.3: Gains (Losses) Recognized in Consolidated Statement of Income on Fair Value and Cash Flow Hedging Relationships
|
| | | | | | | | | | | | | | | | |
| Net interest income | | | Noninterest income |
| |
(in millions) | Debt securities |
| Loans |
| Mortgage loans held for sale |
| Deposits |
| Long-term debt |
| | Other |
| Total |
|
Quarter ended June 30, 2019 | | | | | | | | |
Total amounts presented in the consolidated statement of income | $ | 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) | 14 |
| — |
| — |
| (7 | ) | 7 |
| | — |
| 14 |
|
Recognized on derivatives | (1,089 | ) | — |
| (25 | ) | 351 |
| 2,947 |
| | — |
| 2,184 |
|
Recognized on hedged items | 1,096 |
| — |
| 24 |
| (343 | ) | (2,890 | ) | | — |
| (2,113 | ) |
Foreign exchange contracts | | | | | | | | |
Amounts related to interest settlements on derivatives (1)(2) | 10 |
| — |
| — |
| — |
| (128 | ) | | — |
| (118 | ) |
Recognized on derivatives (3) | (5 | ) | — |
| — |
| — |
| 205 |
| | 326 |
| 526 |
|
Recognized on hedged items | 4 |
| — |
| — |
| — |
| (186 | ) | | (315 | ) | (497 | ) |
Net income (expense) recognized on fair value hedges | 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) | — |
| (77 | ) | — |
| — |
| 1 |
| | — |
| (76 | ) |
Foreign exchange contracts | | | | | | | | |
Realized gains (losses) (pre-tax) reclassified from cumulative OCI into net income (4) | $ | — |
| — |
| — |
| — |
| (3 | ) | | — |
| (3 | ) |
Net income (expense) recognized on cash flow hedges | $ | — |
| (77 | ) | — |
| — |
| (2 | ) | | — |
| (79 | ) |
Six months ended June 30, 2019 | | | | | | | | |
Total amounts presented in the consolidated statement of income | $ | 7,722 |
| 22,670 |
| 347 |
| (4,239 | ) | (3,827 | ) | | 1,318 |
| 23,991 |
|
| | | | | | | | |
Gains (losses) on fair value hedging relationships: | | | | | | | | |
Interest contracts | | | | | | | | |
Amounts related to interest settlements on derivatives (1) | 30 |
| — |
| — |
| (30 | ) | — |
| | — |
| — |
|
Recognized on derivatives | (1,903 | ) | — |
| (33 | ) | 558 |
| 4,933 |
| | — |
| 3,555 |
|
Recognized on hedged items | 1,913 |
| — |
| 31 |
| (533 | ) | (4,837 | ) | | — |
| (3,426 | ) |
Foreign exchange contracts | | | | | | | | |
Amounts related to interest settlements on derivatives (1)(2) | 20 |
| — |
| — |
| — |
| (270 | ) | | — |
| (250 | ) |
Recognized on derivatives (3) | (9 | ) | — |
| — |
| — |
| 497 |
| | (76 | ) | 412 |
|
Recognized on hedged items | 9 |
| — |
| — |
| — |
| (452 | ) | | 76 |
| (367 | ) |
Net income (expense) recognized on fair value hedges | 60 |
| — |
| (2 | ) | (5 | ) | (129 | ) | | — |
| (76 | ) |
| | | | | | | | |
Gains (losses) on cash flow hedging relationships: | | | | | | | | |
Interest contracts | | | | | | | | |
Realized gains (losses) (pre-tax) reclassified from cumulative OCI into net income (4) | — |
| (155 | ) | — |
| — |
| 1 |
| | — |
| (154 | ) |
Foreign exchange contracts | | | | | | | | |
Realized gains (losses) (pre-tax) reclassified from cumulative OCI into net income (4) | — |
| — |
| — |
| — |
| (4 | ) | | — |
| (4 | ) |
Net income (expense) recognized on cash flow hedges | $ | — |
| (155 | ) | — |
| — |
| (3 | ) |
| — |
| (158 | ) |
|
| | | | | | | | | | | | | | | | |
| Net interest income | | | Noninterest income |
| Total recorded in net income |
| Total recorded in OCI |
|
(in millions) | Debt securities |
| Mortgage loans held for sale |
| Deposits |
| Long-term debt |
| | Other |
| Derivative gains (losses) |
| Derivative gains (losses) |
|
Quarter ended March 31, 2020 | | | | | | | | |
Total amounts presented in the consolidated statement of income and other comprehensive income | $ | 3,472 |
| 197 |
| (1,742 | ) | (1,240 | ) | | 372 |
| N/A |
| 182 |
|
| | | | | | | | |
Interest contracts: | | | | | | | | |
Amounts related to interest settlements on derivatives | (46 | ) | — |
| 70 |
| 174 |
| | — |
| 198 |
| |
Recognized on derivatives | (1,871 | ) | (50 | ) | 530 |
| 9,775 |
| | — |
| 8,384 |
| — |
|
Recognized on hedged items | 1,856 |
| 50 |
| (511 | ) | (9,426 | ) | | — |
| (8,031 | ) | |
Total gains (losses) (pre-tax) on interest rate contracts | (61 | ) | — |
| 89 |
| 523 |
| | — |
| 551 |
| — |
|
Foreign exchange contracts: | | | | | | | | |
Amounts related to interest settlements on derivatives | 6 |
| — |
| — |
| (85 | ) | | — |
| (79 | ) | |
Recognized on derivatives | (1 | ) | — |
| — |
| 107 |
| | (785 | ) | (679 | ) | 144 |
|
Recognized on hedged items | 2 |
| — |
| — |
| (174 | ) | | 764 |
| 592 |
| |
Total gains (losses) (pre-tax) on foreign exchange contracts | 7 |
| — |
| — |
| (152 | ) | | (21 | ) | (166 | ) | 144 |
|
Total gains (losses) (pre-tax) recognized on fair value hedges | $ | (54 | ) | — |
| 89 |
| 371 |
| | (21 | ) | 385 |
| 144 |
|
|
| | | | | | | | | | | | | | | | |
Quarter ended March 31, 2019 | | | | | | | | |
Total amounts presented in the consolidated statement of income and other comprehensive income | $ | 3,941 |
| 152 |
| (2,026 | ) | (1,927 | ) | | 574 |
| N/A |
| 44 |
|
| | | | | | | | |
Interest contracts: | | | | | | | | |
Amounts related to interest settlements on derivatives | 16 |
| — |
| (23 | ) | (7 | ) | | — |
| (14 | ) | |
Recognized on derivatives | (814 | ) | (8 | ) | 207 |
| 1,986 |
| | — |
| 1,371 |
| — |
|
Recognized on hedged items | 817 |
| 7 |
| (190 | ) | (1,947 | ) | | — |
| (1,313 | ) | |
Total gains (losses) (pre-tax) on interest rate contracts | 19 |
| (1 | ) | (6 | ) | 32 |
| | — |
| 44 |
| — |
|
Foreign exchange contracts: | | | | | | | | |
Amounts related to interest settlements on derivatives | 10 |
| — |
| — |
| (142 | ) | | — |
| (132 | ) | |
Recognized on derivatives | (4 | ) | — |
| — |
| 292 |
| | (402 | ) | (114 | ) | (26 | ) |
Recognized on hedged items | 5 |
| — |
| — |
| (266 | ) | | 391 |
| 130 |
| |
Total gains (losses) (pre-tax) on foreign exchange contracts | 11 |
| — |
| — |
| (116 | ) | | (11 | ) | (116 | ) | (26 | ) |
Total gains (losses) (pre-tax) recognized on fair value hedges | $ | 30 |
| (1 | ) | (6 | ) | (84 | ) | | (11 | ) | (72 | ) | (26 | ) |
(continued on following page)
Note 15: Derivatives (continued)
|
| | | | | | | | | | | | | | | | |
(continued from previous page) | | | | | | | | |
| Net interest income | | | Noninterest income |
| |
(in millions) | Debt securities |
| Loans |
| Mortgage loans held for sale |
| Deposits |
| Long-term debt |
| | Other |
| Total |
|
Quarter ended June 30, 2018 | | | | | | | | |
Total amounts presented in the consolidated statement of income | $ | 3,594 |
| 10,912 |
| 198 |
| (1,268 | ) | (1,658 | ) | | 485 |
| 12,263 |
|
| | | | | | | | |
Gains (losses) on fair value hedging relationships: | | | | | | | | |
Interest contracts | | | | | | | | |
Amounts related to interest settlements on derivatives (1) | (42 | ) | — |
| (1 | ) | (20 | ) | 81 |
| | — |
| 18 |
|
Recognized on derivatives | 356 |
| — |
| 5 |
| (41 | ) | (819 | ) | | — |
| (499 | ) |
Recognized on hedged items | (352 | ) | — |
| (7 | ) | 31 |
| 780 |
| | — |
| 452 |
|
Foreign exchange contracts | | | | | | | | |
Amounts related to interest settlements on derivatives (1)(2) | 10 |
| — |
| — |
| — |
| (102 | ) | | — |
| (92 | ) |
Recognized on derivatives (3) | 2 |
| — |
| — |
| — |
| 97 |
| | (1,410 | ) | (1,311 | ) |
Recognized on hedged items | 1 |
| — |
| — |
| — |
| (82 | ) | | 1,308 |
| 1,227 |
|
Net income (expense) recognized on fair value hedges | (25 | ) | — |
| (3 | ) | (30 | ) | (45 | ) | | (102 | ) | (205 | ) |
| | | | | | | | |
Gains (losses) on cash flow hedging relationships: | | | | | | | | |
Interest contracts | | | | | | | | |
Realized gains (losses) (pre-tax) reclassified from cumulative OCI into net income (4) | — |
| (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 | $ | — |
| (77 | ) | — |
| — |
| — |
| | — |
| (77 | ) |
Six months ended June 30, 2018 | | | | | | | | |
Total amounts presented in the consolidated statement of income | $ | 7,008 |
| 21,491 |
| 377 |
| (2,358 | ) | (3,234 | ) | | 1,087 |
| 24,371 |
|
| | | | | | | | |
Gains (losses) on fair value hedging relationships: | | | | | | | | |
Interest contracts | | | | | | | | |
Amounts related to interest settlements on derivatives (1) | (124 | ) | — |
| (2 | ) | (25 | ) | 252 |
| | — |
| 101 |
|
Recognized on derivatives | 1,306 |
| 1 |
| 11 |
| (190 | ) | (3,212 | ) | | — |
| (2,084 | ) |
Recognized on hedged items | (1,320 | ) | (1 | ) | (15 | ) | 172 |
| 3,114 |
| | — |
| 1,950 |
|
Foreign exchange contracts | | | | | | | | |
Amounts related to interest settlements on derivatives (1)(2) | 15 |
| — |
| — |
| — |
| (182 | ) | | — |
| (167 | ) |
Recognized on derivatives (3) | 6 |
| — |
| — |
| — |
| (74 | ) | | (750 | ) | (818 | ) |
Recognized on hedged items | (2 | ) | — |
| — |
| — |
| 27 |
| | 681 |
| 706 |
|
Net income (expense) recognized on fair value hedges | (119 | ) | — |
| (6 | ) | (43 | ) | (75 | ) | | (69 | ) | (312 | ) |
| | | | | | | | |
Gains (losses) on cash flow hedging relationships: | | | | | | | | |
Interest contracts | | | | | | | | |
Realized gains (losses) (pre-tax) reclassified from cumulative OCI into net income (4) | — |
| (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 | $ | — |
| (137 | ) | — |
| — |
| — |
| | — |
| (137 | ) |
Table 15.4:Gains (Losses) Recognized on Cash Flow Hedging Relationships | |
(1) | Includes changes in fair value due to the passage of time associated with the non-zero fair value amount at hedge inception. |
| |
(2) | The second quarter and first half of 2019 included $7 million and $14 million, respectively, and the second quarter and first half of 2018 both included $2 million of the time value component recognized as net interest income (expense) on forward derivatives hedging foreign currency debt securities and long-term debt that were excluded from the assessment of hedge effectiveness. |
| |
(3) | For certain fair value hedges of foreign currency risk, changes in fair value of cross-currency swaps attributable to changes in cross-currency basis spreads are excluded from the assessment of hedge effectiveness and recorded in other comprehensive income. See Note 21 (Other Comprehensive Income) for the amounts recognized in other comprehensive income. |
| |
(4) | See Note 21 (Other Comprehensive Income) for details of amounts reclassified to net income. |
|
| | | | | | | | | | |
| Net interest Income | | | Total recorded in net income |
| Total recorded in OCI |
|
(in millions) | Loans |
| Long-term debt |
| | Derivative gains (losses) |
| Derivative gains (losses) |
|
Quarter ended March 31, 2020 | | | | | |
Total amounts presented in the consolidated statement of income and other comprehensive income | $ | 10,065 |
| (1,240 | ) | | N/A |
| 182 |
|
Interest rate contracts: | | | | | |
Realized gains (losses) (pre-tax) reclassified from OCI into net income | (56 | ) | — |
| | (56 | ) | 56 |
|
Net unrealized gains (losses) (pre-tax) recognized in OCI | N/A |
| N/A |
| | N/A |
| — |
|
Total gains (losses) (pre-tax) on interest rate contracts | (56 | ) | — |
| | (56 | ) | 56 |
|
Foreign exchange contracts: | | | | | |
Realized gains (losses) (pre-tax) reclassified from OCI into net income | — |
| (2 | ) | | (2 | ) | 2 |
|
Net unrealized gains (losses) (pre-tax) recognized in OCI | N/A |
| N/A |
| | N/A |
| (20 | ) |
Total gains (losses) (pre-tax) on foreign exchange contracts | — |
| (2 | ) | | (2 | ) | (18 | ) |
Total gains (losses) (pre-tax) recognized on cash flow hedges | $ | (56 | ) | (2 | ) | | (58 | ) | 38 |
|
Quarter ended March 31, 2019 | | | | | |
Total amounts presented in the consolidated statement of income and other comprehensive income | $ | 11,354 |
| (1,927 | ) | | N/A |
| 44 |
|
Interest rate contracts: | | | | | |
Realized gains (losses) (pre-tax) reclassified from OCI into net income | (78 | ) | — |
| | (78 | ) | 78 |
|
Net unrealized gains (losses) (pre-tax) recognized in OCI | N/A |
| N/A |
| | N/A |
| — |
|
Total gains (losses) (pre-tax) on interest rate contracts | (78 | ) | — |
| | (78 | ) | 78 |
|
Foreign exchange contracts: | | | | | |
Realized gains (losses) (pre-tax) reclassified from OCI into net income | — |
| (1 | ) | | (1 | ) | 1 |
|
Net unrealized gains (losses) (pre-tax) recognized in OCI | N/A |
| N/A |
| | N/A |
| (9 | ) |
Total gains (losses) (pre-tax) on foreign exchange contracts | — |
| (1 | ) | | (1 | ) | (8 | ) |
Total gains (losses) (pre-tax) recognized on cash flow hedges | $ | (78 | ) | (1 | ) | | (79 | ) | 70 |
|
Table 15.415.5 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 15.4:15.5: 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) |
|
June 30, 2019 | | | | | |
March 31, 2020 | | | | | |
Available-for-sale debt securities (5) | $ | 39,478 |
| 1,226 |
| | 5,704 |
| 110 |
| $ | 34,959 |
| 2,750 |
| | 9,567 |
| 261 |
|
Mortgage loans held for sale | 852 |
| 16 |
| | 388 |
| 4 |
| 514 |
| 24 |
| | — |
| — |
|
Deposits | (56,584 | ) | (425 | ) | | — |
| — |
| (41,081 | ) | (837 | ) | | (35 | ) | 2 |
|
Long-term debt | (115,922 | ) | (5,999 | ) | | (25,638 | ) | 270 |
| (147,069 | ) | (15,325 | ) | | (21,214 | ) | 131 |
|
December 31, 2018 | | | | | |
December 31, 2019 | | | | | |
Available-for-sale debt securities (5) | 37,857 |
| (157 | ) | | 4,938 |
| 238 |
| $ | 36,896 |
| 1,110 |
| | 9,486 |
| 278 |
|
Mortgage loans held for sale | 448 |
| 7 |
| | — |
| — |
| 961 |
| (12 | ) | | — |
| — |
|
Deposits | (56,535 | ) | 115 |
| | — |
| — |
| (43,716 | ) | (324 | ) | | — |
| — |
|
Long-term debt | (104,341 | ) | (742 | ) | | (25,539 | ) | 366 |
| (127,423 | ) | (5,827 | ) | | (25,750 | ) | 173 |
|
| |
(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$3.0 billion for debt securities and $(5.7)$(5.0) billion for long-term debt as of June 30, 2019,March 31, 2020, and $1.6$1.2 billion for debt securities and $(6.3)$(5.2) billion for long-term debt as of December 31, 2018.2019. |
| |
(3) | The balance includes $828$649 million and $99$136 million of debt securities and long-term debt cumulative basis adjustments, respectively, as of June 30, 2019,March 31, 2020, and $1.4 billion$790 million and $66$109 million of debt securities and long-term debt cumulative basis adjustments,respectively, as of December 31, 2018,2019, 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
Derivatives not designated as hedging instruments include economic hedges and derivatives entered into for customer accommodation trading purposes.
We use economic hedge derivatives to hedge themanage our exposure to interest rate risk, of changes in the fair value of certain residential MLHFS, residential MSRs measured at fair value, derivative loan commitmentsequity price risk, foreign currency risk, and other interests held.credit risk. 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 $1.2 billion and $2.1 billion in the second quarter and first half of 2019, respectively, and $(319) million and $(1.5) billion in the second quarter and first half of 2018, respectively, which are included in mortgage banking noninterest income. The aggregate fair value of these derivatives was a net asset of $602 million at June 30, 2019, and net asset of $757 million at December 31, 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 positive fair value of $94 million at June 30, 2019 and a net positive fair value of $60 million at December 31, 2018, and is included in the caption “Interest rate contracts” under “Customer accommodation trading and other derivatives” in Table 15.1 in this Note.
For more information on economic hedges and other derivatives, see Note 1618 (Derivatives) to Financial Statements in our 20182019 Form 10-K.
Table 15.515.6 shows the net gains (losses) recognized by income statement lines, related to derivatives not designated as hedging instruments.
Note 15: Derivatives (continued)
Table 15.5:15.6: Gains (Losses) on Derivatives Not Designated as Hedging Instruments
|
| | | | | | | | | | | |
| Noninterest income | |
(in millions) | Mortgage banking |
| Net gains (losses) from equity securities |
| Net gains (losses) from trading activities |
| Other |
| Total |
|
Quarter ended June 30, 2019 | | | | | |
Net gains (losses) recognized on economic hedges derivatives: | | | | | |
Interest contracts (1) | $ | 872 |
| — |
| — |
| 2 |
| 874 |
|
Equity contracts | — |
| (658 | ) | — |
| (7 | ) | (665 | ) |
Foreign exchange contracts | — |
| — |
| — |
| 164 |
| 164 |
|
Credit contracts | — |
| — |
| — |
| (5 | ) | (5 | ) |
Subtotal (2) | 872 |
| (658 | ) | — |
| 154 |
| 368 |
|
Net gains (losses) recognized on customer accommodation trading and other derivatives: | | | | | |
Interest contracts (3) | 179 |
| — |
| (222 | ) | — |
| (43 | ) |
Commodity contracts | — |
| — |
| 27 |
| — |
| 27 |
|
Equity contracts | — |
| — |
| (1,110 | ) | (133 | ) | (1,243 | ) |
Foreign exchange contracts | — |
| — |
| (83 | ) | — |
| (83 | ) |
Credit contracts | — |
| — |
| (16 | ) | — |
| (16 | ) |
Subtotal | 179 |
| — |
| (1,404 | ) | (133 | ) | (1,358 | ) |
Net gains (losses) recognized related to derivatives not designated as hedging instruments | $ | 1,051 |
| (658 | ) | (1,404 | ) | 21 |
| (990 | ) |
Six months ended June 30, 2019 | | | | | |
Net gains (losses) recognized on economic hedges derivatives: | | | | | |
Interest contracts (1) | $ | 1,683 |
| — |
| — |
| 7 |
| 1,690 |
|
Equity contracts | — |
| (1,543 | ) | — |
| — |
| (1,543 | ) |
Foreign exchange contracts | — |
| — |
| — |
| 140 |
| 140 |
|
Credit contracts | — |
| — |
| — |
| 10 |
| 10 |
|
Subtotal (2) | 1,683 |
| (1,543 | ) | — |
| 157 |
| 297 |
|
Net gains (losses) recognized on customer accommodation trading and other derivatives: | | | | | |
Interest contracts (3) | 297 |
| — |
| (506 | ) | — |
| (209 | ) |
Commodity contracts | — |
| — |
| 78 |
| — |
| 78 |
|
Equity contracts | — |
| — |
| (3,259 | ) | (406 | ) | (3,665 | ) |
Foreign exchange contracts | — |
| — |
| (69 | ) | — |
| (69 | ) |
Credit contracts | — |
| — |
| (60 | ) | — |
| (60 | ) |
Subtotal | 297 |
| — |
| (3,816 | ) | (406 | ) | (3,925 | ) |
Net gains (losses) recognized related to derivatives not designated as hedging instruments | $ | 1,980 |
| (1,543 | ) | (3,816 | ) | (249 | ) | (3,628 | ) |
(continued on following page)
|
| | | | | | | | | | | |
| Noninterest income | |
(in millions) | Mortgage banking |
| Net gains (losses) from equity securities |
| Net gains (losses) from trading activities |
| Other |
| Total |
|
Quarter ended March 31, 2020 | | | | | |
Net gains (losses) recognized on economic hedges derivatives: | | | | | |
Interest contracts (1) | $ | 2,471 |
| — |
| — |
| 29 |
| 2,500 |
|
Equity contracts | — |
| 1,219 |
| — |
| (28 | ) | 1,191 |
|
Foreign exchange contracts | — |
| — |
| — |
| 627 |
| 627 |
|
Credit contracts | — |
| — |
| — |
| 16 |
| 16 |
|
Subtotal (2) | 2,471 |
| 1,219 |
| — |
| 644 |
| 4,334 |
|
Net gains (losses) recognized on customer accommodation trading and other derivatives: | | | | | |
Interest contracts (3) | 553 |
| — |
| (2,463 | ) | — |
| (1,910 | ) |
Commodity contracts | — |
| — |
| 112 |
| — |
| 112 |
|
Equity contracts | — |
| — |
| 4,749 |
| 73 |
| 4,822 |
|
Foreign exchange contracts | — |
| — |
| (557 | ) | — |
| (557 | ) |
Credit contracts | — |
| — |
| 281 |
| — |
| 281 |
|
Subtotal | 553 |
| — |
| 2,122 |
| 73 |
| 2,748 |
|
Net gains (losses) recognized related to derivatives not designated as hedging instruments | $ | 3,024 |
| 1,219 |
| 2,122 |
| 717 |
| 7,082 |
|
| | (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 June 30, 2018 | | | |
Quarter ended March 31, 2019 | | | |
Net gains (losses) recognized on economic hedges derivatives: | | | | |
Interest contracts (1) | $ | (185 | ) | — |
| — |
| (3 | ) | (188 | ) | $ | 811 |
| — |
| — |
| 5 |
| 816 |
|
Equity contracts | — |
| (540 | ) | — |
| 5 |
| (535 | ) | — |
| (885 | ) | — |
| 7 |
| (878 | ) |
Foreign exchange contracts | — |
| — |
| — |
| 486 |
| 486 |
| — |
| — |
| — |
| (24 | ) | (24 | ) |
Credit contracts | — |
| — |
| — |
| (10 | ) | (10 | ) | — |
| — |
| — |
| 15 |
| 15 |
|
Subtotal (2) | (185 | ) | (540 | ) | — |
| 478 |
| (247 | ) | 811 |
| (885 | ) | — |
| 3 |
| (71 | ) |
Net gains (losses) recognized on customer accommodation trading and other derivatives: | | | | |
Interest contracts (3) | (46 | ) | — |
| 182 |
| — |
| 136 |
| 118 |
| — |
| (284 | ) | — |
| (166 | ) |
Commodity contracts | — |
| — |
| 35 |
| — |
| 35 |
| — |
| — |
| 51 |
| — |
| 51 |
|
Equity contracts | — |
| — |
| 655 |
| (71 | ) | 584 |
| — |
| — |
| (2,149 | ) | (273 | ) | (2,422 | ) |
Foreign exchange contracts | — |
| — |
| 91 |
| — |
| 91 |
| — |
| — |
| 14 |
| — |
| 14 |
|
Credit contracts | — |
| — |
| (4 | ) | — |
| (4 | ) | — |
| — |
| (44 | ) | — |
| (44 | ) |
Subtotal | (46 | ) | — |
| 959 |
| (71 | ) | 842 |
| 118 |
| — |
| (2,412 | ) | (273 | ) | (2,567 | ) |
Net gains (losses) recognized related to derivatives not designated as hedging instruments | $ | (231 | ) | (540 | ) | 959 |
| 407 |
| 595 |
| $ | 929 |
| (885 | ) | (2,412 | ) | (270 | ) | (2,638 | ) |
Six months ended June 30, 2018 | | | |
Net gains (losses) recognized on economic hedges derivatives: | | | |
Interest contracts (1) | $ | (780 | ) | — |
| — |
| 6 |
| (774 | ) | |
Equity contracts | — |
| (598 | ) | — |
| 5 |
| (593 | ) | |
Foreign exchange contracts | — |
| — |
| — |
| 327 |
| 327 |
| |
Credit contracts | — |
| — |
| — |
| (6 | ) | (6 | ) | |
Subtotal (2) | (780 | ) | (598 | ) | — |
| 332 |
| (1,046 | ) | |
Net gains (losses) recognized on customer accommodation trading and other derivatives: | | | |
Interest contracts (3) | (305 | ) | — |
| 567 |
| — |
| 262 |
| |
Commodity contracts | — |
| — |
| 74 |
| — |
| 74 |
| |
Equity contracts | — |
| — |
| 1,114 |
| (266 | ) | 848 |
| |
Foreign exchange contracts | — |
| — |
| 401 |
| — |
| 401 |
| |
Credit contracts | — |
| — |
| 6 |
| — |
| 6 |
| |
Subtotal | (305 | ) | — |
| 2,162 |
| (266 | ) | 1,591 |
| |
Net gains (losses) recognized related to derivatives not designated as hedging instruments | $ | (1,085 | ) | (598 | ) | 2,162 |
| 66 |
| 545 |
| |
| |
(1) | Mortgage banking amounts for the secondfirst quarter and first half of 20192020 are comprised of gains (losses) of $1.2$3.4 billion and $2.1 billion, respectively, related to derivatives used as economic hedges of MSRs measured at fair value offset by gains (losses) of $(283)$(929) million and $(434) million related to derivatives used as economic hedges of mortgage loans held for sale and derivative loan commitments. The corresponding amounts for the secondfirst quarter and first half of 20182019 are comprised of gains (losses) of $(319)$962 million and $(1.5) billion offset by gains (losses) of $134$(151) million and $759 million,, respectively. |
| |
(2) | Includes hedging gains (losses) of $(18) million and $(36) million for the second quarter and first half of 2019, respectively, and $8 million and $36 million for the second quarter and first half of 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 15.615.7 provides details of sold and purchased credit derivatives.
Table 15.6:15.7: 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 asset |
| 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 |
June 30, 2019 | | | | | | | | | | | | | |
March 31, 2020 | | | | | | | | | | | | | | |
Credit default swaps on: | | | | | | | | | | | | | | | | | | | | | | | | | |
Corporate bonds | $ | 1 |
| | 1,995 |
| | 472 |
| | 1,362 |
| | 633 |
| | 2,021 |
| | 2019 - 2029 | $ | 11 |
| 11 |
| | 3,602 |
| | 825 |
| | 2,492 |
| | 1,110 |
| | 2,753 |
| | 2020 - 2029 |
Structured products | 31 |
| | 138 |
| | 133 |
| | 109 |
| | 29 |
| | 113 |
| | 2022 - 2047 | — |
| 13 |
| | 37 |
| | 37 |
| | 36 |
| | 1 |
| | 110 |
| | 2034 - 2047 |
Credit protection on: | | | | | | | | | | | | | | | | | | | | | | | | | |
Default swap index | — |
| | 1,897 |
| | 194 |
| | 163 |
| | 1,734 |
| | 3,923 |
| | 2019 - 2029 | 2 |
| 1 |
| | 4,339 |
| | 1,118 |
| | 1,577 |
| | 2,762 |
| | 5,497 |
| | 2020 - 2029 |
Commercial mortgage-backed securities index | 38 |
| | 342 |
| | 87 |
| | 316 |
| | 26 |
| | 51 |
| | 2047 - 2058 | — |
| 28 |
| | 318 |
| | 60 |
| | 293 |
| | 25 |
| | 50 |
| | 2047 - 2058 |
Asset-backed securities index | 8 |
| | 41 |
| | 41 |
| | 41 |
| | — |
| | 1 |
| | 2045 - 2046 | — |
| 8 |
| | 41 |
| | 41 |
| | 41 |
| | — |
| | 1 |
| | 2045 - 2046 |
Other | 2 |
| | 6,094 |
| | 5,796 |
| | — |
| | 6,094 |
| | 12,904 |
| | 2019 - 2048 | — |
| 17 |
| | 6,698 |
| | 6,230 |
| | — |
| | 6,698 |
| | 12,793 |
| | 2020 - 2049 |
Total credit derivatives | $ | 80 |
| | 10,507 |
| | 6,723 |
| | 1,991 |
| | 8,516 |
| | 19,013 |
| | $ | 13 |
| 78 |
| | 15,035 |
| | 8,311 |
| | 4,439 |
| | 10,596 |
| | 21,204 |
| |
December 31, 2018 | | | | | | | | | | | | | |
December 31, 2019 | | | | | | | | | | | | | | |
Credit default swaps on: | | | | | | | | | | | | | | | | | | | | | | | | | |
Corporate bonds | $ | 59 |
| | 2,037 |
| | 441 |
| | 1,374 |
| | 663 |
| | 1,460 |
| | 2019 - 2027 | $ | 8 |
| 1 |
| | 2,855 |
| | 707 |
| | 1,885 |
| | 970 |
| | 2,447 |
| | 2020 - 2029 |
Structured products | 62 |
| | 133 |
| | 128 |
| | 121 |
| | 12 |
| | 113 |
| | 2022 - 2047 | — |
| 25 |
| | 74 |
| | 69 |
| | 63 |
| | 11 |
| | 111 |
| | 2022 - 2047 |
Credit protection on: | | | | | | | | | | | | | | | | | | | | | | | | | |
Default swap index | 1 |
| | 3,618 |
| | 582 |
| | 1,998 |
| | 1,620 |
| | 2,896 |
| | 2019 - 2028 | 1 |
| — |
| | 2,542 |
| | 120 |
| | 550 |
| | 1,992 |
| | 8,105 |
| | 2020 - 2029 |
Commercial mortgage-backed securities index | 49 |
| | 389 |
| | 109 |
| | 363 |
| | 26 |
| | 51 |
| | 2047 - 2058 | 3 |
| 26 |
| | 322 |
| | 67 |
| | 296 |
| | 26 |
| | 50 |
| | 2047 - 2058 |
Asset-backed securities index | 9 |
| | 42 |
| | 42 |
| | 42 |
| | — |
| | 1 |
| | 2045 - 2046 | — |
| 8 |
| | 41 |
| | 41 |
| | 41 |
| | — |
| | 1 |
| | 2045 - 2046 |
Other | 2 |
| | 5,522 |
| | 5,327 |
| | — |
| | 5,522 |
| | 12,561 |
| | 2018 - 2048 | — |
| 5 |
| | 6,381 |
| | 5,738 |
| | — |
| | 6,381 |
| | 11,881 |
| | 2020 - 2049 |
Total credit derivatives | $ | 182 |
| | 11,741 |
| | 6,629 |
| | 3,898 |
| | 7,843 |
| | 17,082 |
| | $ | 12 |
| 65 |
| | 12,215 |
| | 6,742 |
| | 2,835 |
| | 9,380 |
| | 22,595 |
| |
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 aan extremely remote possibility and accordingly, this required disclosure is not an indication of expected loss. The amounts under non-investment grade represent the notional amounts of those credit derivatives on which we have a higher risk of being required to perform under the terms of the credit derivative and are a function of the underlying assets.
We consider the risk of performance to be high if the underlying assets under the credit derivative have an external rating that is below investment grade or an internal credit default grade that is equivalent thereto. We believe the net protection sold, which is representative of the net notional amount of protection sold and purchased with identical underlyings, in combination with other protection purchased, is more representative of our exposure to loss than either non-investment grade or protection sold. Other protection purchased represents additional protection, which may offset the exposure to loss for protection sold, that was not purchased with an identical underlying of the protection sold.
Credit-Risk Contingent Features
Certain of our derivative contracts contain provisions whereby if the credit rating of our debt were to be downgraded by certain major credit rating agencies, the counterparty could demand additional collateral or require termination or replacement of derivative instruments in a net liability position. The aggregate fair value of all derivative instrumentsTable 15.8 illustrates our exposure to such derivatives with such credit-risk-relatedcredit-risk contingent features, that are in a net liability position was $10.7 billion at June 30, 2019,collateral we have posted, and $7.4 billion at December 31, 2018, for whichthe additional collateral we posted $9.2 billion and $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 thatwould be required to post if triggered requires the maximum amount of collateral to be posted. If the credit rating of our debt had beenwas downgraded below investment grade, on June 30, 2019, or December 31, 2018, we would have been required to post additional collateral of $1.5 billion or $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.grade.
Table 15.8:Credit-Risk Contingent Features
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. |
| | | | | |
(in billions) | Mar 31, 2020 |
| Dec 31, 2019 |
|
Net derivative liabilities with credit-risk contingent features | $ | 16.1 |
| 10.4 |
|
Collateral posted | 13.9 |
| 9.1 |
|
Additional collateral to be posted upon a below investment grade credit rating (1) | 2.2 |
| 1.3 |
|
| |
(1) | Any credit rating below investment grade requires us to post the maximum amount of collateral. |
Note 16: Fair Values of Assets and Liabilities (continued)
|
|
Note 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 16.2 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, write-downs of individual assets or application of the measurement alternative accounting for nonmarketable equity securities or write-downs of individual assets.securities. Assets recorded on a nonrecurring basis are presented in Table 16.1316.9 in this Note.
Table 16.15 includes estimates of fair value for financial instruments that are not recorded at fair value.
See Note 1 (Summary of Significant Accounting Policies) in our 20182019 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 1819 (Fair Values of Assets and Liabilities) in our 20182019 Form 10-K.
FAIR VALUE HIERARCHY We groupclassify our assets and liabilities measured at fair value as either Level 1, Level 2 or Level 3 in three levelsthe fair value hierarchy. The highest priority (Level 1) is assigned to valuations based on theunadjusted quoted prices in active markets in which the assets and liabilities are traded and the reliabilitylowest priority (Level 3) is assigned to valuations based on significant unobservable inputs. See Note 1 (Summary of Significant Accounting Policies) in our 2019 Form 10-K for a detailed description of the assumptions usedfair value hierarchy.
In the determination of the classification of financial instruments in Level 2 or Level 3 of the fair value hierarchy, we consider all available information, including observable market data, indications of market liquidity and orderliness, and our understanding of the valuation techniques and significant inputs used. For securities in inactive markets, we use a predetermined percentage to evaluate the impact of fair value adjustments
derived from weighting both external and internal indications of value to determine fair value. These levels are:
if the instrument is classified as Level 1 – Valuation2 or Level 3. Otherwise, the classification of Level 2 or Level 3 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 identicalthe specific facts and circumstances of each instrument or similar instruments in markets thatinstrument category and judgments are not active, and model-based valuation techniques for which all significant assumptions are observable inmade regarding the market.
significance of the Level 3 – Valuationinputs to the instruments’ fair value measurement in its entirety. If Level 3 inputs are considered significant, the instrument 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.classified as Level 3.
We do not classify an equity securitysecurities 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 beare 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 we record the unadjusted fair value in our financial statements. For additional information, see Note 1819 (Fair Values of Assets and Liabilities) in our 2018
2019 Form 10-K.
Table 16.1 presents unadjusted fair value measurements provided by brokers orobtained from third-party pricing services byclassified within the fair value hierarchy level. Fairhierarchy. Unadjusted fair value measurements obtained from brokers and 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 16.1.
The unadjusted fair value measurements obtained from brokers for available-for-sale debt securities were $18 million in Level 2 assets and $123 million in Level 3 assets at March 31, 2020, and $45 million and $126 million at December 31, 2019, respectively.
Table 16.1: Fair Value Measurements by Brokers orobtained from Third-Party Pricing Services
| | | Brokers | | | Third-party pricing services | | March 31, 2020 | | | December 31, 2019 | |
(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 |
|
June 30, 2019 | | | | | | | | | | | | |
Trading debt securities | $ | — |
| | — |
| | — |
| | 534 |
| | 319 |
| | — |
| 2,027 |
| | 357 |
| | — |
| | 634 |
| | 329 |
| | — |
|
Available-for-sale debt securities: | | | | | | | | | | | | | | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | — |
| | — |
| | — |
| | 12,324 |
| | 2,995 |
| | — |
| 11,036 |
| | — |
| | — |
| | 13,460 |
| | 1,500 |
| | — |
|
Securities of U.S. states and political subdivisions | — |
| | — |
| | — |
| | — |
| | 44,642 |
| | 38 |
| — |
| | 37,793 |
| | 66 |
| | — |
| | 39,868 |
| | 34 |
|
Mortgage-backed securities | — |
| | — |
| | — |
| | — |
| | 161,260 |
| | 41 |
| — |
| | 163,329 |
| | 185 |
| | — |
| | 167,172 |
| | 42 |
|
Other debt securities (1) | — |
| | 45 |
| | 130 |
| | — |
| | 41,947 |
| | 663 |
| — |
| | 34,603 |
| | 743 |
| | — |
| | 38,067 |
| | 650 |
|
Total available-for-sale debt securities | — |
| | 45 |
| | 130 |
| | 12,324 |
| | 250,844 |
| | 742 |
| 11,036 |
| | 235,725 |
| | 994 |
| | 13,460 |
| | 246,607 |
| | 726 |
|
Equity securities: | | | | | | | | | | | | |
Marketable | — |
| | — |
| | — |
| | — |
| | 160 |
| | — |
| |
Nonmarketable | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
Total equity securities | — |
| | — |
| | — |
| | — |
| | 160 |
| | — |
| |
Marketable equity securities | | — |
| | 98 |
| | — |
| | — |
| | 110 |
| | — |
|
Derivative assets | — |
| | — |
| | — |
| | 12 |
| | — |
| | — |
| 41 |
| | 6 |
| | — |
| | 12 |
| | 1 |
| | — |
|
Derivative liabilities | — |
| | — |
| | — |
| | (13 | ) | | (2 | ) | | — |
| (25 | ) | | (8 | ) | | — |
| | (11 | ) | | (3 | ) | | — |
|
Other liabilities (2) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
December 31, 2018 | | | | | | | | | | | | |
Trading debt securities | $ | — |
| | — |
| | — |
| | 899 |
| | 256 |
| | — |
| |
Available-for-sale debt securities: | | | | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | — |
| | — |
| | — |
| | 10,399 |
| | 2,949 |
| | — |
| |
Securities of U.S. states and political subdivisions | — |
| | — |
| | — |
| | — |
| | 48,377 |
| | 43 |
| |
Mortgage-backed securities | — |
| | — |
| | — |
| | — |
| | 160,162 |
| | 41 |
| |
Other debt securities (1) | — |
| | 45 |
| | 129 |
| | — |
| | 44,292 |
| | 758 |
| |
Total available-for-sale debt securities | — |
| | 45 |
| | 129 |
| | 10,399 |
| | 255,780 |
| | 842 |
| |
Equity securities: | | | | | | | | | | | | |
Marketable | — |
| | — |
| | — |
| | — |
| | 158 |
| | — |
| |
Nonmarketable | — |
| | — |
| | — |
| | — |
| | 1 |
| | — |
| |
Total equity securities | — |
| | — |
| | — |
| | — |
| | 159 |
| | — |
| |
Derivative assets | — |
| | — |
| | — |
| | 17 |
| | — |
| | — |
| |
Derivative liabilities | — |
| | — |
| | — |
| | (12 | ) | | — |
| | — |
| |
Other liabilities (2) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
| |
(1) | Includes corporate debt securities, collateralized loan and other debt obligations, asset-backed securities, and other debt securities. |
| |
(2) | Includes short sale liabilities and other liabilities. |
Note 16: Fair Values of Assets and Liabilities (continued)
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
Table 16.2 presents the balances of assets and liabilities recorded at fair value on a recurring basis.
Table 16.2: Fair Value on a Recurring Basis | | (in millions) | Level 1 |
| | Level 2 |
| | Level 3 |
| | Netting (1) |
| Total |
| Level 1 |
| | Level 2 |
| | Level 3 |
| | Netting (1) |
| Total |
|
June 30, 2019 | | | | | | | | |
March 31, 2020 | | | | | | | | |
Trading debt securities: | | | | | | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | $ | 15,010 |
| | 3,215 |
| | — |
| | — |
| 18,225 |
| $ | 35,069 |
| | 4,638 |
| | — |
| | — |
| 39,707 |
|
Securities of U.S. states and political subdivisions | — |
| | 3,314 |
| | — |
| | — |
| 3,314 |
| — |
| | 2,972 |
| | — |
| | — |
| 2,972 |
|
Collateralized loan obligations | — |
| | 758 |
| | 249 |
| | — |
| 1,007 |
| — |
| | 472 |
| | 154 |
| | — |
| 626 |
|
Corporate debt securities | — |
| | 11,321 |
| | 44 |
| | — |
| 11,365 |
| — |
| | 12,392 |
| | 34 |
| | — |
| 12,426 |
|
Mortgage-backed securities | — |
| | 35,186 |
| | — |
| | — |
| 35,186 |
| — |
| | 23,738 |
| | 177 |
| | — |
| 23,915 |
|
Asset-backed securities | — |
| | 1,084 |
| | — |
| | — |
| 1,084 |
| — |
| | 742 |
| | 24 |
| | — |
| 766 |
|
Other trading debt securities | — |
| | 13 |
| | 14 |
| | — |
| 27 |
| — |
| | 13 |
| | — |
| | — |
| 13 |
|
Total trading debt securities | 15,010 |
| | 54,891 |
| | 307 |
| | — |
| 70,208 |
| 35,069 |
| | 44,967 |
| | 389 |
| | — |
| 80,425 |
|
Available-for-sale debt securities: | | | | | | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | 12,324 |
| | 2,995 |
| | — |
| | — |
| 15,319 |
| 11,036 |
| | — |
| | — |
| | — |
| 11,036 |
|
Securities of U.S. states and political subdivisions | — |
| | 44,704 |
| | 391 |
| | — |
| 45,095 |
| — |
| | 37,793 |
| | 351 |
| | — |
| 38,144 |
|
Mortgage-backed securities: | | | | | | | | | | | | | | |
Federal agencies | — |
| | 155,858 |
| | — |
| | — |
| 155,858 |
| — |
| | 160,214 |
| | — |
| | — |
| 160,214 |
|
Residential | — |
| | 1,263 |
| | — |
| | — |
| 1,263 |
| — |
| | 745 |
| | 31 |
| | — |
| 776 |
|
Commercial | — |
| | 4,139 |
| | 41 |
| | — |
| 4,180 |
| — |
| | 3,500 |
| | 154 |
| | — |
| 3,654 |
|
Total mortgage-backed securities | — |
| | 161,260 |
| | 41 |
| | — |
| 161,301 |
| — |
| | 164,459 |
| | 185 |
| | — |
| 164,644 |
|
Corporate debt securities | 37 |
| | 5,810 |
| | 383 |
| | — |
| 6,230 |
| 33 |
| | 4,692 |
| | 1,130 |
| | — |
| 5,855 |
|
Collateralized loan and other debt obligations (2) | — |
| | 32,346 |
| | 649 |
| | — |
| 32,995 |
| — |
| | 24,532 |
| | 636 |
| | — |
| 25,168 |
|
Asset-backed securities: | | | | | | | | | | | | | | |
Automobile loans and leases | — |
| | 889 |
| | — |
| | — |
| 889 |
| — |
| | 884 |
| | — |
| | — |
| 884 |
|
Home equity loans | — |
| | 14 |
| | — |
| | — |
| 14 |
| — |
| | 12 |
| | — |
| | — |
| 12 |
|
Other asset-backed securities | — |
| | 3,792 |
| | 341 |
| | — |
| 4,133 |
| — |
| | 3,380 |
| | 110 |
| | — |
| 3,490 |
|
Total asset-backed securities | — |
| | 4,695 |
| | 341 |
| | — |
| 5,036 |
| — |
| | 4,276 |
| | 110 |
| | — |
| 4,386 |
|
Other debt securities | — |
| | 7 |
| | — |
| | — |
| 7 |
| — |
| | 1,996 |
| | — |
| | — |
| 1,996 |
|
Total available-for-sale debt securities | 12,361 |
| | 251,817 |
| | 1,805 |
| (3) | — |
| 265,983 |
| 11,069 |
| | 237,748 |
| | 2,412 |
| (2) | — |
| 251,229 |
|
Mortgage loans held for sale | — |
| | 15,228 |
| | 1,115 |
| | — |
| 16,343 |
| — |
| | 13,508 |
| | 3,157 |
| | — |
| 16,665 |
|
Loans held for sale | — |
| | 1,106 |
| | 12 |
| | — |
| 1,118 |
| — |
| | 1,654 |
| | 19 |
| | — |
| 1,673 |
|
Loans | — |
| | — |
| | 202 |
| | — |
| 202 |
| — |
| | — |
| | 160 |
| | — |
| 160 |
|
Mortgage servicing rights (residential) | — |
| | — |
| | 12,096 |
| | — |
| 12,096 |
| — |
| | — |
| | 8,126 |
| | — |
| 8,126 |
|
Derivative assets: | | | | | | | | | | | | | | |
Interest rate contracts | 45 |
| | 25,258 |
| | 250 |
| | — |
| 25,553 |
| 152 |
| | 57,695 |
| | 762 |
| | — |
| 58,609 |
|
Commodity contracts | — |
| | 1,404 |
| | 20 |
| | — |
| 1,424 |
| — |
| | 2,301 |
| | 15 |
| | — |
| 2,316 |
|
Equity contracts | 2,162 |
| | 3,300 |
| | 1,915 |
| | — |
| 7,377 |
| 4,418 |
| | 7,371 |
| | 1,361 |
| | — |
| 13,150 |
|
Foreign exchange contracts | 12 |
| | 5,522 |
| | 21 |
| | — |
| 5,555 |
| 41 |
| | 8,626 |
| | 24 |
| | — |
| 8,691 |
|
Credit contracts | — |
| | 62 |
| | 79 |
| | — |
| 141 |
| — |
| | 76 |
| | 77 |
| | — |
| 153 |
|
Netting | — |
| | — |
| | — |
| | (26,888 | ) | (26,888 | ) | — |
| | — |
| | — |
| | (57,896 | ) | (57,896 | ) |
Total derivative assets | 2,219 |
| | 35,546 |
| | 2,285 |
| | (26,888 | ) | 13,162 |
| 4,611 |
| | 76,069 |
| | 2,239 |
| | (57,896 | ) | 25,023 |
|
Equity securities - excluding securities at NAV: | | | | | | | | |
Equity securities – excluding securities at NAV: | | | | | | | | |
Marketable | 28,447 |
| | 259 |
| | — |
| | — |
| 28,706 |
| 20,983 |
| | 295 |
| | 3 |
| | — |
| 21,281 |
|
Nonmarketable | — |
| | 16 |
| | 7,110 |
| | — |
| 7,126 |
| — |
| | 15 |
| | 6,751 |
| | — |
| 6,766 |
|
Total equity securities | 28,447 |
| | 275 |
| | 7,110 |
| | — |
| 35,832 |
| 20,983 |
| | 310 |
| | 6,754 |
| | — |
| 28,047 |
|
Total assets included in the fair value hierarchy | $ | 58,037 |
|
| 358,863 |
|
| 24,932 |
|
| (26,888 | ) | 414,944 |
| $ | 71,732 |
|
| 374,256 |
|
| 23,256 |
|
| (57,896 | ) | 411,348 |
|
Equity securities at NAV (4)(3) | | | | | | | | 118 |
| | | | | | | | 129 |
|
Total assets recorded at fair value | | | | | | | | 415,062 |
| | | | | | | | 411,477 |
|
Derivative liabilities: | | | | | | | | | | | | | | |
Interest rate contracts | $ | (55 | ) | | (20,537 | ) | | (45 | ) | | — |
| (20,637 | ) | $ | (158 | ) | | (47,317 | ) | | (77 | ) | | — |
| (47,552 | ) |
Commodity contracts | — |
| | (1,887 | ) | | (49 | ) | | — |
| (1,936 | ) | — |
| | (6,779 | ) | | (59 | ) | | — |
| (6,838 | ) |
Equity contracts | (1,509 | ) | | (5,526 | ) | | (2,143 | ) | | — |
| (9,178 | ) | (4,600 | ) | | (4,610 | ) | | (1,144 | ) | | — |
| (10,354 | ) |
Foreign exchange contracts | (13 | ) | | (6,224 | ) | | (31 | ) | | — |
| (6,268 | ) | (25 | ) | | (9,969 | ) | | (30 | ) | | — |
| (10,024 | ) |
Credit contracts | — |
| | (63 | ) | | (34 | ) | | — |
| (97 | ) | — |
| | (63 | ) | | (30 | ) | | — |
| (93 | ) |
Netting | — |
| | — |
| | — |
| | 29,717 |
| 29,717 |
| — |
| | — |
| | — |
| | 59,243 |
| 59,243 |
|
Total derivative liabilities | (1,577 | ) | | (34,237 | ) | | (2,302 | ) | | 29,717 |
| (8,399 | ) | (4,783 | ) | | (68,738 | ) | | (1,340 | ) | | 59,243 |
| (15,618 | ) |
Short sale liabilities: | | | | | | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | (7,768 | ) | | (230 | ) | | — |
| | — |
| (7,998 | ) | (9,881 | ) | | (103 | ) | | — |
| | — |
| (9,984 | ) |
Mortgage-backed securities | — |
| | (533 | ) | | — |
| | — |
| (533 | ) | — |
| | (92 | ) | | — |
| | — |
| (92 | ) |
Asset-backed securities | — |
| | (10 | ) | | — |
| | — |
| (10 | ) | |
Corporate debt securities | — |
| | (4,887 | ) | | — |
| | — |
| (4,887 | ) | — |
| | (5,520 | ) | | — |
| | — |
| (5,520 | ) |
Equity securities | (2,527 | ) | | — |
| | — |
| | — |
| (2,527 | ) | (1,984 | ) | | — |
| | — |
| | — |
| (1,984 | ) |
Other securities | — |
| | — |
| | — |
| | — |
| — |
| — |
| | (23 | ) | | — |
| | — |
| (23 | ) |
Total short sale liabilities | (10,295 | ) | | (5,660 | ) | | — |
| | — |
| (15,955 | ) | (11,865 | ) | | (5,738 | ) | | — |
| | — |
| (17,603 | ) |
Other liabilities | — |
| | — |
| | (2 | ) | | — |
| (2 | ) | — |
| | — |
| | (2 | ) | | — |
| (2 | ) |
Total liabilities recorded at fair value | $ | (11,872 | ) | | (39,897 | ) | | (2,304 | ) | | 29,717 |
| (24,356 | ) | $ | (16,648 | ) | | (74,476 | ) | | (1,342 | ) | | 59,243 |
| (33,223 | ) |
| |
(1) | Represents balance sheet netting of derivative asset and liability balances, and related cash collateral.collateral and portfolio level counterparty valuation adjustments. See Note 15 (Derivatives) for additional information. |
| |
(2) | Includes collateralized debt obligationsLargely consists of $649 million.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) | 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 16: Fair Values of Assets and Liabilities (continued)
(continued from previous page)
|
| | | | | | | | | | | | | | |
(in millions) | Level 1 |
| | Level 2 |
| | Level 3 |
| | Netting (1) |
| Total |
|
December 31, 2019 | | | | | | | | |
Trading debt securities: | | | | | | | | |
Securities of U.S. Treasury and federal agencies | $ | 32,335 |
| | 4,382 |
| | — |
| | — |
| 36,717 |
|
Securities of U.S. states and political subdivisions | — |
| | 2,434 |
| | — |
| | — |
| 2,434 |
|
Collateralized loan obligations | — |
| | 555 |
| | 183 |
| | — |
| 738 |
|
Corporate debt securities | — |
| | 11,006 |
| | 38 |
| | — |
| 11,044 |
|
Mortgage-backed securities | — |
| | 27,712 |
| | — |
| | — |
| 27,712 |
|
Asset-backed securities | — |
| | 1,081 |
| | — |
| | — |
| 1,081 |
|
Other trading debt securities | — |
| | 5 |
| | 2 |
| | — |
| 7 |
|
Total trading debt securities | 32,335 |
| | 47,175 |
| | 223 |
| | — |
| 79,733 |
|
Available-for-sale debt securities: | | | | | | | | |
Securities of U.S. Treasury and federal agencies | 13,460 |
| | 1,500 |
| | — |
| | — |
| 14,960 |
|
Securities of U.S. states and political subdivisions | — |
| | 39,924 |
| | 413 |
| | — |
| 40,337 |
|
Mortgage-backed securities: | | | | | | | |
|
Federal agencies | — |
| | 162,453 |
| | — |
| | — |
| 162,453 |
|
Residential | — |
| | 827 |
| | — |
| | — |
| 827 |
|
Commercial | — |
| | 3,892 |
| | 42 |
| | — |
| 3,934 |
|
Total mortgage-backed securities | — |
| | 167,172 |
| | 42 |
| | — |
| 167,214 |
|
Corporate debt securities | 37 |
| | 6,159 |
| | 367 |
| | — |
| 6,563 |
|
Collateralized loan and other debt obligations | — |
| | 29,055 |
| | 640 |
| | — |
| 29,695 |
|
Asset-backed securities: | | | | | | | |
|
Automobile loans and leases | — |
| | 951 |
| | — |
| | — |
| 951 |
|
Home equity loans | — |
| | — |
| | — |
| | — |
| — |
|
Other asset-backed securities | — |
| | 3,635 |
| | 103 |
| | — |
| 3,738 |
|
Total asset-backed securities | — |
| | 4,586 |
| | 103 |
| | — |
| 4,689 |
|
Other debt securities | — |
| | 1 |
| | — |
| | — |
| 1 |
|
Total available-for-sale debt securities | 13,497 |
| | 248,397 |
| | 1,565 |
| (2) | — |
| 263,459 |
|
Mortgage loans held for sale | — |
| | 15,408 |
| | 1,198 |
| | — |
| 16,606 |
|
Loans held for sale | — |
| | 956 |
| | 16 |
| | — |
| 972 |
|
Loans | — |
| | — |
| | 171 |
| | — |
| 171 |
|
Mortgage servicing rights (residential) | — |
| | — |
| | 11,517 |
| | — |
| 11,517 |
|
Derivative assets: | | | | | | | |
|
Interest rate contracts | 26 |
| | 23,792 |
| | 229 |
| | — |
| 24,047 |
|
Commodity contracts | — |
| | 1,413 |
| | 8 |
| | — |
| 1,421 |
|
Equity contracts | 2,946 |
| | 4,135 |
| | 1,455 |
| | — |
| 8,536 |
|
Foreign exchange contracts | 12 |
| | 5,197 |
| | 5 |
| | — |
| 5,214 |
|
Credit contracts | — |
| | 49 |
| | 59 |
| | — |
| 108 |
|
Netting | — |
| | — |
| | — |
| | (25,123 | ) | (25,123 | ) |
Total derivative assets | 2,984 |
| | 34,586 |
| | 1,756 |
| | (25,123 | ) | 14,203 |
|
Equity securities – excluding securities at NAV: | | | | | | | | |
Marketable | 33,702 |
| | 216 |
| | 3 |
| | — |
| 33,921 |
|
Nonmarketable | — |
| | 22 |
| | 7,847 |
| | — |
| 7,869 |
|
Total equity securities | 33,702 |
| | 238 |
| | 7,850 |
| | — |
| 41,790 |
|
Total assets included in the fair value hierarchy | $ | 82,518 |
| | 346,760 |
| | 24,296 |
| | (25,123 | ) | 428,451 |
|
Equity securities at NAV (3) | | | | | | | | 146 |
|
Total assets recorded at fair value |
|
| |
|
| |
|
| |
|
| 428,597 |
|
Derivative liabilities: | | | | | | | |
|
Interest rate contracts | $ | (23 | ) | | (19,328 | ) | | (15 | ) | | — |
| (19,366 | ) |
Commodity contracts | — |
| | (1,746 | ) | | (24 | ) | | — |
| (1,770 | ) |
Equity contracts | (2,011 | ) | | (6,729 | ) | | (1,724 | ) | | — |
| (10,464 | ) |
Foreign exchange contracts | (11 | ) | | (6,213 | ) | | (23 | ) | | — |
| (6,247 | ) |
Credit contracts | — |
| | (53 | ) | | (30 | ) | | — |
| (83 | ) |
Netting | — |
| | — |
| | — |
| | 28,851 |
| 28,851 |
|
Total derivative liabilities | (2,045 | ) | | (34,069 | ) | | (1,816 | ) | | 28,851 |
| (9,079 | ) |
Short sale liabilities: | | | | | | | |
|
|
Securities of U.S. Treasury and federal agencies | (9,035 | ) | | (31 | ) | | — |
| | — |
| (9,066 | ) |
Mortgage-backed securities | — |
| | (2 | ) | | — |
| | — |
| (2 | ) |
Corporate debt securities | — |
| | (5,915 | ) | | — |
| | — |
| (5,915 | ) |
Equity securities | (2,447 | ) | | — |
| | — |
| | — |
| (2,447 | ) |
Other securities | — |
| | — |
| | — |
| | — |
| — |
|
Total short sale liabilities | (11,482 | ) | | (5,948 | ) | | — |
| | — |
| (17,430 | ) |
Other liabilities | — |
| | — |
| | (2 | ) | | — |
| (2 | ) |
Total liabilities recorded at fair value | $ | (13,527 | ) | | (40,017 | ) | | (1,818 | ) | | 28,851 |
| (26,511 | ) |
| |
(1) | Represents balance sheet netting of derivative asset and liability balances, related cash collateral and portfolio level counterparty valuation adjustments. See Note 15 (Derivatives) for additional information. |
| |
(2) | 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. |
| |
(4)(3) | 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)
(continued from previous page)
|
| | | | | | | | | | | | | | |
(in millions) | Level 1 |
| | Level 2 |
| | Level 3 |
| | Netting (1) |
| Total |
|
December 31, 2018 | | | | | | | | |
Trading debt securities: | | | | | | | | |
Securities of U.S. Treasury and federal agencies | $ | 20,525 |
| | 2,892 |
| | — |
| | — |
| 23,417 |
|
Securities of U.S. states and political subdivisions | — |
| | 3,272 |
| | 3 |
| | — |
| 3,275 |
|
Collateralized loan obligations | — |
| | 673 |
| | 237 |
| | — |
| 910 |
|
Corporate debt securities | — |
| | 10,723 |
| | 34 |
| | — |
| 10,757 |
|
Mortgage-backed securities | — |
| | 30,715 |
| | — |
| | — |
| 30,715 |
|
Asset-backed securities | — |
| | 893 |
| | — |
| | — |
| 893 |
|
Other trading debt securities | — |
| | 6 |
| | 16 |
| | — |
| 22 |
|
Total trading debt securities | 20,525 |
| | 49,174 |
| | 290 |
| | — |
| 69,989 |
|
Available-for-sale debt securities: | | | | | | | | |
Securities of U.S. Treasury and federal agencies | 10,399 |
| | 2,949 |
| | — |
| | — |
| 13,348 |
|
Securities of U.S. states and political subdivisions | — |
| | 48,820 |
| | 444 |
| | — |
| 49,264 |
|
Mortgage-backed securities: | | | | | | | |
|
Federal agencies | — |
| | 153,203 |
| | — |
| | — |
| 153,203 |
|
Residential | — |
| | 2,775 |
| | — |
| | — |
| 2,775 |
|
Commercial | — |
| | 4,184 |
| | 41 |
| | — |
| 4,225 |
|
Total mortgage-backed securities | — |
| | 160,162 |
| | 41 |
| | — |
| 160,203 |
|
Corporate debt securities | 34 |
| | 5,867 |
| | 370 |
| | — |
| 6,271 |
|
Collateralized loan and other debt obligations (2) | — |
| | 34,543 |
| | 800 |
| | — |
| 35,343 |
|
Asset-backed securities: | | | | | | | |
|
Automobile loans and leases | — |
| | 925 |
| | — |
| | — |
| 925 |
|
Home equity loans | — |
| | 112 |
| | — |
| | — |
| 112 |
|
Other asset-backed securities | — |
| | 4,056 |
| | 389 |
| | — |
| 4,445 |
|
Total asset-backed securities | — |
| | 5,093 |
| | 389 |
| | — |
| 5,482 |
|
Other debt securities | — |
| | 1 |
| | — |
| | — |
| 1 |
|
Total available-for-sale debt securities | 10,433 |
| | 257,435 |
| | 2,044 |
| (3) | — |
| 269,912 |
|
Mortgage loans held for sale | — |
| | 10,774 |
| | 997 |
| | — |
| 11,771 |
|
Loans held for sale | — |
| | 1,409 |
| | 60 |
| | — |
| 1,469 |
|
Loans | — |
| | — |
| | 244 |
| | — |
| 244 |
|
Mortgage servicing rights (residential) | — |
| | — |
| | 14,649 |
| | — |
| 14,649 |
|
Derivative assets: | | | | | | | |
|
Interest rate contracts | 46 |
| | 18,294 |
| | 95 |
| | — |
| 18,435 |
|
Commodity contracts | — |
| | 1,535 |
| | 53 |
| | — |
| 1,588 |
|
Equity contracts | 1,648 |
| | 4,582 |
| | 1,315 |
| | — |
| 7,545 |
|
Foreign exchange contracts | 17 |
| | 6,689 |
| | 8 |
| | — |
| 6,714 |
|
Credit contracts | — |
| | 179 |
| | 99 |
| | — |
| 278 |
|
Netting | — |
| | — |
| | — |
| | (23,790 | ) | (23,790 | ) |
Total derivative assets | 1,711 |
| | 31,279 |
| | 1,570 |
| | (23,790 | ) | 10,770 |
|
Equity securities - excluding securities at NAV: | | | | | | | | |
Marketable | 23,205 |
| | 757 |
| | — |
| | — |
| 23,962 |
|
Nonmarketable | — |
| | 24 |
| | 5,468 |
| | — |
| 5,492 |
|
Total equity securities | 23,205 |
| | 781 |
| | 5,468 |
| | — |
| 29,454 |
|
Total assets included in the fair value hierarchy | $ | 55,874 |
| | 350,852 |
| | 25,322 |
| | (23,790 | ) | 408,258 |
|
Equity securities at NAV (4) | | | | | | | | 102 |
|
Total assets recorded at fair value |
|
| |
|
| |
|
| |
|
| 408,360 |
|
Derivative liabilities: | | | | | | | |
|
Interest rate contracts | $ | (21 | ) | | (16,217 | ) | | (70 | ) | | — |
| (16,308 | ) |
Commodity contracts | — |
| | (2,287 | ) | | (49 | ) | | — |
| (2,336 | ) |
Equity contracts | (1,492 | ) | | (3,186 | ) | | (1,332 | ) | | — |
| (6,010 | ) |
Foreign exchange contracts | (12 | ) | | (7,067 | ) | | (34 | ) | | — |
| (7,113 | ) |
Credit contracts | — |
| | (216 | ) | | (64 | ) | | — |
| (280 | ) |
Netting | — |
| | — |
| | — |
| | 23,548 |
| 23,548 |
|
Total derivative liabilities | (1,525 | ) | | (28,973 | ) | | (1,549 | ) | | 23,548 |
| (8,499 | ) |
Short sale liabilities: | | | | | | | |
|
|
Securities of U.S. Treasury and federal agencies | (11,850 | ) | | (411 | ) | | — |
| | — |
| (12,261 | ) |
Mortgage-backed securities | — |
| | (47 | ) | | — |
| | — |
| (47 | ) |
Corporate debt securities | — |
| | (4,505 | ) | | — |
| | — |
| (4,505 | ) |
Equity securities | (2,902 | ) | | (2 | ) | | — |
| | — |
| (2,904 | ) |
Other securities | — |
| | (3 | ) | | — |
| | — |
| (3 | ) |
Total short sale liabilities | (14,752 | ) | | (4,968 | ) | | — |
| | — |
| (19,720 | ) |
Other liabilities | — |
| | — |
| | (2 | ) | | — |
| (2 | ) |
Total liabilities recorded at fair value | $ | (16,277 | ) | | (33,941 | ) | | (1,551 | ) | | 23,548 |
| (28,221 | ) |
| |
(1) | Represents balance sheet netting of derivative asset and liability balances and related cash collateral. See Note 15 (Derivatives) for additional information. |
| |
(2) | Includes 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. |
| |
(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 June 30, 2019,March 31, 2020, are presented in Table 16.3.
Table 16.3: Changes in Level 3 Fair Value Assets and Liabilities on a Recurring Basis – Quarter ended June 30, 2019March 31, 2020
| | | |
| | 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) |
| | |
| | Total net gains (losses) included in | | | Purchases, sales, issuances and settlements, net (1) |
| | |
| | |
| | |
| | Net unrealized gains (losses) related to assets and liabilities held at period end included in | |
(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 |
| | | 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 |
| | Net income |
| (4) |
| Other compre- hensive income |
|
Quarter ended June 30, 2019 | | | | | | | | | | | | | | | | | |
Quarter ended March 31, 2020 | | | | | | | | | | | | | | | | | | |
Trading debt securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Securities of U.S. states and political subdivisions | $ | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | $ | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Collateralized loan obligations | 275 |
| | (2 | ) | | — |
| | (24 | ) | | — |
| | — |
| | 249 |
| | (6 | ) | | 183 |
| | (69 | ) | | — |
| | 19 |
| | 21 |
| | — |
| | 154 |
| | (69 | ) | | — |
|
Corporate debt securities | 41 |
| | 1 |
| | — |
| | 3 |
| | — |
| | (1 | ) | | 44 |
| | 1 |
| | 38 |
| | (4 | ) | | — |
| | 3 |
| | — |
| | (3 | ) | | 34 |
| | (3 | ) | | — |
|
Mortgage-backed securities | | — |
| | (42 | ) | | — |
| | 171 |
| | 48 |
| | — |
| | 177 |
| | (42 | ) | | — |
|
Asset-backed securities | | — |
| | (2 | ) | | — |
| | (5 | ) | | 31 |
| | — |
| | 24 |
| | (2 | ) | | — |
|
Other trading debt securities | 15 |
| | (1 | ) | | — |
| | — |
| | — |
| | — |
| | 14 |
| | — |
| | 2 |
| | (1 | ) | | — |
| | (1 | ) | | — |
| | — |
| | — |
| | (1 | ) | | — |
|
Total trading debt securities | 331 |
| | (2 | ) | | — |
| | (21 | ) | | — |
| | (1 | ) | | 307 |
| | (5 | ) | (5) | 223 |
| | (118 | ) | | — |
| | 187 |
| | 100 |
| | (3 | ) | | 389 |
| | (117 | ) | (5) |
| — |
|
Available-for-sale debt securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Securities of U.S. states and political subdivisions | 470 |
| | 1 |
| | 2 |
| | (33 | ) | | — |
| | (49 | ) | | 391 |
| | — |
| | 413 |
| | — |
| | (2 | ) | | (21 | ) | | 32 |
| | (71 | ) | | 351 |
| | — |
| |
| — |
|
Mortgage-backed securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (5 | ) | | (3 | ) | | 26 |
| | 13 |
| | — |
| | 31 |
| | (5 | ) | |
| (3 | ) |
Commercial | 41 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 41 |
| | — |
| | 42 |
| | 3 |
| | (13 | ) | | (2 | ) | | 124 |
| | — |
| | 154 |
| | — |
| |
| (12 | ) |
Total mortgage-backed securities | 41 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 41 |
| | — |
| | 42 |
| | (2 | ) | | (16 | ) | | 24 |
| | 137 |
| | — |
| | 185 |
| | (5 | ) | | (15 | ) |
Corporate debt securities | 377 |
| | — |
| | (1 | ) | | 7 |
| | — |
| | — |
| | 383 |
| | — |
| | 367 |
| | (52 | ) | | (16 | ) | | — |
| | 831 |
| | — |
| | 1,130 |
| | (54 | ) | |
| (16 | ) |
Collateralized loan and other debt obligations | 755 |
| | 7 |
| | (6 | ) | | (107 | ) | | — |
| | — |
| | 649 |
| | — |
| | 640 |
| | 3 |
| | (53 | ) | | (12 | ) | | 58 |
| | — |
| | 636 |
| | — |
| |
| (53 | ) |
Asset-backed securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other asset-backed securities | 362 |
| | — |
| | — |
| | (21 | ) | | — |
| | — |
| | 341 |
| | — |
| | 103 |
| | — |
| | (4 | ) | | (18 | ) | | 29 |
| | — |
| | 110 |
| | — |
| |
| (4 | ) |
Total asset-backed securities | 362 |
| | — |
| | — |
| | (21 | ) | | — |
| | — |
| | 341 |
| | — |
| | 103 |
| | — |
| | (4 | ) | | (18 | ) | | 29 |
| | — |
| | 110 |
| | — |
| |
| (4 | ) |
Total available-for-sale debt securities | 2,005 |
| | 8 |
| | (5 | ) | | (154 | ) | | — |
| | (49 | ) | | 1,805 |
| | — |
| (6) | 1,565 |
| | (51 | ) | | (91 | ) | | (27 | ) | | 1,087 |
| | (71 | ) | | 2,412 |
| | (59 | ) | (6 | ) | (88 | ) |
Mortgage loans held for sale | 998 |
| | 37 |
| | — |
| | (22 | ) | | 104 |
| | (2 | ) | | 1,115 |
| | 39 |
| (7) | 1,198 |
| | (61 | ) | | — |
| | 700 |
| | 1,322 |
| | (2 | ) | | 3,157 |
| | (64 | ) | (7 | ) | — |
|
Loans held for sale | 71 |
| | — |
| | — |
| | (3 | ) | | — |
| | (56 | ) | | 12 |
| | — |
| | 16 |
| | (2 | ) | | — |
| | (2 | ) | | 7 |
| | — |
| | 19 |
| | 1 |
| | — |
|
Loans | 225 |
| | 1 |
| | — |
| | (24 | ) | | — |
| | — |
| | 202 |
| | (2 | ) | (7) | 171 |
| | — |
| | — |
| | (11 | ) | | — |
| | — |
| | 160 |
| | (2 | ) | (7 | ) | — |
|
Mortgage servicing rights (residential)(8) | 13,336 |
| | (1,639 | ) | | — |
| | 399 |
| | — |
| | — |
| | 12,096 |
| | (1,078 | ) | (7) | |
Mortgage servicing rights (residential) (8) | | 11,517 |
| | (3,821 | ) | | — |
| | 430 |
| | — |
| | — |
| | 8,126 |
| | (3,257 | ) | (7 | ) | — |
|
Net derivative assets and liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest rate contracts | 101 |
| | 237 |
| | — |
| | (133 | ) | | — |
| | — |
| | 205 |
| | 141 |
| | 214 |
| | 744 |
| | — |
| | (273 | ) | | — |
| | — |
| | 685 |
| | 531 |
| |
| — |
|
Commodity contracts | (18 | ) | | (75 | ) | | — |
| | 64 |
| | — |
| | — |
| | (29 | ) | | (10 | ) | | (16 | ) | | (80 | ) | | — |
| | 58 |
| | (6 | ) | | — |
| | (44 | ) | | (27 | ) | |
| — |
|
Equity contracts | (162 | ) | | 15 |
| | — |
| | (66 | ) | | (2 | ) | | (13 | ) | | (228 | ) | | (29 | ) | | (269 | ) | | 430 |
| | — |
| | 73 |
| | (10 | ) | | (7 | ) | | 217 |
| | 451 |
| |
| — |
|
Foreign exchange contracts | (16 | ) | | 3 |
| | — |
| | 3 |
| | — |
| | — |
| | (10 | ) | | 7 |
| | (18 | ) | | 10 |
| | — |
| | 2 |
| | — |
| | — |
| | (6 | ) | | (2 | ) | |
| — |
|
Credit contracts | 49 |
| | (3 | ) | | — |
| | (1 | ) | | — |
| | — |
| | 45 |
| | (3 | ) | | 29 |
| | 15 |
| | — |
| | 3 |
| | — |
| | — |
| | 47 |
| | 17 |
| |
| — |
|
Total derivative contracts | (46 | ) | | 177 |
| | — |
| | (133 | ) | | (2 | ) | | (13 | ) | | (17 | ) | | 106 |
| (9) | (60 | ) | | 1,119 |
| | — |
| | (137 | ) | | (16 | ) | | (7 | ) | | 899 |
| | 970 |
| (9 | ) | — |
|
Equity securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Marketable | | 3 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 3 |
| | — |
| | — |
|
Nonmarketable | 6,381 |
| | 724 |
| | — |
| | — |
| | 5 |
| | — |
| | 7,110 |
| | 724 |
| | 7,847 |
| | (1,101 | ) | | — |
| | — |
| | 7 |
| | (2 | ) | | 6,751 |
| | (1,103 | ) | | — |
|
Total equity securities | 6,381 |
| | 724 |
| | — |
| | — |
| | 5 |
| | — |
| | 7,110 |
| | 724 |
| (10) | 7,850 |
| | (1,101 | ) | | — |
| | — |
| | 7 |
| | (2 | ) | | 6,754 |
| | (1,103 | ) | (10 | ) | — |
|
Other liabilities | (2 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (2 | ) | | — |
| (7) | (2 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (2 | ) | | — |
| (7 | ) | — |
|
| |
(1) | See Table 16.4 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) onfrom debt securities and provision for credit losses - 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 income, net gains from trading activities and from 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 16: Fair Values of Assets and Liabilities (continued)
(continued from previous page)
Table 16.4 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 June 30, 2019.March 31, 2020.
Table 16.4: Gross Purchases, Sales, Issuances and Settlements – Level 3 – Quarter ended June 30, 2019March 31, 2020
| | (in millions) | Purchases |
| | Sales |
| | Issuances |
| | Settlements |
| | Net |
| Purchases |
| | Sales |
| | Issuances |
| | Settlements |
| | Net |
|
Quarter ended June 30, 2019 | | | | | | | | | | |
Quarter ended March 31, 2020 | | | | | | | | | | |
Trading debt securities: | | | | | | | | | | | | | | | | | | |
Securities of U.S. states and political subdivisions | $ | — |
| | — |
| | — |
| | — |
| | — |
| $ | — |
| | — |
| | — |
| | — |
| | — |
|
Collateralized loan obligations | 44 |
| | (65 | ) | | — |
| | (3 | ) | | (24 | ) | 85 |
| | (56 | ) | | — |
| | (10 | ) | | 19 |
|
Corporate debt securities | 6 |
| | (3 | ) | | — |
| | — |
| | 3 |
| 10 |
| | (7 | ) | | — |
| | — |
| | 3 |
|
Mortgage-backed securities | | 195 |
| | (24 | ) | | — |
| | — |
| | 171 |
|
Asset-backed securities | | — |
| | (5 | ) | | — |
| | — |
| | (5 | ) |
Other trading debt securities | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | (1 | ) | | — |
| | — |
| | (1 | ) |
Total trading debt securities | 50 |
| | (68 | ) | | — |
| | (3 | ) | | (21 | ) | 290 |
| | (93 | ) | | — |
| | (10 | ) | | 187 |
|
Available-for-sale debt securities: | | | | | | | | | | | | | | | | | | |
Securities of U.S. states and political subdivisions | — |
| | — |
| | 6 |
| | (39 | ) | | (33 | ) | — |
| | — |
| | — |
| | (21 | ) | | (21 | ) |
Mortgage-backed securities: | | | | | | | | | | | | | | | | | | |
Residential | — |
| | — |
| | — |
| | — |
| | — |
| 26 |
| | — |
| | — |
| | — |
| | 26 |
|
Commercial | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | (2 | ) | | (2 | ) |
Total mortgage-backed securities | — |
| | — |
| | — |
| | — |
| | — |
| 26 |
| | — |
| | — |
| | (2 | ) | | 24 |
|
Corporate debt securities | 8 |
| | — |
| | — |
| | (1 | ) | | 7 |
| — |
| | — |
| | — |
| | — |
| | — |
|
Collateralized loan and other debt obligations | — |
| | — |
| | — |
| | (107 | ) | | (107 | ) | — |
| | — |
| | — |
| | (12 | ) | | (12 | ) |
Asset-backed securities: | | | | | | | | | | | | | | | | | | |
Other asset-backed securities | — |
| | (2 | ) | | 57 |
| | (76 | ) | | (21 | ) | — |
| | (5 | ) | | — |
| | (13 | ) | | (18 | ) |
Total asset-backed securities | — |
| | (2 | ) | | 57 |
| | (76 | ) | | (21 | ) | — |
| | (5 | ) | | — |
| | (13 | ) | | (18 | ) |
Total available-for-sale debt securities | 8 |
| | (2 | ) | | 63 |
| | (223 | ) | | (154 | ) | 26 |
| | (5 | ) | | — |
| | (48 | ) | | (27 | ) |
Mortgage loans held for sale | 30 |
| | (47 | ) | | 54 |
| | (59 | ) | | (22 | ) | 23 |
| | (69 | ) | | 843 |
| | (97 | ) | | 700 |
|
Loans held for sale | — |
| | (1 | ) | | — |
| | (2 | ) | | (3 | ) | — |
| | (1 | ) | | — |
| | (1 | ) | | (2 | ) |
Loans | — |
| | — |
| | 2 |
| | (26 | ) | | (24 | ) | 1 |
| | — |
| | 2 |
| | (14 | ) | | (11 | ) |
Mortgage servicing rights (residential) (1) | — |
| | (1 | ) | | 400 |
| | — |
| | 399 |
| — |
| | (32 | ) | | 461 |
| | 1 |
| | 430 |
|
Net derivative assets and liabilities: | | | | | | | | | | | | | | | | | | |
Interest rate contracts | — |
| | — |
| | — |
| | (133 | ) | | (133 | ) | — |
| | — |
| | — |
| | (273 | ) | | (273 | ) |
Commodity contracts | — |
| | — |
| | — |
| | 64 |
| | 64 |
| — |
| | — |
| | — |
| | 58 |
| | 58 |
|
Equity contracts | — |
| | — |
| | — |
| | (66 | ) | | (66 | ) | — |
| | — |
| | — |
| | 73 |
| | 73 |
|
Foreign exchange contracts | — |
| | — |
| | — |
| | 3 |
| | 3 |
| — |
| | — |
| | — |
| | 2 |
| | 2 |
|
Credit contracts | 2 |
| | (3 | ) | | — |
| | — |
| | (1 | ) | 6 |
| | (3 | ) | | — |
| | — |
| | 3 |
|
Total derivative contracts | 2 |
| | (3 | ) | | — |
| | (132 | ) | | (133 | ) | 6 |
| | (3 | ) | | — |
| | (140 | ) | | (137 | ) |
Equity securities: | | | | | | | | | | | | | | | | | | |
Marketable | | — |
| | — |
| | — |
| | — |
| | — |
|
Nonmarketable | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
| | — |
|
Total equity securities | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
| | — |
|
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)
(continued from previous page)
Table 16.5 presents gross purchases, sales, issuances and settlements related to theThe changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the quarter ended June 30, 2018.March 31, 2019, are presented in Table 16.5.
Table 16.5: Changes in Level 3 Fair Value Assets and Liabilities on a Recurring Basis – Quarter ended June 30, 2018March 31, 2019
| | | Balance, beginning of period |
| | Total net gains (losses) included in | | | Purchases, sales, issuances and settlements, net (1) |
| | |
| | |
| | |
| | Net unrealized gains (losses) included in income related to assets and liabilities held at period end |
| | Balance, beginning of period |
| | Total net gains (losses) included in | | | Purchases, sales, issuances and settlements, net (1) |
| | |
| | |
| | |
| | Net unrealized gains (losses) included in income related to assets and liabilities held at period end |
| |
(in millions) | | Net income |
| | Other compre- hensive income |
| | Transfers into Level 3 (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) |
Quarter ended June 30, 2018 | | | | | | | | | | | | | | | | | |
Quarter ended March 31, 2019 | | | | | | | | | | | | | | | | | |
Trading debt securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Securities of U.S. states and political subdivisions | $ | 3 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 3 |
| | — |
| | $ | 3 |
| | — |
| | — |
| | (2 | ) | | — |
| | (1 | ) | | — |
| | — |
| |
Collateralized loan obligations | 316 |
| | (6 | ) | | — |
| | (19 | ) | | — |
| | — |
| | 291 |
| | (8 | ) | | 237 |
| | (3 | ) | | — |
| | 41 |
| | — |
| | — |
| | 275 |
| | 1 |
| |
Corporate debt securities | 34 |
| | — |
| | — |
| | 3 |
| | — |
| | (1 | ) | | 36 |
| | 1 |
| | 34 |
| | 2 |
| | — |
| | 4 |
| | 1 |
| | — |
| | 41 |
| | 2 |
| |
Other trading debt securities | 18 |
| | (1 | ) | | — |
| | — |
| | — |
| | — |
| | 17 |
| | — |
| | 16 |
| | (1 | ) | | — |
| | — |
| | — |
| | — |
| | 15 |
| | — |
| |
Total trading debt securities | 371 |
| | (7 | ) | | — |
| | (16 | ) | | — |
| | (1 | ) | | 347 |
| | (7 | ) | (5) | 290 |
| | (2 | ) | | — |
| | 43 |
| | 1 |
| | (1 | ) | | 331 |
| | 3 |
| (5) |
Available-for-sale debt securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Securities of U.S. states and political subdivisions | 617 |
| | 1 |
| | — |
| | (49 | ) | | — |
| | (10 | ) | | 559 |
| | — |
| | 444 |
| | — |
| | 3 |
| | 23 |
| | — |
| | — |
| | 470 |
| | — |
| |
Mortgage-backed securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential | 1 |
| | — |
| | (1 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
Commercial | 67 |
| | — |
| | (1 | ) | | (13 | ) | | — |
| | — |
| | 53 |
| | — |
| | 41 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 41 |
| | — |
| |
Total mortgage-backed securities | 68 |
| | — |
| | (2 | ) | | (13 | ) | | — |
| | — |
| | 53 |
| | — |
| | 41 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 41 |
| | — |
| |
Corporate debt securities | 410 |
| | 1 |
| | 1 |
| | 31 |
| | — |
| | — |
| | 443 |
| | — |
| | 370 |
| | 1 |
| | 4 |
| | 2 |
| | — |
| | — |
| | 377 |
| | — |
| |
Collateralized loan and other debt obligations | 1,045 |
| | 6 |
| | 10 |
| | (24 | ) | | — |
| | — |
| | 1,037 |
| | — |
| | 800 |
| | 6 |
| | (4 | ) | | (47 | ) | | — |
| | — |
| | 755 |
| | — |
| |
Asset-backed securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other asset-backed securities | 501 |
| | — |
| | (1 | ) | | (99 | ) | | — |
| | — |
| | 401 |
| | — |
| | 389 |
| | — |
| | (1 | ) | | (26 | ) | | — |
| | — |
| | 362 |
| | — |
| |
Total asset-backed securities | 501 |
| | — |
| | (1 | ) | | (99 | ) | | — |
| | — |
| | 401 |
| | — |
| | 389 |
| | — |
| | (1 | ) | | (26 | ) | | — |
| | — |
| | 362 |
| | — |
| |
Total available-for-sale debt securities | 2,641 |
| | 8 |
| | 8 |
| | (154 | ) | | — |
| | (10 | ) | | 2,493 |
| | — |
| (6) | 2,044 |
| | 7 |
| | 2 |
| | (48 | ) | | — |
| | — |
| | 2,005 |
| | — |
| (6) |
Mortgage loans held for sale | 950 |
| | (11 | ) | | — |
| | 25 |
| | 25 |
| | (3 | ) | | 986 |
| | (11 | ) | (7) | 997 |
| | 15 |
| | — |
| | (66 | ) | | 56 |
| | (4 | ) | | 998 |
| | 15 |
| (7) |
Loans held for sale | — |
| | (1 | ) | | — |
| | — |
| | 21 |
| | — |
| | 20 |
| | — |
| | 60 |
| | — |
| | — |
| | 11 |
| | 37 |
| | (37 | ) | | 71 |
| | — |
| |
Loans | 352 |
| | — |
| | — |
| | (31 | ) | | — |
| | — |
| | 321 |
| | (4 | ) | (7) | 244 |
| | — |
| | — |
| | (19 | ) | | — |
| | — |
| | 225 |
| | (2 | ) | (7) |
Mortgage servicing rights (residential) (8) | 15,041 |
| | (115 | ) | | — |
| | 485 |
| | — |
| | — |
| | 15,411 |
| | 345 |
| (7) | 14,649 |
| | (1,373 | ) | | — |
| | 60 |
| | — |
| | — |
| | 13,336 |
| | (891 | ) | (7) |
Net derivative assets and liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest rate contracts | (8 | ) | | (63 | ) | | — |
| | 30 |
| | — |
| | — |
| | (41 | ) | | 6 |
| | 25 |
| | 187 |
| | — |
| | (111 | ) | | — |
| | — |
| | 101 |
| | 132 |
| |
Commodity contracts | 10 |
| | 15 |
| | — |
| | (2 | ) | | 3 |
| | — |
| | 26 |
| | 21 |
| | 4 |
| | (51 | ) | | — |
| | 27 |
| | 2 |
| | — |
| | (18 | ) | | (15 | ) | |
Equity contracts | (322 | ) | | (12 | ) | | — |
| | (7 | ) | | — |
| | 2 |
| | (339 | ) | | 261 |
| | (17 | ) | | (119 | ) | | — |
| | (3 | ) | | 9 |
| | (32 | ) | | (162 | ) | | (114 | ) | |
Foreign exchange contracts | 1 |
| | (18 | ) | | — |
| | 2 |
| | — |
| | — |
| | (15 | ) | | (13 | ) | | (26 | ) | | 7 |
| | — |
| | 3 |
| | — |
| | — |
| | (16 | ) | | 11 |
| |
Credit contracts | 41 |
| | (12 | ) | | — |
| | (5 | ) | | — |
| | — |
| | 24 |
| | (17 | ) | | 35 |
| | 8 |
| | — |
| | 6 |
| | — |
| | — |
| | 49 |
| | 13 |
| |
Total derivative contracts | (278 | ) | | (90 | ) | | — |
| | 18 |
| | 3 |
| | 2 |
| | (345 | ) | | 258 |
| (9) | 21 |
| | 32 |
| | — |
| | (78 | ) | | 11 |
| | (32 | ) | | (46 | ) | | 27 |
| (9) |
Equity securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Nonmarketable | 5,219 |
| | 585 |
| | — |
| | — |
| | 6 |
| | (4 | ) | | 5,806 |
| | 586 |
| | 5,468 |
| | 926 |
| | — |
| | (1 | ) | | — |
| | (12 | ) | | 6,381 |
| | 926 |
| |
Total equity securities | 5,219 |
| | 585 |
| | — |
| | — |
| | 6 |
| | (4 | ) | | 5,806 |
| | 586 |
| (10) | 5,468 |
| | 926 |
| | — |
| | (1 | ) | | — |
| | (12 | ) | | 6,381 |
| | 926 |
| (10) |
Other liabilities | (2 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (2 | ) | | — |
| (7) | (2 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (2 | ) | | — |
| (7) |
| |
(1) | See Table 16.6 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) onfrom 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)
(continued from previous page)
Table 16.6 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 quarter ended June 30, 2018.
Table 16.6:Gross Purchases, Sales, Issuances and Settlements – Level 3 – Quarter ended June 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 obligations | 89 |
| | (39 | ) | | — |
| | (69 | ) | | (19 | ) |
Corporate debt securities | 4 |
| | (1 | ) | | — |
| | — |
| | 3 |
|
Other trading debt securities | — |
| | — |
| | — |
| | — |
| | — |
|
Total trading debt securities | 93 |
| | (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 securities | 31 |
| | — |
| | — |
| | — |
| | 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 securities | 31 |
| | — |
| | 9 |
| | (194 | ) | | (154 | ) |
Mortgage loans held for sale | 20 |
| | (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 contracts | 5 |
| | (2 | ) | | — |
| | (8 | ) | | (5 | ) |
Total derivative contracts | 5 |
| | (2 | ) | | — |
| | 15 |
| | 18 |
|
Equity securities: | | | | | | | | | |
Nonmarketable | — |
| | — |
| | — |
| | — |
| | — |
|
Total equity securities | — |
| | — |
| | — |
| | — |
| | — |
|
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 2019, are presented in Table 16.7.
Table 16.7:Changes in Level 3 Fair Value Assets and Liabilities on a Recurring Basis – Six months ended June 30, 2019 |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| | Total net gains (losses) included in | | | Purchases, sales, issuances and settlements, net (1) |
| | |
| | |
| | |
| | Net unrealized gains (losses) included in income related to assets and liabilities held at period end (4) |
| |
(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 |
| | |
Six months ended June 30, 2019 | | | | | | | | | | | | | | | | |
Trading debt securities: | | | | | | | | | | | | | | | | |
Securities of U.S. states and political subdivisions | $ | 3 |
| | — |
| | — |
| | (2 | ) | | — |
| | (1 | ) | | — |
| | — |
| |
Collateralized loan obligations | 237 |
| | (5 | ) | | — |
| | 17 |
| | — |
| | — |
| | 249 |
| | (4 | ) | |
Corporate debt securities | 34 |
| | 3 |
| | — |
| | 7 |
| | 1 |
| | (1 | ) | | 44 |
| | 3 |
| |
Other trading debt securities | 16 |
| | (2 | ) | | — |
| | — |
| | — |
| | — |
| | 14 |
| | — |
| |
Total trading debt securities | 290 |
| | (4 | ) | | — |
| | 22 |
| | 1 |
| | (2 | ) | | 307 |
| | (1 | ) | (5) |
Available-for-sale debt securities: | | | | | | | | | | | | | | | | |
Securities of U.S. states and political subdivisions | 444 |
| | 1 |
| | 5 |
| | (10 | ) | | — |
| | (49 | ) | | 391 |
| | — |
| |
Mortgage-backed securities: | | | | | | | | | | | | | | | | |
Residential | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
Commercial | 41 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 41 |
| | — |
| |
Total mortgage-backed securities | 41 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 41 |
| | — |
| |
Corporate debt securities | 370 |
| | 1 |
| | 3 |
| | 9 |
| | — |
| | — |
| | 383 |
| | — |
| |
Collateralized loan and other debt obligations | 800 |
| | 13 |
| | (10 | ) | | (154 | ) | | — |
| | — |
| | 649 |
| | — |
| |
Asset-backed securities: | | | | | | | | | | | | | | | | |
Other asset-backed securities | 389 |
| | — |
| | (1 | ) | | (47 | ) | | — |
| | — |
| | 341 |
| | — |
| |
Total asset-backed securities | 389 |
| | — |
| | (1 | ) | | (47 | ) | | — |
| | — |
| | 341 |
| | — |
| |
Total available-for-sale debt securities | 2,044 |
| | 15 |
| | (3 | ) | | (202 | ) | | — |
| | (49 | ) | | 1,805 |
| | — |
| (6) |
Mortgage loans held for sale | 997 |
| | 52 |
| | — |
| | (88 | ) | | 160 |
| | (6 | ) | | 1,115 |
| | 54 |
| (7) |
Loans held for sale | 60 |
| | — |
| | — |
| | 8 |
| | 37 |
| | (93 | ) | | 12 |
| | — |
| |
Loans | 244 |
| | 1 |
| | — |
| | (43 | ) | | — |
| | — |
| | 202 |
| | (4 | ) | (7) |
Mortgage servicing rights (residential) (8) | 14,649 |
| | (3,012 | ) | | — |
| | 459 |
| | — |
| | — |
| | 12,096 |
| | (1,969 | ) | (7) |
Net derivative assets and liabilities: | | | | | | | | | | | | | | | | |
Interest rate contracts | 25 |
| | 424 |
| | — |
| | (244 | ) | | — |
| | — |
| | 205 |
| | 220 |
| |
Commodity contracts | 4 |
| | (126 | ) | | — |
| | 91 |
| | 2 |
| | — |
| | (29 | ) | | (26 | ) | |
Equity contracts | (17 | ) | | (104 | ) | | — |
| | (69 | ) | | 7 |
| | (45 | ) | | (228 | ) | | (175 | ) | |
Foreign exchange contracts | (26 | ) | | 10 |
| | — |
| | 6 |
| | — |
| | — |
| | (10 | ) | | 17 |
| |
Credit contracts | 35 |
| | 5 |
| | — |
| | 5 |
| | — |
| | — |
| | 45 |
| | 10 |
| |
Total derivative contracts | 21 |
| | 209 |
| | — |
| | (211 | ) | | 9 |
| | (45 | ) | | (17 | ) | | 46 |
| (9) |
Equity securities: | | | | | | | | | | | | | | | | |
Nonmarketable | 5,468 |
| | 1,650 |
| | — |
| | (1 | ) | | 5 |
| | (12 | ) | | 7,110 |
| | 1,650 |
| |
Total equity securities | 5,468 |
| | 1,650 |
| | — |
| | (1 | ) | | 5 |
| | (12 | ) | | 7,110 |
| | 1,650 |
| (10) |
Other liabilities | (2 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (2 | ) | | — |
| (7) |
| |
(1) | See Table 16.8 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) 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)
(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 obligations | 174 |
| | (152 | ) | | — |
| | (5 | ) | | 17 |
|
Corporate debt securities | 11 |
| | (4 | ) | | — |
| | — |
| | 7 |
|
Other trading debt securities | — |
| | — |
| | — |
| | — |
| | — |
|
Total trading debt securities | 185 |
| | (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 securities | 11 |
| | — |
| | — |
| | (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 securities | 11 |
| | (5 | ) | | 178 |
| | (386 | ) | | (202 | ) |
Mortgage loans held for sale | 46 |
| | (140 | ) | | 100 |
| | (94 | ) | | (88 | ) |
Loans held for sale | 12 |
| | (2 | ) | | — |
| | (2 | ) | | 8 |
|
Loans | 2 |
| | — |
| | 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 contracts | 8 |
| | (3 | ) | | — |
| | — |
| | 5 |
|
Total derivative contracts | 8 |
| | (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 obligations | 354 |
| | (4 | ) | | — |
| | (59 | ) | | — |
| | — |
| | 291 |
| | — |
| |
Corporate debt securities | 31 |
| | — |
| | — |
| | 6 |
| | — |
| | (1 | ) | | 36 |
| | — |
| |
Other trading debt securities | 19 |
| | (2 | ) | | — |
| | — |
| | — |
| | — |
| | 17 |
| | — |
| |
Total trading debt securities | 407 |
| | (6 | ) | | — |
| | (53 | ) | | — |
| | (1 | ) | | 347 |
| | — |
| (5) |
Available-for-sale debt securities: | | | | | | | | | | | | | | | | |
Securities of U.S. states and political subdivisions | 925 |
| | 5 |
| | (2 | ) | | (90 | ) | | — |
| | (279 | ) | | 559 |
| | — |
| |
Mortgage-backed securities: | | | | | | | | | | | | | | | | |
Residential | 1 |
| | — |
| | (1 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| |
Commercial | 75 |
| | 1 |
| | (2 | ) | | (21 | ) | | — |
| | — |
| | 53 |
| | — |
| |
Total mortgage-backed securities | 76 |
| | 1 |
| | (3 | ) | | (21 | ) | | — |
| | — |
| | 53 |
| | — |
| |
Corporate debt securities | 407 |
| | 2 |
| | 4 |
| | 30 |
| | — |
| | — |
| | 443 |
| | — |
| |
Collateralized loan and other debt obligations | 1,020 |
| | 11 |
| | 53 |
| | (47 | ) | | — |
| | — |
| | 1,037 |
| | — |
| |
Asset-backed securities: | | | | | | | | | | | | | | | | |
Other asset-backed securities | 566 |
| | 8 |
| | (8 | ) | | (165 | ) | | — |
| | — |
| | 401 |
| | — |
| |
Total asset-backed securities | 566 |
| | 8 |
| | (8 | ) | | (165 | ) | | — |
| | — |
| | 401 |
| | — |
| |
Total available-for-sale debt securities | 2,994 |
| | 27 |
| | 44 |
| | (293 | ) | | — |
| | (279 | ) | | 2,493 |
| | — |
| (6) |
Mortgage loans held for sale | 998 |
| | (34 | ) | | — |
| | (12 | ) | | 40 |
| | (6 | ) | | 986 |
| | (32 | ) | (7) |
Loans held for sale | 14 |
| | 1 |
| | — |
| | (16 | ) | | 21 |
| | — |
| | 20 |
| | — |
| |
Loans | 376 |
| | (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 contracts | 71 |
| | (408 | ) | | — |
| | 296 |
| | — |
| | — |
| | (41 | ) | | (94 | ) | |
Commodity contracts | 19 |
| | 30 |
| | — |
| | (26 | ) | | 3 |
| | — |
| | 26 |
| | 22 |
| |
Equity contracts | (511 | ) | | 57 |
| | — |
| | 64 |
| | — |
| | 51 |
| | (339 | ) | | 80 |
| |
Foreign exchange contracts | 7 |
| | (25 | ) | | — |
| | 3 |
| | — |
| | — |
| | (15 | ) | | (17 | ) | |
Credit contracts | 36 |
| | (4 | ) | | — |
| | (8 | ) | | — |
| | — |
| | 24 |
| | (8 | ) | |
Total derivative contracts | (378 | ) | | (350 | ) | | — |
| | 329 |
| | 3 |
| | 51 |
| | (345 | ) | | (17 | ) | (9) |
Equity securities: | | | | | | | | | | | | | | | | |
Nonmarketable | 5,203 |
| | 693 |
| | — |
| | (96 | ) | | 10 |
| | (4 | ) | | 5,806 |
| | 687 |
| |
Total equity securities | 5,203 |
| | 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 16: Fair Values of Assets and Liabilities (continued)
(continued from previous page)
Table 16.1016.6 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 half of 2018.quarter ended March 31, 2019.
Table 16.10:16.6: Gross Purchases, Sales, Issuances and Settlements – Level 3 – Six monthsQuarter ended June 30, 2018March 31, 2019 | | (in millions) | Purchases |
| | Sales |
| | Issuances |
| | Settlements |
| | Net |
| Purchases |
| | Sales |
| | Issuances |
| | Settlements |
| | Net |
|
Six months ended June 30, 2018 | | | | | | | | | | |
Quarter ended March 31, 2019 | | | | | | | | | | |
Trading debt securities: | | | | | | | | | | | | | | | | | | |
Securities of U.S. states and political subdivisions | $ | — |
| | — |
| | — |
| | — |
| | — |
| $ | — |
| | — |
| | — |
| | (2 | ) | | (2 | ) |
Collateralized loan obligations | 271 |
| | (230 | ) | | — |
| | (100 | ) | | (59 | ) | 130 |
| | (87 | ) | | — |
| | (2 | ) | | 41 |
|
Corporate debt securities | 8 |
| | (2 | ) | | — |
| | — |
| | 6 |
| 5 |
| | (1 | ) | | — |
| | — |
| | 4 |
|
Other trading debt securities | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
| | — |
|
Total trading debt securities | 279 |
| | (232 | ) | | — |
| | (100 | ) | | (53 | ) | 135 |
| | (88 | ) | | — |
| | (4 | ) | | 43 |
|
Available-for-sale debt securities: | | | | | | | | | | | | | | | | | | |
Securities of U.S. states and political subdivisions | — |
| | (4 | ) | | 10 |
| | (96 | ) | | (90 | ) | — |
| | — |
| | 49 |
| | (26 | ) | | 23 |
|
Mortgage-backed securities: | | | | | | | | | | | | | | | | | | |
Residential | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
| | — |
|
Commercial | — |
| | — |
| | — |
| | (21 | ) | | (21 | ) | — |
| | — |
| | — |
| | — |
| | — |
|
Total mortgage-backed securities | — |
| | — |
| | — |
| | (21 | ) | | (21 | ) | — |
| | — |
| | — |
| | — |
| | — |
|
Corporate debt securities | 31 |
| | — |
| | — |
| | (1 | ) | | 30 |
| 3 |
| | — |
| | — |
| | (1 | ) | | 2 |
|
Collateralized loan and other debt obligations | — |
| | — |
| | — |
| | (47 | ) | | (47 | ) | — |
| | — |
| | — |
| | (47 | ) | | (47 | ) |
Asset-backed securities: | | | | | | | | | | | | | | | | | | |
Other asset-backed securities | — |
| | (8 | ) | | 58 |
| | (215 | ) | | (165 | ) | — |
| | (3 | ) | | 66 |
| | (89 | ) | | (26 | ) |
Total asset-backed securities | — |
| | (8 | ) | | 58 |
| | (215 | ) | | (165 | ) | — |
| | (3 | ) | | 66 |
| | (89 | ) | | (26 | ) |
Total available-for-sale debt securities | 31 |
| | (12 | ) | | 68 |
| | (380 | ) | | (293 | ) | 3 |
| | (3 | ) | | 115 |
| | (163 | ) | | (48 | ) |
Mortgage loans held for sale | 47 |
| | (151 | ) | | 167 |
| | (75 | ) | | (12 | ) | 16 |
| | (93 | ) | | 46 |
| | (35 | ) | | (66 | ) |
Loans held for sale | — |
| | (16 | ) | | — |
| | — |
| | (16 | ) | 12 |
| | (1 | ) | | — |
| | — |
| | 11 |
|
Loans | 1 |
| | — |
| | 8 |
| | (63 | ) | | (54 | ) | 2 |
| | — |
| | 3 |
| | (24 | ) | | (19 | ) |
Mortgage servicing rights (residential) (1) | — |
| | (5 | ) | | 1,059 |
| | — |
| | 1,054 |
| — |
| | (281 | ) | | 341 |
| | — |
| | 60 |
|
Net derivative assets and liabilities: | | | | | | | | | | | | | | | | | | |
Interest rate contracts | — |
| | — |
| | — |
| | 296 |
| | 296 |
| — |
| | — |
| | — |
| | (111 | ) | | (111 | ) |
Commodity contracts | — |
| | — |
| | — |
| | (26 | ) | | (26 | ) | — |
| | — |
| | — |
| | 27 |
| | 27 |
|
Equity contracts | — |
| | — |
| | — |
| | 64 |
| | 64 |
| — |
| | — |
| | — |
| | (3 | ) | | (3 | ) |
Foreign exchange contracts | — |
| | — |
| | — |
| | 3 |
| | 3 |
| — |
| | — |
| | — |
| | 3 |
| | 3 |
|
Credit contracts | 8 |
| | (4 | ) | | — |
| | (12 | ) | | (8 | ) | 6 |
| | — |
| | — |
| | — |
| | 6 |
|
Total derivative contracts | 8 |
| | (4 | ) | | — |
| | 325 |
| | 329 |
| 6 |
| | — |
| | — |
| | (84 | ) | | (78 | ) |
Equity securities: | | | | | | | | | | | | | | | | | | |
Nonmarketable | — |
| | (17 | ) | | — |
| | (79 | ) | | (96 | ) | — |
| | (1 | ) | | — |
| | — |
| | (1 | ) |
Total equity securities | — |
| | (17 | ) | | — |
| | (79 | ) | | (96 | ) | — |
| | (1 | ) | | — |
| | — |
| | (1 | ) |
Other liabilities | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
| | — |
|
| |
(1) | For more information on the changes in mortgage servicing rights, see Note 11 (Mortgage Banking Activities). |
Table 16.1116.7 and Table 16.1216.8 provide quantitative information about the valuation techniques and significant unobservable inputs used in the valuation of substantially all of our Level 3 assets and liabilities measured at fair value on a recurring basis for which we use an internal model.
The significant unobservable inputs for Level 3 assets and liabilities that are valued usinginherent in the fair values obtained from third partythird-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 modelmodels 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.
Weighted averages of inputs are calculated using outstanding unpaid principal balance for cash instruments, such
as loans and securities, and notional amounts for derivative instruments.
For information on how changes in significant unobservable inputs affect the fair values of Level 3 assets and liabilities, see Note 1819 (Fair Values of Assets and Liabilities) in our 20182019 Form 10-K.
Note 16: Fair Values of Assets and Liabilities (continued)
Table 16.11:16.7: Valuation Techniques – Recurring Basis – June 30, 2019March 31, 2020 | | ($ 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 Inputs | | Range of Inputs Positive (Negative) | | | Weighted Average |
|
June 30, 2019 | | | | | | | | |
March 31, 2020 | | | | | | | | |
Trading and available-for-sale debt securities: | | | | | | | | | | | | | | |
Securities of U.S. states and political subdivisions: | | | | | | | | | | | | | | |
Government, healthcare and other revenue bonds | $ | 353 |
| | Discounted cash flow | | Discount rate | | 1.5 |
| - | 6.2 |
| % | | 3.0 |
| $ | 285 |
| | Discounted cash flow | | Discount rate | | 1.6 |
| - | 5.4 |
| % | | 2.3 |
|
| 38 |
| | Vendor priced | | | | | | | 66 |
| | Vendor priced | | | | | | |
Collateralized loan and other debt obligations (2) | 249 |
| | Market comparable pricing | | Comparability adjustment | | (11.3 | ) | - | 20.0 |
| | 1.7 |
| 154 |
| | Market comparable pricing | | Comparability adjustment | | (27.8 | ) | - | 137.9 |
| | 6.8 |
|
| 649 |
| | Vendor priced | | | | | | | 636 |
| | Vendor priced | | | | | | |
Corporate debt securities | 232 |
| | Discounted cash flow | | Discount rate | | 2.0 |
| | 14.9 |
| | 8.5 |
| 865 |
| | Discounted cash flow | | Discount rate | | 4.0 |
| - | 14.9 |
| | 5.5 |
|
| 66 |
| | Market comparable pricing | | Comparability adjustment | | (14.0 | ) | | 14.4 |
| | (2.8 | ) | 103 |
| | Market comparable pricing | | Comparability adjustment | | (32.7 | ) | - | 14.2 |
| | (8.3 | ) |
| 129 |
| | Vendor priced | | | | | | | 196 |
| | Vendor priced | | | | | | |
Mortgage-backed securities | | 177 |
| | Market comparable pricing | | Comparability adjustment | | (60.6 | ) | - | 26.2 |
| | (4.6 | ) |
| | 185 |
| | Vendor priced | | | | | | |
Asset-backed securities: | | | | | | | | | | | | | | |
Diversified payment rights (3) | 132 |
| | Discounted cash flow | | Discount rate | | 2.5 |
| - | 4.9 |
| | 3.4 |
| |
Diversified payment rights (1) | | 76 |
| | Discounted cash flow | | Discount rate | | 2.5 |
| - | 4.7 |
| | 3.7 |
|
Other commercial and consumer | 194 |
| (4) | Discounted cash flow | | Discount rate | | 3.9 |
| - | 4.8 |
| | 4.0 |
| 24 |
| | Market comparable pricing | | Comparability adjustment | | (7.0 | ) | - | (5.6 | ) | | (5.8 | ) |
| | | Weighted average life | | 1.3 |
| - | 1.9 |
| yrs | | 1.8 |
| |
| 15 |
| | Vendor priced | | | | | | | 34 |
| | Vendor priced | | | | | | |
Mortgage loans held for sale (residential) | 1,101 |
| | Discounted cash flow | | Default rate | | 0.0 |
| - | 18.4 |
| % | | 0.8 |
| 952 |
| | Discounted cash flow | | Default rate | | 0.0 |
| - | 18.2 |
| | 1.2 |
|
| | | Discount rate | | 3.0 |
| - | 6.3 |
| | 4.6 |
| | | Discount rate | | 2.7 |
| - | 5.5 |
| | 4.7 |
|
| | | Loss severity | | 0.0 |
| - | 46.4 |
| | 25.0 |
| | | Loss severity | | 0.0 |
| - | 32.0 |
| | 22.8 |
|
| | | Prepayment rate | | 4.3 |
| - | 14.4 |
| | 6.1 |
| | | Prepayment rate | | 7.3 |
| - | 18.2 |
| | 12.8 |
|
| 14 |
| | Market comparable pricing | | Comparability adjustment | | (56.3 | ) | - | (25.0 | ) | | (40.9 | ) | 2,205 |
| | Market comparable pricing | | Comparability adjustment | | (53.3 | ) | - | 0.0 |
| | (6.3 | ) |
Loans | 202 |
| (5) | Discounted cash flow | | Discount rate | | 3.9 |
| - | 4.4 |
| | 4.1 |
| |
Loans (2) | | 160 |
| | Discounted cash flow | | Discount rate | | 3.9 |
| - | 4.4 |
| | 4.2 |
|
| | | | Default rate | | 0.0 |
| | 23.1 |
| | 0.8 |
|
| | | Prepayment rate | | 4.4 |
| - | 100.0 |
| | 85.6 |
| | | Prepayment rate | | 7.8 |
| - | 100.0 |
| | 85.0 |
|
| | | | Loss severity | | 0.0 |
| - | 34.8 |
| | 12.0 |
| | | | Loss severity | | 0.0 |
| - | 39.7 |
| | 14.2 |
|
Mortgage servicing rights (residential) | 12,096 |
| | Discounted cash flow | | Cost to service per loan (6) | | $ | 63 |
| - | 482 |
| | 104 |
| 8,126 |
| | Discounted cash flow | | Cost to service per loan (3) | | $ | 59 |
| - | 622 |
| | 112 |
|
| | | Discount rate | | 6.5 |
| - | 13.2 |
| % | | 7.4 |
| | | Discount rate | | 6.3 |
| - | 9.4 |
| % | | 7.1 |
|
| | | | Prepayment rate (7) | | 10.6 |
| - | 24.6 |
| | 12.2 |
| | | | Prepayment rate (4) | | 11.3 |
| - | 26.6 |
| | 15.7 |
|
Net derivative assets and (liabilities): | | | | | | | | | | | | | | |
Interest rate contracts | 111 |
| | Discounted cash flow | | Default rate | | 0.0 |
| - | 5.0 |
| | 2.0 |
| 255 |
| | Discounted cash flow | | Default rate | | 0.0 |
| - | 5.0 |
| | 1.6 |
|
| | | | Loss severity | | 50.0 |
| - | 50.0 |
| | 50.0 |
|
| | | Loss severity | | 50.0 |
| - | 50.0 |
| | 50.0 |
| | | Prepayment rate | | 2.8 |
| - | 22.0 |
| | 14.8 |
|
| | | | Prepayment rate | | 2.8 |
| - | 25.0 |
| | 15.3 |
| 65 |
| | Market comparable pricing | | Comparability adjustment | | (14.1 | ) | | (8.9 | ) | | (11.8 | ) |
Interest rate contracts: derivative loan commitments | 94 |
| | Discounted cash flow | | Fall-out factor | | 1.0 |
| - | 99.0 |
| | 19.5 |
| 365 |
| | Discounted cash flow | | Fall-out factor | | 1.0 |
| - | 99.0 |
| | 28.0 |
|
| | | | Initial-value servicing | | (40.5 | ) | - | 67.1 |
| bps | | 12.3 |
| | | | Initial-value servicing | | (37.1 | ) | - | 134.0 |
| bps | | 35.0 |
|
Equity contracts | 146 |
| | Discounted cash flow | | Conversion factor | | (8.9 | ) | - | 0.0 |
| % | | (8.3 | ) | 123 |
| | Discounted cash flow | | Conversion factor | | (9.0 | ) | - | 0.0 |
| % | | (7.7 | ) |
| | | | Weighted average life | | 1.0 |
| - | 3.5 |
| yrs | | 2.0 |
| | | | Weighted average life | | 0.3 |
| - | 2.8 |
| yrs | | 1.4 |
|
| (374 | ) | | Option model | | Correlation factor | | (77.0 | ) | - | 98.5 |
| % | | 63.9 |
| 94 |
| | Option model | | Correlation factor | | (77.0 | ) | - | 99.0 |
| % | | 37.4 |
|
| | | | Volatility factor | | 6.5 |
| - | 105.2 |
| | 24.1 |
| | | | Volatility factor | | 6.5 |
| - | 92.9 |
| | 26.3 |
|
Credit contracts | 2 |
| | Market comparable pricing | | Comparability adjustment | | (48.3 | ) | - | 29.6 |
| | (6.9 | ) | 3 |
| | Market comparable pricing | | Comparability adjustment | | (78.9 | ) | - | 135.2 |
| | (13.6 | ) |
| 43 |
| | Option model | | Credit spread | | 0.1 |
| - | 21.4 |
| | 0.9 |
| 44 |
| | Option model | | Credit spread | | 0.1 |
| - | 49.2 |
| | 2.7 |
|
| | | | Loss severity | | 13.0 |
| - | 60.0 |
| | 45.6 |
| | | | Loss severity | | 12.0 |
| - | 60.0 |
| | 45.6 |
|
Nonmarketable equity securities | 7,110 |
| | Market comparable pricing | | Comparability adjustment | | (21.7 | ) | - | (6.3 | ) | | (16.6 | ) | 6,751 |
| | Market comparable pricing | | Comparability adjustment | | 3.5 |
| - | 22.9 |
| | 14.4 |
|
| | | | | | | | | | | | | | |
Insignificant Level 3 assets, net of liabilities | 26 |
| (8) | | | | | | | (30 | ) | | | | | | |
Total level 3 assets, net of liabilities | $ | 22,628 |
| (9) | | | | | | | $ | 21,914 |
| (5) | | | | | | |
| |
(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 $649 million of collateralized debt obligations. |
| |
(3) | Securities backed by specified sources of current and future receivables generated from foreignnon-US originators. |
| |
(4) | Predominantly 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)(2) | Consists of reverse mortgage loans. |
| |
(6)(3) | The high end of the range of inputs is for servicing modified loans. For non-modified loans the range is $63$59 - $208.$229. |
| |
(7)(4) | 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)(5) | 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 mortgage-backed securities, other trading positions, other liabilities and certain net derivative assets and liabilities, such as commodity contracts and foreign exchange contracts. |
| |
(9) | Consists of total Level 3 assets of $24.9$23.3 billion and total Level 3 liabilities of $2.3$1.3 billion, before netting of derivative balances. |
Note 16: Fair Values of Assets and Liabilities (continued)
Table 16.1216.8:: Valuation Techniques – Recurring Basis – December 31, 20182019
| | ($ 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 Inputs | | Range of Inputs Positive (Negative) | | | Weighted Average |
|
December 31, 2018 | | | | | | | | |
December 31, 2019 | | | | | | | | |
Trading and available-for-sale debt securities: | | | | | | | | | | | | | | |
Securities of U.S. states and political subdivisions: | | | | | | | | | | | | | | |
Government, healthcare and other revenue bonds | $ | 404 |
| | Discounted cash flow | | Discount rate | | 2.1 |
| - | 6.4 |
| % | | 3.4 |
| $ | 379 |
| | Discounted cash flow | | Discount rate | | 1.3 |
| - | 5.4 |
| % | | 2.4 |
|
| 43 |
| | Vendor priced | | | | | | | 34 |
| | Vendor priced | | | | | | |
Collateralized loan and other debt obligations (2) | 298 |
| | Market comparable pricing | | Comparability adjustment | | (13.5 | ) | - | 22.1 |
| | 3.2 |
| 183 |
| | Market comparable pricing | | Comparability adjustment | | (15.0 | ) | - | 19.2 |
| | 1.3 |
|
| 739 |
| | Vendor priced | | | | | | | 640 |
| | Vendor priced | | | | | | |
Corporate debt securities | 220 |
| | Discounted cash flow | | Discount rate | | 4.0 |
| | 11.7 |
| | 8.5 |
| 220 |
| | Discounted cash flow | | Discount rate | | 3.2 |
| | 14.9 |
| | 9.2 |
|
| 56 |
| | Market comparable pricing | | Comparability adjustment | | (11.3 | ) | | 16.6 |
| | (1.4 | ) | 60 |
| | Market comparable pricing | | Comparability adjustment | | (19.7 | ) | | 14.0 |
| | (4.4 | ) |
| 128 |
| | Vendor priced | | | | | | | 125 |
| | Vendor priced | | | | | | |
Asset-backed securities: | | | | | | | | | | | | | | |
Diversified payment rights (3)(1) | 171 |
| | Discounted cash flow | | Discount rate | | 3.4 |
| - | 6.2 |
| | 4.4 |
| 92 |
| | Discounted cash flow | | Discount rate | | 2.3 |
| - | 3.1 |
| | 2.8 |
|
Other commercial and consumer | 198 |
| (4) | Discounted cash flow | | Discount rate | | 4.6 |
| - | 5.2 |
| | 4.7 |
| 11 |
| | Vendor priced | | | | | | |
| | | Weighted average life | | 1.1 |
| - | 1.5 |
| yrs | | 1.1 |
| |
| 20 |
| | Vendor priced | | | | | | | |
Mortgage loans held for sale (residential) | 982 |
| | Discounted cash flow | | Default rate | | 0.0 |
| - | 15.6 |
| % | | 0.8 |
| 1,183 |
| | Discounted cash flow | | Default rate | | 0.0 |
| - | 15.5 |
| | 0.7 |
|
| | | Discount rate | | 1.1 |
| - | 6.6 |
| | 5.5 |
| | | Discount rate | | 3.0 |
| - | 5.6 |
| | 4.5 |
|
| | | Loss severity | | — |
| - | 43.3 |
| | 23.4 |
| | | Loss severity | | 0.0 |
| - | 43.5 |
| | 21.7 |
|
| | | Prepayment rate | | 3.2 |
| - | 13.4 |
| | 4.6 |
| | | Prepayment rate | | 5.7 |
| - | 15.4 |
| | 7.8 |
|
| 15 |
| | Market comparable pricing | | Comparability adjustment | | (56.3 | ) | - | (6.3 | ) | | (36.3 | ) | 15 |
| | Market comparable pricing | | Comparability adjustment | | (56.3 | ) | - | (6.3 | ) | | (40.3 | ) |
Loans | 244 |
| (5) | Discounted cash flow | | Discount rate | | 3.4 |
| - | 6.4 |
| | 4.2 |
| |
Loans (2) | | 171 |
| | Discounted cash flow | | Discount rate | | 3.9 |
| - | 4.3 |
| | 4.1 |
|
| | | Prepayment rate | | 2.9 |
| - | 100.0 |
| | 87.2 |
| | | Prepayment rate | | 6.0 |
| - | 100.0 |
| | 85.6 |
|
| | | | Loss severity | | 0.0 |
| - | 34.8 |
| | 10.2 |
| | | | Loss severity | | 0.0 |
| - | 36.5 |
| | 14.1 |
|
Mortgage servicing rights (residential) | 14,649 |
| | Discounted cash flow | | Cost to service per loan (6) | | $ | 62 |
| - | 507 |
| | 106 |
| 11,517 |
| | Discounted cash flow | | Cost to service per loan (3) | | $ | 61 |
| - | 495 |
| | 102 |
|
| | | Discount rate | | 7.1 |
| - | 15.3 |
| % | | 8.1 |
| | | Discount rate | | 6.0 |
| - | 13.6 |
| % | | 7.2 |
|
| | | | Prepayment rate (7) | | 9.0 |
| - | 23.5 |
| | 9.9 |
| | | | Prepayment rate (4) | | 9.6 |
| - | 24.4 |
| | 11.9 |
|
Net derivative assets and (liabilities): | | | | | | | | | | | | | | |
Interest rate contracts | (35 | ) | | Discounted cash flow | | Default rate | | 0.0 |
| - | 5.0 |
| | 2.0 |
| 146 |
| | Discounted cash flow | | Default rate | | 0.0 |
| - | 5.0 |
| | 1.7 |
|
| | | Loss severity | | 50.0 |
| - | 50.0 |
| | 50.0 |
| | | Loss severity | | 50.0 |
| - | 50.0 |
| | 50.0 |
|
| | | | Prepayment rate | | 2.8 |
| - | 25.0 |
| | 13.8 |
| | | | Prepayment rate | | 2.8 |
| - | 25.0 |
| | 15.0 |
|
Interest rate contracts: derivative loan commitments | 60 |
| | Discounted cash flow | | Fall-out factor | | 1.0 |
| - | 99.0 |
| | 19.4 |
| 68 |
| | Discounted cash flow | | Fall-out factor | | 1.0 |
| - | 99.0 |
| | 16.7 |
|
| | | | Initial-value servicing | | (36.6 | ) | - | 91.7 |
| bps | | 18.5 |
| | | | Initial-value servicing | | (32.2 | ) | - | 149.0 |
| bps | | 36.4 |
|
Equity contracts | 104 |
| | Discounted cash flow | | Conversion factor | | (9.3 | ) | - | 0.0 |
| % | | (7.8 | ) | 147 |
| | Discounted cash flow | | Conversion factor | | (8.8 | ) | - | 0.0 |
| % | | (7.7 | ) |
| | | | Weighted average life | | 1.0 |
| - | 3.0 |
| yrs | | 1.8 |
| | | | Weighted average life | | 0.5 |
| - | 3.0 |
| yrs | | 1.5 |
|
| (121 | ) | | Option model | | Correlation factor | | (77.0 | ) | - | 99.0 |
| % | | 21.6 |
| (416 | ) | | Option model | | Correlation factor | | (77.0 | ) | - | 99.0 |
| % | | 23.8 |
|
| | | | Volatility factor | | 6.5 |
| - | 100.0 |
| | 21.8 |
| | | | Volatility factor | | 6.8 |
| - | 100.0 |
| | 18.7 |
|
Credit contracts | 3 |
| | Market comparable pricing | | Comparability adjustment | | (15.5 | ) | - | 40.0 |
| | 3.5 |
| 2 |
| | Market comparable pricing | | Comparability adjustment | | (56.1 | ) | - | 10.8 |
| | (16.0 | ) |
| 32 |
| | Option model | | Credit spread | | 0.9 |
| - | 21.5 |
| | 1.3 |
| 27 |
| | Option model | | Credit spread | | 0.0 |
| - | 17.8 |
| | 0.8 |
|
| | | | Loss severity | | 13.0 |
| - | 60.0 |
| | 45.2 |
| | | | Loss severity | | 12.0 |
| - | 60.0 |
| | 45.6 |
|
Nonmarketable equity securities | 5,468 |
| | Market comparable pricing | | Comparability adjustment | | (20.6 | ) | - | (4.3 | ) | | (15.8 | ) | 7,847 |
| | Market comparable pricing | | Comparability adjustment | | (20.2 | ) | - | (4.2 | ) | | (14.6 | ) |
| | | | | | | | | | | | | | |
Insignificant Level 3 assets, net of liabilities | 93 |
| (8) | | | | | | | 27 |
| | | | | | |
Total level 3 assets, net of liabilities | $ | 23,771 |
| (9) | | | | | | | $ | 22,478 |
| (5) | | | | | | |
| |
(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 $800 million of collateralized debt obligations. |
| |
(3) | Securities backed by specified sources of current and future receivables generated from foreignnon-U.S. originators. |
| |
(4) | Predominantly 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)(2) | Consists of reverse mortgage loans. |
| |
(6)(3) | The high end of the range of inputs is for servicing modified loans. For non-modified loans the range is $62$61 - $204.$231. |
| |
(7)(4) | 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)(5) | 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 mortgage-backed securities, other trading positions, other liabilities and certain net derivative assets and liabilities, such as commodity contracts and foreign exchange contracts. |
| |
(9) | Consists of total Level 3 assets of $25.3$24.3 billion and total Level 3 liabilities of $1.6$1.8 billion, before netting of derivative balances. |
Note 16: Fair Values of Assets and Liabilities (continued)
TheFor information on the valuation techniques and significant unobservable inputs used for our Level 3 assets and liabilities, as presentedsee Note 19 (Fair Value of Assets and Liabilities) in the previous tables, are described as follows: our 2019 Form 10-K.
| |
• | Discounted cash flow – Discounted cash flow valuation techniques generally consist of developing an estimate of future cash flows that are expected to occur over the life of an instrument and then discounting those cash flows at a rate of return that results in the fair value amount.
|
| |
• | Market comparable pricing – Market comparable pricing valuation techniques are used to determine the fair value of certain instruments by incorporating known inputs, such as recent transaction prices, pending transactions, or prices of other similar investments that require significant adjustment to reflect differences in instrument characteristics.
|
| |
• | Option model – Option model valuation techniques are generally used for instruments in which the holder has a contingent right or obligation based on the occurrence of a future event, such as the price of a referenced asset going above or below a predetermined strike price. Option models estimate the likelihood of the specified event occurring by incorporating assumptions such as volatility estimates, price of the underlying instrument and expected rate of return.
|
| |
• | Vendor-priced – Prices obtained from third party pricing vendors or brokers that are used to record the fair value of the asset or liability for which the related valuation technique and significant unobservable inputs are not provided.
|
Significant unobservable inputs presented in the previous tables are those we consider significant to the fair value of the Level 3 asset or liability. We consider unobservable inputs to be significant if by their exclusion the fair value of the Level 3 asset or liability would be impacted by a predetermined percentage change. We also consider qualitative factors, such as nature of the instrument, type of valuation technique used, and the significance of the unobservable inputs relative to other inputs used within the valuation. Following is a description of the significant unobservable inputs provided in the table.
| |
• | Comparability adjustment – is an adjustment made to observed market data, such as a transaction price in order to reflect dissimilarities in underlying collateral, issuer, rating, or other factors used within a market valuation approach, expressed as a percentage of an observed price.
|
| |
• | Conversion Factor – is the risk-adjusted rate in which a particular instrument may be exchanged for another instrument upon settlement, expressed as a percentage change from a specified rate.
|
| |
• | Correlation factor – is the likelihood of one instrument changing in price relative to another based on an established relationship expressed as a percentage of relative change in price over a period over time.
|
| |
• | Cost to service – is the expected cost per loan of servicing a portfolio of loans, which includes estimates for unreimbursed expenses (including delinquency and foreclosure costs) that may occur as a result of servicing such loan portfolios.
|
| |
• | Credit spread – is the portion of the interest rate in excess of a benchmark interest rate, such as Overnight Index Swap (OIS), LIBOR or U.S. Treasury rates, that when applied to an investment captures changes in the obligor’s creditworthiness.
|
| |
• | Default rate – is an estimate of the likelihood of not collecting contractual amounts owed expressed as a constant default rate (CDR).
|
| |
• | Discount rate – is a rate of return used to calculate the present value of the future expected cash flow to arrive at the fair value of an instrument. The discount rate consists of a benchmark rate component and a risk premium component. The benchmark rate component, for example, OIS, LIBOR or U.S. Treasury rates, is generally observable within the market and is necessary to appropriately reflect the time value of money. The risk premium component reflects the amount of compensation market participants require due to the uncertainty inherent in the instruments’ cash flows resulting from risks such as credit and liquidity.
|
| |
• | Fall-out factor – is the expected percentage of loans associated with our interest rate lock commitment portfolio that are likely of not funding.
|
| |
• | Initial-value servicing – is the estimated value of the underlying loan, including the value attributable to the embedded servicing right, expressed in basis points of outstanding unpaid principal balance.
|
| |
• | Loss severity – is the estimated percentage of contractual cash flows lost in the event of a default.
|
| |
• | Prepayment rate – is the estimated rate at which forecasted prepayments of principal of the related loan or debt instrument are expected to occur, expressed as a constant prepayment rate (CPR).
|
| |
• | 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.
|
Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis
We may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from application of LOCOM accounting, write-downs of individual assets or use of the measurement alternative for nonmarketable equity securities.
Table 16.1316.9 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 June 30, 2019March 31, 2020, and December 31, 2018,2019, and for which a nonrecurring fair value adjustment was recorded during the sixthree months ended June 30, 2019March 31, 2020, and year ended December 31, 2018.2019.
Table 16.13:Fair Value on a Nonrecurring Basis
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2019 | | | December 31, 2018 | |
(in millions) | Level 1 |
| | Level 2 |
| | Level 3 |
| | Total |
| | Level 1 |
| | Level 2 |
| | Level 3 |
| | Total |
|
Mortgage loans held for sale (LOCOM) (1) | $ | — |
| | 1,865 |
| | 3,148 |
| | 5,013 |
| | — |
| | 1,213 |
| | 1,233 |
| | 2,446 |
|
Loans held for sale | — |
| | 26 |
| | — |
| | 26 |
| | — |
| | 313 |
| | — |
| | 313 |
|
Loans: | | | | | | | | | | | | | | | |
Commercial | — |
| | 215 |
| | — |
| | 215 |
| | — |
| | 339 |
| | — |
| | 339 |
|
Consumer | — |
| | 164 |
| | 1 |
| | 165 |
| | — |
| | 346 |
| | 1 |
| | 347 |
|
Total loans (2) | — |
| | 379 |
| | 1 |
| | 380 |
| | — |
| | 685 |
| | 1 |
| | 686 |
|
Nonmarketable equity securities (3) | — |
| | 812 |
| | 83 |
| | 895 |
| | — |
| | 774 |
| | 157 |
| | 931 |
|
Other assets (4) | — |
| | 153 |
| | — |
| | 153 |
| | — |
| | 149 |
| | 6 |
| | 155 |
|
Total assets at fair value on a nonrecurring basis | $ | — |
| | 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. |
Table 16.1416.10 presents the increase (decrease) in value of certain assets held at the end of the respective reporting periods presented for which a nonrecurring fair value adjustment was recognized during the periods presented.
Table 16.14:16.9:Fair Value on a Nonrecurring Basis
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2020 | | | December 31, 2019 | |
(in millions) | Level 1 |
| | Level 2 |
| | Level 3 |
| | Total |
| | Level 1 |
| | Level 2 |
| | Level 3 |
| | Total |
|
Mortgage loans held for sale (1) | $ | — |
| | 1,450 |
| | 2,868 |
| | 4,318 |
| | — |
| | 2,034 |
| | 3,803 |
| | 5,837 |
|
Loans held for sale | — |
| | 161 |
| | — |
| | 161 |
| | — |
| | 5 |
| | — |
| | 5 |
|
Loans: | | | | | | | | | | | | | | | |
Commercial | — |
| | 207 |
| | — |
| | 207 |
| | — |
| | 280 |
| | — |
| | 280 |
|
Consumer | — |
| | 103 |
| | — |
| | 103 |
| | — |
| | 213 |
| | 1 |
| | 214 |
|
Total loans | — |
| | 310 |
| | — |
| | 310 |
| | — |
| | 493 |
| | 1 |
| | 494 |
|
Nonmarketable equity securities | — |
| | 639 |
| | 844 |
| | 1,483 |
| | — |
| | 1,308 |
| | 173 |
| | 1,481 |
|
Other assets | — |
| | 209 |
| | 390 |
| | 599 |
| | — |
| | 359 |
| | 27 |
| | 386 |
|
Total assets at fair value on a nonrecurring basis | $ | — |
| | 2,769 |
| | 4,102 |
| | 6,871 |
| | — |
| | 4,199 |
| | 4,004 |
| | 8,203 |
|
| |
(1) | Consists of commercial mortgages and residential real estate 1-4 family first mortgage loans. |
Nonmarketable equity securities includes impairment on private equity and venture capital investments and gains or losses under the measurement alternative. Other assets includes impairments of operating lease ROU assets, valuation losses on foreclosed real estate and other collateral owned, and impairment on private equity and venture capital investments in consolidated portfolio companies.
Table 16.10: Change in Value of Assets with Nonrecurring Fair Value Adjustment
| | | Six months ended June 30, | | Quarter ended March 31, | |
(in millions) | 2019 |
| | 2018 |
| 2020 |
| | 2019 |
|
Mortgage loans held for sale (LOCOM) | $ | 18 |
| | 13 |
| |
Mortgage loans held for sale | | $ | (38 | ) | | 20 |
|
Loans held for sale | (2 | ) | | (78 | ) | (1 | ) | | — |
|
Loans: | | | | | | |
Commercial | (106 | ) | | (138 | ) | (95 | ) | | (74 | ) |
Consumer | (121 | ) | | (185 | ) | (71 | ) | | (79 | ) |
Total loans (1) | (227 | ) | | (323 | ) | (166 | ) | | (153 | ) |
Nonmarketable equity securities (2) | 264 |
| | (17 | ) | (424 | ) | | 149 |
|
Other assets (3) | (29 | ) | | (30 | ) | (334 | ) | | (18 | ) |
Total | $ | 24 |
| | (435 | ) | $ | (963 | ) | | (2 | ) |
| |
(1) | Represents write-downs of loans based on the appraised value of the collateral. |
| |
(2) | Includes impairment losses for nonmarketable equity securities accounted for under the equity method and measurement alternative. Also includes observable price adjustments for nonmarketable equity securities accounted for under the measurement alternative. |
| |
(3) | Includes the losses on foreclosed real estate and other collateral owned that were measured at fair value subsequent to their initial classification as foreclosed assets. |
Note 16: Fair Values of Assets and Liabilities (continued)
Table 16.1516.11 provides quantitative information about the valuation techniques and significant unobservable inputs used in the valuation of substantiallylargely 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 16.15:16.11: Valuation Techniques – Nonrecurring Basis
| | ($ in millions) | Fair Value Level 3 |
| | Valuation Technique(s) (1) | | Significant Unobservable Inputs (1) | | Range of inputs | | Weighted Average (2) |
| Fair Value Level 3 |
| | Valuation Technique(s) (1) | | Significant Unobservable Inputs (1) | | Range of Inputs Positive (Negative) | | Weighted Average (2) |
|
June 30, 2019 | | | | | | |
Residential mortgage loans held for sale (LOCOM) | $ | 3,148 |
| (3) | Discounted cash flow | | Default rate | (4) | 0.3 | — | 5.7 | % | | 1.4 | % | |
March 31, 2020 | | | | | | | | |
Residential mortgage loans held for sale | | $ | 2,868 |
| (3) | Discounted cash flow | | Default rate | (4) | 0.4 |
| — | 51.3 | % | | 7.2 | % |
| | | Discount rate | | 1.5 | — | 9.5 |
| | 4.8 |
| | | Discount rate | | 1.5 |
| — | 8.7 |
| | 4.1 |
|
| | | Loss severity | | 0.5 | — | 62.3 |
| | 24.7 |
| | | Loss severity | | 0.5 |
| — | 72.1 |
| | 16.2 |
|
| | | Prepayment rate | (5) | 5.1 | — | 100.0 |
| | 21.6 |
| | | Prepayment rate | (5) | 5.0 |
| — | 100.0 |
| | 23.8 |
|
Nonmarketable equity securities(6) | — |
| | Discounted cash flow | | Discount rate | | — | — | — |
| | — |
| 658 |
| | Market comparable pricing | | Multiples | | 0.1x |
| — | 11.6x |
| | 4.9x |
|
| | 348 |
| | Market comparable pricing | | Comparability adjustment | | (100.0 | ) | — | (6.0 | )% | | (45.5 | )% |
| | 226 |
| | Other | | Company risk factor | | (100.0 | ) | — | (20.0 | ) | | (40.9 | ) |
Insignificant level 3 assets | 84 |
| | | | | 2 |
| | | | | | |
Total | $ | 3,232 |
| | | | | $ | 4,102 |
| | | | | | |
December 31, 2018 | | | | | | |
Residential mortgage loans held for sale (LOCOM) | $ | 1,233 |
| (3) | Discounted cash flow | | Default rate | (4) | 0.2 | — | 2.3 | % | | 1.4 | % | |
December 31, 2019 | | | | | | | | |
Residential mortgage loans held for sale | | $ | 3,803 |
| (3) | Discounted cash flow | | Default rate | (4) | 0.3 |
| — | 48.3 | % | | 4.6 | % |
| | | Discount rate | | 1.5 | — | 8.5 |
| | 4.0 |
| | | Discount rate | | 1.5 |
| — | 9.4 |
| | 4.3 |
|
| | | Loss severity | | 0.5 | — | 66.0 |
| | 1.7 |
| | | Loss severity | | 0.4 |
| — | 100.0 |
| | 23.4 |
|
| | | Prepayment rate | (5) | 3.5 | — | 100.0 |
| | 46.5 |
| | | Prepayment rate | (5) | 4.8 |
| — | 100.0 |
| | 23.2 |
|
Nonmarketable equity securities | 7 |
| | Discounted cash flow | | Discount rate | | 10.5 | — | 10.5 |
| | 10.5 |
| |
Insignificant level 3 assets | 157 |
| | | | | 201 |
| | | | | | |
Total | $ | 1,397 |
| | | | | $ | 4,004 |
| | | | | | |
| |
(1) | Refer to the narrative following Table 16.12Note 19 (Fair Value of Assets and Liabilities) in our 2019 Form 10-K for a definition of the valuation technique(s) and significant unobservable inputs.inputs used in the valuation of residential mortgage loans held for sale. |
| |
(2) | For residential MLHFS, weighted averages are calculated using the outstanding unpaid principal balance of the loans. |
| |
(3) | Consists of approximately $1.3$1.3 billion and $1.2 billion of government insured/guaranteed loans purchased from GNMA-guaranteed mortgage securitizations at June 30, 2019,both March 31, 2020 and December 31, 2018,2019, respectively, and $1.8$1.6 billion and $27 million,$2.5 billion, respectively, of other mortgage loans that are not government insured/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. |
| |
(6) | Includes $390 million of private equity and venture capital investments in consolidated portfolio companies classified in other assets on the balance sheet. |
We typically use a market approach to estimate the fair value of our nonmarketable private equity and venture capital investments in portfolio companies. The market approach bases the fair value measurement on market data (for example, use of market comparable pricing techniques) that are used to derive the enterprise value of the portfolio company. Market comparable pricing techniques include utilization of financial metrics of comparable public companies (multiples), such as ratios of enterprise value or market value of equity to revenue, EBITDA, net income or book value. Comparable company valuation multiples are evaluated and adjusted as necessary to reflect the comparative operational, financial or marketability differences between the public company and subject portfolio company in estimating its fair value. Market comparable pricing techniques also use recent or anticipated transactions (for example, a financing round, merger, acquisition or bankruptcy)
involving the subject portfolio company, or participants in its industry or related industries. Based upon these recent or anticipated transactions, current market conditions and other factors specific to the issuer, we make adjustments to estimate the enterprise value of the portfolio company. As a result of the recent market environment, we also utilized other valuation techniques. These techniques included the use of company risk factors in the estimation of the fair value of certain nonmarketable equity securities. The company risk factors are based upon entity-specific considerations including the debt and liquidity profile, projected cash flow or funding issues as well as other factors that may affect the company’s outlook.
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 1819 (Fair Values of Assets and Liabilities) in our 20182019 Form 10-K.
Table 16.1616.12 reflects differences between the fair value carrying amount of the assets for which we have elected the fair value option and the contractual aggregate unpaid principal amount at maturity.
Table 16.16:16.12: Fair Value Option
|
| | | | | | | | | | | | | | | | | | |
| March 31, 2020 | | | December 31, 2019 | |
(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 | $ | 16,665 |
| | 16,096 |
| | 569 |
| | 16,606 |
| | 16,279 |
| | 327 |
|
Nonaccrual loans | 131 |
| | 155 |
| | (24 | ) | | 133 |
| | 157 |
| | (24 | ) |
Loans 90 days or more past due and still accruing | 10 |
| | 13 |
| | (3 | ) | | 8 |
| | 10 |
| | (2 | ) |
Loans held for sale: | | | | | | | | | | | |
Total loans | 1,673 |
| | 1,804 |
| | (131 | ) | | 972 |
| | 1,020 |
| | (48 | ) |
Nonaccrual loans | 17 |
| | 30 |
| | (13 | ) | | 21 |
| | 29 |
| | (8 | ) |
Loans: | | | | | | | | | | | |
Total loans | 160 |
| | 189 |
| | (29 | ) | | 171 |
| | 201 |
| | (30 | ) |
Nonaccrual loans | 123 |
| | 151 |
| | (28 | ) | | 129 |
| | 159 |
| | (30 | ) |
|
| | | | | | | | | | | | | | | | | | |
| 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 loans | 130 |
| | 155 |
| | (25 | ) | | 127 |
| | 158 |
| | (31 | ) |
Loans 90 days or more past due and still accruing | 8 |
| | 10 |
| | (2 | ) | | 7 |
| | 9 |
| | (2 | ) |
Loans held for sale: | | | | | | | | | | | |
Total loans | 1,118 |
| | 1,166 |
| | (48 | ) | | 1,469 |
| | 1,536 |
| | (67 | ) |
Nonaccrual loans | 57 |
| | 65 |
| | (8 | ) | | 21 |
| | 32 |
| | (11 | ) |
Loans: | | | | | | | | | | | |
Total loans | 202 |
| | 231 |
| | (29 | ) | | 244 |
| | 274 |
| | (30 | ) |
Nonaccrual loans | 150 |
| | 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 16.1716.13 by income
statement line item. Amounts recorded as interest income are excluded from Table 16.17.16.13.
Table 16.17:16.13: Fair Value Option – Changes in Fair Value Included in Earnings
|
| | | | | | | | | | | | | | | | | | |
| 2020 | | | 2019 | |
(in millions) | Mortgage banking noninterest income |
| | Net gains (losses) from trading activities |
| | Other noninterest income |
| | Mortgage banking noninterest income |
| | Net gains (losses) from trading activities |
| | Other noninterest income |
|
Quarter ended March 31, | | | | | | | | | | | |
Mortgage loans held for sale | $ | 348 |
| | — |
| | — |
| | 214 |
| | — |
| | — |
|
Loans held for sale | — |
| | (13 | ) | | — |
| | — |
| | 14 |
| | 1 |
|
Loans | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
|
| | | | | | | | | | | | | | | | | | |
| 2019 | | | 2018 | |
(in millions) | Mortgage banking noninterest income |
| | Net gains (losses) from trading activities |
| | Other noninterest income |
| | Mortgage banking noninterest income |
| | Net gains (losses) from trading activities |
| | Other noninterest income |
|
Quarter ended June 30, | | | |
| | |
| | |
| | |
| | |
|
Mortgage loans held for sale | $ | 379 |
| | — |
| | — |
| | 114 |
| | — |
| | — |
|
Loans held for sale | — |
| | (4 | ) | | — |
| | — |
| | 9 |
| | — |
|
Loans | — |
| | — |
| | 1 |
| | — |
| | — |
| | — |
|
Other interests held (1) | — |
| | (1 | ) | | — |
| | — |
| | (1 | ) | | — |
|
Six months ended June 30, | | | | | | | | | | | |
Mortgage loans held for sale | $ | 593 |
| | — |
| | — |
| | 55 |
| | — |
| | — |
|
Loans held for sale | — |
| | 10 |
| | 1 |
| | — |
| | 15 |
| | — |
|
Loans | — |
| | — |
| | 1 |
| | — |
| | — |
| | (1 | ) |
Other interests held (1) | — |
| | (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 16.1816.14 shows the estimated gains and losses from earnings attributable to instrument-specific credit risk related to assets accounted for under the fair value option.
Table 16.18:16.14: Fair Value Option – Gains/Losses Attributable to Instrument-Specific Credit Risk
| | | Quarter ended June 30, | | | Six months ended June 30, | | Quarter ended March 31, | |
(in millions) | 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
| 2020 |
| | 2019 |
|
Gains (losses) attributable to instrument-specific credit risk: | |
| | |
| | | | | | | |
Mortgage loans held for sale | $ | 16 |
| | (2 | ) | | 12 |
| | (1 | ) | (182 | ) | | (4 | ) |
Loans held for sale | (3 | ) | | 9 |
| | 11 |
| | 15 |
| (12 | ) | | 14 |
|
Total | $ | 13 |
| | 7 |
| | 23 |
| | 14 |
| (194 | ) | | 10 |
|
Disclosures about Fair Value of Financial Instruments
Table 16.19 is16.15 presents a summary of fair value estimates for financial instruments excluding financial instruments recordedthat are not carried at fair value on a recurring basis,basis. Some financial instruments are excluded from scope of this table, such as they are included within Table 16.2 in this Note. The carrying amounts in the followingcertain insurance contracts and leases. This table are recorded on the balance sheet under the indicated captions.
We have not includedalso excludes 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 taxestaxes.
Loan commitments, standby letters of credit and other liabilities.commercial and similar letters of credit are not included in Table 16.15. A reasonable estimate of the fair value of these instruments is the carrying value of deferred fees plus the allowance for unfunded credit commitments, which totaled $853 million and $1.0 billion at March 31, 2020 and December 31, 2019, respectively.
The total of the fair value calculations presented does not represent, and should not be construed to represent, the underlying value of the Company.
Table 16.19:16.15: Fair Value Estimates for Financial Instruments
| | | | | Estimated fair value | | | | Estimated fair value | |
(in millions) | Carrying amount |
| | Level 1 |
| | Level 2 |
| | Level 3 |
| | Total |
| Carrying amount |
| | Level 1 |
| | Level 2 |
| | Level 3 |
| | Total |
|
June 30, 2019 | | | | | | | | | | |
March 31, 2020 | | | | | | | | | | |
Financial assets | | | | | | | | | | |
Cash and due from banks (1) | | $ | 22,738 |
| | 22,738 |
| | — |
| | — |
| | 22,738 |
|
Interest-earning deposits with banks (1) | | 128,071 |
| | 127,831 |
| | 240 |
| | — |
| | 128,071 |
|
Federal funds sold and securities purchased under resale agreements (1) | | 86,465 |
| | — |
| | 86,465 |
| | — |
| | 86,465 |
|
Held-to-maturity debt securities, net | | 169,909 |
| | 50,691 |
| | 126,030 |
| | 841 |
| | 177,562 |
|
Mortgage loans held for sale | | 5,130 |
| | — |
| | 2,285 |
| | 3,392 |
| | 5,677 |
|
Loans held for sale | | 210 |
| | — |
| | 210 |
| | — |
| | 210 |
|
Loans, net (2) | | 979,449 |
| | — |
| | 53,806 |
| | 922,616 |
| | 976,422 |
|
Nonmarketable equity securities (cost method) | | 4,512 |
| | — |
| | — |
| | 4,548 |
| | 4,548 |
|
Total financial assets | | $ | 1,396,484 |
| | 201,260 |
| | 269,036 |
| | 931,397 |
| | 1,401,693 |
|
Financial liabilities | | | | | | | | | | |
Deposits (3) | | $ | 110,841 |
| | — |
| | 82,565 |
| | 28,732 |
| | 111,297 |
|
Short-term borrowings | | 92,289 |
| | — |
| | 92,289 |
| | — |
| | 92,289 |
|
Long-term debt (4) | | 237,311 |
| | — |
| | 226,294 |
| | 1,921 |
| | 228,215 |
|
Total financial liabilities | | $ | 440,441 |
| | — |
| | 401,148 |
| | 30,653 |
| | 431,801 |
|
December 31, 2019 | | | | | | | | | | |
Financial assets | | | | | | | | | | | | | | | | | | |
Cash and due from banks (1) | $ | 20,880 |
| | 20,880 |
| | — |
| | — |
| | 20,880 |
| $ | 21,757 |
| | 21,757 |
| | — |
| | — |
| | 21,757 |
|
Interest-earning deposits with banks (1) | 143,547 |
| | 143,312 |
| | 235 |
| | — |
| | 143,547 |
| 119,493 |
| | 119,257 |
| | 236 |
| | — |
| | 119,493 |
|
Federal funds sold and securities purchased under resale agreements (1) | 112,119 |
| | — |
| | 112,119 |
| | — |
| | 112,119 |
| 102,140 |
| | — |
| | 102,140 |
| | — |
| | 102,140 |
|
Held-to-maturity debt securities | 145,876 |
| | 45,336 |
| | 101,943 |
| | 585 |
| | 147,864 |
| 153,933 |
| | 46,138 |
| | 109,933 |
| | 789 |
| | 156,860 |
|
Mortgage loans held for sale | 6,655 |
| | — |
| | 3,548 |
| | 4,102 |
| | 7,650 |
| 6,736 |
| | — |
| | 2,939 |
| | 4,721 |
| | 7,660 |
|
Loans held for sale | 63 |
| | — |
| | 63 |
| | — |
| | 63 |
| 5 |
| | — |
| | 5 |
| | — |
| | 5 |
|
Loans, net (2) | 920,977 |
| | — |
| | 49,839 |
| | 878,601 |
| | 928,440 |
| 933,042 |
| | — |
| | 54,125 |
| | 891,714 |
| | 945,839 |
|
Nonmarketable equity securities (cost method) | 5,622 |
| | — |
| | — |
| | 5,654 |
| | 5,654 |
| 4,790 |
| | — |
| | — |
| | 4,823 |
| | 4,823 |
|
Total financial assets | $ | 1,355,739 |
| | 209,528 |
| | 267,747 |
| | 888,942 |
| | 1,366,217 |
| $ | 1,341,896 |
| | 187,152 |
| | 269,378 |
| | 902,047 |
| | 1,358,577 |
|
Financial liabilities | | | | | | | | | | | | | | | | | | |
Deposits (3) | $ | 139,343 |
| | — |
| | 106,653 |
| | 32,549 |
| | 139,202 |
| $ | 118,849 |
| | — |
| | 87,279 |
| | 31,858 |
| | 119,137 |
|
Short-term borrowings | 115,344 |
| | — |
| | 115,345 |
| | — |
| | 115,345 |
| 104,512 |
| | — |
| | 104,513 |
| | — |
| | 104,513 |
|
Long-term debt (4) | 241,441 |
| | — |
| | 242,529 |
| | 1,626 |
| | 244,155 |
| 228,159 |
| | — |
| | 231,332 |
| | 1,720 |
| | 233,052 |
|
Total financial liabilities | $ | 496,128 |
|
| — |
|
| 464,527 |
|
| 34,175 |
| | 498,702 |
| $ | 451,520 |
| | — |
| | 423,124 |
| | 33,578 |
| | 456,702 |
|
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 securities | 144,788 |
| | 44,339 |
| | 97,275 |
| | 501 |
| | 142,115 |
| |
Mortgage loans held for sale | 3,355 |
| | — |
| | 2,129 |
| | 1,233 |
| | 3,362 |
| |
Loans held for sale | 572 |
| | — |
| | 572 |
| | — |
| | 572 |
| |
Loans, net (2) | 923,703 |
| | — |
| | 45,190 |
| | 872,725 |
| | 917,915 |
| |
Nonmarketable equity securities (cost method) | 5,643 |
| | — |
| | — |
| | 5,675 |
| | 5,675 |
| |
Total financial assets | $ | 1,331,555 |
| | 217,432 |
| | 225,567 |
| | 880,134 |
| | 1,323,133 |
| |
Financial liabilities | | | | | | | | | | |
Deposits (3) | $ | 130,645 |
| | — |
| | 107,448 |
| | 22,641 |
| | 130,089 |
| |
Short-term borrowings | 105,787 |
| | — |
| | 105,789 |
| | — |
| | 105,789 |
| |
Long-term debt (4) | 229,008 |
| | — |
| | 225,904 |
| | 2,230 |
| | 228,134 |
| |
Total financial liabilities | $ | 465,440 |
|
| — |
|
| 439,141 |
|
| 24,871 |
| | 464,012 |
| |
| |
(1) | Amounts consist of financial instruments for which carrying value approximates fair value. |
| |
(2) | Excludes lease financing with a carrying amount of $19.0$19.0 billion and $19.7$19.5 billion at June 30, 2019,March 31, 2020 and December 31, 2018,2019, respectively. |
| |
(3) | Excludes deposit liabilities with no defined or contractual maturity of $1.1$1.3 trillion and $1.2$1.2 trillion at June 30, 2019March 31, 2020 and December 31, 2018,2019, respectively. |
| |
(4) | Excludes capital lease obligations under capital leases of $35$31 million and $36$32 million at June 30, 2019,March 31, 2020 and December 31, 2018,2019, respectively. |
Loan commitments, standby letters of credit and commercial and similar letters of credit are not included in 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 June 30, 2019, and December 31, 2018.
Note 17: Preferred Stock (continued)
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
1 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. All classes of preferred stock, except the Dividend Equalization Preferred Shares and the ESOP Cumulative Convertible Preferred Stock, qualify as Tier 1 capital.
Table 17.1: Preferred Stock Shares
| | | June 30, 2019 | | | December 31, 2018 | | March 31, 2020 | | | December 31, 2019 | |
| 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 K | | | | | | | | | | | | | | |
Floating Non-Cumulative Perpetual Class A Preferred Stock (2) | 1,000 |
| | 3,500,000 |
| | 1,000 |
| | 3,500,000 |
| — |
| | — |
| | 1,000 |
| | 3,500,000 |
|
Series L | | | | | | | | | | | | | | |
7.50% Non-Cumulative Perpetual Convertible Class A Preferred Stock(3) | 1,000 |
| | 4,025,000 |
| | 1,000 |
| | 4,025,000 |
| 1,000 |
| | 4,025,000 |
| | 1,000 |
| | 4,025,000 |
|
Series N | | | | | | | | | | | | | | |
5.20% Non-Cumulative Perpetual Class A Preferred Stock | 25,000 |
| | 30,000 |
| | 25,000 |
| | 30,000 |
| 25,000 |
| | 30,000 |
| | 25,000 |
| | 30,000 |
|
Series O | | | | | | | | | | | | | | |
5.125% Non-Cumulative Perpetual Class A Preferred Stock | 25,000 |
| | 27,600 |
| | 25,000 |
| | 27,600 |
| 25,000 |
| | 27,600 |
| | 25,000 |
| | 27,600 |
|
Series P | | | | | | | | | | | | | | |
5.25% Non-Cumulative Perpetual Class A Preferred Stock | 25,000 |
| | 26,400 |
| | 25,000 |
| | 26,400 |
| 25,000 |
| | 26,400 |
| | 25,000 |
| | 26,400 |
|
Series Q | | | | | | | | | | | | | | |
5.85% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock | 25,000 |
| | 69,000 |
| | 25,000 |
| | 69,000 |
| 25,000 |
| | 69,000 |
| | 25,000 |
| | 69,000 |
|
Series R | | | | | | | | | | | | | | |
6.625% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock | 25,000 |
| | 34,500 |
| | 25,000 |
| | 34,500 |
| 25,000 |
| | 34,500 |
| | 25,000 |
| | 34,500 |
|
Series S | | | | | | | | | | | | | | |
5.90% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock | 25,000 |
| | 80,000 |
| | 25,000 |
| | 80,000 |
| 25,000 |
| | 80,000 |
| | 25,000 |
| | 80,000 |
|
Series T | | | | | | | | | | | | | | |
6.00% Non-Cumulative Perpetual Class A Preferred Stock | 25,000 |
| | 32,200 |
| | 25,000 |
| | 32,200 |
| |
6.00% Non-Cumulative Perpetual Class A Preferred Stock (4) | | 25,000 |
| | 32,200 |
| | 25,000 |
| | 32,200 |
|
Series U | | | | | | | | | | | | | | |
5.875% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock | 25,000 |
| | 80,000 |
| | 25,000 |
| | 80,000 |
| 25,000 |
| | 80,000 |
| | 25,000 |
| | 80,000 |
|
Series V | | | | | | | | | | | | | | |
6.00% Non-Cumulative Perpetual Class A Preferred Stock | 25,000 |
| | 40,000 |
| | 25,000 |
| | 40,000 |
| 25,000 |
| | 40,000 |
| | 25,000 |
| | 40,000 |
|
Series W | | | | | | | | | | | | | | |
5.70% Non-Cumulative Perpetual Class A Preferred Stock | 25,000 |
| | 40,000 |
| | 25,000 |
| | 40,000 |
| 25,000 |
| | 40,000 |
| | 25,000 |
| | 40,000 |
|
Series X | | | | | | | | | | | | | | |
5.50% Non-Cumulative Perpetual Class A Preferred Stock | 25,000 |
| | 46,000 |
| | 25,000 |
| | 46,000 |
| 25,000 |
| | 46,000 |
| | 25,000 |
| | 46,000 |
|
Series Y | | | | | | | | | | | | | | |
5.625% Non-Cumulative Perpetual Class A Preferred Stock | 25,000 |
| | 27,600 |
| | 25,000 |
| | 27,600 |
| 25,000 |
| | 27,600 |
| | 25,000 |
| | 27,600 |
|
Series Z | | | | | | | | |
4.750% Non-Cumulative Perpetual Class A Preferred Stock | | 25,000 |
| | 80,500 |
| | — |
| | — |
|
ESOP | | | | | | | | | | | | | | |
Cumulative Convertible Preferred Stock (3) | — |
| | 1,213,418 |
| | — |
| | 1,406,460 |
| |
Cumulative Convertible Preferred Stock (5) | | — |
| | 1,071,418 |
| | — |
| | 1,071,418 |
|
Total | | | 9,393,728 |
| | | | 9,586,770 |
| | | 5,832,228 |
| | | | 9,251,728 |
|
| |
(1) | Preferred Stock, Series 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 that is the greater of three-month LIBORLondon Interbank Offered Rate (LIBOR) plus 0.93% and 5.56975%. |
| |
(2) | Floating rate for Preferred Stock, Series K, is three-month LIBOR plus 3.77%. In first quarter 2020, the remaining $1.8 billion of Preferred Stock, Series K, was redeemed. |
| |
(3) | Preferred Stock, Series L, may be converted at any time, at the option of the holder, into 6.3814 shares of our common stock, plus cash in lieu of fractional shares, subject to anti-dilution adjustments. |
| |
(4) | In first quarter 2020, $669 million of Preferred Stock, Series T, was redeemed. |
| |
(5) | 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.preference. |
Note 17: Preferred Stock (continued)
Table 17.2: Preferred Stock – Shares Issued and Carrying Value | | | June 30, 2019 | | | December 31, 2018 | | March 31, 2020 | | | December 31, 2019 | |
(in millions, except shares) | Shares issued and outstanding |
| | Liquidation preference value |
| | Carrying value |
| | Discount |
| | Shares issued and outstanding |
| | Liquidation preference value |
| | Carrying value |
| | Discount |
| Shares issued and outstanding |
| | Liquidation preference value |
| | Carrying value |
| | Discount |
| | Shares issued and outstanding |
| | Liquidation preference value |
| | Carrying value |
| | Discount |
|
DEP Shares | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Dividend Equalization Preferred Shares (DEP) | 96,546 |
| | $ | — |
| | — |
| | — |
| | 96,546 |
| | $ | — |
| | — |
| | — |
| 96,546 |
| | $ | — |
| | — |
| | — |
| | 96,546 |
| | $ | — |
| | — |
| | — |
|
Series I (2)(1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Floating Class A Preferred Stock | 25,010 |
| | 2,501 |
| | 2,501 |
| | — |
| | 25,010 |
| | 2,501 |
| | 2,501 |
| | — |
| 25,010 |
| | 2,501 |
| | 2,501 |
| | — |
| | 25,010 |
| | 2,501 |
| | 2,501 |
| | — |
|
Series K (3)(2) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Floating Non-Cumulative Perpetual Class A Preferred Stock | 3,352,000 |
| | 3,352 |
| | 2,876 |
| | 476 |
| | 3,352,000 |
| | 3,352 |
| | 2,876 |
| | 476 |
| — |
| | — |
| | — |
| | — |
| | 1,802,000 |
| | 1,802 |
| | 1,546 |
| | 256 |
|
Series L (1) | | | | | | | | | | | | | | | | |
Series L (3) | | | | | | | | | | | | | | | | |
7.50% Non-Cumulative Perpetual Convertible Class A Preferred Stock | 3,967,995 |
| | 3,968 |
| | 3,200 |
| | 768 |
| | 3,968,000 |
| | 3,968 |
| | 3,200 |
| | 768 |
| 3,967,995 |
| | 3,968 |
| | 3,200 |
| | 768 |
| | 3,967,995 |
| | 3,968 |
| | 3,200 |
| | 768 |
|
Series N (1) | | | | | | | | | | | | | | | | |
Series N | | | | | | | | | | | | | | | | |
5.20% Non-Cumulative Perpetual Class A Preferred Stock | 30,000 |
| | 750 |
| | 750 |
| | — |
| | 30,000 |
| | 750 |
| | 750 |
| | — |
| 30,000 |
| | 750 |
| | 750 |
| | — |
| | 30,000 |
| | 750 |
| | 750 |
| | — |
|
Series O (1) | | | | | | | | | | | | | | | | |
Series O | | | | | | | | | | | | | | | | |
5.125% Non-Cumulative Perpetual Class A Preferred Stock | 26,000 |
| | 650 |
| | 650 |
| | — |
| | 26,000 |
| | 650 |
| | 650 |
| | — |
| 26,000 |
| | 650 |
| | 650 |
| | — |
| | 26,000 |
| | 650 |
| | 650 |
| | — |
|
Series P (1) | | | | | | | | | | | | | | | | |
Series P | | | | | | | | | | | | | | | | |
5.25% Non-Cumulative Perpetual Class A Preferred Stock | 25,000 |
| | 625 |
| | 625 |
| | — |
| | 25,000 |
| | 625 |
| | 625 |
| | — |
| 25,000 |
| | 625 |
| | 625 |
| | — |
| | 25,000 |
| | 625 |
| | 625 |
| | — |
|
Series Q (1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
5.85% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock | 69,000 |
| | 1,725 |
| | 1,725 |
| | — |
| | 69,000 |
| | 1,725 |
| | 1,725 |
| | — |
| 69,000 |
| | 1,725 |
| | 1,725 |
| | — |
| | 69,000 |
| | 1,725 |
| | 1,725 |
| | — |
|
Series R (1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
6.625% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock | 33,600 |
| | 840 |
| | 840 |
| | — |
| | 33,600 |
| | 840 |
| | 840 |
| | — |
| 33,600 |
| | 840 |
| | 840 |
| | — |
| | 33,600 |
| | 840 |
| | 840 |
| | — |
|
Series S (1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
5.90% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock | 80,000 |
| | 2,000 |
| | 2,000 |
| | — |
| | 80,000 |
| | 2,000 |
| | 2,000 |
| | — |
| 80,000 |
| | 2,000 |
| | 2,000 |
| | — |
| | 80,000 |
| | 2,000 |
| | 2,000 |
| | — |
|
Series T (1)(4) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
6.00% Non-Cumulative Perpetual Class A Preferred Stock | 32,000 |
| | 800 |
| | 800 |
| | — |
| | 32,000 |
| | 800 |
| | 800 |
| | — |
| 5,280 |
| | 131 |
| | 131 |
| | — |
| | 32,000 |
| | 800 |
| | 800 |
| | — |
|
Series U (1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
5.875% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock | 80,000 |
| | 2,000 |
| | 2,000 |
| | — |
| | 80,000 |
| | 2,000 |
| | 2,000 |
| | — |
| 80,000 |
| | 2,000 |
| | 2,000 |
| | — |
| | 80,000 |
| | 2,000 |
| | 2,000 |
| | — |
|
Series V (1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
6.00% Non-Cumulative Perpetual Class A Preferred Stock | 40,000 |
| | 1,000 |
| | 1,000 |
| | — |
| | 40,000 |
| | 1,000 |
| | 1,000 |
| | — |
| 40,000 |
| | 1,000 |
| | 1,000 |
| | — |
| | 40,000 |
| | 1,000 |
| | 1,000 |
| | — |
|
Series W (1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
5.70% Non-Cumulative Perpetual Class A Preferred Stock | 40,000 |
| | 1,000 |
| | 1,000 |
| | — |
| | 40,000 |
| | 1,000 |
| | 1,000 |
| | — |
| 40,000 |
| | 1,000 |
| | 1,000 |
| | — |
| | 40,000 |
| | 1,000 |
| | 1,000 |
| | — |
|
Series X (1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
5.50% Non-Cumulative Perpetual Class A Preferred Stock | 46,000 |
| | 1,150 |
| | 1,150 |
| | — |
| | 46,000 |
| | 1,150 |
| | 1,150 |
| | — |
| 46,000 |
| | 1,150 |
| | 1,150 |
| | — |
| | 46,000 |
| | 1,150 |
| | 1,150 |
| | — |
|
Series Y (1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
5.625% Non-Cumulative Perpetual Class A Preferred Stock | 27,600 |
| | 690 |
| | 690 |
| | — |
| | 27,600 |
| | 690 |
| | 690 |
| | — |
| 27,600 |
| | 690 |
| | 690 |
| | — |
| | 27,600 |
| | 690 |
| | 690 |
| | — |
|
Series Z | | | | | | | | | | | | | | | | |
4.750% Non-Cumulative Perpetual Class A Preferred Stock | | 80,500 |
| | 2,013 |
| | 2,013 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
ESOP | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cumulative Convertible Preferred Stock | 1,213,418 |
| | 1,214 |
| | 1,214 |
| | — |
| | 1,406,460 |
| | 1,407 |
| | 1,407 |
| | — |
| 1,071,418 |
| | 1,072 |
| | 1,072 |
| | — |
| | 1,071,418 |
| | 1,072 |
| | 1,072 |
| | — |
|
Total | 9,184,169 |
| | $ | 24,265 |
| | 23,021 |
| | 1,244 |
| | 9,377,216 |
| | $ | 24,458 |
| | 23,214 |
| | 1,244 |
| 5,743,949 |
| | $ | 22,115 |
| | 21,347 |
| | 768 |
| | 7,492,169 |
| | $ | 22,573 |
| | 21,549 |
| | 1,024 |
|
| |
(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)(2) | Floating rate for Preferred Stock, Series K, is three-month LIBOR plus 3.77%. In first quarter 2020, the remaining $1.8 billion of Preferred Stock, Series K, was redeemed. |
| |
(3) | Preferred Stock, Series L, may be converted at any time, at the option of the holder, into 6.3814 shares of our common stock, plus cash in lieu of fractional shares, subject to anti-dilution adjustments. |
| |
(4) | In first quarter 2020, $669 million of Preferred Stock, Series T, was redeemed. |
Note 17: Preferred Stock (continued)
ESOP CUMULATIVE CONVERTIBLE PREFERRED STOCK All shares of our ESOP Cumulative Convertible Preferred Stock (ESOP Preferred Stock) were issued to a trustee acting on behalf of the Wells Fargo & Company 401(k) Plan (the 401(k) Plan). Dividends on the ESOP Preferred Stock are cumulative from the date of initial issuance and are payable quarterly at annual rates based upon the year of issuance. Each share of ESOP Preferred Stock released from the unallocated reserve of the 401(k) Plan is converted into shares of our common stock based on the stated
value of the ESOP Preferred Stock and the then current market price of our common stock. The ESOP Preferred Stock is also convertible at the option of the holder at any time, unless previously redeemed. We have the option to redeem the ESOP Preferred Stock at any time, in whole or in part, at a redemption price per share equal to the higher of (a) $1,000 per share plus accrued and unpaid dividends or (b) the fair market value, as defined in the Certificates of Designation for the ESOP Preferred Stock.
Table 17.3: ESOP Preferred Stock
| | | Shares issued and outstanding | | | Carrying value | | | Adjustable dividend rate | | Shares issued and outstanding | | | Carrying value | | | Adjustable dividend rate | |
(in millions, except shares) | Jun 30, 2019 |
| | Dec 31, 2018 |
| | Jun 30, 2019 |
| | Dec 31, 2018 |
| | Minimum |
| | Maximum |
| Mar 31, 2020 |
| | Dec 31, 2019 |
| | Mar 31, 2020 |
| | Dec 31, 2019 |
| | Minimum |
| | Maximum |
|
ESOP Preferred Stock | | | | | | | | | | | | | | | | | | | | | | |
$1,000 liquidation preference per share | | | | | | | | | | | | | | | | | | | | | | |
2018 | 336,945 |
| | 336,945 |
| | 337 |
| | 337 |
| | 7.00 | % | | 8.00 | % | 254,945 |
| | 254,945 |
| | 255 |
| | 255 |
| | 7.00 | % | | 8.00 | % |
2017 | 222,210 |
| | 222,210 |
| | 222 |
| | 222 |
| | 7.00 |
| | 8.00 |
| 192,210 |
| | 192,210 |
| | 192 |
| | 192 |
| | 7.00 |
| | 8.00 |
|
2016 | 227,450 |
| | 233,835 |
| | 228 |
| | 234 |
| | 9.30 |
| | 10.30 |
| 197,450 |
| | 197,450 |
| | 198 |
| | 198 |
| | 9.30 |
| | 10.30 |
|
2015 | 116,784 |
| | 144,338 |
| | 117 |
| | 144 |
| | 8.90 |
| | 9.90 |
| 116,784 |
| | 116,784 |
| | 117 |
| | 117 |
| | 8.90 |
| | 9.90 |
|
2014 | 136,151 |
| | 174,151 |
| | 136 |
| | 174 |
| | 8.70 |
| | 9.70 |
| 136,151 |
| | 136,151 |
| | 136 |
| | 136 |
| | 8.70 |
| | 9.70 |
|
2013 | 97,948 |
| | 133,948 |
| | 98 |
| | 134 |
| | 8.50 |
| | 9.50 |
| 97,948 |
| | 97,948 |
| | 98 |
| | 98 |
| | 8.50 |
| | 9.50 |
|
2012 | 49,134 |
| | 77,634 |
| | 49 |
| | 78 |
| | 10.00 |
| | 11.00 |
| 49,134 |
| | 49,134 |
| | 49 |
| | 49 |
| | 10.00 |
| | 11.00 |
|
2011 | 26,796 |
| | 61,796 |
| | 27 |
| | 62 |
| | 9.00 |
| | 10.00 |
| 26,796 |
| | 26,796 |
| | 27 |
| | 27 |
| | 9.00 |
| | 10.00 |
|
2010 (1) | — |
| | 21,603 |
| | — |
| | 22 |
| | 9.50 |
| | 10.50 |
| |
Total ESOP Preferred Stock (2) | 1,213,418 |
| | 1,406,460 |
| | $ | 1,214 |
| | 1,407 |
| | | | | |
Unearned ESOP shares (3) | | | | | $ | (1,292 | ) | | (1,502 | ) | | | | | |
Total ESOP Preferred Stock (1) | | 1,071,418 |
| | 1,071,418 |
| | $ | 1,072 |
| | 1,072 |
| | | | |
Unearned ESOP shares (2) | | | | | | $ | (1,143 | ) | | (1,143 | ) | | | | |
| |
(1) | In AprilAt March 31, 2020, and December 31, 2019, all of the 2010additional paid-in capital included $71 million and $71 million, respectively, related to ESOP Preferred Stock was converted into commonpreferred 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 18: Revenue from Contracts with Customers (continued)
|
|
Note 18: Revenue from Contracts with Customers |
Our revenue includes net interest income on financial instruments and noninterest income. Table 18.1 presents our revenue by operating segment. The “Other” segment for each of the tables below includes the elimination of certain items that are included in more than one business segment, substantially all of which
represents products and services for WIM customers served through Community Banking distribution channels. For additional description of our operating segments, including
additional financial information and the underlying management accountingreporting process, see Note 22 (Operating Segments).
We adopted ASU 2014-09 – Revenue from Contracts with Customers on a modified retrospective basis as of January 1, 2018. For details on the impact of the adoption of this ASU, see Note 1 (Summary of Significant Accounting Policies) in our 2018 Form 10-K.
Table 18.1: Revenue by Operating Segment
| | | Quarter ended June 30, | | Quarter ended Mar 31, | |
| Community Banking | | Wholesale Banking | | Wealth and Investment Management | | Other | | Consolidated Company | | Community Banking | | Wholesale Banking | | Wealth and Investment Management | | Other | | Consolidated Company | |
(in millions) | 2019 |
| 2018 |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| 2020 |
| 2019 |
|
Net interest income (1) | $ | 7,066 |
| 7,346 |
| 4,535 |
| 4,693 |
| 1,037 |
| 1,111 |
| (543 | ) | (609 | ) | 12,095 |
| 12,541 |
| $ | 6,787 |
| 7,248 |
| 4,136 |
| 4,534 |
| 867 |
| 1,101 |
| (478 | ) | (572 | ) | 11,312 |
| 12,311 |
|
Noninterest income: | | | | |
Service charges on deposit accounts | 704 |
| 632 |
| 502 |
| 530 |
| 4 |
| 5 |
| (4 | ) | (4 | ) | 1,206 |
| 1,163 |
| 700 |
| 610 |
| 508 |
| 483 |
| 5 |
| 4 |
| (4 | ) | (3 | ) | 1,209 |
| 1,094 |
|
Trust and investment fees: | | | | |
Brokerage advisory, commissions and other fees | 480 |
| 465 |
| 74 |
| 78 |
| 2,248 |
| 2,284 |
| (484 | ) | (473 | ) | 2,318 |
| 2,354 |
| 518 |
| 449 |
| 90 |
| 78 |
| 2,397 |
| 2,124 |
| (523 | ) | (458 | ) | 2,482 |
| 2,193 |
|
Trust and investment management | 199 |
| 220 |
| 117 |
| 110 |
| 687 |
| 731 |
| (208 | ) | (226 | ) | 795 |
| 835 |
| 194 |
| 210 |
| 131 |
| 114 |
| 582 |
| 676 |
| (206 | ) | (214 | ) | 701 |
| 786 |
|
Investment banking | (18 | ) | — |
| 475 |
| 485 |
| (1 | ) | 1 |
| (1 | ) | — |
| 455 |
| 486 |
| (99 | ) | (20 | ) | 490 |
| 412 |
| 1 |
| 5 |
| (1 | ) | (3 | ) | 391 |
| 394 |
|
Total trust and investment fees | 661 |
| 685 |
| 666 |
| 673 |
| 2,934 |
| 3,016 |
| (693 | ) | (699 | ) | 3,568 |
| 3,675 |
| 613 |
| 639 |
| 711 |
| 604 |
| 2,980 |
| 2,805 |
| (730 | ) | (675 | ) | 3,574 |
| 3,373 |
|
Card fees | 929 |
| 904 |
| 95 |
| 96 |
| 2 |
| 2 |
| (1 | ) | (1 | ) | 1,025 |
| 1,001 |
| 809 |
| 858 |
| 83 |
| 86 |
| 1 |
| 1 |
| (1 | ) | (1 | ) | 892 |
| 944 |
|
Other fees: | | | | |
Lending related charges and fees (1)(2) | 65 |
| 69 |
| 284 |
| 307 |
| 2 |
| 2 |
| (2 | ) | (2 | ) | 349 |
| 376 |
| |
Cash network fees | 117 |
| 118 |
| — |
| 2 |
| — |
| — |
| — |
| — |
| 117 |
| 120 |
| |
Commercial real estate brokerage commissions | — |
| — |
| 105 |
| 109 |
| — |
| — |
| — |
| — |
| 105 |
| 109 |
| |
Wire transfer and other remittance fees | 71 |
| 67 |
| 49 |
| 53 |
| 2 |
| 2 |
| (1 | ) | (1 | ) | 121 |
| 121 |
| |
All other fees(1) | 82 |
| 94 |
| 26 |
| 25 |
| — |
| 1 |
| — |
| — |
| 108 |
| 120 |
| |
Total other fees | 335 |
| 348 |
| 464 |
| 496 |
| 4 |
| 5 |
| (3 | ) | (3 | ) | 800 |
| 846 |
| |
Mortgage banking (1) | 655 |
| 695 |
| 104 |
| 75 |
| (3 | ) | (2 | ) | 2 |
| 2 |
| 758 |
| 770 |
| |
Insurance (1) | 11 |
| 16 |
| 75 |
| 78 |
| 17 |
| 18 |
| (10 | ) | (10 | ) | 93 |
| 102 |
| |
Net gains (losses) from trading activities (1) | (11 | ) | 24 |
| 226 |
| 154 |
| 13 |
| 13 |
| 1 |
| — |
| 229 |
| 191 |
| |
Net gains (losses) on debt securities (1) | 15 |
| (2 | ) | 5 |
| 42 |
| — |
| 1 |
| — |
| — |
| 20 |
| 41 |
| |
Net gains from equity securities (1) | 471 |
| 409 |
| 116 |
| 89 |
| 35 |
| (203 | ) | — |
| — |
| 622 |
| 295 |
| |
Lease income (1) | — |
| — |
| 424 |
| 443 |
| — |
| — |
| — |
| — |
| 424 |
| 443 |
| |
Other income of the segment (1) | 969 |
| 749 |
| (147 | ) | (172 | ) | 7 |
| (15 | ) | (85 | ) | (77 | ) | 744 |
| 485 |
| |
Total noninterest income | 4,739 |
| 4,460 |
| 2,530 |
| 2,504 |
| 3,013 |
| 2,840 |
| (793 | ) | (792 | ) | 9,489 |
| 9,012 |
| |
Revenue | $ | 11,805 |
| 11,806 |
| 7,065 |
| 7,197 |
| 4,050 |
| 3,951 |
| (1,336 | ) | (1,401 | ) | 21,584 |
| 21,553 |
| |
| 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 |
| |
Net interest income (1) | $ | 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 accounts | 1,314 |
| 1,271 |
| 985 |
| 1,064 |
| 8 |
| 9 |
| (7 | ) | (8 | ) | 2,300 |
| 2,336 |
| |
Trust and investment fees: | | | |
Brokerage advisory, commissions and other fees | 929 |
| 943 |
| 152 |
| 145 |
| 4,372 |
| 4,628 |
| (942 | ) | (959 | ) | 4,511 |
| 4,757 |
| |
Trust and investment management | 409 |
| 453 |
| 231 |
| 223 |
| 1,363 |
| 1,474 |
| (422 | ) | (465 | ) | 1,581 |
| 1,685 |
| |
Investment banking | (38 | ) | (10 | ) | 887 |
| 925 |
| 4 |
| 1 |
| (4 | ) | — |
| 849 |
| 916 |
| |
Total trust and investment fees | 1,300 |
| 1,386 |
| 1,270 |
| 1,293 |
| 5,739 |
| 6,103 |
| (1,368 | ) | (1,424 | ) | 6,941 |
| 7,358 |
| |
Card fees | 1,787 |
| 1,725 |
| 181 |
| 183 |
| 3 |
| 3 |
| (2 | ) | (2 | ) | 1,969 |
| 1,909 |
| |
Other fees: | | | |
Lending related charges and fees (1)(2) | 130 |
| 145 |
| 566 |
| 611 |
| 4 |
| 4 |
| (4 | ) | (4 | ) | 696 |
| 756 |
| |
Lending related charges and fees (1) | | 50 |
| 65 |
| 278 |
| 282 |
| 2 |
| 2 |
| (2 | ) | (2 | ) | 328 |
| 347 |
|
Cash network fees | 226 |
| 243 |
| — |
| 3 |
| — |
| — |
| — |
| — |
| 226 |
| 246 |
| 106 |
| 109 |
| — |
| — |
| — |
| — |
| — |
| — |
| 106 |
| 109 |
|
Commercial real estate brokerage commissions | — |
| — |
| 186 |
| 194 |
| — |
| — |
| — |
| — |
| 186 |
| 194 |
| — |
| — |
| 1 |
| 81 |
| — |
| — |
| — |
| — |
| 1 |
| 81 |
|
Wire transfer and other remittance fees | 135 |
| 130 |
| 97 |
| 105 |
| 4 |
| 4 |
| (2 | ) | (2 | ) | 234 |
| 237 |
| 66 |
| 64 |
| 43 |
| 48 |
| 2 |
| 2 |
| (1 | ) | (1 | ) | 110 |
| 113 |
|
All other fees (1) | 176 |
| 157 |
| 52 |
| 55 |
| — |
| 1 |
| — |
| — |
| 228 |
| 213 |
| 63 |
| 94 |
| 24 |
| 26 |
| — |
| — |
| — |
| — |
| 87 |
| 120 |
|
Total other fees | 667 |
| 675 |
| 901 |
| 968 |
| 8 |
| 9 |
| (6 | ) | (6 | ) | 1,570 |
| 1,646 |
| 285 |
| 332 |
| 346 |
| 437 |
| 4 |
| 4 |
| (3 | ) | (3 | ) | 632 |
| 770 |
|
Mortgage banking (1) | 1,296 |
| 1,537 |
| 172 |
| 168 |
| (6 | ) | (5 | ) | 4 |
| 4 |
| 1,466 |
| 1,704 |
| 340 |
| 641 |
| 40 |
| 68 |
| (3 | ) | (3 | ) | 2 |
| 2 |
| 379 |
| 708 |
|
Insurance (1) | 22 |
| 44 |
| 153 |
| 157 |
| 34 |
| 36 |
| (20 | ) | (21 | ) | 189 |
| 216 |
| 11 |
| 11 |
| 75 |
| 78 |
| 19 |
| 17 |
| (10 | ) | (10 | ) | 95 |
| 96 |
|
Net gains (losses) from trading activities (1) | (6 | ) | 23 |
| 559 |
| 379 |
| 32 |
| 32 |
| 1 |
| — |
| 586 |
| 434 |
| 29 |
| 5 |
| 41 |
| 333 |
| (7 | ) | 19 |
| 1 |
| — |
| 64 |
| 357 |
|
Net gains on debt securities (1) | 52 |
| (2 | ) | 93 |
| 43 |
| — |
| 1 |
| — |
| — |
| 145 |
| 42 |
| |
Net gains from equity securities (1) | 1,072 |
| 1,093 |
| 193 |
| 182 |
| 171 |
| (197 | ) | — |
| — |
| 1,436 |
| 1,078 |
| |
Net gains (losses) on debt securities (1) | | 194 |
| 37 |
| 43 |
| 88 |
| — |
| — |
| — |
| — |
| 237 |
| 125 |
|
Net gains (losses) from equity securities (1) | | (1,028 | ) | 601 |
| (95 | ) | 77 |
| (278 | ) | 136 |
| — |
| — |
| (1,401 | ) | 814 |
|
Lease income (1) | — |
| — |
| 867 |
| 898 |
| — |
| — |
| — |
| — |
| 867 |
| 898 |
| — |
| — |
| 352 |
| 443 |
| — |
| — |
| — |
| — |
| 352 |
| 443 |
|
Other income of the segment (1) | 1,737 |
| 1,343 |
| (267 | ) | (84 | ) | 2 |
| (21 | ) | (154 | ) | (151 | ) | 1,318 |
| 1,087 |
| 756 |
| 768 |
| (423 | ) | (120 | ) | 127 |
| (5 | ) | (88 | ) | (69 | ) | 372 |
| 574 |
|
Total noninterest income | 9,241 |
| 9,095 |
| 5,107 |
| 5,251 |
| 5,991 |
| 5,970 |
| (1,552 | ) | (1,608 | ) | 18,787 |
| 18,708 |
| 2,709 |
| 4,502 |
| 1,681 |
| 2,577 |
| 2,848 |
| 2,978 |
| (833 | ) | (759 | ) | 6,405 |
| 9,298 |
|
Revenue | $ | 23,555 |
| 23,636 |
| 14,176 |
| 14,476 |
| 8,129 |
| 8,193 |
| (2,667 | ) | (2,818 | ) | 43,193 |
| 43,487 |
| $ | 9,496 |
| 11,750 |
| 5,817 |
| 7,111 |
| 3,715 |
| 4,079 |
| (1,311 | ) | (1,331 | ) | 17,717 |
| 21,609 |
|
| |
(1) | Most of our revenue is not within the scope of Accounting Standards Update (ASU) 2014-09 – Revenue from Contracts with Customers, and additional detailsThese revenues are included in other footnotesrelated 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.”derivatives, with additional details included in other footnotes to our financial statements. |
Note 18: Revenue from Contracts with Customers (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 18.2 presents our service charges on deposit accounts by operating segment.
Table 18.2: Service Charges on Deposit Accounts by Operating Segment
| | | Quarter ended June 30, | | Quarter ended Mar 31, | |
| Community Banking | | Wholesale Banking | | Wealth and Investment Management | | Other | | Consolidated Company | | Community Banking | | Wholesale Banking | | Wealth and Investment Management | | Other | | Consolidated Company | |
(in millions) | 2019 |
| 2018 |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| 2020 |
| 2019 |
|
Overdraft fees | $ | 496 |
| 416 |
| 1 |
| 1 |
| 1 |
| 1 |
| — |
| — |
| 498 |
| 418 |
| $ | 484 |
| 417 |
| 1 |
| 1 |
| — |
| — |
| — |
| — |
| 485 |
| 418 |
|
Account charges | 208 |
| 216 |
| 501 |
| 529 |
| 3 |
| 4 |
| (4 | ) | (4 | ) | 708 |
| 745 |
| 216 |
| 193 |
| 507 |
| 482 |
| 5 |
| 4 |
| (4 | ) | (3 | ) | 724 |
| 676 |
|
Service charges on deposit accounts | $ | 704 |
| 632 |
| 502 |
| 530 |
| 4 |
| 5 |
| (4 | ) | (4 | ) | 1,206 |
| 1,163 |
| $ | 700 |
| 610 |
| 508 |
| 483 |
| 5 |
| 4 |
| (4 | ) | (3 | ) | 1,209 |
| 1,094 |
|
| 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 charges | 401 |
| 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 |
| |
BROKERAGE ADVISORY, COMMISSIONS AND OTHER FEES are earned for providing full-service and discount brokerage services predominantly to retail brokerage clients. These revenues include fees earned on asset-based and transactional accounts and other brokerage advisory services.
Asset-based revenues are charged based on the market value of the client’s assets. The services and related obligations associated with certain of these revenues, which include investment advice, active management of client assets, or assistance with selecting and engaging a third-party advisory manager, are generally satisfied over a month or quarter. The remaining revenues include trailing commissions which are earned for selling shares to investors. Our obligation associated with earning trailing commissions is satisfied at the time shares are sold. However, these fees are received and recognized over time during the period the customer owns the shares and we remain
the broker of record. The amount of trailing commissions is variable based on the length of time the customer holds the shares and on changes in the value of the underlying assets.
Transactional revenues are earned for executing transactions at the client’s direction. Our obligation is generally satisfied upon the execution of the transaction and the fees are based on the size and number of transactions executed.
Other revenues earned from other brokerage advisory services include omnibus and networking fees received from mutual fund companies in return for providing record keeping and other administrative services, and annual account maintenance fees charged to customers.
Table 18.3 presents our brokerage advisory, commissions and other fees by operating segment.
Table 18.3: Brokerage Advisory, Commissions and Other Fees by Operating Segment
| | | Quarter ended June 30, | | Quarter ended Mar 31, | |
| Community Banking | | Wholesale Banking | | Wealth and Investment Management | | Other | | Consolidated Company | | Community Banking | | Wholesale Banking | | Wealth and Investment Management | | Other | | Consolidated Company | |
(in millions) | 2019 |
| 2018 |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| 2020 |
| 2019 |
|
Asset-based revenue (1) | $ | 369 |
| 365 |
| — |
| — |
| 1,698 |
| 1,722 |
| (369 | ) | (365 | ) | 1,698 |
| 1,722 |
| $ | 398 |
| 343 |
| — |
| — |
| 1,805 |
| 1,580 |
| (398 | ) | (343 | ) | 1,805 |
| 1,580 |
|
Transactional revenue | 94 |
| 83 |
| 10 |
| 16 |
| 390 |
| 400 |
| (98 | ) | (92 | ) | 396 |
| 407 |
| 102 |
| 89 |
| 3 |
| 16 |
| 432 |
| 387 |
| (107 | ) | (98 | ) | 430 |
| 394 |
|
Other revenue | 17 |
| 17 |
| 64 |
| 62 |
| 160 |
| 162 |
| (17 | ) | (16 | ) | 224 |
| 225 |
| 18 |
| 17 |
| 87 |
| 62 |
| 160 |
| 157 |
| (18 | ) | (17 | ) | 247 |
| 219 |
|
Brokerage advisory, commissions and other fees | $ | 480 |
| 465 |
| 74 |
| 78 |
| 2,248 |
| 2,284 |
| (484 | ) | (473 | ) | 2,318 |
| 2,354 |
| $ | 518 |
| 449 |
| 90 |
| 78 |
| 2,397 |
| 2,124 |
| (523 | ) | (458 | ) | 2,482 |
| 2,193 |
|
| 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 |
| |
Asset-based revenue (1) | $ | 712 |
| 736 |
| — |
| — |
| 3,278 |
| 3,465 |
| (712 | ) | (736 | ) | 3,278 |
| 3,465 |
| |
Transactional revenue | 183 |
| 176 |
| 26 |
| 28 |
| 777 |
| 839 |
| (196 | ) | (192 | ) | 790 |
| 851 |
| |
Other revenue | 34 |
| 31 |
| 126 |
| 117 |
| 317 |
| 324 |
| (34 | ) | (31 | ) | 443 |
| 441 |
| |
Brokerage advisory, commissions and other fees | $ | 929 |
| 943 |
| 152 |
| 145 |
| 4,372 |
| 4,628 |
| (942 | ) | (959 | ) | 4,511 |
| 4,757 |
| |
| |
(1) | We earned trailing commissions of $289$275 million and $569$280 million for the secondfirst quarter 2020and first half of 2019 respectively, and $321 million and $652 million for the second quarter and first half of 2018,, respectively. |
Note 18: Revenue from Contracts with Customers (continued)
TRUST AND INVESTMENT MANAGEMENT FEES are earned for providing trust, investment management and other related services.
Investment management services include managing and administering assets, including mutual funds, and institutional separate accounts. Fees for these services are generally determined based on a tiered scale relative to the market value of assets under management (AUM). In addition to AUM, we have client assets under administration (AUA) that earn various administrative fees which are generally based on the extent of the services provided to administer the account. Services with AUM
and AUA-based fees are generally performed over time.
Trust services include acting as a trustee or agent for corporate trust, personal trust, and agency assets. Obligations for trust services are generally satisfied over time, while obligations for activities that are transactional in nature are satisfied at the time of the transaction.
Other related services include the custody and safekeeping of accounts. Our obligation for these services is generally satisfied over time.
Table 18.4 presents our trust and investment management fees by operating segment.
Table 18.4: Trust and Investment Management Fees by Operating Segment
| | | Quarter ended June 30, | | Quarter ended Mar 31, | |
| Community Banking | | Wholesale Banking | | Wealth and Investment Management | | Other | | Consolidated Company | | Community Banking | | Wholesale Banking | | Wealth and Investment Management | | Other | | Consolidated Company | |
(in millions) | 2019 |
| 2018 |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| 2020 |
| 2019 |
|
Investment management fees | $ | (1 | ) | — |
| — |
| — |
| 501 |
| 531 |
| — |
| — |
| 500 |
| 531 |
| $ | — |
| 1 |
| — |
| — |
| 489 |
| 477 |
| — |
| — |
| 489 |
| 478 |
|
Trust fees | 200 |
| 232 |
| 83 |
| 82 |
| 175 |
| 185 |
| (208 | ) | (226 | ) | 250 |
| 273 |
| 194 |
| 209 |
| 89 |
| 82 |
| 102 |
| 168 |
| (206 | ) | (214 | ) | 179 |
| 245 |
|
Other revenue | — |
| (12 | ) | 34 |
| 28 |
| 11 |
| 15 |
| — |
| — |
| 45 |
| 31 |
| — |
| — |
| 42 |
| 32 |
| (9 | ) | 31 |
| — |
| — |
| 33 |
| 63 |
|
Trust and investment management fees | $ | 199 |
| 220 |
| 117 |
| 110 |
| 687 |
| 731 |
| (208 | ) | (226 | ) | 795 |
| 835 |
| $ | 194 |
| 210 |
| 131 |
| 114 |
| 582 |
| 676 |
| (206 | ) | (214 | ) | 701 |
| 786 |
|
| 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 fees | 409 |
| 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)
INVESTMENT BANKING FEES are earned for underwriting debt and equity securities, arranging loan syndications and performing other advisory services. Our obligation for these services is generally satisfied at closing of the transaction. Substantially all of these fees are in the Wholesale Banking operating segment.
CARD FEES include credit and debit card interchange and network revenues and various card-related fees. Credit and debit card
interchange and network revenues are earned on credit and debit card transactions conducted through payment networks such as Visa, MasterCard, and American Express. Our obligation is satisfied concurrently with the delivery of services on a daily basis.basis.
Table 18.5 presents our card fees by operating segment.
Table 18.5: Card Fees by Operating Segment
| | | Quarter ended June 30, | | Quarter ended Mar 31, | |
| Community Banking | | Wholesale Banking | | Wealth and Investment Management | | Other | | Consolidated Company | | Community Banking | | Wholesale Banking | | Wealth and Investment Management | | Other | | Consolidated Company | |
(in millions) | 2019 |
| 2018 |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| 2020 |
| 2019 |
|
Credit card interchange and network revenues (1) | $ | 209 |
| 211 |
| 95 |
| 96 |
| 2 |
| 2 |
| (1 | ) | (1 | ) | 305 |
| 308 |
| $ | 134 |
| 189 |
| 83 |
| 86 |
| 1 |
| 1 |
| (1 | ) | (1 | ) | 217 |
| 275 |
|
Debit card interchange and network revenues | 546 |
| 525 |
| — |
| — |
| — |
| — |
| — |
| — |
| 546 |
| 525 |
| 513 |
| 507 |
| — |
| — |
| — |
| — |
| — |
| — |
| 513 |
| 507 |
|
Late fees, cash advance fees, balance transfer fees, and annual fees | 174 |
| 168 |
| — |
| — |
| — |
| — |
| — |
| — |
| 174 |
| 168 |
| 162 |
| 162 |
| — |
| — |
| — |
| — |
| — |
| — |
| 162 |
| 162 |
|
Card fees (1) | $ | 929 |
| 904 |
| 95 |
| 96 |
| 2 |
| 2 |
| (1 | ) | (1 | ) | 1,025 |
| 1,001 |
| $ | 809 |
| 858 |
| 83 |
| 86 |
| 1 |
| 1 |
| (1 | ) | (1 | ) | 892 |
| 944 |
|
| 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 |
| |
Credit card interchange and network revenues (1) | $ | 398 |
| 382 |
| 181 |
| 183 |
| 3 |
| 3 |
| (2 | ) | (2 | ) | 580 |
| 566 |
| |
Debit card interchange and network revenues | 1,053 |
| 1,004 |
| — |
| — |
| — |
| — |
| — |
| — |
| 1,053 |
| 1,004 |
| |
Late fees, cash advance fees, balance transfer fees, and annual fees | 336 |
| 339 |
| — |
| — |
| — |
| — |
| — |
| — |
| 336 |
| 339 |
| |
Card fees (1) | $ | 1,787 |
| 1,725 |
| 181 |
| 183 |
| 3 |
| 3 |
| (2 | ) | (2 | ) | 1,969 |
| 1,909 |
| |
| |
(1) | The cost of credit card rewards and rebates of $375$385 million and $729$354 million for the second quarterquarters ended March 31, 2020 and first half of 2019 respectively, and $335 million and $678 million for the second quarter and 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 included 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 included in the Wholesale Banking operating segment. In October 2019, we sold our commercial real estate brokerage business (Eastdil).
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 included in in the Community Banking and Wholesale Banking operating segments.
ALL OTHER FEES include various types of fees earned onfor products or services to customers which have related performance obligations that we complete to recognize revenue. A majority portion of the revenue is earned from providing business payrollsuch as merchant payment services, safe deposit boxes, and merchant services, whichloan syndication agency services. These fees are generally recognized over time as we perform the services. Most of these fees are included in the Community Banking operating segment.
|
|
Note 19: Employee Benefits and Other Expenses |
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 no0 new benefits accruehave accrued 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 2223 (Employee Benefits and Other Expenses) in our 20182019 Form 10-K.
Table 19.1 presents the components of net periodic benefit cost. Service cost is reported in employee benefits expense and all other components of net periodic benefit cost are reported in other noninterest expense on the consolidated statement of income.
Table 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 | ) |
|
| | | | | | | | | | | | | | | | | | |
| 2020 | | | 2019 | |
| Pension benefits | | | | | Pension benefits | | | |
(in millions) | Qualified |
| | Non-qualified |
| | Other benefits |
| | Qualified |
| | Non-qualified |
| | Other benefits |
|
Quarter ended March 31, | | | |
Service cost | $ | 3 |
| | — |
| | — |
| | 3 |
| | — |
| | — |
|
Interest cost | 86 |
| | 4 |
| | 4 |
| | 105 |
| | 6 |
| | 5 |
|
Expected return on plan assets | (148 | ) | | — |
| | (6 | ) | | (142 | ) | | — |
| | (7 | ) |
Amortization of net actuarial loss (gain) | 36 |
| | 4 |
| | (5 | ) | | 37 |
| | 2 |
| | (4 | ) |
Amortization of prior service credit | — |
| | — |
| | (2 | ) | | — |
| | — |
| | (2 | ) |
Settlement loss | — |
| | 3 |
| | — |
| | — |
| | 2 |
| | — |
|
Net periodic benefit cost | $ | (23 | ) | | 11 |
| | (9 | ) | | 3 |
| | 10 |
| | (8 | ) |
Other Expenses
Table 19.2 separately presents other expenses exceeding 1% of the sum of net interest income and total noninterest income in any of the periods presented.
Table 19.2:Other Expenses
|
| | | | | | |
| Quarter ended March 31, | |
(in millions) | 2020 |
| | 2019 |
|
Outside professional services | $ | 727 |
| | 678 |
|
Contract services | 630 |
| | 563 |
|
Operating losses | 464 |
| | 238 |
|
Leases (1) | 260 |
| | 286 |
|
Advertising and promotion | 181 |
| | 237 |
|
Other | 955 |
| | 1,141 |
|
Total other noninterest expense | $ | 3,217 |
| | 3,143 |
|
| |
(1) | Balances are reported in other noninterest expense on the consolidated statement of income.Represents expenses for assets we lease to customers. |
|
|
Note 20: Earnings and Dividends Per Common Share |
Table 20.1 shows earnings per common share and diluted earnings per common share and reconciles the numerator and denominator of both earnings per common share calculations.
See Note 1 (Summary of Significant Accounting Policies) for discussion on share repurchases.
Table 20.1: Earnings Per Common Share Calculations
| | | Quarter ended June 30, | | | Six months ended June 30, | | Quarter ended March 31, | |
(in millions, except per share amounts) | 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
| 2020 |
| | 2019 |
|
Wells Fargo net income | $ | 6,206 |
| | 5,186 |
| | $ | 12,066 |
| | 10,322 |
| $ | 653 |
| | 5,860 |
|
Less: Preferred stock dividends and other(1) | 358 |
| | 394 |
| | 711 |
| | 797 |
| 611 |
| | 353 |
|
Wells Fargo net income applicable to common stock (numerator) | $ | 5,848 |
| | 4,792 |
| | $ | 11,355 |
| | 9,525 |
| $ | 42 |
| | 5,507 |
|
Earnings per common share | | | | | | | | | | |
Average common shares outstanding (denominator) | 4,469.4 |
| | 4,865.8 |
| | 4,510.2 |
| | 4,875.7 |
| 4,104.8 |
| | 4,551.5 |
|
Per share | $ | 1.31 |
| | 0.98 |
| | $ | 2.52 |
| | 1.95 |
| $ | 0.01 |
| | 1.21 |
|
Diluted earnings per common share | | | | | | | | | | |
Average common shares outstanding | 4,469.4 |
| | 4,865.8 |
| | 4,510.2 |
| | 4,875.7 |
| 4,104.8 |
| | 4,551.5 |
|
Add: Stock options (1) | 0.1 |
| | 8.2 |
| | 1.4 |
| | 9.0 |
| |
Add: Stock options (2) | | — |
| | 2.5 |
|
Restricted share rights (1)(2) | 25.5 |
| | 20.7 |
| | 28.5 |
| | 25.4 |
| 30.5 |
| | 30.0 |
|
Warrants (1) | — |
| | 5.1 |
| | — |
| | 6.0 |
| |
Diluted average common shares outstanding (denominator) | 4,495.0 |
| | 4,899.8 |
| | 4,540.1 |
| | 4,916.1 |
| 4,135.3 |
| | 4,584.0 |
|
Per share | $ | 1.30 |
| | 0.98 |
| | $ | 2.50 |
| | 1.94 |
| $ | 0.01 |
| | 1.20 |
|
| |
(1) | The quarter ended March 31, 2020, includes $272 million from the elimination of discounts or issuance costs associated with redemptions of preferred stock. |
| |
(2) | Calculated using the treasury stock method. |
Table 20.2 presents the outstanding Convertible Preferred Stock, Series L, convertible preferred stock and options to purchase shares of common stock that were anti-dilutive and therefore not included in the calculation of diluted earnings per common share.
Table 20.2: Outstanding Anti-Dilutive Securities
|
| | | | | | | | | | | |
| Weighted-average shares | |
| Quarter ended June 30, | | | Six months ended June 30, | |
(in millions) | 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
|
Series L Convertible Preferred Stock (1) | 25.3 |
| | 25.3 |
| | 25.3 |
| | 25.3 |
|
Stock options (2) | — |
| | — |
| | — |
| | 0.5 |
|
|
| | | | | |
| Weighted-average shares | |
| Quarter ended March 31, | |
(in millions) | 2020 |
| | 2019 |
|
Convertible Preferred Stock, Series L (1) | 25.3 |
| | 25.3 |
|
| |
(1) | Calculated using the if-converted method. |
| |
(2) | Calculated using the treasury stock method. |
Table 20.3 presents dividends declared per common share.
Table 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 March 31, | |
| 2020 |
| | 2019 |
|
Per common share | $ | 0.51 |
| | 0.45 |
|
|
|
Note 21: Other Comprehensive Income |
Table 21.1 provides the components of OCI, reclassifications to net income by income statement line item, and the related tax effects.
Table 21.1: Summary of Other Comprehensive Income
| | | Quarter ended June 30, | | | Six months ended June 30, | | Quarter ended March 31, | |
| 2019 | | | 2018 | | | 2019 | | | 2018 | | 2020 | | | 2019 | |
(in millions) | Before tax |
| | Tax effect |
| | Net of tax |
| | Before tax |
| | Tax effect |
| | Net of tax |
| | Before tax |
| | Tax effect |
| | Net of tax |
| | Before tax |
| | Tax effect |
| | Net of tax |
| Before tax |
| | Tax effect |
| | Net of tax |
| | Before tax |
| | Tax effect |
| | Net of tax |
|
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 | ) | $ | (110 | ) | | 22 |
| | (88 | ) | | 2,831 |
| | (695 | ) | | 2,136 |
|
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 |
| 66 |
| | (16 | ) | | 50 |
| | 45 |
| | (11 | ) | | 34 |
|
Net gains on debt securities | (20 | ) | | 5 |
| | (15 | ) | | (41 | ) | | 10 |
| | (31 | ) | | (145 | ) | | 36 |
| | (109 | ) | | (42 | ) | | 10 |
| | (32 | ) | (237 | ) | | 48 |
| | (189 | ) | | (125 | ) | | 31 |
| | (94 | ) |
Other noninterest income | (2 | ) | | 1 |
| | (1 | ) | | — |
| | — |
| | — |
| | (3 | ) | | 1 |
| | (2 | ) | | — |
| | — |
| | — |
| (1 | ) | | — |
| | (1 | ) | | (1 | ) | | — |
| | (1 | ) |
Subtotal reclassifications to net income | 39 |
|
| (9 | ) |
| 30 |
| | 49 |
| | (12 | ) | | 37 |
| | (42 | ) | | 11 |
| | (31 | ) | | 117 |
| | (29 | ) | | 88 |
| (172 | ) |
| 32 |
|
| (140 | ) | | (81 | ) | | 20 |
| | (61 | ) |
Net change | 1,748 |
|
| (431 | ) |
| 1,317 |
| | (568 | ) | | 140 |
| | (428 | ) | | 4,498 |
| | (1,106 | ) | | 3,392 |
| | (3,943 | ) | | 971 |
| | (2,972 | ) | (282 | ) |
| 54 |
|
| (228 | ) | | 2,750 |
| | (675 | ) | | 2,075 |
|
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 | ) | 144 |
| | (35 | ) | | 109 |
| | (26 | ) | | 7 |
| | (19 | ) |
Cash Flow Hedges: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net unrealized gains (losses) arising during the period on cash flow hedges | 1 |
| | — |
| | 1 |
| | — |
| | — |
| | — |
| | (8 | ) | | 2 |
| | (6 | ) | | (266 | ) | | 66 |
| | (200 | ) | |
Net unrealized losses arising during the period on cash flow hedges | | (20 | ) | | 5 |
| | (15 | ) | | (9 | ) | | 2 |
| | (7 | ) |
Reclassification of net losses to net income on cash flow hedges: | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | |
|
|
Interest income on loans | 77 |
| | (19 | ) | | 58 |
| | 77 |
| | (19 | ) | | 58 |
| | 155 |
| | (38 | ) | | 117 |
| | 137 |
| | (34 | ) | | 103 |
| 56 |
| | (14 | ) | | 42 |
| | 78 |
| | (19 | ) | | 59 |
|
Interest expense on long-term debt | 2 |
| | (1 | ) | | 1 |
| | — |
| | — |
| | — |
| | 3 |
| | (1 | ) | | 2 |
| | — |
| | — |
| | — |
| 2 |
| | (1 | ) | | 1 |
| | 1 |
| | — |
| | 1 |
|
Subtotal reclassifications to net income | 79 |
|
| (20 | ) |
| 59 |
|
| 77 |
|
| (19 | ) |
| 58 |
|
| 158 |
|
| (39 | ) |
| 119 |
|
| 137 |
|
| (34 | ) |
| 103 |
| 58 |
|
| (15 | ) |
| 43 |
|
| 79 |
|
| (19 | ) |
| 60 |
|
Net change | 136 |
|
| (34 | ) |
| 102 |
| | (73 | ) | | 18 |
| | (55 | ) | | 180 |
|
| (44 | ) |
| 136 |
| | (255 | ) |
| 63 |
|
| (192 | ) | 182 |
|
| (45 | ) |
| 137 |
| | 44 |
| | (10 | ) | | 34 |
|
Defined benefit plans adjustments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net actuarial and prior service gains (losses) arising during the period | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (4 | ) | | 1 |
| | (3 | ) | | 6 |
| | (2 | ) | | 4 |
| 3 |
| | (1 | ) | | 2 |
| | (4 | ) | | 1 |
| | (3 | ) |
Reclassification of amounts to non interest expense (3): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization of net actuarial loss | 36 |
| | (9 | ) | | 27 |
| | 31 |
| | (7 | ) | | 24 |
| | 71 |
| | (17 | ) | | 54 |
| | 63 |
| | (15 | ) | | 48 |
| 35 |
| | (8 | ) | | 27 |
| | 35 |
| | (8 | ) | | 27 |
|
Settlements and other | (3 | ) | | 2 |
| | (1 | ) | | (2 | ) | | — |
| | (2 | ) | | (3 | ) | | 2 |
| | (1 | ) | | (2 | ) | | 1 |
| | (1 | ) | 1 |
| | — |
| | 1 |
| | — |
| | — |
| | — |
|
Subtotal reclassifications to non interest expense | 33 |
|
| (7 | ) |
| 26 |
| | 29 |
| | (7 | ) | | 22 |
| | 68 |
| | (15 | ) | | 53 |
| | 61 |
| | (14 | ) | | 47 |
| 36 |
|
| (8 | ) |
| 28 |
| | 35 |
| | (8 | ) | | 27 |
|
Net change | 33 |
|
| (7 | ) |
| 26 |
| | 29 |
| | (7 | ) | | 22 |
| | 64 |
| | (14 | ) | | 50 |
| | 67 |
| | (16 | ) | | 51 |
| 39 |
|
| (9 | ) |
| 30 |
| | 31 |
| | (7 | ) | | 24 |
|
Foreign currency translation adjustments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net unrealized gains (losses) arising during the period | 14 |
| | (1 | ) | | 13 |
| | (83 | ) | | 3 |
| | (80 | ) | | 56 |
| | (3 | ) | | 53 |
| | (85 | ) | | (2 | ) | | (87 | ) | (194 | ) | | 1 |
| | (193 | ) | | 42 |
| | (2 | ) | | 40 |
|
Net change | 14 |
|
| (1 | ) |
| 13 |
| | (83 | ) | | 3 |
| | (80 | ) | | 56 |
| | (3 | ) | | 53 |
| | (85 | ) | | (2 | ) | | (87 | ) | (194 | ) |
| 1 |
|
| (193 | ) | | 42 |
| | (2 | ) | | 40 |
|
Other comprehensive income (loss) | $ | 1,931 |
|
| (473 | ) |
| 1,458 |
| | (695 | ) |
| 154 |
|
| (541 | ) | | 4,798 |
| | (1,167 | ) | | 3,631 |
| | (4,216 | ) | | 1,016 |
| | (3,200 | ) | $ | (255 | ) |
| 1 |
|
| (254 | ) | | 2,867 |
|
| (694 | ) |
| 2,173 |
|
Less: Other comprehensive loss from noncontrolling interests, net of tax | | | | | — |
| | | | | | (1 | ) | | | | | | — |
| | | | | | (1 | ) | | | | | (1 | ) | | | | | | — |
|
Wells Fargo other comprehensive income (loss), net of tax | | | | | $ | 1,458 |
| | | | | | (540 | ) | | | | | | 3,631 |
| | | | | | (3,199 | ) | | | | | $ | (253 | ) | | | | | | 2,173 |
|
| |
(1) | Represents net unrealized gains and losses amortized over the remaining lives of securities that were transferred from the available-for-sale portfolio to the held-to-maturity portfolio. |
| |
(2) | 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. |
| |
(3) | These items are included in the computation of net periodic benefit cost (see Note 19 (Employee Benefits) for more information). |
Note 21: Other Comprehensive Income (continued)
Table 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 |
| Debt securities |
| | Fair value hedges (1) |
| | Cash flow hedges (2) |
| | Defined benefit plans adjustments |
| | Foreign currency translation adjustments |
| | Cumulative other comprehensive income |
|
Quarter ended June 30, 2019 | | | | | | | | | | |
Quarter ended March 31, 2020 | | | | | | | | | | | | |
Balance, beginning of period | $ | (566 | ) | | (651 | ) | | (2,272 | ) | | (193 | ) | | (3,682 | ) | $ | 1,552 |
| | (180 | ) | | (298 | ) | | (2,223 | ) | | (162 | ) | | (1,311 | ) |
Net unrealized gains arising during the period | 1,287 |
| | 43 |
| | — |
| | 13 |
| | 1,343 |
| |
Amounts reclassified from accumulated other comprehensive income | 30 |
| | 59 |
| | 26 |
| | — |
| | 115 |
| |
Net change | 1,317 |
| | 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 | ) | |
Net unrealized gains (losses) arising during the period | | (88 | ) | | 109 |
| | (15 | ) | | 2 |
| | (193 | ) | | (185 | ) |
Amounts reclassified from accumulated other comprehensive income | 37 |
| | 58 |
| | 22 |
| | — |
| | 117 |
| (140 | ) | | — |
| | 43 |
| | 28 |
| | — |
| | (69 | ) |
Net change | (428 | ) | | (55 | ) | | 22 |
| | (80 | ) | | (541 | ) | (228 | ) | | 109 |
| | 28 |
| | 30 |
| | (193 | ) | | (254 | ) |
Less: Other comprehensive loss from noncontrolling interests | — |
| | — |
| | — |
| | (1 | ) | | (1 | ) | — |
| | — |
| | — |
| | — |
| | (1 | ) | | (1 | ) |
Balance, end of period | $ | (2,919 | ) | | (610 | ) | | (1,757 | ) | | (175 | ) | | (5,461 | ) | $ | 1,324 |
| | (71 | ) | | (270 | ) | | (2,193 | ) | | (354 | ) | | (1,564 | ) |
Six months ended June 30, 2019 | | | | | | | | | | |
Quarter ended March 31, 2019 | | | | | | | | | | | | |
Balance, beginning of period | $ | (3,122 | ) | | (685 | ) | | (2,296 | ) | | (233 | ) | | (6,336 | ) | $ | (3,122 | ) | | (178 | ) | | (507 | ) | | (2,296 | ) | | (233 | ) | | (6,336 | ) |
Transition adjustment (1) | 481 |
| | — |
| | — |
| | — |
| | 481 |
| |
Transition adjustment (3) | | 481 |
| | — |
| | — |
| | — |
| | — |
| | 481 |
|
Balance, January 1, 2019 | (2,641 | ) | | (685 | ) | | (2,296 | ) | | (233 | ) | | (5,855 | ) | (2,641 | ) | | (178 | ) | | (507 | ) | | (2,296 | ) | | (233 | ) | | (5,855 | ) |
Net unrealized gains (losses) arising during the period | 3,423 |
| | 17 |
| | (3 | ) | | 53 |
| | 3,490 |
| 2,136 |
| | (19 | ) | | (7 | ) | | (3 | ) | | 40 |
| | 2,147 |
|
Amounts reclassified from accumulated other comprehensive income | (31 | ) | | 119 |
| | 53 |
| | — |
| | 141 |
| (61 | ) | | — |
| | 60 |
| | 27 |
| | — |
| | 26 |
|
Net change | 3,392 |
| | 136 |
| | 50 |
| | 53 |
| | 3,631 |
| 2,075 |
| | (19 | ) | | 53 |
| | 24 |
| | 40 |
| | 2,173 |
|
Less: Other comprehensive income from noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Balance, end of period | $ | 751 |
| | (549 | ) | | (2,246 | ) | | (180 | ) | | (2,224 | ) | $ | (566 | ) | | (197 | ) | | (454 | ) | | (2,272 | ) | | (193 | ) | | (3,682 | ) |
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, 2018 | 53 |
| | (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 income | 88 |
| | 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 | ) | |
| |
(1) | Substantially all of the beginning and end of period amounts for fair value hedges are foreign exchange contracts. |
| |
(2) | Substantially all of the beginning and end of period amounts for cash flow hedges are interest rate contracts. |
| |
(3) | The transition adjustment relates to the adoption of ASU 2017-08 – Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. SeeFor more information see Note 1 (Summary of Significant Accounting Policies) for more information.. |
| |
(2) | The transition adjustment relates to the adoption of ASU 2016-01 – Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. See Note 1 (Summary of Significant Accounting Policies) for more information.
|
|
|
Note 22: Operating Segments |
We have threeAs of March 31, 2020, we had 3 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.reporting process. The management accountingreporting process is based on U.S. GAAP with specific adjustments, such as for funds transfer pricing for asset/liability management, for shared revenues and expenses, and tax-equivalent adjustments to consistently reflect income from taxable and tax-exempt sources. The management reporting 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. IfOn February 11, 2020, we announced a new organizational structure with 5 principal lines of business:
Consumer and Small Business Banking; Consumer Lending; Commercial Banking; Corporate and Investment Banking; and Wealth and Investment Management. The Company is currently in the process of transitioning to this new organizational structure, including identifying leadership for some of these principal business lines and aligning management structure and/orreporting and allocation methodologies. These changes will not impact the allocation processconsolidated financial results of the Company, but are expected to result in changes allocations, transfersto our operating segments. We will update our operating segment disclosures, including comparative financial results, when the Company completes its transition and assignments may change. is managed in accordance with the new organizational structure.
For a description of our operating segments see Note 2627 (Operating Segments) in our 20182019 Form 10-K. Table 22.1 presents our results by operating segment.
Table 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) | 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
| 2020 |
| | 2019 |
| | 2020 |
| | 2019 |
| | 2020 |
| | 2019 |
| | 2020 |
| | 2019 |
| | 2020 |
| | 2019 |
|
Quarter ended June 30, | | | | | | | | | | | | | | | | | | | | |
Quarter ended Mar 31, | | | | | | | | | | | | | | | | | | | | |
Net interest income (2) | $ | 7,066 |
| | 7,346 |
| | 4,535 |
| | 4,693 |
| | 1,037 |
| | 1,111 |
| | (543 | ) | | (609 | ) | | 12,095 |
| | 12,541 |
| $ | 6,787 |
| | 7,248 |
| | 4,136 |
| | 4,534 |
| | 867 |
| | 1,101 |
| | (478 | ) | | (572 | ) | | 11,312 |
| | 12,311 |
|
Provision (reversal of provision) for credit losses | 479 |
| | 484 |
| | 28 |
| | (36 | ) | | (1 | ) | | (2 | ) | | (3 | ) | | 6 |
| | 503 |
| | 452 |
| 1,718 |
| | 710 |
| | 2,288 |
| | 134 |
| | 8 |
| | 4 |
| | (9 | ) | | (3 | ) | | 4,005 |
| | 845 |
|
Noninterest income | 4,739 |
| | 4,460 |
| | 2,530 |
| | 2,504 |
| | 3,013 |
| | 2,840 |
| | (793 | ) | | (792 | ) | | 9,489 |
| | 9,012 |
| 2,709 |
| | 4,502 |
| | 1,681 |
| | 2,577 |
| | 2,848 |
| | 2,978 |
| | (833 | ) | | (759 | ) | | 6,405 |
| | 9,298 |
|
Noninterest expense | 7,212 |
| | 7,290 |
| | 3,882 |
| | 4,219 |
| | 3,246 |
| | 3,361 |
| | (891 | ) | | (888 | ) | | 13,449 |
| | 13,982 |
| 7,116 |
| | 7,689 |
| | 3,763 |
| | 3,838 |
| | 3,103 |
| | 3,303 |
| | (934 | ) | | (914 | ) | | 13,048 |
| | 13,916 |
|
Income (loss) before income tax expense (benefit) | 4,114 |
| | 4,032 |
| | 3,155 |
| | 3,014 |
| | 805 |
| | 592 |
| | (442 | ) | | (519 | ) | | 7,632 |
| | 7,119 |
| 662 |
| | 3,351 |
| | (234 | ) | | 3,139 |
| | 604 |
| | 772 |
| | (368 | ) | | (414 | ) | | 664 |
| | 6,848 |
|
Income tax expense (benefit)(3) | 838 |
| | 1,413 |
| | 365 |
| | 379 |
| | 201 |
| | 147 |
| | (110 | ) | | (129 | ) | | 1,294 |
| | 1,810 |
| 644 |
| | 424 |
| | (546 | ) | | 369 |
| | 153 |
| | 192 |
| | (92 | ) | | (104 | ) | | 159 |
| | 881 |
|
Net income (loss) before noncontrolling interests | 3,276 |
| | 2,619 |
| | 2,790 |
| | 2,635 |
| | 604 |
| | 445 |
| | (332 | ) | | (390 | ) | | 6,338 |
| | 5,309 |
| 18 |
| | 2,927 |
| | 312 |
| | 2,770 |
| | 451 |
| | 580 |
| | (276 | ) | | (310 | ) | | 505 |
| | 5,967 |
|
Less: Net income from noncontrolling interests | 129 |
| | 123 |
| | 1 |
| | — |
| | 2 |
| | — |
| | — |
| | — |
| | 132 |
| | 123 |
| |
Less: Net income (loss) from noncontrolling interests | | (137 | ) | | 104 |
| | 1 |
| | — |
| | (12 | ) | | 3 |
| | — |
| | — |
| | (148 | ) | | 107 |
|
Net income (loss) (3) | $ | 3,147 |
| | 2,496 |
| | 2,789 |
| | 2,635 |
| | 602 |
| | 445 |
| | (332 | ) | | (390 | ) | | 6,206 |
| | 5,186 |
| $ | 155 |
| | 2,823 |
| | 311 |
| | 2,770 |
| | 463 |
| | 577 |
| | (276 | ) | | (310 | ) | | 653 |
| | 5,860 |
|
| | | | | | | | | | | | | | | | | | | | |
Average loans | $ | 457.7 |
| | 463.8 |
| | 474.0 |
| | 464.7 |
| | 75.0 |
| | 74.7 |
| | (59.2 | ) | | (59.1 | ) | | 947.5 |
| | 944.1 |
| $ | 462.6 |
| | 458.2 |
| | 484.5 |
| | 476.4 |
| | 78.5 |
| | 74.4 |
| | (60.6 | ) | | (59.0 | ) | | 965.0 |
| | 950.0 |
|
Average assets | 1,024.8 |
| | 1,034.3 |
| | 852.2 |
| | 826.4 |
| | 83.8 |
| | 84.0 |
| | (60.2 | ) | | (59.8 | ) | | 1,900.6 |
| | 1,884.9 |
| 1,039.2 |
| | 1,015.4 |
| | 885.0 |
| | 844.5 |
| | 88.1 |
| | 83.2 |
| | (61.6 | ) | | (60.0 | ) | | 1,950.7 |
| | 1,883.1 |
|
Average deposits | 777.6 |
| | 760.6 |
| | 410.4 |
| | 414.0 |
| | 143.5 |
| | 167.1 |
| | (62.5 | ) | | (70.4 | ) | | 1,269.0 |
| | 1,271.3 |
| 798.6 |
| | 765.6 |
| | 456.6 |
| | 409.8 |
| | 151.4 |
| | 153.2 |
| | (68.6 | ) | | (66.5 | ) | | 1,338.0 |
| | 1,262.1 |
|
Six months ended June 30, | | | | | | | | | | | | | | | | | | | | |
Net interest income (2) | $ | 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 losses | 1,189 |
| | 702 |
| | 162 |
| | (56 | ) | | 3 |
| | (8 | ) | | (6 | ) | | 5 |
| | 1,348 |
| | 643 |
| |
Noninterest income | 9,241 |
| | 9,095 |
| | 5,107 |
| | 5,251 |
| | 5,991 |
| | 5,970 |
| | (1,552 | ) | | (1,608 | ) | | 18,787 |
| | 18,708 |
| |
Noninterest expense | 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) | 7,465 |
| | 6,942 |
| | 6,294 |
| | 6,335 |
| | 1,577 |
| | 1,550 |
| | (856 | ) | | (1,007 | ) | | 14,480 |
| | 13,820 |
| |
Income tax expense (benefit) | 1,262 |
| | 2,222 |
| | 734 |
| | 827 |
| | 393 |
| | 386 |
| | (214 | ) | | (251 | ) | | 2,175 |
| | 3,184 |
| |
Net income (loss) before noncontrolling interests | 6,203 |
| | 4,720 |
| | 5,560 |
| | 5,508 |
| | 1,184 |
| | 1,164 |
| | (642 | ) | | (756 | ) | | 12,305 |
| | 10,636 |
| |
Less: Net income (loss) from noncontrolling interests | 233 |
| | 311 |
| | 1 |
| | (2 | ) | | 5 |
| | 5 |
| | — |
| | — |
| | 239 |
| | 314 |
| |
Net income (loss) (3) | $ | 5,970 |
| | 4,409 |
| | 5,559 |
| | 5,510 |
| | 1,179 |
| | 1,159 |
| | (642 | ) | | (756 | ) | | 12,066 |
| | 10,322 |
| |
Average loans | $ | 457.9 |
| | 467.1 |
| | 475.2 |
| | 464.9 |
| | 74.7 |
| | 74.3 |
| | (59.1 | ) | | (58.8 | ) | | 948.7 |
| | 947.5 |
| |
Average assets | 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 deposits | 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, substantially all of which represents products and services for Wealth and Investment ManagementWIM 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) | RepresentsIncome tax expense (benefit) for our Wholesale Banking operating segment netincluded income (loss)tax credits related to low-income housing and renewable energy investments of $491 million and $427 million for Community Banking; Wholesale Banking;first quarter 2020 and Wealth and Investment Management segments and Wells Fargo net income for the consolidated company.2019, respectively. |
|
|
Note 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 23.1 presents regulatory capital information for Wells Fargo & Company and the Bank usingin accordance with Basel III which increased minimum required capital ratios, and introduced a minimum Common Equity Tier 1 (CET1) ratio.requirements. We must report the lower of our CET1,Common Equity Tier 1 (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, becameare fully phased-in. However, the requirements for determining tier 2 and total capital are still in accordance with Transition Requirements and are scheduled to be fully phased-in by the end of 2021. Accordingly, the information presented below reflects fully phased-in CET1 capital, tier 1 capital, and RWAs, but reflects total capital still in accordance with Transition Requirements.Requirements.
At March 31, 2020, the Bank and our other insured depository institutions were considered well-capitalized under the requirements of the Federal Deposit Insurance Act.
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 June 30, 2019,March 31, 2020, 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 23.1: Regulatory Capital Information | | | Wells Fargo & Company | | Wells Fargo Bank, N.A. | Wells Fargo & Company | | Wells Fargo Bank, N.A. |
| June 30, 2019 | | | | December 31, 2018 | | | | June 30, 2019 | | | | December 31, 2018 | March 31, 2020 | | | | December 31, 2019 | | | | March 31, 2020 | | | | December 31, 2019 |
(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 | $ | 149,183 |
| | 149,183 |
| | 146,363 |
| | 146,363 |
| | 146,505 |
| | 146,505 |
| | 142,685 |
| | 142,685 |
| | $ | 134,751 |
| | 134,751 |
| | 138,760 |
| | 138,760 |
| | 147,537 |
| | 147,537 |
| | 145,149 |
| | 145,149 |
| |
Tier 1 | 170,675 |
| | 170,675 |
| | 167,866 |
| | 167,866 |
| | 146,505 |
| | 146,505 |
| | 142,685 |
| | 142,685 |
| | 154,277 |
| | 154,277 |
| | 158,949 |
| | 158,949 |
| | 147,537 |
| | 147,537 |
| | 145,149 |
| | 145,149 |
| |
Total | 200,810 |
| | 208,817 |
| | 198,798 |
| | 207,041 |
| | 159,090 |
| | 166,648 |
| | 155,558 |
| | 163,380 |
| | 184,068 |
| | 192,121 |
| | 188,333 |
| | 196,223 |
| | 162,300 |
| | 169,846 |
| | 158,615 |
| | 166,056 |
| |
Assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Risk-weighted assets(1) | $ | 1,182,838 |
| | 1,246,683 |
| | 1,177,350 |
| | 1,247,210 |
| | 1,059,642 |
| | 1,144,959 |
| | 1,058,653 |
| | 1,154,182 |
| | $ | 1,181,271 |
| | 1,262,808 |
| | 1,165,079 |
| | 1,245,853 |
| | 1,061,736 |
| | 1,171,371 |
| | 1,047,054 |
| | 1,152,791 |
| |
Adjusted average assets (1)(2) | 1,871,806 |
| | 1,871,806 |
| | 1,850,299 |
| | 1,850,299 |
| | 1,654,994 |
| | 1,654,994 |
| | 1,652,009 |
| | 1,652,009 |
| | 1,922,129 |
| | 1,922,129 |
| | 1,913,297 |
| | 1,913,297 |
| | 1,711,367 |
| | 1,711,367 |
| | 1,695,807 |
| | 1,695,807 |
| |
Regulatory capital ratios: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common equity tier 1 capital(1) | 12.61 | % | | 11.97 |
| * | | 12.43 |
| | 11.74 |
| * | | 13.83 |
| | 12.80 |
| * | | 13.48 |
| | 12.36 |
| * | 11.41 | % | | 10.67 |
| * | | 11.91 |
| | 11.14 |
| * | | 13.90 |
| | 12.60 |
| * | | 13.86 |
| | 12.59 |
| * |
Tier 1 capital(1) | 14.43 |
| | 13.69 |
| * | | 14.26 |
| | 13.46 |
| * | | 13.83 |
| | 12.80 |
| * | | 13.48 |
| | 12.36 |
| * | 13.06 |
| | 12.22 |
| * | | 13.64 |
| | 12.76 |
| * | | 13.90 |
| | 12.60 |
| * | | 13.86 |
| | 12.59 |
| * |
Total capital(1) | 16.98 |
| | 16.75 |
| * | | 16.89 |
| | 16.60 |
| * | | 15.01 |
| | 14.56 |
| * | | 14.69 |
| | 14.16 |
| * | 15.58 |
| | 15.21 |
| * | | 16.16 |
| | 15.75 |
| * | | 15.29 |
| | 14.50 |
| * | | 15.15 |
| | 14.40 |
| * |
Tier 1 leverage (1)(2) | 9.12 |
| | 9.12 |
| | 9.07 |
| | 9.07 |
| | 8.85 |
| | 8.85 |
| | 8.64 |
| | 8.64 |
| | 8.03 |
| | 8.03 |
| | 8.31 |
| | 8.31 |
| | 8.62 |
| | 8.62 |
| | 8.56 |
| | 8.56 |
| |
| Wells Fargo & Company | | | Wells Fargo Bank, N.A. | | | Wells Fargo & Company | | | Wells Fargo Bank, N.A. | | |
| June 30, 2019 | | | December 31, 2018 | | | June 30, 2019 | | | December 31, 2018 | | | March 31, 2020 | | | December 31, 2019 | | | March 31, 2020 | | | December 31, 2019 | | |
Supplementary leverage: (2) | | | | | | | | | | | | | | | | | |
Supplementary leverage (3): | | | | | | | | | | | | | | | | | |
Total leverage exposure | $ | 2,202,607 | | | 2,174,564 | | | 1,964,107 | | | 1,957,276 | | | $ | 2,256,314 | | | 2,247,729 | | | 2,017,471 | | | 2,006,180 | | |
Supplementary leverage ratio | 7.75 | % | | 7.72 | | | 7.46 | | | 7.29 | | | 6.84 | % | | 7.07 | | | 7.31 | | | 7.24 | | |
*Denotes the lowest capital ratio as determined under the Advanced and Standardized Approaches.
| |
(1) | RWAs and capital ratios for December 31, 2019, have been revised as a result of a decrease in RWAs under the Advanced Approach due to the correction of duplicated operational loss amounts. |
| |
(2) | The leverage ratio consists of Tier 1 capital divided by total average assets, excluding goodwill and certain other items. |
| |
(2)(3) | The supplementary leverage ratio (SLR) 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 23.2 presents the minimum required regulatory capital ratios under Transition Requirements to which the Company and
the Bank were subject as of June 30, 2019,March 31, 2020, and
December 31, 2018.
Table 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. |
| June 30, 2019 |
| | December 31, 2018 | | June 30, 2019 | | December 31, 2018 | March 31, 2020 |
| | December 31, 2019 | | March 31, 2020 | | December 31, 2019 |
Regulatory capital ratios: | | | | |
Common equity tier 1 capital | 9.000 | % | | 7.875 | | 7.000 | | 6.375 | 9.000 | % | | 9.000 | | 7.000 | | 7.000 |
Tier 1 capital | 10.500 |
| | 9.375 | | 8.500 | | 7.875 | 10.500 |
| | 10.500 | | 8.500 | | 8.500 |
Total capital | 12.500 |
| | 11.375 | | 10.500 | | 9.875 | 12.500 |
| | 12.500 | | 10.500 | | 10.500 |
Tier 1 leverage | 4.000 |
| | 4.000 | | 4.000 | | 4.000 | 4.000 |
| | 4.000 | | 4.000 | | 4.000 |
Supplementary leverage(2) | 5.000 |
| | 5.000 | | 6.000 | | 6.000 | 5.000 |
| | 5.000 | | 6.000 | | 6.000 |
| |
(1) | At June 30, 2019,March 31, 2020, under transition requirements, the CET1, tier 1 and total capital minimum ratio requirements for Wells Fargo & Company include a capital conservation buffer of 2.500% and a global systemically important bank (G-SIB) surcharge of 2.000%. Only the 2.500% capital conservation buffer applies to the Bank at June 30, 2019.March 31, 2020. Effective October 1, 2020, the 2.500% capital conservation buffer will be replaced under the Standardized Approach by a stress capital buffer that will be calculated annually as part of the Comprehensive Capital Analysis and Review (CCAR). |
| |
(2) | Wells Fargo & Company is required to maintain a SLR of at least 5.000% (comprised of a 3.000% minimum requirement plus a supplementary leverage buffer of 2.000%) to avoid restrictions on capital distributions and discretionary bonus payments. The Bank is required to maintain a SLR of at least 6.000% to be considered well-capitalized under applicable regulatory capital adequacy guidelines. |
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Glossary of Acronyms |
| | | |
ACL | Allowance for credit losses | HQLA | High-quality liquid assets |
ALCO | Asset/Liability Management Committee | HTM | Held to maturity |
ARM | Adjustable-rate mortgage | LCR | Liquidity coverage ratio |
ASCAFS | Accounting Standards CodificationAvailable-for-sale | LHFS | Loans held for sale |
ASUALCO | Accounting Standards UpdateAsset/Liability Management Committee | LIBOR | London Interbank Offered Rate |
AUAARM | Assets under administrationAdjustable-rate mortgage | LIHTC | Low income housing tax credit |
AUMASC | Assets under managementAccounting Standards Codification | LOCOM | Lower of cost or fair value |
ASU | Accounting Standards Update | LTV | Loan-to-value |
AUA | Assets under administration | MBS | Mortgage-backed security |
AUM | Assets under management | MLHFS | Mortgage loans held for sale |
AVM | Automated valuation model | LTVMSR | Loan-to-valueMortgage servicing right |
BCBS | Basel Committee on Bank Supervision | MBSNAV | Mortgage-backed securityNet asset value |
BHC | Bank holding company | MLHFSNPA | Mortgage loans held for saleNonperforming asset |
CCAR | Comprehensive Capital Analysis and Review | MSRNSFR | Mortgage servicing rightNet stable funding ratio |
CD | Certificate of deposit | NAV | Net asset value |
CDO | Collateralized debt obligation | NPA | Nonperforming asset |
CDS | Credit default swaps | OCC | Office of the Comptroller of the Currency |
CDS | Credit default swaps | OCI | Other comprehensive income |
CECL | Current expected credit loss | OCIOTC | Other comprehensive incomeOver-the-counter |
CET1 | Common Equity Tier 1 | OTCOTTI | Over-the-counterOther-than-temporary impairment |
CFPB | Consumer Financial Protection Bureau | OTTIPCD | Other-than-temporary impairmentPurchase credit-deteriorated |
CLO | Collateralized loan obligation | PCI Loans | PurchasedPurchase credit-impaired loans |
CLTV | Combined loan-to-value | PTPP | Pre-tax pre-provision profit |
CPI | Collateral protection insurance | RBC | Risk-based capital |
CPPCRE | Capital Purchase ProgramCommercial real estate | RMBS | Residential mortgage-backed securities |
CREDPD | Commercial real estateDays past due | ROA | Wells Fargo net income to average total assets |
DPDESOP | Days past dueEmployee Stock Ownership Plan | ROE | Wells Fargo net income applicable to common stock |
ESOPFASB | Employee Stock Ownership PlanFinancial Accounting Standards Board | | to average Wells Fargo common stockholders’ equity |
FASFDIC | Statement of Financial Accounting StandardsFederal Deposit Insurance Corporation | ROTCE | Return on average tangible common equity |
FASBFHA | Financial Accounting Standards BoardFederal Housing Administration | RWAs | Risk-weighted assets |
FDICFHLB | Federal Deposit Insurance CorporationHome Loan Bank | SEC | Securities and Exchange Commission |
FHAFHLMC | Federal Housing AdministrationHome Loan Mortgage Corporation | S&P | Standard & Poor’s Global Ratings |
FHLB | Federal Home Loan Bank | SLR | Supplementary leverage ratio |
FHLMC | Federal Home Loan Mortgage Corporation | SOFR | Secured Overnight Financing Rate |
FICO | Fair Isaac Corporation (credit rating) | SPESLR | Special purpose entitySupplementary leverage ratio |
FNMA | Federal National Mortgage Association | TDRSOFR | Troubled debt restructuringSecured Overnight Financing Rate |
FRB | Board of Governors of the Federal Reserve System | TLACSPE | Total Loss Absorbing CapacitySpecial purpose entity |
GAAP | Generally accepted accounting principles | VATDR | Department of Veterans AffairsTroubled debt restructuring |
GNMA | Government National Mortgage Association | VaRTLAC | Value-at-RiskTotal Loss Absorbing Capacity |
GSE | Government-sponsored entity | VA | Department of Veterans Affairs |
G-SIB | Global systemically important bank | VaR | Value-at-Risk |
HQLA | High-quality liquid assets | VIE | Variable interest entity |
G-SIBHTM | Globally systemic important bankHeld-to-maturity | WIM | Wealth and Investment Management |
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
Information in response to this item can be found in Note 14 (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 June 30, 2019.March 31, 2020.
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| | | | | | | | | |
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 |
|
April | 28,673,471 |
| | $ | 47.86 |
| | 269,297,234 |
|
May | 41,151,107 |
| | 46.79 |
| | 228,146,127 |
|
June | 35,028,166 |
| | 45.68 |
| | 193,117,961 |
|
Total | 104,852,744 |
| | | | |
| | | | | |
|
| | | | | | | | | |
Calendar month | Total number of shares repurchased (1) |
| | Weighted-average price paid per share |
| | Maximum number of shares that may yet be repurchased under the authorization |
|
January | 26,675,407 |
| | $ | 50.40 |
| | 216,240,829 |
|
February | 26,845,918 |
| | 47.33 |
| | 189,394,911 |
|
March | 21,846,195 |
| | 36.26 |
| | 167,548,716 |
|
Total | 75,367,520 |
| | | | |
| | | | | |
| |
(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 October 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.2019. Unless modified or revoked by the Board, these authorizations dothis authorization does not expire. |
A list of exhibits to this Form 10-Q is set forth below.
The Company’s SEC file number is 001-2979. On and before November 2, 1998, the Company filed documents with the SEC under the name Norwest Corporation. The former Wells Fargo & Company filed documents under SEC file number 001-6214.
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| | | | | | | | | | | | |
Exhibit Number | | Description | | Location |
| | | | Incorporated by reference to Exhibit 3(a) to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019.Filed herewith. |
| | | | Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed March 1, 2018. |
4(a) | | See Exhibits 3(a) and 3(b). | | |
4(b) | | The Company agrees to furnish upon request to the Commission a copy of each instrument defining the rights of holders of senior and subordinated debt of the Company. | | |
| | | | 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: | | |
| | | | Filed herewith. |
| | | | Filed herewith. |
| | | | Filed herewith. |
| | | | Furnished herewith. |
| | | | Furnished herewith. |
101.INS | | Inline XBRL Instance Document | | 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. |
104 | | Cover Page Interactive Data File | | Formatted as Inline XBRL and contained in Exhibit 101. |
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: August 2, 2019May 5, 2020 WELLS FARGO & COMPANY
Richard D. Levy
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| |
By: | /s/ Muneera S. Carr |
| Muneera S. Carr |
| Executive Vice President, and Controller Chief Accounting Officer and Controller |
| (Principal Accounting Officer) |