WELLS FARGO & COMPANY/MN0000072971false2020Q312/31DECACommon Stock, par value $1-2/37.5% Non-Cumulative Perpetual Convertible Class A Preferred Stock, Series LDep Shares, 1/1000th int. per share ofMN0000072971false2021Q212/31NYSE5.85% Fixed-to-Floating Rate Non-Cumulative Perpetual Class A Preferred Stock, Series NDep Shares, 1/1000th int. per share ofQ6.625% Fixed-to-Floating Rate Non-Cumulative Perpetual Class A Preferred Stock, Series ODep Shares, 1/1000th int. per share of Non-Cumulative Perpetual Class A Preferred Stock, Series PDep Shr, 1/1000th int. per shr of 5.85% Fix-to-Float Non-Cum. Perpetual Class A Pref. Stock, Ser. QDep Shr, 1/1000th int. per shr of 6.625% Fix-to-Float Non-Cum. Perpetual Class A Pref. Stock, Ser. RDep Shares, 1/1000th int. per share of Non-Cumulative Perpetual Class A Preferred Stock, Series TDep Shares, 1/1000th int. per share of Non-Cumulative Perpetual Class A Preferred Stock, Series VDep Shares, 1/1000th int. per share of Non-Cumulative Perpetual Class A Preferred Stock, Series WDep Shares, 1/1000th int. per share of Non-Cumulative Perpetual Class A Preferred Stock, Series XDep Shares, 1/1000th int. per share of Non-Cumulative Perpetual Class A Preferred Stock, Series YDep Shares, 1/1000th int. per share of Non-Cumulative Perpetual Class A Preferred Stock, Series ZDep Shares, 1/1000th int. per share of Non-Cumulative Perpetual Class A Preferred Stock, Series AAGuarantee 5.80% Fix-to-Float Normal Wachovia Income Trust Securities of Wachovia Capital Trust IIIGuarantee of Medium-Term Notes, Series A, due October 30, 2028 of Wells Fargo Finance LLC0790260189,434156,86019,88416,6061,68897214817125,05341,93601.66661.66665,481,811,4745,481,811,4749,000,000,0009,000,000,0001,349,294,5921,347,385,5375.65.8010101000000000111.471556TheR1.66661.6666The 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.180.1082020-01-012029-12-312020-01-012029-12-312034-01-012047-12-312022-01-012047-12-312020-01-012029-12-312020-01-012029-12-312047-01-012072-12-312047-01-012058-12-312045-01-012046-12-312045-01-012046-12-312020-01-012040-12-312020-01-012049-12-310.5281.560.5850.3221.490.3640.110.94.9the greater of three-month LIBOR plus 0.93% and 5.56975the greater of three-month LIBOR plus 0.93% and 5.56975three-month LIBOR plus 3.77three-month LIBOR plus 3.777.507.505.205.205.1255.1255.255.255.855.856.6256.6255.905.906.006.005.8755.8756.006.005.705.705.505.505.6255.6254.75000Ifissue.0.1080.6591.5100.8990.5162.6800.6550.412.16.57.212.18.02.03.32.80.110.95.00If issued, preference shares would be limited to one vote per shareNaNNaN7.008.007.008.009.3010.308.909.908.709.708.509.5010.0011.009.0010.002201.31.50000072971us-gaap:LoansReceivableMember2019-01-012019-09-300000072971wfc:WealthAndInvestmentManagementMemberus-gaap:AssetManagement1Member2019-01-012019-09-30shareNaNNaN0000072971us-gaap:CustomerRelationshipsMember2021-06-300000072971us-gaap:USStatesAndPoliticalSubdivisionsMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Member2021-06-300000072971wfc:TrailingCommissionMember2020-04-012020-06-30
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 SeptemberJune 30, 20202021
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 94104
(Address of principal executive offices) (Zip Code) 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 | NYSENew York Stock Exchange (NYSE) |
7.5% Non-Cumulative Perpetual Convertible Class A Preferred Stock, Series L | WFC.PRL | NYSE |
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series N | WFC.PRN | NYSE |
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series O | WFC.PRO | NYSE |
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series P | WFC.PRP | NYSE |
Depositary Shares, each representing a 1/1000th interest in a share of 5.85% Fixed-to-Floating Rate Non-Cumulative Perpetual Class A Preferred Stock, Series Q | WFC.PRQ | NYSE |
Depositary Shares, each representing a 1/1000th interest in a share of 6.625% Fixed-to-Floating Rate Non-Cumulative Perpetual Class A Preferred Stock, Series R | WFC.PRR | NYSE |
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series T | WFC.PRT | NYSE |
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series V | WFC.PRV | NYSE |
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series W | WFC.PRW | NYSE |
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series X | WFC.PRX | NYSE |
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series Y | WFC.PRY | NYSE |
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series Z | WFC.PRZ | NYSE |
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series AA | WFC.PRA | NYSE |
GuaranteeDepositary Shares, each representing a 1/1000th interest in a share of 5.80% Fixed-to-Floating Rate Normal Wachovia Income Trust Securities of Wachovia Capital Trust IIINon-Cumulative Perpetual Class A Preferred Stock, Series CC | WFC/TPWFC.PRC | 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 |
| | October 23, 2020July 19, 2021 |
Common stock, $1-2/3 par value | | 4,134,489,5714,106,410,513 |
| | | | | | | | | | | | | | |
FORM 10-Q | |
CROSS-REFERENCE INDEX | |
PART I | Financial Information | |
Item 1. | Financial Statements | Page |
| Consolidated Statement of Income | |
| Consolidated Statement of Comprehensive Income | |
| Consolidated Balance Sheet | |
| Consolidated Statement of Changes in Equity | |
| Consolidated Statement of Cash Flows | |
| Notes to Financial Statements | |
| 1 | | — | Summary of Significant Accounting Policies | |
| 2 | | — | Restructuring Charges | |
| 3 | | — | Cash, Loan and Dividend Restrictions | |
| 4 | | — | Trading Activities | |
| 5 | | — | Available-for-Sale and Held-to-Maturity Debt Securities | |
| 6 | | — | Loans and Related Allowance for Credit Losses | |
| 7 | | — | Leasing Activity | |
| 8 | | — | Equity Securities | |
| 9 | | — | Other Assets | |
| 10 | | — | Securitizations and Variable Interest Entities | |
| 11 | | — | Mortgage Banking Activities | |
| 12 | | — | Intangible Assets | |
| 13 | | — | Guarantees, Pledged Assets and Collateral, and Other Commitments | |
| 14 | | — | Legal Actions | |
| 15 | | — | Derivatives | |
| 16 | | — | Fair Values of Assets and Liabilities | |
| 17 | | — | Preferred Stock | |
| 18 | | — | Revenue from Contracts with Customers | |
| 19 | | — | Employee Benefits and Other Expenses | |
| 20 | | — | Earnings and Dividends Per Common Share | |
| 21 | | — | Other Comprehensive Income | |
| 22 | | — | Operating Segments | |
| 23 | | — | Regulatory and Agency Capital Requirements | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations (Financial Review) | |
| Summary Financial Data | |
| Overview | |
| Earnings Performance | |
| Balance Sheet Analysis | |
| Off-Balance Sheet Arrangements | |
| Risk Management | |
| Capital Management | |
| Regulatory Matters | |
| Critical Accounting Policies | |
| Current Accounting Developments | |
| Forward-Looking Statements | |
| Risk Factors | |
| Glossary of Acronyms | |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | |
Item 4. | Controls and Procedures | |
| | |
PART II | Other Information | |
Item 1. | Legal Proceedings | |
Item 1A. | Risk Factors | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |
Item 6. | Exhibits | |
| | | | |
Signature | |
| | | | | | | | | | | | | | |
FORM 10-Q | |
CROSS-REFERENCE INDEX | |
PART I | Financial Information | |
Item 1. | Financial Statements | Page |
| Consolidated Statement of Income | |
| Consolidated Statement of Comprehensive Income | |
| Consolidated Balance Sheet | |
| Consolidated Statement of Changes in Equity | |
| Consolidated Statement of Cash Flows | |
| Notes to Financial Statements | |
| 1 | | — | Summary of Significant Accounting Policies | |
| 2 | | — | Trading Activities | |
| 3 | | — | Available-for-Sale and Held-to-Maturity Debt Securities | |
| 4 | | — | Loans and Related Allowance for Credit Losses | |
| 5 | | — | Leasing Activity | |
| 6 | | — | Equity Securities | |
| 7 | | — | Other Assets | |
| 8 | | — | Securitizations and Variable Interest Entities | |
| 9 | | — | Mortgage Banking Activities | |
| 10 | | — | Intangible Assets | |
| 11 | | �� | Guarantees and Other Commitments | |
| 12 | | — | Pledged Assets and Collateral | |
| 13 | | — | Legal Actions | |
| 14 | | — | Derivatives | |
| 15 | | — | Fair Values of Assets and Liabilities | |
| 16 | | — | Preferred Stock | |
| 17 | | — | Revenue from Contracts with Customers | |
| 18 | | — | Employee Benefits and Other Expenses | |
| 19 | | — | Restructuring Charges | |
| 20 | | — | Earnings and Dividends Per Common Share | |
| 21 | | — | Other Comprehensive Income | |
| 22 | | — | Operating Segments | |
| 23 | | — | Regulatory Capital Requirements and Other Restrictions | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations (Financial Review) | |
| Summary Financial Data | |
| Overview | |
| Earnings Performance | |
| Balance Sheet Analysis | |
| Off-Balance Sheet Arrangements | |
| Risk Management | |
| Capital Management | |
| Regulatory Matters | |
| Critical Accounting Policies | |
| Current Accounting Developments | |
| Forward-Looking Statements | |
| Risk Factors | |
| Glossary of Acronyms | |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | |
Item 4. | Controls and Procedures | |
| | |
PART II | Other Information | |
Item 1. | Legal Proceedings | |
Item 1A. | Risk Factors | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |
Item 6. | Exhibits | |
| | | | |
Signature | |
PART I – FINANCIAL INFORMATION
FINANCIAL REVIEW
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Summary Financial Data | | | | | | | | | | | | | | | |
| | | | | | | % Change | | | | | | |
| Quarter ended | | Sep 30, 2020 from | | Nine months ended | | |
($ in millions, except per share amounts) | Sep 30, 2020 | | June 30, 2020 | | Sep 30, 2019 | | Jun 30, 2020 | | Sep 30, 2019 | | Sep 30, 2020 | | Sep 30, 2019 | | % Change |
For the Period | | | | | | | | | | | | | | | |
Wells Fargo net income (loss) | $ | 2,035 | | | (2,379) | | | 4,610 | | | NM | | (56) | | | $ | 309 | | | 16,676 | | | (98) | % |
Wells Fargo net income (loss) applicable to common stock | 1,720 | | | (2,694) | | | 4,037 | | | NM | | (57) | | | (932) | | | 15,392 | | | NM |
Diluted earnings (loss) per common share | 0.42 | | | (0.66) | | | 0.92 | | | NM | | (54) | | | (0.23) | | | 3.43 | | | NM |
Profitability ratios (annualized): | | | | | | | | | | | | | | | |
Wells Fargo net income (loss) to average assets (ROA) | 0.42 | % | | (0.49) | | | 0.95 | | | NM | | (56) | | | 0.02 | % | | 1.17 | | | (98) | |
Wells Fargo net income (loss) applicable to common stock to average Wells Fargo common stockholders’ equity (ROE) | 4.22 | | | (6.63) | | | 9.00 | | | NM | | (53) | | | (0.76) | | | 11.64 | | | NM |
Return on average tangible common equity (ROTCE) (1) | 5.10 | | | (8.00) | | | 10.70 | | | NM | | (52) | | | (0.91) | | | 13.85 | | | NM |
Efficiency ratio (2) | 80.7 | | | 81.6 | | | 69.1 | | | (1) | | | 17 | | | 78.7 | | | 65.3 | | | 21 | |
Total revenue | $ | 18,862 | | | 17,836 | | | 22,010 | | | 6 | | | (14) | | | $ | 54,415 | | | 65,203 | | | (17) | |
Pre-tax pre-provision profit (PTPP) (3) | 3,633 | | | 3,285 | | | 6,811 | | | 11 | | | (47) | | | 11,587 | | | 22,639 | | | (49) | |
Dividends declared per common share | 0.10 | | | 0.51 | | | 0.51 | | | (80) | | | (80) | | | 1.12 | | | 1.41 | | | (21) | |
Average common shares outstanding | 4,123.8 | | | 4,105.5 | | | 4,358.5 | | | — | | | (5) | | | 4,111.4 | | | 4,459.1 | | | (8) | |
Diluted average common shares outstanding (4) | 4,132.2 | | | 4,105.5 | | | 4,389.6 | | | 1 | | | (6) | | | 4,111.4 | | | 4,489.5 | | | (8) | |
Average loans | $ | 931,708 | | | 971,266 | | | 949,760 | | | (4) | | | (2) | | | $ | 955,918 | | | 949,076 | | | 1 | |
Average assets | 1,947,672 | | | 1,948,939 | | | 1,927,415 | | | — | | | 1 | | | 1,949,085 | | | 1,903,873 | | | 2 | |
Average total deposits | 1,399,028 | | | 1,386,656 | | | 1,291,375 | | | 1 | | | 8 | | | 1,374,638 | | | 1,274,246 | | | 8 | |
Average consumer and small business banking deposits (5) | 897,779 | | | 857,943 | | | 749,529 | | | 5 | | | 20 | | | 845,977 | | | 745,370 | | | 13 | |
Net interest margin | 2.13 | % | | 2.25 | | | 2.66 | | | (5) | | | (20) | | | 2.32 | % | | 2.79 | | | (17) | |
At Period End | | | | | | | | | | | | | | | |
Debt securities | $ | 476,421 | | | 472,580 | | | 503,528 | | | 1 | | | (5) | | | $ | 476,421 | | | 503,528 | | | (5) | |
Loans | 920,082 | | | 935,155 | | | 954,915 | | | (2) | | | (4) | | | 920,082 | | | 954,915 | | | (4) | |
Allowance for loan losses | 19,463 | | | 18,926 | | | 9,715 | | | 3 | | | 100 | | | 19,463 | | | 9,715 | | | 100 | |
Goodwill | 26,387 | | | 26,385 | | | 26,388 | | | — | | | — | | | 26,387 | | | 26,388 | | | — | |
Equity securities | 51,169 | | | 52,494 | | | 63,884 | | | (3) | | | (20) | | | 51,169 | | | 63,884 | | | (20) | |
Assets | 1,922,220 | | | 1,968,766 | | | 1,943,950 | | | (2) | | | (1) | | | 1,922,220 | | | 1,943,950 | | | (1) | |
Deposits | 1,383,215 | | | 1,410,711 | | | 1,308,495 | | | (2) | | | 6 | | | 1,383,215 | | | 1,308,495 | | | 6 | |
Common stockholders’ equity | 161,109 | | | 159,322 | | | 172,827 | | | 1 | | | (7) | | | 161,109 | | | 172,827 | | | (7) | |
Wells Fargo stockholders’ equity | 181,173 | | | 179,386 | | | 193,304 | | | 1 | | | (6) | | | 181,173 | | | 193,304 | | | (6) | |
Total equity | 182,032 | | | 180,122 | | | 194,416 | | | 1 | | | (6) | | | 182,032 | | | 194,416 | | | (6) | |
Tangible common equity (1) | 133,179 | | | 131,329 | | | 144,481 | | | 1 | | | (8) | | | 133,179 | | | 144,481 | | | (8) | |
Capital ratios (6): | | | | | | | | | | | | | | | |
Total equity to assets | 9.47 | % | | 9.15 | | | 10.00 | | | 3 | | | (5) | | | 9.47 | % | | 10.00 | | | (5) | |
Risk-based capital: | | | | | | | | | | | | | | | |
Common Equity Tier 1 | 11.38 | | | 10.97 | | | 11.61 | | | 4 | | | (2) | | | 11.38 | | | 11.61 | | | (2) | |
Tier 1 capital | 13.05 | | | 12.60 | | | 13.23 | | | 4 | | | (1) | | | 13.05 | | | 13.23 | | | (1) | |
Total capital | 15.71 | | | 15.29 | | | 15.96 | | | 3 | | | (2) | | | 15.71 | | | 15.96 | | | (2) | |
Tier 1 leverage | 8.05 | | | 7.95 | | | 8.68 | | | 1 | | | (7) | | | 8.05 | | | 8.68 | | | (7) | |
Common shares outstanding | 4,132.5 | | | 4,119.6 | | | 4,269.1 | | | — | | | (3) | | | 4,132.5 | | | 4,269.1 | | | (3) | |
Book value per common share (7) | $ | 38.99 | | | 38.67 | | | 40.48 | | | 1 | | | (4) | | | $ | 38.99 | | | 40.48 | | | (4) | |
Tangible book value per common share (1)(7) | 32.23 | | | 31.88 | | | 33.84 | | | 1 | | | (5) | | | 32.23 | | | 33.84 | | | (5) | |
Headcount (8) | 274,900 | | | 276,000 | | | 272,700 | | | — | | | 1 | | | 274,900 | | | 272,700 | | | 1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Summary Financial Data (1) | | | | | | | | | | | | | | | |
| Quarter ended | | Jun 30, 2021 % Change from | | Six months ended | | |
($ in millions, except per share amounts) | Jun 30, 2021 | | Mar 31, 2021 | | Jun 30, 2020 | | Mar 31, 2021 | | Jun 30, 2020 | | Jun 30, 2021 | | Jun 30, 2020 | | % Change |
Selected Income Statement Data | | | | | | | | | | | | | | | |
Total revenue | $ | 20,270 | | | 18,532 | | | 18,286 | | | 9 | % | | 11 | | | $ | 38,802 | | | 36,459 | | | 6 | % |
Noninterest expense | 13,341 | | | 13,989 | | | 14,551 | | | (5) | | | (8) | | | 27,330 | | | 27,599 | | | (1) | |
Pre-tax pre-provision profit (PTPP) (2) | 6,929 | | | 4,543 | | | 3,735 | | | 53 | | | 86 | | | 11,472 | | | 8,860 | | | 29 | |
Provision for credit losses | (1,260) | | | (1,048) | | | 9,534 | | | (20) | | NM | | (2,308) | | | 13,539 | | | NM |
Wells Fargo net income (loss) | 6,040 | | | 4,636 | | | (3,846) | | | 30 | | | NM | | 10,676 | | | (2,930) | | | NM |
Wells Fargo net income (loss) applicable to common stock | 5,743 | | | 4,256 | | | (4,160) | | | 35 | | | NM | | 9,999 | | | (3,856) | | | NM |
Common Share Data | | | | | | | | | | | | | | | |
Diluted earnings (loss) per common share | 1.38 | | | 1.02 | | | (1.01) | | | 35 | | | NM | | 2.40 | | | (0.94) | | | NM |
Dividends declared per common share | 0.10 | | | 0.10 | | | 0.51 | | | — | | | (80) | | | 0.20 | | | 1.02 | | | (80) | |
Common shares outstanding | 4,108.0 | | | 4,141.1 | | | 4,119.6 | | | (1) | | | — | | | | | | | |
Average common shares outstanding | 4,124.6 | | | 4,141.3 | | | 4,105.5 | | | — | | | — | | | 4,132.9 | | | 4,105.2 | | | 1 | |
Diluted average common shares outstanding (3) | 4,156.1 | | | 4,171.0 | | | 4,105.5 | | | — | | | 1 | | | 4,164.6 | | | 4,105.2 | | | 1 | |
Book value per common share (4) | $ | 41.74 | | | 40.27 | | | 38.31 | | | 4 | | | 9 | | | | | | | |
Tangible book value per common share (4)(5) | 34.95 | | | 33.49 | | | 31.52 | | | 4 | | | 11 | | | | | | | |
Selected Equity Data (period-end) | | | | | | | | | | | | | | | |
Total equity | 193,127 | | | 188,034 | | | 178,635 | | | 3 | | | 8 | | | | | | | |
Common stockholders' equity | 171,453 | | | 166,748 | | | 157,835 | | | 3 | | | 9 | | | | | | | |
Tangible common equity (5) | 143,577 | | | 138,702 | | | 129,842 | | | 4 | | | 11 | | | | | | | |
Performance Ratios | | | | | | | | | | | | | | | |
Return on average assets (ROA) (6) | 1.25 | % | | 0.97 | | | (0.79) | | | | | | | 1.11 | % | | (0.30) | | | |
Return on average equity (ROE) (7) | 13.6 | | | 10.3 | | | (10.2) | | | | | | | 12.0 | | | (4.7) | | | |
Return on average tangible common equity (ROTCE) (5) | 16.3 | | | 12.4 | | | (12.3) | | | | | | | 14.4 | | | (5.7) | | | |
Efficiency ratio (8) | 66 | | | 75 | | | 80 | | | | | | | 70 | | | 76 | | | |
Net interest margin on a taxable-equivalent basis | 2.02 | | | 2.05 | | | 2.25 | | | | | | | 2.04 | | | 2.42 | | | |
Selected Balance Sheet Data (average) | | | | | | | | | | | | | | | |
Loans | $ | 854,747 | | | 873,439 | | | 971,266 | | | (2) | | | (12) | | | $ | 864,041 | | | 968,156 | | | (11) | |
Assets | 1,939,879 | | | 1,934,425 | | | 1,947,180 | | | — | | | — | | | 1,937,167 | | | 1,948,025 | | | (1) | |
Deposits | 1,435,824 | | | 1,393,472 | | | 1,386,656 | | | 3 | | | 4 | | | 1,414,765 | | | 1,362,309 | | | 4 | |
Selected Balance Sheet Data (period-end) | | | | | | | | | | | | | | | |
Debt securities | 533,565 | | | 505,826 | | | 472,580 | | | 5 | | | 13 | | | | | | | |
Loans | 852,300 | | | 861,572 | | | 935,155 | | | (1) | | | (9) | | | | | | | |
Allowance for credit losses for loans | 16,391 | | | 18,043 | | | 20,436 | | | (9) | | | (20) | | | | | | | |
Equity securities | 64,547 | | | 57,702 | | | 50,776 | | | 12 | | | 27 | | | | | | | |
Assets | 1,945,996 | | | 1,957,264 | | | 1,967,048 | | | (1) | | | (1) | | | | | | | |
Deposits | 1,440,472 | | | 1,437,119 | | | 1,410,711 | | | — | | | 2 | | | | | | | |
| | | | | | | | | | | | | | | |
Headcount (#) (period-end) | 259,196 | | | 264,513 | | | 276,013 | | | (2) | | | (6) | | | | | | | |
Capital and other metrics | | | | | | | | | | | | | | | |
Risk-based capital ratios and components (9): | | | | | | | | | | | | | | | |
Standardized Approach: | | | | | | | | | | | | | | | |
Common equity tier 1 (CET1) | 12.07 | % | | 11.85 | | | 10.97 | | | | | | | | | | | |
Tier 1 capital | 13.71 | | | 13.54 | | | 12.60 | | | | | | | | | | | |
Total capital | 16.84 | | | 16.75 | | | 15.88 | | | | | | | | | | | |
Risk-weighted assets (RWAs) (in billions) | 1,188.7 | | | 1,179.0 | | | 1,213.1 | | | 1 | | | (2) | | | | | | | |
Advanced Approach: | | | | | | | | | | | | | | | |
Common equity tier 1 (CET1) | 12.73 | % | | 12.60 | | | 11.13 | | | | | | | | | | | |
Tier 1 capital | 14.47 | | | 14.39 | | | 12.79 | | | | | | | | | | | |
Total capital | 16.88 | | | 16.92 | | | 15.29 | | | | | | | | | | | |
Risk-weighted assets (RWAs) (in billions) | $ | 1,126.5 | | | 1,109.4 | | | 1,195.4 | | | 2 | | | (6) | | | | | | | |
Tier 1 leverage ratio | 8.53 | % | | 8.36 | | | 7.95 | | | | | | | | | | | |
Supplementary Leverage Ratio (SLR) | 7.09 | | | 7.91 | | | 7.52 | | | | | | | | | | | |
Total Loss Absorbing Capacity (TLAC) Ratio (10) | 25.11 | | | 25.18 | | | 25.33 | | | | | | | | | | | |
Liquidity Coverage Ratio (LCR) (11) | 123 | | | 127 | | | 129 | | | | | | | | | | | |
NM – Not meaningful
(1)In second quarter 2021, we elected to change our accounting method for low-income housing tax credit investments and elected to change the presentation of investment tax credits related to solar energy investments. Prior period financial statement line items have been revised to conform with the current period presentation. Prior period risk-based capital and certain other regulatory related metrics were not revised. For additional information, see the “Recent Developments” section and Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report.
(2)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.
(3)In second quarter 2020, diluted average common shares outstanding equaled average common shares outstanding because our securities convertible into common shares had an anti-dilutive effect.
(4)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.
(5)Tangible common equity is a non-GAAP financial measure and represents total equity less preferred equity, noncontrolling interests, goodwill, certain identifiable intangible assets (other than mortgage servicing rights) and goodwill and other intangibles on nonmarketable equity securities, 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 management, investors, and others to assess the Company’s use of equity. For additional information, including a corresponding reconciliation to generally accepted accounting principles (GAAP) financial measures, see the “Capital Management – Tangible Common Equity” section in this Report.
(2)(6)Represents Wells Fargo net income (loss) divided by average assets.
(7)Represents Wells Fargo net income (loss) applicable to common stock divided by average common stockholders’ equity.
(8)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)For second quarter 2020 and the nine months ended September 30, 2020, diluted average common shares outstanding equaled average common shares outstanding because our securities convertible into common shares had an anti-dilutive effect.
(5)Consumer and small business banking deposits are total deposits excluding mortgage escrow and wholesale deposits.
(6)(9)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, the information presented reflects fully phased-in common equity tier 1 capital,CET1, tier 1 capital, and risk-weighted assets,RWAs, but reflects total capital still in accordance with Transition Requirements. Seetransition requirements. For additional information, see the “Capital Management” section and Note 23 (Regulatory Capital Requirements and Agency Capital Requirements)Other Restrictions) to Financial Statements in this Report for additional information.Report.
(7)(10)Book value per common share is common stockholders’ equityRepresents TLAC divided by common shares outstanding. Tangible book value per common sharethe greater of RWAs determined under the Standardized and Advanced Approaches, which is tangible common equityour binding TLAC ratio.
(11)Represents high-quality liquid assets divided by common shares outstanding.
(8)In third quarter 2020, we began reporting headcount rather than active, full-time equivalent employees. Prior period balances have been revised to conform withprojected net cash outflows, as each is defined under the current period presentation.
LCR rule.
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, 2019 (20192020 (2020 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.
Wells Fargo & Company is a diversified, community-basedleading financial services company with $1.92that has approximately $1.9 trillion in assets. Foundedassets, proudly serves one in 1852three U.S. households and headquarteredmore than 10% of small businesses in San Francisco, wethe U.S., and is the leading middle market banking provider in the U.S. We provide a diversified set of banking, investment and mortgage products and services, as well as consumer and commercial finance, through 7,200 locations, more than 13,000 ATMs, digital (online, mobileour four reportable operating segments: Consumer Banking and social),Lending, Commercial Banking, Corporate and contact centers (phone, emailInvestment Banking, and correspondence),Wealth and we have offices in 31 countries and territories to support customers who conduct business in the global economy. We serve one in three households in the United States andInvestment Management. Wells Fargo ranked No. 3037 on Fortune’s 20202021 rankings of America’s largest corporations. We ranked fourth in assets and third in the market value of our common stock among all U.S. banks at SeptemberJune 30, 2020.2021.
Wells Fargo’s top priority remains meeting its regulatory requirements to build the right foundation for all that lies ahead. ToThe Company is subject to a number of consent orders and other regulatory actions, which may require the Company, among other things, to undertake certain changes to its business, operations, products and services, and risk management practices. Addressing these regulatory actions is expected to take multiple years, and we may experience issues or delays along the way in satisfying their requirements. Issues or delays with one regulatory action could affect our progress on others, and failure to satisfy the requirements of a regulatory action on a timely basis could result in additional penalties, enforcement actions, and other negative consequences. While we still have significant work to do, that, the Company is committingcommitted to devoting the resources necessary to ensure that we operate with the strongeststrong business practices and controls, maintain the highest level of integrity, and have an appropriate culture in place.
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. The Company continues to engage with the FRB as the Company works to address the consent order provisions. The consent order also requires the Company, following the FRB’s acceptance and approval of the plans and the Company’s adoption and implementation of the plans, to complete an initial third-party 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 is measured on a two-quarter daily average basis to allow for management of temporary fluctuations. 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, to the extent the Company chooses to exclude these exposures from the asset cap, 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. As of June 30, 2021, the Company had not excluded these exposures from the asset cap. 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. The Company continues to work to address the provisions of the consent orders. The Company has not yet satisfied certain aspects of the consent orders, and as a result, we believe regulators may impose additional penalties or take other enforcement actions.
Retail Sales Practices Matters
In 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 a top priority to rebuild trust through a comprehensive action plan that includes making things right for our customers, employees, 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 to customers resulting from these matters and providing remediation.
For additional information regarding retail sales practices matters, including related legal matters, see the “Risk Factors”
section in our 20192020 Form 10-K and Note 1413 (Legal Actions) to Financial Statements in this Report.
Other 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, provide remediation as appropriate, and implement additional operational and control procedures. We are working with our regulatory agencies in this effort. We have previously disclosed key areas of focus as part of our rebuilding trust efforts and are in the process of providing remediation for those matters. We have accrued for the reasonablyprobable and estimable remediation costs related to 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 our ongoing reviews continue, it is possible that in the future we 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. For additional information, including related legal and regulatory risk, see the “Risk Factors” section in our 20192020 Form 10-K and Note 1413 (Legal Actions) to Financial Statements in this Report.
Recent Developments
Change in Accounting Policies
Efficiency InitiativesIn second quarter 2021, we retroactively changed the accounting for certain tax-advantaged investments to better align the financial statement presentation with the economic impact of these investments.
Specifically, we elected to change our accounting for low-income housing tax credit investments from the equity method of accounting to the proportional amortization method. Under the proportional amortization method, the amortization of the investments and the related tax impacts are recognized in income tax expense. Previously, we recognized the amortization of the investments in other noninterest income and the related tax impacts were recognized in income tax expense.
Also, we elected to change the presentation of investment tax credits related to solar energy investments. We are pursuing various initiatives to reducereclassified the investment tax credits on our consolidated balance sheet from accrued expenses and createother liabilities to a more efficientreduction of the carrying value of the investment balances. We also reclassified the investment tax credits from income tax expense to interest income for solar energy leases or noninterest income for solar energy equity investments.
These changes had a nominal impact on net income and streamlined organization. Actions from these initiatives may include reorganizing and simplifying business processes and structures, reducing headcount, optimizing third-party spending, and rationalizing our branch and administrative locations, which may include consolidations and closures. We have established dedicated teams in each of our lines of businesses and functions to focusretained earnings on an organizedannual basis; however, our quarterly results were affected in both the second and structured approach for implementing these initiatives. The evaluationthird quarters of potential actions will continue in future periods. In third quarter
2020 we recognized $718 million of restructuring charges, predominantly severance costs, within noninterest expense in our consolidated statement of income as a resultdue to the impact of these initiatives.changes on the estimated annual effective income tax rate applied to each quarter. These changes also improved our efficiency ratio and generally increased our effective income tax rate from what was previously reported.
Prior period financial statement line items have been revised to conform with the current period presentation. Prior period risk-based capital and certain other regulatory related metrics were not revised. For additional information, including the financial statement line items impacted by these changes, see Note 2 (Restructuring Charges)1 (Summary of Significant Accounting Policies) to Financial Statements in this Report.
COVID-19 Pandemic
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 have taken comprehensive steps to help customers, employees and communities.
We have strong levels of capital and liquidity, and we remain focused on delivering for our customers and communities to get through these unprecedented times.
PAYCHECK PROTECTION PROGRAM The Coronavirus Aid, Relief, and Economic Security Act (CARES Act)created funding for the Small Business Administration’s (SBA) loan program providing forgiveness of up to the full principal amount of qualifying loans guaranteed under a new program called the Paycheck Protection Program (PPP). The intent of the PPP is to provideSince its inception, we have funded approximately 282,000 loans to small businesses in order to keep their employees on the payroll and make certain other eligible payments. Loans granted under the PPP are guaranteed by the SBAtotaling approximately $14.0 billion, and are fully forgivable if used for qualifying expenses such as payroll, mortgage interest, rent and utilities. If the loans are not forgiven, they must be repaid over a
term not to exceed five years. Under the PPP, through September 30, 2020, we funded $10.5 billion in loans to more than 190,000 borrowers$5.8 billion of principal forgiveness has been provided on qualifying PPP loans. We deferred approximately $420 million of SBA processing fees in 2020 that will be recognized as interest income over the terms of the loans. We voluntarily committed to donate all of the gross processing fees received from PPP loans funded in 2020. Through June 30, 2021, we donated approximately $260 million of these processing fees. We funded approximately $3.5 billion of PPP loans in the first half of 2021 and deferred $417approximately $270 million of related SBA processing fees that will be recognized as interest income over the termterms of the loans. As of September 30, 2020, $10.2 billion of principal remained outstanding on these PPP loans. We have committed to donating the grossdonate any net profits from processing fees received from funding PPP loans to non-profit organizations that support small businesses as the fees are recognizedfunded in earnings. Through September 30, 2020, we donated $51 million of processing fees.
SBA SIX-MONTH PAYMENT ASSISTANCE Under2021. For additional information on the CARES Act and the SBA will make principal and interest payments on behalf of certain borrowers for six months. DuringPPP, see the first nine months of“Overview – Recent Developments – COVID-19 Pandemic” section in our 2020 over 20,000 of our lending customers were eligible for SBA payment assistance, and we received $393 million in payments from the SBA.Form 10-K.
LIBOR Transition
Due to uncertainty surrounding the suitability and sustainability of theThe London Interbank Offered Rate (LIBOR), central banks and global regulators have called for financial market participants to prepare for the discontinuation of LIBOR by the end of 2021. LIBOR is a widely-referenced benchmark rate, which is published in five currencies and a range of tenors, and seeks to estimate the cost at which banks can borrow on an unsecured basis from other banks. WeOn March 5, 2021, the Financial Conduct Authority and the administrator of LIBOR announced that LIBOR will no longer be published on a representative basis after December 31, 2021, with the exception of the most commonly used tenors of U.S. dollar (USD) LIBOR which will no longer be published on a representative basis after June 30, 2023. Federal banking agencies have issued guidance strongly encouraging banking organizations to cease using USD LIBOR as a significant numberreference rate in new contracts as soon as practicable and in any event by December 31, 2021.
For information on the amount of our LIBOR-linked assets and liabilities, 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 awell as initiatives created by our LIBOR Transition Office (LTO) in February 2018, with senior management and Board oversight. The LTO is responsible for developing a coordinated strategyan effort to transition the IBOR-linked contracts and processes 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 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 ARRC and the Bank of England’s Working Group on Sterling Risk-Free Reference Rates. We continue to assessmitigate the risks and related impacts associated with
a transition away from IBORs. SeeLIBOR, see the “Risk Factors”“Overview – Recent Developments – LIBOR Transition” section in the 2019our 2020 Form 10-K for additional
10-K. For information regarding the risks and potential impact of a benchmark rate, such as LIBOR or any other referenced financial metric being significantly changed, replaced or discontinued.
On March 12, 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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 Note 1 (Summary of Significant Accounting Policies) to Financial Statements 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,discontinued, see the “Risk Management –
Asset/Liability Management – LIBOR Transition”Factors” section in our 20192020 Form 10-K.
Capital Actions and Restrictions
OnIn June 2021, the Company completed the 2021 Comprehensive Capital Analysis and Review (CCAR) stress test process. We expect our stress capital buffer (SCB) for the period October 1, 2021, through September 30, 2020,2022, to be 3.10%. The FRB has indicated it will publish our final SCB by August 31, 2021.
On July 27, 2021, the Board of Governors of the Federal Reserve System (FRB) announced that it was extending through fourth quarter 2020 measures it announced on June 25, 2020, prohibiting large bank holding companies (BHCs) subjectapproved an increase to the
FRB’s Company's third quarter 2021 common stock dividend to $0.20 per share. Additionally, our capital plan rule, including Wells Fargo, from making capital distributions, subject to certain limited exceptions. includes gross common share repurchases of approximately $18 billion for the four-quarter period beginning third quarter 2021 through second quarter 2022.
For additional information about capital planning, including the FRB’s recent prohibition on capital distributions, see the “Capital Management – Capital Planning and Stress Testing” section in this Report.
In October 2020,June 2021, we issued $1.2 billionredeemed the remaining $350 million of our Non-Cumulative Perpetual Class A Preferred Stock, Series AA.
N. In July 2021, we issued $1.25 billion of our Preferred Stock, Series DD.
Business and Portfolio Divestitures
On February 23, 2021, we announced an agreement to sell Wells Fargo Asset Management for a purchase price of $2.1 billion. As part of the transaction, we will own a 9.9% equity interest and continue to serve as a client and distribution partner. On March 23, 2021, we announced an agreement to sell our Corporate Trust Services business for a purchase price of $750 million. Both transactions are expected to close in the second half of 2021, subject to customary closing conditions.
In the first half of 2021, we completed substantially all of the previously announced sale of our student loan portfolio, which resulted in gains in other noninterest income of $208 million and $147 million in first and second quarter 2021, respectively, and goodwill write-downs in other noninterest expense of $104 million and $79 million in first and second quarter 2021, respectively.
Financial Performance
| Consolidated Financial Highlights | Consolidated Financial Highlights | | | | | | Consolidated Financial Highlights | | | | | |
| | Quarter ended Sep 30, | | Nine months ended Sep 30, | | | Quarter ended Jun 30, | | Six months ended Jun 30, | |
($ in millions) | ($ in millions) | 2020 | | 2019 | | $ Change | | % Change | | 2020 | | 2019 | | $ Change | | % Change | ($ in millions) | 2021 | | 2020 | | $ Change | | % Change | | 2021 | | 2020 | | $ Change | | % Change |
Selected income statement data | Selected income statement data | | Selected income statement data | |
Net interest income | Net interest income | $ | 9,368 | | | 11,625 | | | (2,257) | | | (19) | % | | $ | 30,560 | | | 36,031 | | | (5,471) | | | (15) | % | Net interest income | $ | 8,800 | | | 9,892 | | | (1,092) | | | (11) | % | | $ | 17,608 | | | 21,222 | | | (3,614) | | | (17) | % |
Noninterest income | Noninterest income | 9,494 | | | 10,385 | | | (891) | | | (9) | | | 23,855 | | | 29,172 | | | (5,317) | | | (18) | | Noninterest income | 11,470 | | | 8,394 | | | 3,076 | | | 37 | | | 21,194 | | | 15,237 | | | 5,957 | | | 39 | |
Total revenue | Total revenue | 18,862 | | | 22,010 | | | (3,148) | | | (14) | | | 54,415 | | | 65,203 | | | (10,788) | | | (17) | | Total revenue | 20,270 | | | 18,286 | | | 1,984 | | | 11 | | | 38,802 | | | 36,459 | | | 2,343 | | | 6 | |
Net charge-offs | | Net charge-offs | 379 | | | 1,114 | | | (735) | | | (66) | | | 902 | | | 2,055 | | | (1,153) | | | (56) | |
Change in the allowance for credit losses | | Change in the allowance for credit losses | (1,639) | | | 8,420 | | | (10,059) | | | NM | | (3,210) | | | 11,484 | | | (14,694) | | | NM |
Provision for credit losses | Provision for credit losses | 769 | | | 695 | | | 74 | | | 11 | | | 14,308 | | | 2,043 | | | 12,265 | | | 600 | | Provision for credit losses | (1,260) | | | 9,534 | | | (10,794) | | | NM | | (2,308) | | | 13,539 | | | (15,847) | | | NM |
Noninterest expense | Noninterest expense | 15,229 | | | 15,199 | | | 30 | | | — | | | 42,828 | | | 42,564 | | | 264 | | | 1 | | Noninterest expense | 13,341 | | | 14,551 | | | (1,210) | | | (8) | | | 27,330 | | | 27,599 | | | (269) | | | (1) | |
Income tax expense (benefit) | 645 | | | 1,304 | | | (659) | | | (51) | | | (3,113) | | | 3,479 | | | (6,592) | | | NM | |
Income tax expense | | Income tax expense | 1,445 | | | (2,001) | | | 3,446 | | | NM | | 2,346 | | | (1,648) | | | 3,994 | | | NM |
Wells Fargo net income | Wells Fargo net income | 2,035 | | | 4,610 | | | (2,575) | | | (56) | | | 309 | | | 16,676 | | | (16,367) | | | (98) | | Wells Fargo net income | 6,040 | | | (3,846) | | | 9,886 | | | NM | | 10,676 | | | (2,930) | | | 13,606 | | | NM |
Wells Fargo net income (loss) applicable to common stock | 1,720 | | | 4,037 | | | (2,317) | | | (57) | | | (932) | | | 15,392 | | | (16,324) | | | NM | |
Wells Fargo net income applicable to common stock | | Wells Fargo net income applicable to common stock | 5,743 | | | (4,160) | | | 9,903 | | | NM | | 9,999 | | | (3,856) | | | 13,855 | | | NM |
|
NM – Not meaningful
Wells Fargo hadIn second quarter 2021, we generated $6.0 billion of net income of $2.0 billion in third quarter 2020 withand diluted earnings per common share (EPS) of $0.42,$1.38, compared with a net incomeloss of $4.6$3.8 billion and diluted EPSloss per common share of $0.92$1.01 in the same period a year ago. Financial performance for thirdsecond quarter 2020 was impacted by $961 million of customer remediation accruals and $718 million of restructuring charges included in noninterest expense. Also, in third quarter 20202021, compared with the same period a year ago:ago, included the following:
•total revenue decreasedincreased due to lowerhigher net interest incomegains from equity securities and lower noninterest income driven by lower other noninterestmortgage banking income, partially offset by higher mortgage banking noninterestlower net interest income;
•provision for credit losses decreased reflecting lower net charge-offs and improvements in the economic environment;
•noninterest expense increaseddecreased due to higher restructuring charges, partially offset by lower operating losses;losses and lower professional and outside services expense;
•average loans decreased due to lowerpaydowns exceeding originations in the residential mortgage and credit card portfolios, weak demand for commercial loans, and the reclassification of student loans, included in other consumer loans;loans, to loans held for sale after the announced sale of the portfolio in fourth quarter 2020; and
•average deposits increased ondriven by growth in interest-bearingconsumer deposits in the Consumer Banking and noninterest-bearing deposits.Lending and Wealth
and Investment Management (WIM) operating segments due to higher levels of liquidity and savings for consumer customers reflecting government stimulus programs and payment deferral programs, as well as continued economic uncertainty associated with the COVID-19 pandemic, partially offset by actions taken to manage under the asset cap which reduced deposits in the Corporate and Investment Banking operating segment and Corporate.
Wells Fargo hadIn the first half of 2021, we generated $10.7 billion of net income and diluted EPS of $309 million in the first nine months$2.40, compared with a net loss of 2020 with$2.9 billion and diluted loss per common share of $0.23, compared with net income of $16.7 billion and diluted EPS of $3.43$0.94 in the same period a year ago. Financial performance for the first nine monthshalf of 2020 was impacted by $14.3 billion of provision for credit losses, $1.9 billion of customer remediation accruals and $718 million of restructuring charges included in noninterest expense. Also, in the first nine months of 20202021, compared with the same period a year ago:ago, included the following:
•total revenue decreasedincreased due to higher net gains from equity securities and mortgage banking income, partially offset by lower net interest income andincome;
•provision for credit losses decreased reflecting lower noninterest incomenet charge-offs due to better portfolio credit quality driven by lower other noninterest income and net gains (losses) from equity securities;improvements in the economic environment;
•noninterest expense increaseddecreased due to higher restructuring charges,lower operating losses and occupancylower professional and outside services expense, partially offset by lowerhigher personnel and advertising and promotion expense;
•average loans increaseddecreased due to higherpaydowns exceeding originations in the residential mortgage and credit card portfolios, weak demand for commercial loans, partially offset by lowerand the reclassification of student loans, included in other consumer loans;loans, to loans held for sale after the announced sale of the portfolio in fourth quarter 2020; and
•average deposits increased ondriven by growth in interest-bearingconsumer deposits in the Consumer Banking and noninterest-bearing deposits.Lending and Wealth and Investment Management (WIM) operating segments due to higher levels of liquidity and savings for consumer customers reflecting government stimulus programs and payment deferral programs, as well as continued economic uncertainty associated with the COVID-19 pandemic, partially offset by actions taken to manage under the asset cap which reduced deposits in the Corporate and Investment Banking operating segment and Corporate.
Capital and Liquidity
We maintained a solidstrong capital position in the first nine monthshalf of 2020,2021, with total equity of $182.0$193.1 billion at SeptemberJune 30, 2020,2021, compared with $188.0$185.7 billion at December 31, 2019.2020. Our liquidity and regulatory capital ratios remained strong at SeptemberJune 30, 2020, and included:2021, including:
•our liquidity coverage ratio (LCR) was 134% at September 30, 2020,123%, which continued to exceed the regulatory minimum of 100%;
•our Common Equity Tier 1 (CET1) ratio was 11.38% at September 30, 2020,12.07%, which continued to exceed both the regulatory minimumrequirement of 9% and our current internal target of 10%;target; and
•our eligible external total loss absorbing capacity (TLAC) as a percentage of total risk-weighted assets was 25.76% as of September 30, 2020,25.11%, compared with the regulatory minimumrequirement of 22.0%21.50%.
See the “Capital Management” and the “Risk Management – Asset/Liability Management – Liquidity Risk and Funding” sections in this Report for additional information regarding our capital and liquidity, including the calculation of our regulatory capital and liquidity amounts.
Credit Quality
Credit quality was affected byreflected the improving economic impact that the COVID-19 pandemic had on our customer base.environment.
•The allowance for credit losses (ACL) for loans of $20.5$16.4 billion at SeptemberJune 30, 2020, increased $10.02021, decreased $3.3 billion from December 31, 2019. We had a $11.3 billion increase in the ACL for loans in the first nine months of 2020, partially offset by a $1.3 billion decrease as a result of our adoption on January 1, 2020, of ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): 2020.
•Measurement of Credit Losses on Financial Instruments (CECL). Our provision for credit losses for loans was $14.1$(2.4) billion in the first nine monthshalf of 2020, up2021, down from $2.0$13.4 billion in the same period a year ago. The increasedecrease in the ACL for loans and the provision for credit losses in the first half of 2021, compared with the same period a year ago, reflected improvements in current and forecasted economic conditions due to the COVID-19 pandemic.conditions.
•The allowance coverage for total loans was 2.22%1.92% at SeptemberJune 30, 2020,2021, compared with 1.09%2.22% at December 31, 2019.2020.
•Net loan charge-offs were $683 million, or 0.29% (annualized) of average loans, in third quarter 2020, compared with $645 million a year ago (0.27%)(annualized).
•Commercial portfolio net loan charge-offs were $356$80 million, or 297 basis points (annualized) of average commercial loans, in thirdsecond quarter 2020,2021, compared with net loan charge-offs of $139$602 million, or 1144 basis points, (annualized), a year ago, predominantly driven by increased losses in our commercial and industrial and commercial real estate loan portfolios.
•Consumer portfolio net loan charge-offs were $327 million, or 30 basis points (annualized) of average consumer loans, in third quarter 2020, compared with net loan charge-offs of $506 million, or 46 basis points (annualized),the same period a year ago, predominantly driven by lower losses in our credit card, automobilecommercial and other revolving creditindustrial portfolio primarily within the oil, gas and installmentpipelines industry, and in the real estate mortgage portfolio.
•Consumer portfolio net loan charge-offs were $301 million, or 32 basis points of average consumer loans, in second quarter 2021, compared with net loan charge-offs of $511 million, or 48 basis points, in the same period a year ago, driven by lower losses in all consumer loan portfolios partially offset by lower recoveriesas a result of payment deferral activities, government stimulus programs instituted in response to the COVID-19 pandemic, and the sale of a portion of our residential real estate portfolios.student loan portfolio.
•Nonperforming assets (NPAs) of $8.2$7.5 billion at SeptemberJune 30, 2020, increased $2.52021, decreased $1.4 billion, or 45%16%, from December 31, 2019,2020, predominantly driven by increasesdecreases in our commercial and industrial portfolio reflecting improvements in the economic environment, and commercial real estatedecreases in our residential mortgage nonaccrual loans.portfolios reflecting loan sales and payment deferral activities. NPAs represented 0.89%0.88% of total loans at SeptemberJune 30, 2020.2021.
Wells Fargo net income for thirdsecond quarter 20202021 was $2.0$6.0 billion ($0.421.38 diluted earnings per common share)EPS), compared with $4.6a net loss of $3.8 billion ($0.921.01 diluted loss per common share) in the same period a year ago. Net income decreasedincreased in thirdsecond quarter 2020,2021, compared with the same period a year ago, predominantly due to a $2.3$10.8 billion decrease in provision for credit losses, a $3.1 billion increase in noninterest income, and a $1.2 billion decrease in noninterest expense, partially offset by a $3.4 billion increase in income tax expense and a $1.1 billion decrease in net interest income and an $891 million decrease in noninterest income, partially offset by a $659 million decrease in income tax expense.income.
Net income for the first nine monthshalf of 20202021 was $309 million,$10.7 billion ($2.40 diluted EPS), compared with $16.7a net loss of $2.9 billion ($0.94 diluted loss per common share) in the same period a year ago. Net income decreasedincreased in the first nine monthshalf of 2020,2021, compared with the same period a year ago, predominantly due to a $12.3$15.8 billion increasedecrease in our provision for credit losses a $5.5 billion decrease in net interest income, and a $5.3$6.0 billion decreaseincrease in noninterest income, partially offset by a $6.6$4.0 billion increase in income tax expense and a $3.6 billion decrease in income tax expense.net interest income.
Net Interest Income
Net interest income and net interest margin decreased in both the second quarter and first half of 2021, compared with the same periods a year ago, due to the impact of lower interest rates and lower loan balances reflecting soft demand and elevated prepayments, as well as higher mortgage-backed securities premium amortization, partially offset by a reduction in long-term debt. The first half of 2021 was also impacted by unfavorable hedge ineffectiveness accounting results.
Table 1 presents the individual components of net interest income and the net interest margin. Net interest income and 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 Septemberended June 30, 20202021 and 2019.
Net interest income and net interest margin decreased in both the third quarter and first nine months of 2020, compared with the same periods a year ago, driven by unfavorable impacts of repricing due to the lower interest rate environment and higher mortgage-backed securities (MBS) premium amortization. The decrease in third quarter 2020 also reflected changes in the mix of earning assets and funding sources.2020.
For additional information about net interest income and net interest margin, see the “Earnings Performance – Net Interest Income” section in our 20192020 Form 10-K.
Earnings Performance (continued)
Table 1: Average Balances, Yields and Rates Paid (Taxable-Equivalent Basis) (1)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended September 30, |
| | | | | 2020 | | | | | | 2019 |
(in millions) | Average balance | | Yields/ rates | | Interest income/ expense | | Average balance | | Yields/ rates | | Interest income/ expense |
Earning assets | | | | | | | | | | | |
Interest-earning deposits with banks | $ | 216,958 | | | 0.11 | % | | $ | 58 | | | 134,017 | | | 2.14 | % | | $ | 723 | |
Federal funds sold and securities purchased under resale agreements | 80,431 | | | 0.02 | | | 3 | | | 105,919 | | | 2.24 | | | 599 | |
Debt securities (2): | | | | | | | | | | | |
Trading debt securities | 88,021 | | | 2.49 | | | 548 | | | 94,737 | | | 3.35 | | | 794 | |
Available-for-sale debt securities: | | | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | 8,126 | | | 0.87 | | | 18 | | | 16,040 | | | 2.14 | | | 87 | |
Securities of U.S. states and political subdivisions | 32,326 | | | 2.16 | | | 174 | | | 43,305 | | | 3.78 | | | 409 | |
Mortgage-backed securities: | | | | | | | | | | | |
Federal agencies | 131,182 | | | 2.03 | | | 665 | | | 154,134 | | | 2.77 | | | 1,066 | |
Residential and commercial | 4,051 | | | 1.58 | | | 16 | | | 5,175 | | | 4.02 | | | 52 | |
Total mortgage-backed securities | 135,233 | | | 2.02 | | | 681 | | | 159,309 | | | 2.81 | | | 1,118 | |
Other debt securities | 41,871 | | | 1.84 | | | 194 | | | 42,435 | | | 4.12 | | | 440 | |
Total available-for-sale debt securities | 217,556 | | | 1.96 | | | 1,067 | | | 261,089 | | | 3.14 | | | 2,054 | |
Held-to-maturity debt securities: | | | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | 48,582 | | | 2.14 | | | 261 | | | 44,770 | | | 2.18 | | | 247 | |
Securities of U.S. states and political subdivisions | 14,145 | | | 3.84 | | | 136 | | | 8,688 | | | 4.01 | | | 87 | |
Federal agency and other mortgage-backed securities | 113,646 | | | 1.85 | | | 525 | | | 95,434 | | | 2.54 | | | 606 | |
Other debt securities | 11 | | | 1.66 | | | — | | | 50 | | | 3.58 | | | — | |
Total held-to-maturity debt securities | 176,384 | | | 2.09 | | | 922 | | | 148,942 | | | 2.52 | | | 940 | |
Total debt securities | 481,961 | | | 2.10 | | | 2,537 | | | 504,768 | | | 3.00 | | | 3,788 | |
Mortgage loans held for sale (3) | 29,426 | | | 3.15 | | | 232 | | | 22,743 | | | 4.08 | | | 232 | |
Loans held for sale (3) | 1,597 | | | 1.60 | | | 7 | | | 1,964 | | | 4.17 | | | 20 | |
Loans: | | | | | | | | | | | |
Commercial loans: | | | | | | | | | | | |
Commercial and industrial – U.S. | 270,998 | | | 2.53 | | | 1,721 | | | 284,278 | | | 4.21 | | | 3,015 | |
Commercial and industrial – Non-U.S. | 64,048 | | | 2.14 | | | 344 | | | 64,016 | | | 3.67 | | | 593 | |
Real estate mortgage | 123,391 | | | 2.81 | | | 870 | | | 121,819 | | | 4.36 | | | 1,338 | |
Real estate construction | 22,216 | | | 3.13 | | | 175 | | | 20,686 | | | 5.13 | | | 267 | |
Lease financing | 17,091 | | | 3.41 | | | 146 | | | 19,266 | | | 4.34 | | | 209 | |
Total commercial loans | 497,744 | | | 2.60 | | | 3,256 | | | 510,065 | | | 4.22 | | | 5,422 | |
Consumer loans: | | | | | | | | | | | |
Real estate 1-4 family first mortgage | 290,607 | | | 3.24 | | | 2,357 | | | 288,383 | | | 3.74 | | | 2,699 | |
Real estate 1-4 family junior lien mortgage | 26,018 | | | 4.13 | | | 270 | | | 31,454 | | | 5.66 | | | 448 | |
Credit card | 35,965 | | | 11.70 | | | 1,057 | | | 39,204 | | | 12.55 | | | 1,240 | |
Automobile | 48,718 | | | 4.90 | | | 600 | | | 46,286 | | | 5.13 | | | 599 | |
Other revolving credit and installment | 32,656 | | | 5.25 | | | 431 | | | 34,368 | | | 6.95 | | | 601 | |
Total consumer loans | 433,964 | | | 4.33 | | | 4,715 | | | 439,695 | | | 5.06 | | | 5,587 | |
Total loans (3) | 931,708 | | | 3.41 | | | 7,971 | | | 949,760 | | | 4.61 | | | 11,009 | |
Equity securities | 25,185 | | | 1.61 | | | 100 | | | 37,075 | | | 2.68 | | | 249 | |
Other | 6,974 | | | (0.02) | | | — | | | 6,695 | | | 1.77 | | | 30 | |
Total earning assets | $ | 1,774,240 | | | 2.45 | % | | $ | 10,908 | | | 1,762,941 | | | 3.76 | % | | $ | 16,650 | |
Funding sources | | | | | | | | | | | |
Deposits: | | | | | | | | | | | |
Interest-bearing checking | $ | 49,608 | | | 0.07 | % | | $ | 8 | | | 59,310 | | | 1.39 | % | | $ | 208 | |
Market rate and other savings | 803,942 | | | 0.08 | | | 157 | | | 711,334 | | | 0.66 | | | 1,182 | |
Savings certificates | 24,808 | | | 0.83 | | | 52 | | | 32,751 | | | 1.72 | | | 142 | |
Other time deposits | 46,920 | | | 0.64 | | | 75 | | | 91,820 | | | 2.42 | | | 561 | |
Deposits in non-U.S. offices | 33,992 | | | 0.25 | | | 22 | | | 51,709 | | | 1.77 | | | 231 | |
Total interest-bearing deposits | 959,270 | | | 0.13 | | | 314 | | | 946,924 | | | 0.97 | | | 2,324 | |
Short-term borrowings | 57,292 | | | (0.08) | | | (12) | | | 121,842 | | | 2.07 | | | 635 | |
Long-term debt | 222,862 | | | 1.86 | | | 1,038 | | | 229,689 | | | 3.09 | | | 1,780 | |
Other liabilities | 27,679 | | | 1.33 | | | 92 | | | 26,173 | | | 2.06 | | | 135 | |
Total interest-bearing liabilities | 1,267,103 | | | 0.45 | | | 1,432 | | | 1,324,628 | | | 1.46 | | | 4,874 | |
Portion of noninterest-bearing funding sources | 507,137 | | | — | | | — | | | 438,313 | | | — | | | — | |
Total funding sources | $ | 1,774,240 | | | 0.32 | | | 1,432 | | | 1,762,941 | | | 1.10 | | | 4,874 | |
Net interest margin and net interest income on a taxable-equivalent basis (4) | | | 2.13 | % | | $ | 9,476 | | | | | 2.66 | % | | $ | 11,776 | |
Noninterest-earning assets | | | | | | | | | | | |
Cash and due from banks | $ | 21,991 | | | | | | | 19,199 | | | | | |
Goodwill | 26,388 | | | | | | | 26,413 | | | | | |
Other | 125,053 | | | | | | | 118,862 | | | | | |
Total noninterest-earning assets | $ | 173,432 | | | | | | | 164,474 | | | | | |
Noninterest-bearing funding sources | | | | | | | | | | | |
Deposits | $ | 439,758 | | | | | | | 344,451 | | | | | |
Other liabilities | 57,961 | | | | | | | 58,241 | | | | | |
Total equity | 182,850 | | | | | | | 200,095 | | | | | |
Noninterest-bearing funding sources used to fund earning assets | (507,137) | | | | | | | (438,313) | | | | | |
Net noninterest-bearing funding sources | $ | 173,432 | | | | | | | 164,474 | | | | | |
Total assets | $ | 1,947,672 | | | | | | | 1,927,415 | | | | | |
| | | | | | | | | | | |
Average prime rate | | | 3.25 | % | | | | | | 5.31 | % | | |
Average three-month London Interbank Offered Rate (LIBOR) | | | 0.25 | | | | | | | 2.20 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended June 30, |
| 2021 | | 2020 |
(in millions) | Average balance | | Interest income/ expense | | Interest rates | | Average balance | | Interest income/ expense | | Interest rates |
Assets | | | | | | | | | | | |
Interest-earning deposits with banks | $ | 255,237 | | | 70 | | | 0.11 | % | | $ | 176,327 | | | 51 | | | 0.12 | % |
Federal funds sold and securities purchased under resale agreements | 72,513 | | | 3 | | | 0.02 | | | 76,384 | | | 2 | | | 0.01 | |
Debt securities: | | | | | | | | | | | |
Trading debt securities | 84,612 | | | 501 | | | 2.37 | | | 96,049 | | | 663 | | | 2.76 | |
Available-for-sale debt securities | 192,418 | | | 686 | | | 1.43 | | | 232,444 | | | 1,416 | | | 2.44 | |
Held-to-maturity debt securities | 237,812 | | | 1,106 | | | 1.86 | | | 166,804 | | | 968 | | | 2.33 | |
Total debt securities | 514,842 | | | 2,293 | | | 1.78 | | | 495,297 | | | 3,047 | | | 2.46 | |
Loans held for sale (2) | 27,173 | | | 193 | | | 2.85 | | | 27,610 | | | 237 | | | 3.45 | |
Loans: | | | | | | | | | | | |
Commercial loans: | | | | | | | | | | | |
Commercial and industrial – U.S. | 248,153 | | | 1,627 | | | 2.63 | | | 310,104 | | | 1,990 | | | 2.58 | |
Commercial and industrial – Non-U.S. | 70,764 | | | 374 | | | 2.12 | | | 72,241 | | | 445 | | | 2.48 | |
Real estate mortgage | 120,526 | | | 823 | | | 2.74 | | | 123,525 | | | 930 | | | 3.03 | |
Real estate construction | 22,015 | | | 169 | | | 3.08 | | | 21,361 | | | 179 | | | 3.37 | |
Lease financing | 15,565 | | | 174 | | | 4.49 | | | 18,087 | | | 210 | | | 4.62 | |
Total commercial loans | 477,023 | | | 3,167 | | | 2.66 | | | 545,318 | | | 3,754 | | | 2.77 | |
Consumer loans: | | | | | | | | | | | |
Residential mortgage – first lien | 247,815 | | | 1,957 | | | 3.16 | | | 280,878 | | | 2,414 | | | 3.44 | |
Residential mortgage – junior lien | 20,457 | | | 211 | | | 4.13 | | | 27,700 | | | 292 | | | 4.24 | |
Credit card | 34,211 | | | 979 | | | 11.48 | | | 36,539 | | | 979 | | | 10.78 | |
Auto | 50,014 | | | 563 | | | 4.52 | | | 48,441 | | | 601 | | | 4.99 | |
Other consumer | 25,227 | | | 233 | | | 3.70 | | | 32,390 | | | 440 | | | 5.45 | |
Total consumer loans | 377,724 | | | 3,943 | | | 4.18 | | | 425,948 | | | 4,726 | | | 4.45 | |
Total loans (2) | 854,747 | | | 7,110 | | | 3.33 | | | 971,266 | | | 8,480 | | | 3.50 | |
Equity securities | 29,773 | | | 133 | | | 1.77 | | | 27,417 | | | 117 | | | 1.70 | |
Other | 9,103 | | | 1 | | | 0.04 | | | 7,715 | | | — | | | (0.02) | |
Total interest-earning assets | 1,763,388 | | | 9,803 | | | 2.23 | | | 1,782,016 | | | 11,934 | | | 2.69 | |
Cash and due from banks | 24,336 | | | — | | | | | 21,227 | | | — | | | |
Goodwill | 26,213 | | | — | | | | | 26,384 | | | — | | | |
Other (3) | 125,942 | | | — | | | | | 117,553 | | | — | | | |
Total noninterest-earning assets | 176,491 | | | — | | | | | 165,164 | | | — | | | |
Total assets | $ | 1,939,879 | | | 9,803 | | | | | 1,947,180 | | | 11,934 | | | |
Liabilities | | | | | | | | | | | |
Deposits: | | | | | | | | | | | |
Demand deposits | $ | 452,184 | | | 31 | | | 0.03 | % | | $ | 53,592 | | | 9 | | | 0.07 | % |
Savings deposits | 422,650 | | | 32 | | | 0.03 | | | 799,949 | | | 311 | | | 0.16 | |
Time deposits | 37,116 | | | 29 | | | 0.32 | | | 86,971 | | | 224 | | | 1.04 | |
Deposits in non-U.S offices | 29,796 | | | — | | | — | | | 37,682 | | | 41 | | | 0.44 | |
Total interest-bearing deposits | 941,746 | | | 92 | | | 0.04 | | | 978,194 | | | 585 | | | 0.24 | |
Short-term borrowings | 48,505 | | | (11) | | | (0.09) | | | 63,535 | | | (17) | | | (0.10) | |
Long-term debt | 181,101 | | | 712 | | | 1.57 | | | 232,395 | | | 1,237 | | | 2.13 | |
Other liabilities | 27,718 | | | 101 | | | 1.47 | | | 29,947 | | | 116 | | | 1.53 | |
Total interest-bearing liabilities | 1,199,070 | | | 894 | | | 0.30 | | | 1,304,071 | | | 1,921 | | | 0.59 | |
Noninterest-bearing demand deposits | 494,078 | | | — | | | | | 408,462 | | | — | | | |
Other noninterest-bearing liabilities | 55,763 | | | — | | | | | 50,575 | | | — | | | |
Total noninterest-bearing liabilities | 549,841 | | | — | | | | | 459,037 | | | — | | | |
Total liabilities | 1,748,911 | | | 894 | | | | | 1,763,108 | | | 1,921 | | | |
Total equity (3) | 190,968 | | | — | | | | | 184,072 | | | — | | | |
Total liabilities and equity | $ | 1,939,879 | | | 894 | | | | | 1,947,180 | | | 1,921 | | | |
| | | | | | | | | | | |
Interest rate spread on a taxable-equivalent basis (3) | | | | | 1.93 | % | | | | | | 2.10 | % |
Net interest income and net interest margin on a taxable-equivalent basis (3) | | | $ | 8,909 | | | 2.02 | % | | | | $ | 10,013 | | | 2.25 | % |
(continued on following page)
Earnings Performance (continued)
(continued from previous page)
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| |
| Six months ended June 30, | | | | | | |
| | | | | 2021 | | | | | | 2020 | | | | | | |
(in millions) | Average balance | | Interest income/ expense | | Interest rates | | Average balance | | Interest income/ expense | | Interest rates | | | | | | |
Assets | | | | | | | | | | | | | | | | | |
Interest-earning deposits with banks | $ | 239,425 | | | 127 | | | 0.11 | % | | $ | 152,924 | | | 432 | | | 0.57 | % | | | | | | |
Federal funds sold and securities purchased under resale agreements | 72,332 | | | 10 | | | 0.03 | | | 91,969 | | | 382 | | | 0.84 | | | | | | | |
Debt securities: | | | | | | | | | | | | | | | | | |
Trading debt securities | 85,990 | | | 1,035 | | | 2.41 | | | 98,556 | | | 1,433 | | | 2.91 | | | | | | | |
Available-for-sale debt securities | 199,642 | | | 1,527 | | | 1.53 | | | 242,501 | | | 3,226 | | | 2.66 | | | | | | | |
Held-to-maturity debt securities | 227,377 | | | 2,133 | | | 1.88 | | | 162,348 | | | 1,977 | | | 2.44 | | | | | | | |
Total debt securities | 513,009 | | | 4,695 | | | 1.83 | | | 503,405 | | | 6,636 | | | 2.64 | | | | | | | |
Loans held for sale (2) | 30,843 | | | 524 | | | 3.41 | | | 24,728 | | | 446 | | | 3.62 | | | | | | | |
Loans: | | | | | | | | | | | | | | | | | |
Commercial loans: | | | | | | | | | | | | | | | | | |
Commercial and industrial – U.S. | 250,510 | | | 3,223 | | | 2.59 | | | 299,303 | | | 4,536 | | | 3.05 | | | | | | | |
Commercial and industrial – Non-U.S. | 68,106 | | | 712 | | | 2.11 | | | 71,451 | | | 1,001 | | | 2.82 | | | | | | | |
Real estate mortgage | 120,629 | | | 1,635 | | | 2.73 | | | 122,656 | | | 2,117 | | | 3.47 | | | | | | | |
Real estate construction | 21,886 | | | 335 | | | 3.09 | | | 20,819 | | | 408 | | | 3.94 | | | | | | | |
Lease financing | 15,681 | | | 358 | | | 4.55 | | | 18,687 | | | 443 | | | 4.74 | | | | | | | |
Total commercial loans | 476,812 | | | 6,263 | | | 2.64 | | | 532,916 | | | 8,505 | | | 3.21 | | | | | | | |
Consumer loans: | | | | | | | | | | | | | | | | | |
Residential mortgage – first lien | 256,982 | | | 4,025 | | | 3.13 | | | 287,217 | | | 5,064 | | | 3.53 | | | | | | | |
Residential mortgage – junior lien | 21,384 | | | 439 | | | 4.13 | | | 28,303 | | | 662 | | | 4.70 | | | | | | | |
Credit card | 34,705 | | | 2,012 | | | 11.69 | | | 38,147 | | | 2,186 | | | 11.53 | | | | | | | |
Auto | 49,351 | | | 1,123 | | | 4.59 | | | 48,350 | | | 1,197 | | | 4.98 | | | | | | | |
Other consumer | 24,807 | | | 466 | | | 3.79 | | | 33,223 | | | 974 | | | 5.89 | | | | | | | |
Total consumer loans | 387,229 | | | 8,065 | | | 4.18 | | | 435,240 | | | 10,083 | | | 4.65 | | | | | | | |
Total loans (2) | 864,041 | | | 14,328 | | | 3.33 | | | 968,156 | | | 18,588 | | | 3.85 | | | | | | | |
Equity securities | 29,604 | | | 270 | | | 1.82 | | | 32,475 | | | 325 | | | 2.00 | | | | | | | |
Other | 9,299 | | | 2 | | | 0.04 | | | 7,573 | | | 14 | | | 0.37 | | | | | | | |
Total interest-earning assets | 1,758,553 | | | 19,956 | | | 2.28 | | | 1,781,230 | | | 26,823 | | | 3.02 | | | | | | | |
Cash and due from banks | 24,466 | | | — | | | | | 20,899 | | | — | | | | | | | | | |
Goodwill | 26,297 | | | — | | | | | 26,386 | | | — | | | | | | | | | |
Other(3) | 127,851 | | | — | | | | | 119,510 | | | — | | | | | | | | | |
Total noninterest-earning assets | 178,614 | | | — | | | | | 166,795 | | | — | | | | | | | | | |
Total assets | $ | 1,937,167 | | | 19,956 | | | | | 1,948,025 | | | 26,823 | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | | |
Deposits: | | | | | | | | | | | | | | | | | |
Demand deposits | $ | 448,495 | | | 64 | | | 0.03 | % | | $ | 58,339 | | | 144 | | | 0.50 | % | | | | | | |
Savings deposits | 417,153 | | | 64 | | | 0.03 | | | 781,044 | | | 1,289 | | | 0.33 | | | | | | | |
Time deposits | 40,552 | | | 76 | | | 0.38 | | | 99,524 | | | 690 | | | 1.39 | | | | | | | |
Deposits in non-U.S. offices | 30,260 | | | — | | | — | | | 45,508 | | | 204 | | | 0.90 | | | | | | | |
Total interest-bearing deposits | 936,460 | | | 204 | | | 0.04 | | | 984,415 | | | 2,327 | | | 0.48 | | | | | | | |
Short-term borrowings | 53,764 | | | (20) | | | (0.08) | | | 83,256 | | | 275 | | | 0.66 | | | | | | | |
Long-term debt | 189,673 | | | 1,738 | | | 1.83 | | | 230,699 | | | 2,477 | | | 2.15 | | | | | | | |
Other liabilities | 28,294 | | | 210 | | | 1.49 | | | 30,073 | | | 258 | | | 1.71 | | | | | | | |
Total interest-bearing liabilities | 1,208,191 | | | 2,132 | | | 0.35 | | | 1,328,443 | | | 5,337 | | | 0.81 | | | | | | | |
Noninterest-bearing demand deposits | 478,305 | | | — | | | | | 377,894 | | | — | | | | | | | | | |
Other noninterest-bearing liabilities | 60,645 | | | — | | | | | 55,706 | | | — | | | | | | | | | |
Total noninterest-bearing liabilities | 538,950 | | | — | | | | | 433,600 | | | — | | | | | | | | | |
Total liabilities | 1,747,141 | | | 2,132 | | | | | 1,762,043 | | | 5,337 | | | | | | | | | |
Total equity (3) | 190,026 | | | — | | | | | 185,982 | | | — | | | | | | | | | |
Total liabilities and equity | $ | 1,937,167 | | | 2,132 | | | | | 1,948,025 | | | 5,337 | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Interest rate spread on a taxable-equivalent basis (3) | | | | | 1.93 | % | | | | | | 2.21 | % | | | | | | |
Net interest margin and net interest income on a taxable-equivalent basis (3) | | | $ | 17,824 | | | 2.04 | % | | | | $ | 21,486 | | | 2.42 | % | | | | | | |
(1)Yields/The average balance amounts represent amortized costs. The interest rates are based on interest income or expense amounts for the period and are annualized. Interest rates and amounts include the effects of hedge and risk management activities associated with the respective asset and liability categories.
(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.
(3)Nonaccrual loans and any related income are included in their respective loan categories.
(4)(3)Includes taxable-equivalent adjustments of $108$109 million and $151$121 million for the quarters ended SeptemberJune 30, 20202021 and 2019,2020, respectively, and $367$216 million and $469$264 million for the first nine monthshalf of 20202021 and 2019,2020, respectively, predominantly related to tax-exempt income on certain loans and securities.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, |
| | | | | 2020 | | | | | | 2019 |
(in millions) | Average balance | | Yields/ rates | | Interest income/ expense | | Average balance | | Yields/ rates | | Interest income/ expense |
Earning assets | | | | | | | | | | | |
Interest-earning deposits with banks | $ | 174,425 | | | 0.37 | % | | $ | 490 | | | 138,591 | | | 2.27 | % | | $ | 2,352 | |
Federal funds sold and securities purchased under resale agreements | 88,095 | | | 0.58 | | | 385 | | | 95,945 | | | 2.36 | | | 1,692 | |
Debt securities (2): | | | | | | | | | | | |
Trading debt securities | 95,018 | | | 2.78 | | | 1,981 | | | 90,229 | | | 3.46 | | | 2,338 | |
Available-for-sale debt securities: | | | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | 9,448 | | | 1.06 | | | 75 | | | 15,178 | | | 2.17 | | | 246 | |
Securities of U.S. states and political subdivisions | 35,656 | | | 2.90 | | | 775 | | | 45,787 | | | 3.95 | | | 1,355 | |
Mortgage-backed securities: | | | | | | | | | | | |
Federal agencies | 144,425 | | | 2.37 | | | 2,564 | | | 151,806 | | | 2.95 | | | 3,359 | |
Residential and commercial | 4,376 | | | 2.25 | | | 74 | | | 5,571 | | | 4.12 | | | 172 | |
Total mortgage-backed securities | 148,801 | | | 2.36 | | | 2,638 | | | 157,377 | | | 2.99 | | | 3,531 | |
Other debt securities | 40,220 | | | 2.67 | | | 805 | | | 44,746 | | | 4.33 | | | 1,451 | |
Total available-for-sale debt securities | 234,125 | | | 2.45 | | | 4,293 | | | 263,088 | | | 3.34 | | | 6,583 | |
Held-to-maturity debt securities: | | | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | 47,701 | | | 2.16 | | | 770 | | | 44,762 | | | 2.19 | | | 734 | |
Securities of U.S. states and political subdivisions | 13,950 | | | 3.83 | | | 401 | | | 7,277 | | | 4.03 | | | 220 | |
Federal agency and other mortgage-backed securities | 105,393 | | | 2.19 | | | 1,728 | | | 95,646 | | | 2.64 | | | 1,894 | |
Other debt securities | 17 | | | 2.64 | | | — | | | 56 | | | 3.81 | | | 1 | |
Total held-to-maturity debt securities | 167,061 | | | 2.31 | | | 2,899 | | | 147,741 | | | 2.57 | | | 2,849 | |
Total debt securities | 496,204 | | | 2.47 | | | 9,173 | | | 501,058 | | | 3.13 | | | 11,770 | |
Mortgage loans held for sale (3) | 25,264 | | | 3.48 | | | 659 | | | 18,401 | | | 4.20 | | | 579 | |
Loans held for sale (3) | 1,577 | | | 2.19 | | | 26 | | | 1,823 | | | 4.72 | | | 64 | |
Loans: | | | | | | | | | | | |
Commercial loans: | | | | | | | | | | | |
Commercial and industrial – U.S. | 289,799 | | | 2.88 | | | 6,257 | | | 285,305 | | | 4.39 | | | 9,360 | |
Commercial and industrial – Non U.S. | 68,965 | | | 2.61 | | | 1,345 | | | 63,252 | | | 3.82 | | | 1,808 | |
Real estate mortgage | 122,903 | | | 3.25 | | | 2,987 | | | 121,703 | | | 4.51 | | | 4,101 | |
Real estate construction | 21,288 | | | 3.66 | | | 583 | | | 21,557 | | | 5.31 | | | 856 | |
Lease financing | 18,152 | | | 4.07 | | | 554 | | | 19,262 | | | 4.56 | | | 659 | |
Total commercial loans | 521,107 | | | 3.01 | | | 11,726 | | | 511,079 | | | 4.39 | | | 16,784 | |
Consumer loans: | | | | | | | | | | | |
Real estate 1-4 family first mortgage | 288,355 | | | 3.43 | | | 7,421 | | | 286,600 | | | 3.86 | | | 8,296 | |
Real estate 1-4 family junior lien mortgage | 27,535 | | | 4.52 | | | 932 | | | 32,610 | | | 5.72 | | | 1,397 | |
Credit card | 37,415 | | | 11.58 | | | 3,243 | | | 38,517 | | | 12.69 | | | 3,656 | |
Automobile | 48,473 | | | 4.95 | | | 1,797 | | | 45,438 | | | 5.18 | | | 1,762 | |
Other revolving credit and installment | 33,033 | | | 5.68 | | | 1,405 | | | 34,832 | | | 7.07 | | | 1,841 | |
Total consumer loans | 434,811 | | | 4.54 | | | 14,798 | | | 437,997 | | | 5.17 | | | 16,952 | |
Total loans (3) | 955,918 | | | 3.70 | | | 26,524 | | | 949,076 | | | 4.75 | | | 33,736 | |
Equity securities | 30,027 | | | 1.89 | | | 425 | | | 35,139 | | | 2.65 | | | 697 | |
Other | 7,373 | | | 0.24 | | | 14 | | | 5,275 | | | 1.73 | | | 68 | |
Total earning assets | $ | 1,778,883 | | | 2.83 | % | | $ | 37,696 | | | 1,745,308 | | | 3.90 | % | | $ | 50,958 | |
Funding sources | | | | | | | | | | | |
Deposits: | | | | | | | | | | | |
Interest-bearing checking | $ | 55,407 | | | 0.37 | % | | $ | 152 | | | 57,715 | | | 1.42 | % | | $ | 615 | |
Market rate and other savings | 788,732 | | | 0.24 | | | 1,446 | | | 696,943 | | | 0.58 | | | 3,038 | |
Savings certificates | 27,310 | | | 1.16 | | | 237 | | | 29,562 | | | 1.56 | | | 344 | |
Other time deposits | 62,881 | | | 1.23 | | | 580 | | | 95,490 | | | 2.57 | | | 1,836 | |
Deposits in non-U.S. offices | 41,642 | | | 0.73 | | | 226 | | | 52,995 | | | 1.84 | | | 730 | |
Total interest-bearing deposits | 975,972 | | | 0.36 | | | 2,641 | | | 932,705 | | | 0.94 | | | 6,563 | |
Short-term borrowings | 74,538 | | | 0.47 | | | 263 | | | 115,131 | | | 2.18 | | | 1,878 | |
Long-term debt | 228,067 | | | 2.06 | | | 3,515 | | | 233,186 | | | 3.21 | | | 5,607 | |
Other liabilities | 29,270 | | | 1.59 | | | 350 | | | 25,263 | | | 2.17 | | | 410 | |
Total interest-bearing liabilities | 1,307,847 | | | 0.69 | | | 6,769 | | | 1,306,285 | | | 1.48 | | | 14,458 | |
Portion of noninterest-bearing funding sources | 471,036 | | | — | | | — | | | 439,023 | | | — | | | — | |
Total funding sources | $ | 1,778,883 | | | 0.51 | | | 6,769 | | | 1,745,308 | | | 1.11 | | | 14,458 | |
Net interest margin and net interest income on a taxable-equivalent basis (4) | | | 2.32 | % | | $ | 30,927 | | | | | 2.79 | % | | $ | 36,500 | |
Noninterest-earning assets | | | | | | | | | | | |
Cash and due from banks | $ | 21,266 | | | | | | | 19,428 | | | | | |
Goodwill | 26,386 | | | | | | | 26,416 | | | | | |
Other | 122,550 | | | | | | | 112,721 | | | | | |
Total noninterest-earning assets | $ | 170,202 | | | | | | | 158,565 | | | | | |
Noninterest-bearing funding sources | | | | | | | | | | | |
Deposits | $ | 398,666 | | | | | | | 341,541 | | | | | |
Other liabilities | 57,537 | | | | | | | 56,664 | | | | | |
Total equity | 185,035 | | | | | | | 199,383 | | | | | |
Noninterest-bearing funding sources used to fund earning assets | (471,036) | | | | | | | (439,023) | | | | | |
Net noninterest-bearing funding sources | $ | 170,202 | | | | | | | 158,565 | | | | | |
Total assets | $ | 1,949,085 | | | | | | | 1,903,873 | | | | | |
| | | | | | | | | | | |
Average prime rate | | | 3.63 | % | | | | | | 5.43 | % | | |
Average three-month London Interbank Offered Rate (LIBOR) | | | 0.79 | | | | | | | 2.46 | | | |
Earnings Performance (continued)Noninterest Income
Noninterest Income
Table 2: Noninterest Income
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended Sep 30, | | | | | | Nine months ended Sep 30, | | | | |
(in millions) | 2020 | | 2019 | | $ Change | | % Change | | 2020 | | 2019 | | $ Change | | % Change |
Deposit-related fees (1) | $ | 1,299 | | | 1,480 | | | (181) | | | (12) | % | | $ | 3,888 | | | 4,289 | | | (401) | | | (9) | % |
Trust and investment fees: | | | | | | | | | | | | | | | |
Brokerage advisory, commissions and other fees | 2,336 | | | 2,346 | | | (10) | | | — | | | 6,935 | | | 6,857 | | | 78 | | | 1 | |
Trust and investment management | 737 | | | 729 | | | 8 | | | 1 | | | 2,125 | | | 2,310 | | | (185) | | | (8) | |
Investment banking | 441 | | | 484 | | | (43) | | | (9) | | | 1,379 | | | 1,333 | | | 46 | | | 3 | |
Total trust and investment fees | 3,514 | | | 3,559 | | | (45) | | | (1) | | | 10,439 | | | 10,500 | | | (61) | | | (1) | |
Card fees | 912 | | | 1,027 | | | (115) | | | (11) | | | 2,601 | | | 2,996 | | | (395) | | | (13) | |
Lending-related fees (1) | 352 | | | 374 | | | (22) | | | (6) | | | 1,025 | | | 1,116 | | | (91) | | | (8) | |
Mortgage banking: | | | | | | | | | | | | | | | |
Servicing income, net | 341 | | | (142) | | | 483 | | | NM | | (77) | | | 499 | | | (576) | | | NM |
Net gains on mortgage loan origination/sales activities | 1,249 | | | 608 | | | 641 | | | 105 | | | 2,363 | | | 1,433 | | | 930 | | | 65 | |
Total mortgage banking | 1,590 | | | 466 | | | 1,124 | | | 241 | | | 2,286 | | | 1,932 | | | 354 | | | 18 | |
Net gains from trading activities | 361 | | | 276 | | | 85 | | | 31 | | | 1,232 | | | 862 | | | 370 | | | 43 | |
Net gains on debt securities | 264 | | | 3 | | | 261 | | | NM | | 713 | | | 148 | | | 565 | | | 382 | |
Net gains (losses) from equity securities | 649 | | | 956 | | | (307) | | | (32) | | | (219) | | | 2,392 | | | (2,611) | | | NM |
Lease income | 333 | | | 402 | | | (69) | | | (17) | | | 1,021 | | | 1,270 | | | (249) | | | (20) | |
Life insurance investment income | 156 | | | 173 | | | (17) | | | (10) | | | 480 | | | 499 | | | (19) | | | (4) | |
Other (1) | 64 | | | 1,669 | | | (1,605) | | | (96) | | | 389 | | | 3,168 | | | (2,779) | | | (88) | |
Total | $ | 9,494 | | | 10,385 | | | (891) | | | (9) | | | $ | 23,855 | | | 29,172 | | | (5,317) | | | (18) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Quarter ended June 30, | | | | | | Six months ended June 30, | | | | | | | | | | |
(in millions) | 2021 | | 2020 | | $ Change | | % Change | | 2021 | | 2020 | | $ Change | | % Change | | | | | | |
Deposit-related fees | $ | 1,342 | | | 1,142 | | | 200 | | | 18 | % | | $ | 2,597 | | | 2,589 | | | 8 | | | — | % | | | | | | |
Lending-related fees | 362 | | | 323 | | | 39 | | | 12 | | | 723 | | | 673 | | | 50 | | | 7 | | | | | | | |
Investment advisory and other asset-based fees | 2,794 | | | 2,254 | | | 540 | | | 24 | | | 5,550 | | | 4,760 | | | 790 | | | 17 | | | | | | | |
Commissions and brokerage services fees | 580 | | | 550 | | | 30 | | | 5 | | | 1,216 | | | 1,227 | | | (11) | | | (1) | | | | | | | |
Investment banking fees | 570 | | | 547 | | | 23 | | | 4 | | | 1,138 | | | 938 | | | 200 | | | 21 | | | | | | | |
Card fees | 1,077 | | | 797 | | | 280 | | | 35 | | | 2,026 | | | 1,689 | | | 337 | | | 20 | | | | | | | |
Servicing income, net | (21) | | | (689) | | | 668 | | | 97 | | | (120) | | | (418) | | | 298 | | | 71 | | | | | | |
Net gains on mortgage loan originations/sales | 1,357 | | | 1,006 | | | 351 | | | 35 | | | 2,782 | | | 1,114 | | | 1,668 | | | 150 | | | | | | |
Mortgage banking | 1,336 | | | 317 | | | 1,019 | | | 321 | | 2,662 | | | 696 | | | 1,966 | | | 282 | | | | | | |
Net gains from trading activities | 21 | | | 807 | | | (786) | | | (97) | | | 369 | | | 871 | | | (502) | | | (58) | | | | | | | |
Net gains on debt securities | — | | | 212 | | | (212) | | | (100) | | | 151 | | | 449 | | | (298) | | | (66) | | | | | | | |
Net gains (losses) from equity securities | 2,696 | | | 533 | | | 2,163 | | | 406 | | | 3,088 | | | (868) | | | 3,956 | | | NM | | | | | | |
Lease income | 313 | | | 335 | | | (22) | | | (7) | | | 628 | | | 688 | | | (60) | | | (9) | | | | | | | |
Other | 379 | | | 577 | | | (198) | | | (34) | | | 1,046 | | | 1,525 | | | (479) | | | (31) | | | | | | | |
Total | $ | 11,470 | | | 8,394 | | | 3,076 | | | 37 | | | $ | 21,194 | | | 15,237 | | | 5,957 | | | 39 | | | | | | | |
NM- notNM – Not meaningful
(1)In third quarter 2020, service charges on deposit accounts, cash network fees, wire transfer and other remittance fees, and certain other fees were combined into a single line item for deposit-related fees; certain fees associated with lending activities were combined into a single line item for lending-related fees; and certain other fees were reclassified to other noninterest income. Prior period balances have been revised to conform with the current period presentation.
ThirdSecond quarter 20202021 vs. thirdsecond quarter 20192020
Deposit-related fees decreasedincreased driven by:
•lower customer transaction volumes and higher average consumer deposit account balances due to the economic slowdown associated with the COVID-19 pandemic; and
•higher fee waivers and reversals as part ofcompared with a second quarter 2020 that included elevated fee waivers due to our actions to support customers during the COVID-19 pandemic; and
partially offset by:
•higher treasury management fees on commercial accounts driven by a lower earnings credit rate due toan increase in transaction service volumes and repricing.
Investment advisory and other asset-based fees increased reflecting higher market valuations on client investment assets.
For additional information on certain client investment assets, see the lower interest rate environment.“Earnings Performance – Operating Segment Results – Wealth and Investment Management – WIM Advisory Assets” and “Earnings Performance – Operating Segment Results – Corporate – Wells Fargo Asset Management (WFAM) Assets Under Management” sections in this Report.
Card fees decreased reflecting:
•lowerincreased reflecting higher interchange fees, net of rewards, costs, driven by decreasedincreased purchase volume due to the impact of the COVID-19 pandemic; and
•higher fee waivers as part of our actions to support customers during the COVID-19 pandemic. transaction volumes.
Servicing income, netincreased reflecting:due to:
•higher income from mortgage servicing right (MSR) valuation gains, net of hedge results,changes and related hedges driven by favorable hedge results, changesnegative valuation adjustments in second quarter 2020 for higher expected servicing costs reflectingand prepayment estimates due to changes in economic improvements in third quarter 2020 compared with second quarter 2020 and negative valuation model adjustments made in third quarter 2019 reflecting higher prepayment estimates;conditions;
partially offset by:
•lower servicing fees due to a lower balance of loans serviced for others.others resulting from prepayments.
For additional information on servicing income, see Note 11 (Mortgage Banking Activities) to Financial Statements in this Report.
Net gains on mortgage loan origination/originations/sales activities increased
driven by:
•higher gains related to the re-securitization of loans we purchased from Government National Mortgage Association (GNMA) loan securitization pools in 2020; and
•higher residential real estate held for sale (HFS) origination volumes; and
•an increasevolumes in production margin in both our retail and correspondent production channels, as well as a shift to more retail origination volume, which has a higher margin.
The production margin provides a measure of the profitability of our residential held for sale mortgage loan originations.Table 2a presents the information used in determining the production margin.
Table 2aSelected Mortgage Production Data
| | | | | | | | | | | | | | | | | | | | |
| | Quarter ended Sep 30, | | Nine months ended Sep 30, |
| | 2020 | 2019 | | 2020 | 2019 |
Net gains on mortgage loan origination/sales activities (in millions): | | | | | | |
Residential | (A) | $ | 1,039 | | 461 | | | $ | 2,265 | | 1,015 | |
Commercial | | 45 | | 106 | | | 151 | | 236 | |
Residential pipeline and unsold/repurchased loan management (1) | | 165 | | 41 | | | (53) | | 182 | |
Total | | $ | 1,249 | | 608 | | | $ | 2,363 | | 1,433 | |
Residential real estate originations (in billions): | | | | | | |
Held for sale | (B) | $ | 48 | | 38 | | | $ | 124 | | 93 | |
Held for investment | | 14 | | 20 | | | 45 | | 51 | |
Total | | $ | 62 | | 58 | | | $ | 169 | | 144 | |
Production margin on residential held for sale mortgage loan originations | (A)/(B) | 2.16 | % | 1.21 | | | 1.83 | % | 1.09 | |
(1)Primarily 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.
Net gains from trading activities increased reflecting higher volumes and customer activity in equities trading due to volatility in the equity markets.
Net gains on debt securities increased due to higher gains from the sales of agency MBS as a result of portfolio re-balancing and actions taken to manage under the asset cap.
Net gains from equity securities decreased reflecting:
•lower realized gains on nonmarketable equity securities;channel;
partially offset by:
•$224 million of net unrealized gains related to a changelower HFS origination volumes in the accounting measurement model for certain nonmarketable equity securities from our affiliated venture capital partnerships.
Other income decreased due to:
•a $1.1 billion gain in third quarter 2019 from the sale of our Institutional Retirement and Trust (IRT) business and $302 million of gains from the sales of purchased credit-impaired (PCI) loans in third quarter 2019; and
•a decline in commercial real estate brokerage commissions as a result of the sale of Eastdil Secured (Eastdil) in fourth quarter 2019;
partially offset by:
•$228 million of higher equity method investment income related to a change in the accounting measurement model for certain nonmarketable equity securities from our affiliated venture capital partnerships.
First nine months of 2020 vs. first nine months of 2019
Deposit-related fees decreased driven by:
•lower customer transaction volumes and higher average consumer deposit account balances due to the economic slowdown associated with the COVID-19 pandemic; and
•higher fee waivers and reversals as part of our actions to support customers during the COVID-19 pandemic;
partially offset by:
•higher treasury management fees on commercial accounts driven by a lower earnings credit rate due to the lower interest rate environment.
Brokerage advisory, commissions and other fees increased reflecting higher asset-based fees, partially offset by lower transactional revenue. Asset-based fees include fees from advisory accounts that are based on a percentage of the market value of the assets as of the beginning of the quarter.
Trust and investment management fees decreased driven by lower trust fees due to the sale of our IRT business in third quarter 2019.
Our assets under management (AUM) totaled $797.9 billion at September 30, 2020, compared with $691.9 billion at September 30, 2019. Substantially all of our AUM is managed by our Wealth and Investment Management (WIM) operating segment. Our assets under administration (AUA) totaled $1.6 trillion at September 30, 2020 and $1.8 trillion at September 30, 2019. Management believes that AUM and AUA are useful metrics because they allow investors and others to assess how changes in asset amounts may impact the generation of certain asset-based fees.
Our AUM and AUA included IRT client assets of $22 billion and $708 billion, respectively, at September 30, 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.
Card fees decreased reflecting:
•lower interchange fees, net of rewards costs, driven by decreased purchase volume due to the impact of the COVID-19 pandemic; and
•higher fee waivers as part of our actions to support customers during the COVID-19 pandemic.
Lending-related fees decreased driven by an increase in fee waivers and reversals as part of our actions to support customers during the COVID-19 pandemic.
Servicing income, net decreased reflecting:
•higher MSR valuation losses, net of hedge results, as gains from favorable hedge results were more than offset by valuation adjustments for higher expected servicing costs and prepayment estimates due to changes in economic conditions;correspondent production channel; and
•lower servicing fees due to a lower balance of loans serviced for othersmargins in our retail and the impacts of customer accommodations instituted in response to the COVID-19 pandemic.correspondent production channels.
For additional information on servicing income and net gains on mortgage loan originations/sales, see Note 119 (Mortgage Banking Activities) to Financial Statements in this Report.
Net gains on mortgage loan origination/sales activities increased driven by:
•higher residential real estate HFS origination volumes; and
•an increase in production margin due to higher margins in both our retail and correspondent production channels, as well as a shift to more retail origination volume, which has a higher margin. For additional information on the production margin on residential held for sale mortgage loan originations, see Table 2a.
Net gains from trading activities increased reflecting:
•higher incomedecreased driven by demand for interest ratefewer gains in asset-backed finance and credit products due to lower interest rates;
•higher volumes and customer activity for equities trading due tolimited credit spread movement compared with a second quarter 2020 that reflected gains driven by volatility in credit spreads from the equity markets; and
Earnings Performance (continued)
•higher volumes for credit trading due to additional market liquidity from government actions in response toimpact of the COVID-19 pandemic;
partially offset by:
•losses due to higher prepayment speeds on agency MBS pools, net of hedge gains, and wider credit spreads for non-agency and certain asset-backed securities.pandemic.
Net gains on debt securities increaseddecreased due to higherlower gains from thefewer sales of agency MBS as a result of portfolio re-balancingmortgage-backed securities (MBS) and actions taken to manage under the asset cap.municipal bonds.
Net gains (losses) from equity securities decreasedincreased driven by:
•changes inhigher unrealized gains on nonmarketable equity securities from our affiliated venture capital and private equity businesses; and
•higher realized gains on the valuesales of equity securities;
partially offset by:
•lower gains on deferred compensation plan investments (largely offset in personnel expense). Refer to Table 3a for the results for our deferred compensation plan and related investments;
•lower realized gains on nonmarketable equity securities; and
•impairment on equity securities of $1.6 billion, including $434 million related to a change in the accounting
measurement model for certain nonmarketable equity securities from our affiliated venture capital partnerships;
partially offset by:
•higher unrealized gains, including $658 million related to a change in the accounting measurement model for certain nonmarketable equity securities from our affiliated venture capital partnerships.hedges.
Other income decreased due to:
•a $1.1 billion gain in third quarter 2019 from the sale of our IRT business and $1.6 billion oflower gains fromon the sales of PCIresidential mortgage loans in the first nine months of 2019;
•a decline in commercial real estate brokerage commissions as a result of thewhich were reclassified to held for sale of Eastdil in fourth quarter 2019; and
•lowerhigher valuation losses related to the retained litigation risk, including the timing and amount of final settlement, associated with shares of Visa Class B common stock that
Earnings Performance (continued)
we sold. For additional information, see the “Risk Management – Asset/Liability Management – Market Risk – Equity Securities” section in our 2020 Form 10-K;
partially offset by:
•a gain on the sale of a portion of our student loan portfolio.
First half of 2021 vs. first half of 2020
Investment advisory and other asset-based fees increased reflecting higher market valuations on client investment assets.
For additional information on certain client investment assets, see the “Earnings Performance – Operating Segment Results – Wealth and Investment Management – WIM Advisory Assets” and “Earnings Performance – Operating Segment Results – Corporate – Wells Fargo Asset Management (WFAM) Assets Under Management” sections in this Report.
Investment banking fees increased driven by higher loan syndication fees, advisory fees, and equity method investments income;underwriting fees.
Card fees increased reflecting higher interchange fees, net of rewards, driven by increased purchase and transaction volumes.
Servicing income, net increased reflecting:
•higher income from MSR valuation changes and related hedges driven by negative valuation adjustments to the MSR in the first half of 2020 for higher expected servicing costs and prepayment estimates due to changes in economic conditions;
partially offset by:
•lower servicing fees due to a lower balance of loans serviced for others resulting from prepayments.
Net gains on mortgage loan originations/sales increased
driven by:
•higher margins in our retail production channel;
•higher HFS origination volume in our retail production channel;
•higher gains related to the re-securitization of loans we purchased from GNMA loan securitization pools in 2020; and
•higher gains due to losses in the first half of 2020 driven by the impact of interest rate volatility on hedging activities associated with our residential mortgage loans held for sale portfolio and pipeline, as well as valuation losses on certain residential and commercial loans held for sale due to market conditions.
For additional information on servicing income and net gains on mortgage loan originations/sales, see Note 9 (Mortgage Banking Activities) to Financial Statements in this Report.
Net gains from trading activities decreased reflecting:
•lower client trading activity for interest rate products, equities, and commodities;
partially offset by:
•higher client trading activity for asset-backed finance products.
Net gains on debt securities decreased due to lower gains from fewer sales of agency MBS and municipal bonds.
Net gains (losses) from equity securities increased driven by:
•higher unrealized gains on nonmarketable equity securities from our affiliated venture capital and private equity businesses;
•lower impairment on equity securities due to the market impact of the COVID-19 pandemic in first quarter 2020;
•higher realized gains on the sales of equity securities; and
•higher gains on deferred compensation plan investments (largely offset in personnel expense). Refer to Table 3a for the results for our deferred compensation plan and related hedges.
Other income decreased due to:
•lower gains on the sales of residential mortgage loans which were reclassified to held for sale in 2019 and sold in the second quarter of 2020;2019; and
•transition services feeshigher valuation losses related to the retained litigation risk, including the timing and amount of final settlement, associated with shares of Visa Class B common stock that we sold. For additional information, see the “Risk Management – Asset/Liability Management – Market Risk – Equity Securities” section in our 2020 Form 10-K;
partially offset by:
•a gain on the sale of substantially all of our IRT business.student loan portfolio; and
•higher income from investments accounted for under the equity method.
Noninterest Expense
Table 3: Noninterest Expense
| | | | Quarter ended Sep 30, | | Nine months ended Sep 30, | | | Quarter ended June 30, | | Six months ended June 30, | | |
(in millions) | (in millions) | 2020 | | 2019 | | $ Change | | % Change | | 2020 | | 2019 | | $ Change | | % Change | (in millions) | 2021 | | 2020 | | $ Change | | % Change | | 2021 | | 2020 | | $ Change | | % Change | |
Personnel | Personnel | $ | 8,624 | | | 8,604 | | | 20 | | | — | % | | $ | 25,863 | | | 26,309 | | | (446) | | | (2) | % | Personnel | $ | 8,818 | | | 8,916 | | | (98) | | | (1) | % | | $ | 18,376 | | | 17,239 | | | 1,137 | | | 7 | % | |
Technology, telecommunications and equipment (1) | 791 | | | 821 | | | (30) | | | (4) | | | 2,261 | | | 2,340 | | | (79) | | | (3) | | |
Occupancy (2) | 851 | | | 760 | | | 91 | | | 12 | | | 2,437 | | | 2,196 | | | 241 | | | 11 | | |
Technology, telecommunications and equipment | | Technology, telecommunications and equipment | 815 | | | 672 | | | 143 | | | 21 | | | 1,659 | | | 1,470 | | | 189 | | | 13 | | |
Occupancy | | Occupancy | 735 | | | 871 | | | (136) | | | (16) | | | 1,505 | | | 1,586 | | | (81) | | | (5) | | |
Operating losses | Operating losses | 1,219 | | | 1,920 | | | (701) | | | (37) | | | 2,902 | | | 2,405 | | | 497 | | | 21 | | Operating losses | 303 | | | 1,219 | | | (916) | | | (75) | | | 516 | | | 1,683 | | | (1,167) | | | (69) | | |
Professional and outside services (1) | 1,760 | | | 1,737 | | | 23 | | | 1 | | | 5,042 | | | 4,956 | | | 86 | | | 2 | | |
Leases (3) | 291 | | | 272 | | | 19 | | | 7 | | | 795 | | | 869 | | | (74) | | | (9) | | |
Professional and outside services | | Professional and outside services | 1,450 | | | 1,676 | | | (226) | | | (13) | | | 2,838 | | | 3,282 | | | (444) | | | (14) | | |
Leases (1) | | Leases (1) | 226 | | | 244 | | | (18) | | | (7) | | | 452 | | | 504 | | | (52) | | | (10) | | |
Advertising and promotion | Advertising and promotion | 144 | | | 266 | | | (122) | | | (46) | | | 462 | | | 832 | | | (370) | | | (44) | | Advertising and promotion | 132 | | | 137 | | | (5) | | | (4) | | | 222 | | | 318 | | | (96) | | | (30) | | |
Restructuring charges | Restructuring charges | 718 | | | — | | | 718 | | | NM | | 718 | | | — | | | 718 | | | NM | Restructuring charges | (4) | | | — | | | (4) | | | NM | | 9 | | | — | | | 9 | | | NM | |
Other (1) | 831 | | | 819 | | | 12 | | | 1 | | | 2,348 | | | 2,657 | | | (309) | | | (12) | | |
Other | | Other | 866 | | | 816 | | | 50 | | | 6 | | | 1,753 | | | 1,517 | | | 236 | | | 16 | | |
Total | Total | $ | 15,229 | | | 15,199 | | | 30 | | | — | | | $ | 42,828 | | | 42,564 | | | 264 | | | 1 | | Total | $ | 13,341 | | | 14,551 | | | (1,210) | | | (8) | | $ | 27,330 | | | 27,599 | | | (269) | | | (1) | | |
NM -– Not meaningful
(1)In third quarter 2020, expenses for outside professional services, contract services, and outside data processing were combined into a single line item for professional and outside services expense; expenses for technology and equipment and telecommunications were combined into a single line item for technology, telecommunications and equipment expense; and certain other expenses were reclassified to other noninterest expense. Prior period balances have been revised to conform with the current period presentation.
(2)Represents expenses for both leased and owned properties.
(3)Represents expenses for assets we lease to customers.
ThirdSecond quarter 20202021 vs. thirdsecond quarter 20192020
Personnel expense remained relatively flat, reflecting:decreased driven by:
•higherlower salaries expense driven by the impactas a result of annual salary increasesreduced headcount; and higher staffing levels;
•lower deferred compensation expense;
partially offset by:
•lowerhigher incentive compensation expense, including the impact of higher market valuations on stock-based compensation; and
•higher revenue-related compensation expense.
Technology, telecommunications and equipment expense increased due to higher expense for technology contracts and the reversal of a software licensing liability accrual in second quarter 2020.
Occupancy expense increased due to additionaldecreased driven by:
•lower rent expense; and
•lower cleaning fees, supplies, and equipment expenses relatedcompared with a second quarter 2020 that included higher expenses due to the COVID-19 pandemic.
Operating lossesdecreased driven by lower expense for litigation accruals and customer remediation accruals.
Professional and outside services expense decreased driven by efficiency initiatives to reduce our spending on consultants and contractors.
Other expenses increased driven by a write-down of goodwill in second quarter 2021 related to the sale of a portion of our student loan portfolio.
First half of 2021 vs. first half of 2020
Personnel expense increased driven by:
•higher incentive compensation expense, including the impact of higher market valuations on stock-based compensation;
•higher revenue-related compensation expense; and
•higher deferred compensation expense;
partially offset by:
•lower salaries as a result of reduced headcount.
Table 3a presents results for our deferred compensation plan and related hedges. In second quarter 2020, we entered into arrangements to transition our economic hedges of the deferred compensation plan liabilities from equity securities to derivative instruments. As a result of this transition, changes in fair value of derivatives used to economically hedge the deferred compensation plan are reported in personnel expense rather than in net gains (losses) from equity securities within noninterest income. For additional information on the derivatives used in the economic hedges, see Note 14 (Derivatives) to Financial Statements in this Report.
Table 3a:Deferred Compensation and Related Hedges
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | |
| Quarter ended June 30, | | Six months ended June 30, |
(in millions) | 2021 | | 2020 | | 2021 | | 2020 |
Net interest income | $ | — | | | 3 | | | $ | — | | | 15 | |
Net gains (losses) from equity securities | 1 | | | 346 | | | 1 | | | (275) | |
Total revenue (losses) from deferred compensation plan investments | 1 | | | 349 | | | 1 | | | (260) | |
Decrease (increase) in deferred compensation plan liabilities | (257) | | | (490) | | | (422) | | | 108 | |
Net derivative gains from economic hedges of deferred compensation | 239 | | | 141 | | | 399 | | | 141 |
Decrease (increase) in personnel expense | (18) | | | (349) | | | (23) | | | 249 | |
Loss before income tax expense | $ | (17) | | | — | | | $ | (22) | | | (11) | |
Technology, telecommunications and equipment expense increased due to higher expense for technology contracts and
the reversal of a software licensing liability accrual in second quarter 2020.
Earnings Performance (continued)
Occupancy expense decreased driven by:
•lower litigation accruals, as third quarter 2019 included a $1.6 billion discrete litigation accrual related to retail sales practices matters;rent expense; and
partially offset by:
•increasedlower cleaning fees, supplies, and equipment expenses compared with a first half of 2020 that included higher expenses due to the COVID-19 pandemic.
Operating losses decreased driven by lower expense for litigation accruals and customer remediation accruals reflecting expansions of the population of affected customers, remediation payments, and/or remediation time frames for a variety of matters.accruals.
Professional and outside services expense decreased driven by efficiency initiatives to reduce our spending on consultants and contractors.
Advertising and promotion expense decreased driven by decreasesa continued reduction in marketing and brand campaign volumes due to the impact of the COVID-19 pandemic.
Restructuring charges increased driven predominantly by severance costs, as well as facility closure costs, related to our efficiency initiatives that commencedbegan in third quarter 2020. For additional information on restructuring charges, see Note 219 (Restructuring Charges) to Financial Statements in this Report.
First nine months of 2020 vs. first nine months of 2019
Personnel expense decreased driven by:
•lower deferred compensation expense (offset in net gains from equity securities);
partially offset by:
•higher salaries expense driven by annual salary increases and higher staffing levels; and
•increases in employee benefits and incentive compensation expense related to the COVID-19 pandemic, including
additional payments for certain customer-facing and support employees and back-up childcare services.
Table 3a presents results for our deferred compensation plan and related hedges. Historically, we used equity securities as economic hedges of our deferred compensation plan liabilities. Changes in the fair value of the equity securities used as economic hedges were recorded in net gains (losses) from equity securities within noninterest income. In second quarter 2020, we entered into arrangements to transition our economic hedges
from equity securities to derivative instruments. Changes in fair value of derivatives used as economic hedges are presented within the same financial statement line as the related business activity being hedged. As a result of this transition, we presented the net gains (losses) on derivatives from economic hedges on the deferred compensation plan liabilities in personnel expense. For additional information on the derivatives used in the economic hedges, see Note 15 (Derivatives) to Financial Statements in this Report.
Table 3a:Deferred Compensation and Related Hedges
| | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended Sep 30, | | Nine months ended Sep 30, |
(in millions) | 2020 | | 2019 | | 2020 | | 2019 |
Net interest income | $ | — | | | 13 | | | $ | 15 | | | 44 | |
Net gains (losses) from equity securities | 1 | | | (4) | | | (274) | | | 428 | |
Total revenue (losses) from deferred compensation plan investments | 1 | | | 9 | | | (259) | | | 472 | |
Change in deferred compensation plan liabilities | 220 | | | 5 | | | 112 | | | 476 | |
Net derivative (gains) losses from economic hedges of deferred compensation | (215) | | | — | | | (356) | | | — | |
Personnel expense | 5 | | | 5 | | | (244) | | | 476 | |
Income (loss) before income tax expense | $ | (4) | | | 4 | | | $ | (15) | | | (4) | |
Technology, telecommunications and equipment expense decreased due to:
•a software impairment in third quarter 2019; and
•a software licensing liability accrual reversal in second quarter 2020;
partially offset by:
•higher cloud computing expenses; and
•higher telecommunications expense related to the COVID-19 pandemic.
Occupancy expense increased due to additional cleaning fees, supplies, and equipment expenses related to the COVID-19 pandemic.
Operating losses increased driven by:
•higher customer remediation accruals reflecting expansions of the population of affected customers, remediation payments, and/or remediation time frames for a variety of matters;
partially offset by:
•lower litigation accruals as third quarter 2019 included a $1.6 billion discrete litigation accrual related to retail sales practices matters.
Advertising and promotion expense decreased driven by reduced marketing and brand campaign volumes due to the impact of the COVID-19 pandemic.
Restructuring charges increased driven predominantly by severance costs, as well as facility closure costs, related to our efficiency initiatives that commenced in third quarter 2020. For additional information on restructuring charges, see Note 2(Restructuring Charges) to Financial Statements in this Report.
Other expenses decreasedincreased driven by:
•a reductionwrite-down of goodwill in business travel and company events due to ongoing expense management initiatives, as well as the impactfirst half of the COVID-19 pandemic; and
•lower foreclosed assets expense due2021 related to the suspensionsale of certain mortgage foreclosure activities in response to the COVID-19 pandemic;substantially all of our student loan portfolio;
partially offset by:
•higher pension plan settlement expenses;charitable donations expense driven by the donation of PPP processing fees; and
•higher Federal Deposit Insurance Corporation (FDIC) deposit assessment expense driven by a higher assessment raterate;
partially offset by:
•a reduction in business travel and higher deposit balances.company events due to the impact of the COVID-19 pandemic.
Income Tax Expense
Income tax expense was $645 million$1.4 billion in thirdsecond quarter 2020,2021, compared with $1.3an income tax benefit of $2.0 billion in the same period a year ago, driven by lower pre-tax income. The effective income tax rate was 24.1% for third quarter 2020, compared with 22.1% for the same period a year ago. The effective income tax rate for third quarter 2020 reflected lower pre-tax income and included net discrete income tax benefits primarily related to the resolution and reevaluation of prior period matters with U.S federal and state tax authorities. The effective income tax rate for third quarter 2019 reflected a net discrete income tax expense related to the non-tax deductible treatment of a $1.6 billion discrete litigation accrual.
Income tax benefit was $3.1 billion in the first nine months of 2020, compared with income tax expense of $3.5 billion in the same period a year ago, driven by lower pre-tax income. The effective income tax rate was 111.0%19.3% for the first nine months of 2020,second quarter 2021, compared with 17.3%34.2% for the same period a year ago.
Income tax expense was $2.3 billion in the first half of 2021, compared with an income tax benefit of $1.6 billion in the same period a year ago. Theeffective income tax rate was 18.0% for the first nine monthshalf of 2020 reflected lower pre-tax income and included net discrete income tax benefits primarily related to the resolution and reevaluation of prior period matters2021, compared with U.S federal and state tax authorities. The effective income tax rate36.0% for the first nine months of 2019 reflectedsame period a net discreteyear ago.
The increase in our income tax expense relatedfor both the second quarter and first half of 2021, compared with the same periods a year ago, was driven by higher pre-tax income, including the impact of the changes in accounting policy for certain tax-advantaged investments. For additional information on the changes in accounting policy, see Note 1 (Summary of Significant Accounting Policies) to the non-tax deductible treatment of a $1.6 billion discrete litigation accrual, partially offset by net discrete income tax benefits related to the results of U.S. federal and state income tax examinations.
Financial Statements in this Report.
Earnings Performance (continued)
Operating Segment Results
Our management reporting is organized into four reportable operating segments: Consumer Banking and Lending; Commercial Banking; Corporate and Investment Banking; and Wealth and Investment Management. All other business activities that are not included in the reportable operating segments are definedhave been included in Corporate. For additional information, see Table 4. We define our reportable operating segments by type of product type and customer segment, and their results are based on our management reporting process. The management reporting process measures the performance of the reportable operating segments based on the Company’s management structure, and the results are regularly reviewed by our Chief Executive Officer and Operating Committee. The management reporting process is based on U.S. GAAP withand includes specific adjustments, such as for funds transfer pricing for asset/liability management, for shared revenues and expenses, and tax-equivalenttaxable-equivalent adjustments to consistently reflect income from taxable and tax-exempt sources. On February 11, 2020,sources, which allows management to assess performance consistently across the operating segments.
In March 2021, we announced a new organizational structure. We continuean agreement to refinesell our Corporate Trust Services business and, in second quarter 2021, we moved the composition of our operating segments and allocation methodologies. Additionally, we are still inbusiness from the process of transitioning key leadership positions. We now expect to update ourCommercial Banking operating segment disclosures, including comparative financial results, in fourth quarter 2020. These changes willto Corporate. Prior period balances have been revised to conform with the current period presentation. This change did not impact the previously reported consolidated financial results of the Company.
In second quarter 2021, we elected to change our accounting method for low-income housing tax credit (LIHTC) investments and elected to change the presentation of investment tax credits related to solar energy investments. These accounting policy changes had a nominal impact on reportable operating segment results. Prior period financial statement line items for the Company, as well as for the reportable operating segments, have been revised to conform with the current period presentation. Our LIHTC investments are included in the Corporate and Investment Banking operating segment and our solar energy investments are included in the Commercial Banking operating segment. For additional information, see the “Recent Developments” section and Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report.
Funds Transfer Pricing Corporate treasury manages a funds transfer pricing methodology that considers interest rate risk, liquidity risk, and other product characteristics. Operating segments pay a funding charge for their assets and receive a funding credit for their deposits, both of which are included in net interest income. The net impact of the funding charges or credits is recognized in corporate treasury.
Revenue and Expense Sharing When lines of business jointly serve customers, the line of business that is responsible for providing the product or service recognizes revenue or expense with a referral fee paid or an allocation of cost to the other line of business based on established internal revenue-sharing agreements.
When a line of business uses a service provided by another line of business or enterprise function (included in Corporate), expense is generally allocated based on the cost and use of the service provided.
Taxable-Equivalent Adjustments Taxable-equivalent adjustments related to tax-exempt income on certain loans and debt securities are included in net interest income, while taxable-equivalent adjustments related to income tax credits for low-income housing and renewable energy investments are included in noninterest income, in each case with corresponding impacts to income tax expense (benefit). Adjustments are included in Corporate, Commercial Banking, and Corporate and Investment Banking and are eliminated to reconcile to the Company’s consolidated financial results.
Allocated Capital Reportable operating segments are allocated capital under a risk-sensitive framework that is primarily based on aspects of our regulatory capital requirements, and the assumptions and methodologies used to allocate capital are periodically assessed and revised. Management believes that return on allocated capital is a useful financial measure because it enables management, investors, and others to assess a reportable operating segment’s use of capital.
Selected Metrics We present certain financial and nonfinancial metrics that management uses when evaluating reportable operating segment results. Management believes that these metrics are useful to investors and others to assess the performance, customer growth, and trends of reportable operating segments or lines of business.
Table 44:Management Reporting Structure
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| Wells Fargo & Company | | | |
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| | | Consumer Banking and Lending | | | | Commercial Banking | | | | Corporate and Investment Banking | | | | Wealth and Investment Management | | | Corporate | | | |
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| | | • Consumer and Small Business Banking
• Home Lending
• Credit Card
• Auto
• Personal Lending | | | | • Middle Market Banking
• Asset-Based Lending and Leasing | | | | • Banking
• Commercial Real Estate
• Markets | | | | • Wells Fargo Advisors
• The Private Bank | | | | • Corporate Treasury
• Enterprise Functions
• Investment Portfolio
• Affiliated venture capital and private equity businesses
• Non-strategic businesses | | | |
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Table 5 and the following discussion present our results by currentreportable operating segment. For additional description of our operating segments, including additional financial information, and the underlying management reporting process, see Note 22 (Operating Segments) to Financial Statements in this Report.
We perform a goodwill impairment assessment annually in the fourth quarter. Since our last annual assessment, we have observed a significant decline in market capitalization given deteriorated macroeconomic conditions from the impact of the COVID-19 pandemic. In first and second quarter 2020, we performed interim, quantitative impairment assessments of our goodwill with no evidence of goodwill impairment. Given the uncertainty of the severity or length of the current economic downturn, we continue to monitor our performance against our internal forecasts as well as market conditions for circumstances that could have a further negative effect on the estimated fair
values of our reporting units. In third quarter 2020, we performed a qualitative assessment of goodwill impairment and concluded that it was more likely than not that the fair value of our reporting units were greater than their carrying amounts as of September 30, 2020.
The aggregate fair value of our reporting units calculated during our latest interim quantitative assessment exceeded our market capitalization as of September 30, 2020. Individual reporting unit fair values cannot be directly correlated to the Company’s market capitalization. However, we consider several factors in the comparison of aggregate fair value to market capitalization, including (i) control premiums adjusted for the current market environment, which include synergies that may not be reflected in current market pricing, (ii) degree of complexity and execution risk at the reporting unit level compared with the enterprise level, and (iii) issues or risks related to the Company level that may not be included in the fair value of the individual 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, which could impact the results of our goodwill impairment assessment. We will reassess goodwill for impairment at the time of the realignment. In addition, we may divest or otherwise wind down certain businesses or portfolios of assets in connection with the realignment of our operating segments, which may result in the impairment of goodwill or other long-lived assets related to these businesses or portfolios.
For additional information about goodwill, see Note 1 (Summary of Significant Accounting Policies) in our 2019 Form 10-K.
Earnings Performance (continued)Table 4:5: Operating Segment Results – Highlights
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(income/expense in millions, | | Community Banking | | Wholesale Banking | | Wealth and Investment Management | | Other (1) | | Consolidated Company |
balance sheet data in billions) | | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
Quarter ended September 30, | | | | | | | | | | | | | | | | | | | | |
Total revenue | | $ | 10,722 | | | 11,239 | | | 5,594 | | | 6,942 | | | 3,794 | | | 5,141 | | | (1,248) | | | (1,312) | | | 18,862 | | | 22,010 | |
Provision (reversal of provision) for credit losses | | 556 | | | 608 | | | 219 | | | 92 | | | (9) | | | 3 | | | 3 | | | (8) | | | 769 | | | 695 | |
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Net income (loss) | | 336 | | | 999 | | | 1,488 | | | 2,644 | | | 463 | | | 1,280 | | | (252) | | | (313) | | | 2,035 | | | 4,610 | |
Average loans | | $ | 457.6 | | | 459.0 | | | 455.1 | | | 474.3 | | | 79.8 | | | 75.9 | | | (60.8) | | | (59.4) | | | 931.7 | | | 949.8 | |
Average deposits | | 881.7 | | | 789.7 | | | 418.8 | | | 422.0 | | | 175.3 | | | 142.4 | | | (76.8) | | | (62.7) | | | 1,399.0 | | | 1,291.4 | |
Goodwill | | 16.7 | | | 16.7 | | | 8.4 | | | 8.4 | | | 1.3 | | | 1.3 | | | — | | | — | | | 26.4 | | | 26.4 | |
Nine months ended September 30, | | | | | | | | | | | | | | | | | | | | |
Total revenue | | $ | 28,984 | | | 34,794 | | | 17,974 | | | 21,118 | | | 11,169 | | | 13,270 | | | (3,712) | | | (3,979) | | | 54,415 | | | 65,203 | |
Provision (reversal of provision) for credit losses | | 5,652 | | | 1,797 | | | 8,535 | | | 254 | | | 256 | | | 6 | | | (135) | | | (14) | | | 14,308 | | | 2,043 | |
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Net income (loss) | | 160 | | | 6,969 | | | (344) | | | 8,203 | | | 1,106 | | | 2,459 | | | (613) | | | (955) | | | 309 | | | 16,676 | |
Average loans | | $ | 456.5 | | | 458.3 | | | 481.2 | | | 474.9 | | | 79.0 | | | 75.1 | | | (60.8) | | | (59.2) | | | 955.9 | | | 949.1 | |
Average deposits | | 843.0 | | | 777.7 | | | 438.8 | | | 414.1 | | | 166.2 | | | 146.3 | | | (73.4) | | | (63.9) | | | 1,374.6 | | | 1,274.2 | |
Goodwill | | 16.7 | | | 16.7 | | | 8.4 | | | 8.4 | | | 1.3 | | | 1.3 | | | — | | | — | | | 26.4 | | | 26.4 | |
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(in millions) | Consumer Banking and Lending | | Commercial Banking | | Corporate and Investment Banking | | Wealth and Investment Management | | Corporate (1) | | Reconciling Items (2) | | Consolidated Company |
Quarter ended June 30, 2021 | | | | | | | | | | | | | |
Net interest income | $ | 5,618 | | | 1,202 | | | 1,783 | | | 610 | | | (304) | | | (109) | | | 8,800 | |
Noninterest income | 3,068 | | | 906 | | | 1,555 | | | 2,926 | | | 3,327 | | | (312) | | | 11,470 | |
Total revenue | 8,686 | | | 2,108 | | | 3,338 | | | 3,536 | | | 3,023 | | | (421) | | | 20,270 | |
Provision for credit losses | (367) | | | (382) | | | (501) | | | 24 | | | (34) | | | — | | | (1,260) | |
Noninterest expense | 6,202 | | | 1,443 | | | 1,805 | | | 2,891 | | | 1,000 | | | — | | | 13,341 | |
Income (loss) before income tax expense (benefit) | 2,851 | | | 1,047 | | | 2,034 | | | 621 | | | 2,057 | | | (421) | | | 8,189 | |
Income tax expense (benefit) | 713 | | | 261 | | | 513 | | | 156 | | | 223 | | | (421) | | | 1,445 | |
Net income before noncontrolling interests | 2,138 | | | 786 | | | 1,521 | | | 465 | | | 1,834 | | | — | | | 6,744 | |
Less: Net income (loss) from noncontrolling interests | — | | | 2 | | | (2) | | | — | | | 704 | | | — | | | 704 | |
Net income | $ | 2,138 | | | 784 | | | 1,523 | | | 465 | | | 1,130 | | | — | | | 6,040 | |
Quarter ended June 30, 2020 | | | | | | | | | | | | | |
Net interest income | $ | 5,717 | | | 1,554 | | | 1,963 | | | 719 | | | 60 | | | (121) | | | 9,892 | |
Noninterest income | 1,891 | | | 797 | | | 2,096 | | | 2,487 | | | 1,318 | | | (195) | | | 8,394 | |
Total revenue | 7,608 | | | 2,351 | | | 4,059 | | | 3,206 | | | 1,378 | | | (316) | | | 18,286 | |
Provision for credit losses | 3,102 | | | 2,295 | | | 3,756 | | | 255 | | | 126 | | | — | | | 9,534 | |
Noninterest expense | 6,933 | | | 1,580 | | | 2,044 | | | 2,743 | | | 1,251 | | | — | | | 14,551 | |
Income (loss) before income tax expense (benefit) | (2,427) | | | (1,524) | | | (1,741) | | | 208 | | | 1 | | | (316) | | | (5,799) | |
Income tax expense (benefit) | (650) | | | (379) | | | (408) | | | 52 | | | (300) | | | (316) | | | (2,001) | |
Net income (loss) before noncontrolling interests | (1,777) | | | (1,145) | | | (1,333) | | | 156 | | | 301 | | | — | | | (3,798) | |
Less: Net income from noncontrolling interests | — | | | 1 | | | — | | | — | | | 47 | | | — | | | 48 | |
Net income (loss) | $ | (1,777) | | | (1,146) | | | (1,333) | | | 156 | | | 254 | | | — | | | (3,846) | |
Six months ended June 30, 2021 | | | | | | | | | | | | | |
Net interest income | $ | 11,233 | | | 2,456 | | | 3,562 | | | 1,267 | | | (694) | | | (216) | | | 17,608 | |
Noninterest income | 6,107 | | | 1,733 | | | 3,380 | | | 5,813 | | | 4,744 | | | (583) | | | 21,194 | |
Total revenue | 17,340 | | | 4,189 | | | 6,942 | | | 7,080 | | | 4,050 | | | (799) | | | 38,802 | |
Provision for credit losses | (786) | | | (781) | | | (785) | | | (19) | | | 63 | | | — | | | (2,308) | |
Noninterest expense | 12,469 | | | 3,073 | | | 3,638 | | | 5,919 | | | 2,231 | | | — | | | 27,330 | |
Income (loss) before income tax expense (benefit) | 5,657 | | | 1,897 | | | 4,089 | | | 1,180 | | | 1,756 | | | (799) | | | 13,780 | |
Income tax expense (benefit) | 1,415 | | | 473 | | | 1,013 | | | 296 | | | (52) | | | (799) | | | 2,346 | |
Net income before noncontrolling interests | 4,242 | | | 1,424 | | | 3,076 | | | 884 | | | 1,808 | | | — | | | 11,434 | |
Less: Net income (loss) from noncontrolling interests | — | | | 3 | | | (2) | | | — | | | 757 | | | — | | | 758 | |
Net income | $ | 4,242 | | | 1,421 | | | 3,078 | | | 884 | | | 1,051 | | | — | | | 10,676 | |
Six months ended June 30, 2020 | | | | | | | | | | | | | |
Net interest income | $ | 11,719 | | | 3,287 | | | 3,984 | | | 1,557 | | | 939 | | | (264) | | | 21,222 | |
Noninterest income | 4,538 | | | 1,409 | | | 3,483 | | | 4,919 | | | 1,303 | | | (415) | | | 15,237 | |
Total revenue | 16,257 | | | 4,696 | | | 7,467 | | | 6,476 | | | 2,242 | | | (679) | | | 36,459 | |
Provision for credit losses | 4,671 | | | 3,336 | | | 4,881 | | | 263 | | | 388 | | | — | | | 13,539 | |
Noninterest expense | 13,190 | | | 3,153 | | | 3,914 | | | 5,400 | | | 1,942 | | | — | | | 27,599 | |
Income (loss) before income tax expense (benefit) | (1,604) | | | (1,793) | | | (1,328) | | | 813 | | | (88) | | | (679) | | | (4,679) | |
Income tax expense (benefit) | (445) | | | (442) | | | (307) | | | 204 | | | 21 | | | (679) | | | (1,648) | |
Net income (loss) before noncontrolling interests | (1,159) | | | (1,351) | | | (1,021) | | | 609 | | | (109) | | | — | | | (3,031) | |
Less: Net income (loss) from noncontrolling interests | — | | | 2 | | | — | | | — | | | (103) | | | — | | | (101) | |
Net income (loss) | $ | (1,159) | | | (1,353) | | | (1,021) | | | 609 | | | (6) | | | — | | | (2,930) | |
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(1)IncludesAll other business activities that are not included in the elimination ofreportable operating segments have been included in Corporate. For additional information, see the “Corporate” section below. In March 2021, we announced an agreement to sell our Corporate Trust Services business and, in second quarter 2021, we moved the business from the Commercial Banking operating segment to Corporate. Prior period balances have been revised to conform with the current period presentation.
(2)Taxable-equivalent adjustments related to tax-exempt income on certain items thatloans and debt securities are included in more than one business segment, substantially all of which represents productsnet interest income, while taxable-equivalent adjustments related to income tax credits for low-income housing and services for WIM customers served through Communityrenewable energy investments are included in noninterest income, in each case with corresponding impacts to income tax expense (benefit). Adjustments are included in Corporate, Commercial Banking, distribution channels.and Corporate and Investment Banking and are eliminated to reconcile to the Company’s consolidated financial results.
CommunityConsumer Banking and Lending offers a complete line of diversified financial products and services for consumers and small businesses with annual sales generally up to $5 million in which the owner generally is the financial decision maker.million. These financial products and services include checking and savings accounts, credit and
debit cards, automobile, student, mortgage,as well as home, equityauto, personal, and small business lending, as well as referrals to
Wholesalelending. Table 5a and Table 5b provide additional information for Consumer 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 other segments and results of investments in our affiliated venture capital and private equity partnerships. Table 4a provides additional financial information for Community Banking.Lending.
Table 4a:5a: CommunityConsumer Banking and Lending – Income Statement and Selected Metrics
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| Quarter ended Sep 30, | | | | | | Nine months ended Sep 30, | | | | |
(in millions, except average balances which are in billions) | 2020 | | 2019 | | $ Change | | % Change | | 2020 | | 2019 | | $ Change | | % Change |
Net interest income | $ | 5,587 | | | 6,769 | | | (1,182) | | | (17) | % | | $ | 18,073 | | | 21,083 | | | (3,010) | | | (14) | % |
Noninterest income (1) | | | | | | | | | | | | | | | |
Deposit-related fees | 723 | | | 952 | | | (229) | | | (24) | | | 2,207 | | | 2,675 | | | (468) | | | (17) | |
Trust and investment fees: | | | | | | | | | | | | | | | |
Brokerage advisory, commissions and other fees (2) | 489 | | | 504 | | | (15) | | | (3) | | | 1,440 | | | 1,433 | | | 7 | | | — | |
Trust and investment management (2) | 188 | | | 203 | | | (15) | | | (7) | | | 556 | | | 612 | | | (56) | | | (9) | |
Investment banking (3) | — | | | (26) | | | 26 | | | 100 | | | (166) | | | (64) | | | (102) | | | NM |
Total trust and investment fees | 677 | | | 681 | | | (4) | | | (1) | | | 1,830 | | | 1,981 | | | (151) | | | (8) | |
Card fees | 856 | | | 936 | | | (80) | | | (9) | | | 2,397 | | | 2,723 | | | (326) | | | (12) | |
Lending-related fees | 42 | | | 60 | | | (18) | | | (30) | | | 128 | | | 191 | | | (63) | | | (33) | |
Mortgage banking | 1,542 | | | 339 | | | 1,203 | | | 355 | | | 2,135 | | | 1,635 | | | 500 | | | 31 | |
Net gains (losses) from trading activities | (11) | | | 19 | | | (30) | | | NM | | 24 | | | 13 | | | 11 | | | 85 | |
Net gains (losses) on debt securities | 240 | | | (1) | | | 241 | | | NM | | 557 | | | 51 | | | 506 | | | 992 | |
Net gains (losses) from equity securities (4) | 587 | | | 822 | | | (235) | | | (29) | | | (53) | | | 1,894 | | | (1,947) | | | NM |
Other | 479 | | | 662 | | | (183) | | | (28) | | | 1,686 | | | 2,548 | | | (862) | | | (34) | |
Total noninterest income | 5,135 | | | 4,470 | | | 665 | | | 15 | | | 10,911 | | | 13,711 | | | (2,800) | | | (20) | |
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Total revenue | 10,722 | | | 11,239 | | | (517) | | | (5) | | | 28,984 | | | 34,794 | | | (5,810) | | | (17) | |
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Provision for credit losses | 556 | | | 608 | | | (52) | | | (9) | | | 5,652 | | | 1,797 | | | 3,855 | | | 215 | |
Noninterest expense (5) | | | | | | | | | | | | | | | |
Personnel | 5,688 | | | 5,533 | | | 155 | | | 3 | | | 17,146 | | | 16,941 | | | 205 | | | 1 | |
Technology, telecommunications and equipment | 775 | | | 691 | | | 84 | | | 12 | | | 2,305 | | | 2,150 | | | 155 | | | 7 | |
Occupancy | 649 | | | 584 | | | 65 | | | 11 | | | 1,863 | | | 1,668 | | | 195 | | | 12 | |
Operating losses | 1,209 | | | 1,806 | | | (597) | | | (33) | | | 2,700 | | | 2,222 | | | 478 | | | 22 | |
Professional and outside services | 1,284 | | | 1,212 | | | 72 | | | 6 | | | 3,590 | | | 3,445 | | | 145 | | | 4 | |
Advertising and promotion | 139 | | | 252 | | | (113) | | | (45) | | | 442 | | | 791 | | | (349) | | | (44) | |
Restructuring charges | 718 | | | — | | | 718 | | | NM | | 718 | | | — | | | 718 | | | NM |
Other | (1,515) | | | (1,312) | | | (203) | | | (15) | | | (4,355) | | | (3,550) | | | (805) | | | (23) | |
Total noninterest expense | 8,947 | | | 8,766 | | | 181 | | | 2 | | | 24,409 | | | 23,667 | | | 742 | | | 3 | |
Income (loss) before income tax expense (benefit) and noncontrolling interests | 1,219 | | | 1,865 | | | (646) | | | (35) | | | (1,077) | | | 9,330 | | | (10,407) | | | NM |
Income tax expense (benefit) | 703 | | | 667 | | | 36 | | | 5 | | | (1,319) | | | 1,929 | | | (3,248) | | | NM |
Less: Net income from noncontrolling interests (6) | 180 | | | 199 | | | (19) | | | (10) | | | 82 | | | 432 | | | (350) | | | (81) | |
Net income | $ | 336 | | | 999 | | | (663) | | | (66) | | | $ | 160 | | | 6,969 | | | (6,809) | | | (98) | |
Average loans | $ | 457.6 | | | 459.0 | | | (1.4) | | | — | | | $ | 456.5 | | | 458.3 | | | (1.8) | | | — | |
Average deposits | 881.7 | | | 789.7 | | | 92.0 | | | 12 | | | 843.0 | | | 777.7 | | | 65.3 | | | 8 | |
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| Quarter ended June 30, | | | | | | Six months ended June 30, | | | | | | | | | | |
($ in millions, unless otherwise noted) | 2021 | | 2020 | | $ Change | | % Change | | 2021 | | 2020 | | $ Change | | % Change | | | | | | |
Income Statement | | | | | | | | | | | | | | | | | | | | | |
Net interest income | $ | 5,618 | | | 5,717 | | | (99) | | | (2) | % | | $ | 11,233 | | | 11,719 | | | (486) | | | (4) | % | | | | | | |
Noninterest income: | | | | | | | | | | | | | | | | | | | | | |
Deposit-related fees | 732 | | | 575 | | | 157 | | | 27 | | | 1,393 | | | 1,454 | | | (61) | | | (4) | | | | | | | |
Card fees | 1,017 | | | 749 | | | 268 | | | 36 | | | 1,909 | | | 1,568 | | | 341 | | | 22 | | | | | | | |
Mortgage banking | 1,158 | | | 256 | | | 902 | | | 352 | | | 2,417 | | | 598 | | | 1,819 | | | 304 | | | | | | | |
Other | 161 | | | 311 | | | (150) | | | (48) | | | 388 | | | 918 | | | (530) | | | (58) | | | | | | | |
Total noninterest income | 3,068 | | | 1,891 | | | 1,177 | | | 62 | | | 6,107 | | | 4,538 | | | 1,569 | | | 35 | | | | | | | |
Total revenue | 8,686 | | | 7,608 | | | 1,078 | | | 14 | | | 17,340 | | | 16,257 | | | 1,083 | | | 7 | | | | | | | |
Net charge-offs | 359 | | | 553 | | | (194) | | | (35) | | | 729 | | | 1,174 | | | (445) | | | (38) | | | | | | | |
Change in the allowance for credit losses | (726) | | | 2,549 | | | (3,275) | | | NM | | (1,515) | | | 3,497 | | | (5,012) | | | NM | | | | | | |
Provision for credit losses | (367) | | | 3,102 | | | (3,469) | | | NM | | (786) | | | 4,671 | | | (5,457) | | | NM | | | | | | |
Noninterest expense | 6,202 | | | 6,933 | | | (731) | | | (11) | | | 12,469 | | | 13,190 | | | (721) | | | (5) | | | | | | | |
Income (loss) before income tax expense (benefit) | 2,851 | | | (2,427) | | | 5,278 | | | NM | | 5,657 | | | (1,604) | | | 7,261 | | | NM | | | | | | |
Income tax expense (benefit) | 713 | | | (650) | | | 1,363 | | | NM | | 1,415 | | | (445) | | | 1,860 | | | NM | | | | | | |
Net income (loss) | $ | 2,138 | | | (1,777) | | | 3,915 | | | NM | | $ | 4,242 | | | (1,159) | | | 5,401 | | | NM | | | | | | |
Revenue by Line of Business | | | | | | | | | | | | | | | | | | | | | |
Consumer and Small Business Banking | $ | 4,714 | | | 4,401 | | | 313 | | | 7 | | | $ | 9,264 | | | 9,262 | | | 2 | | | — | | | | | | | |
Consumer Lending: | | | | | | | | | | | | | | | | | | | | | |
Home Lending | 2,072 | | | 1,477 | | | 595 | | | 40 | | | 4,299 | | | 3,353 | | | 946 | | | 28 | | | | | | | |
Credit Card | 1,363 | | | 1,196 | | | 167 | | | 14 | | | 2,709 | | | 2,571 | | | 138 | | | 5 | | | | | | | |
Auto | 415 | | | 388 | | | 27 | | | 7 | | | 818 | | | 768 | | | 50 | | | 7 | | | | | | | |
Personal Lending | 122 | | | 146 | | | (24) | | | (16) | | | 250 | | | 303 | | | (53) | | | (17) | | | | | | | |
Total revenue | $ | 8,686 | | | 7,608 | | | 1,078 | | | 14 | | | $ | 17,340 | | | 16,257 | | | 1,083 | | | 7 | | | | | | | |
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Selected Metrics | | | | | | | | | | | | | | | | | | | | | |
Consumer Banking and Lending: | | | | | | | | | | | | | | | | | | | | | |
Return on allocated capital (1) | 17.3 | % | | (15.5) | | | | | | | 17.2 | % | | (5.5) | | | | | | | | | | | |
Efficiency ratio (2) | 71 | | | 91 | | | | | | | 72 | | | 81 | | | | | | | | | | | |
Headcount (#) (period-end) | 116,185 | | | 133,876 | | | | | (13) | | | 116,185 | | | 133,876 | | | | | (13) | | | | | | | |
Retail bank branches (#) | 4,878 | | | 5,300 | | | | | (8) | | | 4,878 | | | 5,300 | | | | | (8) | | | | | | | |
Digital active customers (# in millions) (3) | 32.6 | | | 31.1 | | | | | 5 | | | 32.6 | | | 31.1 | | | | | 5 | | | | | | | |
Mobile active customers (# in millions) (3) | 26.8 | | | 25.2 | | | | | 6 | | | 26.8 | | | 25.2 | | | | | 6 | | | | | | | |
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Consumer and Small Business Banking: | | | | | | | | | | | | | | | | | | | | | |
Deposit spread (4) | 1.5 | % | | 1.8 | | | | | | | 1.6 | % | | 1.9 | | | | | | | | | | | |
Debit card purchase volume ($ in billions) (5) | $ | 122.0 | | | 93.1 | | | 28.9 | | | 31 | | | $ | 230.5 | | | 183.7 | | | 46.8 | | | 25 | | | | | | | |
Debit card purchase transactions (# in millions) (5) | 2,504 | | | 2,027 | | | | | 24 | | | 4,770 | | | 4,222 | | | | | 13 | | | | | | | |
(continued on following page)
Earnings Performance (continued)
(continued from previous page)
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| Quarter ended June 30, | | | | | | Six months ended June 30, | | | | | | | | | | |
($ in millions, unless otherwise noted) | 2021 | | 2020 | | $ Change | | % Change | | 2021 | | 2020 | | $ Change | | % Change | | | | | | |
Home Lending: | | | | | | | | | | | | | | | | | | | | | |
Mortgage banking: | | | | | | | | | | | | | | | | | | | | | |
Servicing income, net | $ | (76) | | | (666) | | | 590 | | | 89% | | $ | (199) | | | (409) | | | 210 | | | 51 | % | | | | | | |
Net gains on mortgage loan originations/sales | 1,234 | | | 922 | | | 312 | | | 34 | | 2,616 | | | 1,007 | | | 1,609 | | | 160 | | | | | | |
Total mortgage banking | $ | 1,158 | | | 256 | | | 902 | | | 352 | | $ | 2,417 | | | 598 | | | 1,819 | | | 304 | | | | | | |
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Originations ($ in billions): | | | | | | | | | | | | | | | | | | | | | |
Retail | $ | 36.9 | | | 30.5 | | | 6.4 | | | 21 | | $ | 70.5 | | | 53.6 | | | 16.9 | | | 32 | | | | | | |
Correspondent | 16.3 | | | 28.7 | | | (12.4) | | | (43) | | 34.5 | | | 53.6 | | | (19.1) | | | (36) | | | | | | |
Total originations | $ | 53.2 | | | 59.2 | | | (6.0) | | | (10) | | $ | 105.0 | | | 107.2 | | | (2.2) | | | (2) | | | | | | |
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% of originations held for sale (HFS) | 65.6 | % | | 71.8 | | | | | | | 70.7 | % | | 70.7 | | | | | | | | | | | |
Third-party mortgage loans serviced (period-end) ($ in billions) (6) | $ | 769.4 | | | 989.5 | | | (220.1) | | | (22) | | $ | 769.4 | | | 989.5 | | | (220.1) | | | (22) | | | | | | |
Mortgage servicing rights (MSR) carrying value (period-end) | 6,717 | | | 6,819 | | | (102) | | | (1) | | 6,717 | | | 6,819 | | | (102) | | | (1) | | | | | | |
Ratio of MSR carrying value (period-end) to third-party mortgage loans serviced (period-end) (6) | 0.87 | % | | 0.69 | | | | | | | 0.87 | % | | 0.69 | | | | | | | | | | | |
Home lending loans 30+ days or more delinquency rate (7)(8) | 0.51 | | | 0.54 | | | | | | | 0.51 | | | 0.54 | | | | | | | | | | | |
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Credit Card: | | | | | | | | | | | | | | | | | | | | | |
Point of sale (POS) volume ($ in billions) | $ | 25.5 | | | 17.5 | | | 8.0 | | | 46 | | $ | 46.6 | | | 37.4 | | | 9.2 | | | 25 | | | | | | |
New accounts (# in thousands) (9) | 323 | | | 255 | | | | | 27 | | 589 | | | 570 | | | | | 3 | | | | | | |
Credit card loans 30+ days or more delinquency rate (8) | 1.46 | % | | 2.10 | | | | | | | 1.46 | % | | 2.10 | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Auto: | | | | | | | | | | | | | | | | | | | | | |
Auto originations ($ in billions) | $ | 8.3 | | | 5.6 | | | 2.7 | | | 48 | | $ | 15.3 | | | 12.1 | | | 3.2 | | | 26 | | | | | | |
Auto loans 30+ days or more delinquency rate (8) | 1.30 | % | | 1.70 | | | | | | | 1.30 | % | | 1.70 | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Personal Lending: | | | | | | | | | | | | | | | | | | | | | |
New funded balances | $ | 565 | | | 315 | | | 250 | | | 79 | | $ | 978 | | | 982 | | (4) | | | — | | | | | | |
NM – Not meaningful
(1)In thirdReturn on allocated capital is segment net income (loss) applicable to common stock divided by segment average allocated capital. Segment net income (loss) applicable to common stock is segment net income (loss) less allocated preferred stock dividends.
(2)Efficiency ratio is segment noninterest expense divided by segment total revenue (net interest income and noninterest income).
(3)Digital and mobile active customers is the number of consumer and small business customers who have logged on via a digital or mobile device, respectively, in the prior 90 days. Digital active customers includes both online and mobile customers.
(4)Deposit spread is (i) the internal funds transfer pricing credit on segment deposits minus interest paid to customers for segment deposits, divided by (ii) average segment deposits.
(5)Debit card purchase volume and transactions reflect combined activity for both consumer and business debit card purchases.
(6)Excludes residential mortgage loans subserviced for others.
(7)Excludes residential mortgage loans insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) and loans held for sale.
(8)Beginning in second quarter 2020, service chargescustomer payment deferral activities instituted in response to the COVID-19 pandemic may have delayed the recognition of delinquencies for those customers who would have otherwise moved into past due status.
(9)Excludes certain private label new account openings.
Second quarter 2021 vs. second quarter 2020
Revenue increased driven by:
•higher mortgage banking noninterest income due to higher gains related to the re-securitization of loans we purchased from GNMA loan securitization pools in 2020, as well as higher income from MSR valuation changes and related hedges;
•higher card fees reflecting higher interchange fees, net of rewards, driven by increased purchase and transaction volumes; and
•higher deposit-related fees driven by lower fee waivers and reversals compared with a second quarter 2020 that included elevated fee waivers due to our actions to support customers during the COVID-19 pandemic;
partially offset by:
•lower net interest income reflecting the lower interest rate environment and lower loan balances; and
•lower other income driven by lower gains on loan sales.
Provision for credit losses decreased driven by an improving economic environment.
Noninterest expense decreased driven by:
•lower operating losses due to lower expense for litigation accruals and customer remediation accruals;
•lower personnel expense driven by additional payments in second quarter 2020 for certain customer-facing and support employees and for back-up child care services, as well as lower branch staffing expense in second quarter 2021 related to efficiency initiatives in Consumer and Small Business Banking, partially offset by higher revenue-related compensation in Home Lending; and
•lower expense allocated from enterprise functions, reflecting risk management and technology support related expenses;
partially offset by:
•higher charitable donations expense due to the donation of PPP processing fees; and
•higher FDIC deposit accounts, cash networkassessment expense driven by a higher assessment rate.
First half of 2021 vs. first half of 2020
Revenue increased driven by:
•higher mortgage banking noninterest income due to higher retail HFS origination volumes and margins, and higher income from MSR valuation changes and related hedges; and
•higher card fees wire transferreflecting higher interchange fees, net of rewards, driven by increased purchase and transaction volumes, partially offset by lower late fees due to higher payment rates;
partially offset by:
•lower net interest income reflecting the lower interest rate environment and lower loan balances;
•lower other remittanceincome driven by lower gains on loan sales; and
•lower deposit-related fees driven by higher fee waivers and reversals, as well as higher average consumer deposit account balances due to the economic slowdown associated with the COVID-19 pandemic.
Provision for credit losses decreased driven by an improving economic environment.
Noninterest expense decreased driven by:
•lower operating losses due to lower expense for litigation accruals and customer remediation accruals;
•lower personnel expense driven by a first half of 2020 that included additional payments for certain customer-facing and support employees and for back-up child care services, as well as lower branch staffing expense in the first half of 2021 related to efficiency initiatives in Consumer and Small Business Banking, partially offset by higher revenue-related compensation in Home Lending; and
•lower advertising and promotion expense;
partially offset by:
•higher charitable donations expense due to the donation of PPP processing fees;
•higher FDIC deposit assessment expense driven by a higher assessment rate; and
•higher expense allocated from enterprise functions, reflecting risk management and technology support related expenses.
Table 5b: Consumer Banking and Lending – Balance Sheet
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended June 30, | | | | | | Six months ended June 30, | | | | | | | | | | |
(in millions) | 2021 | | 2020 | | $ Change | | % Change | | 2021 | | 2020 | | $ Change | | % Change | | | | | | |
Selected Balance Sheet Data (average) | | | | | | | | | | | | | | | | | | | | | |
Loans by Line of Business: | | | | | | | | | | | | | | | | | | | | | |
Home Lending | $ | 223,229 | | | 262,209 | | | (38,980) | | | (15) | % | | $ | 233,078 | | | 269,518 | | | (36,440) | | | (14) | % | | | | | | |
Auto | 50,762 | | | 49,611 | | | 1,151 | | | 2 | | | 50,143 | | | 49,552 | | | 591 | | | 1 | | | | | | | |
Credit Card | 34,211 | | | 36,539 | | | (2,328) | | | (6) | | | 34,705 | | | 38,147 | | | (3,442) | | | (9) | | | | | | | |
Small Business | 18,768 | | | 14,887 | | | 3,881 | | | 26 | | | 19,449 | | | 12,301 | | | 7,148 | | | 58 | | | | | | | |
Personal Lending | 4,922 | | | 6,385 | | | (1,463) | | | (23) | | | 5,053 | | | 6,578 | | | (1,525) | | | (23) | | | | | | | |
Total loans | $ | 331,892 | | | 369,631 | | | (37,739) | | | (10) | | | $ | 342,428 | | | 376,096 | | | (33,668) | | | (9) | | | | | | | |
Total deposits | 835,752 | | | 715,144 | | | 120,608 | | | 17 | | | 812,723 | | | 683,925 | | | 128,798 | | | 19 | | | | | | | |
Allocated capital | 48,000 | | | 48,000 | | | — | | | — | | | 48,000 | | | 48,000 | | | — | | | — | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Selected Balance Sheet Data (period-end) | | | | | | | | | | | | | | | | | | | | | |
Loans by Line of Business: | | | | | | | | | | | | | | | | | | | | | |
Home Lending | $ | 218,626 | | | 258,582 | | | (39,956) | | | (15) | | | $ | 218,626 | | | 258,582 | | | (39,956) | | | (15) | | | | | | | |
Auto | 51,784 | | | 49,924 | | | 1,860 | | | 4 | | | 51,784 | | | 49,924 | | | 1,860 | | | 4 | | | | | | | |
Credit Card | 34,936 | | | 36,018 | | | (1,082) | | | (3) | | | 34,936 | | | 36,018 | | | (1,082) | | | (3) | | | | | | | |
Small Business | 16,494 | | | 18,116 | | | (1,622) | | | (9) | | | 16,494 | | | 18,116 | | | (1,622) | | | (9) | | | | | | | |
Personal Lending | 4,920 | | | 6,113 | | | (1,193) | | | (20) | | | 4,920 | | | 6,113 | | | (1,193) | | | (20) | | | | | | | |
Total loans | $ | 326,760 | | | 368,753 | | | (41,993) | | | (11) | | | $ | 326,760 | | | 368,753 | | | (41,993) | | | (11) | | | | | | | |
Total deposits | 840,434 | | | 746,602 | | | 93,832 | | | 13 | | | 840,434 | | | 746,602 | | | 93,832 | | | 13 | | | | | | | |
Second quarter 2021 vs. second quarter 2020
Total loans (average) decreased as paydowns exceeded originations. Home lending loan balances were also impacted by actions taken to suspend certain non-conforming residential mortgage and home equity originations.
Total deposits (average) increased driven by higher levels of liquidity and savings for consumer customers reflecting government stimulus programs and payment deferral programs, as well as continued economic uncertainty associated with the COVID-19 pandemic.
First half of 2021 vs. first half of 2020
Total loans (average and period-end) decreased as paydowns exceeded originations. Home lending loan balances were also impacted by actions taken to suspend certain non-conforming residential mortgage and home equity originations.
Total deposits (average and period-end) increased driven by higher levels of liquidity and savings for consumer customers reflecting government stimulus programs and payment deferral programs, as well as continued economic uncertainty associated with the COVID-19 pandemic.
Earnings Performance (continued)
Commercial Banking provides financial solutions to private, family owned and certain other fees were combined into a single line item for deposit-related fees; certain fees associated withpublic companies. Products and services include banking and credit products across multiple industry sectors and municipalities, secured lending activities were combined into a single line item for lending-related fees; and certain other fees were reclassifiedlease products, and treasury management. In March 2021, we announced an agreement to other noninterest income.sell our Corporate Trust Services
business and, in second quarter 2021, we moved the business from the Commercial Banking operating segment to Corporate. Prior period balances have been revised to conform with the current period presentation. Table 5c and Table 5d provide additional information for Commercial Banking.
Table 5c:Commercial Banking – Income Statement and Selected Metrics
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended June 30, | | | | | | Six months ended June 30, | | | | | | | | | | |
($ in millions) | 2021 | | 2020 | | $ Change | | % Change | | 2021 | | 2020 | | $ Change | | % Change | | | | | | |
Income Statement | | | | | | | | | | | | | | | | | | | | | |
Net interest income | $ | 1,202 | | | 1,554 | | | (352) | | | (23) | % | | $ | 2,456 | | | 3,287 | | | (831) | | | (25) | % | | | | | | |
Noninterest income: | | | | | | | | | | | | | | | | | | | | | |
Deposit-related fees | 325 | | | 297 | | | 28 | | | 9 | | | 642 | | | 599 | | | 43 | | | 7 | | | | | | | |
Lending-related fees | 135 | | | 125 | | | 10 | | | 8 | | | 271 | | | 253 | | | 18 | | | 7 | | | | | | | |
Lease income | 173 | | | 189 | | | (16) | | | (8) | | | 347 | | | 387 | | | (40) | | | (10) | | | | | | | |
Other | 273 | | | 186 | | | 87 | | | 47 | | | 473 | | | 170 | | | 303 | | | 178 | | | | | | | |
Total noninterest income | 906 | | | 797 | | | 109 | | | 14 | | | 1,733 | | | 1,409 | | | 324 | | | 23 | | | | | | | |
Total revenue | 2,108 | | | 2,351 | | | (243) | | | (10) | | | 4,189 | | | 4,696 | | | (507) | | | (11) | | | | | | | |
Net charge-offs | 53 | | | 120 | | | (67) | | | (56) | | | 92 | | | 290 | | | (198) | | | (68) | | | | | | | |
Change in the allowance for credit losses | (435) | | | 2,175 | | | (2,610) | | | NM | | (873) | | | 3,046 | | | (3,919) | | | NM | | | | | | |
Provision for credit losses | (382) | | | 2,295 | | | (2,677) | | | NM | | (781) | | | 3,336 | | | (4,117) | | | NM | | | | | | |
Noninterest expense | 1,443 | | | 1,580 | | | (137) | | | (9) | | | 3,073 | | | 3,153 | | | (80) | | | (3) | | | | | | | |
Income (loss) before income tax expense (benefit) | 1,047 | | | (1,524) | | | 2,571 | | | NM | | 1,897 | | | (1,793) | | | 3,690 | | | NM | | | | | | |
Income tax expense (benefit) | 261 | | | (379) | | | 640 | | | NM | | 473 | | | (442) | | | 915 | | | NM | | | | | | |
Less: Net income from noncontrolling interests | 2 | | | 1 | | | 1 | | | 100 | | 3 | | | 2 | | | 1 | | | 50 | | | | | | | |
Net income (loss) | $ | 784 | | | (1,146) | | | 1,930 | | | NM | | $ | 1,421 | | | (1,353) | | | 2,774 | | | NM | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Revenue by Line of Business | | | | | | | | | | | | | | | | | | | | | |
Middle Market Banking | $ | 1,151 | | | 1,267 | | | (116) | | | (9) | | | $ | 2,310 | | | 2,722 | | | (412) | | | (15) | | | | | | | |
Asset-Based Lending and Leasing | 957 | | | 1,084 | | | (127) | | | (12) | | | 1,879 | | | 1,974 | | | (95) | | | (5) | | | | | | | |
Total revenue | $ | 2,108 | | | 2,351 | | | (243) | | | (10) | | | $ | 4,189 | | | 4,696 | | | (507) | | | (11) | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Revenue by Product | | | | | | | | | | | | | | | | | | | | | |
Lending and leasing | $ | 1,207 | | | 1,404 | | | (197) | | | (14) | | | $ | 2,409 | | | 2,835 | | | (426) | | | (15) | | | | | | | |
Treasury management and payments | 680 | | | 780 | | | (100) | | | (13) | | | 1,401 | | | 1,723 | | | (322) | | | (19) | | | | | | | |
Other | 221 | | | 167 | | | 54 | | | 32 | | | 379 | | | 138 | | | 241 | | | 175 | | | | | | | |
Total revenue | $ | 2,108 | | | 2,351 | | | (243) | | | (10) | | | $ | 4,189 | | | 4,696 | | | (507) | | | (11) | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Selected Metrics | | | | | | | | | | | | | | | | | | | | | |
Return on allocated capital | 15.2 | % | | (24.7) | | | | | | | 13.8 | % | | (15.0) | | | | | | | | | | | |
Efficiency ratio | 68 | | | 67 | | | | | | | 73 | | | 67 | | | | | | | | | | | |
Headcount (#) (period-end) | 19,647 | | | 21,984 | | | | | (11) | | | 19,647 | | | 21,984 | | | | (11) | | | | | | | |
NM – Not meaningful
Second quarter 2021 vs. second quarter 2020
Revenue decreased driven by:
(2)•Representslower net interest income reflecting lower loan balances and the lower interest rate environment;
partially offset by:
•higher other noninterest income due to gains on productsequity securities and services for WIM customers served through Community Banking distribution channels which is eliminated in consolidation.higher income from renewable energy investments; and
(3)•Includes underwritinghigher deposit-related fees paiddue to Wells Fargo Securitieshigher treasury management fees, driven by an increase in transaction service volumes and repricing.
Provision for servicescredit losses decreased driven by an improving economic environment.
Noninterest expense decreased driven by:
•lower spending related to the issuance of our corporate securities which are offset in our Wholesale Banking segment and eliminated in consolidation.efficiency initiatives, including lower personnel expense from reduced headcount;
(4)•Primarily represents gains (losses) resulting from venture capital investments.lower lease expense reflecting a reduction in the size of the operating lease asset portfolio;
(5)•In third quarter 2020, expenses for outside professional services, contract services, and outside data processing were combined into a single line item forlower professional and outside services expense; expenses for technology and equipment and telecommunications were combined into a single line item for technology, telecommunications and equipmentexpense reflecting decreased project-related expense; and certain other expenses were reclassified to other noninterest expense. Prior period balances have been revised to conform with the current period presentation.
(6)•Reflects results attributable to noncontrolling interests predominantly associated with the Company’s consolidated venture capital investments.lower expenses allocated from enterprise functions, including lower technology expenses.
Third quarter 2020 vs. third quarter 2019
First half of 2021 vs. first half of 2020
Revenue decreased driven by:
•lower net interest income reflecting the lower interest rate environment and changes in the mix of earning assetslower loan balances; and funding sources;
•lower deposit-related fees driven by lower customer transaction volumes and higher average consumer deposit account balances due tolease income reflecting a reduction in the economic slowdown associated withsize of the COVID-19 pandemic, as well as fee waivers and reversals as part of our actions to support customers during the COVID-19 pandemic;
•lower net gains from equity securities due to impairments; and
•lower other income driven by higher gains in third quarter 2019 related to sales of PCI loans;operating lease asset portfolio;
partially offset by:
•higher mortgage banking revenueother noninterest income due to an increasegains on equity securities, impairments on equity securities in real estate HFS origination volumesfirst quarter 2020, and higher MSR valuation gains, net of hedge results,income from renewable energy investments; and
•higher deposit-related fees due to higher treasury management fees, driven by favorable hedge results.a lower earnings credit rate due to the lower interest rate environment and repricing.
Provision for credit losses decreased driven by an improving economic environment.
Noninterest expense increased due to:decreased driven by:
•higher restructuring charges driven predominantly by severance costs, as well as facility closure costs,lower spending related to our efficiency initiatives, that commenced in third quarter 2020. All restructuring charges were included in the Community Banking segment. For additional information on
Earnings Performance (continued)
restructuring charges, see Note 2 (Restructuring Charges) to Financial Statements in this Report;including lower personnel expense from reduced headcount;
•higher personnellower lease expense and technology, telecommunications and equipment expense;
•higher charitable contributions expense within other expense;reflecting a reduction in the size of the operating lease asset portfolio; and
•higher FDIC deposit assessmentlower professional and outside services expense within other expense driven by a higher assessment rate and higher deposit balances;reflecting decreased project-related expense;
partially offset by:
•higher expenses due to lower operating losses, as third quarter 2019 included a $1.6 billion discrete litigation accrual related to retail sales practices matters; andallocations of shared expenses with other lines of business.
Table 5d:Commercial Banking – Balance Sheet
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended June 30, | | | | | | Six months ended June 30, | | | | | | | | | | |
(in millions) | 2021 | | 2020 | | $ Change | | % Change | | 2021 | | 2020 | | $ Change | | % Change | | | | | | |
Selected Balance Sheet Data (average) | | | | | | | | | | | | | | | | | | | | | |
Loans: | | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | $ | 117,585 | | | 158,982 | | | (41,397) | | | (26) | % | | $ | 119,248 | | | 156,645 | | | (37,397) | | | (24) | % | | | | | | |
Commercial real estate | 47,203 | | | 53,157 | | | (5,954) | | | (11) | | | 47,885 | | | 53,223 | | | (5,338) | | | (10) | | | | | | | |
Lease financing and other | 13,784 | | | 16,284 | | | (2,500) | | | (15) | | | 13,712 | | | 16,773 | | | (3,061) | | | (18) | | | | | | | |
Total loans | $ | 178,572 | | | 228,423 | | | (49,851) | | | (22) | | | $ | 180,845 | | | 226,641 | | | (45,796) | | | (20) | | | | | | | |
Loans by Line of Business: | | | | | | | | | | | | | | | | | | | | | |
Middle Market Banking | $ | 102,054 | | | 122,319 | | | (20,265) | | | (17) | | | $ | 103,210 | | | 119,276 | | | (16,066) | | | (13) | | | | | | | |
Asset-Based Lending and Leasing | 76,518 | | | 106,104 | | | (29,586) | | | (28) | | | 77,635 | | | 107,365 | | | (29,730) | | | (28) | | | | | | | |
Total loans | $ | 178,572 | | | 228,423 | | | (49,851) | | | (22) | | | $ | 180,845 | | | 226,641 | | | (45,796) | | | (20) | | | | | | | |
Total deposits | 192,586 | | | 184,132 | | | 8,454 | | | 5 | | | 190,984 | | | 175,929 | | | 15,055 | | | 9 | | | | | | | |
Allocated capital | 19,500 | | | 19,500 | | | — | | | — | | | 19,500 | | | 19,500 | | — | | | — | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Selected Balance Sheet Data (period-end) | | | | | | | | | | | | | | | | | | | | | |
Loans: | | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | $ | 117,782 | | | 142,315 | | | (24,533) | | | (17) | | | $ | 117,782 | | | 142,315 | | | (24,533) | | | (17) | | | | | | | |
Commercial real estate | 46,905 | | | 52,802 | | | (5,897) | | | (11) | | | 46,905 | | | 52,802 | | | (5,897) | | | (11) | | | | | | | |
Lease financing and other | 14,218 | | | 15,662 | | | (1,444) | | | (9) | | | 14,218 | | | 15,662 | | | (1,444) | | | (9) | | | | | | | |
Total loans | $ | 178,905 | | | 210,779 | | | (31,874) | | | (15) | | | $ | 178,905 | | | 210,779 | | | (31,874) | | | (15) | | | | | | | |
Loans by Line of Business: | | | | | | | | | | | | | | | | | | | | | |
Middle Market Banking | $ | 102,062 | | | 115,105 | | | (13,043) | | | (11) | | | $ | 102,062 | | | 115,105 | | | (13,043) | | | (11) | | | | | | | |
Asset-Based Lending and Leasing | 76,843 | | | 95,674 | | | (18,831) | | | (20) | | | 76,843 | | | 95,674 | | | (18,831) | | | (20) | | | | | | | |
Total loans | $ | 178,905 | | | 210,779 | | | (31,874) | | | (15) | | | $ | 178,905 | | | 210,779 | | | (31,874) | | | (15) | | | | | | | |
Total deposits | 197,461 | | | 183,085 | | | 14,376 | | | 8 | | | 197,461 | | | 183,085 | | | 14,376 | | | 8 | | | | | | | |
Second quarter 2021 vs. second quarter 2020
•Total loans (average) decreased driven by lower advertisingloan demand, including lower line utilization, and promotion expense.higher paydowns reflecting continued high levels of client liquidity and strength in the capital markets.
AverageTotal deposits (average) increased driven bydue to higher levels of liquidity and lower investment spending reflecting government stimulus programs and lower consumer spending due tocontinued economic uncertainty associated with the COVID-19 pandemic.
First nine monthshalf of 2021 vs. first half of 2020 vs. first nine months
Total loans (average and period-end) decreased driven by lower loan demand, including lower line utilization, and higher paydowns reflecting continued high levels of 2019client liquidity and strength in the capital markets.
Total deposits (average and period-end) increased due to higher levels of liquidity and lower investment spending reflecting government stimulus programs and continued economic uncertainty associated with the COVID-19 pandemic.
Earnings Performance (continued)
Corporate and Investment Banking delivers a suite of capital markets, banking, and financial products and services to corporate, commercial real estate, government and institutional clients globally. Products and services include corporate banking, investment banking, treasury management, commercial real
estate lending and servicing, equity and fixed income solutions, as well as sales, trading, and research capabilities. Table 5e and Table 5fprovide additional information for Corporate and Investment Banking.
Table 5e:Corporate and Investment Banking – Income Statement and Selected Metrics
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended June 30, | | | | | | Six months ended June 30, | | | | | | | | | | |
($ in millions) | 2021 | | 2020 | | $ Change | | % Change | | 2021 | | 2020 | | $ Change | | % Change | | | | | | |
Income Statement | | | | | | | | | | | | | | | | | | | | | |
Net interest income | $ | 1,783 | | | 1,963 | | | (180) | | | (9) | % | | $ | 3,562 | | | 3,984 | | | (422) | | | (11) | % | | | | | | |
Noninterest income: | | | | | | | | | | | | | | | | | | | | | |
Deposit-related fees | 277 | | | 261 | | | 16 | | | 6 | | | 543 | | | 518 | | | 25 | | | 5 | | | | | | | |
Lending-related fees | 190 | | | 163 | | | 27 | | | 17 | | | 373 | | | 335 | | | 38 | | | 11 | | | | | | | |
Investment banking fees | 580 | | | 588 | | | (8) | | | (1) | | | 1,191 | | | 1,065 | | | 126 | | | 12 | | | | | | | |
Net gains from trading activities | 30 | | | 809 | | | (779) | | | (96) | | | 361 | | | 844 | | | (483) | | | (57) | | | | | | | |
Other | 478 | | | 275 | | | 203 | | | 74 | | | 912 | | | 721 | | | 191 | | | 26 | | | | | | | |
Total noninterest income | 1,555 | | | 2,096 | | | (541) | | | (26) | | | 3,380 | | | 3,483 | | | (103) | | | (3) | | | | | | | |
Total revenue | 3,338 | | | 4,059 | | | (721) | | | (18) | | | 6,942 | | | 7,467 | | | (525) | | | (7) | | | | | | | |
Net charge-offs | (19) | | | 401 | | | (420) | | | NM | | 18 | | | 448 | | | (430) | | | (96) | | | | | | | |
Change in the allowance for credit losses | (482) | | | 3,355 | | | (3,837) | | | NM | | (803) | | | 4,433 | | | (5,236) | | | NM | | | | | | |
Provision for credit losses | (501) | | | 3,756 | | | (4,257) | | | NM | | (785) | | | 4,881 | | | (5,666) | | | NM | | | | | | |
Noninterest expense | 1,805 | | | 2,044 | | | (239) | | | (12) | | | 3,638 | | | 3,914 | | | (276) | | | (7) | | | | | | | |
Income (loss) before income tax expense (benefit) | 2,034 | | | (1,741) | | | 3,775 | | | NM | | 4,089 | | | (1,328) | | | 5,417 | | | NM | | | | | | |
Income tax expense (benefit) | 513 | | | (408) | | | 921 | | | NM | | 1,013 | | | (307) | | | 1,320 | | | NM | | | | | | |
Less: Net loss from noncontrolling interests | (2) | | | — | | | (2) | | | NM | | (2) | | | — | | | (2) | | | NM | | | | | | |
Net income (loss) | $ | 1,523 | | | (1,333) | | | 2,856 | | | NM | | $ | 3,078 | | | (1,021) | | | 4,099 | | | NM | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Revenue by Line of Business | | | | | | | | | | | | | | | | | | | | | |
Banking: | | | | | | | | | | | | | | | | | | | | | |
Lending | $ | 474 | | | 464 | | | 10 | | | 2 | | | $ | 927 | | | 921 | | | 6 | | | 1 | | | | | | | |
Treasury Management and Payments | 353 | | | 403 | | | (50) | | | (12) | | | 723 | | | 901 | | | (178) | | | (20) | | | | | | | |
Investment Banking | 407 | | | 444 | | | (37) | | | (8) | | | 823 | | | 805 | | | 18 | | | 2 | | | | | | | |
Total Banking | 1,234 | | | 1,311 | | | (77) | | | (6) | | | 2,473 | | | 2,627 | | | (154) | | | (6) | | | | | | | |
Commercial Real Estate | 1,014 | | | 837 | | | 177 | | | 21 | | | 1,926 | | | 1,740 | | | 186 | | | 11 | | | | | | | |
Markets: | | | | | | | | | | | | | | | | | | | | | |
Fixed Income, Currencies, and Commodities (FICC) | 888 | | | 1,506 | | | (618) | | | (41) | | | 2,032 | | | 2,420 | | | (388) | | | (16) | | | | | | | |
Equities | 206 | | | 302 | | | (96) | | | (32) | | | 458 | | | 698 | | | (240) | | | (34) | | | | | | | |
Credit Adjustment (CVA/DVA) and Other | (16) | | | 139 | | | (155) | | | NM | | 20 | | | 31 | | | (11) | | | (35) | | | | | | | |
Total Markets | 1,078 | | | 1,947 | | | (869) | | | (45) | | | 2,510 | | | 3,149 | | | (639) | | | (20) | | | | | | | |
Other | 12 | | | (36) | | | 48 | | | NM | | 33 | | | (49) | | | 82 | | | NM | | | | | | |
Total revenue | $ | 3,338 | | | 4,059 | | | (721) | | | (18) | | | $ | 6,942 | | | 7,467 | | | (525) | | | (7) | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Selected Metrics | | | | | | | | | | | | | | | | | | | | | |
Return on allocated capital | 17.0 | % | | (16.8) | | | | | | | 17.3 | % | | (7.1) | | | | | | | | | | | |
Efficiency ratio | 54 | | | 50 | | | | | | | 52 | | | 52 | | | | | | | | | | | |
Headcount (#) (period-end) | 8,673 | | | 8,213 | | | | | 6 | | | 8,673 | | | 8,213 | | | | 6 | | | | | | | |
NM – Not meaningful
Second quarter 2021 vs. second quarter 2020
Revenue decreased driven by:
•lower net interest incomegains from trading activities reflecting the lower interest rate environment;
•fewer gains in asset-backed finance and credit products due to limited credit spread movement compared with a decrease in deposit-related fees and card feessecond quarter 2020 that reflected gains driven by lower customer transaction volumes and higher average consumer deposit account balances due to the economic slowdown associated with the COVID-19 pandemic, as well as fee waivers and reversals as part of our actions to support customers during the COVID-19 pandemic;
•net lossesvolatility in credit spreads from equity securities due to impairments and changes in the value of deferred compensation plan investments (largely offset in personnel expense); and
•lower other income driven by higher gains in third quarter 2019 related to sales of PCI loans;
partially offset by:
•higher mortgage banking revenue as a result of an increase in real estate HFS origination volumes; and
•higher gains on debt securities.
Provision for credit losses increased driven by a decline in economic conditions due to the impact of the COVID-19 pandemic.
Noninterest expense increased due to:
•higher restructuring charges driven predominantly by severance costs, as well as facility closure costs, related to our efficiency initiatives that commenced in third quarter 2020. All restructuring charges were included in the Community Banking segment. For additional information on restructuring charges, see Note 2 (Restructuring Charges) to Financial Statements in this Report;pandemic; and
•higher operating losses, personnel expense, occupancy expense, FDIC deposit assessment expense within other expense, and charitable donations within other expense;
partially offset by:
•lower advertising and promotion expense and travel and entertainment expense within other expense; and
•lower stock-based compensation expense within personnel expense and lower deferred compensation plan expense within personnel expense (largely offset by net losses from equity securities).
Average deposits increased driven by government stimulus programs and lower consumer spending due to the COVID-19 pandemic.
Wholesale Banking provides financial solutions to businesses with annual sales generally in excess of $5 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 Sep 30, | | | | | | Nine months ended Sep 30, | | | | |
(in millions, except average balances which are in billions) | 2020 | | 2019 | | $ Change | | % Change | | 2020 | | 2019 | | $ Change | | % Change |
Net interest income | $ | 3,481 | | | 4,382 | | | (901) | | | (21) | % | | $ | 11,508 | | | 13,451 | | | (1,943) | | | (14) | % |
Noninterest income (1) | | | | | | | | | | | | | | | |
Deposit-related fees | 574 | | | 527 | | | 47 | | | 9 | | | 1,676 | | | 1,610 | | | 66 | | | 4 | |
Trust and investment fees: | | | | | | | | | | | | | | | |
Brokerage advisory, commissions and other fees | 70 | | | 62 | | | 8 | | | 13 | | | 239 | | | 214 | | | 25 | | | 12 | |
Trust and investment management | 140 | | | 121 | | | 19 | | | 16 | | | 401 | | | 352 | | | 49 | | | 14 | |
Investment banking | 440 | | | 510 | | | (70) | | | (14) | | | 1,544 | | | 1,397 | | | 147 | | | 11 | |
Total trust and investment fees | 650 | | | 693 | | | (43) | | | (6) | | | 2,184 | | | 1,963 | | | 221 | | | 11 | |
Card fees | 55 | | | 90 | | | (35) | | | (39) | | | 203 | | | 271 | | | (68) | | | (25) | |
Lending-related fees | 310 | | | 314 | | | (4) | | | (1) | | | 897 | | | 925 | | | (28) | | | (3) | |
Mortgage banking | 49 | | | 128 | | | (79) | | | (62) | | | 154 | | | 300 | | | (146) | | | (49) | |
Net gains from trading activities | 363 | | | 247 | | | 116 | | | 47 | | | 1,198 | | | 806 | | | 392 | | | 49 | |
Net gains on debt securities | 24 | | | 4 | | | 20 | | | 500 | | | 156 | | | 97 | | | 59 | | | 61 | |
Net gains (losses) from equity securities | 59 | | | 135 | | | (76) | | | (56) | | | (52) | | | 328 | | | (380) | | | NM |
Other | 29 | | | 422 | | | (393) | | | (93) | | | 50 | | | 1,367 | | | (1,317) | | | (96) | |
Total noninterest income | 2,113 | | | 2,560 | | | (447) | | | (17) | | | 6,466 | | | 7,667 | | | (1,201) | | | (16) | |
| | | | | | | | | | | | | | | |
Total revenue | 5,594 | | | 6,942 | | | (1,348) | | | (19) | | | 17,974 | | | 21,118 | | | (3,144) | | | (15) | |
| | | | | | | | | | | | | | | |
Provision for credit losses | 219 | | | 92 | | | 127 | | | 138 | | | 8,535 | | | 254 | | | 8,281 | | | NM |
Noninterest expense (2) | | | | | | | | | | | | | | | |
Personnel | 1,414 | | | 1,455 | | | (41) | | | (3) | | | 4,109 | | | 4,382 | | | (273) | | | (6) | |
Technology, telecommunications and equipment | 10 | | | 16 | | | (6) | | | (38) | | | 34 | | | 48 | | | (14) | | | (29) | |
Occupancy | 116 | | | 95 | | | 21 | | | 22 | | | 326 | | | 286 | | | 40 | | | 14 | |
Operating losses | 9 | | | 16 | | | (7) | | | (44) | | | 186 | | | 27 | | | 159 | | | 589 | |
Professional and outside services | 222 | | | 263 | | | (41) | | | (16) | | | 651 | | | 760 | | | (109) | | | (14) | |
Advertising and promotion | 2 | | | 8 | | | (6) | | | (75) | | | 8 | | | 23 | | | (15) | | | (65) | |
| | | | | | | | | | | | | | | |
Other | 2,240 | | | 2,036 | | | 204 | | | 10 | | | 6,425 | | | 6,083 | | | 342 | | | 6 | |
Total noninterest expense | 4,013 | | | 3,889 | | | 124 | | | 3 | | | 11,739 | | | 11,609 | | | 130 | | | 1 | |
Income (loss) before income tax expense (benefit) and noncontrolling interests | 1,362 | | | 2,961 | | | (1,599) | | | (54) | | | (2,300) | | | 9,255 | | | (11,555) | | | NM |
Income tax expense (benefit) (3) | (127) | | | 315 | | | (442) | | | NM | | (1,959) | | | 1,049 | | | (3,008) | | | NM |
Less: Net income from noncontrolling interests | 1 | | | 2 | | | (1) | | | (50) | | | 3 | | | 3 | | | — | | | — | |
Net income (loss) | $ | 1,488 | | | 2,644 | | | (1,156) | | | (44) | | | $ | (344) | | | 8,203 | | | (8,547) | | | NM |
Average loans | $ | 455.1 | | | 474.3 | | | (19.2) | | | (4) | | | $ | 481.2 | | | 474.9 | | | 6.3 | | | 1 | |
Average deposits | 418.8 | | | 422.0 | | | (3.2) | | | (1) | | | 438.8 | | | 414.1 | | | 24.7 | | | 6 | |
NM – Not meaningful
(1)In third quarter 2020, service charges on deposit accounts, cash network fees, wire transfer and other remittance fees, and certain other fees were combined into a single line item for deposit-related fees; certain fees associated with lending activities were combined into a single line item for lending-related fees; and certain other fees were reclassified to other noninterest income. Prior period balances have been revised to conform with the current period presentation.
(2)In third quarter 2020, expenses for outside professional services, contract services, and outside data processing were combined into a single line item for professional and outside services expense; expenses for technology and equipment and telecommunications were combined into a single line item for technology, telecommunications and equipment expense; and certain other expenses were reclassified to other noninterest expense. Prior period balances have been revised to conform with the current period presentation.
(3)Income tax expense for our Wholesale Banking operating segment included income tax credits related to low income housing and renewable energy investments of $469 million and $1.4 billion for the third quarter and first nine months of 2020, respectively, and $422 million and $1.3 billion for the third quarter and first nine months of 2019, respectively.
Third quarter 2020 vs. third quarter 2019
Revenue decreased driven by:
•lower net interest income reflecting the lower interest rate environment, lower deposit balances, and lower trading-related assets;
partially offset by:
•higher other noninterest income driven by higher mortgage banking income due to higher servicing income, reflecting a reversal of an impairment of commercial MSRs in second quarter 2021, compared with the related impairment recorded in second quarter 2020, as well as lower average loan balanceshigher gains on the sales of mortgage loans;
•higher income from low income housing and lower funds transfer pricingequity investments; and
•higher deposit and lending-related fees reflecting growth in treasury management service charges and increased commitment fees related to revolver utilization.
Provision for credit earned from lower deposit balances;losses decreased driven by an improving economic environment.
Noninterest expense decreased driven by:
•lower other noninterest incomeoperating losses due to lower commercial real estate brokerage fees related to our sale of Eastdil in fourth quarter 2019, lower community lending investments, lower strategic capitalexpense for litigation accruals and renewable energy equity method income, and lower lease income;customer remediation accruals; and
•lower investment banking fees, mortgage banking fees, and gainsexpenses allocated from equity securities;enterprise functions reflecting lower spending due to efficiency initiatives;
partially offset by:
•higher gains from trading activities and gains on debt securities, as well as higher deposit-related fees.
Provision for credit losses increased reflecting economic uncertainty due to the impact of the COVID-19 pandemic on our commercial loan portfolios, including the oil and gas portfolio.
Noninterest expense increased driven by:
•higher other expense, including increased risk management expense;
partially offset by:
•lower personnel expense travel expense within other expense, and project-related expense within professional and outside services expense.
Average loans decreased driven by lower loan demand and higher paydowns reflecting continued liquidity and strength in the capital markets.
Earnings Performance (continued)
Average deposits decreased reflecting continued actions taken to manage under the asset cap.
incentive compensation.
First nine monthshalf of 20202021 vs. first nine monthshalf of 2019
2020
Revenue decreased driven by:
•lower net gains from trading activities driven by lower client trading activity for interest rate products, equities, and commodities, partially offset by higher client trading activity for asset-backed finance products; and
•lower net interest income reflecting the lower interest rate environment, partially offset by higher investment asset spread and higher average loanlower deposit balances, and higher funds transfer pricing credit earned from higher deposit balances; and
•lower noninterest income driven by lower other income from community lending investments, lower strategic capital and renewable energy equity method income, and lower commercial real estate brokerage fees related to our sale of Eastdil in fourth quarter 2019, as well as lower mortgage banking fees and net losses from equity securities;trading-related assets;
partially offset by:
•higher investment banking fees gains from trading activities,due to higher loan syndication fees, advisory fees, and equity underwriting fees;
•higher other noninterest income driven by higher mortgage banking income due to higher servicing income, reflecting a reversal of an impairment of commercial MSRs in the first half of 2021, compared with the related impairment recorded in the first half of 2020, as well as higher gains on debt securities,the sales of mortgage loans; and deposit-related fees.
•higher income from low income housing and equity investments.
Provision for credit losses increased due to:decreased driven by an improving economic environment.
Noninterest expense decreased driven by:
•increaseslower operating losses due to lower expense for litigation accruals and customer remediation accruals;
•lower expenses allocated from enterprise functions reflecting lower spending due to efficiency initiatives;
•lower professional and outside services expense reflecting decreased project-related expense; and
•a reduction in the ACL reflecting currentbusiness travel and forecasted economic conditionscompany events due to the impact of the COVID-19 pandemic; and
•higher charge-offs in the oil and gas, commercial real estate, and commercial capital portfolios.
Noninterest expense increased due to:
•higher other expense, including increased risk management expense and charitable donations; and
•higher operating losses;
partially offset by:
•lowerhigher personnel expense driven by higher incentive compensation.
Earnings Performance (continued)
Table 5f:Corporate and Investment Banking – Balance Sheet
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended June 30, | | | | | | Six months ended June 30, | | | | | | | | | | |
(in millions) | 2021 | | 2020 | | $ Change | | % Change | | 2021 | | 2020 | | $ Change | | % Change | | | | | | |
Selected Balance Sheet Data (average) | | | | | | | | | | | | | | | | | | | | | |
Loans: | | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | $ | 167,076 | | | 190,861 | | | (23,785) | | | (12) | % | | $ | 164,696 | | | 184,558 | | | (19,862) | | | (11) | % | | | | | | |
Commercial real estate | 85,346 | | | 82,726 | | | 2,620 | | | 3 | | | 84,606 | | | 81,357 | | | 3,249 | | | 4 | | | | | | | |
Total loans | $ | 252,422 | | | 273,587 | | | (21,165) | | | (8) | | | $ | 249,302 | | | 265,915 | | | (16,613) | | | (6) | | | | | | | |
Loans by Line of Business: | | | | | | | | | | | | | | | | | | | | | |
Banking | $ | 90,839 | | | 105,983 | | | (15,144) | | | (14) | | | $ | 88,699 | | | 101,414 | | | (12,715) | | | (13) | | | | | | | |
Commercial Real Estate | 108,893 | | | 110,594 | | | (1,701) | | | (2) | | | 108,255 | | | 107,894 | | | 361 | | | — | | | | | | | |
Markets | 52,690 | | | 57,010 | | | (4,320) | | | (8) | | | 52,348 | | | 56,607 | | | (4,259) | | | (8) | | | | | | | |
Total loans | $ | 252,422 | | | 273,587 | | | (21,165) | | | (8) | | | $ | 249,302 | | | 265,915 | | | (16,613) | | | (6) | | | | | | | |
Trading-related assets: | | | | | | | | | | | | | | | | | | | | | |
Trading account securities | $ | 104,743 | | | 106,836 | | | (2,093) | | | (2) | | | $ | 105,546 | | | 115,082 | | | (9,536) | | | (8) | | | | | | | |
Reverse repurchase agreements/securities borrowed | 62,066 | | | 70,335 | | | (8,269) | | | (12) | | | 63,010 | | | 79,734 | | | (16,724) | | | (21) | | | | | | | |
Derivative assets | 24,731 | | | 22,380 | | | 2,351 | | | 11 | | | 25,910 | | | 20,332 | | | 5,578 | | | 27 | | | | | | | |
Total trading-related assets | $ | 191,540 | | | 199,551 | | | (8,011) | | | (4) | | | $ | 194,466 | | | 215,148 | | | (20,682) | | | (10) | | | | | | | |
Total assets | 513,414 | | | 535,298 | | | (21,884) | | | (4) | | | 512,476 | | | 543,455 | | | (30,979) | | | (6) | | | | | | | |
Total deposits | 190,810 | | | 239,637 | | | (48,827) | | | (20) | | | 192,645 | | | 252,902 | | | (60,257) | | | (24) | | | | | | | |
Allocated capital | 34,000 | | | 34,000 | | | — | | | — | | | 34,000 | | | 34,000 | | | — | | | — | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Selected Balance Sheet Data (period-end) | | | | | | | | | | | | | | | | | | | | | |
Loans: | | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | $ | 166,969 | | | 171,859 | | | (4,890) | | | (3) | | | $ | 166,969 | | | 171,859 | | | (4,890) | | | (3) | | | | | | | |
Commercial real estate | 86,290 | | | 83,715 | | | 2,575 | | | 3 | | | 86,290 | | | 83,715 | | | 2,575 | | | 3 | | | | | | | |
Total loans | $ | 253,259 | | | 255,574 | | | (2,315) | | | (1) | | | $ | 253,259 | | | 255,574 | | | (2,315) | | | (1) | | | | | | | |
Loans by Line of Business: | | | | | | | | | | | | | | | | | | | | | |
Banking | $ | 92,758 | | | 91,093 | | | 1,665 | | | 2 | | | $ | 92,758 | | | 91,093 | | | 1,665 | | | 2 | | | | | | | |
Commercial Real Estate | 108,885 | | | 109,402 | | | (517) | | | — | | | 108,885 | | | 109,402 | | | (517) | | | — | | | | | | | |
Markets | 51,616 | | | 55,079 | | | (3,463) | | | (6) | | | 51,616 | | | 55,079 | | | (3,463) | | | (6) | | | | | | | |
Total loans | $ | 253,259 | | | 255,574 | | | (2,315) | | | (1) | | | $ | 253,259 | | | 255,574 | | | (2,315) | | | (1) | | | | | | | |
Trading-related assets: | | | | | | | | | | | | | | | | | | | | | |
Trading account securities | $ | 108,291 | | | 97,708 | | | 10,583 | | | 11 | | | $ | 108,291 | | | 97,708 | | | 10,583 | | | 11 | | | | | | | |
Reverse repurchase agreements/securities borrowed | 57,351 | | | 70,949 | | | (13,598) | | | (19) | | | 57,351 | | | 70,949 | | | (13,598) | | | (19) | | | | | | | |
Derivative assets | 25,288 | | | 22,757 | | | 2,531 | | | 11 | | | 25,288 | | | 22,757 | | | 2,531 | | | 11 | | | | | | | |
Total trading-related assets | $ | 190,930 | | | 191,414 | | | (484) | | | — | | | $ | 190,930 | | | 191,414 | | | (484) | | | — | | | | | | | |
Total assets | 516,518 | | | 510,205 | | | 6,313 | | | 1 | | | 516,518 | | | 510,205 | | | 6,313 | | | 1 | | | | | | | |
Total deposits | 188,219 | | | 236,620 | | | (48,401) | | | (20) | | | 188,219 | | | 236,620 | | | (48,401) | | | (20) | | | | | | | |
Second quarter 2021 vs. second quarter 2020
Total assets (average) decreased predominantly due to a decline in loan balances driven by lower leasedemand due to the COVID-19 pandemic and travel expenses within other expense, as well ashigher paydowns reflecting continued high levels of client liquidity and strength in the impact of the sale of Eastdil in fourth quarter 2019.capital markets.
Average loansTotal deposits (average) increaseddecreased reflecting broad-based growth acrosscontinued actions to manage under the linesasset cap.
First half of business2021 vs. first half of 2020
Total assets (average) decreased predominantly due to a decline in trading-related assets reflecting continued actions to manage under the asset cap and a decline in loan balances driven by draws of revolving lineslower demand due to the economic slowdown associated withCOVID-19 pandemic and higher paydowns reflecting continued high levels of client liquidity and strength in the COVID-19 pandemic.capital markets.
AverageTotal deposits (average and period-end) increaseddecreased reflecting customers’ preferences for liquidity duecontinued actions to manage under the COVID-19 pandemic.asset cap.
Wealth and Investment Management provides a full range of personalized wealth management, investment and retirement products and services to clients across U.S.-based businesses including Wells Fargo Advisors and The Private Bank, Abbot Downing,Bank. We serve clients’
brokerage needs, 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
Table 5g and Table 5h provide investment management capabilities delivered to global institutional clients through separate accounts and the Wells Fargo Funds. The sale of our IRT business closed on July 1, 2019. For additional information on the sale of our IRT business, including its impact on our AUMfor Wealth and AUA, see the “Earnings Performance – Noninterest Income” section in this Report.
Table 4c provides additional financial information for WIM.Investment Management.
Table 4c:5g: Wealth and Investment Management
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended Sep 30, | | | | | | Nine months ended Sep 30, | | | | |
(in millions, except average balances which are in billions) | 2020 | | 2019 | | $ Change | | % Change | | 2020 | | 2019 | | $ Change | | % Change |
Net interest income | $ | 771 | | | 989 | | | (218) | | | (22) | % | | $ | 2,374 | | | 3,127 | | | (753) | | | (24) | % |
Noninterest income (1) | | | | | | | | | | | | | | | |
Deposit-related fees | 7 | | | 6 | | | 1 | | | 17 | | | 20 | | | 18 | | | 2 | | | 11 | |
Trust and investment fees: | | | | | | | | | | | | | | | |
Brokerage advisory, commissions and other fees | 2,265 | | | 2,272 | | | (7) | | | — | | | 6,701 | | | 6,644 | | | 57 | | | 1 | |
Trust and investment management | 610 | | | 615 | | | (5) | | | (1) | | | 1,760 | | | 1,978 | | | (218) | | | (11) | |
Investment banking | 4 | | | — | | | 4 | | | NM | | 6 | | | 4 | | | 2 | | | 50 | |
Total trust and investment fees | 2,879 | | | 2,887 | | | (8) | | | — | | | 8,467 | | | 8,626 | | | (159) | | | (2) | |
Card fees | 1 | | | 2 | | | (1) | | | (50) | | | 3 | | | 5 | | | (2) | | | (40) | |
Lending-related fees | 2 | | | 2 | | | — | | | — | | | 6 | | | 6 | | | — | | | — | |
Mortgage banking | (3) | | | (3) | | | — | | | — | | | (9) | | | (9) | | | — | | | — | |
Net gains from trading activities | 9 | | | 10 | | | (1) | | | (10) | | | 8 | | | 42 | | | (34) | | | (81) | |
| | | | | | | | | | | | | | | |
Net gains (losses) from equity securities | 3 | | | (1) | | | 4 | | | 400 | | | (114) | | | 170 | | | (284) | | | NM |
Other | 125 | | | 1,249 | | | (1,124) | | | (90) | | | 414 | | | 1,285 | | | (871) | | | (68) | |
Total noninterest income | 3,023 | | | 4,152 | | | (1,129) | | | (27) | | | 8,795 | | | 10,143 | | | (1,348) | | | (13) | |
| | | | | | | | | | | | | | | |
Total revenue | 3,794 | | | 5,141 | | | (1,347) | | | (26) | | | 11,169 | | | 13,270 | | | (2,101) | | | (16) | |
| | | | | | | | | | | | | | | |
Provision (reversal of provision) for credit losses | (9) | | | 3 | | | (12) | | | NM | | 256 | | | 6 | | | 250 | | | NM |
Noninterest expense (2) | | | | | | | | | | | | | | | |
Personnel | 1,937 | | | 2,060 | | | (123) | | | (6) | | | 5,911 | | | 6,369 | | | (458) | | | (7) | |
Technology, telecommunications and equipment | 6 | | | 115 | | | (109) | | | (95) | | | (77) | | | 145 | | | (222) | | | NM |
Occupancy | 123 | | | 113 | | | 10 | | | 9 | | | 347 | | | 337 | | | 10 | | | 3 | |
Operating losses | 3 | | | 101 | | | (98) | | | (97) | | | 27 | | | 165 | | | (138) | | | (84) | |
Professional and outside services | 262 | | | 271 | | | (9) | | | (3) | | | 825 | | | 775 | | | 50 | | | 6 | |
Advertising and promotion | 3 | | | 7 | | | (4) | | | (57) | | | 13 | | | 21 | | | (8) | | | (38) | |
| | | | | | | | | | | | | | | |
Other | 850 | | | 764 | | | 86 | | | 11 | | | 2,394 | | | 2,168 | | | 226 | | | 10 | |
Total noninterest expense | 3,184 | | | 3,431 | | | (247) | | | (7) | | | 9,440 | | | 9,980 | | | (540) | | | (5) | |
Income before income tax expense and noncontrolling interests | 619 | | | 1,707 | | | (1,088) | | | (64) | | | 1,473 | | | 3,284 | | | (1,811) | | | (55) | |
Income tax expense | 153 | | | 426 | | | (273) | | | (64) | | | 369 | | | 819 | | | (450) | | | (55) | |
Less: Net income (loss) from noncontrolling interests | 3 | | | 1 | | | 2 | | | 200 | | | (2) | | | 6 | | | (8) | | | NM |
Net income | $ | 463 | | | 1,280 | | | (817) | | | (64) | | | $ | 1,106 | | | 2,459 | | | (1,353) | | | (55) | |
Average loans | $ | 79.8 | | | 75.9 | | | 3.9 | | | 5 | | | $ | 79.0 | | | 75.1 | | | 3.9 | | | 5 | |
Average deposits | 175.3 | | | 142.4 | | | 32.9 | | | 23 | | | 166.2 | | | 146.3 | | | 19.9 | | | 14 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended June 30, | | | | | | Six months ended June 30, | | | | | | | | | | |
($ in millions, unless otherwise noted) | 2021 | | 2020 | | $ Change | | % Change | | 2021 | | 2020 | | $ Change | | % Change | | | | | | |
Income Statement | | | | | | | | | | | | | | | | | | | | | |
Net interest income | $ | 610 | | | 719 | | | (109) | | | (15) | % | | $ | 1,267 | | | 1,557 | | | (290) | | | (19) | % | | | | | | |
Noninterest income: | | | | | | | | | | | | | | | | | | | | | |
Investment advisory and other asset-based fees | 2,382 | | | 1,835 | | | 547 | | | 30 | | | 4,688 | | | 3,908 | | | 780 | | | 20 | | | | | | | |
Commissions and brokerage services fees | 513 | | | 470 | | | 43 | | | 9 | | | 1,068 | | | 1,063 | | | 5 | | | — | | | | | | | |
Other | 31 | | | 182 | | | (151) | | | (83) | | | 57 | | | (52) | | | 109 | | | NM | | | | | | |
Total noninterest income | 2,926 | | | 2,487 | | | 439 | | | 18 | | | 5,813 | | | 4,919 | | | 894 | | | 18 | | | | | | | |
Total revenue | 3,536 | | | 3,206 | | | 330 | | | 10 | | | 7,080 | | | 6,476 | | | 604 | | | 9 | | | | | | | |
Net charge-offs | (6) | | | 1 | | | (7) | | | NM | | (6) | | | 2 | | | (8) | | | NM | | | | | | |
Change in the allowance for credit losses | 30 | | | 254 | | | (224) | | | (88) | | (13) | | | 261 | | | (274) | | | NM | | | | | | |
Provision for credit losses | 24 | | | 255 | | | (231) | | | (91) | | (19) | | | 263 | | | (282) | | | NM | | | | | | |
Noninterest expense | 2,891 | | | 2,743 | | | 148 | | | 5 | | | 5,919 | | | 5,400 | | | 519 | | | 10 | | | | | | | |
Income before income tax expense | 621 | | | 208 | | | 413 | | | 199 | | | 1,180 | | | 813 | | | 367 | | | 45 | | | | | | | |
Income tax expense | 156 | | | 52 | | | 104 | | | 200 | | | 296 | | | 204 | | | 92 | | | 45 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Net income | $ | 465 | | | 156 | | | 309 | | | 198 | | | $ | 884 | | | 609 | | | 275 | | | 45 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Selected Metrics | | | | | | | | | | | | | | | | | | | | | |
Return on allocated capital | 20.7 | % | | 6.6 | | | | | | | 19.8 | % | | 13.4 | | | | | | | | | | | |
Efficiency ratio | 82 | | | 86 | | | | | | | 84 | | | 83 | | | | | | | | | | | |
Headcount (#) (period-end) | 26,989 | | | 29,088 | | | | | (7) | | | 26,989 | | | 29,088 | | | | | (7) | | | | | | | |
Advisory assets ($ in billions) | $ | 931 | | | 743 | | | 188 | | | 25 | | | $ | 931 | | | 743 | | | 188 | | | 25 | | | | | | | |
Other brokerage assets and deposits ($ in billions) | 1,212 | | | 1,042 | | | 170 | | | 16 | | | 1,212 | | | 1,042 | | | 170 | | | 16 | | | | | | | |
Total client assets ($ in billions) | $ | 2,143 | | | 1,785 | | | 358 | | | 20 | | | $ | 2,143 | | | 1,785 | | | 358 | | | 20 | | | | | | | |
Annualized revenue per advisor ($ in thousands) (1) | 1,084 | | | 898 | | | 186 | | | 21 | | | 1,071 | | | 904 | | | 167 | | | 18 | | | | | | | |
Total financial and wealth advisors (#) (period-end) | 12,819 | | | 14,206 | | | | | (10) | | | 12,819 | | | 14,206 | | | | | (10) | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Selected Balance Sheet Data (average) | | | | | | | | | | | | | | | | | | | | | |
Total loans | $ | 81,784 | | | 78,091 | | | 3,693 | | | 5 | | | $ | 81,314 | | | 77,987 | | | 3,327 | | | 4 | | | | | | | |
Total deposits | 174,980 | | | 165,103 | | | 9,877 | | | 6 | | | 174,333 | | | 155,246 | | | 19,087 | | | 12 | | | | | | | |
Allocated capital | 8,750 | | | 8,750 | | | — | | | — | | | 8,750 | | | 8,750 | | | — | | | — | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Selected Balance Sheet Data (period-end) | | | | | | | | | | | | | | | | | | | | | |
Total loans | $ | 82,783 | | | 78,101 | | | 4,682 | | | 6 | | | $ | 82,783 | | | 78,101 | | | 4,682 | | | 6 | | | | | | | |
Total deposits | 174,267 | | | 168,249 | | | 6,018 | | | 4 | | | 174,267 | | | 168,249 | | | 6,018 | | | 4 | | | | | | | |
NM – Not meaningful
(1)In third quarter 2020, service charges on deposit accounts, cash network fees, wire transferRepresents annualized segment total revenue divided by average total financial and other remittance fees, and certain other fees were combined into a single line itemwealth advisors for deposit-related fees; certain fees associated with lending activities were combined into a single line item for lending-related fees; and certain other fees were reclassified to other noninterest income. Prior period balances have been revised to conform with the current period presentation.
(2)In third quarter 2020, expenses for outside professional services, contract services, and outside data processing were combined into a single line item for professional and outside services expense; expenses for technology and equipment and telecommunications were combined into a single line item for technology, telecommunications and equipment expense; and certain other expenses were reclassified to other noninterest expense. Prior period balances have been revised to conform with the current period presentation.period.
ThirdSecond quarter 20202021 vs. thirdsecond quarter 2019
2020
Revenue decreasedincreased driven by:
•higher investment advisory and other asset-based fees due to higher market valuations on WIM advisory assets;
partially offset by:
•lower deferred compensation plan investment results included in other noninterest income (largely offset by personnel expense); and
•lower net interest income reflecting the lower interest rate environment, partially offset by higher funds transfer pricingdeposit balances.
Provision for credit earned from losses decreased driven by an improving economic environment.
Noninterest expense increased due to:
•higher average deposit balances;personnel expense driven by higher revenue-related compensation, partially offset by lower deferred compensation expense; and
•lower noninterest income predominantly related tothe reversal of a $1.1 billion gain from the sale of our IRT businesssoftware licensing liability accrual in thirdsecond quarter 2019 (in other income).2020.
Noninterest expenseTotal deposits (average) decreased driven by:
•lower personnel expense from lower incentive compensation;
•lower technology, telecommunications and equipment expense driven by a $103 million impairment of capitalized software reflecting a reevaluation of software under development in third quarter 2019; and
•lower operating losses;
partially offset by:
•higher project spending on regulatory and compliance related initiatives included within other expense.
Average loans increased driven by growth in real estate 1-4 first mortgage loans.
Average deposits increased primarily due to growth in brokerage clients’ cash balances.customer balances in both The Private Bank and Wells Fargo Advisors.
Earnings Performance (continued)
(continued)
First nine monthshalf of 20202021 vs. first nine monthshalf of 2019
2020
Revenue decreasedincreased driven by:
•higher investment advisory and other asset-based fees due to higher market valuations on WIM advisory assets; and
•higher deferred compensation plan investment results included in other noninterest income (largely offset by personnel expense);
partially offset by:
•lower net interest income reflecting the lower interest rate environment, partially offset by higher funds transfer pricing credit earned from higher average deposit balances; and
•lower noninterest income largely related to a $1.1 billion gain from the sale of our IRT business in third quarter 2019 (in other income), as well as net losses from equity securities driven by a decline in deferred compensation plan investment results (largely offset by lower personnel expense), and lower trust and investment management income;
partially offset by:
•higher retail brokerage advisory fees (priced at the beginning of the quarter).balances.
Provision for credit losses increased due to current and forecasteddecreased driven by an improving economic conditions due to the impact of the COVID-19 pandemic.
environment.
Noninterest expense decreasedincreased due to:
•lowerhigher personnel expense driven by lowerhigher revenue-related compensation and higher deferred compensation plan expense (largely offset by net losses from equity securities) and lower incentive compensation;
•lower technology, telecommunications and equipment expense driven by a $103 million impairment of capitalized software reflecting a reevaluation of software under development in third quarter 2019, and the reversal of an accrual for software costs in second quarter 2020;expense; and
•lower operating losses;the reversal of a software licensing liability accrual in the first half of 2020;
partially offset by:
•higher projectlower professional and outside services expense driven by efficiency initiatives to reduce our spending on regulatoryconsultants and compliance related initiatives included within other expense.contractors.
Average loans increased driven by growth in real estate 1-4 first mortgage loans.
AverageTotal deposits (average and period-end) increased primarily due to growth in brokerage clients’ cash balances.customer balances in both The Private Bank and Wells Fargo Advisors.
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 ClientWIM Advisory Assets Brokerage advisory, commissions and other fees are received for providing full-service and discount brokerage services to retail brokerage clients. A majority of our retail brokerage client assets are in accounts that earn brokerage commissions generally based on the number and size of transactions executed at the client’s direction. In addition to these types oftransactional accounts, we also offerWIM offers advisory account relationships as an important component of our broader strategy of meetingto brokerage clients’ financial needs.customers. 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 September 30, 2020 and 2019.
Table 4d:Retail Brokerage Client Assets
| | | | | | | | | | | |
| September 30, |
($ in billions) | 2020 | | | 2019 | |
Retail brokerage client assets | $ | 1,625.8 | | | 1,629.4 | |
Advisory account client assets | 601.7 | | | 569.4 | |
Advisory account client assets as a percentage of total client assets | 37 | % | | 35 | |
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.
WIM also manages personal trust and other assets for high net worth clients, with fee income earned based on a percentage of the market value of these assets. Table 5h presents advisory assets activity by WIM line of business for the second quarter and first half of 2021 and 2020. Management believes that advisory assets is a useful metric because it allows management, investors, and others to assess how changes in asset amounts may impact the generation of certain asset-based fees.
For thirdsecond quarter 20202021 and 2019,2020, the average fee rate
by account type ranged from 8050 to 120 basis points. Table 4e presents advisory account client assets activity by account type for the third quarter and first nine months of 2020 and 2019.
Table 4e:5h: Retail BrokerageWIM Advisory Account Client Assets
| | | Quarter ended | | Nine months ended | | Quarter ended | | Six months ended |
(in billions) | (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 | (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 |
September 30, 2020 | | | | |
June 30, 2021 | | June 30, 2021 | |
Client-directed (4) | | Client-directed (4) | $ | 192.7 | | 11.1 | | (12.2) | | 9.7 | | 201.3 | | | $ | 186.3 | | 21.7 | | (22.0) | | 15.3 | | 201.3 | |
Financial advisor-directed (5) | | Financial advisor-directed (5) | 223.4 | | 12.3 | | (10.9) | | 13.2 | | 238.0 | | | 211.0 | | 24.6 | | (19.9) | | 22.3 | | 238.0 | |
Separate accounts (6) | | Separate accounts (6) | 183.1 | | 8.0 | | (7.7) | | 9.5 | | 192.9 | | | 174.6 | | 16.5 | | (14.7) | | 16.5 | | 192.9 | |
Mutual fund advisory (7) | | Mutual fund advisory (7) | 94.7 | | 4.3 | | (3.6) | | 4.7 | | 100.1 | | | 91.4 | | 8.3 | | (7.1) | | 7.5 | | 100.1 | |
Total Wells Fargo Advisors | | Total Wells Fargo Advisors | $ | 693.9 | | 35.7 | | (34.4) | | 37.1 | | 732.3 | | | $ | 663.3 | | 71.1 | | (63.7) | | 61.6 | | 732.3 | |
The Private Bank (8) | | The Private Bank (8) | 191.5 | | 9.3 | | (11.1) | | 8.7 | | 198.4 | | | 189.4 | | 18.2 | | (23.6) | | 14.4 | | 198.4 | |
Total WIM advisory assets | | Total WIM advisory assets | $ | 885.4 | | 45.0 | | (45.5) | | 45.8 | | 930.7 | | | $ | 852.7 | | 89.3 | | (87.3) | | 76.0 | | 930.7 | |
June 30, 2020 | | June 30, 2020 | | | |
Client directed (4) | Client directed (4) | $ | 162.2 | | 8.8 | | (10.2) | | 9.5 | | 170.3 | | | $ | 169.4 | | 26.2 | | (27.6) | | 2.3 | | 170.3 | | Client directed (4) | $ | 142.7 | | 7.3 | | (7.8) | | 20.0 | | 162.2 | | | $ | 169.4 | | 17.4 | | (17.4) | | (7.2) | | 162.2 | |
Financial advisor directed (5) | Financial advisor directed (5) | 176.8 | | 9.9 | | (9.0) | | 11.6 | | 189.3 | | | 176.3 | | 29.0 | | (24.2) | | 8.2 | | 189.3 | | Financial advisor directed (5) | 152.4 | | 8.4 | | (6.6) | | 22.6 | | 176.8 | | | 176.3 | | 19.1 | | (15.2) | | (3.4) | | 176.8 | |
Separate accounts (6) | Separate accounts (6) | 151.5 | | 5.9 | | (6.0) | | 8.0 | | 159.4 | | | 160.1 | | 17.7 | | (20.3) | | 1.9 | | 159.4 | | Separate accounts (6) | 134.2 | | 5.0 | | (5.8) | | 18.1 | | 151.5 | | | 160.1 | | 11.8 | | (14.3) | | (6.1) | | 151.5 | |
Mutual fund advisory (7) | Mutual fund advisory (7) | 78.9 | | 2.9 | | (3.3) | | 4.2 | | 82.7 | | | 83.7 | | 8.3 | | (10.5) | | 1.2 | | 82.7 | | Mutual fund advisory (7) | 69.5 | | 2.2 | | (2.7) | | 9.9 | | 78.9 | | | 83.7 | | 5.4 | | (7.2) | | (3.0) | | 78.9 | |
Total advisory client assets | $ | 569.4 | | 27.5 | | (28.5) | | 33.3 | | 601.7 | | | $ | 589.5 | | 81.2 | | (82.6) | | 13.6 | | 601.7 | | |
September 30, 2019 | | |
Client directed (4) | $ | 166.2 | | 8.3 | | (8.3) | | 0.7 | | 166.9 | | | $ | 151.5 | | 24.8 | | (27.3) | | 17.9 | | 166.9 | | |
Financial advisor directed (5) | 163.2 | | 8.8 | | (7.0) | | 3.1 | | 168.1 | | | 141.9 | | 24.9 | | (23.4) | | 24.7 | | 168.1 | | |
Separate accounts (6) | 151.9 | | 6.2 | | (6.4) | | 2.3 | | 154.0 | | | 136.4 | | 18.0 | | (21.3) | | 20.9 | | 154.0 | | |
Mutual fund advisory (7) | 80.0 | | 2.9 | | (3.0) | | 0.5 | | 80.4 | | | 71.3 | | 8.6 | | (9.7) | | 10.2 | | 80.4 | | |
Total advisory client assets | $ | 561.3 | | 26.2 | | (24.7) | | 6.6 | | 569.4 | | | $ | 501.1 | | 76.3 | | (81.7) | | 73.7 | | 569.4 | | |
Total Wells Fargo Advisors | | Total Wells Fargo Advisors | $ | 498.8 | | 22.9 | | (22.9) | | 70.6 | | 569.4 | | | $ | 589.5 | | 53.7 | | (54.1) | | (19.7) | | 569.4 | |
The Private Bank (8) | | The Private Bank (8) | 161.8 | | 7.2 | | (11.8) | | 16.0 | | 173.2 | | | 188.0 | | 15.7 | | (22.8) | | (7.7) | | 173.2 | |
Total WIM advisory assets | | Total WIM advisory assets | $ | 660.6 | | 30.1 | | (34.7) | | 86.6 | | 742.6 | | | $ | 777.5 | | 69.4 | | (76.9) | | (27.4) | | 742.6 | |
|
(1)Inflows include new advisory account assets, contributions, dividends and interest.
(2)Outflows include closed advisory account assets, withdrawals and client management fees.
(3)Market impact reflects gains and losses on portfolio investments.
(4)Investment advice and other services are provided to client, but decisions are made by the client and the fees earned are based on a percentage of the advisory account assets, not the number and size of transactions executed by the client.
(5)Professionally managed portfolios with fees earned based on respective strategies and as a percentage of certain client assets.
(6)Professional advisory portfolios managed by Wells Fargo Asset Management or third-party asset managers. Fees are earned based on a percentage of certain client assets.
(7)Program with portfolios constructed of load-waived, no-load and institutional share class mutual funds. Fees are earned based on a percentage of certain client assets.
(8)Discretionary and non-discretionary portfolios held in personal trusts, investment agency, or custody accounts with fees earned based on a percentage of client assets.
Corporate includes corporate treasury and enterprise functions, net of allocations (including funds transfer pricing, capital, liquidity and certain expenses), in support of the reportable operating segments, as well as our investment portfolio and affiliated venture capital and private equity businesses. In addition, Corporate includes all restructuring charges related to our efficiency initiatives. See Note 19 (Restructuring Charges) to Financial Statements in this Report for additional information on restructuring charges. Corporate also includes certain lines of
business that management has determined are no longer consistent with the long-term strategic goals of the Company, as well as results for previously divested businesses. In March 2021, we announced an agreement to sell our Corporate Trust Services business and, Investment Clientin second quarter 2021, we moved the business from the Commercial Banking operating segment to Corporate. Prior period balances have been revised to conform with the current period presentation. Table 5i, Table 5j, and Table 5k provide additional information for Corporate.
Table 5i:Corporate – Income Statement and Selected Metrics
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended June 30, | | | | | | Six months ended June 30, | | | | | | | | | | |
($ in millions, unless otherwise noted) | 2021 | | 2020 | | $ Change | | % Change | | 2021 | | 2020 | | $ Change | | % Change | | | | | | |
Income Statement | | | | | | | | | | | | | | | | | | | | | |
Net interest income | $ | (304) | | | 60 | | | (364) | | | NM | | $ | (694) | | | 939 | | | (1,633) | | | NM | | | | | | |
Noninterest income | 3,327 | | | 1,318 | | | 2,009 | | | 152 | % | | 4,744 | | | 1,303 | | | 3,441 | | | 264 | % | | | | | | |
Total revenue | 3,023 | | | 1,378 | | | 1,645 | | | 119 | | | 4,050 | | | 2,242 | | | 1,808 | | | 81 | | | | | | | |
Net charge-offs | (8) | | | 39 | | | (47) | | | NM | | 69 | | | 141 | | | (72) | | | (51) | | | | | | | |
Change in the allowance for credit losses | (26) | | | 87 | | | (113) | | | NM | | (6) | | | 247 | | | (253) | | | NM | | | | | | |
Provision for credit losses | (34) | | | 126 | | | (160) | | | NM | | 63 | | | 388 | | | (325) | | | (84) | | | | | | | |
Noninterest expense | 1,000 | | | 1,251 | | | (251) | | | (20) | | | 2,231 | | | 1,942 | | | 289 | | | 15 | | | | | | | |
Income (loss) before income tax expense (benefit) | 2,057 | | | 1 | | | 2,056 | | | NM | | 1,756 | | | (88) | | | 1,844 | | | NM | | | | | | |
Income tax expense (benefit) | 223 | | | (300) | | | 523 | | | NM | | (52) | | | 21 | | | (73) | | | NM | | | | | | |
Less: Net income (loss) from noncontrolling interests (1) | 704 | | | 47 | | | 657 | | | NM | | 757 | | | (103) | | | 860 | | | NM | | | | | | |
Net income (loss) | $ | 1,130 | | | 254 | | | 876 | | | 345 | | | $ | 1,051 | | | (6) | | | 1,057 | | | NM | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Selected Metrics | | | | | | | | | | | | | | | | | | | | | |
Headcount (#) (period-end) (2) | 87,702 | | | 82,852 | | | | | 6 | | | 87,702 | | | 82,852 | | | | | 6 | | | | | | | |
Wells Fargo Asset Management assets under management ($ in billions) | $ | 603 | | | 578 | | | 25 | | | 4 | | | $ | 603 | | | 578 | | | 25 | | | 4 | | | | | | | |
(1)Reflects results attributable to noncontrolling interests predominantly associated with the Company’s consolidated venture capital investments.
(2)Beginning in first quarter 2021, employees who were notified of displacement remained as headcount in their respective operating segment rather than included in Corporate.
Second quarter 2021 vs. second quarter 2020
Revenue increased driven by:
•higher gains on equity securities in our affiliated venture capital and private equity businesses; and
•a gain on the sale of a portion of our student loan portfolio and a modest gain on the sale of our Canadian equipment finance business;
partially offset by:
•lower net interest income reflecting the lower interest rate environment and lower loan balances;
•lower gains on debt securities due to fewer sales; and
•lower gains on deferred compensation plan investments (largely offset by personnel expense).
Provision for credit losses decreased driven by an improving economic environment and lower provision associated with the sale of a portion of our student loan portfolio.
Noninterest expense decreased due to:
•lower operating losses due to lower expense for litigation accruals and customer remediation accruals; and
•lower deferred compensation plan expense;
partially offset by:
•a write-down of goodwill in second quarter 2021 related to the sale of a portion of our student loan portfolio.
First half of 2021 vs. first half of 2020
Revenue increased driven by:
•higher gains on equity securities in our affiliated venture capital and private equity businesses, as well as impairments on equity securities in first quarter 2020 due to the market impact of the COVID-19 pandemic ;
•higher gains on deferred compensation plan investments (largely offset by personnel expense); and
•a gain on the sale of substantially all of our student loan portfolio;
partially offset by:
•lower net interest income reflecting the lower interest rate environment, unfavorable hedge ineffectiveness accounting results, and lower loan balances; and
•lower gains on debt securities due to fewer sales.
Provision for credit losses decreased driven by an improving economic environment and lower provision associated with the sale of substantially all of our student loan portfolio.
Noninterest expense increased due to:
•higher incentive compensation expense, including the impact of higher market valuations on stock-based compensation;
•higher deferred compensation expense; and
•a write-down of goodwill in 2021 related to the sale of substantially all of our student loan portfolio.
Earnings Performance (continued)
Corporate includes our rail car leasing business, which had long-lived operating lease assets (as a lessor) of $5.6 billion, which was net of $1.9 billion of accumulated depreciation, as of June 30, 2021. The average age of our rail cars is 21 years and the rail cars are typically leased under short-term leases of 3 to 5 years. Our three largest concentrations, which represented 55% of our rail car fleet as of June 30, 2021, were rail cars used for the transportation of agricultural grain, coal, and cement/sand products. Impairments may result in the future based on changing economic and market conditions affecting the long-term demand and utility of specific types of rail cars. Our assumptions for impairment are sensitive to estimated
utilization and rental rates, as well as the estimated economic life of the leased asset. For additional information on the accounting for impairment of operating lease assets, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2020 Form 10-K.
In addition, Corporate includes assets under management (AUM) and assets under administration (AUA) for Institutional Retirement and Trust (IRT) client assets of $20 billion and $580 billion, respectively, at June 30, 2021, which we continue to administer at the direction of the buyer pursuant to a transition services agreement. The transition services agreement terminates in December 2021, with available options to extend.
Table 5j: Corporate – Balance Sheet
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended June 30, | | | | | | Six months ended June 30, | | | | | | | | | | |
(in millions) | 2021 | | 2020 | | $ Change | | % Change | | 2021 | | 2020 | | $ Change | | % Change | | | | | | |
Selected Balance Sheet Data (average) | | | | | | | | | | | | | | | | | | | | | |
Cash, cash equivalents, and restricted cash | $ | 255,043 | | | 173,754 | | | 81,289 | | | 47 | % | | $ | 239,010 | | | 148,108 | | | 90,902 | | | 61 | % | | | | | | |
Available-for-sale debt securities | 185,396 | | | 223,222 | | | (37,826) | | | (17) | | | 192,867 | | | 234,028 | | | (41,161) | | | (18) | | | | | | | |
Held-to-maturity debt securities | 237,788 | | | 166,127 | | | 71,661 | | | 43 | | | 227,623 | | | 161,958 | | | 65,665 | | | 41 | | | | | | | |
Equity securities | 11,499 | | | 13,604 | | | (2,105) | | | (15) | | | 11,203 | | | 13,787 | | | (2,584) | | | (19) | | | | | | | |
Total loans | 10,077 | | | 21,534 | | | (11,457) | | | (53) | | | 10,152 | | | 21,517 | | | (11,365) | | | (53) | | | | | | | |
Total assets | 754,629 | | | 655,617 | | | 99,012 | | | 15 | | | 741,203 | | | 642,513 | | | 98,690 | | | 15 | | | | | | | |
Total deposits | 41,696 | | | 82,640 | | | (40,944) | | | (50) | | | 44,080 | | | 94,307 | | | (50,227) | | | (53) | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Selected Balance Sheet Data (period-end) | | | | | | | | | | | | | | | | | | | | | |
Cash, cash equivalents, and restricted cash | $ | 248,784 | | | 236,219 | | | 12,565 | | | 5 | | | $ | 248,784 | | | 236,219 | | | 12,565 | | | 5 | | | | | | | |
Available-for-sale debt securities | 177,923 | | | 217,339 | | | (39,416) | | | (18) | | | 177,923 | | | 217,339 | | | (39,416) | | | (18) | | | | | | | |
Held-to-maturity debt securities | 260,054 | | | 168,162 | | | 91,892 | | | 55 | | | 260,054 | | | 168,162 | | | 91,892 | | | 55 | | | | | | | |
Equity securities | 13,142 | | | 12,546 | | | 596 | | | 5 | | | 13,142 | | | 12,546 | | | 596 | | | 5 | | | | | | | |
Total loans | 10,593 | | | 21,948 | | | (11,355) | | | (52) | | | 10,593 | | | 21,948 | | | (11,355) | | | (52) | | | | | | | |
Total assets | 761,915 | | | 713,309 | | | 48,606 | | | 7 | | | 761,915 | | | 713,309 | | | 48,606 | | | 7 | | | | | | | |
Total deposits | 40,091 | | | 76,155 | | | (36,064) | | | (47) | | | 40,091 | | | 76,155 | | | (36,064) | | | (47) | | | | | | | |
Second quarter 2021 vs. second quarter 2020
Total assets (average) increased due to:
•an increase in cash, cash equivalents, and restricted cash managed by corporate treasury as a result of an increase in deposits from the reportable operating segments; and
•an increase in held-to-maturity debt securities related to portfolio rebalancing to manage liquidity and interest rate risk;
partially offset by:
•a decline in available-for-sale debt securities related to portfolio rebalancing to manage liquidity and interest rate risk;
•a decline in average equity securities due to the transition from equity securities to derivative instruments for economic hedges of the deferred compensation plan liabilities in second quarter 2020 and a reduction in Federal Home Loan Bank stock, partially offset by higher balances in our venture capital business; and
•a decline in loans due to the sale of a portion of our student loan portfolio.
Total deposits (average) decreased reflecting actions taken to manage under the asset cap.
First half of 2021 vs. first half of 2020
Total assets (average and period-end) increased due to:
•an increase in cash, cash equivalents, and restricted cash managed by corporate treasury as a result of an increase in deposits from the reportable operating segments; and
•an increase in held-to-maturity debt securities related to portfolio rebalancing to manage liquidity and interest rate risk;
partially offset by:
•a decline in available-for-sale debt securities related to portfolio rebalancing to manage liquidity and interest rate risk;
•a decline in average equity securities due to the transition from equity securities to derivative instruments for economic hedges of the deferred compensation plan liabilities in second quarter 2020 and a reduction in Federal Home Loan Bank stock, partially offset by higher balances in our venture capital business; and
•a decline in loans due to the sale of substantially all of our student loan portfolio in the first half of 2021.
Total deposits (average and period-end) decreased reflecting actions taken to manage under the asset cap.
Wells Fargo Asset Management (WFAM) Assets Under Management We earn trustinvestment advisory and investment managementother asset-based fees from managing and administering assets including mutual funds, separate accounts, and personal trust assets, through our asset management and wealth businesses. 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 business. Our asset management business is conducted by Wells Fargo Asset Management (WFAM),WFAM, which offers Wells Fargo proprietary mutual funds and manages institutional separate accounts, and
our wealth business, which manages assets for high net worth clients.accounts. Generally, our trust and investment management fee income is earnedwe earn fees 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 informationWFAM assets under management
consist of equity, alternative, balanced, fixed income, money market, and stable value, and include client assets that are managed or sub-advised on the salebehalf of our IRT business, including its impact on our AUM and AUA, see the “Earnings Performance – Noninterest Income” section in this Report.other Wells Fargo lines of business. Table 4f5k presents WFAM AUM activity for the thirdsecond quarter and first nine monthshalf of 20202021 and 2019.2020. Management believes that AUM is a useful metric because it allows management, investors, and others to assess how changes in asset amounts may impact the generation of certain asset-based fees.
Table 4f:5k: WIM Trust and Investment –WFAM Assets Under Management
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended | | Nine months ended |
(in billions) | Balance, beginning of period | Inflows (1) | Outflows (2) | Market impact (3) | Balance, end of period | | Balance, beginning of period | Inflows (1) | Outflows (2) | Market impact (3) | Balance, end of period |
September 30, 2020 | | | | | | | | | | | |
Assets managed by WFAM (4): | | | | | | | | | | | |
Money market funds (5) | $ | 201.9 | | 19.2 | | — | | — | | 221.1 | | | $ | 130.6 | | 90.5 | | — | | — | | 221.1 | |
Other assets managed | 376.4 | | 23.2 | | (24.1) | | 10.3 | | 385.8 | | | 378.2 | | 76.3 | | (79.2) | | 10.5 | | 385.8 | |
Assets managed by Wealth and IRT (6) | 176.5 | | 7.2 | | (10.6) | | 7.6 | | 180.7 | | | 187.4 | | 23.5 | | (31.8) | | 1.6 | | 180.7 | |
Total assets under management | $ | 754.8 | | 49.6 | | (34.7) | | 17.9 | | 787.6 | | | $ | 696.2 | | 190.3 | | (111.0) | | 12.1 | | 787.6 | |
September 30, 2019 | | | | | | | | | | | |
Assets managed by WFAM (4): | | | | | | | | | | | |
Money market funds (5) | $ | 119.8 | | 9.6 | | — | | — | | 129.4 | | | $ | 112.4 | | 17.0 | | — | | — | | 129.4 | |
Other assets managed | 375.3 | | 16.4 | | (20.7) | | 3.0 | | 374.0 | | | 353.5 | | 57.9 | | (65.6) | | 28.2 | | 374.0 | |
Assets managed by Wealth and IRT (6) | 181.9 | | 7.9 | | (9.1) | | 1.1 | | 181.8 | | | 170.7 | | 25.3 | | (30.7) | | 16.5 | | 181.8 | |
Total assets under management | $ | 677.0 | | 33.9 | | (29.8) | | 4.1 | | 685.2 | | | $ | 636.6 | | 100.2 | | (96.3) | | 44.7 | | 685.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended | | Six months ended |
(in billions) | Balance, beginning of period | Inflows (1) | Outflows (2) | Market impact (3) | Balance, end of period | | Balance, beginning of period | Inflows (1) | Outflows (2) | Market impact (3) | Balance, end of period |
June 30, 2021 | | | | | | | | | | | |
| | | | | | | | | | | |
Money market funds (4) | $ | 191.2 | | 8.5 | | — | | — | | 199.7 | | | $ | 197.4 | | 2.3 | | — | | — | | 199.7 | |
Other assets managed | 399.2 | | 22.1 | | (28.5) | | 11.0 | | 403.8 | | | 405.6 | | 45.9 | | (58.8) | | 11.1 | | 403.8 | |
| | | | | | | | | | | |
Total WFAM assets under management | $ | 590.4 | | 30.6 | | (28.5) | | 11.0 | | 603.5 | | | $ | 603.0 | | 48.2 | | (58.8) | | 11.1 | | 603.5 | |
June 30, 2020 | | | | | | | | | | | |
| | | | | | | | | | | |
Money market funds (4) | $ | 166.2 | | 35.7 | | — | | — | | 201.9 | | | $ | 130.6 | | 71.3 | | — | | — | | 201.9 | |
Other assets managed | 351.6 | | 26.9 | | (26.5) | | 24.4 | | 376.4 | | | 378.2 | | 53.1 | | (55.1) | | 0.2 | | 376.4 | |
| | | | | | | | | | | |
Total WFAM assets under management | $ | 517.8 | | 62.6 | | (26.5) | | 24.4 | | 578.3 | | | $ | 508.8 | | 124.4 | | (55.1) | | 0.2 | | 578.3 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
(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 $4.8 billion and $5.4 billion as of September 30, 2020 and 2019, respectively, of client assets invested in proprietary funds managed by WFAM.
At SeptemberJune 30, 2020,2021, our assets totaled $1.92$1.95 trillion, down $5.3$6.9 billion from December 31, 2019. The decline in assets reflected:2020.
•a decrease in debt securities of $20.7 billion;
•a decrease in loans of $42.2 billion;
•a decrease in federal funds sold and securities purchased under resale agreements of $32.8 billion; and
•a decrease in equity securities of $17.1 billion;
partially offset by:
•an increase in cash, cash equivalents and restricted cash of $105.5 billion.
The following discussion provides additional information about the major components of our consolidated balance sheet. Information regarding our capital and
See the “Capital Management” section in this Report for information on changes in our asset mix is included in the “Earnings Performance – Net Interest Income” and “Capital Management” sections and Note 23 (Regulatory and Agency Capital Requirements) to Financial Statements in this Report.equity.
Available-for-Sale and Held-to-Maturity Debt Securities
Table 5:6: Available-for-Sale and Held-to-Maturity Debt Securities
| | | September 30, 2020 | | December 31, 2019 | | June 30, 2021 | | December 31, 2020 |
(in millions) | Amortized cost, net (1) | | Net unrealized gain (loss) | | Fair value | | Weighted average expected maturity (yrs) | | Amortized cost | | Net unrealized gain (loss) | | Fair value | | Weighted average expected maturity (yrs) | |
($ in millions) | | ($ in millions) | Amortized cost, net (1) | | Net unrealized gains | | Fair value | | Weighted average expected maturity (yrs) | | Amortized cost, net (1) | | Net unrealized gains | | Fair value | | Weighted average expected maturity (yrs) |
| Available-for-sale (2) | Available-for-sale (2) | 216,311 | | | 4,262 | | | 220,573 | | | 4.5 | | | 260,060 | | | 3,399 | | | 263,459 | | | 4.7 | | Available-for-sale (2) | 186,309 | | | 3,588 | | | 189,897 | | | 4.9 | | | 215,533 | | | 4,859 | | | 220,392 | | | 4.5 | |
Held-to-maturity (3) | Held-to-maturity (3) | 182,595 | | | 6,839 | | | 189,434 | | | 4.5 | | | 153,933 | | | 2,927 | | | 156,860 | | | 4.9 | | Held-to-maturity (3) | 260,941 | | | 3,146 | | | 264,087 | | | 6.1 | | | 205,720 | | | 6,587 | | | 212,307 | | | 4.5 | |
Total | Total | $ | 398,906 | | | 11,101 | | | 410,007 | | | n/a | | 413,993 | | | 6,326 | | | 420,319 | | | n/a | Total | $ | 447,250 | | | 6,734 | | | 453,984 | | | n/a | | 421,253 | | | 11,446 | | | 432,699 | | | n/a |
|
(1)Represents amortized cost of the securities, net of the allowance for credit losses of $79$33 million and $28 million related to available-for-sale debt securities and $26$77 million and $41 million related to held-to-maturity debt securities at SeptemberJune 30, 2020. The allowance for credit losses related to available-for-sale2021, and held-to-maturity debt securities was $0 at December 31, 2019, due to our adoption of CECL on January 1, 2020. For additional 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 consolidated balance sheet at fair value, which includes the allowance for credit losses, subsequent to the adoption of CECL on January 1, 2020.value.
(3)Held-to-maturity debt securities are carried on the consolidated balance sheet at amortized cost, net of the allowance for credit losses, subsequent to the adoption of CECL on January 1, 2020.losses.
Table 56 presents a summary of our portfolio of investments in available-for-sale (AFS) and held-to-maturity (HTM) debt securities. See the “Balance Sheet Analysis – Available-for-Sale and Held-to-Maturity Debt Securities” section in our 2020 Form 10-K for information on our investment management objectives and practices and the “Risk Management – Asset/Liability Management” section in this Report for information on liquidity and interest rate risk.
The fair value of AFS debt securities which decreased in balance sheet carrying value from December 31, 2019,2020, as purchases were more than offset by runoff, sales and sales. While the overall portfolio decreased from December 31, 2019,transfers to HTM debt securities increased due to actions taken to reposition the overall portfolio for capital management purposes.
The net amortized cost of HTM debt securities increased from December 31, 2020, as purchases and transfers from AFS debt securities were partially offset by runoff.
At June 30, 2021, 94% of the combined AFS and HTM debt securities portfolio was rated AA- or above. Ratings are based on external ratings where available and, where not available, based on internal credit grades.
The total net unrealized gains on AFS and HTM debt securities decreased from December 31, 2020, driven by higher interest rates, partially offset by tighter credit spreads. See
Note 53 (Available-for-Sale and Held-to-Maturity Debt Securities) to Financial Statements in this Report for additional information on AFS and HTM debt securities, including a summary of debt securities by security type.
The total net unrealized gains on AFS debt securities increased from December 31, 2019, driven by lower interest rates, partially offset by wider credit spreads. For a discussion of our investment management objectives and practices, see the “Balance Sheet Analysis” section in our 2019 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.
Loan Portfolios
Table 67 provides a summary of total outstanding loans by portfolio segment. Commercial loans decreased fromwere relatively flat compared with December 31, 2019, driven by:
•lower demand for originations of new loans and lower utilization on existing revolving loans in commercial and industrial loans; and
•loan paydowns on continued customer liquidity from strength in capital markets.
2020. Consumer loans decreased from December 31, 2019,2020, driven by a decrease in the residential mortgage – first lien portfolio due to:
•to paydowns exceeding originations in first and junior lien mortgage loans; and
•lower consumer spending and originations in credit cards;
partially offset by:
•the repurchasetransfer of $26.9$10.8 billion of first lien mortgage loans to loans held for sale (LHFS), substantially all of which related to the sales of loans purchased from GNMA loan securitization pools including $21.9 billion in third quarter 2020.
prior periods, partially offset by originations of $30.8 billion.
Table 6:7: Loan Portfolios
| | | | | | | | | | | |
(in millions) | September 30, 2020 | | December 31, 2019 |
Commercial | $ | 482,289 | | | 515,719 | |
Consumer | 437,793 | | | 446,546 | |
Total loans | $ | 920,082 | | | 962,265 | |
Change from prior year-end | $ | (42,183) | | | 9,155 | |
| | | | | | | | | | | | | | |
(in millions) | | June 30, 2021 | | December 31, 2020 |
Commercial | | $ | 476,422 | | | 478,417 | |
Consumer | | 375,878 | | | 409,220 | |
Total loans | | $ | 852,300 | | | 887,637 | |
Change from prior year-end | | $ | (35,337) | | | (74,628) | |
Average loan balances and a comparative detail of average loan balances is included in Table 1 under “Earnings Performance
– Net Interest Income” earlier in this Report. Additional information on total loans outstanding by portfolio segment and
class of financing receivable is included in the “Risk Management – Credit Risk Management” section in this Report. Period-end balances and other loan related information are in Note 64 (Loans and Related Allowance for Credit Losses) to Financial Statements in this Report.
See the “Balance Sheet Analysis – Loan Portfolios” section in our 20192020 Form 10-K for additional information regarding contractual loan maturities and the distribution of loans to changes in interest rates.
Deposits
Deposits increased from December 31, 2019,2020, reflecting:
•higher levels of liquidity and savings for consumer customers reflecting government stimulus programs and wealth customers’ preferences for liquidity given thepayment deferral programs, as well as continued economic uncertainty associated with the
COVID-19 pandemic, loan payment deferrals, government stimulus programs, and lower customer spending;pandemic;
partially offset by:
•actions taken to manage under the asset cap resulting in declines in interest-bearing checking, other time deposits, such as brokered certificates of
deposit (CDs), and interest-bearing deposits in non-U.S. offices.
Table 78 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 7:8: Deposits
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
($ in millions) | Sep 30, 2020 | | % of total deposits | | Dec 31, 2019 | | % of total deposits | | % Change |
Noninterest-bearing | $ | 447,011 | | | 32 | % | | $ | 344,496 | | | 26 | % | | 30 | |
Interest-bearing checking | 48,660 | | | 4 | | | 62,814 | | | 5 | | | (23) | |
Market rate and other savings | 790,117 | | | 57 | | | 751,080 | | | 57 | | | 5 | |
Savings certificates | 23,187 | | | 2 | | | 31,715 | | | 2 | | | (27) | |
Other time deposits | 41,843 | | | 3 | | | 78,609 | | | 6 | | | (47) | |
Deposits in non-U.S. offices (1) | 32,397 | | | 2 | | | 53,912 | | | 4 | | | (40) | |
Total deposits | $ | 1,383,215 | | | 100 | % | | $ | 1,322,626 | | | 100 | % | | 5 | |
(1) Includes Eurodollar sweep balances of $19.8 billion and $34.2 billion at September 30, 2020, and December 31, 2019, respectively. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
($ in millions) | Jun 30, 2021 | | % of total deposits | | Dec 31, 2020 | | % of total deposits | | % Change |
Noninterest-bearing demand deposits | $ | 504,108 | | | 35 | % | | $ | 467,068 | | | 33 | % | | 8 | |
Interest-bearing demand deposits | 453,277 | | | 32 | | | 447,446 | | | 32 | | | 1 | |
Savings deposits | 419,812 | | | 29 | | | 404,935 | | | 29 | | | 4 | |
Time deposits | 35,269 | | | 2 | | | 49,775 | | | 4 | | | (29) | |
Interest-bearing deposits in non-U.S. offices | 28,006 | | | 2 | | | 35,157 | | | 2 | | | (20) | |
Total deposits | $ | 1,440,472 | | | 100 | % | | $ | 1,404,381 | | | 100 | % | | 3 | |
Equity
Total equity was $182.0 billion at September 30, 2020, compared with $188.0 billion at December 31, 2019. The decrease was driven by:
•common stock repurchases of $3.4 billion (substantially all of which occurred in first quarter 2020); and
•dividends of $5.6 billion;
partially offset by:
•issuances of common stock of $2.4 billion predominantly related to employee stock ownership plans.
| | |
Off-Balance Sheet Arrangements |
In the ordinary course of business, we engage in financial transactions that are not recorded on the consolidated balance sheet, or may be recorded on the consolidated 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
We enter into commitments to lend to customers, which are usually at a stated interest rate, if funded, and for specific purposes and time periods. When we enter into 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 are not funded. For additional information, see Note 64 (Loans and Related Allowance for Credit Losses) 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 additional information, see Note 8 (Securitizations and Variable Interest Entities) to Financial Statements in this Report.
Guarantees and Other 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 and direct pay letters of credit, written options, recourse obligations, exchange and clearing house guarantees, indemnifications, and other types of similar arrangements. For additional information, see Note 11 (Guarantees and Other Commitments) to Financial Statements in this Report.
Commitments to Purchase Debt and Equity Securities
We enter into commitments to purchase securities under resale agreements. We also may enter into commitments to purchase debt and equity securities to provide capital for customers’ funding, liquidity or other future needs. For additional information, see Note 1311 (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 additional information, see Note 10 (Securitizations and Variable Interest Entities) to Financial Statements in this Report.
Guarantees and Other 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, direct pay letters of credit, written options, recourse obligations, exchange and clearing house guarantees, indemnifications, and other types of similar arrangements. For additional information, 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 consolidated 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 consolidated balance sheet and is not, when viewed in isolation, a meaningful measure of the risk profile of the instruments. For additional information, see Note 1514 (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. For additional information about how we manage risk, see the “Risk Management” section in our 20192020 Form 10-K. The discussion that follows supplements our discussion of the management of certain risks contained in the “Risk Management” section in our 20192020 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 CreditRisk Committee has primary oversight responsibility for credit risk. A Credit Subcommittee of the Risk Committee assists the Risk Committee in providing oversight of credit risk. At the management level, Credit Risk, which is part of the Company’s Independent Risk Management (IRM) organization,IRM, has primary oversight responsibility for credit risk. Credit Risk reports to the Chief Risk Officer (CRO)CRO and also providessupports periodic reports related to credit risk provided to the Board’s Risk Committee or its Credit Committee.Subcommittee.
Loan PortfoliosPortfolio
The following discussion focuses on ourOur loan portfolios which represent the largest component of assets on our consolidated balance sheet for which we have credit risk. Table 89 presents our total loans outstanding by portfolio segment and class of financing receivable.
Table 8:9: Total Loans Outstanding by Portfolio Segment and Class of Financing Receivable
| (in millions) | (in millions) | Sep 30, 2020 | | Dec 31, 2019 | (in millions) | Jun 30, 2021 | | Dec 31, 2020 |
Commercial: | Commercial: | | Commercial: | |
Commercial and industrial | Commercial and industrial | $ | 320,913 | | | 354,125 | | Commercial and industrial | $ | 317,618 | | | 318,805 | |
Real estate mortgage | Real estate mortgage | 121,910 | | | 121,824 | | Real estate mortgage | 120,678 | | | 121,720 | |
Real estate construction | Real estate construction | 22,519 | | | 19,939 | | Real estate construction | 22,406 | | | 21,805 | |
Lease financing | Lease financing | 16,947 | | | 19,831 | | Lease financing | 15,720 | | | 16,087 | |
Total commercial | Total commercial | 482,289 | | | 515,719 | | Total commercial | 476,422 | | | 478,417 | |
Consumer: | Consumer: | | Consumer: | |
Real estate 1-4 family first mortgage | 294,990 | | | 293,847 | | |
Real estate 1-4 family junior lien mortgage | 25,162 | | | 29,509 | | |
Residential mortgage – first lien | | Residential mortgage – first lien | 244,371 | | | 276,674 | |
Residential mortgage – junior lien | | Residential mortgage – junior lien | 19,637 | | | 23,286 | |
Credit card | Credit card | 36,021 | | | 41,013 | | Credit card | 34,936 | | | 36,664 | |
Automobile | 48,450 | | | 47,873 | | |
Other revolving credit and installment | 33,170 | | | 34,304 | | |
Auto | | Auto | 51,073 | | | 48,187 | |
Other consumer | | Other consumer | 25,861 | | | 24,409 | |
Total consumer | Total consumer | 437,793 | | | 446,546 | | Total consumer | 375,878 | | | 409,220 | |
Total loans | Total loans | $ | 920,082 | | | 962,265 | | Total loans | $ | 852,300 | | | 887,637 | |
We manage our credit risk by establishing what we believe are sound credit policies for underwriting new business, while monitoring and reviewing the performance of our existing loan portfolios. We employ various credit risk management and monitoring activities to mitigate risks associated with multiple risk factors affecting loans we hold could acquire or originate including:
•Loan concentrations and related credit quality;
•Counterparty credit risk;
•Economic and market conditions;
•Legislative or regulatory mandates;
•Changes in interest rates;
•Merger and acquisition activities; and
•Reputation risk.
Our credit risk management oversight process is governed centrally, but provides for direct management and accountability by our lines of business. Our overall credit process includes comprehensive credit policies, disciplined credit underwriting, frequent and detailed risk measurement and modeling, extensive credit training programs, and a continual loan review and audit process.
A key to our credit risk management is adherence to a well-controlled underwriting process, which we believe is appropriate for the needs of our customers as well as investors who purchase the loans or securities collateralized by the loans.
Credit Quality Overview Credit quality in thirdsecond quarter 20202021 reflected continued to be affected byimprovement in the economic impact that the COVID-19 pandemic had on our customer base. Third quarter 2020 results reflected:environment. In particular:
•Nonaccrual loans were $8.0$7.4 billion at SeptemberJune 30, 2020, up2021, down from $5.3$8.7 billion at December 31, 2019.2020. Commercial nonaccrual loans increaseddecreased to $4.4$3.5 billion at SeptemberJune 30, 2020,2021, compared with $2.3$4.8 billion at December 31, 2019,2020, and consumer nonaccrual loans increaseddeclined to $3.6$3.8 billion at SeptemberJune 30, 2020,2021, compared with $3.1$3.9 billion at December 31, 2019.2020. Nonaccrual loans represented 0.87%0.86% of total loans at SeptemberJune 30, 2020,2021, compared with 0.56%0.98% at December 31, 2019.2020.
•Net loan charge-offs (annualized) as a percentage of our average commercial and consumer loan portfolios were 0.29%0.07% and 0.30%0.32% in the thirdsecond quarter and 0.33%0.10% and 0.44%0.35% in the first nine monthshalf of 2020,2021, respectively, compared with 0.11%0.44% and 0.46%0.48% in the thirdsecond quarter and 0.12%0.35% and 0.47%0.51% in the first nine monthshalf of 2019.2020.
•Loans that are not government insured/guaranteed and 90 days or more past due and still accruing were $108$277 million and $549$460 million in our commercial and consumer portfolios, respectively, at SeptemberJune 30, 2020,2021, compared with $78 million and $855$612 million at December 31, 2019.2020.
•ProvisionOur provision for credit losses for loans was $751 million$(1.2) billion and $14.1$(2.4) billion in the thirdsecond quarter and first nine monthshalf of 2020,2021, respectively, compared with $695 million$9.6 billion and $2.0$13.4 billion for the same periods a year ago.
•The ACL for loans totaled $20.5decreased to $16.4 billion, or 2.22%1.92% of total loans, at SeptemberJune 30, 2020, up from $10.52021, compared with $19.7 billion, or 1.09%2.22%, at December 31, 2019.2020.
Additional information on our loan portfolios and our credit quality trends follows.
TROUBLED DEBT RESTRUCTURING RELIEF
COVID-Related Lending Accommodations The CARES Act provides banks optional, temporary relief from accounting for certain loan modifications as troubled debt restructurings (TDRs). The modifications must be relatedDuring 2020, we provided accommodations to customers in response to the adverse effectsCOVID-19 pandemic, including payment deferrals, and other expanded assistance for mortgage, credit card, auto, small business, personal and commercial lending customers. With the exception of residential mortgage-related accommodation programs, the COVID-related lending accommodations instituted during 2020 were no longer offered as of December 31, 2020. Residential mortgage accommodation programs, which continued during the first half of 2021, offered payment deferrals for up to a total of 18 months. Table 10 summarizes the unpaid principal balance (UPB) of consumer loans that received accommodations under loan modification programs established to assist customers with the economic impact of the COVID-19 pandemic (COVID-related modifications) and certain other criteria are required to be metthat remained in order to apply the relief. In first quarter 2020, we elected to apply the TDR relief provided bya deferral period as of June 30, 2021.
Based on guidance in the CARES Act which expires no later than December 31, 2020.
On April 7, 2020, federal banking regulators issuedand the IInteragencynteragency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the
Risk Management – Credit Risk Management (continued)
Coronavirus (Revised) issued by federal banking regulators in April 2020 (the Interagency Statement). The Interagency Statement provides additional TDR relief as it clarifies that it is not necessary, both of which we elected to consider the impact of COVID-19 on the financial condition of a borrower in connection with short-term (e.g., six months or less)apply, loan modifications related to COVID-19 and that meet certain other criteria are exempt from troubled debt restructuring (TDR) classification. Additionally, our election to apply the TDR relief provided by the borrower is current atCARES Act and the dateInteragency 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. At June 30, 2021, substantially all residential mortgage loans that were in a deferral period, excluding those that were government insured/guaranteed, met the modification program is implemented.criteria for TDR relief and were therefore not classified as TDRs. 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.
COVID-Related Lending Accommodations
During the first nine months of 2020 we provided accommodations to customers in response to the COVID-19 pandemic, including fee reversals for consumer and small business banking customers, and payment deferrals, fee waivers, covenant waivers, and other expanded assistance for mortgage, credit card, automobile, small business, personal and commercial lending customers. Certain foreclosure, collection and credit bureau reporting activities were also suspended. Additionally, we deferred rental payments on certain leased assets for which we are the lessor.
Table 9 and Table 9a summarize the unpaid principal balance (UPB) of commercial and consumer loans that received accommodations under loan modification programs established to assist customers with the economic impact of the COVID-19 pandemic (COVID-related modifications) and that remained in a deferral period as of September 30, 2020. These amounts included accommodations made for customers with loans reported on our consolidated balance sheet and excluded accommodations made for customers with loans that we service for others. COVID-related modifications primarily included payment deferrals of principal, interest or both as well as interest and fee waivers.Form 10-K.
Customer payment deferral activities instituted in response to the COVID-19 pandemic could continue to delay the recognition of net charge-offs, delinquencies, and nonaccrual status for those customers who would have otherwise moved into past due or nonaccrual status. Customers requiring assistance after receiving payment deferrals under the programs described in Tables 9 and 9a may be eligible to receive modifications consistent with those offered prior to the COVID-19 pandemic, such as interest rate reductions, term extensions, or principal forgiveness.
Of the total modifications granted during the first nine months of 2020, $222 million and $6.1 billion of unpaid principal balance of commercial and consumer loans, respectively, were classified as TDRs as of September 30, 2020, including $201 million and $4.0 billion, respectively, that were already classified as a TDR when the COVID-related modification was granted.
For information related toCustomer loans that are classified as TDRs,not further modified upon exit from the deferral period may be placed on nonaccrual status or charged-off in accordance with our policies if customers are unable to resume making payments in accordance with the contractual terms of their agreement. As of June 30, 2021, substantially all of our consumer loans were current after exiting the deferral period. For additional information about our COVID-related modifications, see the “Risk Management – Credit Risk Management – COVID-Related Lending Accommodations” section and Note 6 (Loans and Allowance for Credit Losses)1 (Summary of Significant Accounting Policies) to Financial Statements in this Report.our 2020 Form 10-K.
Table 9:Commercial Loan Modifications Related to COVID-19
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($ in millions) | Unpaid principal balance of modified loans still in deferral period at Sep 30, 2020 (1) | | % of loan class (2) | | General program description |
Commercial: | | | | | |
Commercial and industrial | $ | 1,102 | | | * | | Initial deferral of scheduled principal and/or interest up to 90 days, extensions available on a case-by-case basis, generally in increments of 90 days. |
Real estate mortgage and construction | 2,504 | | | 2 | | | Initial deferral of scheduled principal and/or interest up to 90 days, extensions available on a case-by-case basis, generally in increments of 90 days. |
Lease financing | 111 | | | 1 | | | Initial deferral of lease payments up to 90 days, with available extensions up to 90 days. |
Total commercial | $ | 3,717 | | | 1 | % | | |
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*Less than 1%.
(1)COVID-related modifications are at the loan facility level.
(2)Based on total loans outstanding at September 30, 2020.
Table 9a:10: Consumer Loan Modifications Related to COVID-19
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($ in millions) | | | Unpaid principal balance of modified loans still in deferral period at Jun 30, 2020 | % of loan class (1) | | Unpaid principal balance of modified loans still in deferral period at Sep 30, 2020 | % of loan class (2) | | % current after exit from deferral period (3) | General program description |
Consumer: | | | | | | | | | | |
Real estate 1-4 family first mortgage | | | $ | 25,194 | | 9 | % | | $ | 16,994 | | 6 | % | | 96 | | Initial deferral up to 90 days of scheduled principal and interest, with available extensions up to a total of 12 months. |
Real estate 1-4 family junior lien mortgage | | | 2,812 | | 10 | | | 1,848 | | 7 | | | 94 | | Initial deferral up to 90 days of scheduled principal and interest, with available extensions up to a total of 12 months. |
Credit card | | | 2,616 | | 7 | | | 783 | | 2 | | | 92 | | Initial 90 day deferral of minimum payment and waiver of interest and fees until June 2020, then initial or subsequent 60 day deferral of minimum payment and waiver of certain fees. Deferrals limited to an initial period and one subsequent deferral. |
Automobile | | | 4,880 | | 10 | | | 2,796 | | 6 | | | 96 | | Initial 90 day deferral of scheduled principal and interest, with available extensions of 90 days. |
Other revolving credit and installment | | | 1,673 | | 5 | | | 1,057 | | 3 | | | 95 | | Revolving lines: Initial 90 day deferral of minimum payment and waiver of interest and fees, with available extensions of 60 days. Installment loans: Initial 90 day deferral of scheduled principal and interest, with available extensions of 90 days. |
Subtotal | | | $ | 37,175 | | 9 | | | $ | 23,478 | | 5 | | | | |
Real estate 1-4 family first mortgage (government insured/guaranteed) (4) | | | 7,059 | | 3 | | | 19,111 | | 6 | | | | |
Total consumer | | | $ | 44,234 | | 10 | % | | $ | 42,589 | | 10 | % | | | |
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($ in millions) | | | Unpaid principal balance of modified loans still in deferral period at Jun 30, 2021 | % of loan class (1) | | | | | % current at Jun 30, 2021 after exit from deferral period (2) |
Consumer: | | | | | | | | | |
Residential mortgage – first lien (3) | | | $ | 6,810 | | 3 | % | | | | | 96 | |
Residential mortgage – junior lien (3) | | | 997 | | 5 | | | | | | 90 | |
All other consumer (4) | | | 29 | | * | | | | | 92 | |
Subtotal | | | 7,836 | | 2 | | | | | | |
Residential mortgage – first lien (government insured/guaranteed) (5) | | | 11,400 | | 5 | | | | | | |
Total consumer | | | $ | 19,236 | | | | | | | |
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*Less than 1%.
(1)Based on total loans outstanding at June 30, 2020.2021.
(2)Based on total loans outstanding at September 30, 2020.
(3)Represents the UPB of loans that exited the deferral period and had a balance that was less than 30 days past due as of SeptemberJune 30, 2020.2021.
(3)For residential mortgage loans still in active COVID-related accommodation programs as of June 30, 2021, 96% of first lien and 86% of junior lien mortgage loans had a loan-to-value ratio that was 80% or lower.
(4)Includes credit card, auto, and other consumer loans (including personal lines/loans).
(5)Represents real estate 1-4 familyresidential mortgage – first mortgagelien loans insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) that were primarily repurchased from GNMA loan securitization pools. For additional information on GNMA loan securitization pools, see the “Risk Management – Credit Risk Management – Risks Relating to Servicing Activities” section in this Report. FHA/VA loans are entitled to payment deferrals of scheduled principal and interest up to a total of 1218 months.
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 loan portfolios. See Note 64 (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 federal banking regulators’regulatory definitions of pass and criticized categories with the criticized category includingsegmented among special mention, substandard, doubtful and loss categories.
The commercial and industrial loans and lease financing portfolio totaled $337.9 billion, or 37% of total loans, at September 30, 2020. The net charge-off rate (annualized) of average loans for this portfolio was 0.34% and 0.42% in the third quarter and first nine months of 2020, respectively, compared with 0.17% for both the third quarter and first nine months of 2019. At September 30, 2020, 0.89% of this portfolio was nonaccruing, compared with 0.44% at December 31, 2019. Nonaccrual loans in this portfolio increased $1.4 billion from December 31, 2019, a significant portion of which was in the oil, gas and pipelines category due to the economic impact of the
COVID-19 pandemic. Also, $24.6We had $15.6 billion of the commercial and industrial loan and lease financing portfolio was internally classified as criticized in accordance with regulatory guidance at SeptemberJune 30, 2020,2021, compared with $16.6$19.3 billion at December 31, 2019, reflecting increases primarily2020. The change was driven by decreases in the oil, gas and pipelines, real estateretail, materials and construction,commodities, entertainment and recreation, and retail categories due totechnology, telecom and media industries reflecting improvement in the economic impact of the COVID-19 pandemic.environment.
The 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.
Risk Management – Credit Risk Management (continued)
Generally, the primary source of repayment for this portfolio is the operating cash flows of customers, with the collateral securing this portfolio representsrepresenting a secondary source of repayment.
The portfolio decreased slightly at June 30, 2021, compared with December 31, 2020, as a result of paydowns, partially offset
by limited loan draws. Table 1011 provides our commercial and industrial loans and lease financing by industry, and includes non-U.S. loans of $62.8 billion and $71.7 billion at September 30, 2020, and December 31, 2019, respectively. Significant industry concentrations of non-U.S. loans included $33.0 billion and $31.2 billion in the financials except banks category, and $13.0 billion and $19.9 billion in the banks category, at September 30, 2020, and December 31, 2019, respectively. The oil, gas and pipelines category included $1.5 billion of non-U.S. loans at both September 30, 2020, and December 31, 2019.industry. The industry categories are based on the North American Industry Classification System.
Table 11:Commercial and Industrial Loans and Lease Financing by Industry
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| June 30, 2021 | | December 31, 2020 |
($ in millions) | Nonaccrual loans | | Total portfolio | | % of total loans | | Total commitments (1) | | Nonaccrual loans | | Total portfolio | | % of total loans | | Total commitments (1) |
Financials except banks | $ | 154 | | | 124,759 | | | 15 | % | | $ | 215,207 | | | $ | 160 | | | 117,726 | | | 13 | % | | $ | 206,999 | |
Technology, telecom and media | 65 | | | 20,669 | | | 2 | | | 59,245 | | | 144 | | | 23,061 | | | 3 | | | 56,500 | |
Real estate and construction | 136 | | | 22,488 | | | 3 | | | 54,354 | | | 133 | | | 23,113 | | | 3 | | | 51,526 | |
Equipment, machinery and parts manufacturing | 41 | | | 16,833 | | | 2 | | | 40,174 | | | 81 | | | 18,158 | | | 2 | | | 41,332 | |
Retail | 44 | | | 16,726 | | | 2 | | | 39,732 | | | 94 | | | 17,393 | | | 2 | | | 41,669 | |
Materials and commodities | 19 | | | 13,033 | | | 2 | | | 35,232 | | | 39 | | | 12,071 | | | 1 | | | 33,879 | |
Food and beverage manufacturing | 9 | | | 11,955 | | | 1 | | | 29,460 | | | 17 | | | 12,401 | | | 1 | | | 28,908 | |
Health care and pharmaceuticals | 26 | | | 13,484 | | | 2 | | | 29,259 | | | 145 | | | 15,322 | | | 2 | | | 32,154 | |
Oil, gas and pipelines | 486 | | | 9,186 | | | 1 | | | 28,785 | | | 953 | | | 10,471 | | | 1 | | | 30,055 | |
Auto related | 63 | | | 9,873 | | | 1 | | | 25,036 | | | 79 | | | 11,817 | | | 1 | | | 25,034 | |
Commercial services | 76 | | | 10,018 | | | 1 | | | 23,965 | | | 107 | | | 10,284 | | | 1 | | | 24,442 | |
Utilities | 67 | | | 7,136 | | | * | | 21,615 | | | 2 | | | 5,031 | | | * | | 18,564 | |
Insurance and fiduciaries | 1 | | | 4,371 | | | * | | 19,233 | | | 2 | | | 3,297 | | | * | | 14,334 | |
Diversified or miscellaneous | 27 | | | 6,309 | | | * | | 17,108 | | | 7 | | | 5,437 | | | * | | 14,717 | |
Transportation services | 492 | | | 8,566 | | | 1 | | 16,866 | | | 573 | | | 9,236 | | | 1 | | | 15,531 | |
Entertainment and recreation | 68 | | | 7,612 | | | * | | 15,540 | | | 263 | | | 9,884 | | | 1 | | | 17,551 | |
Banks | — | | | 14,839 | | | 2 | | 15,290 | | | — | | | 12,789 | | | 1 | | | 13,842 | |
Agribusiness | 57 | | | 5,402 | | | * | | 11,221 | | | 81 | | | 6,314 | | | * | | 11,642 | |
Government and education | 4 | | | 5,033 | | | * | | 10,793 | | | 9 | | | 5,464 | | | * | | 11,065 | |
Other (2) | 71 | | | 5,046 | | | * | | 19,693 | | | 68 | | | 5,623 | | | * | | 23,315 | |
Total | $ | 1,906 | | | 333,338 | | | 39 | % | | $ | 727,808 | | | $ | 2,957 | | | 334,892 | | | 33 | % | | $ | 713,059 | |
*Less than 1%.
(1)Total commitments consist of loans outstanding plus unfunded credit commitments, excluding issued letters of credit.
(2)No other single industry had total loans in excess of $3.4 billion and $3.8 billion at June 30, 2021, and December 31, 2020, respectively.
Loans to financials except banks, our largest industry concentration, is predominantly comprised of loans to investment firms, financial vehicles, and non-bank creditors, including those that invest in financial assets backed predominantly by commercial or residential real estate or consumer loan assets.nonbank creditors. We had $72.8$88.1 billion and $75.9$80.0 billion of loans originated by our Asset Backed Finance (ABF) and Financial Institution Group (FIG) lines of business at SeptemberJune 30, 2020,2021, and December 31, 2019,2020, respectively. These loans include: (i) loans to customers related to their subscription or capital calls, (ii) loans to nonbank lenders collateralized by commercial loans, and (iii) loans to originators or servicers of financial assets collateralized by residential real estate or other consumer loans such as credit cards, auto loans and leases, student loans and other financial assets eligible for the securitization market. These ABF and FIG loans are limited to a percentage
Risk Management – Credit Risk Management (continued)
of the value of the underlying financial assets considering underlying credit risk, asset duration, and ongoing performance. These ABF and FIG 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. LoansIn addition, loans to financials except banks included collateralized loan obligations (CLOs) in loan form, all of $7.7which were rated AA or above, of $8.1 billion and $7.0$7.9 billion at SeptemberJune 30, 2020,2021, and December 31, 2019,2020, respectively.
Oil, gas and pipelines loans included $8.1$6.6 billion and $9.2$7.5 billion of senior secured loans outstanding at SeptemberJune 30,
2020 2021, and December 31, 2019,2020, respectively. Oil, gas and pipelines
nonaccrual loans increaseddecreased at SeptemberJune 30, 2020,2021, compared with December 31, 2019, due2020, driven by loan payoffs.
We continue to new downgradesperform escalated credit monitoring for certain industries that we consider to nonaccrual statusbe directly and most adversely affected by the COVID-19 pandemic.
Our commercial and industrial loans and lease financing portfolio also includes non-U.S. loans of $72.1 billion and $63.8 billion at June 30, 2021, and December 31, 2020, respectively. Significant industry concentrations of non-U.S. loans at June 30, 2021, and December 31, 2020, respectively, included:
•$43.5 billion and $36.2 billion in 2020.the financials except banks category;
In addition to•$14.7 billion and $12.8 billion in the banks category; and
•$1.4 billion and $1.6 billion in the oil, gas and pipelines category, industries with escalated credit monitoring include real estate and construction, retail (including restaurants), and hotels/motels.
Table 10:Commercial and Industrial Loans and Lease Financing by Industrycategory.
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| September 30, 2020 | | December 31, 2019 |
($ 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 | $ | 204 | | | 108,597 | | | 12 | % | | $ | 193,838 | | | $ | 112 | | | 117,312 | | | 12 | % | | $ | 200,848 | |
Equipment, machinery and parts manufacturing | 95 | | | 19,586 | | | 2 | | | 40,649 | | | 36 | | | 23,457 | | | 2 | | | 42,040 | |
Technology, telecom and media | 100 | | | 24,517 | | | 3 | | | 56,417 | | | 28 | | | 22,447 | | | 2 | | | 53,343 | |
Real estate and construction | 287 | | | 24,959 | | | 3 | | | 52,995 | | | 47 | | | 22,011 | | | 2 | | | 48,217 | |
Banks | — | | | 12,975 | | | 1 | | | 13,982 | | | — | | | 20,070 | | | 2 | | | 20,728 | |
Retail | 149 | | | 19,243 | | | 2 | | | 42,250 | | | 105 | | | 19,923 | | | 2 | | | 41,938 | |
Materials and commodities | 48 | | | 13,188 | | | 1 | | | 35,885 | | | 33 | | | 16,375 | | | 2 | | | 39,369 | |
Automobile related | 24 | | | 12,031 | | | 1 | | | 25,240 | | | 24 | | | 15,996 | | | 2 | | | 26,310 | |
Food and beverage manufacturing | 30 | | | 12,051 | | | 1 | | | 28,597 | | | 9 | | | 14,991 | | | 2 | | | 29,172 | |
Health care and pharmaceuticals | 163 | | | 16,074 | | | 2 | | | 32,304 | | | 28 | | | 14,920 | | | 2 | | | 30,168 | |
Oil, gas and pipelines | 1,188 | | | 11,138 | | | 1 | | | 31,344 | | | 615 | | | 13,562 | | | 1 | | | 35,445 | |
Entertainment and recreation | 85 | | | 9,643 | | | 1 | | | 16,849 | | | 44 | | | 13,462 | | | 1 | | | 19,854 | |
Transportation services | 390 | | | 10,216 | | | 1 | | | 16,642 | | | 224 | | | 10,957 | | | 1 | | | 17,660 | |
Commercial services | 145 | | | 10,618 | | | 1 | | | 24,467 | | | 50 | | | 10,455 | | | 1 | | | 22,713 | |
Agribusiness | 40 | | | 6,829 | | | * | | 12,419 | | | 35 | | | 7,539 | | | * | | 12,901 | |
Utilities | 9 | | | 5,922 | | | * | | 19,315 | | | 224 | | | 5,995 | | | * | | 19,390 | |
Insurance and fiduciaries | 2 | | | 3,463 | | | * | | 14,814 | | | 1 | | | 5,525 | | | * | | 15,596 | |
Government and education | 10 | | | 5,413 | | | * | | 11,691 | | | 6 | | | 5,363 | | | * | | 12,267 | |
Other (2) | 52 | | | 11,397 | | | 2 | | | 27,989 | | | 19 | | | 13,596 | | | * | | 32,988 | |
Total | $ | 3,021 | | | 337,860 | | | 37 | % | | $ | 697,687 | | | $ | 1,640 | | | 373,956 | | | 39 | % | | $ | 720,947 | |
*Less than 1%.
(1)Total commitments consist of loans outstanding plus unfunded credit commitments, excluding issued letters of credit.
(2)No other single industry had total loans in excess of $5.0 billion and $4.7 billion at September 30, 2020, and December 31, 2019, respectively.
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 federal banking regulators'regulatory definitions of pass and criticized categories with criticized segmented among special mention, substandard, doubtful and loss categories. We had $15.6 billion of CRE mortgage loans classified as criticized at June 30, 2021, compared with $12.0 billion at December 31, 2020, and $2.6 billion of CRE construction loans classified as criticized at June 30, 2021,
compared with $1.6 billion at December 31, 2020. The increase in criticized CRE mortgage and construction loans was driven by the hotel/motel, apartment, institutional, and office property types and reflected the economic impact of the COVID-19 pandemic. Due to uncertainty in the recovery from the economic impacts of the COVID-19 pandemic, the credit quality of certain property types within our CRE loan portfolio, such as retail, hotel/motel, office buildings, and shopping centers, could continue to be adversely affected.
The total CRE loan portfolio decreased $441 million from December 31, 2020, driven by a decrease in CRE mortgage loans predominantly related to the office, retail (excluding shopping
center), and shopping center property types, partially offset by an increase in loans related to apartments. The CRE loan portfolio which included $8.1$8.4 billion of non-U.S. CRE loans totaled $144.4 billion, or 16% of total loans, at SeptemberJune 30, 2020, and consisted of $121.9 billion of mortgage loans and $22.5 billion of construction loans.
Table 11 summarizes CRE loans by state and property type with the related nonaccrual totals at September 30, 2020.2021. 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 48% of the total CRE portfolio. ByThe largest property type the
largest concentrations are office buildings at 26%25% and apartments at 19%20% of the portfolio.
Table 12 summarizes CRE loans by state and property type with the related nonaccrual loans totaled 0.95% of the CRE outstanding balancetotals at SeptemberJune 30, 2020, compared with 0.43% at December 31, 2019. The increase in CRE nonaccrual loans was predominantly driven by the hotel/motel, shopping center, and office buildings property types and reflected the economic impact of the COVID-19 pandemic. At September 30, 2020, we had $11.2 billion of criticized CRE mortgage loans, compared with $3.8 billion at December 31, 2019, and $1.5 billion of criticized CRE construction loans, compared with $187 million at December 31, 2019. The increase in criticized CRE mortgage and CRE construction loans was driven by the hotel/motel, shopping center, and retail (excluding shopping center) property types and reflected the economic impact of the COVID-19 pandemic.2021.
Table 11:12: CRE Loans by State and Property Type
| | | September 30, 2020 | | June 30, 2021 |
| | Real estate mortgage | | Real estate construction | | Total | | % of total loans | | Real estate mortgage | | Real estate construction | | Total | | % of total loans |
($ in millions) | ($ in millions) | Nonaccrual loans | | Total portfolio | | Nonaccrual loans | | Total portfolio | | Nonaccrual loans | | Total portfolio | | ($ in millions) | Nonaccrual loans | | Total portfolio | | Nonaccrual loans | | Total portfolio | | Nonaccrual loans | | Total portfolio | |
By state: | By state: | | By state: | |
California | California | $ | 172 | | | 31,615 | | | 2 | | | 4,515 | | | 174 | | | 36,130 | | | 4 | % | California | $ | 218 | | | 30,684 | | | 3 | | | 4,380 | | | 221 | | | 35,064 | | | 4 | % |
New York | New York | 97 | | | 12,973 | | | 2 | | | 2,022 | | | 99 | | | 14,995 | | | 2 | | New York | 58 | | | 12,618 | | | 2 | | | 1,997 | | | 60 | | | 14,615 | | | 2 | |
Florida | Florida | 24 | | | 8,104 | | | 1 | | | 1,542 | | | 25 | | | 9,646 | | | 1 | | Florida | 111 | | | 8,617 | | | 1 | | | 1,571 | | | 112 | | | 10,188 | | | 1 | |
Texas | Texas | 325 | | | 7,855 | | | — | | | 1,221 | | | 325 | | | 9,076 | | | * | Texas | 308 | | | 8,253 | | | — | | | 1,139 | | | 308 | | | 9,392 | | | 1 | |
Washington | Washington | 13 | | | 3,935 | | | — | | | 837 | | | 13 | | | 4,772 | | | * | Washington | 139 | | | 3,839 | | | 6 | | | 1,072 | | | 145 | | | 4,911 | | | * |
Georgia | | Georgia | 51 | | | 3,820 | | | — | | | 585 | | | 51 | | | 4,405 | | | * |
North Carolina | North Carolina | 14 | | | 3,666 | | | — | | | 743 | | | 14 | | | 4,409 | | | * | North Carolina | 11 | | | 3,526 | | | — | | | 871 | | | 11 | | | 4,397 | | | * |
Georgia | 12 | | | 3,919 | | | — | | | 446 | | | 12 | | | 4,365 | | | * | |
Arizona | Arizona | 35 | | | 3,672 | | | — | | | 334 | | | 35 | | | 4,006 | | | * | Arizona | 50 | | | 3,978 | | | 1 | | | 289 | | | 51 | | | 4,267 | | | * |
New Jersey | New Jersey | 51 | | | 3,049 | | | — | | | 915 | | | 51 | | | 3,964 | | | * | New Jersey | 72 | | | 2,637 | | | — | | | 1,042 | | | 72 | | | 3,679 | | | * |
Colorado | Colorado | 82 | | | 3,275 | | | — | | | 615 | | | 82 | | | 3,890 | | | * | Colorado | 12 | | | 3,146 | | | — | | | 440 | | | 12 | | | 3,586 | | | * |
Other (1) | Other (1) | 518 | | | 39,847 | | | 29 | | | 9,329 | | | 547 | | | 49,176 | | | 5 | | Other (1) | 568 | | | 39,560 | | | 32 | | | 9,020 | | | 600 | | | 48,580 | | | 6 | |
Total | Total | $ | 1,343 | | | 121,910 | | | 34 | | | 22,519 | | | 1,377 | | | 144,429 | | | 16 | % | Total | $ | 1,598 | | | 120,678 | | | 45 | | | 22,406 | | | 1,643 | | | 143,084 | | | 17 | % |
By property: | By property: | | By property: | |
Office buildings | Office buildings | $ | 279 | | | 34,133 | | | 1 | | | 3,214 | | | 280 | | | 37,347 | | | 4 | % | Office buildings | $ | 146 | | | 33,098 | | | 2 | | | 3,173 | | | 148 | | | 36,271 | | | 4 | % |
Apartments | Apartments | 30 | | | 19,162 | | | — | | | 8,273 | | | 30 | | | 27,435 | | | 3 | | Apartments | 27 | | | 20,645 | | | — | | | 8,208 | | | 27 | | | 28,853 | | | 3 | |
Industrial/warehouse | Industrial/warehouse | 76 | | | 15,949 | | | 1 | | | 1,781 | | | 77 | | | 17,730 | | | 2 | | Industrial/warehouse | 88 | | | 15,331 | | | 2 | | | 1,746 | | | 90 | | | 17,077 | | | 2 | |
Retail (excluding shopping center) | Retail (excluding shopping center) | 170 | | | 13,886 | | | 2 | | | 167 | | | 172 | | | 14,053 | | | 2 | | Retail (excluding shopping center) | 230 | | | 13,091 | | | 3 | | | 142 | | | 233 | | | 13,233 | | | 2 | |
Hotel/motel | Hotel/motel | 159 | | | 10,594 | | | — | | | 1,694 | | | 159 | | | 12,288 | | | 1 | | Hotel/motel | 361 | | | 10,552 | | | — | | | 1,719 | | | 361 | | | 12,271 | | | 1 | |
Shopping center | Shopping center | 408 | | | 10,703 | | | — | | | 1,029 | | | 408 | | | 11,732 | | | 1 | | Shopping center | 509 | | | 10,002 | | | — | | | 911 | | | 509 | | | 10,913 | | | 1 | |
Institutional | | Institutional | 54 | | | 4,289 | | | 20 | | | 2,619 | | | 74 | | | 6,908 | | | * |
Mixed use properties | Mixed use properties | 91 | | | 5,516 | | | — | | | 701 | | | 91 | | | 6,217 | | | * | Mixed use properties | 98 | | | 5,306 | | | — | | | 938 | | | 98 | | | 6,244 | | | * |
Institutional | 75 | | | 3,871 | | | 20 | | | 2,344 | | | 95 | | | 6,215 | | | * | |
Collateral pool | Collateral pool | — | | | 2,659 | | | — | | | 191 | | | — | | | 2,850 | | | * | Collateral pool | — | | | 2,947 | | | — | | | 191 | | | — | | | 3,138 | | | * |
Storage facilities | 1 | | | 1,577 | | | — | | | 226 | | | 1 | | | 1,803 | | | * | |
1-4 family structure | | 1-4 family structure | — | | | 8 | | | — | | | 1,348 | | | — | | | 1,356 | | | * |
Other | Other | 54 | | | 3,860 | | | 10 | | | 2,899 | | | 64 | | | 6,759 | | | * | Other | 85 | | | 5,409 | | | 18 | | | 1,411 | | | 103 | | | 6,820 | | | * |
Total | Total | $ | 1,343 | | | 121,910 | | | 34 | | | 22,519 | | | 1,377 | | | 144,429 | | | 16 | % | Total | $ | 1,598 | | | 120,678 | | | 45 | | | 22,406 | | | 1,643 | | | 143,084 | | | 17 | % |
*Less than 1%.
(1)Consists ofIncludes 40 states, none of whichstates; no state in Other had loans in excess of $3.8$3.6 billion.
Risk Management – Credit Risk Management (continued)
NON-U.SNON-U.S. LOANS Our classification of non-U.S. loans is based on whether the borrower’s primary address is outside of the United States. At SeptemberJune 30, 2020,2021, non-U.S. loans totaled $71.2$80.8 billion,, representing approximately 9% of our total consolidated loans outstanding, compared with $72.9 billion, or approximately 8% of our total consolidated loans outstanding, compared with $80.5 billion, or approximately 8% of total consolidated loans outstanding, at December 31, 2019.2020. Non-U.S. loans were approximately 4% of our total consolidated total assets at both SeptemberJune 30, 2020,2021, and December 31, 2019.2020.
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 customers, counterparties and regulatory agencies. We establish exposure limits for each country through a centralized oversight process based on customer needs, and through consideration of the relevant and 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 country exposure outside the U.S. based on our assessment of risk at SeptemberJune 30, 2020,2021, was the United Kingdom, which totaled $38.1$34.4 billion, or approximately 2% of our total assets, and included $12.2$7.7 billion of sovereign claims. Our
United Kingdom sovereign claims arise predominantly from deposits we have placed with the Bank of England pursuant to regulatory requirements in support of our London branch. The United Kingdom withdrew from the European Union (Brexit) on January 31, 2020, and is currently subject to a transition period during which the terms and conditions of its exit are being negotiated. For additional information on our plans to address Brexit, see the “Risk Management – Credit Risk Management – Country Risk Exposure” section in our 2019 Form 10-K. For additional information on risks associated with Brexit, see the “Risk Factors” section in our 2019 Form 10-K.
Table 1213 provides information regarding our top 20 exposures by country (excluding the U.S.), based on our assessment of risk, which gives consideration to the country of any guarantors and/or underlying collateral. With respect to
Table 12:13:
•Lending and deposits exposure includes outstanding loans, unfunded credit commitments, and deposits with non-U.S. banks. These balances are presented prior to the deduction of allowance for credit losses or collateral received under the terms of the credit agreements, if any.
•Securities exposure represents debt and equity securities of non-U.S. issuers. Long and short positions are netted, and net short positions are reflected as negative exposure.
•Derivatives and other exposure represents foreign exchange contracts, derivative contracts, securities resale agreements, and securities lending agreements.
Table 12:13: Select Country Exposures
| | | September 30, 2020 | | June 30, 2021 |
| | Lending and deposits | | Securities | | Derivatives and other | | Total exposure | | Lending and deposits | | Securities | | Derivatives and other | | Total exposure |
(in millions) | Sovereign | | Non- sovereign | | Sovereign | | Non- sovereign | | Sovereign | | Non- sovereign | | Sovereign | | Non- sovereign (1) | | Total | |
($ in millions) | | ($ in millions) | Sovereign | | Non-sovereign | | Sovereign | | Non-sovereign | | Sovereign | | Non-sovereign | | Sovereign | | Non- sovereign (1) | | Total |
Top 20 country exposures: | Top 20 country exposures: | | Top 20 country exposures: | |
United Kingdom | United Kingdom | $ | 12,150 | | | 23,010 | | | — | | | 1,075 | | | 3 | | | 1,868 | | | 12,153 | | | 25,953 | | | 38,106 | | United Kingdom | $ | 7,716 | | | 23,986 | | | — | | | 970 | | | — | | | 1,689 | | | 7,716 | | | 26,645 | | | 34,361 | |
Canada | Canada | 3 | | | 14,712 | | | — | | | (60) | | | — | | | 410 | | | 3 | | | 15,062 | | | 15,065 | | Canada | 2 | | | 16,693 | | | 1 | | | (19) | | | 2 | | | 456 | | | 5 | | | 17,130 | | | 17,135 | |
Japan | Japan | 20 | | | 913 | | | 8,848 | | | 229 | | | — | | | 20 | | | 8,868 | | | 1,162 | | | 10,030 | | Japan | 19 | | | 700 | | | 11,173 | | | 161 | | | — | | | 46 | | | 11,192 | | | 907 | | | 12,099 | |
Cayman Islands | Cayman Islands | — | | | 6,380 | | | — | | | — | | | — | | | 186 | | | — | | | 6,566 | | | 6,566 | | Cayman Islands | — | | | 6,757 | | | — | | | — | | | — | | | 153 | | | — | | | 6,910 | | | 6,910 | |
Ireland (EU) | 1,375 | | | 4,802 | | | — | | | 81 | | | — | | | 84 | | | 1,375 | | | 4,967 | | | 6,342 | | |
Luxembourg (EU) | — | | | 3,772 | | | — | | | 99 | | | — | | | 90 | | | — | | | 3,961 | | | 3,961 | | |
Ireland | | Ireland | 254 | | | 5,050 | | | — | | | 155 | | | — | | | 117 | | | 254 | | | 5,322 | | | 5,576 | |
Luxembourg | | Luxembourg | — | | | 4,258 | | | — | | | 126 | | | — | | | 129 | | | — | | | 4,513 | | | 4,513 | |
Guernsey | Guernsey | — | | | 3,537 | | | — | | | 2 | | | — | | | 7 | | | — | | | 3,546 | | | 3,546 | | Guernsey | — | | | 4,157 | | | — | | | 3 | | | — | | | 39 | | | — | | | 4,199 | | | 4,199 | |
Germany (EU) | — | | | 2,834 | | | — | | | 197 | | | 6 | | | 120 | | | 6 | | | 3,151 | | | 3,157 | | |
Bermuda | Bermuda | — | | | 2,885 | | | — | | | 6 | | | — | | | 92 | | | — | | | 2,983 | | | 2,983 | | Bermuda | — | | | 3,842 | | | — | | | 65 | | | — | | | 130 | | | — | | | 4,037 | | | 4,037 | |
China | China | — | | | 2,540 | | | (12) | | | 294 | | | 39 | | | 47 | | | 27 | | | 2,881 | | | 2,908 | | China | — | | | 3,353 | | | (2) | | | 447 | | | 17 | | | 39 | | | 15 | | | 3,839 | | | 3,854 | |
Netherlands (EU) | — | | | 2,340 | | | — | | | 304 | | | 1 | | | 226 | | | 1 | | | 2,870 | | | 2,871 | | |
Germany | | Germany | — | | | 3,073 | | | — | | | 62 | | | 3 | | | 93 | | | 3 | | | 3,228 | | | 3,231 | |
France | | France | 131 | | | 2,233 | | | — | | | 212 | | | 184 | | | 12 | | | 315 | | | 2,457 | | | 2,772 | |
Netherlands | | Netherlands | — | | | 1,978 | | | 3 | | | 211 | | | — | | | 116 | | | 3 | | | 2,305 | | | 2,308 | |
South Korea | South Korea | — | | | 2,229 | | | 2 | | | 60 | | | 1 | | | 12 | | | 3 | | | 2,301 | | | 2,304 | | South Korea | — | | | 1,991 | | | — | | | 198 | | | 2 | | | 13 | | | 2 | | | 2,202 | | | 2,204 | |
Brazil | | Brazil | — | | | 1,438 | | | — | | | 2 | | | 3 | | | — | | | 3 | | | 1,440 | | | 1,443 | |
Switzerland | Switzerland | — | | | 1,843 | | | — | | | (84) | | | — | | | 118 | | | — | | | 1,877 | | | 1,877 | | Switzerland | — | | | 1,193 | | | — | | | (13) | | | — | | | 212 | | | — | | | 1,392 | | | 1,392 | |
France (EU) | — | | | 1,761 | | | — | | | 23 | | | 52 | | | 2 | | | 52 | | | 1,786 | | | 1,838 | | |
Brazil | — | | | 1,501 | | | — | | | 3 | | | 5 | | | 15 | | | 5 | | | 1,519 | | | 1,524 | | |
United Arab Emirates | | United Arab Emirates | — | | | 1,014 | | | — | | | 87 | | | — | | | — | | | — | | | 1,101 | | | 1,101 | |
Australia | Australia | — | | | 1,366 | | | — | | | 33 | | | — | | | 22 | | | — | | | 1,421 | | | 1,421 | | Australia | — | | | 992 | | | — | | | 8 | | | — | | | 11 | | | — | | | 1,011 | | | 1,011 | |
Singapore | | Singapore | — | | | 820 | | | — | | | 51 | | | — | | | 98 | | | — | | | 969 | | | 969 | |
Chile | | Chile | — | | | 918 | | | — | | | — | | | — | | | — | | | — | | | 918 | | | 918 | |
India | India | — | | | 1,008 | | | — | | | 67 | | | — | | | — | | | — | | | 1,075 | | | 1,075 | | India | — | | | 877 | | | — | | | 20 | | | — | | | — | | | — | | | 897 | | | 897 | |
Chile | — | | | 966 | | | — | | | 49 | | | — | | | 1 | | | — | | | 1,016 | | | 1,016 | | |
United Arab Emirates | — | | | 1,004 | | | — | | | 1 | | | — | | | 4 | | | — | | | 1,009 | | | 1,009 | | |
Singapore | — | | | 821 | | | — | | | 145 | | | — | | | 37 | | | — | | | 1,003 | | | 1,003 | | |
Total top 20 country exposures | Total top 20 country exposures | $ | 13,548 | | | 80,224 | | | 8,838 | | | 2,524 | | | 107 | | | 3,361 | | | 22,493 | | | 86,109 | | | 108,602 | | Total top 20 country exposures | $ | 8,122 | | | 85,323 | | | 11,175 | | | 2,746 | | | 211 | | | 3,353 | | | 19,508 | | | 91,422 | | | 110,930 | |
|
(1)Total non-sovereign exposure comprised $45.6$47.6 billion of exposure to financial institutions and $40.5$43.8 billion to non-financial corporations at SeptemberJune 30, 2020.2021.
REAL ESTATE 1-4 FAMILYRESIDENTIAL MORTGAGE LOANS Our real estate 1-4 familyresidential mortgage loan portfolio is comprised of both1-4 family first and junior lien mortgage loans. Residential mortgage – first lien loans which are presented in Table 13.
Table 13:Real Estate 1-4 Family Mortgage Loans
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
($ in millions) | Balance | | % of portfolio | | Balance | | % of portfolio |
Real estate 1-4 family first mortgage | $ | 294,990 | | | 92 | % | | $ | 293,847 | | | 91 | % |
Real estate 1-4 family junior lien mortgage | 25,162 | | | 8 | | | 29,509 | | | 9 | |
Total real estate 1-4 family mortgage loans | $ | 320,152 | | | 100 | % | | $ | 323,356 | | | 100 | % |
comprised 93% of the total residential mortgage loan portfolio at both June 30, 2021, and December 31, 2020.
The real estate 1-4 familyresidential mortgage loan portfolio includes some loans with adjustable-rate features and some with an interest-only feature as part of the loan terms and some with adjustable-rate features.terms. Interest-only loans were approximately 3% of total loans at both SeptemberJune 30, 2020,2021, and December 31, 2019.2020. We believe we have manageableour origination process appropriately addresses our adjustable-rate mortgage (ARM) reset risk across our residential mortgage loan portfolios including ARMand our ACL for loans that have negative amortizing features that were acquired in prior business combinations.considers this risk. 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. In 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 generally accounted for in the same manner as non-PCD loans. For additional information on PCD loans, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report.
We continue to modify real estate 1-4 familyresidential mortgage loans to assist homeowners and other borrowers experiencing financial difficulties. For additional information on our modification programs, see the “Risk Management – Credit Risk Management – Real Estate 1-4 FamilyResidential Mortgage Loans” section in our 2019
2020 Form 10-K. For additional information on customer accommodations, including loan modifications, in response to the COVID-19 pandemic, see the “Risk Management – Credit Risk Management – COVID-Related Lending Accommodations” 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 on the mortgage portfolio exclude government insured/guaranteed loans. Loans 30 days or more delinquent at September 30, 2020, totaled $3.1 billion, or 1% of total mortgages, compared with $3.0 billion, or 1%, at December 31, 2019. Loans with FICO scores lower than 640 totaled $6.1 billion, or 2% of total mortgages at September 30, 2020, compared with $7.6 billion, or 2%, at December 31, 2019. Mortgages with a LTV/CLTV greater than 100% totaled $2.0 billion at September 30, 2020, or 1% of total mortgages, compared with $2.5 billion, or 1%, at December 31, 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 mortgage loans by state are presented in Table 14. Our real estate 1-4 family mortgage loans to borrowers in California represented 13% of total loans at September 30, 2020, located predominantly within the larger metropolitan areas, with no single California metropolitan area consisting of more than 5% of total loans. We monitor changes in real estate values and underlying economic or market conditions for all geographic areas of our real estate 1-4 familyresidential 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 64 (Loans and Related Allowance for Credit Losses) to Financial Statements in this Report and the “Risk Management – Credit Risk Management – Real Estate 1-4 FamilyResidential Mortgage Loans” section in our 20192020 Form 10-K.
Part of our credit monitoring includes tracking delinquency, current FICO scores and loan/combined loan to collateral values (LTV/CLTV) on the entire residential mortgage loan portfolio. Excluding government insured/guaranteed loans, these credit risk indicators on the residential mortgage portfolio were:
•Loans 30 days or more delinquent at June 30, 2021, totaled $3.7 billion, or 1% of total mortgages, compared with $4.7 billion, or 2%, at December 31, 2020. Customer payment deferral activities instituted in response to the COVID-19 pandemic could continue to delay the recognition of delinquencies;
•Loans with FICO scores lower than 640 totaled $4.3 billion, or 2% of total mortgages at June 30, 2021, compared with $5.6 billion, or 2%, at December 31, 2020; and
•Mortgages with a LTV/CLTV greater than 100% totaled $912 million at June 30, 2021, or less than 1% of total mortgages, compared with $1.6 billion, or 1%, at December 31, 2020.
Information regarding credit quality indicators can be found in Note 4 (Loans and Related Allowance for Credit Losses) to Financial Statements in this Report. Residential mortgage loans by state are presented in Table 14.
Table 14: Real Estate 1-4 FamilyResidential Mortgage Loans by State
| | | September 30, 2020 | | June 30, 2021 |
($ in millions) | ($ 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 | ($ in millions) | Residential mortgage – first lien | | Residential mortgage – junior lien | | Total residential mortgage | | % of total loans |
Real estate 1-4 family mortgage loans: | | |
Residential mortgage loans: | | Residential mortgage loans: | |
California(1) | California(1) | $ | 110,292 | | | 6,795 | | | 117,087 | | | 13 | % | California(1) | $ | 96,679 | | | 5,155 | | | 101,834 | | | 12 | % |
New York | New York | 31,652 | | | 1,347 | | | 32,999 | | | 4 | | New York | 29,635 | | | 1,117 | | | 30,752 | | | 4 | |
New Jersey | New Jersey | 13,020 | | | 2,406 | | | 15,426 | | | 2 | | New Jersey | 10,491 | | | 1,988 | | | 12,479 | | | 1 | |
Florida | Florida | 11,063 | | | 2,254 | | | 13,317 | | | 1 | | Florida | 9,839 | | | 1,804 | | | 11,643 | | | 1 | |
Washington | Washington | 9,935 | | | 558 | | | 10,493 | | | 1 | | Washington | 8,088 | | | 414 | | | 8,502 | | | 1 | |
Texas | | Texas | 6,956 | | | 388 | | | 7,344 | | | 1 | |
Virginia | Virginia | 7,622 | | | 1,459 | | | 9,081 | | | 1 | | Virginia | 5,656 | | | 1,148 | | | 6,804 | | | 1 | |
Texas | 8,275 | | | 508 | | | 8,783 | | | 1 | | |
North Carolina | North Carolina | 5,307 | | | 1,185 | | | 6,492 | | | 1 | | North Carolina | 4,380 | | | 932 | | | 5,312 | | | 1 | |
Colorado | Colorado | 5,771 | | | 542 | | | 6,313 | | | 1 | | Colorado | 4,668 | | | 400 | | | 5,068 | | | 1 | |
Other (1)(2) | Other (1)(2) | 59,116 | | | 8,108 | | | 67,224 | | | 7 | | Other (1)(2) | 47,748 | | | 6,291 | | | 54,039 | | | 6 | |
Government insured/ guaranteed loans (2)(3) | Government insured/ guaranteed loans (2)(3) | 32,937 | | | — | | | 32,937 | | | 3 | | Government insured/ guaranteed loans (2)(3) | 20,231 | | | — | | | 20,231 | | | 2 | |
Total | Total | $ | 294,990 | | | 25,162 | | | 320,152 | | | 35 | % | Total | $ | 244,371 | | | 19,637 | | | 264,008 | | | 31 | % |
(1)Our residential mortgage loans to borrowers in California are located predominantly within the larger metropolitan areas, with no single California metropolitan area consisting of more than 4% of total loans.
(2)Consists of 41 states, none of whichstates; no state in Other had loans in excess of $6.3$5.1 billion.
(2)(3)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)
Residential Mortgage – First Lien Mortgage Portfolio Our total real estate 1-4 familyresidential mortgage – first lien mortgage portfolio (first mortgage) increased $1.1decreased $32.3 billion from December 31, 2019,2020, driven by our repurchaseloan paydowns as a result of $26.9the low interest rate environment and the transfer of $10.8 billion of first lien mortgage loans to loans held for sale (LHFS) substantially all of which related to the sales of loans purchased
from GNMA loan securitization pools including $21.9 billion in third quarter 2020, and mortgage loanprior periods, partially offset by originations of $44.1 billion that were more than offset by paydowns. We also reclassified $9.0 billion of loans that were designated as mortgage loans held for sale (MLHFS) in second quarter 2020 to held for investment in third quarter 2020.
Net loan charge-offs (annualized) as a percentage of average first mortgage loans were 0.00% in both the third quarter and first nine months of 2020, compared with a net recovery of 0.01% and 0.02%, respectively, for the same periods a year ago.
Nonaccrual loans were $2.6 billion at September 30, 2020, up $491 million from December 31, 2019. The increase in nonaccrual loans from December 31, 2019 was driven by COVID-related loan payment deferrals that did not qualify for legislative or regulatory relief, as well as the implementation of CECL, which required PCI loans to be 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 this Report.$30.8 billion.
Table 15 shows certain delinquency and loss information for the residential mortgage – first mortgagelien portfolio and lists the top five states by outstanding balance.
Table 15: Residential Mortgage – First MortgageLien Portfolio Performance
| | | Outstanding balance | | % of loans 30 days or more past due | | Loss (recovery) rate (annualized) quarter ended | | Outstanding balance | | % of loans 30 days or more past due | | | Loss (recovery) rate (annualized) quarter ended |
($ in millions) | ($ in millions) | Sep 30, 2020 | Dec 31, 2019 | | Sep 30, 2020 | Dec 31, 2019 | | Sep 30, 2020 | Jun 30, 2020 | Mar 31, 2020 | Dec 31, 2019 | Sep 30, 2019 | ($ in millions) | Jun 30, 2021 | Dec 31, 2020 | | Jun 30, 2021 | Dec 31, 2020 | | | Jun 30, 2021 | Mar 31, 2021 | | Dec 31, 2020 | Sep 30, 2020 | Jun 30, 2020 |
| | | California | California | $ | 110,292 | | 118,256 | | | 0.69 | % | 0.48 | | | (0.01) | | (0.01) | | (0.01) | | (0.02) | | (0.01) | | California | $ | 96,679 | | 104,260 | | | 0.84 | % | 1.00 | | | | (0.02) | | (0.02) | | | (0.03) | | (0.01) | | (0.01) | |
New York | New York | 31,652 | | 31,336 | | | 0.97 | | 0.83 | | | 0.02 | | 0.02 | | (0.01) | | 0.02 | | 0.01 | | New York | 29,635 | | 31,028 | | | 1.12 | | 1.40 | | | | 0.01 | | (0.01) | | | 0.01 | | 0.02 | | 0.02 | |
New Jersey | New Jersey | 13,020 | | 14,113 | | | 1.41 | | 1.40 | | | (0.01) | | 0.03 | | — | | 0.02 | | 0.02 | | New Jersey | 10,491 | | 12,073 | | | 1.71 | | 1.92 | | | | (0.03) | | — | | | (0.03) | | (0.01) | | 0.03 | |
Florida | Florida | 11,063 | | 11,804 | | | 2.07 | | 1.81 | | | 0.03 | | (0.01) | | (0.03) | | (0.06) | | (0.07) | | Florida | 9,839 | | 10,623 | | | 2.04 | | 2.56 | | | | (0.14) | | (0.11) | | | 0.01 | | 0.03 | | (0.01) | |
Washington | Washington | 9,935 | | 10,863 | | | 0.55 | | 0.29 | | | 0.01 | | (0.01) | | (0.02) | | (0.02) | | — | | Washington | 8,088 | | 9,094 | | | 0.51 | | 0.66 | | | | (0.02) | | 0.02 | | | (0.01) | | 0.01 | | (0.01) | |
Other | Other | 86,091 | | 95,750 | | | 1.28 | | 1.20 | | | (0.01) | | 0.01 | | 0.01 | | (0.02) | | — | | Other | 69,408 | | 79,356 | | | 1.42 | | 1.60 | | | | (0.06) | | (0.09) | | | 0.02 | | (0.01) | | 0.01 | |
Total | Total | 262,053 | | 282,122 | | | 1.00 | | 0.86 | | | — | | — | | — | | (0.02) | | (0.01) | | Total | 224,140 | | 246,434 | | | 1.14 | | 1.34 | | | | (0.03) | | (0.04) | | | — | | — | | — | |
Government insured/guaranteed loans | Government insured/guaranteed loans | 32,937 | | 11,170 | | | Government insured/guaranteed loans | 20,231 | | 30,240 | | | | | | |
PCI (1) | N/A | 555 | | | |
Total first lien mortgages | $ | 294,990 | | 293,847 | | | |
Total first lien mortgage portfolio | | Total first lien mortgage portfolio | $ | 244,371 | | 276,674 | | | | | | |
(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 additional information, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report.
Residential Mortgage – Junior Lien Mortgage PortfolioThe residential mortgage – junior lien mortgage portfolio consists of residential mortgage lines and loans that are subordinate in rights to an existing lien on the same property. It is not unusual for these lines and loans to have draw periods, interest-only payments, balloon payments, adjustable rates and similar features. Junior lien loan products are mostlyprimarily amortizing payment loans with fixed interest rates and repayment periods between five to 30 years.
We continuously monitor the credit performance of our residential mortgage –
junior lien mortgage portfolio for trends and factors that influence the frequency and severity of losses, such as residential mortgage – junior lien mortgage performance when the residential mortgage – first mortgagelien loan is delinquent.
The decrease in the residential mortgage – junior lien portfolio at June 30, 2021, compared with December 31, 2020, reflected loan paydowns. Table 16 shows certain delinquency and loss information for the residential mortgage – junior lien mortgage portfolio and lists the top five states by outstanding balance. The decrease
Table 16:Residential Mortgage – Junior Lien Portfolio Performance
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Outstanding balance | | % of loans 30 days or more past due | | | Loss (recovery) rate (annualized) quarter ended |
($ in millions) | Jun 30, 2021 | | Dec 31, 2020 | | Jun 30, 2021 | Dec 31, 2020 | | | | Jun 30, 2021 | | Mar 31, 2021 | | Dec 31, 2020 | | Sep 30, 2020 | | Jun 30, 2020 |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
California | $ | 5,155 | | | 6,237 | | | 2.49 | % | 2.20 | | | | | (0.67) | | | (0.69) | | | (0.46) | | | (0.34) | | | (0.26) | |
New Jersey | 1,988 | | | 2,258 | | | 2.78 | | 2.84 | | | | | (0.33) | | | 0.32 | | | (0.06) | | | (0.02) | | | (0.12) | |
Florida | 1,804 | | | 2,119 | | | 2.67 | | 3.06 | | | | | (0.78) | | | (0.11) | | | (0.35) | | | (0.22) | | | (0.01) | |
Pennsylvania | 1,196 | | | 1,377 | | | 2.22 | | 2.30 | | | | | (0.13) | | | (0.22) | | | (0.62) | | | (0.19) | | | 0.05 | |
Virginia | 1,148 | | | 1,355 | | | 2.53 | | 2.41 | | | | | (0.62) | | | (0.29) | | | (0.15) | | | (0.34) | | | (0.05) | |
Other | 8,346 | | | 9,940 | | | 2.37 | | 2.31 | | | | | (0.64) | | | (0.36) | | | (0.43) | | | (0.17) | | | (0.21) | |
Total junior lien mortgage portfolio | $ | 19,637 | | | 23,286 | | | 2.47 | % | 2.41 | | | | | (0.60) | | | (0.35) | | | (0.39) | | | (0.22) | | | (0.17) | |
As of June 30, 2021, with respect to loans in outstanding balances since December 31, 2019, predominantly
reflected loan paydowns. Beginning in second quarter 2020, we suspended the origination ofresidential mortgage – junior lien mortgages. Asportfolio that had a CLTV ratio in excess of September 30, 2020, 4%100%:
•such loans totaled 2% of the outstanding balance of the residential mortgage – 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%, portfolio;
•3% were 30 days or more past due. CLTV meansCustomer payment deferral activities instituted in response to the ratioCOVID-19 pandemic could continue to delay the recognition of delinquencies; and
•the total loan balance of first 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 1% of the residential mortgage – junior lien mortgage portfolio at September 30, 2020.portfolio.
CLTV represents the ratio of the total loan balance of first and junior lien mortgages (including unused line amounts for credit line products) to property collateral value. For additional information on consumer loans by LTV/CLTV, see Table 6.124.11 in Note 64 (Loans and Related Allowance for Credit Losses) to Financial Statements in this Report.
Residential Mortgage – Junior Lien Line and Loan and Residential Mortgage Portfolio Performance– First Lien Line
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Outstanding balance | | % of loans 30 days or more past due | | Loss (recovery) rate (annualized) quarter ended |
($ in millions) | Sep 30, 2020 | | Dec 31, 2019 | | Sep 30, 2020 | | Dec 31, 2019 | | Sep 30, 2020 | | Jun 30, 2020 | | Mar 31, 2020 | | Dec 31, 2019 | | Sep 30, 2019 |
California | $ | 6,795 | | | 8,054 | | | 1.78 | % | | 1.62 | | | (0.34) | | | (0.26) | | | (0.36) | | | (0.44) | | | (0.51) | |
New Jersey | 2,406 | | | 2,744 | | | 2.52 | | | 2.74 | | | (0.02) | | | (0.12) | | | 0.13 | | | 0.07 | | | 0.11 | |
Florida | 2,254 | | | 2,600 | | | 2.74 | | | 2.93 | | | (0.22) | | | (0.01) | | | — | | | (0.09) | | | (0.11) | |
Virginia | 1,459 | | | 1,712 | | | 2.06 | | | 1.97 | | | (0.34) | | | (0.05) | | | 0.09 | | | (0.02) | | | (0.23) | |
Pennsylvania | 1,464 | | | 1,674 | | | 1.96 | | | 2.16 | | | (0.19) | | | 0.05 | | | 0.11 | | | (0.10) | | | (0.05) | |
Other | 10,784 | | | 12,712 | | | 2.01 | | | 2.05 | | | (0.17) | | | (0.21) | | | 0.01 | | | (0.18) | | | (0.29) | |
Total | 25,162 | | | 29,496 | | | 2.06 | | | 2.07 | | | (0.22) | | | (0.17) | | | (0.07) | | | (0.21) | | | (0.28) | |
PCI (1) | N/A | | 13 | | | | | | | | | | | | | | | |
Total junior lien mortgages | $ | 25,162 | | | 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 additional 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 onlyinterest-only or (2) 1.5% of outstanding principal balance plus accrued interest. As of SeptemberJune 30, 2020,2021, lines of credit in a draw period primarily used the interest-only option.
During the draw period, the borrower has the option of converting all or a portion of the line from a variable interest rate to a fixed rate with terms including interest-only payments for a fixed period between three to seven years or a fully amortizing payment with a fixed period between five to 30 years. At the end of the draw period, a line of credit generally converts to an amortizing payment schedule with repayment terms of up to 30 years based on the balance at time of conversion. Certain lines and loans have been structured with a balloon payment, which requires full repayment of the outstanding balance at the end of the term period. The conversion of lines or loans to fully amortizing or balloon payoff may result in a significant payment
increase, which can affect some borrowers’ ability to repay the outstanding balance.
On a monthly basis, we monitor the payment characteristics of borrowers in our first and junior lien lines of credit portfolios. In September 2020, excluding borrowers with COVID-related loan modification payment deferrals, approximately 43% of borrowers paid the minimum amount due and approximately 52% paid more than the minimum amount due. The rest were either delinquent or paid less than the minimum amount due. For the borrowers with an interest-only payment feature, approximately 28% paid the minimum amount due and approximately 67% 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 allowanceACL for credit lossloans 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.
Risk Management – Credit Risk Management (continued)
Table 17 reflects the outstanding balance of our portfolio of residential mortgage – junior lien mortgages,liens, including lines and loans, and residential mortgage – first lien lines segregated into scheduled end-of-drawend of draw or end-of-term periods and products that are currently amortizing, or in balloon repayment status. At September 30, 2020, $383 million, or 2%, of lines in their draw period were 30 days or more past due,
compared with $377 million, or 5%, of amortizing lines of credit. Included in the amortizing amounts in Table 17 is $64 million of end-of-term balloon payments which were past due. The unfunded credit commitments for residential mortgage – junior and first lien lines totaled $55.7$49.8 billion at SeptemberJune 30, 2020.2021.
Table 17: Residential Mortgage – Junior Lien Mortgage Line and Loan and Residential Mortgage – First Lien Mortgage Line Portfolios Payment Schedule
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Scheduled end of draw/term | | Amortizing (2) |
| | Scheduled end of draw / term | | | Outstanding balance | | Remainder of 2021 | | 2026 and | |
($ in millions) | ($ in millions) | Outstanding balance September 30, 2020 | | Remainder of 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | 2025 and thereafter (1) | | Amortizing | ($ in millions) | June 30, 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | thereafter (1) | |
Junior lien lines and loans | $ | 25,162 | | | 61 | | | 682 | | | 2,822 | | | 1,930 | | | 1,545 | | | 10,441 | | | 7,681 | | |
First lien lines | 9,393 | | | 24 | | | 345 | | | 1,433 | | | 1,076 | | | 847 | | | 4,103 | | | 1,565 | | |
| | | Amortizing (2) |
| Residential mortgage – junior lien lines and loans | | Residential mortgage – junior lien lines and loans | $ | 19,637 | | | 384 | | | 2,271 | | | 1,563 | | | 1,239 | | | 2,059 | | | 6,050 | | |
Residential mortgage – first lien lines | | Residential mortgage – first lien lines | 7,957 | | | 212 | | | 1,212 | | | 929 | | | 721 | | | 1,006 | | | 2,495 | | |
Total | Total | $ | 34,555 | | | 85 | | | 1,027 | | | 4,255 | | | 3,006 | | | 2,392 | | | 14,544 | | | 9,246 | | Total | $ | 27,594 | | | 596 | | | 3,483 | | | 2,492 | | | 1,960 | | | 3,065 | | | 8,545 | | |
% of portfolios | % of portfolios | 100 | % | | — | | | 3 | | | 12 | | | 9 | | | 7 | | | 42 | | | 27 | | % of portfolios | 100 | % | | 2 | | | 13 | | | 9 | | | 7 | | | 11 | | | 31 | | | 27 | |
(1)Substantially all lines and loans are scheduled to convert to amortizing loans by the end of 2029,2030, with annual scheduled amounts through 20292030 ranging from $1.5 billion$914 million to $4.1$3.3 billion and averaging $2.7$1.7 billion per year.
(2)Includes $69 million of end-of-term balloon payments which were past due.
CREDIT CARDS Our credit card portfolio totaled $36.0 billion at SeptemberAt June 30, 2020, which represented 4%2021, $339 million, or 2%, of our total outstanding loans. The net charge-off rate (annualized) for our credit card portfolio was 2.71% for third quarter 2020,lines in their draw period were 30 days or more past due, compared with 3.22% for third quarter 2019, and 3.39% and 3.54% for the first nine months$347 million, or 5%, of 2020 and 2019, respectively. The decrease in the net charge-off rate in the third quarter and first nine monthsamortizing lines of 2020, compared with the same periods a year ago, was driven bycredit. Customer payment deferral activities instituted in response to the COVID-19 pandemic could continue to delay the recognition of delinquencies. On a monthly basis, we monitor the payment characteristics of borrowers in our residential mortgage – first and junior lien lines of credit portfolios. In June 2021, excluding borrowers with COVID-related loan modification payment deferrals:
•Approximately 43% of these borrowers paid only the effects of government stimulus programs.minimum amount due and approximately 52% paid more than the minimum amount due. The rest were either delinquent or paid less than the minimum amount due.
•For the borrowers with an interest-only payment feature, approximately 28% paid only the minimum amount due and approximately 67% paid more than the minimum amount due.
AUTOMOBILETable 18: Credit Card, Auto, and Other Consumer Loans
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2021 | | December 31, 2020 |
($ in millions) | | Outstanding balance | | % of total loans | | Outstanding balance | | % of total loans |
Credit card | | $ | 34,936 | | | 4.10 | % | | $ | 36,664 | | | 4.13 | % |
Auto | | 51,073 | | | 5.99 | | | 48,187 | | | 5.43 | |
Other consumer (1) | | 25,861 | | | 3.03 | | | 24,409 | | | 2.75 | |
Total | | $ | 111,870 | | | 13.13 | % | | $ | 109,260 | | | 12.31 | % |
(1)Other consumer loans primarily include securities-based loans.
CREDIT CARD Our automobilecredit card portfolio totaled $48.5$34.9 billion at SeptemberJune 30, 2020. The net charge-off rate (annualized) for our automobile portfolio was 0.25% for third quarter 2020,2021, compared with 0.65% for third quarter 2019, and 0.60% and 0.64% for the first nine months of 2020 and 2019, respectively.$36.7 billion at December 31, 2020. The decrease in the net charge-off rate in the third quarter and first nine months of 2020,outstanding balance at June 30, 2021, compared with the same periods in 2019,December 31, 2020, was driven by payment deferral activities in responsedue to the COVID-19 pandemic and stronger recoveries from higher used car values.seasonal paydowns.
AUTOOur auto portfolio totaled $51.1 billion at June 30, 2021, compared with $48.2 billion at December 31, 2020. The outstanding balance at June 30, 2021, compared with December 31, 2020, increased as originations exceeded paydowns.
OTHER REVOLVING CREDIT AND INSTALLMENTCONSUMER Other consumer loans, which include revolving credit and installment loans, totaled $33.2$25.9 billion at SeptemberJune 30, 2020, and predominantly included student and securities-based loans. Our private student loan portfolio totaled $10.02021, compared with $24.4 billion at September 30,December 31, 2020. On September 22, 2020, we notified customers of our exit from the student lending business. New applications from current customers will be accepted for the 2020-2021 academic year until January 28, 2021, with final disbursement of funds to colleges by June 30, 2021. The net charge-off rate (annualized) for other revolving credit and installment loans was 0.80% for third quarter 2020, compared with 1.60% for third quarter 2019, and 1.16% and 1.54% for the first nine months of 2020 and 2019, respectively. The decrease in the net charge-off rate in the third quarter and first nine months of 2020, compared with the same periods a year ago, was driven by payment deferral activities in response to the COVID-19 pandemic.
Risk Management – Credit Risk Management (continued)
NONPERFORMING ASSETS (NONACCRUAL LOANS AND FORECLOSED ASSETS)Table 18 summarizes nonperforming assets (NPAs) for each of the last four quarters. Total NPAs increased $378 million from second quarter 2020 to $8.2 billion. Nonaccrual loans of $8.0 billion increased $417 million from second quarter 2020. The increase in nonaccrual loans was due to the economic impact of the COVID-19 pandemic, including real estate 1-4 family mortgage loans in COVID-related payment deferral programs that were classified as nonaccrual because they did not qualify for legislative or regulatory relief. Customer payment deferral activities instituted in response to the COVID-19 pandemic may delay recognition of delinquencies for customers who otherwise would have moved into nonaccrual status. Prior to January 1, 2020, PCI loans were excluded from nonaccrual loans because they continued to earn interest income from accretable yield, independent of performance in accordance with their contractual terms. However, as a 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 a result, were also classified as nonaccrual loans given their contractual delinquency. For additional information on PCD 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 20192020 Form 10-K. Customer payment deferral activities instituted in response to the COVID-19 pandemic could continue to delay the recognition of nonaccrual loans for those customers who would have otherwise moved into nonaccrual status. For additional
information on customer accommodations, including loan modifications, in response to the COVID-19 pandemic, see the “Risk Management – Credit Risk Management – COVID-Related Lending Accommodations” section in this Report.
ForeclosedTable 19 summarizes nonperforming assets (NPAs) for each of $156 million were down $39 million from second quarter 2020.the last four quarters.
Table 18:19: Nonperforming Assets (Nonaccrual Loans and Foreclosed Assets)
| | | September 30, 2020 | | June 30, 2020 | | March 31, 2020 | | December 31, 2019 | | June 30, 2021 | | March 31, 2021 | | December 31, 2020 | | September 30, 2020 |
($ in millions) | ($ in millions) | | Balance | | % of total loans | | Balance | | % of total loans | | Balance | | % of total loans | | Balance | | % of total loans | ($ in millions) | | Balance | | % of total loans | | Balance | | % of total loans | | Balance | | % of total loans | | Balance | | % of total loans |
Nonaccrual loans: | Nonaccrual loans: | | Nonaccrual loans: | |
Commercial: | Commercial: | | Commercial: | |
Commercial and industrial | Commercial and industrial | | $ | 2,834 | | | 0.88 | % | | $ | 2,896 | | | 0.83 | % | | $ | 1,779 | | | 0.44 | % | | $ | 1,545 | | | 0.44 | % | Commercial and industrial | | $ | 1,691 | | | 0.53 | % | | $ | 2,223 | | | 0.70 | % | | $ | 2,698 | | | 0.85 | % | | $ | 2,834 | | | 0.88 | % |
Real estate mortgage | Real estate mortgage | | 1,343 | | | 1.10 | | | 1,217 | | | 0.98 | | | 944 | | | 0.77 | | | 573 | | | 0.47 | | Real estate mortgage | | 1,598 | | | 1.32 | | | 1,703 | | | 1.41 | | | 1,774 | | | 1.46 | | | 1,343 | | | 1.10 | |
Real estate construction | Real estate construction | | 34 | | | 0.15 | | | 34 | | | 0.16 | | | 21 | | | 0.10 | | | 41 | | | 0.21 | | Real estate construction | | 45 | | | 0.20 | | | 55 | | | 0.26 | | | 48 | | | 0.22 | | | 34 | | | 0.15 | |
Lease financing | Lease financing | | 187 | | | 1.10 | | | 138 | | | 0.79 | | | 131 | | | 0.68 | | | 95 | | | 0.48 | | Lease financing | | 215 | | | 1.37 | | | 249 | | | 1.58 | | | 259 | | | 1.61 | | | 187 | | | 1.10 | |
Total commercial | Total commercial | | 4,398 | | | 0.91 | | | 4,285 | | | 0.83 | | | 2,875 | | | 0.51 | | | 2,254 | | | 0.44 | | Total commercial | | 3,549 | | | 0.74 | | | 4,230 | | | 0.89 | | | 4,779 | | | 1.00 | | | 4,398 | | | 0.91 | |
Consumer: | Consumer: | | | | | | | | | Consumer: | | | | | | | | |
Real estate 1-4 family first mortgage (1) | | 2,641 | | | 0.90 | | | 2,393 | | | 0.86 | | | 2,372 | | | 0.81 | | | 2,150 | | | 0.73 | | |
Real estate 1-4 family junior lien mortgage (1) | | 767 | | | 3.05 | | | 753 | | | 2.81 | | | 769 | | | 2.70 | | | 796 | | | 2.70 | | |
Automobile | | 176 | | | 0.36 | | | 129 | | | 0.26 | | | 99 | | | 0.20 | | | 106 | | | 0.22 | | |
Other revolving credit and installment | | 40 | | | 0.12 | | | 45 | | | 0.14 | | | 41 | | | 0.12 | | | 40 | | | 0.12 | | |
Residential mortgage – first lien (1) | | Residential mortgage – first lien (1) | | 2,852 | | | 1.17 | | | 2,859 | | | 1.12 | | | 2,957 | | | 1.07 | | | 2,641 | | | 0.90 | |
Residential mortgage – junior lien (1) | | Residential mortgage – junior lien (1) | | 713 | | | 3.63 | | | 747 | | | 3.51 | | | 754 | | | 3.24 | | | 767 | | | 3.05 | |
Auto | | Auto | | 221 | | | 0.43 | | | 181 | | | 0.37 | | | 202 | | | 0.42 | | | 176 | | | 0.36 | |
Other consumer | | Other consumer | | 36 | | | 0.14 | | | 38 | | | 0.15 | | | 36 | | | 0.15 | | | 40 | | | 0.12 | |
Total consumer | Total consumer | | 3,624 | | | 0.83 | | | 3,320 | | | 0.79 | | | 3,281 | | | 0.74 | | | 3,092 | | | 0.69 | | Total consumer | | 3,822 | | | 1.02 | | | 3,825 | | | 1.00 | | | 3,949 | | | 0.97 | | | 3,624 | | | 0.83 | |
Total nonaccrual loans | Total nonaccrual loans | | 8,022 | | | 0.87 | | | 7,605 | | | 0.81 | | | 6,156 | | | 0.61 | | | 5,346 | | | 0.56 | | Total nonaccrual loans | | 7,371 | | | 0.86 | | | 8,055 | | | 0.93 | | | 8,728 | | | 0.98 | | | 8,022 | | | 0.87 | |
Foreclosed assets: | Foreclosed assets: | | | | | | | | | Foreclosed assets: | | | | | | | | |
Government insured/guaranteed (2) | Government insured/guaranteed (2) | | 22 | | | 31 | | | 43 | | | 50 | | | Government insured/guaranteed (2) | | 15 | | | 16 | | | 18 | | | 22 | | |
Non-government insured/guaranteed | Non-government insured/guaranteed | | 134 | | | 164 | | | 209 | | | 253 | | | Non-government insured/guaranteed | | 114 | | | 124 | | | 141 | | | 134 | | |
Total foreclosed assets | Total foreclosed assets | | 156 | | | 195 | | | 252 | | | 303 | | | Total foreclosed assets | | 129 | | | 140 | | | 159 | | | 156 | | |
Total nonperforming assets | Total nonperforming assets | | $ | 8,178 | | | 0.89 | % | | $ | 7,800 | | | 0.83 | % | | $ | 6,408 | | | 0.63 | % | | $ | 5,649 | | | 0.59 | % | Total nonperforming assets | | $ | 7,500 | | | 0.88 | % | | $ | 8,195 | | | 0.95 | % | | $ | 8,887 | | | 1.00 | % | | $ | 8,178 | | | 0.89 | % |
Change in NPAs from prior quarter | Change in NPAs from prior quarter | | $ | 378 | | | 1,392 | | | 759 | | | (333) | | | Change in NPAs from prior quarter | | $ | (695) | | | $ | (692) | | | $ | 709 | | | $ | 378 | | |
(1)Real estate 1-4 familyResidential mortgage loans predominantly insured by the FHA or guaranteed by the VA are not placed on nonaccrual status because they are insured or guaranteed.
(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. Receivables 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 additional information on foreclosed assets, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 20192020 Form 10-K.
RiskCommercial nonaccrual loans decreased $1.2 billion from December 31, 2020, predominantly due to a decline in commercial and industrial nonaccrual loans, driven by a decrease in oil, gas, and pipeline nonaccrual loans, reflecting improvement in the economic environment. For additional information on commercial and industrial nonaccrual loans, see the “Risk Management – Credit Risk Management – Commercial and Industrial Loans and Lease Financing” section in this Report.
Consumer nonaccrual loans decreased $127 million from December 31, 2020, driven by a decline in residential mortgage nonaccrual loans.
Table 1920 provides an analysis of the changes in nonaccrual loans.
Table 19:Analysis of Changes in Nonaccrual Loans
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended |
(in millions) | Sep 30, 2020 | | Jun 30, 2020 | | Mar 31, 2020 | | Dec 31, 2019 | | Sep 30, 2019 |
Commercial nonaccrual loans | | | | | | | | | |
Balance, beginning of period | $ | 4,285 | | | 2,875 | | | 2,254 | | | 2,312 | | | 2,470 | |
Inflows | 1,316 | | | 2,741 | | | 1,479 | | | 652 | | | 710 | |
Outflows: | | | | | | | | | |
Returned to accruing | (166) | | | (64) | | | (56) | | | (124) | | | (52) | |
Foreclosures | — | | | — | | | — | | | — | | | (78) | |
Charge-offs | (382) | | | (560) | | | (360) | | | (201) | | | (194) | |
Payments, sales and other | (655) | | | (707) | | | (442) | | | (385) | | | (544) | |
Total outflows | (1,203) | | | (1,331) | | | (858) | | | (710) | | | (868) | |
Balance, end of period | 4,398 | | | 4,285 | | | 2,875 | | | 2,254 | | | 2,312 | |
Consumer nonaccrual loans | | | | | | | | | |
Balance, beginning of period | 3,320 | | | 3,281 | | | 3,092 | | | 3,233 | | | 3,452 | |
Inflows (1) | 696 | | | 379 | | | 749 | | | 473 | | | 448 | |
Outflows: | | | | | | | | | |
Returned to accruing | (160) | | | (135) | | | (254) | | | (227) | | | (274) | |
Foreclosures | (4) | | | (6) | | | (21) | | | (29) | | | (32) | |
Charge-offs | (36) | | | (39) | | | (48) | | | (45) | | | (44) | |
Payments, sales and other | (192) | | | (160) | | | (237) | | | (313) | | | (317) | |
Total outflows | (392) | | | (340) | | | (560) | | | (614) | | | (667) | |
Balance, end of period | 3,624 | | | 3,320 | | | 3,281 | | | 3,092 | | | 3,233 | |
Total nonaccrual loans | $ | 8,022 | | | 7,605 | | | 6,156 | | | 5,346 | | | 5,545 | |
(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,policies, 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.
Table 20:Analysis of Changes in Nonaccrual Loans
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended | | | | |
| | | | | | | | | | | | | |
| | | | | |
(in millions) | Jun 30, 2021 | | Mar 31, 2021 | | Dec 31, 2020 | | Sep 30, 2020 | | Jun 30, 2020 | | | | |
Commercial nonaccrual loans | | | | | | | | | | | | | |
Balance, beginning of period | $ | 4,230 | | | 4,779 | | | 4,398 | | | 4,285 | | | 2,875 | | | | | |
Inflows | 560 | | | 773 | | | 1,696 | | | 1,316 | | | 2,741 | | | | | |
Outflows: | | | | | | | | | | | | | |
Returned to accruing | (287) | | | (177) | | | (99) | | | (166) | | | (64) | | | | | |
Foreclosures | (3) | | | (6) | | | (37) | | | — | | | — | | | | | |
Charge-offs | (145) | | | (202) | | | (367) | | | (382) | | | (560) | | | | | |
Payments, sales and other | (806) | | | (937) | | | (812) | | | (655) | | | (707) | | | | | |
Total outflows | (1,241) | | | (1,322) | | | (1,315) | | | (1,203) | | | (1,331) | | | | | |
Balance, end of period | 3,549 | | | 4,230 | | | 4,779 | | | 4,398 | | | 4,285 | | | | | |
Consumer nonaccrual loans | | | | | | | | | | | | | |
Balance, beginning of period | 3,825 | | | 3,949 | | | 3,624 | | | 3,320 | | | 3,281 | | | | | |
Inflows | 563 | | | 454 | | | 792 | | | 696 | | | 379 | | | | | |
Outflows: | | | | | | | | | | | | | |
Returned to accruing | (200) | | | (152) | | | (208) | | | (160) | | | (135) | | | | | |
Foreclosures | (16) | | | (19) | | | (5) | | | (4) | | | (6) | | | | | |
Charge-offs | (17) | | | (26) | | | (36) | | | (36) | | | (39) | | | | | |
Payments, sales and other | (333) | | | (381) | | | (218) | | | (192) | | | (160) | | | | | |
Total outflows | (566) | | | (578) | | | (467) | | | (392) | | | (340) | | | | | |
Balance, end of period | 3,822 | | | 3,825 | | | 3,949 | | | 3,624 | | | 3,320 | | | | | |
Total nonaccrual loans | $ | 7,371 | | | 8,055 | | | 8,728 | | | 8,022 | | | 7,605 | | | | | |
We believe exposure to loss on nonaccrual loans is mitigated by the following factors at SeptemberJune 30, 2020:2021:
•92%96% of total commercial nonaccrual loans and 99% of total consumer nonaccrual loans are secured. Of the consumer nonaccrual loans, 94%93% are secured by real estate and 90%93% have a combined LTV (CLTV) ratio of 80% or less.
•losses of $701 million and $1.0 billion have already been recognized on 18% of commercial nonaccrual loans and 32% 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.
•74%71% of commercial nonaccrual loans were current on interest and 70%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 $1.3$1.0 billion of consumer loans in bankruptcy or discharged in bankruptcy, and classified as nonaccrual, $848$691 million were current.
•the remaining risk of loss of all nonaccrual loans has been considered in developing our 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.modification. 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 2021 provides a summary of foreclosed assets and an analysis of changes in foreclosed assets.
Table 20:21: Foreclosed Assets
| | | | Quarter ended | |
| | (in millions) | (in millions) | Sep 30, 2020 | | Jun 30, 2020 | | Mar 31, 2020 | | Dec 31, 2019 | | Sep 30, 2019 | (in millions) | Jun 30, 2021 | | Mar 31, 2021 | | Dec 31, 2020 | | Sep 30, 2020 | | Jun 30, 2020 | |
Summary by loan segment | Summary by loan segment | | Summary by loan segment | | |
Government insured/guaranteed | Government insured/guaranteed | $ | 22 | | | 31 | | | 43 | | | 50 | | | 59 | | Government insured/guaranteed | $ | 15 | | | 16 | | | 18 | | | 22 | | | 31 | | |
Commercial | Commercial | 39 | | | 45 | | | 49 | | | 62 | | | 180 | | Commercial | 63 | | | 64 | | | 70 | | | 39 | | | 45 | | |
Consumer | Consumer | 95 | | | 119 | | | 160 | | | 191 | | | 198 | | Consumer | 51 | | | 60 | | | 71 | | | 95 | | | 119 | | |
Total foreclosed assets | Total foreclosed assets | $ | 156 | | | 195 | | | 252 | | | 303 | | | 437 | | Total foreclosed assets | $ | 129 | | | 140 | | | 159 | | | 156 | | | 195 | | |
Analysis of changes in foreclosed assets | Analysis of changes in foreclosed assets | | Analysis of changes in foreclosed assets | | |
Balance, beginning of period | Balance, beginning of period | $ | 195 | | | 252 | | | 303 | | | 437 | | | 377 | | Balance, beginning of period | $ | 140 | | | 159 | | | 156 | | | 195 | | | 252 | | |
Net change in government insured/guaranteed (1) | Net change in government insured/guaranteed (1) | (9) | | | (12) | | | (7) | | | (9) | | | (9) | | Net change in government insured/guaranteed (1) | (1) | | | (2) | | | (4) | | | (9) | | | (12) | | |
Additions to foreclosed assets (2) | Additions to foreclosed assets (2) | 60 | | | 51 | | | 107 | | | 126 | | | 235 | | Additions to foreclosed assets (2) | 96 | | | 88 | | | 114 | | | 60 | | | 51 | | |
Reductions: | Reductions: | | Reductions: | | |
Sales | Sales | (88) | | | (98) | | | (154) | | | (250) | | | (155) | | Sales | (104) | | | (107) | | | (104) | | | (88) | | | (98) | | |
Write-downs and gains (losses) on sales | Write-downs and gains (losses) on sales | (2) | | | 2 | | | 3 | | | (1) | | | (11) | | Write-downs and gains (losses) on sales | (2) | | | 2 | | | (3) | | | (2) | | | 2 | | |
Total reductions | Total reductions | (90) | | | (96) | | | (151) | | | (251) | | | (166) | | Total reductions | (106) | | | (105) | | | (107) | | | (90) | | | (96) | | |
Balance, end of period | Balance, end of period | $ | 156 | | | 195 | | | 252 | | | 303 | | | 437 | | Balance, end of period | $ | 129 | | | 140 | | | 159 | | | 156 | | | 195 | | |
(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 and repossessed automobiles.autos.
Foreclosed assets at SeptemberJune 30, 2020,2021, included $104$49 million of foreclosed residential real estate, of which 21%30% 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 $156$129 million in foreclosed assets at SeptemberJune 30, 2020, 52%2021, 61% have been in the foreclosed assets portfolio for one year or less.
As part of our actions to support customers during the COVID-19 pandemic, we have temporarily suspended certain mortgage foreclosure activities, which may affecthas affected the amount of our foreclosed assets for the remainder of the year.assets. For additional information on loans in process of foreclosure, see Note 64 (Loans and Related Allowance for Credit Losses) to Financial Statements in this Report.
Risk Management – Credit Risk Management (continued)
TROUBLED DEBT RESTRUCTURINGS
(TDRs)
Table 21:TDR Balances
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Sep 30, 2020 | | Jun 30, 2020 | | Mar 31, 2020 | | Dec 31, 2019 | | Sep 30, 2019 |
Commercial: | | | | | | | | | |
Commercial and industrial | $ | 2,082 | | | 1,882 | | | 1,302 | | | 1,183 | | | 1,162 | |
Real estate mortgage | 805 | | | 717 | | | 697 | | | 669 | | | 598 | |
Real estate construction | 21 | | | 20 | | | 33 | | | 36 | | | 40 | |
Lease financing | 9 | | | 10 | | | 10 | | | 13 | | | 16 | |
Total commercial TDRs | 2,917 | | | 2,629 | | | 2,042 | | | 1,901 | | | 1,816 | |
Consumer: | | | | | | | | | |
Real estate 1-4 family first mortgage | 9,420 | | | 7,176 | | | 7,284 | | | 7,589 | | | 7,905 | |
Real estate 1-4 family junior lien mortgage | 1,298 | | | 1,309 | | | 1,356 | | | 1,407 | | | 1,457 | |
Credit Card | 494 | | | 510 | | | 527 | | | 520 | | | 504 | |
Automobile | 156 | | | 108 | | | 76 | | | 81 | | | 82 | |
Other revolving credit and installment | 190 | | | 173 | | | 172 | | | 170 | | | 167 | |
Trial modifications | 91 | | | 91 | | | 108 | | | 115 | | | 123 | |
Total consumer TDRs | 11,649 | | | 9,367 | | | 9,523 | | | 9,882 | | | 10,238 | |
Total TDRs | $ | 14,566 | | | 11,996 | | | 11,565 | | | 11,783 | | | 12,054 | |
TDRs on nonaccrual status | $ | 4,163 | | | 3,475 | | | 2,846 | | | 2,833 | | | 2,775 | |
TDRs on accrual status: | | | | | | | | | |
Government insured/guaranteed | 3,467 | | | 1,277 | | | 1,157 | | | 1,190 | | | 1,199 | |
Non-government insured/guaranteed | 6,936 | | | 7,244 | | | 7,562 | | | 7,760 | | | 8,080 | |
Total TDRs | $ | 14,566 | | | 11,996 | | | 11,565 | | | 11,783 | | | 12,054 | |
Table 2122 provides information regarding the recorded investment of loans modified in TDRs. The allowance for loan losses for TDRs was $732 million and $1.0 billion at September 30, 2020, anddecreased from December 31, 2019, respectively. See Note 6 (Loans2020, due to paydowns and Related Allowance for Credit Losses)a $436 million transfer from residential mortgage – first lien loans to Financial StatementsLHFS related to the sales of loans purchased from GNMA loan securitization pools in this Report for additional information regarding TDRs. 2020. The amount of our TDRs at June 30, 2021, would have otherwise been higher without the TDR relief provided by the CARES Act and Interagency Statement.
Table 22:TDR Balances
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Jun 30, 2021 | | Mar 31, 2021 | | Dec 31, 2020 | | Sep 30, 2020 | | Jun 30, 2020 |
Commercial: | | | | | | | | | |
Commercial and industrial | $ | 1,225 | | | 1,331 | | | 1,933 | | | 2,082 | | | 1,882 | |
Real estate mortgage | 645 | | | 652 | | | 774 | | | 805 | | | 717 | |
Real estate construction | 15 | | | 21 | | | 15 | | | 21 | | | 20 | |
Lease financing | 9 | | | 9 | | | 9 | | | 9 | | | 10 | |
Total commercial TDRs | 1,894 | | | 2,013 | | | 2,731 | | | 2,917 | | | 2,629 | |
Consumer: | | | | | | | | | |
Residential mortgage – first lien | 8,841 | | | 9,446 | | | 9,764 | | | 9,420 | | | 7,176 | |
Residential mortgage – junior lien | 1,097 | | | 1,174 | | | 1,237 | | | 1,298 | | | 1,309 | |
Credit card | 368 | | | 411 | | | 458 | | | 494 | | | 510 | |
Auto | 196 | | | 156 | | | 176 | | | 156 | | | 108 | |
Other consumer | 63 | | | 67 | | | 67 | | | 190 | | | 173 | |
Trial modifications | 77 | | | 81 | | | 90 | | | 91 | | | 91 | |
Total consumer TDRs | 10,642 | | | 11,335 | | | 11,792 | | | 11,649 | | | 9,367 | |
Total TDRs | $ | 12,536 | | | 13,348 | | | 14,523 | | | 14,566 | | | 11,996 | |
TDRs on nonaccrual status | $ | 3,711 | | | 3,800 | | | 4,456 | | | 4,163 | | | 3,475 | |
TDRs on accrual status: | | | | | | | | | |
Government insured/guaranteed | 3,431 | | | 3,708 | | | 3,721 | | | 3,467 | | | 1,277 | |
Non-government insured/guaranteed | 5,394 | | | 5,840 | | | 6,346 | | | 6,936 | | | 7,244 | |
Total TDRs | $ | 12,536 | | | 13,348 | | | 14,523 | | | 14,566 | | | 11,996 | |
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. The allowance for loan losses for TDRs was $360 million and $565 million at June 30, 2021, and December 31, 2020, respectively. 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 additional information on the CARES Act
and the Interagency Statement, see the “Risk Management – Credit Risk Management – Credit Quality Overview – Troubled Debt Restructuring Relief”COVID-Related Lending Accommodations” section in this Report.
For additional information on our nonaccrual policies when a restructuring is involved, see the “Risk Management – Credit Risk Management – Troubled Debt Restructurings (TDRs)” section in our 20192020 Form 10-K.
Table 2223 provides an analysis of the changes in TDRs. Loans modified more than once as a TDR are reported as TDR inflows only in the period they are first modified. Other than resolutions such asIn addition to foreclosures, sales and transfers to held for sale, we may remove loans held for investment from TDR classification, but only if they have been refinanced or restructured at market terms and qualify as a new loans.loan.
Table 22:23: Analysis of Changes in TDRs
| | | | Quarter ended | |
| | | Quarter ended | |
(in millions) | (in millions) | Sep 30, 2020 | | Jun 30, 2020 | | Mar 31, 2020 | | Dec 31, 2019 | | Sep 30, 2019 | (in millions) | Jun 30, 2021 | | Mar 31, 2021 | | Dec 31, 2020 | | Sep 30, 2020 | | Jun 30, 2020 | |
Commercial TDRs | Commercial TDRs | | Commercial TDRs | | |
Balance, beginning of quarter | $ | 2,629 | | | 2,042 | | | 1,901 | | | 1,816 | | | 1,988 | | |
Balance, beginning of period | | Balance, beginning of period | $ | 2,013 | | | 2,731 | | | 2,917 | | | 2,629 | | | 2,042 | | |
Inflows (1) | Inflows (1) | 866 | | | 971 | | | 452 | | | 476 | | | 293 | | Inflows (1) | 336 | | | 155 | | | 486 | | | 866 | | | 971 | | |
Outflows | Outflows | | Outflows | | |
Charge-offs | Charge-offs | (77) | | | (60) | | | (56) | | | (48) | | | (66) | | Charge-offs | (45) | | | (49) | | | (72) | | | (77) | | | (60) | | |
Foreclosures | — | | | — | | | — | | | (1) | | | — | | |
Foreclosure | | Foreclosure | — | | | (5) | | | — | | | — | | | — | | |
Payments, sales and other (2) | Payments, sales and other (2) | (501) | | | (324) | | | (255) | | | (342) | | | (399) | | Payments, sales and other (2) | (410) | | | (819) | | | (600) | | | (501) | | | (324) | | |
Balance, end of quarter | 2,917 | | | 2,629 | | | 2,042 | | | 1,901 | | | 1,816 | | |
Balance, end of period | | Balance, end of period | 1,894 | | | 2,013 | | | 2,731 | | | 2,917 | | | 2,629 | | |
Consumer TDRs | Consumer TDRs | | Consumer TDRs | | |
Balance, beginning of quarter | 9,367 | | | 9,523 | | | 9,882 | | | 10,238 | | | 10,625 | | |
Balance, beginning of period | | Balance, beginning of period | 11,335 | | | 11,792 | | | 11,649 | | | 9,367 | | | 9,523 | | |
Inflows (1) | Inflows (1) | 2,805 | | | 425 | | | 312 | | | 350 | | | 360 | | Inflows (1) | 495 | | | 633 | | | 1,226 | | | 2,805 | | | 425 | | |
Outflows | Outflows | | Outflows | | |
Charge-offs | Charge-offs | (58) | | | (46) | | | (63) | | | (57) | | | (56) | | Charge-offs | (36) | | | (43) | | | (57) | | | (58) | | | (46) | | |
Foreclosures | (7) | | | (8) | | | (57) | | | (61) | | | (70) | | |
Foreclosure | | Foreclosure | (15) | | | (14) | | | (5) | | | (7) | | | (8) | | |
Payments, sales and other (2) | Payments, sales and other (2) | (458) | | | (510) | | | (544) | | | (580) | | | (617) | | Payments, sales and other (2) | (1,133) | | | (1,024) | | | (1,020) | | | (458) | | | (510) | | |
Net change in trial modifications (3) | Net change in trial modifications (3) | — | | | (17) | | | (7) | | | (8) | | | (4) | | Net change in trial modifications (3) | (4) | | | (9) | | | (1) | | | — | | | (17) | | |
Balance, end of quarter | 11,649 | | | 9,367 | | | 9,523 | | | 9,882 | | | 10,238 | | |
Balance, end of period | | Balance, end of period | 10,642 | | | 11,335 | | | 11,792 | | | 11,649 | | | 9,367 | | |
Total TDRs | Total TDRs | $ | 14,566 | | | 11,996 | | | 11,565 | | | 11,783 | | | 12,054 | | Total TDRs | $ | 12,536 | | | 13,348 | | | 14,523 | | | 14,566 | | | 11,996 | | |
(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 TDRs that modified in a prior period.
(2)Other outflows consist ofinclude 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.
(3)Net change in trial modifications includesincludes: 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.
Risk Management – Credit Risk Management (continued)
LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING Loans 90 days or more past due are still accruing if they are (1) well-secured and in the process of collection or (2) real estate 1-4 familyresidential 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 were excluded from
Table 24 reflects loans 90 days or more past due and still accruing because they continuedby class for loans not government insured/guaranteed. For additional information on delinquencies by loan class, see Note 4 (Loans and Related Allowance for Credit Losses) to earn interest income from accretable yield, independent of performanceFinancial Statements in accordance with their contractual terms. In connection with our adoption of CECL, PCIthis Report.
Table 24:Loans 90 Days or More Past Due and Still Accruing
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(in millions) | Jun 30, 2021 | | Mar 31, 2021 | | Dec 31, 2020 | | Sep 30, 2020 | | Jun 30, 2020 |
Total: | $ | 4,703 | | | 6,273 | | | 7,041 | | | 11,698 | | | 9,739 | |
Less: FHA insured/VA guaranteed (1) | 3,966 | | | 5,406 | | | 6,351 | | | 11,041 | | | 8,922 | |
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Total, not government insured/guaranteed | $ | 737 | | | 867 | | | 690 | | | 657 | | | 817 | |
By segment and class, not government insured/guaranteed: Commercial: | | | | | | | | | |
Commercial and industrial | $ | 165 | | | 55 | | | 39 | | | 61 | | | 101 | |
Real estate mortgage | 105 | | | 128 | | | 38 | | | 47 | | | 44 | |
Real estate construction | 7 | | | 86 | | | 1 | | | — | | | — | |
Total commercial | 277 | | | 269 | | | 78 | | | 108 | | | 145 | |
Consumer: | | | | | | | | | |
Residential mortgage – first lien | 73 | | | 85 | | | 135 | | | 97 | | | 93 | |
Residential mortgage – junior lien | 12 | | | 15 | | | 19 | | | 28 | | | 19 | |
Credit card | 271 | | | 394 | | | 365 | | | 297 | | | 418 | |
Auto | 43 | | | 46 | | | 65 | | | 50 | | | 54 | |
Other consumer | 61 | | | 58 | | | 28 | | | 77 | | | 88 | |
Total consumer | 460 | | | 598 | | | 612 | | | 549 | | | 672 | |
Total, not government insured/guaranteed | $ | 737 | | | 867 | | | 690 | | | 657 | | | 817 | |
(1)Represents loans were reclassified as PCD loans and classified as accruingwhose repayments are predominantly insured by the FHA or nonaccruing based on performance.guaranteed by the VA.
Loans 90 days or more past due and still accruing, excluding government insured/guaranteed loans, at SeptemberJune 30, 2020,2021, were down $276 million, or 30%,up from December 31, 20192020, due to lower
delinquenciesan increase in delinquent commercial real estate mortgage loans and commercial and industrial loans, partially offset by a decline in delinquent consumer loans asin line with the decrease in our total consumer loan portfolio. Customer payment deferral activities instituted in response to the COVID-19 pandemic delayedcould continue to delay the recognition of delinquencies for customers who would have otherwise moved into past due status.
Loans 90 days or more past due and still accruing whose repayments are largely insured by the FHA or guaranteed by the VA for mortgages at SeptemberJune 30, 2020,2021, were updown from December 31, 2019, driven by our repurchases2020, largely due to transfers to LHFS related to the sales of loans more than 90 days past duepurchased from GNMA loan securitization pools.
Table 23 reflects 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 Statementspools in this Report.
Table 23:Loans 90 Days or More Past Due and Still Accruing
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(in millions) | Sep 30, 2020 | | Jun 30, 2020 | | Mar 31, 2020 | | Dec 31, 2019 | | Sep 30, 2019 |
Total: | $ | 11,698 | | | 9,739 | | | 7,023 | | | 7,285 | | | 7,130 | |
Less: FHA insured/VA guaranteed (1) | 11,041 | | | 8,922 | | | 6,142 | | | 6,352 | | | 6,308 | |
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Total, not government insured/guaranteed | $ | 657 | | | 817 | | | 881 | | | 933 | | | 822 | |
By segment and class, not government insured/guaranteed: Commercial: | | | | | | | | | |
Commercial and industrial | $ | 61 | | | 101 | | | 24 | | | 47 | | | 6 | |
Real estate mortgage | 47 | | | 44 | | | 28 | | | 31 | | | 28 | |
Real estate construction | — | | | — | | | 1 | | | — | | | — | |
Total commercial | 108 | | | 145 | | | 53 | | | 78 | | | 34 | |
Consumer: | | | | | | | | | |
Real estate 1-4 family first mortgage | 97 | | | 93 | | | 128 | | | 112 | | | 100 | |
Real estate 1-4 family junior lien mortgage | 28 | | | 19 | | | 25 | | | 32 | | | 35 | |
Credit card | 297 | | | 418 | | | 528 | | | 546 | | | 491 | |
Automobile | 50 | | | 54 | | | 69 | | | 78 | | | 75 | |
Other revolving credit and installment | 77 | | | 88 | | | 78 | | | 87 | | | 87 | |
Total consumer | 549 | | | 672 | | | 828 | | | 855 | | | 788 | |
Total, not government insured/guaranteed | $ | 657 | | | 817 | | | 881 | | | 933 | | | 822 | |
(1)Represents loans whose repayments are largely insured by the FHA or guaranteed by the VA.
NET LOAN CHARGE-OFFSTable 25 presents net loan charge-offs for second quarter 2021 and the previous four quarters.
Table 24:25: Net Loan Charge-offs
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| | | | | | | | | | | | | | | Quarter ended |
| Sep 30, 2020 | | Jun 30, 2020 | | Mar 31, 2020 | | Dec 31, 2019 | | Sep 30, 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) |
Commercial: | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | $ | 274 | | | 0.33 | % | | $ | 521 | | | 0.55 | % | | $ | 333 | | | 0.37 | % | | $ | 168 | | | 0.19 | % | | $ | 147 | | | 0.17 | % |
Real estate mortgage | 56 | | | 0.18 | | | 67 | | | 0.22 | | | (2) | | | (0.01) | | | 4 | | | 0.01 | | | (8) | | | (0.02) | |
Real estate construction | (2) | | | (0.03) | | | (1) | | | (0.02) | | | (16) | | | (0.32) | | | — | | | — | | | (8) | | | (0.14) | |
Lease financing | 28 | | | 0.66 | | | 15 | | | 0.33 | | | 9 | | | 0.19 | | | 31 | | | 0.63 | | | 8 | | | 0.17 | |
Total commercial | 356 | | | 0.29 | | | 602 | | | 0.44 | | | 324 | | | 0.25 | | | 203 | | | 0.16 | | | 139 | | | 0.11 | |
Consumer: | | | | | | | | | | | | | | | | | | | |
Real estate 1-4 family first mortgage | (1) | | | — | | | 2 | | | — | | | (3) | | | — | | | (3) | | | — | | | (5) | | | (0.01) | |
Real estate 1-4 family junior lien mortgage | (14) | | | (0.22) | | | (12) | | | (0.17) | | | (5) | | | (0.07) | | | (16) | | | (0.20) | | | (22) | | | (0.28) | |
Credit card | 245 | | | 2.71 | | | 327 | | | 3.60 | | | 377 | | | 3.81 | | | 350 | | | 3.48 | | | 319 | | | 3.22 | |
Automobile | 31 | | | 0.25 | | | 106 | | | 0.88 | | | 82 | | | 0.68 | | | 87 | | | 0.73 | | | 76 | | | 0.65 | |
Other revolving credit and installment | 66 | | | 0.80 | | | 88 | | | 1.09 | | | 134 | | | 1.59 | | | 148 | | | 1.71 | | | 138 | | | 1.60 | |
Total consumer | 327 | | | 0.30 | | | 511 | | | 0.48 | | | 585 | | | 0.53 | | | 566 | | | 0.51 | | | 506 | | | 0.46 | |
Total | $ | 683 | | | 0.29 | % | | $ | 1,113 | | | 0.46 | % | | $ | 909 | | | 0.38 | % | | $ | 769 | | | 0.32 | % | | $ | 645 | | | 0.27 | % |
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| | | | | Quarter ended |
| | | | | Jun 30, 2021 | | Mar 31, 2021 | | Dec 31, 2020 | | Sep 30, 2020 | | Jun 30, 2020 |
($ 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) |
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Commercial: | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial and industrial | | | | | | $ | 81 | | | 0.10 | % | | $ | 88 | | | 0.11 | % | | $ | 111 | | | 0.14 | % | | $ | 274 | | | 0.33 | % | | $ | 521 | | | 0.55 | % |
| Real estate mortgage | | | | | | (5) | | | (0.02) | | | 46 | | | 0.16 | | | 162 | | | 0.53 | | | 56 | | | 0.18 | | | 67 | | | 0.22 | |
| Real estate construction | | | | | | (1) | | | — | | | — | | | — | | | — | | | — | | | (2) | | | (0.03) | | | (1) | | | (0.02) | |
| Lease financing | | | | | | 5 | | | 0.12 | | | 15 | | | 0.40 | | | 35 | | | 0.83 | | | 28 | | | 0.66 | | | 15 | | | 0.33 | |
Total commercial | | | | | | 80 | | | 0.07 | | | 149 | | | 0.13 | | | 308 | | | 0.26 | | | 356 | | | 0.29 | | | 602 | | | 0.44 | |
Consumer: | | | | | | | | | | | | | | | | | | | | | | | | |
| Residential mortgage – first lien | | | | | | (19) | | | (0.03) | | | (24) | | | (0.04) | | | (3) | | | — | | | (1) | | | — | | | 2 | | | — | |
| Residential mortgage – junior lien | | | | | | (31) | | | (0.60) | | | (19) | | | (0.35) | | | (24) | | | (0.39) | | | (14) | | | (0.22) | | | (12) | | | (0.17) | |
| Credit card | | | | | | 256 | | | 3.01 | | | 236 | | | 2.71 | | | 190 | | | 2.09 | | | 245 | | | 2.71 | | | 327 | | | 3.60 | |
| Auto | | | | | | 45 | | | 0.35 | | | 52 | | | 0.44 | | | 51 | | | 0.43 | | | 31 | | | 0.25 | | | 106 | | | 0.88 | |
| Other consumer | | | | | | 50 | | | 0.80 | | | 119 | | | 1.97 | | | 62 | | | 0.88 | | | 66 | | | 0.80 | | | 88 | | | 1.09 | |
Total consumer | | | | | | 301 | | | 0.32 | | | 364 | | | 0.37 | | | 276 | | | 0.26 | | | 327 | | | 0.30 | | | 511 | | | 0.48 | |
| Total | | | | | | $ | 381 | | | 0.18 | % | | $ | 513 | | | 0.24 | % | | $ | 584 | | | 0.26 | % | | $ | 683 | | | 0.29 | % | | $ | 1,113 | | | 0.46 | % |
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(1)Quarterly net loan charge-offs (recoveries) as a percentage of average respective loans are annualized.
Table 24 presents net loan charge-offs for third quarter 2020 and the previous four quarters.
The decrease in commercial net loan charge-offs in thirdsecond quarter 2020 from2021, compared with the prior quarter, was driven by lower commercial and industrial losses predominantly in our oil and gascharge-offs across the entire portfolio as well as lower commercial real estate mortgage losses. higher recoveries in the CRE portfolio.
The decrease in consumer net loan charge-offs in thirdsecond quarter 2020 from2021, compared with the prior quarter, was driven by lower losses in other consumer loans due to the sale of a portion of our credit card and automobile portfolios.student loan portfolio in first quarter 2021.
The COVID-19 pandemic may continue to impact the credit quality of our loan portfolio. Although the potential impacts were considered in our allowance for credit losses for loans, payment deferral activities instituted in response to the COVID-19 pandemic could continue to delay the recognition of net loan charge-offs. For additional information on customer accommodations in response to the COVID-19 pandemic, see the “Risk Management – Credit Risk Management – COVID-Related Lending Accommodations” section in this Report.
ALLOWANCE FOR CREDIT LOSSES We maintain an allowance for credit losses (ACL) for loans, which is management’s estimate of the expected life-time 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 for debt securities classified as either available-for-saleAFS or held-to-maturity,HTM, other financial assets measured at amortized cost, net investments in leases, and other off-balance sheet credit exposures.
We apply a disciplined process and methodology to establish our ACL each quarter. The process for establishing the ACL 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. For additional information on our ACL, see the “Critical Accounting Policies – Allowance for Credit Losses” section and Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report.our 2020 Form 10-K. For additional information on our ACL for loans, see Note 64 (Loans and Related Allowance for Credit Losses) to Financial Statements in this Report, and for additional information on our allowance for credit lossesACL for debt securities, see the “Balance Sheet Analysis – Available-For-Sale and Held-To-Maturity Debt Securities” section and Note 53 (Available-for-Sale and Held-to-Maturity Debt Securities) to Financial Statements in this Report.
Risk Management – Credit Risk Management (continued)
Table 2526 presents the allocation of the ACL for loans by loan portfolio segment and class for the most recent quarter end and last four year ends. The detail of the changes in the ACL 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.
Risk Management – Credit Risk Management
(continued)
Table 25:26: Allocation of the ACL for Loans(1)
| | | Sep 30, 2020 | | Dec 31, 2019 | | Dec 31, 2018 | | Dec 31, 2017 | | Dec 31, 2016 | | Jun 30, 2021 | | Dec 31, 2020 | | Dec 31, 2019 | | Dec 31, 2018 | | Dec 31, 2017 |
($ in millions) | ($ 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: | | Commercial: | |
Commercial and industrial | Commercial and industrial | $ | 7,845 | | | 35 | % | | $ | 3,600 | | | 37 | % | | $ | 3,628 | | | 37 | % | | $ | 3,752 | | | 35 | % | | $ | 4,560 | | | 34 | % | Commercial and industrial | $ | 5,640 | | | 37 | % | | $ | 7,230 | | | 36 | % | | $ | 3,600 | | | 37 | % | | $ | 3,628 | | | 37 | % | | $ | 3,752 | | | 35 | % |
Real estate mortgage | Real estate mortgage | 2,517 | | | 13 | | | 1,236 | | | 13 | | | 1,282 | | | 13 | | | 1,374 | | | 13 | | | 1,320 | | | 14 | | Real estate mortgage | 2,884 | | | 14 | | | 3,167 | | | 14 | | | 1,236 | | | 13 | | | 1,282 | | | 13 | | | 1,374 | | | 13 | |
Real estate construction | Real estate construction | 521 | | | 2 | | | 1,079 | | | 2 | | | 1,200 | | | 2 | | | 1,238 | | | 3 | | | 1,294 | | | 2 | | Real estate construction | 530 | | | 3 | | | 410 | | | 2 | | | 1,079 | | | 2 | | | 1,200 | | | 2 | | | 1,238 | | | 3 | |
Lease financing | Lease financing | 659 | | | 2 | | | 330 | | | 2 | | | 307 | | | 2 | | | 268 | | | 2 | | | 220 | | | 2 | | Lease financing | 516 | | | 2 | | | 709 | | | 2 | | | 330 | | | 2 | | | 307 | | | 2 | | | 268 | | | 2 | |
Total commercial | Total commercial | 11,542 | | | 52 | | | 6,245 | | | 54 | | | 6,417 | | | 54 | | | 6,632 | | | 53 | | | 7,394 | | | 52 | | Total commercial | 9,570 | | | 56 | | | 11,516 | | | 54 | | | 6,245 | | | 54 | | | 6,417 | | | 54 | | | 6,632 | | | 53 | |
Consumer: | Consumer: | | Consumer: | |
Real estate 1-4 family first mortgage | 1,519 | | | 32 | | | 692 | | | 30 | | | 750 | | | 30 | | | 1,085 | | | 30 | | | 1,270 | | | 29 | | |
Real estate 1-4 family junior lien mortgage | 710 | | | 3 | | | 247 | | | 3 | | | 431 | | | 3 | | | 608 | | | 4 | | | 815 | | | 5 | | |
Residential mortgage – first lien | | Residential mortgage – first lien | 1,283 | | | 29 | | | 1,600 | | | 31 | | | 692 | | | 30 | | | 750 | | | 30 | | | 1,085 | | | 30 | |
Residential mortgage – junior lien | | Residential mortgage – junior lien | 320 | | | 2 | | | 653 | | | 3 | | | 247 | | | 3 | | | 431 | | | 3 | | | 608 | | | 4 | |
Credit card | Credit card | 4,082 | | | 4 | | | 2,252 | | | 4 | | | 2,064 | | | 4 | | | 1,944 | | | 4 | | | 1,605 | | | 4 | | Credit card | 3,663 | | | 4 | | | 4,082 | | | 4 | | | 2,252 | | | 4 | | | 2,064 | | | 4 | | | 1,944 | | | 4 | |
Automobile | 1,225 | | | 5 | | | 459 | | | 5 | | | 475 | | | 5 | | | 1,039 | | | 5 | | | 817 | | | 6 | | |
Other revolving credit and installment | 1,393 | | | 4 | | | 561 | | | 4 | | | 570 | | | 4 | | | 652 | | | 4 | | | 639 | | | 4 | | |
Auto | | Auto | 1,026 | | | 6 | | | 1,230 | | | 5 | | | 459 | | | 5 | | | 475 | | | 5 | | | 1,039 | | | 5 | |
Other consumer | | Other consumer | 529 | | | 3 | | | 632 | | | 3 | | | 561 | | | 4 | | | 570 | | | 4 | | | 652 | | | 4 | |
Total consumer | Total consumer | 8,929 | | | 48 | | | 4,211 | | | 46 | | | 4,290 | | | 46 | | | 5,328 | | | 47 | | | 5,146 | | | 48 | | Total consumer | 6,821 | | | 44 | | | 8,197 | | | 46 | | | 4,211 | | | 46 | | | 4,290 | | | 46 | | | 5,328 | | | 47 | |
Total | Total | $ | 20,471 | | | 100 | % | | $ | 10,456 | | | 100 | % | | $ | 10,707 | | | 100 | % | | $ | 11,960 | | | 100 | % | | $ | 12,540 | | | 100 | % | Total | $ | 16,391 | | | 100 | % | | $ | 19,713 | | | 100 | % | | $ | 10,456 | | | 100 | % | | $ | 10,707 | | | 100 | % | | $ | 11,960 | | | 100 | % |
| | | Sep 30, 2020 | | Dec 31, 2019 | | Dec 31, 2018 | | Dec 31, 2017 | | Dec 31, 2016 | |
Components: | Components: | | | | | | | | | | Components: | | | | | | | | | |
Allowance for loan losses | Allowance for loan losses | $ | 19,463 | | | 9,551 | | | 9,775 | | | 11,004 | | | 11,419 | | Allowance for loan losses | | $ | 15,148 | | 18,516 | | | | 9,551 | | | | 9,775 | | | | 11,004 |
Allowance for unfunded credit commitments | Allowance for unfunded credit commitments | 1,008 | | | 905 | | | 932 | | | 956 | | | 1,121 | | Allowance for unfunded credit commitments | | 1,243 | | 1,197 | | | | 905 | | | | 932 | | | | 956 |
Allowance for credit losses for loans | $ | 20,471 | | | 10,456 | | | 10,707 | | | 11,960 | | | 12,540 | | |
Allowance for credit losses | | Allowance for credit losses | | $ | 16,391 | | 19,713 | | | 10,456 | | | 10,707 | | | 11,960 |
Ratio of allowance for loan losses to total net loan charge-offs (2) | | Ratio of allowance for loan losses to total net loan charge-offs (2) | | | 9.93x | | | | 5.63 | | | | 3.46 | | | | 3.56 | | | | 3.76 |
Allowance for loan losses as a percentage of total loans | Allowance for loan losses as a percentage of total loans | 2.12 | % | | 0.99 | | | 1.03 | | | 1.15 | | | 1.18 | | Allowance for loan losses as a percentage of total loans | | 1.78 | % | | 2.09 | | | 0.99 | | | 1.03 | | | 1.15 | |
Allowance for loan losses as a percentage of total net loan charge-offs (2) | 716 | | | 346 | | | 356 | | | 376 | | | 324 | | |
Allowance for credit losses for loans as a percentage of total loans | Allowance for credit losses for loans as a percentage of total loans | 2.22 | | | 1.09 | | | 1.12 | | | 1.25 | | | 1.30 | | Allowance for credit losses for loans as a percentage of total loans | | 1.92 | | | 2.22 | | | 1.09 | | | 1.12 | | | 1.25 | |
Allowance for credit losses for loans as a percentage of total nonaccrual loans | Allowance for credit losses for loans as a percentage of total nonaccrual loans | 255 | | | 196 | | | 165 | | | 156 | | | 126 | | Allowance for credit losses for loans as a percentage of total nonaccrual loans | | 222 | | | 226 | | | 196 | | | 165 | | | 156 | |
(1)Disclosure is not comparative due to our adoption of CECLAccounting Standards Update (ASU) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (CECL) on January 1, 2020. For additional information, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report.our 2020 Form 10-K.
(2)Total net loan charge-offs are annualized for the quarter ended SeptemberJune 30, 2020.2021.
The ratios for the allowance for loan losses and the ACL for loans presented in Table 2526 may fluctuate 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 ACL for loans increased $10.0decreased $3.3 billion, or 96%17%, from December 31, 2019, driven by a $11.3 billion increase in the ACL for loans in the first nine months of 2020, reflecting better portfolio credit quality and improvements in current and forecasted economic conditions due to the COVID-19 pandemic, partially offset by a $1.3 billion decrease as a result of adopting CECL.conditions. Total provision for credit losses for loans was $751 million$(1.2) billion in thirdsecond quarter 2020,2021, compared with $695 million$9.6 billion in third quarter 2019. The increase in the provision for credit losses for loans in third quarter 2020, compared with the same period a year ago, reflected an increasereflecting lower net charge-offs and improvements in current and forecasted economic conditions. The detail of the changes in the ACL for loans dueby portfolio segment (including charge-offs and recoveries by loan class) is included in Note 4 (Loans and Related Allowance for Credit Losses) to the economic impact of the COVID-19 pandemic.Financial Statements in this Report.
We consider multiple economic scenarios to develop our estimate of the ACL for loans. The scenarios generally include a base case considered to be the most likely economic forecast,scenario, along with an optimistic (upside) and aone or more pessimistic (downside) economic forecast.scenarios. Our estimate of the ACL for loans at SeptemberJune 30, 2020,2021, was based on a weighting of the base case and a downside
economic scenariosscenario of 80%50% and 20%50%, respectively, with no weighting applied to thean upside scenario. The base casescenario assumed economic forecast assumed near-term economic stress recovering into late 2021.improvements in the near term with a return to normalized levels near the end of 2022. The downside scenario assumed more sustained adverse economic impacts resulting from the
COVID-19 pandemic, compared with the base case.scenario. The downside scenario assumed U.S. real GDP increasing slowlygrowth rates decline in the first half of 2022 before returning to normalized levels after 2023 and not fully recovering during the remainder of 2020 and 2021, and a sustained elevation in the U.S. unemployment rate until mid-2022.increases through 2022 and peaks in the first half of 2023. We considered expectations for the impact of government economic stimulus programs in effect on September 30, 2020; however, we did not consider the impact of future government economic stimulus programs. In addition, we consideredwithin each scenario our expectations for the impact of customer accommodation activity, as well as the estimated impact on certain industries that we consider to be directly and most adversely affected by the COVID-19 pandemic.
In addition to quantitative estimates, we consider qualitative factors that represent risks inherent in our processes and assumptions such as economic environmental factors, modeling assumptions and performance,performance, and other subjective factors, including industry trends and emerging risk assessments. The forecasted key economic variables used in our estimate of the
ACL for loans generally reflected improvement from our prior expectations resulting in lower loss expectations in the quantitative component of our ACL for loans at September 30, 2020. However, we significantly increased the qualitative component of our ACL for loans at September 30, 2020, to considerWe also considered the significant uncertainty related to the duration and severity of the economic impacts from the COVID-19 pandemic and the incremental risks to our loan portfolio, including specifically impacted industries in our commercial loan portfolio.
The forecasted key economic variables used in our estimate of the ACL for loans at June 30 and September 30, 2020,March 31, 2021, are presented in Table 26.27.
Table 26:27: Forecasted Key Economic Variables
| | | | | | | | | | | | | | | | | |
| 4Q 2020 | | 2Q 2021 | | 4Q 2021 |
Blend of economic scenarios (1): | | | | | |
U.S. unemployment rate (2) | | | | | |
Jun 30, 2020 | 11.0 | | | 9.2 | | | 7.5 | |
Sep 30, 2020 | 8.8 | | | 7.3 | | | 6.0 | |
U.S. real GDP (3) | | | | | |
Jun 30, 2020 | 4.3 | | | 6.3 | | | 3.5 | |
Sep 30, 2020 | 1.7 | | | 3.9 | | | 2.8 | |
Home price index (4) | | | | | |
Jun 30, 2020 | 0.7 | | | (3.0) | | | (0.9) | |
Sep 30, 2020 | 2.0 | | | (2.0) | | | (1.8) | |
Commercial real estate asset prices (4) | | | | | |
Jun 30, 2020 | (2.5) | | | (7.6) | | | (5.1) | |
Sep 30, 2020 | (5.4) | | | (10.9) | | | (5.5) | |
| | | | | | | | | | | | | | | | | | | |
| | | 4Q 2021 | | 2Q 2022 | | 4Q 2022 |
Blend of economic scenarios (1): | | | | | | | |
U.S. unemployment rate (2): | | | | | | | |
| | | | | | | |
| | | | | | | |
March 31, 2021 | | | 6.5 | % | | 7.0 | | | 7.1 | |
June 30, 2021 | | | 5.6 | | | 6.2 | | | 6.9 | |
| | | | | | | |
U.S. real GDP (3): | | | | | | | |
| | | | | | | |
| | | | | | | |
March 31, 2021 | | | (1.1) | | | (0.6) | | | 1.8 | |
June 30, 2021 | | | 1.0 | | | (0.4) | | | 0.6 | |
| | | | | | | |
Home price index (4): | | | | | | | |
| | | | | | | |
| | | | | | | |
March 31, 2021 | | | 1.0 | | | (5.2) | | | (5.7) | |
June 30, 2021 | | | 2.8 | | | (6.5) | | | (5.2) | |
| | | | | | | |
Commercial real estate asset prices (4): | | | | | | | |
| | | | | | | |
| | | | | | | |
March 31, 2021 | | | (10.0) | | | (11.5) | | | (9.0) | |
June 30, 2021 | | | (7.8) | | | (11.9) | | | (10.4) | |
(1)Represents a weighted averageweighting of the forecasted economic variable inputs.inputs based on a weighting of 50% for the base and 50% for a downside scenario at both June 30 and March 31, 2021.
(2)Quarterly average.
(3)Percent change from the preceding period, seasonally adjusted annualized rate.
(4)Percent change year over year of national average; outlook differs by geography and property type.
Future amounts of the ACL 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 onWe observed economic conditions atimprovements in the endfirst half of third quarter 2020, it was difficult2021; however, there remained significant uncertainty related to estimate the length and severity of the economic downturn that may result fromimpact of 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 ACL, including the impact of economic stimulus programs and customer accommodation activity. The COVID-19 pandemic could continue to result inimpact the recognition of credit losses in our loan portfolios and may result in increases in our allowance for credit losses,ACL, particularly if the impact on the economy worsens.
We believe the ACL for loans of $20.5$16.4 billion at SeptemberJune 30, 2020,2021, was appropriate to cover expected credit losses, including unfunded credit commitments, at that date. The entire allowance is available to absorb expected credit losses from the total loan portfolio. The ACL 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 ACL 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. Our process for determining the ACL 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 2020 Form 10-K.
LIABILITY FOR MORTGAGE LOAN REPURCHASE LOSSESFor information on our repurchase liability, see the “Risk
Management – Credit Risk Management – Liability For Mortgage Loan Repurchase Losses” section in our 20192020 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 government-sponsored entity (GSE)-guaranteedGSE-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, and can result in the imposition of certain monetary penalties.
As a servicer, we are required to advance certain delinquent payments of principal and interest on mortgage loans we service. The amount and timing of reimbursement of these advances of delinquent payments vary by investor and the applicable servicing agreements. Due to continued customer requests for payment deferrals provided as a result of the COVID-19 pandemic, the amount of our servicing advances of principal and interest remained elevated in third quarter 2020.elevated. The amount of these advances may continue to increase if additional payment deferrals are provided. Payment deferrals also delay the collection of contractually specified servicing fees, resulting in lower net servicing income.
In accordance with applicable servicing guidelines, delinquency status continues to advance for loans with COVID-related payment deferrals, which has resulted in an increase in delinquent loans serviced for others and a corresponding increase in loans eligible for repurchase from GNMA loan securitization pools. OurUpon transfer as servicer, we retain the option to repurchase loans from GNMA loan securitization pools, which becomes exercisable when three scheduled loan payments remain unpaid by the borrower. We generally repurchase these loans for cash and as a result, our total consolidated assets do not change. In third quarter 2020, we repurchased $21.9 billionAs a result of the COVID-19 pandemic, our repurchases of these delinquent loans substantially allwere elevated in 2020 but returned to more normalized levels in the first half of which had COVID-related payment deferrals.2021.
LoansRepurchased loans that regain current status or are otherwise modified in accordance with applicable servicing guidelines may be included in future GNMA loan securitization pools. However, in accordance with guidance issued by GNMA, certain loans repurchased after June 30, 2020, with COVID-related payment deferrals are ineligible for inclusion in future GNMA loan securitization pools until the borrower has timely made six consecutive payments. This requirement may delay our ability to resell loans into the securitization market. At September 30, 2020, the amount of repurchased GNMA loans with COVID-related payment deferrals that were ineligible for inclusion in future GNMA loan securitization pools due to this requirement was $21.0 billion.
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 20192020 Form 10-K. For additional information on mortgage banking activities, see Note 119 (Mortgage Banking Activities) to Financial Statements in this Report.
Asset/Liability Management
Asset/liability management involves evaluating, monitoring and managing interest rate risk, market risk, liquidity and funding. PrimaryFor information on our oversight of interest rate risk and market risk resides withasset/liability risks, see the Finance Committee of“Risk Management – Asset/Liability Management” section in our Board, which oversees the administration and effectiveness of financial risk management
2020 Form 10-K.
Asset/Liability Management (continued)
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 Committee (Corporate ALCO), which consists of management from finance, risk and business groups, to oversee these risks and provide 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 potentiallyis created in our role as a financial intermediary for customers based on investments such as loans and other extensions of credit and debt securities. Interest rate risk can have a significant earnings impact is an integral part of being a financial intermediary.to our earnings. We are subject to interest rate risk because:
•assets and liabilities may mature or reprice at different times (for example, iftimes. If assets reprice faster than liabilities and interest rates are generally rising, earnings will initially increase);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);amounts;
•short-term and long-term market interest rates may change by different amounts (foramounts. For example, the shape of the yield curve may affect yield for new loan yieldsloans and funding costs differently);differently;
•the remaining maturity offor various assets or liabilities may shorten or lengthen as interest rates change (forchange. For example, if long-term mortgage interest rates increase sharply, MBS held in the debt securities portfolio may pay down at a slower rate than anticipated, which could impact portfolio income);income; or
Risk Management – Asset/Liability Management (continued)
•interest rates may also have a direct or indirect effect on loan demand, collateral values, credit losses, mortgage origination volume, and the fair value of MSRs and other financial instruments, the value of the pension liability and other items affecting earnings.
instruments.
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 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, as presented in Table 28, estimate net interest income sensitivity over the next two years under a range of12 months using instantaneous movements across the yield curve with both lower and higher interest rates. Measured impacts from standardized ramps (gradual changes) and shocks (instantaneous changes) are summarized in Table 27, indicating net interest income sensitivityrates relative to the Company’sour base net interest income plan. Rampscenario. Steeper and flatter scenarios assume interest rates move graduallymeasure non-parallel changes in parallel across the yield curve, relative to the base scenario in year one,with long-term interest rates defined as all tenors three years and the full amount of the ramp is heldlonger (e.g., 10-year U.S. Treasury securities) and short-term interest rates defined as a constant differential to the base scenario in year two.all tenors less than three years. Where applicable, U.S. dollar interest rates are floored at 0.00%. The following describes the simulation assumptions for the scenarios presented in Table 27:28:
•Simulations are dynamic and reflect anticipated growth acrosschanges to our 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 27:28: Net Interest Income Sensitivity Over Next Two-Year Horizon Relative
| | | | | | | | | | | |
($ in billions) | Jun 30, 2021 | | Dec 31, 2020 |
Parallel Shift: | | | |
+100 bps shift in interest rates | $ | 7.0 | | | 6.7 | |
-100 bps shift in interest rates | (2.9) | | | (2.7) | |
| | | |
Steeper yield curve: | | | |
+50 bps shift in long-term interest rates | 1.2 | | | 1.3 | |
| | | |
Flatter yield curve: | | | |
+50 bps shift in short-term interest rates | 2.5 | | | 2.2 | |
-50 bps shift in long-term interest rates | (1.2) | | | (1.4) | |
The interest rate sensitivity included in Table 28 indicates that we would expect to Base Expectation
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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 | | $ | (1.7) | | - | (1.2) | | | 5.9 | | - | 6.4 | | | 5.3 | | - | 5.8 | |
Key Rates at Horizon End | | | | | | | | | | | | | |
Fed Funds Target | 0.25 | | % | 0.00 | | | 1.25 | | | 2.25 | |
10-year CMT (2) | 0.84 | | | 0.00 | | | 1.84 | | | 2.84 | |
Second Year of Forecasting Horizon | | | | | | | | | | | | | |
Net Interest Income Sensitivity to Base Scenario | | $ | (3.5) | | - | (3.0) | | | 8.6 | | - | 9.1 | | | 13.2 | | - | 13.7 | |
Key Rates at Horizon End | | | | | | | | | | | | | |
Fed Funds Target | 0.25 | | % | 0.00 | | | 1.25 | | | 2.25 | |
10-year CMT (2) | 0.99 | | | 0.00 | | | 1.99 | | | 2.99 | |
(1)U.S.benefit from higher interest rates are floored at zero where applicableas our assets would reprice faster and to a greater degree than our liabilities, while in this scenario analysis
(2)U.S. Constant Maturity Treasury Rate
the case of lower interest rates, our assets would reprice downward and to a greater degree than our liabilities resulting in lower net interest income.
The sensitivity results above do not capture interest rate sensitive noninterest income andor expense impacts. Our interest rate sensitive noninterest income and expense are predominantly driven by mortgage banking activities, and may move in the opposite direction of our net interest income. Mortgage originations generally decline in response to higher interest rates and generally increase, particularly refinancing activity, in response to lower interest 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 Reportour 2020 Form 10-K for additional information.
Interest rate sensitive noninterest income also results from changes in earnings credit for noninterest-bearing deposits that reduce treasury management deposit service fees. Additionally, for the trading portfolio, For additional information on our trading assets are (before the effects of certain economic hedges) generally less sensitiveand liabilities, see Note 2 (Trading Activities) to changesFinancial Statements 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.this Report.
We use the debt securities portfolio and exchange-traded and over-the-counter (OTC) interest rate derivatives to hedge
manage our interest rate exposures. See the “Balance Sheet Analysis – Available-for-SaleNote 1 (Summary of Significant Accounting Policies), Note 3 (Available-for-Sale and Held-to-Maturity Debt Securities” section in this Report for additional information on the use of the available-for-saleSecurities) 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 September 30, 2020, and December 31, 2019, are presented in Note 1514 (Derivatives) to Financial Statements in this Report. We use derivativesour 2020 Form 10-K for asset/liability management in two main ways:additional information.
•
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 additional information on mortgage banking interest rate and market risk, see Note 9 (Mortgage Banking Activities) to Financial Statements in this Report and the “Risk Management – Asset/Liability Management – Mortgage Banking Interest Rate and Market Risk” section in our 20192020 Form 10-K.
Hedging the various sources of interest rate risk in mortgage banking is a complex process that requires sophisticated modeling and constant monitoring. There are several potential risks to earnings from mortgage banking related to origination volumes and mix, valuation of MSRs and associated hedging results, the relationship and degree of volatility between short-term and long-term interest rates, and changes in servicing and foreclosures costs. While our hedging activities are designedwe attempt to balance our mortgage banking interest rate and market 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. Hedge results may 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 on the MSRs.
The total carrying value of our residential and commercial MSRs was $7.7 billion at September 30, 2020, and $12.9 billion at December 31, 2019. The weighted average note rate on our portfolio of loans serviced for others was 4.13% at September 30, 2020, and 4.25% at December 31, 2019. The carrying value of our total MSRs represented 0.52% and 0.79% of mortgage loans serviced for others at September 30, 2020 and December 31, 2019, respectively.
MARKET RISKMarket 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 exposure. This applies to implied volatility risk, basis risk, and market liquidity risk. It also includes price risk in the trading book, mortgage servicing rights and the hedge effectiveness risk associated with the mortgage book, and impairment on private equity investments.
The Board’s Finance Committee has primary For information on our oversight responsibility forof market risk, and overseessee 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“Risk Management – Asset/Liability Management – Market and Counterparty Risk Management function, which is part of IRM, has primary oversight responsibility for market risk. The Market and Counterparty Risk Management function reports into the CRO and also provides periodic reports related to market risk to the Board’s Finance Committee.Risk” section in our 2020 Form 10-K.
MARKET RISK – TRADING ACTIVITIESWe engage in trading activities to accommodate the investment and risk management activities of our customers and to execute economic hedging to manage certain balance sheet risks. These trading activities predominantly occur within our Wholesale BankingCIB businesses and to a lesser extent other divisionsbusinesses of the Company. Debt securities held for trading, equity securities held for trading, trading loans and trading derivatives are financial instruments used in our trading activities, and all are carried at fair value. Income earned on the financial instruments used in our trading activities include net interest income, changes in fair value and realized gains and losses. Net interest income earned from our trading activities is reflected in the interest income and interest expense components of our income statement.consolidated statement of income. Changes in fair value of the financial instruments used in our trading activities are reflected in net gains onfrom trading activities, a component of noninterest income in our income statement.activities. For additional information on the financial instruments used in our trading activities and the income from these trading activities, see Note 42 (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 additional information including information regardingon our monitoring activities, sensitivity analysis and stress testing, see the “Risk Management – Asset/Liability Management – Market Risk – Trading Activities” section in our 20192020 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 consolidated balance sheet.
Table 2829 shows the Company’s Trading General VaR by risk category. As presentedThe decrease in Table 28, average Company Trading General VaR was $153 million for the quarter ended September 30, 2020, compared with $155 million for the quarter ended June 30, 2020, and $24 million for the quarter ended September 30, 2019. The increase in average as well as period end Company Trading General VaR for the quarter ended SeptemberJune 30, 2020,2021, compared with the quarter ended September 30, 2019,same period a year ago, was driven by a greater presence of market volatility duedropping out of the 12-month historical lookback window used to calculate average Company Trading General VaR for the quarter ended June 30, 2021. Market volatility present in average Company Trading General VaR for the quarter ended June 30, 2020, was driven by the introduction of the COVID-19 pandemic, in particular, changes in interest rate curves and a significant widening of credit spreads entering the 12-month historical lookback window used to calculate VaR.spreads.
Asset/Liability Management (continued)
Table 28:29: Trading 1-Day 99% General VaR by Risk Category
| | | | Quarter ended | | | Quarter ended |
| | September 30, 2020 | | June 30, 2020 | | September 30, 2019 | | | June 30, 2021 | | March 31, 2021 | | June 30, 2020 | |
(in millions) | (in millions) | Period end | | Average | | Low | | High | | Period end | | Average | | Low | | High | | Period end | | Average | | Low | | High | | (in millions) | Period end | | Average | | Low | | High | | Period end | | Average | | Low | | High | | Period end | | Average | | Low | | High | |
Company Trading General VaR Risk Categories | Company Trading General VaR Risk Categories | | | Company Trading General VaR Risk Categories | | |
Credit | Credit | $ | 98 | | | 85 | | | 59 | | | 104 | | | 86 | | | 82 | | | 61 | | | 99 | | | 27 | | | 20 | | | 12 | | | 30 | | | Credit | $ | 14 | | | 21 | | | 12 | | | 30 | | | 22 | | | 94 | | | 21 | | | 112 | | | 86 | | | 82 | | | 61 | | | 99 | | |
Interest rate | Interest rate | 145 | | | 155 | | | 114 | | | 201 | | | 155 | | | 106 | | | 42 | | | 161 | | | 15 | | | 18 | | | 13 | | | 26 | | | Interest rate | 7 | | | 7 | | | 4 | | | 22 | | | 36 | | | 73 | | | 26 | | | 120 | | | 155 | | | 106 | | | 42 | | | 161 | | |
Equity | Equity | 21 | | | 17 | | | 9 | | | 24 | | | 14 | | | 10 | | | 6 | | | 17 | | | 6 | | | 5 | | | 4 | | | 11 | | | Equity | 29 | | | 37 | | | 25 | | | 56 | | | 35 | | | 36 | | | 28 | | | 72 | | | 14 | | | 10 | | | 6 | | | 17 | | |
Commodity | Commodity | 5 | | | 5 | | | 2 | | | 8 | | | 4 | | | 4 | | | 2 | | | 7 | | | 2 | | | 2 | | | 1 | | | 3 | | | Commodity | 28 | | | 7 | | | 2 | | | 28 | | | 11 | | | 5 | | | 2 | | | 12 | | | 4 | | | 4 | | | 2 | | | 7 | | |
Foreign exchange | Foreign exchange | 1 | | 1 | | 1 | | 2 | | | 1 | | 2 | | 1 | | 3 | | 1 | | 1 | | 1 | | 1 | | Foreign exchange | 0 | | | 1 | | | 0 | | | 1 | | | 1 | | | 1 | | | 1 | | | 1 | | | 1 | | | 2 | | | 1 | | | 3 | | |
Diversification benefit (1) | Diversification benefit (1) | (121) | | | (110) | | | (51) | | | (49) | | | (16) | | | (22) | | | | Diversification benefit (1) | (38) | | | (30) | | | (64) | | | (111) | | | (51) | | | (49) | | | |
Company Trading General VaR | Company Trading General VaR | $ | 149 | | | 153 | | | 209 | | | 155 | | | 35 | | | 24 | | | | Company Trading General VaR | 40 | | | 43 | | | 41 | | | 98 | | | 209 | | | 155 | | | |
(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 SECURITIESWe are directly and indirectly affected by changes in the equity markets. We make and manage direct investments in start-up businesses, emerging growth companies, management buy-outs, acquisitions and corporate recapitalizations. We also invest in non-affiliated funds that make similar private equity investments. These private equity investments are made within capital allocations approved by management and the Board. The Board’s policy is to review business developments, key risks and historical returns for the private equity investment portfolio at least annually. Management reviews these investments at least quarterly and assesses them for possible other-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 investments 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”“Risk Management – Asset/Liability Management – Market Risk – Equity Securities” section in Note 14 (Legal Actions) to Financial Statements in this Report.
our 2020 Form 10-K.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 additional information, see Note 86 (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 partythird-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 RISK AND FUNDING In the ordinary course of business, we enter into contractual obligations that may require future cash payments, including funding for customer loan requests, customer deposit maturities and withdrawals, debt service, leases for premises and equipment, and other cash commitments. The objective of effective liquidity management is to ensure that we can meet customer loan requests, customer deposit maturities/withdrawalsour contractual obligations and other cash commitments efficiently under both normal operating conditions and under periods of Wells Fargo-specific and/or market stress. To help achieve this objective, the Board 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. These guidelines are established and monitored forwe monitor 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. The Parent acts as a source of funding for the Company through the issuance of long-term debt and equity, and WFC Holdings, LLC, an intermediate holding company and subsidiary of the Parent (the “IHC”), provides funding support for the ongoing operational requirements of the Parent and certain of its direct and indirect subsidiaries. For additional information on liquidity risk and funding management, see the “Risk Management – Liquidity Risk and Funding” section in our 2020 Form 10-K. For additional information on the IHC, see the “Regulatory Matters – ‘Living Will’ Requirements and Related Matters” section in this Report.
Liquidity Standards We are subject to a rule, issued by the FRB, OCC and Federal Deposit Insurance Corporation (FDIC),FDIC, that includesestablishes a quantitative minimum liquidity requirement consistent with the liquidity coverage ratio (LCR) established by the Basel Committee on Banking Supervision (BCBS). The rule requires a covered banking institutions,organization, such as Wells Fargo, to hold high-quality liquid assets (HQLA), predominantly consisting of central bank deposits, government debt securities, and mortgage-backed securities of federal agencies 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 applicableLCR applies to the Company on a consolidated basis and to our insured depository institutions (IDIs) with total assets greater thanof $10 billion.billion or more. In addition, rules issued by the FRB impose enhanced liquidity risk management standards on large BHCsbank holding companies (BHCs), such as Wells Fargo.
The FRB, OCC and FDIC have also issued a rule implementing a stable funding requirement, known as the net stable funding
Risk Management – Asset/Liability Management (continued)
ratio (NSFR), which will require largerequires a covered banking organizations, includingorganization, such as Wells Fargo, to maintain a sufficientminimum amount of available stable funding, such asincluding common equity, long-term subordinated debt and most types of deposits, in relation to theirits assets, derivative exposures and commitments over a one-year horizon period. The rule will becomeNSFR became effective on July 1, 2021.2021, and applies to the Company on a consolidated basis and to our IDIs with total assets of $10 billion or more. As of July 1, 2021, we were compliant with the NSFR requirement.
Liquidity Coverage Ratio As of SeptemberJune 30, 2020,2021, the consolidated Company, Wells Fargo Bank, N.A., and Wells Fargo
National Bank West were aboveexceeded 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 2930 presents the Company’s quarterly average values for the daily-calculated LCR and its components calculated pursuant to the LCR rule requirements.
Table 29: 30:Liquidity Coverage Ratio
| | | Average for Quarter ended | | Average for Quarter ended |
(in millions, except ratio) | (in millions, except ratio) | Sep 30, 2020 | | Jun 30, 2020 | | Sep 30, 2019 | (in millions, except ratio) | Jun 30, 2021 | | Mar 31, 2021 | | Jun 30, 2020 |
HQLA (1)(2) | $ | 424,073 | | | 409,467 | | | 359,364 | | |
HQLA (1): | | HQLA (1): | |
Eligible cash | | Eligible cash | $ | 248,404 | | 216,403 | | | 166,947 | |
Eligible securities (2) | | Eligible securities (2) | 137,718 | | 186,270 | | | 242,520 | |
Total HQLA | | Total HQLA | 386,122 | | 402,673 | | | 409,467 | |
Projected net cash outflows | Projected net cash outflows | 317,064 | | | 316,268 | | | 302,214 | | Projected net cash outflows | 314,678 | | 316,116 | | | 316,268 | |
LCR | LCR | 134 | % | | 129 | | | 119 | | LCR | 123 | % | | 127 | | | 129 | |
|
(1)Excludes excess HQLA at certain subsidiaries that is not transferable to other Wells Fargo entities.
(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 30.liquidity. 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 IDIs required under the LCR rule. Our primary sources of liquidity are presented in Table 31, which also includes encumbered securities that are not included as available HQLA in the calculation of the LCR.
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 securitiesMBS 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 our held-to-maturityHTM 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 30:31: Primary Sources of Liquidity
| | | September 30, 2020 | | December 31, 2019 | | June 30, 2021 | | December 31, 2020 |
(in millions) | (in millions) | Total | | Encumbered | | Unencumbered | | Total | | Encumbered | | Unencumbered | (in millions) | Total | | Encumbered | | Unencumbered | | Total | | Encumbered | | Unencumbered |
Interest-earning deposits with banks | Interest-earning deposits with banks | $ | 221,235 | | | — | | | 221,235 | | | 119,493 | | | — | | | 119,493 | | Interest-earning deposits with banks | $ | 248,869 | | | — | | | 248,869 | | | 236,376 | | | — | | | 236,376 | |
Debt securities of U.S. Treasury and federal agencies | Debt securities of U.S. Treasury and federal agencies | 56,262 | | | 4,907 | | | 51,355 | | | 61,099 | | | 3,107 | | | 57,992 | | Debt securities of U.S. Treasury and federal agencies | 63,934 | | | 3,304 | | | 60,630 | | | 70,756 | | | 5,370 | | | 65,386 | |
Mortgage-backed securities of federal agencies | Mortgage-backed securities of federal agencies | 258,554 | | | 36,935 | | | 221,619 | | | 258,589 | | | 41,135 | | | 217,454 | | Mortgage-backed securities of federal agencies | 280,984 | | | 52,700 | | | 228,284 | | | 258,668 | | | 49,156 | | | 209,512 | |
Total | Total | $ | 536,051 | | | 41,842 | | | 494,209 | | | 439,181 | | | 44,242 | | | 394,939 | | Total | $ | 593,787 | | | 56,004 | | | 537,783 | | | 565,800 | | | 54,526 | | | 511,274 | |
In addition to our primary sources of liquidity shown in
Table 30,31, liquidity is also available through the sale or financing of other debt securities including trading and/or available-for-saleAFS debt securities, as well as through the sale, securitization or financing of loans, to the extent such debt securities and loans are not encumbered. As of SeptemberJune 30, 2020,2021, we also maintained approximately $262.7$222.7 billion of available borrowing capacity at various Federal Home Loan Banks and the Federal Reserve Discount Window.
Deposits have historically provided a sizable source of relatively low-cost funds. Deposits were 150%169% and 158% of total loans at SeptemberJune 30, 2020,2021, and 137% at December 31, 2019.
2020, respectively. Additional funding is provided by long-term debt and short-term borrowings. Table 3132 shows selected information for short-term borrowings, which generally mature in less than 30 days. We pledge certain financial instruments that we own to collateralize repurchase agreements and other securities financings. For additional information, see the “Pledged Assets” section of Note 12 (Pledged Assets and Collateral) to Financial Statements in this Report.
Asset/Liability Management (continued)
Table 31:32: Short-Term Borrowings
| | | Quarter ended | | Quarter ended |
(in millions) | (in millions) | Sep 30, 2020 | | Jun 30, 2020 | | Mar 31, 2020 | | Dec 31, 2019 | | Sep 30, 2019 | (in millions) | Jun 30, 2021 | | Mar 31, 2021 | | Dec 31, 2020 | | Sep 30, 2020 | | Jun 30, 2020 |
Balance, period end | Balance, period end | | Balance, period end | |
Federal funds purchased and securities sold under agreements to repurchase | Federal funds purchased and securities sold under agreements to repurchase | $ | 44,055 | | | 49,659 | | | 79,036 | | | 92,403 | | | 110,399 | | Federal funds purchased and securities sold under agreements to repurchase | $ | 33,708 | | | 46,871 | | | 46,362 | | | 44,055 | | | 49,659 | |
| Other short-term borrowings | Other short-term borrowings | 11,169 | | | 10,826 | | | 13,253 | | | 12,109 | | | 13,509 | | Other short-term borrowings | 11,927 | | | 12,049 | | | 12,637 | | | 11,169 | | | 10,826 | |
Total | Total | $ | 55,224 | | | 60,485 | | | 92,289 | | | 104,512 | | | 123,908 | | Total | $ | 45,635 | | | 58,920 | | | 58,999 | | | 55,224 | | | 60,485 | |
Average daily balance for period | Average daily balance for period | | Average daily balance for period | |
Federal funds purchased and securities sold under agreements to repurchase | Federal funds purchased and securities sold under agreements to repurchase | $ | 46,504 | | | 52,868 | | | 90,722 | | | 103,614 | | | 109,499 | | Federal funds purchased and securities sold under agreements to repurchase | $ | 36,526 | | | 47,358 | | | 46,069 | | | 46,504 | | | 52,868 | |
| Other short-term borrowings | Other short-term borrowings | 10,788 | | | 10,667 | | | 12,255 | | | 12,335 | | | 12,343 | | Other short-term borrowings | 11,979 | | | 11,724 | | | 11,235 | | | 10,788 | | | 10,667 | |
Total | Total | $ | 57,292 | | | 63,535 | | | 102,977 | | | 115,949 | | | 121,842 | | Total | $ | 48,505 | | | 59,082 | | | 57,304 | | | 57,292 | | | 63,535 | |
Maximum month-end balance for period | Maximum month-end balance for period | | Maximum month-end balance for period | |
Federal funds purchased and securities sold under agreements to repurchase (1) | Federal funds purchased and securities sold under agreements to repurchase (1) | $ | 49,148 | | | 50,397 | | | 91,121 | | | 111,727 | | | 110,399 | | Federal funds purchased and securities sold under agreements to repurchase (1) | $ | 33,708 | | | 47,050 | | | 46,879 | | | 49,148 | | | 50,397 | |
| Other short-term borrowings (2) | Other short-term borrowings (2) | 11,169 | | | 11,220 | | | 13,253 | | | 12,708 | | | 13,509 | | Other short-term borrowings (2) | 12,563 | | | 12,049 | | | 12,637 | | | 11,169 | | | 11,220 | |
(1)HighestMaximum month-end balance in each of the last five quarters was in July, AprilJune and February 2020,2021, and OctoberNovember, July and September 2019.April 2020.
(2)HighestMaximum month-end balance in each of the last five quarters was in September, April and March 2020,2021, and OctoberDecember, September and September 2019.April 2020.
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. We issue long-term debt in a variety of maturities and currencies to achieve cost-efficient funding and to maintain an appropriate maturity profile. Proceeds from securities issued were used for general corporate purposes, and, unless otherwise specified in the applicable prospectus or prospectus supplement, we expect the proceeds from securities issued in the future will be used for the same purposes. Long-term debt of $215.7 billion at
September 30, 2020, decreased $12.5 billion from December 31, 2019. We issued $237.1 million and $37.9 billion of long-term debt in the third quarter and first nine months of 2020, respectively.same purposes. Depending on market conditions, we may purchase our outstanding debt securities from time to time in privately negotiated or open market transactions, by tender offer, or otherwise. We issued $1.0 billion and $1.1 billion of long-term debt in the second quarter and first half of 2021, respectively. Table 3233 provides the aggregate carrying value of long-term debt maturities (based on contractual payment dates) for the remainder of 20202021 and the following years thereafter, as of SeptemberJune 30, 2020.2021.
Table 32:33: Maturity of Long-Term Debt
| | | September 30, 2020 | | June 30, 2021 |
(in millions) | (in millions) | Remaining 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter | | Total | (in millions) | Remaining 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | Thereafter | | Total |
Wells Fargo & Company (Parent Only) | Wells Fargo & Company (Parent Only) | | Wells Fargo & Company (Parent Only) | |
Senior notes | Senior notes | $ | 2,713 | | | 18,126 | | | 18,748 | | | 11,472 | | | 12,373 | | | 88,839 | | | 152,271 | | Senior notes | $ | 6,501 | | | 13,563 | | | 8,260 | | | 12,233 | | | 15,151 | | | 71,163 | | | 126,871 | |
Subordinated notes | Subordinated notes | — | | | — | | | — | | | 3,770 | | | 768 | | | 26,251 | | | 30,789 | | Subordinated notes | — | | | — | | | 3,706 | | | 753 | | | 1,124 | | | 22,752 | | | 28,335 | |
Junior subordinated notes | Junior subordinated notes | — | | | — | | | — | | | — | | | — | | | 1,820 | | | 1,820 | | Junior subordinated notes | — | | | — | | | — | | | — | | | — | | | 1,388 | | | 1,388 | |
Total long-term debt – Parent | Total long-term debt – Parent | $ | 2,713 | | | 18,126 | | | 18,748 | | | 15,242 | | | 13,141 | | | 116,910 | | | 184,880 | | Total long-term debt – Parent | 6,501 | | | 13,563 | | | 11,966 | | | 12,986 | | | 16,275 | | | 95,303 | | | 156,594 | |
Wells Fargo Bank, N.A. and other bank entities (Bank) | Wells Fargo Bank, N.A. and other bank entities (Bank) | | Wells Fargo Bank, N.A. and other bank entities (Bank) | |
Senior notes | Senior notes | $ | 257 | | | 6,872 | | | 4,887 | | | 2,924 | | | 6 | | | 420 | | | 15,366 | | Senior notes | 3,208 | | | 2,833 | | | 2,861 | | | 3 | | | 188 | | | 231 | | | 9,324 | |
Subordinated notes | Subordinated notes | — | | | — | | | — | | | 1,048 | | | — | | | 4,834 | | | 5,882 | | Subordinated notes | — | | | — | | | 1,098 | | | — | | | 168 | | | 4,236 | | | 5,502 | |
Junior subordinated notes | Junior subordinated notes | — | | | — | | | — | | | — | | | — | | | 372 | | | 372 | | Junior subordinated notes | — | | | — | | | — | | | — | | | — | | | 382 | | | 382 | |
Securitizations and other bank debt | Securitizations and other bank debt | 1,254 | | | 1,353 | | | 1,057 | | | 339 | | | 156 | | | 1,383 | | | 5,542 | | Securitizations and other bank debt | 1,579 | | | 1,383 | | | 876 | | | 424 | | | 146 | | | 1,476 | | | 5,884 | |
Total long-term debt – Bank | Total long-term debt – Bank | $ | 1,511 | | | 8,225 | | | 5,944 | | | 4,311 | | | 162 | | | 7,009 | | | 27,162 | | Total long-term debt – Bank | 4,787 | | | 4,216 | | | 4,835 | | | 427 | | | 502 | | | 6,325 | | | 21,092 | |
Other consolidated subsidiaries | Other consolidated subsidiaries | | Other consolidated subsidiaries | |
Senior notes | Senior notes | $ | 91 | | | 1,861 | | | 205 | | | 517 | | | 124 | | | 839 | | | 3,637 | | Senior notes | 358 | | | 190 | | | 517 | | | 107 | | | 428 | | | 338 | | | 1,938 | |
| Securitizations and other bank debt | Securitizations and other bank debt | — | | | — | | | — | | | — | | | — | | | 32 | | | 32 | | Securitizations and other bank debt | — | | | — | | | — | | | — | | | — | | | 32 | | | 32 | |
Total long-term debt – Other consolidated subsidiaries | Total long-term debt – Other consolidated subsidiaries | $ | 91 | | | 1,861 | | | 205 | | | 517 | | | 124 | | | 871 | | | 3,669 | | Total long-term debt – Other consolidated subsidiaries | 358 | | | 190 | | | 517 | | | 107 | | | 428 | | | 370 | | | 1,970 | |
Total long-term debt | Total long-term debt | $ | 4,315 | | | 28,212 | | | 24,897 | | | 20,070 | | | 13,427 | | | 124,790 | | | 215,711 | | Total long-term debt | $ | 11,646 | | | 17,969 | | | 17,318 | | | 13,520 | | | 17,205 | | | 101,998 | | | 179,656 | |
Risk Management – Asset/Liability Management (continued)
Credit RatingsInvestors 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 22, 2021, Moody's Investors Service (Moody's) affirmed our ratings and retained the negative ratings outlook. On July 22, 2020, Standard & Poor's (S&P) Global Ratings lowered12, 2021, Moody's upgraded the long-termsenior debt rating of the Company to BBB+A1 from A- and revised the rating outlookA2 as a result of revisions to stable from negative. Onits bank
September 2, 2020, Moody’s Investors Service affirmed the Company’sratings methodology. On May 24, 2021, DBRS Morningstar confirmed our ratings and revisedretained the negative ratings outlook totrend. On June 14, 2021, Fitch Ratings affirmed our ratings and retained the negative from stable.ratings outlook.
See the “Risk Factors” section in our 20192020 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 1514 (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 CompanyParent and Wells Fargo Bank, N.A., as of SeptemberJune 30, 2020,2021, are presented in Table 33.34.
Table 33:34: Credit Ratings as of SeptemberJune 30, 20202021
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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 | BBB+ | | 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 isFHLB members are 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, potentialthe amount of any future payments toinvestment in the capital stock of the FHLBs areis not determinable.
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 longlong- and short-term debt. Retained earnings at SeptemberJune 30, 2020, decreased $5.82021, increased $9.1 billion from December 31, 2019,2020, predominantly as a result of $10.7 billion of Wells Fargo net income, partially offset by $1.5 billion of common and preferred stock dividendsdividends. During the first half of $5.6 billion. During third quarter 2020,2021, we issued $325$819 million of common stock, excluding conversionssubstantially all of preferred shares. On September 30, 2020,which was issued in connection with employee compensation and benefits. During the Boardfirst half of Governors2021, we repurchased 53 million shares of the Federal Reserve System (FRB) announced that it was extending through fourth quarter 2020 measures it announced on June 25, 2020, prohibiting large bank holding companies (BHCs) subject to the FRB’s capital plan rule, including Wells Fargo, from making capital distributions, subject to certain limited exceptions.common stock at a cost of $2.2 billion. For additional information about capital planning, including the FRB’s recent prohibition on capital distributions, see the “Capital Planning and Stress Testing” and “Securities Repurchases” sectionssection below.
In January 2020,the first half of 2021, we issued $2.0$4.6 billion of preferred stock and redeemed $4.9 billion of preferred stock, including the redemption of the remaining $350 million of our Preferred Stock, Series N, in June 2021. In July 2021, we issued $1.25 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. In October 2020, we issued $1.2 billion of our Preferred Stock, Series AA.DD. For additional information, see Note 1716 (Preferred Stock) to Financial Statements in this Report.
Regulatory Capital GuidelinesRequirements
The Company and each of our insured depository institutions (IDIs)IDIs are subject to various regulatory capital adequacy requirements administered by the FRB and the OCC. Risk-based capital (RBC) guidelinesrules establish a risk-adjusted ratioratios relating regulatory 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 rules issued by federal banking regulators to implement Basel III capital requirements for U.S. banking organizations. The federal banking regulators’ capital rules, among other things, required on a fully phased-in basis as of September 30, 2020:
•a minimum Common Equity Tier 1 (CET1) ratio of 9.00%, comprised of a 4.50% minimum requirement plus a capital conservation buffer of 2.50% and for us, as a global systemically important bank (G-SIB), a capital surcharge of 2.00%;
•a minimum tier 1 capital ratio of 10.50%, comprised of a 6.00% minimum requirement plus the capital conservation buffer of 2.50% and the G-SIB capital surcharge of 2.00%;
•a minimum total capital ratio of 12.50%, comprised of a 8.00% minimum requirement plus the capital conservation buffer of 2.50% and the G-SIB capital surcharge of 2.00%;
•a potential countercyclical buffer of up to 2.50% to be added to the minimum risk-based capital ratios, which 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 4.00%.
The Basel III capital requirements for calculating CET1 and tier 1 capital, along with risk-weighted assets (RWAs), are 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. The Basel III capital rules contain two frameworks for calculating capital requirements, a Standardized Approach and an Advanced Approach applicable to certain institutions, including Wells Fargo. Our capital adequacy is assessed based on the lower of our risk-based capital ratios calculated under the two approaches. The Company is required to satisfy the risk-based capital ratio requirements to avoid restrictions on capital distributions and discretionary bonus payments. Table 35 and Table 36 present the risk-based capital requirements applicable to the Company on a fully phased-in basis under the Standardized Approach and under the Advanced Approach. The difference between RWAs under the Standardized and Advanced Approach, has narrowedrespectively, as of June 30, 2021.
Table 35: Risk-Based Capital Requirements – Standardized Approach
Table 36: Risk-Based Capital Requirements – Advanced Approach
In addition to the risk-based capital requirements described in recent quarters due to economic conditions fromTable 35 and Table 36, if the COVID-19 pandemic impacting our calculationFRB determines that a period of Advanced Approach RWAs. In particular, changes in internalexcessive credit ratings in our loan portfolio contributedgrowth is contributing to an increase in our Advanced Approach RWAs at September 30, 2020. We expect this trendsystemic risk, a countercyclical buffer of up to continue if2.50% could be added to the economic impact of the COVID-19 pandemic continues to affect our customer base.risk-based capital ratio requirements under federal banking regulations.
Effective October 1, 2020, a stress capital buffer replaced the 2.50%The capital conservation buffer is applicable to certain institutions, including Wells Fargo, under the Standardized Approach. Advanced Approach and is intended to absorb losses during times of economic or financial stress.
The stress capital buffer is calculated based on the decrease in a BHC’s risk-based capital ratios under the severely adverse scenario in the FRB’s annual supervisory stress test and related Comprehensive Capital Analysis and Review (CCAR), plus four quarters of planned common stock dividends. On August 10, 2020,Because the FRB announcedstress capital buffer is calculated annually based on data that can differ over time, our stress capital buffer, and thus our risk-based capital ratio requirements under the Company'sStandardized Approach, are subject to change in future periods. The Company’s stress capital buffer for the period October 1, 2020, through September 30, 2021, is 2.50%. Because theThe Company expects its stress capital buffer is calculated annually as part offor the FRB’s supervisory stress test and related CCAR andperiod October 1, 2021, through September 30, 2022, to be 3.10%. The FRB has indicated that it will be based on data that can differ over time, ourpublish the final stress capital buffer and thusfor the regulatory minimumsperiod October 1, 2021, through September 30, 2022, for our risk-based capital ratios, are subject to change in future years.each BHC by August 31, 2021.
Capital Management (continued)
As a G-SIB,global systemically important bank (G-SIB), we are also subject to the FRB’s rule implementing thean additional capital surcharge of between 1.00-4.50% on the minimumrisk-based capital ratio 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 (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.under method one. 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. We expect our G-SIB capital surcharge to decrease by 50 basis points to 1.50% beginning in first quarter 2022, subject to finalization in fourth quarter 2021.
The Basel III capital requirements for calculating CET1 and tier 1 capital, along with risk-weighted assets (RWAs), are 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.
Under the risk-based capital rules, 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.
The tables that follow provide information about our risk-based capital and related ratios as calculated under Basel III capital guidelines.rules. Although we report certain capital amounts and ratios in accordance with Transition Requirementstransition requirements for banking industrybank regulatory reporting purposes, we manage our capital based on a fully phased-in basis. For information about
our capital requirements calculated in accordance with Transition Requirements,transition requirements, see
Note 23 (Regulatory Capital Requirements and Agency Capital Requirements)Other Restrictions) to Financial Statements in this Report.
Table 3437 summarizes our CET1, tier 1 capital, total capital, RWAs and capital ratios on a fully phased-in basis at SeptemberJune 30, 2020,2021, and December 31, 2019.
Table 34:Capital Components and Ratios (Fully Phased-In) (1)
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| | | | September 30, 2020 | | | December 31, 2019 | |
(in millions, except ratios) | | Required Minimum Capital Ratios | | Advanced Approach | | Standardized Approach | | | Advanced Approach | | Standardized Approach | |
Common Equity Tier 1 | (A) | | | $ | 134,901 | | | 134,901 | | | | 138,760 | | | 138,760 | | |
Tier 1 Capital | (B) | | | 154,743 | | | 154,743 | | | | 158,949 | | | 158,949 | | |
Total Capital (2) | (C) | | | 184,040 | | | 193,667 | | | | 187,813 | | | 195,703 | | |
Risk-Weighted Assets (3) | (D) | | | 1,171,956 | | | 1,185,610 | | | | 1,165,079 | | | 1,245,853 | | |
Common Equity Tier 1 Capital Ratio (3) | (A)/(D) | 9.00 | % | | 11.51 | % | | 11.38 | | * | | 11.91 | | | 11.14 | | * |
Tier 1 Capital Ratio (3) | (B)/(D) | 10.50 | | | 13.20 | | | 13.05 | | * | | 13.64 | | | 12.76 | | * |
Total Capital Ratio (2)(3) | (C)/(D) | 12.50 | | | 15.70 | | * | 16.33 | | | | 16.12 | | | 15.71 | | * |
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*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)2020. 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 3538 for information regarding the calculation and components of our fully phased-inCET1, tier 1 capital, total capital amounts, includingand RWAs, as well as a corresponding reconciliation to GAAP financial measures.measures for our fully phased-in total capital amounts.
Table 37:Capital Components and Ratios (Fully Phased-In)
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| | | | June 30, 2021 | | | December 31, 2020 | |
(in millions, except ratios) | | Required Capital Ratios (1) | | Advanced Approach | | Standardized Approach | | | Advanced Approach | | Standardized Approach | |
Common Equity Tier 1 | (A) | | | $ | 143,442 | | | 143,442 | | | | 138,297 | | | 138,297 | | |
Tier 1 Capital | (B) | | | 162,999 | | | 162,999 | | | | 158,196 | | | 158,196 | | |
Total Capital | (C) | | | 190,147 | | | 200,130 | | | | 186,803 | | | 196,529 | | |
Risk-Weighted Assets | (D) | | | 1,126,535 | | | 1,188,727 | | | | 1,158,355 | | | 1,193,744 | | |
Common Equity Tier 1 Capital Ratio | (A)/(D) | 9.00 | % | | 12.73 | | | 12.07 | | * | | 11.94 | | | 11.59 | | * |
Tier 1 Capital Ratio | (B)/(D) | 10.50 | | | 14.47 | | | 13.71 | | * | | 13.66 | | | 13.25 | | * |
Total Capital Ratio | (C)/(D) | 12.50 | | | 16.88 | | | 16.84 | | * | | 16.14 | | * | 16.47 | | |
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(3)*RWAs and capital ratios for December 31, 2019, have been revised as a result of a decrease in RWAsDenotes the binding ratio based on the lower calculation under the Advanced Approach dueand Standardized Approaches.
(1)Represents the minimum ratios required to avoid restrictions on capital distributions and discretionary bonus payments. The required ratios were the correction of duplicated operational loss amounts.same under both the Standardized and Advanced Approaches at June 30, 2021.
Capital Management (continued)
Table 3538 provides information regarding the calculation and composition of our risk-based capital under the Advanced and Standardized Approaches at June 30, 2021, and December 31, 2020.
Standardized Approaches at September 30, 2020, and
December 31, 2019.
Table 35:38: Risk-Based Capital Calculation and Components
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| | September 30, 2020 | | | | December 31, 2019 |
(in millions) | | Advanced Approach | | Standardized Approach | | | | Advanced Approach | | Standardized Approach |
Total equity | | $ | 182,032 | | | 182,032 | | | | | 187,984 | | | 187,984 | |
Adjustments: | | | | | | | | | | |
Preferred stock | | (21,098) | | | (21,098) | | | | | (21,549) | | | (21,549) | |
Additional paid-in capital on preferred stock | | 159 | | | 159 | | | | | (71) | | | (71) | |
Unearned ESOP shares | | 875 | | | 875 | | | | | 1,143 | | | 1,143 | |
Noncontrolling interests | | (859) | | | (859) | | | | | (838) | | | (838) | |
Total common stockholders’ equity | | 161,109 | | | 161,109 | | | | | 166,669 | | | 166,669 | |
Adjustments: | | | | | | | | | | |
Goodwill | | (26,387) | | | (26,387) | | | | | (26,390) | | | (26,390) | |
Certain identifiable intangible assets (other than MSRs) | | (366) | | | (366) | | | | | (437) | | | (437) | |
Goodwill and other intangibles on nonmarketable equity securities (included in other assets) | | (2,019) | | | (2,019) | | | | | (2,146) | | | (2,146) | |
Applicable deferred taxes related to goodwill and other intangible assets (1) | | 842 | | | 842 | | | | | 810 | | | 810 | |
CECL transition provision (2) | | 1,877 | | | 1,877 | | | | | — | | | — | |
Other | | (155) | | | (155) | | | | | 254 | | | 254 | |
Common Equity Tier 1 | | 134,901 | | | 134,901 | | | | | 138,760 | | | 138,760 | |
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Common Equity Tier 1 | | $ | 134,901 | | | 134,901 | | | | | 138,760 | | | 138,760 | |
Preferred stock | | 21,098 | | | 21,098 | | | | | 21,549 | | | 21,549 | |
Additional paid-in capital on preferred stock | | (159) | | | (159) | | | | | 71 | | | 71 | |
Unearned ESOP shares | | (875) | | | (875) | | | | | (1,143) | | | (1,143) | |
Other | | (222) | | | (222) | | | | | (288) | | | (288) | |
Total Tier 1 capital | (A) | 154,743 | | | 154,743 | | | | | 158,949 | | | 158,949 | |
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Long-term debt and other instruments qualifying as Tier 2 | | 24,953 | | | 24,953 | | | | | 26,515 | | | 26,515 | |
Qualifying allowance for credit losses (3) | | 4,504 | | | 14,131 | | | | | 2,566 | | | 10,456 | |
Other | | (160) | | | (160) | | | | | (217) | | | (217) | |
Total Tier 2 capital (Fully Phased-In) | (B) | 29,297 | | | 38,924 | | | | | 28,864 | | | 36,754 | |
Effect of Basel III Transition Requirements | | 132 | | | 132 | | | | | 520 | | | 520 | |
Total Tier 2 capital (Basel III Transition Requirements) | | $ | 29,429 | | | 39,056 | | | | | 29,384 | | | 37,274 | |
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Total qualifying capital (Fully Phased-In) | (A)+(B) | $ | 184,040 | | | 193,667 | | | | | 187,813 | | | 195,703 | |
Total Effect of Basel IIII Transition Requirements | | 132 | | | 132 | | | | | 520 | | | 520 | |
Total qualifying capital (Basel III Transition Requirements) | | $ | 184,172 | | | 193,799 | | | | | 188,333 | | | 196,223 | |
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Risk-Weighted Assets (RWAs) (4)(5): | | | | | | | | | | |
Credit risk (6) | | $ | 772,206 | | | 1,125,098 | | | | | 790,784 | | | 1,210,209 | |
Market risk | | 60,512 | | | 60,512 | | | | | 35,644 | | | 35,644 | |
Operational risk (7) | | 339,238 | | | — | | | | | 338,651 | | | — | |
Total RWAs (7) | | $ | 1,171,956 | | | 1,185,610 | | | | | 1,165,079 | | | 1,245,853 | |
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(in millions) | | Advanced Approach | | Standardized Approach | | | | | Advanced Approach | | Standardized Approach |
Total equity (1) | | $ | 193,127 | | | 193,127 | | | | | | 185,712 | | | 185,712 | |
Effect of accounting policy changes (1) | | — | | | — | | | | | | 208 | | | 208 | |
Total equity (as reported) | | 193,127 | | | 193,127 | | | | | | 185,920 | | | 185,920 | |
Adjustments: | | | | | | | | | | | |
Preferred stock | | (20,820) | | | (20,820) | | | | | | (21,136) | | | (21,136) | |
Additional paid-in capital on preferred stock | | 136 | | | 136 | | | | | | 152 | | | 152 | |
Unearned ESOP shares | | 875 | | | 875 | | | | | | 875 | | | 875 | |
Noncontrolling interests | | (1,865) | | | (1,865) | | | | | | (1,033) | | | (1,033) | |
Total common stockholders’ equity | | $ | 171,453 | | | 171,453 | | | | | | 164,778 | | | 164,778 | |
Adjustments: | | | | | | | | | | | |
Goodwill | | (26,194) | | | (26,194) | | | | | | (26,392) | | | (26,392) | |
Certain identifiable intangible assets (other than MSRs) | | (301) | | | (301) | | | | | | (342) | | | (342) | |
Goodwill and other intangibles on nonmarketable equity securities (included in other assets) | | (2,256) | | | (2,256) | | | | | | (1,965) | | | (1,965) | |
Applicable deferred taxes related to goodwill and other intangible assets (2) | | 875 | | | 875 | | | | | | 856 | | | 856 | |
CECL transition provision (3) | | 879 | | | 879 | | | | | | 1,720 | | | 1,720 | |
Other | | (1,014) | | | (1,014) | | | | | | (358) | | | (358) | |
Common Equity Tier 1 | | $ | 143,442 | | | 143,442 | | | | | | 138,297 | | | 138,297 | |
Preferred stock | | 20,820 | | | 20,820 | | | | | | 21,136 | | | 21,136 | |
Additional paid-in capital on preferred stock | | (136) | | | (136) | | | | | | (152) | | | (152) | |
Unearned ESOP shares | | (875) | | | (875) | | | | | | (875) | | | (875) | |
Other | | (252) | | | (252) | | | | | | (210) | | | (210) | |
Total Tier 1 capital | (A) | $ | 162,999 | | | 162,999 | | | | | | 158,196 | | | 158,196 | |
Long-term debt and other instruments qualifying as Tier 2 | | 23,206 | | | 23,206 | | | | | | 24,387 | | | 24,387 | |
Qualifying allowance for credit losses (4) | | 4,304 | | | 14,287 | | | | | | 4,408 | | | 14,134 | |
Other | | (362) | | | (362) | | | | | | (188) | | | (188) | |
Total Tier 2 capital (fully phased-in) | (B) | $ | 27,148 | | | 37,131 | | | | | | 28,607 | | | 38,333 | |
Effect of Basel III transition requirements | | 26 | | | 26 | | | | | | 131 | | | 131 | |
Total Tier 2 capital (Basel III transition requirements) | | $ | 27,174 | | | 37,157 | | | | | | 28,738 | | | 38,464 | |
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Total qualifying capital (fully phased-in) | (A)+(B) | $ | 190,147 | | | 200,130 | | | | | | 186,803 | | | 196,529 | |
Total Effect of Basel III transition requirements | | 26 | | | 26 | | | | | | 131 | | | 131 | |
Total qualifying capital (Basel III transition requirements) | | $ | 190,173 | | | 200,156 | | | | | | 186,934 | | | 196,660 | |
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Risk-Weighted Assets (RWAs)(5): | | | | | | | | | | | |
Credit risk (6) | | $ | 729,917 | | | 1,140,459 | | | | | | 752,999 | | | 1,125,813 | |
Market risk | | 48,268 | | | 48,268 | | | | | | 67,931 | | | 67,931 | |
Operational risk | | 348,350 | | | — | | | | | | 337,425 | | | — | |
Total RWAs | | $ | 1,126,535 | | | 1,188,727 | | | | | | 1,158,355 | | | 1,193,744 | |
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(1)In second quarter 2021, we elected to change our accounting method for low-income housing tax credit investments and elected to change the presentation of investment tax credits related to solar energy investments. Prior period total equity was revised to conform with the current period presentation. Prior period risk-based capital and certain other regulatory related metrics were not revised.
(2)Determined by applying the combined federal statutory rate and composite state income tax rates to the difference between book and tax basis of the respective goodwill and intangible assets at period end.
(2)(3)In second quarter 2020,At June 30, 2021, the Company elected to apply a modifiedimpact of the CECL transition provision issued by federal banking regulators related to the impact of CECL on regulatory capital. The rule permits certain banking organizations to exclude from regulatory capital the initial adoption impact of CECL, plus 25% of the cumulative changes in the ACL under CECL for each period until December 31, 2021, followed by a three-year phase-out of the benefits. The impact of the CECL transition provision on our regulatory capital at September 30, 2020, was an increase in capital of $1.9 billion,$879 million, reflecting a $991 million (post-tax) increase in capital recognized upon our initial adoption of CECL, offset by 25% of the $11.5$7.5 billion increase in our ACL under CECL from January 1, 2020, through SeptemberJune 30, 2020.2021.
(3)(4)Under the Advanced Approach the allowance for credit losses that exceeds expected credit losses is eligible for inclusion in Tiertier 2 Capital,capital, to the extent the excess allowance does not exceed 0.60% of Advanced credit RWAs, and under the Standardized Approach, the allowance for credit losses is includable in Tiertier 2 Capitalcapital up to 1.25% of Standardized credit RWAs, in each case with any excess allowance for credit losses being deducted from the respective total RWAs.
(4)(5)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 loss resulting from inadequate or failed internal processes, people and systems, or from external events.
(5)Under the regulatory guidelines for risk-based capital, on-balance sheet assets and credit equivalent amounts of derivatives and off-balance sheet items are assigned to one of several broad risk categories according to the obligor, or, if relevant, the guarantor or the nature of any collateral. The aggregate dollar amount in each risk category is then multiplied by the risk weight associated with that category. The resulting weighted values from each of the risk categories are aggregated for determining total RWAs.
(6)Includes an increase of $1.5 billion$547 million under the Standardized Approach and a decrease of $1.3$1.4 billion under the Advanced Approach related to the impact of the CECL transition provision on our excess allowance for credit losses as of SeptemberJune 30, 2020.2021. See footnote (3)(4) to this table.
(7)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 3639 presents the changes in Common Equity Tier 1 under the Advanced ApproachCET1 for the ninesix months ended SeptemberJune 30, 2020.2021.
Table 36:39: Analysis of Changes in Common Equity Tier 1(Advanced Approach)
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(in millions) | | |
Common Equity Tier 1 at December 31, 20192020 | | $ | 138,760138,297 | |
Net income applicable to common stock | | (932)9,999 | |
Common stock dividends | | (4,602)(826) | |
Common stock issued, repurchased, and stock compensation-related items | | (1,759)(1,539) | |
Changes in cumulative other comprehensive income | | 561 (758) | |
Cumulative effect from change in accounting policies (1) | | 991 | |
Goodwill | | 3198 | |
Certain identifiable intangible assets (other than MSRs) | | 7141 | |
Goodwill and other intangibles on nonmarketable equity securities (included in other assets) | | 127 (291) | |
Applicable deferred taxes related to goodwill and other intangible assets (2)(1) | | 3219 | |
CECL transition provision (3)(2) | | 1,877 (841) | |
Other | | (228)(857) | |
Change in Common Equity Tier 1 | | (3,859)5,145 | |
Common Equity Tier 1 at SeptemberJune 30, 20202021 | | $ | 134,901143,442 | |
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(1)Effective January 1, 2020, we adopted CECL. For additional information, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report.
(2)Determined by applying the combined federal statutory rate and composite state income tax rates to the difference between book and tax basis of the respective goodwill and intangible assets at period end.
(3)(2)In second quarter 2020,At June 30, 2021, the Company elected to apply a modifiedimpact of the CECL transition provision issued by federal banking regulators related to the impact of CECL on regulatory capital. The rule permits certain banking organizations to exclude from regulatory capital the initial adoption impact of CECL, plus 25% of the cumulative changes in the ACL under CECL for each period until December 31, 2021, followed by a three-year phase-out of the benefits. The impact of the CECL transition provision on our regulatory capital at September 30, 2020, was an increase in capital of $1.9 billion,$879 million, reflecting a $991 million (post-tax) increase in capital recognized upon our initial adoption of CECL, offset by 25% of the $11.5$7.5 billion increase in our ACL under CECL from January 1, 2020, through SeptemberJune 30, 2020.
2021.
Table 3740 presents net changes in the components of RWAs under the Advanced and Standardized Approaches for the ninesix months ended SeptemberJune 30, 2020.2021.
Table 37:40: Analysis of Changes in RWAs
| (in millions) | (in millions) | Advanced Approach | Standardized Approach | (in millions) | Advanced Approach | Standardized Approach |
| RWAs at December 31, 2019 (1) | $ | 1,165,079 | | 1,245,853 | | |
Net change in credit risk RWAs (2) | (18,578) | | (85,111) | | |
RWAs at December 31, 2020 | | RWAs at December 31, 2020 | $ | 1,158,355 | | 1,193,744 | |
Net change in credit risk RWAs (1) | | Net change in credit risk RWAs (1) | (23,082) | | 14,646 | |
Net change in market risk RWAs | Net change in market risk RWAs | 24,868 | | 24,868 | | Net change in market risk RWAs | (19,663) | | (19,663) | |
Net change in operational risk RWAs | Net change in operational risk RWAs | 587 | | — | | Net change in operational risk RWAs | 10,925 | | — | |
Total change in RWAs | Total change in RWAs | 6,877 | | (60,243) | | Total change in RWAs | (31,820) | | (5,017) | |
RWAs at September 30, 2020 | $ | 1,171,956 | | 1,185,610 | | |
| RWAs at June 30, 2021 | | RWAs at June 30, 2021 | $ | 1,126,535 | | 1,188,727 | |
(1)Amount for December 31, 2019, has been revised as a result of a decrease in RWAs under the Advanced Approach due to the correction of duplicated operational loss amounts.
(2)Includes an increase of $1.5 billion$547 million under the Standardized Approach and a decrease of $1.3$1.4 billion under the Advanced Approach related to the impact of the CECL transition provision on our excess allowance for credit losses. See Table 3538 for additional information.
Capital Management (continued)
TANGIBLE COMMON EQUITY We also evaluate our business based on certain ratios that utilize tangible common equity. Tangible common equity is a non-GAAP financial measure and represents total equity less preferred equity, noncontrolling interests, goodwill, certain identifiable intangible assets (other than MSRs) and goodwill and other intangibles on nonmarketable equity securities, net of applicable deferred taxes. These tangible common equityThe ratios are as follows:
•Tangible(i) tangible book value per common share, which represents tangible common equity divided by common shares outstanding; and
•Return (ii) 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 management, investors, and others to assess the Company’s use of equity.
Table 3841 provides a reconciliation of these non-GAAP financial measures to GAAP financial measures.
Table 38:41: Tangible Common Equity
| | | Balance at period end | | Average balance | | Balance at period end | | Average balance |
| | Quarter ended | | Quarter ended | | | Nine months ended | | Quarter ended | | Quarter ended | | Six months ended |
(in millions, except ratios) | (in millions, except ratios) | | Sep 30, 2020 | June 30, 2020 | | Sep 30, 2019 | | Sep 30, 2020 | | June 30, 2020 | Sep 30, 2019 | | | Sep 30, 2020 | Sep 30, 2019 | (in millions, except ratios) | | Jun 30, 2021 | Mar 31, 2021 | Jun 30, 2020 | | Jun 30, 2021 | Mar 31, 2021 | Jun 30, 2020 | | Jun 30, 2021 | Jun 30, 2020 |
Total equity | Total equity | | $ | 182,032 | | 180,122 | | | 194,416 | | | 182,850 | | | 184,108 | | 200,095 | | | | 185,035 | | 199,383 | | Total equity | | $ | 193,127 | | 188,034 | | 178,635 | | | 190,968 | 189,074 | | 184,072 | | | 190,026 | 185,982 | |
Adjustments: | Adjustments: | | | | | | | | Adjustments: | |
Preferred stock | Preferred stock | | (21,098) | | (21,098) | | | (21,549) | | | (21,098) | | | (21,344) | | (22,325) | | | | (21,411) | | (22,851) | | Preferred stock | | (20,820) | | (21,170) | | (21,098) | | | (21,108) | | (21,840) | | (21,344) | | | (21,472) | | (21,569) | |
Additional paid-in capital on preferred stock | Additional paid-in capital on preferred stock | | 159 | | 159 | | | (71) | | | 158 | | | 140 | | (78) | | | | 145 | | (84) | | Additional paid-in capital on preferred stock | | 136 | | 139 | | 159 | | | 138 | | 145 | | 140 | | | 142 | | 138 | |
| Unearned ESOP shares | Unearned ESOP shares | | 875 | | 875 | | | 1,143 | | | 875 | | | 1,140 | | 1,290 | | | | 1,052 | | 1,361 | | Unearned ESOP shares | | 875 | | 875 | | 875 | | | 875 | | 875 | | 1,140 | | | 875 | | 1,141 | |
Noncontrolling interests | Noncontrolling interests | | (859) | | (736) | | | (1,112) | | | (761) | | | (643) | | (1,065) | | | | (730) | | (968) | | Noncontrolling interests | | (1,865) | | (1,130) | | (736) | | | (1,313) | | (1,115) | | (643) | | | (1,215) | | (714) | |
Total common stockholders’ equity | Total common stockholders’ equity | (A) | | 161,109 | | 159,322 | | | 172,827 | | | 162,024 | | | 163,401 | | 177,917 | | | | 164,091 | | 176,841 | | Total common stockholders’ equity | (A) | | 171,453 | | 166,748 | | 157,835 | | | 169,560 | | 167,139 | | 163,365 | | | 168,356 | | 164,978 | |
Adjustments: | Adjustments: | | | | | | | | Adjustments: | |
Goodwill | Goodwill | | (26,387) | | (26,385) | | | (26,388) | | | (26,388) | | | (26,384) | | (26,413) | | | | (26,386) | | (26,416) | | Goodwill | | (26,194) | | (26,290) | | (26,385) | | | (26,213) | | (26,383) | | (26,384) | | | (26,297) | | (26,386) | |
Certain identifiable intangible assets (other than MSRs) | Certain identifiable intangible assets (other than MSRs) | | (366) | | (389) | | | (465) | | | (378) | | | (402) | | (477) | | | | (401) | | (508) | | Certain identifiable intangible assets (other than MSRs) | | (301) | | (322) | | (389) | | | (310) | | (330) | | (402) | | | (320) | | (414) | |
Goodwill and other intangibles on nonmarketable equity securities (included in other assets) | Goodwill and other intangibles on nonmarketable equity securities (included in other assets) | | (2,019) | | (2,050) | | | (2,295) | | | (2,045) | | | (1,922) | | (2,159) | | | | (2,040) | | (2,158) | | Goodwill and other intangibles on nonmarketable equity securities (included in other assets) | | (2,256) | | (2,300) | | (2,050) | | | (2,208) | | (2,217) | | (1,922) | | | (2,212) | | (2,037) | |
Applicable deferred taxes related to goodwill and other intangible assets (1) | Applicable deferred taxes related to goodwill and other intangible assets (1) | | 842 | | 831 | | | 802 | | | 838 | | | 828 | | 797 | | | | 828 | | 787 | | Applicable deferred taxes related to goodwill and other intangible assets (1) | | 875 | | 866 | | 831 | | | 873 | | 863 | | 828 | | | 868 | | 823 | |
Tangible common equity | Tangible common equity | (B) | | $ | 133,179 | | 131,329 | | | 144,481 | | | 134,051 | | | 135,521 | | 149,665 | | | | 136,092 | | 148,546 | | Tangible common equity | (B) | | $ | 143,577 | | 138,702 | | 129,842 | | | 141,702 | | 139,072 | | 135,485 | | | 140,395 | | 136,964 | |
Common shares outstanding | Common shares outstanding | (C) | | 4,132.5 | | 4,119.6 | | | 4,269.1 | | | N/A | | N/A | | | N/A | N/A | Common shares outstanding | (C) | | 4,108.0 | | 4,141.1 | | 4,119.6 | | | N/A | N/A | | N/A | N/A |
Net income applicable to common stock | Net income applicable to common stock | (D) | | N/A | N/A | | N/A | | 1,720 | | | $ | (2,694) | | 4,037 | | | | (932) | | 15,392 | | Net income applicable to common stock | (D) | | N/A | N/A | | $ | 5,743 | | 4,256 | | (4,160) | | | $ | 9,999 | | (3,856) | |
Book value per common share | Book value per common share | (A)/(C) | | $ | 38.99 | | 38.67 | | | 40.48 | | | N/A | | N/A | | | N/A | N/A | Book value per common share | (A)/(C) | | $ | 41.74 | | 40.27 | | 38.31 | | | N/A | N/A | | N/A | N/A |
Tangible book value per common share | Tangible book value per common share | (B)/(C) | | 32.23 | | 31.88 | | | 33.84 | | | N/A | | N/A | | | N/A | N/A | Tangible book value per common share | (B)/(C) | | 34.95 | | 33.49 | | 31.52 | | | N/A | N/A | | N/A | N/A |
Return on average common stockholders’ equity (ROE) (annualized) | Return on average common stockholders’ equity (ROE) (annualized) | (D)/(A) | | N/A | N/A | | N/A | | 4.22 | % | | (6.63) | | 9.00 | | | | (0.76) | | 11.64 | | Return on average common stockholders’ equity (ROE) (annualized) | (D)/(A) | | N/A | N/A | | 13.59 | % | 10.33 | | (10.24) | | | 11.98 | % | (4.70) | % |
Return on average tangible common equity (ROTCE) (annualized) | Return on average tangible common equity (ROTCE) (annualized) | (D)/(B) | | N/A | N/A | | N/A | | 5.10 | | | (8.00) | | 10.70 | | | | (0.91) | | 13.85 | | Return on average tangible common equity (ROTCE) (annualized) | (D)/(B) | | N/A | N/A | | 16.26 | | 12.41 | | (12.35) | | | 14.36 | % | (5.66) | % |
(1)Determined by applying the combined federal statutory rate and composite state income tax rates to the difference between book and tax basis of the respective goodwill and intangible assets at period end.
SUPPLEMENTARY LEVERAGE RATIOREQUIREMENTS As a BHC, we are required to maintain a supplementary leverage ratio (SLR) of at least 5.00% (comprised of a 3.00% minimum requirement plus a supplementary leverage buffer of 2.00%) to avoid restrictions on capital distributions and discretionary bonus payments. Ourpayments and maintain a minimum tier 1 leverage ratio. Table 42 presents the leverage requirements applicable to the Company as of June 30, 2021.
Table 42:Leverage Requirements Applicable to the Company In addition, our IDIs are required to maintain aan SLR of at least 6.00% to be considered well-capitalizedwell capitalized under applicable regulatory capital adequacy guidelines. In April 2018, therules and maintain a minimum tier 1 leverage ratio of 4.00%.
The FRB and OCC have proposed rules (Proposedamendments to the SLR rules) that would replacerules. For information regarding the 2.00% supplementary leverage buffer with a buffer equalproposed amendments to one-half of our G-SIB capital surcharge. The Proposedthe SLR rules, would similarly tailorsee the current 6.00% SLR requirement for“Capital Management – Leverage Requirements” section in our 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. This interim final rule became effective on April 1, 2020, and expires on March 31, 2021. In May 2020, federal banking regulators issued an interim final rule that permits IDIs to choose to similarly exclude these items from the denominator of their SLRs; however, if an IDI chooses to exclude such amounts from the calculation of its SLR, it will be required to request approval from its primary federal banking regulator before making capital distributions, such as paying dividends, to its parent company. As of SeptemberForm 10-K.
At June 30, 2020, none of2021, the Company’s IDIs elected to apply this exclusion.
At September 30, 2020, our SLR for the Company was 7.75%7.09%, and we also exceeded the applicable SLR requirements for each of our IDIs. SeeIDIs exceeded their applicable SLR requirements. Table 39 for43 presents information regarding the calculation and components of the SLR.Company’s SLR and tier 1 leverage ratio.
Capital Management (continued)
Table 39:43: Supplementary Leverage RatioRatios for the Company
| | | | | | | | |
(in millions, except ratio)ratios) | | Quarter ended SeptemberJune 30, 20202021 |
Tier 1 capital | (A) | $ | 154,743162,999 | |
Total average assets | | 1,949,5491,940,757 | |
Less: Goodwill and other permitted Tier 1 capital deductions (net of deferred tax liabilities) | | 28,24629,103 | |
Less: Other SLR exclusions | | 257,568— | |
Total adjusted average assets | | 1,663,7351,911,654 | |
Plus adjustments for off-balance sheet exposures: | | |
Derivatives (1) | | 69,90268,738 | |
Repo-style transactions (2) | | 2,8393,626 | |
Other (3) | | 260,973316,398 | |
Total off-balance sheet exposures | | 333,714388,762 | |
Total leverage exposure | (B) | $ | 1,997,4492,300,416 | |
Supplementary leverage ratio | (A)/(B) | 7.757.09 | % |
| | |
Tier 1 leverage ratio (4) | | 8.53 | % |
(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).client.
(3)Adjustment represents credit equivalent amounts of other off-balance sheet exposures not already included as derivatives and repo-style transactions exposures.
(4)The tier 1 leverage ratio consists of tier 1 capital divided by total average assets, excluding goodwill and certain other items as determined under the rule.
TOTAL LOSS ABSORBING CAPACITY As a G-SIB, we are required to have a minimum amount of equity and unsecured long-term debt for purposes of resolvability and resiliency, often referred to as Total Loss Absorbing Capacity (TLAC). U.S. G-SIBs are required to have a minimum amount of 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) to avoid restrictions on capital distributions and discretionary bonus payments, as well as a minimum amount of eligible unsecured long-term debt.The components used to calculate our minimum TLAC and eligible unsecured long-term debt requirements as of June 30, 2021, are presented in Table 44.
Table 44:Components Used to Calculate TLAC and Eligible Unsecured Long-Term Debt Requirements
| | | | | | | | | | | | | | |
TLAC requirement
Greater of: |
18.00% of RWAs | | 7.50% of total leverage exposure (the denominator of the SLR calculation) |
+ | + |
TLAC buffer (equal to 2.50% of RWAs + method one G-SIB capital surcharge + any countercyclical buffer) | External TLAC leverage buffer (equal to 2.00% of total leverage exposure) |
| | | | |
Minimum amount of eligible unsecured long-term debt
Greater of: |
6.00% of RWAs | | 4.50% of total leverage exposure |
+ |
Method two G-SIB capital surcharge |
| | | | |
The FRB and OCC have proposed amendments to the greater of (i) 18.00% of RWAsTLAC and (ii) 7.50% of total leverage exposure (the denominator ofeligible unsecured long-term debt requirements. For information regarding these proposed amendments, see the SLR calculation). Additionally, U.S. G-SIBs are required to maintain (i) a TLAC buffer equal to 2.50% of RWAs plus“Capital Management – Total Loss Absorbing Capacity” section in our applicable G-SIB capital surcharge calculated under2020 Form 10-K.
method one plus any applicable countercyclical buffer to be added toTable 45 provides our TLAC and eligible unsecured long-term debt and related ratios as of June 30, 2021, and December 31, 2020.
Table 45: TLAC and Eligible Unsecured Long-Term Debt
| | | | | | | | | | | | | | | | | | | | | | | | | | |
($ in millions) | | TLAC (1) | | Regulatory Minimum (2) | | Eligible Unsecured Long-term Debt | | Regulatory Minimum |
| | June 30, 2021 |
Total eligible amount | | $ | 298,496 | | | | 129,411 | | | |
| | | | | | | | |
Percentage of RWAs (3) | | 25.11 | % | | 21.50 | | | 10.89 | | | 8.00 | |
Percentage of total leverage exposure | | 12.98 | | | 9.50 | | | 5.63 | | | 4.50 | |
| | | | | | | | |
| | December 31, 2020 |
Total eligible amount | | $ | 307,226 | | | | 140,703 | | | |
| | | | | | | | |
Percentage of RWAs (3) | | 25.74 | % | | 22.00 | | | 11.79 | | | 8.00 | |
Percentage of total leverage exposure (4) | | 15.64 | | | 9.50 | | | 7.16 | | | 4.50 | |
(1)TLAC ratios are calculated using the 18.00%CECL transition provision issued by federal banking regulators.
(2)Represents the minimum and (ii) an external TLAC leverage buffer equal to 2.00% of total leverage exposure to be added to the 7.50% minimum, in orderrequired to avoid restrictions on capital distributions and discretionary bonus payments. U.S. G-SIBs are also required to have a
(3)Our minimum amount ofTLAC and eligible unsecured long-term debt equal to the greater of (i) 6.00% of RWAs plus our applicable G-SIB capital surchargerequirements are calculated under method two and (ii) 4.50% of the total leverage exposure. Under the Proposed SLR rules, the 2.00% external TLAC leverage buffer would be replaced with a buffer equal to one-half of our applicable G-SIB capital surcharge, and the leverage component for calculating the minimum amount of eligible unsecured long-term debt would be modified from 4.50% of total leverage exposure to 2.50% of total leverage exposure plus one-half of our applicable G-SIB capital surcharge. As of September 30, 2020, our eligible external TLAC as a percentage of total risk-weighted assets was 25.76% compared with a required minimum of 22.00%. Similar to the risk-based capital requirements, our minimum TLAC requirement is assessed based on the greater of RWAs determined under the Standardized and Advanced approaches.Approaches.
(4)Total leverage exposure at December 31, 2020, reflected an interim final rule issued by the FRB that temporarily allowed a bank holding company 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.
OTHER 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 ruleFor information regarding the U.S. implementation of the Basel III LCR and a proposed rule regardingNSFR, see the NSFR.“Risk Management – Asset/ Liability Management – Liquidity Risk and Funding – Liquidity Standards” section in this Report.
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 excessthat is 100 basis points above our regulatory requirement plus an incremental buffer of 10.00%, which includes a 2.00% G-SIB capital surcharge.25 to 50 basis points. 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, changes to the regulatory minimumsrequirements for our capital ratios, (including changes to our stress capital buffer), planned capital actions, changes in our risk profile and other factors.
Under the FRB’sThe FRB capital plan rule largeestablishes capital planning and other requirements that govern capital distributions, including dividends and share repurchases, by certain 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.Wells Fargo. The FRB assesses, among other things, the overall financial condition, risk profile, and capital adequacy of BHCs when evaluating their capital plans.
Our 2020 capital plan, which was submitted on April 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 2020 CCAR, the FRB also generated a supervisory stress test, which assumed a sharp decline in the economy and significant decline in asset pricing using the information provided by the Company to estimate performance. The FRB reviewed the supervisory stress test
Capital Management (continued)
results both as required under the Dodd-Frank Act using a common set of capital actions for all large BHCs and by taking into account the Company’s proposed capital actions. The FRB published its supervisory stress test results as required under the Dodd-Frank Act on JuneOn March 25, 2020.
On June 25, 2020, the FRB also announced that it was requiring large BHCs, including Wells Fargo, to update and resubmit their capital plans within 45 days after the FRB provides updated scenarios. The FRB released the updated scenarios on September 17, 2020, and has announced that it will release BHC-specific results under the updated scenarios by the end of 2020.
On September 30, 2020,2021, the FRB announced that it was extending through fourth quarter 2020 measures it previously announced on June 25, 2020, prohibitinglimiting large BHCs, subject to the FRB's capital plan rule, including Wells Fargo, from making any capital distribution (excluding any capital distribution arising from the issuance of a capital instrument eligible for inclusion in the numerator of a regulatory capital ratio), unless otherwise approved by the FRB. The FRB has generally authorized BHCs to (i) make share repurchases relating to issuances of common stock related to employee stock ownership plans; (ii) provided that the BHC does not increase the amount of its common stock dividends to
be larger than the level paid in second quarter 2020, pay common stock dividends and make share repurchases that, in the aggregate, do not exceed an amount equal to the average of the BHC’s net income for the four preceding calendar quarters, unless otherwise specified byquarters; (ii) make share repurchases that equal the FRB;amount of share issuances related to expensed employee compensation; and (iii) redeem and make scheduled payments on additional tier 1 and tier 2 capital instruments. These provisions may be extended by the FRB quarter-by-quarter.limitations on capital distributions ended on June 30, 2021.
Concurrently with CCAR, federal banking regulators also require large BHCs and banks to conduct their own stress tests to evaluate whether the institution has sufficient capital to continue to operate during periods of adverse economic and financial conditions. These stress testing requirements set forth
In June 2021, the timing and type ofCompany completed the 2021 CCAR stress test activities large BHCs and banks must undertake as well as rules governing stress testing controls, oversight and disclosure requirements. We submittedprocess. On July 27, 2021, the results of our stress testBoard approved an increase to the FRB and disclosed a summaryCompany's third quarter 2021 common stock dividend to $0.20 per share. Additionally, our capital plan includes gross common share repurchases of approximately $18 billion for the results in June 2020.four-quarter period beginning third quarter 2021 through second quarter 2022.
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 under the FRB’s response to our capital plan and to changes in our risk profile.rule. Due to the various factors impactingthat may impact 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 SeptemberAt June 30, 2020, the FRB announced that it was extending through fourth quarter 2020 measures it announced on June 25, 2020, prohibiting large BHCs subject to the FRB’s capital plan rule, including Wells Fargo, from making capital distributions, subject to certain limited exceptions that are described in the “Capital Planning and Stress Testing” section above.
At September 30, 2020,2021, we had remaining Board authority to repurchase approximately 167615 million shares, subject to regulatory and legal conditions. For additional information about share repurchases during thirdsecond quarter 2020,2021, 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.
Since the enactment of the Dodd-Frank Act in 2010, theThe U.S. financial services industry has beenis subject to a significant increase in regulation and regulatory oversight initiatives. This increased regulation and oversight has substantially changedmay continue to impact how most U.S. financial services companies conduct business and hasmay continue to result in 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 20192020 Form 10-K and in our 2020 First and Second Quarter Reports on Form 10-Q.10-K.
REGULATORY DEVELOPMENTS RELATED TO COVID-19“Living Will” Requirements and Related Matters
Rules adopted by the FRB and the FDIC under the Dodd-Frank Act require large financial institutions, including Wells Fargo, to prepare and periodically submit resolution plans, also known as “living wills,” that would facilitate their rapid and orderly resolution in the event of material financial distress or failure. Under the rules, rapid and orderly resolution means a reorganization or liquidation of the covered company under the U.S. Bankruptcy Code that can be accomplished in a reasonable period of time and in a manner that substantially mitigates the risk that failure would have serious adverse effects on the financial stability of the United States. In addition to the Company’s resolution plan, our national bank subsidiary, Wells Fargo Bank, N.A. (the “Bank”), is also required to prepare and periodically submit a resolution plan. If the FRB and/or FDIC determine that our resolution plan has deficiencies, they may impose more stringent capital, leverage or liquidity requirements on us or restrict our growth, activities or operations until we adequately remedy the deficiencies. If the FRB and/or FDIC ultimately determine that we have been unable to remedy any deficiencies, they could require us to divest certain assets or operations. On June 29, 2021, we submitted our most recent resolution plan to the FRB and FDIC.
If Wells Fargo were to fail, it may be resolved in a bankruptcy proceeding or, if certain conditions are met, under the resolution regime created by the Dodd-Frank Act known as the “orderly liquidation authority.” The orderly liquidation authority allows for the appointment of the FDIC as receiver for a systemically
important financial institution that is in default or in danger of default if, among other things, the resolution of the institution under the U.S. Bankruptcy Code would have serious adverse effects on financial stability in the United States. If the FDIC is appointed as receiver for Wells Fargo & Company (the “Parent”), then the orderly liquidation authority, rather than the U.S. Bankruptcy Code, would determine the powers of the receiver and the rights and obligations of our security holders. The FDIC’s orderly liquidation authority requires that security holders of a company in receivership bear all losses before U.S. taxpayers are exposed to any losses, and allows the FDIC to disregard the strict priority of creditor claims under the U.S. Bankruptcy Code in certain circumstances.
The strategy described in our most recent resolution plan is a single point of entry strategy, in which the Parent would likely be the only material legal entity to enter resolution proceedings. However, we are not obligated to maintain a single point of entry strategy, and the strategy described 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. The FDIC has announced that a single point of entry strategy may be a desirable strategy under its implementation of the orderly liquidation authority, but not all aspects of how the FDIC might exercise this authority are known and additional rulemaking is possible.
To facilitate the orderly resolution of systemically important financial institutions in case of material distress or failure, federal banking regulations require that institutions, such as Wells Fargo, maintain a minimum amount of equity and unsecured debt to absorb losses and recapitalize operating subsidiaries. Federal banking regulators have also required measures to facilitate the continued operation of operating subsidiaries notwithstanding the failure of their parent companies, such as limitations on parent guarantees, and have issued guidance encouraging institutions to take legally binding measures to provide capital and liquidity resources to certain subsidiaries to facilitate an orderly resolution. In response to the COVID-19 pandemicregulators’ guidance and related events, federal banking regulators have undertaken a number of measures to help stabilize the banking sector, support the broader economy, and facilitate the ability of banking organizations like Wells Fargo to continue lending to consumers and businesses. For example, in order to facilitate the Coronavirus Aid, Relief orderly resolution of the Company, on June 28, 2017, the Parent entered into a support agreement, as amended
Regulatory Matters (continued)
and Economic Security Act (CARES Act)restated on June 26, 2019 (the “Support Agreement”), federal banking regulators issued rules designedwith WFC Holdings, LLC, an intermediate holding company and subsidiary of the Parent (the “IHC”), the Bank, Wells Fargo Securities, LLC (“WFS”), Wells Fargo Clearing Services, LLC (“WFCS”), and certain other subsidiaries of the Parent designated from time to encouragetime as material entities for resolution planning purposes (the “Covered Entities”) or identified from time to time 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 institutionsdistress or failure, the IHC will be obligated to participate in stimulus measures, such asuse the Small Business Administration’s Paycheck Protection Programtransferred assets to provide capital and/or liquidity to the Bank, WFS, WFCS, and the FRB’s Main Street Lending Program. Similarly,Covered Entities pursuant to the FRB launchedSupport Agreement. Under the Support Agreement, the IHC will also provide funding and liquidity to the Parent through subordinated notes and a numbercommitted line of lending facilities designedcredit, which, together with the issuance of dividends, is expected to enhanceprovide 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 the functioning of markets, including facilities covering money market mutual funds and term asset-backed securities loans. Federal banking regulators also issued several rules amending the regulatory capital and TLAC rulesits ability to satisfy its debts and other prudential regulationsobligations, 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 ease certain restrictions on banking organizations and encourage the use of certain FRB-established facilities in order to further promote lending to consumers and businesses.a related security agreement.
In addition to our resolution plans, 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 anda 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 issued guidelines for banks and BHCs related to working with customers affected byor the COVID-19 pandemic, including guidance with respect to waiving fees, offering repayment accommodations, and providing payment deferrals. Any currentOCC determines that our recovery plan is deficient, they may impose fines, restrictions on our business or future rules, regulations, and guidance related to the COVID-19 pandemic and its impacts couldultimately require us to change certain of our business practices, reduce our revenue and earnings, impose additional costs on us, or otherwise adversely affect our business operations and/or competitive position.divest assets.
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Critical Accounting Policies |
Our significant accounting policies (see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 20192020 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. FiveSix 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 (ACL);losses;
•the valuation of residential MSRs;
•the fair value of financial instruments;
•income taxes; and
•liability for contingent litigation losses.losses; and
•goodwill impairment.
Management has discussed these critical accounting policies and the related estimates and judgments with the Board’s Audit Committee have reviewed and approvedCommittee. For additional information on these critical accounting policies. These policies, are described further insee the “Financial Review – Critical“Critical Accounting Policies” section and Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 20192020 Form 10-K.
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Current Accounting Developments |
The following significant accounting update has been issued by the Financial Accounting Standards Board (FASB) and is applicable to us, but is not yet effective:
•Accounting Standards Update (ASU or Update) 2018-12 – Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts and subsequent related updates
ASU 2018-12 See the “Current Accounting Developments” section in our 2020 Form 10-K for information on the effective date and our assessment of the expected financial statement impact upon adoption.
Other Accounting Developments
The following Updates are applicable to us but are not expected to have a material impact on our consolidated financial statements:
•ASU 2020-06 – Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity
•ASU 2021-05 – Leases (Topic 842): Lessors – Certain Leases with Variable Lease Payments
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Forward-Looking Statements |
This document contains forward-looking statements. In connectionaddition, we may make forward-looking statements in our other documents filed or furnished with the Securities and Exchange Commission, 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, our allowance for credit losses, and the economic scenarios considered to develop the allowance; (iv) our expectations regarding net interest income and net interest margin; (v) loan growth or the reduction or mitigation of risk in our loan portfolios; (vi) future capital or liquidity levels, ratios or targets; (vii) the performance of our mortgage business and any related exposures; (viii) the expected outcome and impact of legal, regulatory and legislative developments, as well as our expectations regarding compliance therewith; (ix) future common stock dividends, common share repurchases and other uses of capital; (x) our targeted range for return on assets, return on equity, and return on tangible common equity; (xi) expectations regarding our effective income tax rate; (xii) the outcome of contingencies, such as legal proceedings; (xiii) environmental, social and governance related goals or commitments; and (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;
•current, pending or future legislation or regulation that could have a negative effect on our revenue and businesses,
including rules and regulations relating to bank products and financial 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 impairments 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 and wealth management businesses;
•negative effects from the retail banking sales practices matter and from other instances where customers may have experienced financial harm, including on our legal, operational and compliance costs, our ability to engage in certain business activities or offer certain products or services, our ability to keep and attract customers, our ability to attract and retain qualified employees, 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
•the other risk factors and uncertainties described under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020.
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 additional 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, 2020, as filed with the Securities and Exchange Commission and available on its website at www.sec.gov.1
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.
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1 We do not control this website. Wells Fargo has provided this link for your convenience, but does not endorse and is not responsible for the content, links, privacy policy, or security policy of this website. |
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 2020 Form 10-K.
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Disclosure Controls and Procedures |
The Company’s management evaluated the effectiveness, as of June 30, 2021, 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, 2021.
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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 second quarter 2021 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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Wells Fargo & Company and Subsidiaries |
Consolidated Statement of Income (Unaudited) |
| Quarter ended June 30, | | Six months ended June 30, |
(in millions, except per share amounts) | 2021 | | 2020 | | 2021 | | 2020 | | |
Interest income | | | | | | | | | |
Debt securities | $ | 2,199 | | | 2,946 | | | $ | 4,511 | | | 6,418 | | | |
Loans held for sale | 193 | | | 237 | | | 524 | | | 446 | | | |
Loans (1) | 7,095 | | | 8,460 | | | 14,296 | | | 18,543 | | | |
Equity securities | 132 | | | 116 | | | 269 | | | 322 | | | |
Other interest income | 74 | | | 54 | | | 139 | | | 829 | | | |
Total interest income | 9,693 | | | 11,813 | | | 19,739 | | | 26,558 | | | |
Interest expense | | | | | | | | | |
Deposits | 92 | | | 585 | | | 204 | | | 2,327 | | | |
Short-term borrowings | (12) | | | (17) | | | (21) | | | 274 | | | |
Long-term debt | 712 | | | 1,237 | | | 1,738 | | | 2,477 | | | |
Other interest expense | 101 | | | 116 | | | 210 | | | 258 | | | |
Total interest expense | 893 | | | 1,921 | | | 2,131 | | | 5,336 | | | |
Net interest income | 8,800 | | | 9,892 | | | 17,608 | | | 21,222 | | | |
Noninterest income | | | | | | | | | |
Deposit and lending-related fees | 1,704 | | | 1,465 | | | 3,320 | | | 3,262 | | | |
Investment advisory and other asset-based fees (2) | 2,794 | | | 2,254 | | | 5,550 | | | 4,760 | | | |
Commissions and brokerage services fees (2) | 580 | | | 550 | | | 1,216 | | | 1,227 | | | |
Investment banking fees | 570 | | | 547 | | | 1,138 | | | 938 | | | |
Card fees | 1,077 | | | 797 | | | 2,026 | | | 1,689 | | | |
Mortgage banking | 1,336 | | | 317 | | | 2,662 | | | 696 | | | |
Net gains on trading and securities | 2,717 | | | 1,552 | | | 3,608 | | | 452 | | | |
Other (1) | 692 | | | 912 | | | 1,674 | | | 2,213 | | | |
Total noninterest income | 11,470 | | | 8,394 | | | 21,194 | | | 15,237 | | | |
Total revenue | 20,270 | | | 18,286 | | | 38,802 | | | 36,459 | | | |
Provision for credit losses | (1,260) | | | 9,534 | | | (2,308) | | | 13,539 | | | |
Noninterest expense | | | | | | | | | |
Personnel | 8,818 | | | 8,916 | | | 18,376 | | | 17,239 | | | |
Technology, telecommunications and equipment | 815 | | | 672 | | | 1,659 | | | 1,470 | | | |
Occupancy | 735 | | | 871 | | | 1,505 | | | 1,586 | | | |
Operating losses | 303 | | | 1,219 | | | 516 | | | 1,683 | | | |
Professional and outside services | 1,450 | | | 1,676 | | | 2,838 | | | 3,282 | | | |
Advertising and promotion | 132 | | | 137 | | | 222 | | | 318 | | | |
Restructuring charges | (4) | | | 0 | | | 9 | | | 0 | | | |
Other | 1,092 | | | 1,060 | | | 2,205 | | | 2,021 | | | |
Total noninterest expense | 13,341 | | | 14,551 | | | 27,330 | | | 27,599 | | | |
Income (loss) before income tax expense | 8,189 | | | (5,799) | | | 13,780 | | | (4,679) | | | |
Income tax expense (benefit) (1) | 1,445 | | | (2,001) | | | 2,346 | | | (1,648) | | | |
Net income (loss) before noncontrolling interests | 6,744 | | | (3,798) | | | 11,434 | | | (3,031) | | | |
Less: Net income (loss) from noncontrolling interests | 704 | | | 48 | | | 758 | | | (101) | | | |
Wells Fargo net income (loss) (1) | $ | 6,040 | | | (3,846) | | | $ | 10,676 | | | (2,930) | | | |
Less: Preferred stock dividends and other | 297 | | | 314 | | | 677 | | | 926 | | | |
Wells Fargo net income (loss) applicable to common stock (1) | $ | 5,743 | | | (4,160) | | | $ | 9,999 | | | (3,856) | | | |
Per share information (1) | | | | | | | | | |
Earnings (loss) per common share | $ | 1.39 | | | (1.01) | | | $ | 2.42 | | | (0.94) | | | |
Diluted earnings (loss) per common share | 1.38 | | | (1.01) | | | 2.40 | | | (0.94) | | | |
Average common shares outstanding | 4,124.6 | | | 4,105.5 | | | 4,132.9 | | | 4,105.2 | | | |
Diluted average common shares outstanding | 4,156.1 | | | 4,105.5 | | | 4,164.6 | | | 4,105.2 | | | |
(1)In second quarter 2021, we elected to change our accounting method for low-income housing tax credit investments and elected to change the presentation of investment tax credits related to solar energy investments. Prior period balances have been revised to conform with the current period presentation. For additional information, see Note 1 (Summary of Significant Accounting Policies).
(2)In first quarter 2021, trust and investment management fees and asset-based brokerage fees were combined into a single line item for investment advisory and other asset-based fees, and brokerage commissions and other brokerage services fees were combined into a single line item for commissions and brokerage services fees. Prior period balances have been revised to conform with the current period presentation.
The accompanying notes are an integral part of these statements.
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Wells Fargo & Company and Subsidiaries |
Consolidated Statement of Comprehensive Income (Unaudited) |
| Quarter ended June 30, | | Six months ended June 30, |
| | | | | |
(in millions) | 2021 | | 2020 | | 2021 | | 2020 | | |
Net income (loss) before noncontrolling interests (1) | $ | 6,744 | | | (3,798) | | | 11,434 | | | (3,031) | | | |
Other comprehensive income (loss), after tax: | | | | | | | | | |
Net change in debt securities | 304 | | | 1,143 | | | (1,221) | | | 915 | | | |
Net change in derivatives and hedging activities | 27 | | | 3 | | | 63 | | | 140 | | | |
Defined benefit plans adjustments | 334 | | | (431) | | | 369 | | | (401) | | | |
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Net change in foreign currency translation adjustments | 22 | | | 51 | | | 33 | | | (142) | | | |
Other comprehensive income (loss), after tax | 687 | | | 766 | | | (756) | | | 512 | | | |
Total comprehensive income (loss) before noncontrolling interests (1) | 7,431 | | | (3,032) | | | 10,678 | | | (2,519) | | | |
Less: Other comprehensive income (loss) from noncontrolling interests | 1 | | | 0 | | | 2 | | | (1) | | | |
Less: Net income (loss) from noncontrolling interests | 704 | | | 48 | | | 758 | | | (101) | | | |
Wells Fargo comprehensive income (loss) (1) | $ | 6,726 | | | (3,080) | | | 9,918 | | | (2,417) | | | |
(1)In second quarter 2021, we elected to change our accounting method for low-income housing tax credit investments and elected to change the presentation of investment tax credits related to solar energy investments. Prior period balances have been revised to conform with the current period presentation. For additional information, see Note 1 (Summary of Significant Accounting Policies).
The accompanying notes are an integral part of these statements.
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Wells Fargo & Company and Subsidiaries |
Consolidated Balance Sheet |
(in millions, except shares) | Jun 30, 2021 | | Dec 31, 2020 |
Assets | (Unaudited) | | |
Cash and due from banks | $ | 25,304 | | | 28,236 | |
Interest-earning deposits with banks | 248,869 | | | 236,376 | |
Total cash, cash equivalents, and restricted cash | 274,173 | | | 264,612 | |
Federal funds sold and securities purchased under resale agreements | 70,149 | | | 65,672 | |
Debt securities: | | | |
Trading, at fair value | 82,727 | | | 75,095 | |
Available-for-sale, at fair value (includes amortized cost of $186,309 and $215,533, net of allowance for credit losses) | 189,897 | | | 220,392 | |
Held-to-maturity, at amortized cost, net of allowance for credit losses (fair value $264,087 and $212,307) | 260,941 | | | 205,720 | |
Loans held for sale (includes $18,894 and $18,806 carried at fair value) | 25,594 | | | 36,384 | |
Loans | 852,300 | | | 887,637 | |
Allowance for loan losses | (15,148) | | | (18,516) | |
Net loans | 837,152 | | | 869,121 | |
Mortgage servicing rights (includes $6,717 and $6,125 carried at fair value) | 8,009 | | | 7,437 | |
Premises and equipment, net | 8,745 | | | 8,895 | |
Goodwill | 26,194 | | | 26,392 | |
Derivative assets | 25,415 | | | 25,846 | |
Equity securities (includes $35,331 and $34,009 carried at fair value) (1) | 64,547 | | | 60,008 | |
Other assets | 72,453 | | | 87,337 | |
Total assets (2) | $ | 1,945,996 | | | 1,952,911 | |
Liabilities | | | |
Noninterest-bearing deposits | $ | 504,108 | | | 467,068 | |
Interest-bearing deposits | 936,364 | | | 937,313 | |
Total deposits | 1,440,472 | | | 1,404,381 | |
Short-term borrowings | 45,635 | | | 58,999 | |
Derivative liabilities | 14,551 | | | 16,509 | |
Accrued expenses and other liabilities (includes $22,043 and $22,441 carried at fair value) (1) | 72,555 | | | 74,360 | |
Long-term debt | 179,656 | | | 212,950 | |
Total liabilities (3) | 1,752,869 | | | 1,767,199 | |
Equity | | | |
Wells Fargo stockholders’ equity: | | | |
Preferred stock | 20,820 | | | 21,136 | |
Common stock – $1-2/3 par value, authorized 9,000,000,000 shares; issued 5,481,811,474 shares | 9,136 | | | 9,136 | |
Additional paid-in capital | 60,018 | | | 60,197 | |
Retained earnings (1) | 171,765 | | | 162,683 | |
Cumulative other comprehensive income (loss) | (564) | | | 194 | |
Treasury stock – 1,373,813,200 shares and 1,337,799,931 shares | (69,038) | | | (67,791) | |
Unearned ESOP shares | (875) | | | (875) | |
Total Wells Fargo stockholders’ equity | 191,262 | | | 184,680 | |
Noncontrolling interests | 1,865 | | | 1,032 | |
Total equity | 193,127 | | | 185,712 | |
Total liabilities and equity | $ | 1,945,996 | | | 1,952,911 | |
(1)In second quarter 2021, we elected to change our accounting method for low-income housing tax credit investments and elected to change the presentation of investment tax credits related to solar energy investments. Prior period balances have been revised to conform with the current period presentation. For additional information, see Note 1 (Summary of Significant Accounting Policies).
(2)Our consolidated assets at June 30, 2021, and December 31, 2020, included the following assets of certain variable interest entities (VIEs) that can only be used to settle the liabilities of those VIEs: Debt securities, $518 million and $967 million; Loans, $4.1 billion and $10.9 billion; All other assets, $334 million and $310 million; and Total assets, $4.9 billion and $12.1 billion, respectively.
(3)Our consolidated liabilities at June 30, 2021, and December 31, 2020, include the following VIE liabilities for which the VIE creditors do not have recourse to Wells Fargo: Long-term debt, $178 million and $203 million; All other liabilities, $587 million and $900 million; and Total liabilities, $765 million and $1.1 billion, respectively.
The accompanying notes are an integral part of these statements.
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Wells Fargo & Company and Subsidiaries | | | | | | | | | | | | | | | | |
Consolidated Statement of Changes in Equity – Quarter ended June 30 (Unaudited) | | | | | | | | | | |
| Wells Fargo stockholders’ equity | | | | | | |
| Preferred stock | | Common stock | | | | | | | | | | | | | | | | |
($ and shares in millions) | Shares | | Amount | | Shares | | Amount | | Additional paid-in capital | | Retained earnings | | Cumulative other comprehensive income (loss) | | Treasury stock | | Unearned ESOP shares | | | | Noncontrolling interests | | Total equity |
Balance March 31, 2021 (1) | 5.6 | | | $ | 21,170 | | | 4,141.1 | | | $ | 9,136 | | | 59,854 | | | 166,458 | | | (1,250) | | | (67,589) | | | (875) | | | | | 1,130 | | | 188,034 | |
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Net income | | | | | | | | | | | 6,040 | | | | | | | | | | | 704 | | | 6,744 | |
Other comprehensive income (loss), net of tax | | | | | | | | | | | | | 686 | | | | | | | | | 1 | | | 687 | |
Noncontrolling interests | | | | | | | | | | | | | | | | | | | | | 30 | | | 30 | |
Common stock issued | | | | | 2.2 | | | | | 0 | | | (20) | | | | | 115 | | | | | | | | | 95 | |
Common stock repurchased | | | | | (35.3) | | | | | | | | | | | (1,565) | | | | | | | | | (1,565) | |
Preferred stock redeemed (2) | 0 | | | (350) | | | | | | | 4 | | | (4) | | | | | | | | | | | | | (350) | |
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Preferred stock released by ESOP | | | | | | | | | 0 | | | | | | | | | 0 | | | | | | | 0 | |
Preferred stock converted to common shares | 0 | | | 0 | | | 0 | | | | | 0 | | | | | | | 0 | | | | | | | | | 0 | |
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Common stock dividends | | | | | | | | | 4 | | | (416) | | | | | | | | | | | | | (412) | |
Preferred stock dividends | | | | | | | | | | | (293) | | | | | | | | | | | | | (293) | |
Stock incentive compensation expense | | | | | | | | | 226 | | | | | | | | | | | | | | | 226 | |
Net change in deferred compensation and related plans | | | | | | | | | (70) | | | | | | | 1 | | | | | | | | | (69) | |
Net change | 0 | | | (350) | | | (33.1) | | | 0 | | | 164 | | | 5,307 | | | 686 | | | (1,449) | | | 0 | | | | | 735 | | | 5,093 | |
Balance June 30, 2021 | 5.6 | | | $ | 20,820 | | | 4,108.0 | | | $ | 9,136 | | | 60,018 | | | 171,765 | | | (564) | | | (69,038) | | | (875) | | | | | 1,865 | | | 193,127 | |
Balance March 31, 2020 (1) | 5.7 | | | $ | 21,347 | | | 4,096.4 | | | $ | 9,136 | | | 59,849 | | | 165,288 | | | (1,564) | | | (70,215) | | | (1,143) | | | | | 612 | | | 183,310 | |
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Net income (loss) (1) | | | | | | | | | | | (3,846) | | | | | | | | | | | 48 | | | (3,798) | |
Other comprehensive income (loss), net of tax | | | | | | | | | | | | | 766 | | | | | | | | | 0 | | | 766 | |
Noncontrolling interests | | | | | | | | | | | | | | | | | | | | | 75 | | | 75 | |
Common stock issued | | | | | 13.5 | | | | | 224 | | | (549) | | | | | 692 | | | | | | | | | 367 | |
Common stock repurchased | | | | | 0 | | | | | | | | | | | (2) | | | | | | | | | (2) | |
Preferred stock redeemed | 0 | | | 0 | | | | | | | 0 | | | 0 | | | | | | | | | | | | | 0 | |
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Preferred stock released by ESOP | | | | | | | | | (19) | | | | | | | | | 268 | | | | | | | 249 | |
Preferred stock converted to common shares | (0.2) | | | (249) | | | 9.7 | | | | | (243) | | | | | | | 492 | | | | | | | | | 0 | |
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| | | | | | | | | | | | | | | | | | | | | | | |
Common stock dividends | | | | | | | | | 20 | | | (2,113) | | | | | | | | | | | | | (2,093) | |
Preferred stock dividends | | | | | | | | | | | (314) | | | | | | | | | | | | | (314) | |
Stock incentive compensation expense | | | | | | | | | 120 | | | | | | | | | | | | | | | 120 | |
Net change in deferred compensation and related plans | | | | | | | | | (28) | | | | | | | (17) | | | | | | | | | (45) | |
Net change (1) | (0.2) | | | (249) | | | 23.2 | | | 0 | | | 74 | | | (6,822) | | | 766 | | | 1,165 | | | 268 | | | | | 123 | | | (4,675) | |
Balance June 30, 2020 (1) | 5.5 | | | $ | 21,098 | | | 4,119.6 | | | $ | 9,136 | | | 59,923 | | | 158,466 | | | (798) | | | (69,050) | | | (875) | | | | | 735 | | | 178,635 | |
(1)In second quarter 2021, we elected to change our accounting method for low-income housing tax credit investments and elected to change the presentation of investment tax credits related to solar energy investments. Prior period balances have been revised to conform with the current period presentation. For additional information, see Note 1 (Summary of Significant Accounting Policies).
(2)Represents the impact of the redemption of the remaining Preferred Stock, Series N, in second quarter 2021. For additional information, see Note 16 (Preferred Stock).
The accompanying notes are an integral part of these statements.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Wells Fargo & Company and Subsidiaries | | | | | | | | | | | | | | | | |
Consolidated Statement of Changes in Equity – Six months ended June 30 (Unaudited) | | | | | | | | | | |
| Wells Fargo stockholders’ equity | | | | | | |
| Preferred stock | | Common stock | | | | | | | | | | | | | | | | |
($ and shares in millions) | Shares | | Amount | | Shares | | Amount | | Additional paid-in capital | | Retained earnings | | Cumulative other comprehensive income (loss) | | Treasury stock | | Unearned ESOP shares | | | | Noncontrolling interests | | Total equity |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Balance December 31, 2020 (1) | 5.5 | | | $ | 21,136 | | | 4,144.0 | | | $ | 9,136 | | | 60,197 | | | 162,683 | | | 194 | | | (67,791) | | | (875) | | | | | 1,032 | | | 185,712 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | | | | | | | | | 10,676 | | | | | | | | | | | 758 | | | 11,434 | |
Other comprehensive income (loss), net of tax | | | | | | | | | | | | | (758) | | | | | | | | | 2 | | | (756) | |
Noncontrolling interests | | | | | | | | | | | | | | | | | | | | | 73 | | | 73 | |
Common stock issued | | | | | 16.5 | | | | | 0 | | | (81) | | | | | 900 | | | | | | | | | 819 | |
Common stock repurchased | | | | | (52.5) | | | | | | | | | | | (2,161) | | | | | | | | | (2,161) | |
Preferred stock redeemed (2) | (0.1) | | | (4,876) | | | | | | | 48 | | | (48) | | | | | | | | | | | | | (4,876) | |
| | | | | | | | | | | | | | | | | | | | | | | |
Preferred stock released by ESOP | | | | | | | | | 0 | | | | | | | | | 0 | | | | | | | 0 | |
Preferred stock converted to common shares | 0 | | | 0 | | | 0 | | | | | 0 | | | | | | | 0 | | | | | | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Preferred stock issued | 0.2 | | | 4,560 | | | | | | | (31) | | | | | | | | | | | | | | | 4,529 | |
Common stock dividends | | | | | | | | | 10 | | | (836) | | | | | | | | | | | | | (826) | |
Preferred stock dividends | | | | | | | | | | | (629) | | | | | | | | | | | | | (629) | |
Stock incentive compensation expense | | | | | | | | | 724 | | | | | | | | | | | | | | | 724 | |
Net change in deferred compensation and related plans | | | | | | | | | (930) | | | | | | | 14 | | | | | | | | | (916) | |
Net change | 0.1 | | | (316) | | | (36.0) | | | 0 | | | (179) | | | 9,082 | | | (758) | | | (1,247) | | | 0 | | | | | 833 | | | 7,415 | |
Balance June 30, 2021 | 5.6 | | | $ | 20,820 | | | 4,108.0 | | | $ | 9,136 | | | 60,018 | | | 171,765 | | | (564) | | | (69,038) | | | (875) | | | | | 1,865 | | | 193,127 | |
Balance December 31, 2019 | 7.5 | | | $ | 21,549 | | | 4,134.4 | | | $ | 9,136 | | | 61,049 | | | 166,697 | | | (1,311) | | | (68,831) | | | (1,143) | | | | | 838 | | | 187,984 | |
Cumulative effect from change in accounting policies (1) | | | | | | | | | | | 708 | | | | | | | | | | | | | 708 | |
Balance January 1, 2020 (1) | 7.5 | | | 21,549 | | | 4,134.4 | | | 9,136 | | | 61,049 | | | 167,405 | | | (1,311) | | | (68,831) | | | (1,143) | | | | | 838 | | | 188,692 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) (1) | | | | | | | | | | | (2,930) | | | | | | | | | | | (101) | | | (3,031) | |
Other comprehensive income (loss), net of tax | | | | | | | | | | | | | 513 | | | | | | | | | (1) | | | 512 | |
Noncontrolling interests | | | | | | | | | | | | | | | | | | | | | (1) | | | (1) | |
Common stock issued | | | | | 50.9 | | | | | 207 | | | (857) | | | | | 2,694 | | | | | | | | | 2,044 | |
Common stock repurchased | | | | | (75.4) | | | | | | | | | | | (3,409) | | | | | | | | | (3,409) | |
Preferred stock redeemed (3) | (1.9) | | | (2,215) | | | | | | | 17 | | | (272) | | | | | | | | | | | | | (2,470) | |
| | | | | | | | | | | | | | | | | | | | | | | |
Preferred stock released by ESOP | | | | | | | | | (19) | | | | | | | | | 268 | | | | | | | 249 | |
Preferred stock converted to common shares | (0.2) | | | (249) | | | 9.7 | | | | | (243) | | | | | | | 492 | | | | | | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Preferred stock issued | 0.1 | | | 2,013 | | | | | | | (45) | | | | | | | | | | | | | | | 1,968 | |
Common stock dividends | | | | | | | | | 38 | | | (4,226) | | | | | | | | | | | | | (4,188) | |
Preferred stock dividends | | | | | | | | | | | (654) | | | | | | | | | | | | | (654) | |
Stock incentive compensation expense | | | | | | | | | 301 | | | | | | | | | | | | | | | 301 | |
Net change in deferred compensation and related plans | | | | | | | | | (1,382) | | | | | | | 4 | | | | | | | | | (1,378) | |
Net change (1) | (2.0) | | | (451) | | | (14.8) | | | 0 | | | (1,126) | | | (8,939) | | | 513 | | | (219) | | | 268 | | | | | (103) | | | (10,057) | |
Balance June 30, 2020 (1) | 5.5 | | | $ | 21,098 | | | 4,119.6 | | | $ | 9,136 | | | 59,923 | | | 158,466 | | | (798) | | | (69,050) | | | (875) | | | | | 735 | | | 178,635 | |
(1)We adopted Accounting Standards Update (ASU) 2016-13 – Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (CECL) effective January 1, 2020. For additional information, see Note 1 (Summary of Significant Accounting Policies) in our Annual Report on Form 10-K for the year ended December 31, 2020. In second quarter 2021, we elected to change our accounting method for low-income housing tax credit investments and elected to change the presentation of investment tax credits related to solar energy investments. Prior period balances have been revised to conform with the current period presentation. For additional information, see Note 1 (Summary of Significant Accounting Policies).
(2)Represents the impact of the redemption of Preferred Stock, Series I, Series P and Series W, in first quarter 2021, and Preferred Stock, Series N, in second quarter 2021. For additional information, see Note 16 (Preferred Stock).
(3)Represents the impact of the redemption of the remaining Preferred Stock, Series K, and partial redemption of Preferred Stock, Series T, in first quarter 2020.
The accompanying notes are an integral part of these statements.
| | | | | | | | | | | | | |
Wells Fargo & Company and Subsidiaries |
Consolidated Statement of Cash Flows (Unaudited) |
| Six months ended June 30, |
(in millions) | 2021 | | 2020 | | |
Cash flows from operating activities: | | | | | |
Net income (loss) before noncontrolling interests (1) | $ | 11,434 | | | (3,031) | | | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Provision for credit losses | (2,308) | | | 13,539 | | | |
Changes in fair value of MSRs and LHFS carried at fair value | (895) | | | 4,481 | | | |
Depreciation, amortization and accretion (1) | 4,173 | | | 3,858 | | | |
Stock-based compensation | 1,475 | | | 953 | | | |
Deferred income tax benefit (1) | (1,495) | | | (118) | | | |
Other net (gains) losses (2) | (7,661) | | | 7,150 | | | |
Originations and purchases of loans held for sale (2) | (87,673) | | | (83,540) | | | |
Proceeds from sales of and paydowns on loans originally classified as held for sale (2) | 55,502 | | | 69,195 | | | |
Net change in: | | | | | |
Debt and equity securities, held for trading | 7,531 | | | 36,459 | | | |
| | | | | |
Derivative assets and liabilities | (1,299) | | | (6,825) | | | |
Other assets | 11,256 | | | (5,910) | | | |
Other accrued expenses and liabilities (1) | (1,572) | | | (2,819) | | | |
Net cash provided (used) by operating activities | (11,532) | | | 33,392 | | | |
Cash flows from investing activities: | | | | | |
Net change in: | | | | | |
Federal funds sold and securities purchased under resale agreements | (4,477) | | | 22,851 | | | |
Available-for-sale debt securities: | | | | | |
Proceeds from sales | 13,675 | | | 29,524 | | | |
Prepayments and maturities | 45,238 | | | 35,340 | | | |
Purchases | (71,997) | | | (28,310) | | | |
Held-to-maturity debt securities: | | | | | |
Paydowns and maturities | 45,833 | | | 11,566 | | | |
Purchases | (43,192) | | | (25,376) | | | |
Equity securities, not held for trading: | | | | | |
Proceeds from sales and capital returns | 2,131 | | | 5,584 | | | |
Purchases | (3,033) | | | (5,587) | | | |
Loans: | | | | | |
Loans originated by banking subsidiaries, net of principal collected | 21,926 | | | 8,871 | | | |
Proceeds from sales of loans originally classified as held for investment | 22,174 | | | 5,325 | | | |
Purchases of loans | (186) | | | (775) | | | |
Principal collected on nonbank entities’ loans | 7,007 | | | 5,505 | | | |
Loans originated by nonbank entities | (5,723) | | | (5,856) | | | |
| | | | | |
Proceeds from sales of foreclosed assets and short sales | 372 | | | 753 | | | |
Other, net | 1,056 | | | (31) | | | |
Net cash provided by investing activities | 30,804 | | | 59,384 | | | |
Cash flows from financing activities: | | | | | |
Net change in: | | | | | |
Deposits | 36,575 | | | 88,085 | | | |
Short-term borrowings | (13,364) | | | (44,027) | | | |
Long-term debt: | | | | | |
Proceeds from issuance | 1,125 | | | 37,664 | | | |
Repayment | (29,810) | | | (44,574) | | | |
Preferred stock: | | | | | |
Proceeds from issuance | 4,529 | | | 1,968 | | | |
Redeemed | (4,875) | | | (2,470) | | | |
Cash dividends paid | (629) | | | (654) | | | |
Common stock: | | | | | |
Proceeds from issuance | 114 | | | 454 | | | |
Stock tendered for payment of withholding taxes | (250) | | | (320) | | | |
Repurchased | (2,161) | | | (3,409) | | | |
Cash dividends paid | (795) | | | (4,055) | | | |
Net change in noncontrolling interests | (13) | | | (31) | | | |
Other, net | (157) | | | (154) | | | |
Net cash provided (used) by financing activities | (9,711) | | | 28,477 | | | |
Net change in cash, cash equivalents, and restricted cash | 9,561 | | | 121,253 | | | |
Cash, cash equivalents, and restricted cash at beginning of period | 264,612 | | | 141,250 | | | |
Cash, cash equivalents, and restricted cash at end of period | $ | 274,173 | | | 262,503 | | | |
Supplemental cash flow disclosures: | | | | | |
Cash paid for interest | $ | 2,345 | | | 5,545 | | | |
Cash paid for income taxes, net (2) | 3,052 | | | 2,070 | | | |
(1)In second quarter 2021, we elected to change our accounting method for low-income housing tax credit investments and elected to change the presentation of investment tax credits related to solar energy investments. Prior period balances have been revised to conform with the current period presentation. For additional information, see Note 1 (Summary of Significant Accounting Policies).
(2)Prior period balances have been revised to conform with the current period presentation.
The accompanying notes are an integral part of these statements. See Note 1 (Summary of Significant Accounting Policies) for noncash activities.
Notes to Financial Statements
-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, investment and mortgage products and services, as well as consumer and commercial finance, through banking locations and offices, the internet and other distribution channels to individuals, businesses and institutions in all 50 states, the District of Columbia, and in countries outside the U.S. 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, 2020 (2020 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 4 (Loans and Related Allowance for Credit Losses));
•valuations of residential mortgage servicing rights (MSRs) (Note 8 (Securitizations and Variable Interest Entities) and Note 9 (Mortgage Banking Activities));
•valuations of financial instruments (Note 15 (Fair Values of Assets and Liabilities));
•liabilities for contingent litigation losses (Note 13 (Legal Actions));
•income taxes; and
•goodwill impairment (Note 10 (Intangible Assets)).
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 adoption2020 Form 10-K.
Change in Accounting Policies
In second quarter 2021, we elected to change our accounting method for low-income housing tax credit (LIHTC) investments from the equity method of accounting to the proportional amortization method. Under the proportional amortization method, the investments are carried at amortized cost and amortized in proportion to the tax credits received. The amortization of the investments and the related tax impacts are recognized in income tax expense. Previously, we recognized the amortization of the investments in other noninterest income and the related tax impacts were recognized in income tax expense. We determined that the proportional amortization method is preferable because it better aligns the financial statement presentation with the economic impact of these investments, which generate tax credits over the lives of the investments. Adoption of the proportional amortization method was applied retrospectively, to the earliest period presented, which resulted in a cumulative-effect adjustment to reduce retained earnings by $283 million as of January 1, 2020.
In second quarter 2021, we also elected to change the presentation of investment tax credits related to solar energy investments, which are accounted for under the deferral method. We reclassified the investment tax credits on our consolidated balance sheet from accrued expenses and other liabilities to a reduction of the carrying value of the investment balances. We also reclassified the investment tax credits, which are recognized over time, from income tax expense to interest income for solar energy leases or noninterest income for solar energy equity investments. We determined that this presentation is preferable because it better reflects the financial statement presentation of the investment tax credits as an integral component of the investments. The change in accounting policy was adopted retrospectively to January 1, 2020.
Table 1.1 presents the impact of the accounting policy changes for LIHTC investments and solar energy investments to our consolidated statement of income and consolidated balance sheet. There was no material impact to the consolidated statement of cash flows.
Table 1.1: CECLImpact of the Accounting Policy Changes for LIHTC Investments and Solar Energy Investments
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended June 30, 2020 | | Six months ended June 30, 2020 |
| | | Effect of accounting policy changes ($) | | | | | | Effect of accounting policy changes ($) | | |
($ in millions, except per share amounts) | As reported | | LIHTC | Solar | | As revised | | As reported | | LIHTC | Solar | | As revised |
Selected Income Statement Data | | | | | | | | | | | | | |
Interest income – loans | $ | 8,448 | | | 0 | | 12 | | | 8,460 | | | 18,513 | | | 0 | | 30 | | | 18,543 | |
Noninterest income | 7,956 | | | 370 | | 68 | | | 8,394 | | | 14,361 | | | 739 | | 137 | | | 15,237 | |
Income tax expense (benefit) (1) | (3,917) | | | 1,434 | | 482 | | | (2,001) | | | (3,758) | | | 1,584 | | 526 | | | (1,648) | |
Net income (loss) | (2,379) | | | (1,064) | | (403) | | | (3,846) | | | (1,726) | | | (845) | | (359) | | | (2,930) | |
Earnings (loss) per common share | (0.66) | | | (0.26) | | (0.09) | | | (1.01) | | | (0.65) | | | (0.21) | | (0.08) | | | (0.94) | |
Diluted earnings (loss) per common share | (0.66) | | | (0.26) | | (0.09) | | | (1.01) | | | (0.65) | | | (0.21) | | (0.08) | | | (0.94) | |
| | | | | | | | | | | | | |
| | | | | | | | At December 31, 2020 |
| | | | | | | | | | Effect of accounting policy changes ($) | | |
| | | | | | | | As reported | | LIHTC | Solar | | As revised |
Selected Balance Sheet Data | | | | | | | | | | | | | |
Equity securities | | | | | | | | $ | 62,260 | | | (275) | | (1,977) | | | 60,008 | |
Accrued expenses and other liabilities | | | | | | | | 76,404 | | | (62) | | (1,982) | | | 74,360 | |
Retained earnings | | | | | | | | 162,890 | | | (207) | | 0 | | | 162,683 | |
(1)The quarterly income tax expense (benefit) varies based on January 1, 2020,the income (loss) before income tax expense (benefit) and the estimated annual effective income tax rate applied to each quarter.
Accounting Standards Adopted in 2021
In 2021, we adopted the following new accounting guidance:
•Accounting Standards Update (ASU or Update) 2021-01 – Reference Rate Reform (Topic 848): Scope
•ASU 2020-08 – Codification Improvements to Subtopic 310-20, Receivables – Nonrefundable Fees and Other Costs
•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 Financial Accounting Standards Board (FASB) Emerging Issues Task Force)
•ASU 2019-12 – Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
ASU 2021-01 clarifies the scope of Topic 848 to include derivatives affected by changes in interest rates for margining, discounting, or contract price alignment as part of the market-wide transition to new reference rates (commonly referred to as the “discounting transition”), even if they do not reference the London Interbank Offered Rate or another rate that is expected to be discontinued as a result of reference rate reform. The Update also clarifies other aspects of the relief provided in Accounting Standards Codification (ASC) 848. We adopted this Update in first quarter 2021 on a prospective basis, and the guidance will be followed until the Update terminates on December 31, 2022. The Update did not have a material impact on our consolidated financial statements.
ASU 2020-08 clarifies the accounting for purchased callable debt securities carried at a premium and was issued to correct an unintended application of ASU 2017-08 – Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities,which requires amortization of such premiums to the earliest call date, but was not clear for the method to be used for instruments with multiple call dates. The Update now specifies that such premiums are amortized to the next call date and requires reassessment throughout the life of the instruments with multiple call dates. We adopted this Update in first quarter
2021. The Update did not have a material impact on our consolidated financial statements.
ASU 2020-01 clarifies the accounting for equity securities upon transition between the measurement alternative and equity method. The Update also clarifies for forward contracts and options to purchase equity securities an entity need not consider whether upon settlement of the forward contract or option if the equity securities would be accounted for by the equity method or the fair value option. We adopted this Update in first quarter 2021. The Update did not have a material impact on our consolidated financial statements.
ASU 2019-12 provides narrow scope simplifications and improvements to the general principles in ASC Topic 740 – Income Taxes related to intraperiod tax allocation, basis differences when there are changes in ownership of foreign investments and interim periods income tax accounting for year to date losses that exceed anticipated annual losses. We adopted this Update in first quarter 2021. The Update did not have a material impact on our consolidated financial statements.
Note 1: Summary of Significant Accounting Policies (continued)
Supplemental Cash Flow Information
Significant noncash activities are presented in Table 1.2.
Table 1.2:Supplemental Cash Flow Information
| | | | | | | | | | | | | |
| Six months ended June 30, |
(in millions) | 2021 | | 2020 | | |
| | | | | |
Held-to-maturity debt securities purchased from securitization of LHFS (1) | 16,462 | | | 664 | | | |
Transfers from loans to LHFS (2) | 11,551 | | | 12,753 | | | |
Transfers from available-for-sale debt securities to held-to-maturity debt securities | 41,298 | | | 0 | | | |
| | | | | |
(1)For the six months ended June 30, 2021,predominantly represents agency mortgage-backed securities purchased upon settlement of the sale and securitization of our conforming residential mortgage loans. See Note 8 (Securitizations and Variable Interest Entities) for additional information.
(2)Prior periods have been revised to conform to the current period presentation.
Subsequent Events
We have evaluated the effects of events that have occurred subsequent to June 30, 2021, and, except as disclosed in Note 16 (Preferred Stock), there have been no material events that would require recognition in our second quarter 2021 consolidated financial statements or disclosure in the Notes to the consolidated financial statements.
| | |
Note 2: Trading Activities |
Table 2.1 presents a summary of our trading assets and liabilities measured at fair value through earnings.
Table 2.1:Trading Assets and Liabilities
| | | | | | | | | | | |
(in millions) | Jun 30, 2021 | | Dec 31, 2020 |
Trading assets: | | | |
Debt securities | $ | 82,727 | | | 75,095 | |
Equity securities | 23,701 | | | 23,032 | |
Loans held for sale | 2,269 | | | 1,015 | |
Gross trading derivative assets | 54,965 | | | 58,767 | |
Netting (1) | (31,052) | | | (34,301) | |
Total trading derivative assets | 23,913 | | | 24,466 | |
Total trading assets | 132,610 | | | 123,608 | |
Trading liabilities: | | | |
Short sale | 22,043 | | | 22,441 | |
Gross trading derivative liabilities | 45,441 | | | 53,285 | |
Netting (1) | (33,614) | | | (39,444) | |
Total trading derivative liabilities | 11,827 | | | 13,841 | |
Total trading liabilities | $ | 33,870 | | | 36,282 | |
(1)Represents balance sheet netting for trading derivative asset and liability balances, and trading portfolio level counterparty valuation adjustments.
Table 2.2 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 updatedsold, but not yet purchased.
Table 2.2: Net Interest Income and Net Gains (Losses) on Trading Activities
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended June 30, | | Six months ended June 30, | | |
(in millions) | 2021 | | 2020 | | 2021 | | 2020 | | |
Interest income: | | | | | | | | | |
Debt securities | $ | 496 | | | $ | 659 | | | $ | 1,025 | | | 1,425 | | | |
Equity securities | 93 | | | 68 | | | 196 | | | 205 | | | |
Loans held for sale | 3 | | | 6 | | | 15 | | | 18 | | | |
Total interest income | 592 | | | 733 | | | 1,236 | | | 1,648 | | | |
Less: Interest expense | 105 | | | 116 | | | 215 | | | 257 | | | |
Net interest income | 487 | | | 617 | | | 1,021 | | | 1,391 | | | |
Net gains (losses) from trading activities (1): | | | | | | | | | |
Debt securities | 769 | | | 329 | | | (1,337) | | | 2,684 | | | |
Equity securities | 856 | | | 2,329 | | | 2,009 | | | (2,072) | | | |
Loans held for sale | 15 | | | 24 | | | 39 | | | 12 | | | |
Derivatives (2) | (1,619) | | | (1,875) | | | (342) | | | 247 | | | |
Total net gains from trading activities | 21 | | | 807 | | | 369 | | | 871 | | | |
Total trading-related net interest and noninterest income | $ | 508 | | | $ | 1,424 | | | $ | 1,390 | | | 2,262 | | | |
(1)Represents realized gains (losses) from our critical accounting policytrading 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 3: Available-for-Sale and Held-to-Maturity Debt Securities |
Table 3.1 provides the amortized cost, net of the allowance for credit losses.losses (ACL) for debt securities, and fair value by major categories of available-for-sale (AFS) debt securities, which are carried at fair value, and held-to-maturity (HTM) debt securities, which are carried at amortized cost, net of the ACL. The net unrealized gains (losses) for AFS debt securities are reported as a component of cumulative other comprehensive income (OCI), net of the ACL and applicable income taxes. Information on debt securities held for trading is included in Note 2 (Trading Activities).
Outstanding balances exclude accrued interest receivable on AFS and HTM debt securities, which are included in other assets. See Note 7 (Other Assets) for additional information on accrued interest receivable. Amounts considered to be uncollectible are reversed through interest income. The interest income reversed in the second quarter and first half of both 2021 and 2020 was insignificant.
Table 3.1:Available-for-Sale and Held-to-Maturity Debt Securities Outstanding
| | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Amortized cost, net (1) | | Gross unrealized gains | | Gross unrealized losses | | Fair value |
June 30, 2021 | | | | | | | |
Available-for-sale debt securities: | | | | | | | |
Securities of U.S. Treasury and federal agencies | $ | 35,741 | | | 195 | | | (31) | | | 35,905 | |
Non-U.S. government securities | 11,201 | | | 0 | | | 0 | | | 11,201 | |
Securities of U.S. states and political subdivisions (2) | 19,121 | | | 410 | | | (32) | | | 19,499 | |
Federal agency mortgage-backed securities | 94,186 | | | 2,679 | | | (331) | | | 96,534 | |
Non-agency mortgage-backed securities (3) | 4,349 | | | 51 | | | (22) | | | 4,378 | |
Collateralized loan obligations | 12,406 | | | 8 | | | (7) | | | 12,407 | |
Other debt securities | 9,305 | | | 699 | | | (31) | | | 9,973 | |
Total available-for-sale debt securities | 186,309 | | | 4,042 | | | (454) | | | 189,897 | |
Held-to-maturity debt securities: | | | | | | | |
Securities of U.S. Treasury and federal agencies | 27,576 | | | 862 | | | (409) | | | 28,029 | |
Securities of U.S. states and political subdivisions | 28,243 | | | 931 | | | (36) | | | 29,138 | |
Federal agency mortgage-backed securities | 182,891 | | | 2,908 | | | (1,349) | | | 184,450 | |
Non-agency mortgage-backed securities | 948 | | | 46 | | | (11) | | | 983 | |
Collateralized loan obligations | 21,283 | | | 205 | | | (1) | | | 21,487 | |
| | | | | | | |
Total held-to-maturity debt securities | 260,941 | | | 4,952 | | | (1,806) | | | 264,087 | |
Total (4) | $ | 447,250 | | | 8,994 | | | (2,260) | | | 453,984 | |
December 31, 2020 | | | | | | | |
Available-for-sale debt securities: | | | | | | | |
Securities of U.S. Treasury and federal agencies | $ | 21,954 | | | 205 | | | 0 | | | 22,159 | |
Non-U.S. government securities | 16,816 | | | 0 | | | (3) | | | 16,813 | |
Securities of U.S. states and political subdivisions (2) | 19,263 | | | 224 | | | (81) | | | 19,406 | |
Federal agency mortgage-backed securities | 134,838 | | | 4,260 | | | (28) | | | 139,070 | |
Non-agency mortgage-backed securities (3) | 3,745 | | | 30 | | | (46) | | | 3,729 | |
Collateralized loan obligations | 9,058 | | | 4 | | | (44) | | | 9,018 | |
Other debt securities | 9,859 | | | 399 | | | (61) | | | 10,197 | |
Total available-for-sale debt securities | 215,533 | | | 5,122 | | | (263) | | | 220,392 | |
Held-to-maturity debt securities: | | | | | | | |
Securities of U.S. Treasury and federal agencies | 47,295 | | | 1,472 | | | (170) | | | 48,597 | |
Securities of U.S. states and political subdivisions | 25,860 | | | 938 | | | (5) | | | 26,793 | |
Federal agency mortgage-backed securities | 115,437 | | | 4,182 | | | (21) | | | 119,598 | |
Non-agency mortgage-backed securities | 890 | | | 51 | | | (8) | | | 933 | |
Collateralized loan obligations | 16,238 | | | 148 | | | 0 | | | 16,386 | |
| | | | | | | |
Total held-to-maturity debt securities | 205,720 | | | 6,791 | | | (204) | | | 212,307 | |
Total (4) | $ | 421,253 | | | 11,913 | | | (467) | | | 432,699 | |
(1)Represents amortized cost of the securities, net of the ACL of $33 million and $28 million related to AFS debt securities and $77 million and $41 million related to HTM debt securities at June 30, 2021, and December 31, 2020, respectively.
(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, net of the ACL and fair value of these types of securities, was $5.2 billion at June 30, 2021, and $5.0 billion at December 31, 2020.
(3)Predominantly consists of commercial mortgage-backed securities at both June 30, 2021, and December 31, 2020.
(4)We held AFS and HTM 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 $119.8 billion and $89.9 billion and a fair value of $121.5 billion and $91.3 billion at June 30, 2021, and an amortized cost of $99.8 billion and $88.7 billion and a fair value of $103.2 billion and $91.5 billion at December 31, 2020, respectively.
Table 3.2 details the breakout of purchases of and transfers to HTM debt securities by major category of security.
Table 3.2:Held-to-Maturity Debt Securities Purchases and Transfers
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended June 30, | | Six months ended June 30, |
(in millions) | 2021 | | 2020 | | 2021 | | 2020 | | |
Purchases of held-to-maturity debt securities (1): | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | $ | 0 | | | 0 | | | $ | 0 | | | 3,016 | | | |
Securities of U.S. states and political subdivisions | 1,173 | | | 15 | | | 3,083 | | | 881 | | | |
Federal agency mortgage-backed securities | 24,855 | | | 6,958 | | | 49,722 | | | 22,821 | | | |
Non-agency mortgage-backed securities | 55 | | | 12 | | | 84 | | | 74 | | | |
Collateralized loan obligations | 3,385 | | | 0 | | | 7,338 | | | 0 | | | |
Total purchases of held-to-maturity debt securities | 29,468 | | | 6,985 | | | 60,227 | | | 26,792 | | | |
Transfers from available-for-sale debt securities to held-to-maturity debt securities: | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Federal agency mortgage-backed securities | 24,681 | | | 0 | | | 41,298 | | | 0 | | | |
| | | | | | | | | |
| | | | | | | | | |
Total transfers from available-for-sale debt securities to held-to-maturity debt securities | $ | 24,681 | | | 0 | | | $ | 41,298 | | | 0 | | | |
(1)Inclusive of securities purchased but not yet settled and noncash purchases from securitization of loans held for sale (LHFS).
Table 3.3 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 AFS and HTM debt securities (pre-tax).
Table 3.3:Income Statement Impacts for Available-for-Sale and Held-to-Maturity Debt Securities
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended June 30, | | Six months ended June 30, |
(in millions) | 2021 | | 2020 | | 2021 | | 2020 | | |
Interest income (1): | | | | | | | | | |
Available-for-sale | $ | 655 | | | 1,349 | | | $ | 1,466 | | | 3,075 | | | |
Held-to-maturity | 1,048 | | | 938 | | | 2,020 | | | 1,918 | | | |
Total interest income | 1,703 | | | 2,287 | | | 3,486 | | | 4,993 | | | |
Provision for credit losses: | | | | | | | | | |
Available-for-sale | (10) | | | (40) | | | 12 | | | 128 | | | |
Held-to-maturity | (11) | | | 9 | | | 36 | | | 13 | | | |
Total provision for credit losses | (21) | | | (31) | | | 48 | | | 141 | | | |
Realized gains and losses (2): | | | | | | | | | |
Gross realized gains | 1 | | | 248 | | | 152 | | | 504 | | | |
Gross realized losses | (1) | | | (36) | | | (1) | | | (40) | | | |
| | | | | | | | | |
| | | | | | | | | |
Impairment write-downs | 0 | | | 0 | | | 0 | | | (15) | | | |
Net realized gains | $ | 0 | | | $ | 212 | | | $ | 151 | | | 449 | | | |
(1)Excludes interest income from trading debt securities, which is disclosed in Note 2 (Trading Activities).
(2)Realized gains and losses relate to AFS debt securities. There were 0 realized gains or losses from HTM debt securities in all periods presented.
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 ACL for debt securities. 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 (NRSROs). Debt securities rated investment grade, that is those with ratings similar to BBB-/Baa3 or above, as defined by NRSROs, 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 NRSROs, 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. Substantially all of our debt securities were rated by NRSROs at June 30, 2021, and December 31, 2020.
Table 3.4 shows the percentage of fair value of AFS debt securities and amortized cost of HTM debt securities determined to be rated investment grade, inclusive of securities rated based on internal credit grades.
Note 3: Available-for-Sale and Held-to-Maturity Debt Securities (continued)
Table 3.4:Investment Grade Debt Securities
| | | | | | | | | | | | | | | | | |
| Available-for-Sale | | Held-to-Maturity |
($ in millions) | Fair value | % investment grade | | Amortized cost | % investment grade |
June 30, 2021 | | | | | |
Total portfolio (1) | $ | 189,897 | | 99 | % | | 261,018 | | 99 | % |
Breakdown by category: | | | | | |
Securities of U.S. Treasury and federal agencies (2) | $ | 132,439 | | 100 | % | | 210,467 | | 100 | % |
Securities of U.S. states and political subdivisions | 19,499 | | 99 | | | 28,258 | | 100 | |
Collateralized loan obligations (3) | 12,407 | | 100 | | | 21,329 | | 100 | |
All other debt securities (4) | 25,552 | | 91 | | | 964 | | 4 | |
December 31, 2020 | | | | | |
Total portfolio (1) | $ | 220,392 | | 99 | % | | 205,761 | | 99 | % |
Breakdown by category: | | | | | |
Securities of U.S. Treasury and federal agencies (2) | $ | 161,229 | | 100 | % | | 162,732 | | 100 | % |
Securities of U.S. states and political subdivisions | 19,406 | | 99 | | | 25,870 | | 100 | |
Collateralized loan obligations (3) | 9,018 | | 100 | | | 16,255 | | 100 | |
All other debt securities (4) | 30,739 | | 93 | | | 904 | | 6 | |
(1)94% and 92% were rated AA- and above at June 30, 2021, and December 31, 2020, respectively.
(2)Includes federal agency mortgage-backed securities.
(3)99% and 98% were rated AA- and above at June 30, 2021, and December 31, 2020, respectively.
(4)Includes non-U.S. government, non-agency mortgage-backed, and all other debt securities.
DELINQUENCY STATUS AND NONACCRUAL DEBT SECURITIESDebt 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.
Debt securities that are past due and still accruing were insignificant at both June 30, 2021, and December 31, 2020. The carrying value of debt securities in nonaccrual status was insignificant at both June 30, 2021, and December 31, 2020. Charge-offs on debt securities were insignificant in the second quarter and first half of both 2021 and 2020.
Purchased debt securities with credit deterioration (PCD) are not considered to be in nonaccrual status, as payments from issuers of these securities remain current. PCD securities were insignificant in the second quarter and first half of both 2021 and 2020.
Unrealized Losses of Available-for-Sale Debt Securities
Table 3.5 shows the gross unrealized losses and fair value of AFS 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 recorded credit impairment are
categorized as being “less than 12 months” or “12 months or more” in a continuous loss position based on the point in time that the fair value declined to below the amortized cost basis, net of allowance for credit losses.
Table 3.5:Gross Unrealized Losses and Fair Value – Available-for-Sale Debt Securities
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Less than 12 months | | 12 months or more | | Total |
(in millions) | Gross unrealized losses | | Fair value | | Gross unrealized losses | | Fair value | | Gross unrealized losses | | Fair value |
June 30, 2021 | | | | | | | | | | | |
Available-for-sale debt securities: | | | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | $ | (31) | | | 11,924 | | | 0 | | | 0 | | | (31) | | | 11,924 | |
Non-U.S. government securities | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Securities of U.S. states and political subdivisions | (21) | | | 1,413 | | | (11) | | | 717 | | | (32) | | | 2,130 | |
Federal agency mortgage-backed securities | (285) | | | 18,152 | | | (46) | | | 2,924 | | | (331) | | | 21,076 | |
Non-agency mortgage-backed securities | (3) | | | 330 | | | (19) | | | 771 | | | (22) | | | 1,101 | |
Collateralized loan obligations | (2) | | | 1,312 | | | (5) | | | 1,698 | | | (7) | | | 3,010 | |
Other debt securities | (15) | | | 1,196 | | | (16) | | | 807 | | | (31) | | | 2,003 | |
Total available-for-sale debt securities | $ | (357) | | | 34,327 | | | (97) | | | 6,917 | | | (454) | | | 41,244 | |
December 31, 2020 | | | | | | | | | | | |
Available-for-sale debt securities: | | | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | $ | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Non-U.S. government securities | (3) | | | 16,812 | | | 0 | | | 0 | | | (3) | | | 16,812 | |
Securities of U.S. states and political subdivisions | (51) | | | 3,681 | | | (30) | | | 1,101 | | | (81) | | | 4,782 | |
Federal agency mortgage-backed securities | (27) | | | 11,310 | | | (1) | | | 316 | | | (28) | | | 11,626 | |
Non-agency mortgage-backed securities | (28) | | | 1,366 | | | (18) | | | 534 | | | (46) | | | 1,900 | |
Collateralized loan obligations | (27) | | | 5,082 | | | (17) | | | 1,798 | | | (44) | | | 6,880 | |
Other debt securities | (16) | | | 647 | | | (45) | | | 1,604 | | | (61) | | | 2,251 | |
Total available-for-sale debt securities | $ | (152) | | | 38,898 | | | (111) | | | 5,353 | | | (263) | | | 44,251 | |
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. Credit impairment is recorded as an ACL for debt securities.
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) in our 2020 Form 10-K.
Note 3: Available-for-Sale and Held-to-Maturity Debt Securities (continued)
Contractual Maturities
Table 3.6 and Table 3.7 show the remaining contractual maturities, amortized cost, net of the ACL, fair value and weighted average effective yields of AFS and HTM debt securities, respectively. The remaining contractual principal
maturities for mortgage-backed securities (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 3.6:Contractual Maturities – Available-for-Sale Debt Securities
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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 |
June 30, 2021 | | | | | | | | | |
Available-for-sale debt securities (1): | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | | | | | | | | | |
Amortized cost, net | $ | 35,741 | | | 5 | | | 17,965 | | | 15,777 | | | 1,994 | |
Fair value | 35,905 | | | 5 | | | 17,978 | | | 15,837 | | | 2,085 | |
Weighted average yield | 0.75 | % | | 2.00 | | | 0.33 | | | 1.13 | | | 1.44 | |
Non-U.S. government securities | | | | | | | | | |
Amortized cost, net | $ | 11,201 | | | 11,176 | | | 25 | | | 0 | | | 0 | |
Fair value | 11,201 | | | 11,176 | | | 25 | | | 0 | | | 0 | |
Weighted average yield | (0.11 | %) | | (0.11) | | | 0.42 | | | 0 | | | 0 | |
Securities of U.S. states and political subdivisions | | | | | | | | | |
Amortized cost, net | $ | 19,121 | | | 1,546 | | | 2,225 | | | 5,244 | | | 10,106 | |
Fair value | 19,499 | | | 1,549 | | | 2,270 | | | 5,253 | | | 10,427 | |
Weighted average yield | 2.07 | % | | 1.46 | | | 1.58 | | | 1.41 | | | 2.62 | |
Federal agency mortgage-backed securities | | | | | | | | | |
Amortized cost, net | $ | 94,186 | | | 8 | | | 171 | | | 3,359 | | | 90,648 | |
Fair value | 96,534 | | | 8 | | | 181 | | | 3,484 | | | 92,861 | |
Weighted average yield | 2.72 | % | | 2.35 | | | 3.30 | | | 2.30 | | | 2.74 | |
Non-agency mortgage-backed securities | | | | | | | | | |
Amortized cost, net | $ | 4,349 | | | 0 | | | 0 | | | 151 | | | 4,198 | |
Fair value | 4,378 | | | 0 | | | 0 | | | 150 | | | 4,228 | |
Weighted average yield | 2.00 | % | | 0 | | | 0 | | | 2.27 | | | 1.99 | |
Collateralized loan obligations | | | | | | | | | |
Amortized cost, net | $ | 12,406 | | | 0 | | | 90 | | | 7,306 | | | 5,010 | |
Fair value | 12,407 | | | 0 | | | 90 | | | 7,304 | | | 5,013 | |
Weighted average yield | 1.42 | % | | 0 | | | 2.21 | | | 1.44 | | | 1.39 | |
Other debt securities | | | | | | | | | |
Amortized cost, net | $ | 9,305 | | | 160 | | | 2,791 | | | 2,865 | | | 3,489 | |
Fair value | 9,973 | | | 160 | | | 3,152 | | | 2,910 | | | 3,751 | |
Weighted average yield | 3.17 | % | | 2.97 | | | 4.23 | | | 3.31 | | | 2.22 | |
Total available-for-sale debt securities | | | | | | | | | |
Amortized cost, net | $ | 186,309 | | | 12,895 | | | 23,267 | | | 34,702 | | | 115,445 | |
Fair value | $ | 189,897 | | | 12,898 | | | 23,696 | | | 34,938 | | | 118,365 | |
Weighted average yield | 2.03 | % | | 0.22 | | | 0.95 | | | 1.54 | | | 2.60 | |
(1)Weighted average yields displayed by maturity bucket are weighted based on amortized cost without effect for any related hedging derivatives and are shown pre-tax.
Table 3.7: Contractual Maturities – Held-to-Maturity Debt Securities
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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 |
June 30, 2021 | | | | | | | | | |
Held-to-maturity debt securities (1): | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | | | | | | | | | |
Amortized cost, net | $ | 27,576 | | | 11,386 | | | 12,407 | | | 0 | | | 3,783 | |
Fair value | 28,029 | | | 11,461 | | | 13,140 | | | 0 | | | 3,428 | |
Weighted average yield | 2.10 | % | | 1.98 | | | 2.37 | | | 0 | | | 1.57 | |
Securities of U.S. states and political subdivisions | | | | | | | | | |
Amortized cost, net | $ | 28,243 | | | 673 | | | 2,177 | | | 2,066 | | | 23,327 | |
Fair value | 29,138 | | | 680 | | | 2,246 | | | 2,150 | | | 24,062 | |
Weighted average yield | 2.19 | % | | 2.09 | | | 1.90 | | | 2.65 | | | 2.18 | |
Federal agency mortgage-backed securities | | | | | | | | | |
Amortized cost, net | $ | 182,891 | | | 0 | | | 0 | | | 0 | | | 182,891 | |
Fair value | 184,450 | | | 0 | | | 0 | | | 0 | | | 184,450 | |
Weighted average yield | 2.20 | % | | 0 | | | 0 | | | 0 | | | 2.20 | |
Non-agency mortgage-backed securities | | | | | | | | | |
Amortized cost, net | $ | 948 | | | 0 | | | 15 | | | 0 | | | 933 | |
Fair value | 983 | | | 0 | | | 15 | | | 0 | | | 968 | |
Weighted average yield | 3.09 | % | | 0 | | | 1.56 | | | 0 | | | 3.12 | |
Collateralized loan obligations | | | | | | | | | |
Amortized cost, net | $ | 21,283 | | | 0 | | | 0 | | | 8,155 | | | 13,128 | |
Fair value | 21,487 | | | 0 | | | 0 | | | 8,248 | | | 13,239 | |
Weighted average yield | 1.68 | % | | 0 | | | 0 | | | 1.73 | | | 1.65 | |
Total held-to-maturity debt securities | | | | | | | | | |
Amortized cost, net | $ | 260,941 | | | 12,059 | | | 14,599 | | | 10,221 | | | 224,062 | |
Fair value | 264,087 | | | 12,141 | | | 15,401 | | | 10,398 | | | 226,147 | |
Weighted average yield | 2.15 | % | | 1.98 | | | 2.30 | | | 1.91 | | | 2.16 | |
(1)Weighted average yields displayed by maturity bucket are weighted based on amortized cost and are shown pre-tax.
| | |
Note 4: Loans and Related Allowance for Credit Losses |
Table 4.1 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, 2021, and December 31, 2020.
Outstanding balances exclude accrued interest receivable on loans, except for certain revolving loans, such as credit card loans.
See Note 7 (Other Assets) for additional information on accrued interest receivable. Amounts considered to be uncollectible are reversed through interest income. During the first half of 2021, we reversed accrued interest receivable of $24 million for our commercial portfolio segment and $104 million for our consumer portfolio segment, compared with $21 million and $114 million, respectively, for the same period a year ago.
Table 4.1:Loans Outstanding
| | | | | | | | | | | | | | | | | |
(in millions) | Jun 30, 2021 | | Dec 31, 2020 | | | | | | |
| | | | | | | | | |
| |
| | | | | | | | | |
Commercial: | | | | | | | | | |
Commercial and industrial | $ | 317,618 | | | 318,805 | | | | | | | |
Real estate mortgage | 120,678 | | | 121,720 | | | | | | | |
Real estate construction | 22,406 | | | 21,805 | | | | | | | |
Lease financing | 15,720 | | | 16,087 | | | | | | | |
Total commercial | 476,422 | | | 478,417 | | | | | | | |
Consumer: | | | | | | | | | |
Residential mortgage – first lien | 244,371 | | | 276,674 | | | | | | | |
Residential mortgage – junior lien | 19,637 | | | 23,286 | | | | | | | |
Credit card | 34,936 | | | 36,664 | | | | | | | |
Auto | 51,073 | | | 48,187 | | | | | | | |
Other consumer | 25,861 | | | 24,409 | | | | | | | |
Total consumer | 375,878 | | | 409,220 | | | | | | | |
Total loans | $ | 852,300 | | | 887,637 | | | | | | | |
Our non-U.S. loans are reported by respective class of financing receivable in the table above. Substantially all of our non-U.S. loan portfolio is commercial loans. Table 4.2 presents total non-U.S. commercial loans outstanding by class of financing receivable.
Table 4.2:Non-U.S. Commercial Loans Outstanding
| | | | | | | | | | | | | | | | | |
(in millions) | Jun 30, 2021 | | Dec 31, 2020 | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| |
| | | | | | | | | |
Non-U.S. commercial loans: | | | | | | | | | |
Commercial and industrial | $ | 71,409 | | | 63,128 | | | | | | | |
Real estate mortgage | 6,619 | | | 7,278 | | | | | | | |
Real estate construction | 1,820 | | | 1,603 | | | | | | | |
Lease financing | 672 | | | 629 | | | | | | | |
Total non-U.S. commercial loans | $ | 80,520 | | | 72,638 | | | | | | | |
Loan Purchases, Sales, and Transfers
Table 4.3 presents the proceeds paid or received for purchases and sales of loans and transfers from loans held for investment to mortgages/loans held for sale. The table excludes loans for
which we have elected the fair value option and government insured/guaranteed residential mortgage – first lien loans because their loan activity normally does not impact the ACL.
Table 4.3:Loan Purchases, Sales, and Transfers
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| 2021 | | 2020 |
(in millions) | Commercial | | Consumer | | Total | | Commercial | | Consumer | | Total |
Quarter ended June 30, | | | | | | | | | | | |
Purchases | $ | 134 | | | 1 | | | 135 | | | 332 | | | 2 | | | 334 | |
Sales | (65) | | | 0 | | | (65) | | | (1,957) | | | (1) | | | (1,958) | |
Transfers (to)/from LHFS | (359) | | | (99) | | | (458) | | | (8) | | | (10,379) | | | (10,387) | |
Six months ended June 30, | | | | | | | | | | | |
Purchases | $ | 182 | | | 2 | | | 184 | | | 673 | | | 3 | | | 676 | |
Sales | (338) | | | (188) | | | (526) | | | (2,770) | | | (27) | | | (2,797) | |
Transfers (to)/from LHFS | (794) | | | (36) | | | (830) | | | 69 | | | (10,377) | | | (10,308) | |
Commitments to Lend
A commitment to lend is a legally binding agreement to lend 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. For unconditionally cancelable commitments at our discretion, we do not recognize an ACL.
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 $82.6 billion at June 30, 2021.
We issue commercial letters of credit to assist customers in purchasing goods or services, typically for international trade. At June 30, 2021, and December 31, 2020, we had $1.4 billion and $1.3 billion, 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 11 (Guarantees and Other Commitments) for additional information on standby letters of credit.
When we enter into 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 are 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, autos, 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 4.4. The table excludes the issued standby and commercial letters of credit and temporary advance arrangements described above.
Table 4.4:Unfunded Credit Commitments
| | | | | | | | | | | |
(in millions) | Jun 30, 2021 | | Dec 31, 2020 |
Commercial: | | | |
Commercial and industrial | $ | 394,370 | | | 378,167 | |
Real estate mortgage | 8,794 | | | 7,993 | |
Real estate construction | 16,260 | | | 15,650 | |
| | | |
Total commercial | 419,424 | | | 401,810 | |
Consumer: | | | |
Residential mortgage – first lien | 37,920 | | | 31,530 | |
Residential mortgage – junior lien | 30,170 | | | 32,820 | |
Credit card | 124,985 | | | 121,096 | |
Other consumer | 54,724 | | | 49,179 | |
Total consumer | 247,799 | | | 234,625 | |
Total unfunded credit commitments | $ | 667,223 | | | 636,435 | |
Note 4: Loans and Related Allowance for Credit Losses (continued)
Allowance for Credit Losses
We maintain an 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 additional 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:
•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. Management exercises judgment when assigning weight to the three economic scenarios that are used to estimate future credit losses. The three scenarios include a most likely expectation of economic variables referred to as the base case scenario, as well as an optimistic (upside) scenario and a pessimistic (downside) scenario.
•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 forecast based on economic conditions at the measurement date. Our reversion methodology considers the type of portfolio, point in the credit cycle, expected length of recessions and recoveries, as well as other relevant factors. 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 real estate 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.
•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.
•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.
•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.
•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.
•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.
•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.
Our sensitivity analysis does not represent management’s view of expected credit losses at the balance sheet date. We applied 50% weight to both the base case scenario and the downside scenario in our sensitivity analysis to reflect the potential for further economic deterioration from a COVID-19 resurgence. The outcomes of both scenarios were influenced by the duration, severity, and timing of changes in economic variables within those scenarios. The sensitivity analysis resulted in a hypothetical increase in the ACL for loans of approximately $2.3 billion at September 30, 2020. The hypothetical increase in our ACL for loans does not incorporate the impact of management judgment for qualitative factors applied in the current ACL for loans, which may have a positive or negative effect on the results. It is possible that others performing similar sensitivity analyses could reach different conclusions or results.
The sensitivity analysis excludes the ACL for debt securities given its size relative to the overall ACL. Management believes that the estimate for the ACL for loans was appropriate at the balance sheet date.
| | |
Current Accounting Developments |
Table 40 provides the significant accounting updates applicable to us that have been issued by the Financial Accounting Standards Board (FASB) but are not yet effective.
Table 40:Current Accounting Developments – Issued Standards
| | | | | | | | | | |
| | Description | | Effective date and financial statement impact |
| | ASU 2018-12 – Financial Services – Insurance (Topic 944):
Targeted Improvements to the Accounting for Long-Duration Contracts and 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, 2022. Certain of our variable annuity reinsurance products meet the definition of market risk benefits and will require the associated insurance related reserves for these products to be measured at fair value as of the earliest period presented, 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 of our own credit, will be recognized in the opening balance of retained earnings. As of September 30, 2020, we held $1.2 billion in insurance-related reserves of which $583 million was in scope of the Update. A total of $531 million was associated with products that meet the definition of market risk benefits, and of this amount, $47 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 generally 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 in the accounting for the liability of 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. |
The following Updates are applicable to us but are not expected to have a material impact on our consolidated financial statements:
•ASU 2020-10 - Codification Improvements
•ASU 2020-09 – Debt (Topic 470): Amendments to SEC Paragraphs Pursuant to SEC Release No. 33-10762
•ASU 2020-08 – Codification Improvements to Subtopic 310-20, Receivables-Nonrefundable Fees and Other Costs
•ASU 2020-06 – Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity
•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)
•ASU 2019-12 – Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
| | |
Forward-Looking Statements |
This document contains forward-looking statements. In addition, we may make forward-looking statements in our other documents filed or furnished with the Securities and Exchange Commission, 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, our allowance for credit losses, and the economic scenarios considered to develop the allowance; (iv) our expectations regarding net interest income and net interest margin; (v) loan growth or the reduction or mitigation of risk in our loan portfolios; (vi) future capital or liquidity levels, ratios or targets; (vii) the performance of our mortgage business and any related exposures; (viii) the expected outcome and impact of legal, regulatory and legislative developments, as well as our expectations regarding compliance therewith; (ix) future common stock dividends, common share repurchases and other uses of capital; (x) our targeted range for return on assets, return on equity, and return on tangible common equity; (xi) expectations regarding our effective income tax rate; (xii) the outcome of contingencies, such as legal proceedings; and (xiii) the Company’s plans, objectives and strategies.
Forward-looking statements are not based on historical facts but instead represent our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you, therefore, against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. While there is no assurance that any list of risks and uncertainties or risk factors is complete, important factors that could cause actual results to differ materially from those in the forward-looking statements include the following, without limitation:
•current and future economic and market conditions, including the effects of declines in housing prices, high unemployment rates, U.S. fiscal debt, budget and tax matters, geopolitical matters, and 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 impairments 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 to attract and retain qualified employees, 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
•the other risk factors and uncertainties described under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019, 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
Forward-Looking Statements (continued)
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 additional 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, 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.gov1.
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.
1 We do not control this website. Wells Fargo has provided this link for your convenience, but does not endorse and is not responsible for the content, links, privacy policy, or security policy of this website.
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 2019 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, affected equity market valuations, created significant volatility and disruption in financial markets, and increased unemployment levels. In addition, the pandemic has resulted in restrictions and closures for many businesses, as well as 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 continue to 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. Moreover, the persistence of adverse economic conditions and reduced revenue may adversely affect the fair value of our operating segments and underlying reporting units which may result in the impairment of goodwill or other long-lived assets. 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 or contribute to additional downgrades to our credit ratings or credit outlook. In response to the pandemic, we have temporarily suspended certain mortgage foreclosure activities, and have provided fee waivers, payment deferrals, and other expanded assistance for credit card, automobile, mortgage, small business, personal and commercial lending customers, and future governmental actions may require these and other types of customer-related responses. In addition, we have reduced our common stock dividend and temporarily suspended share repurchases, and we could take, or be required to take, other capital actions in the future. 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 September 30, 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 September 30, 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 third quarter 2020 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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Wells Fargo & Company and Subsidiaries |
Consolidated Statement of Income (Unaudited) |
| Quarter ended September 30, | | Nine months ended September 30, |
(in millions, except per share amounts) | 2020 | | 2019 | | 2020 | | 2019 |
Interest income | | | | | | | |
Debt securities | $ | 2,446 | | | 3,666 | | | $ | 8,864 | | | 11,388 | |
Mortgage loans held for sale | 232 | | | 232 | | | 659 | | | 579 | |
Loans held for sale | 7 | | | 20 | | | 26 | | | 64 | |
Loans | 7,954 | | | 10,982 | | | 26,467 | | | 33,652 | |
Equity securities | 101 | | | 247 | | | 423 | | | 693 | |
Other interest income | 60 | | | 1,352 | | | 889 | | | 4,112 | |
Total interest income | 10,800 | | | 16,499 | | | 37,328 | | | 50,488 | |
Interest expense | | | | | | | |
Deposits | 314 | | | 2,324 | | | 2,641 | | | 6,563 | |
Short-term borrowings | (12) | | | 635 | | | 262 | | | 1,877 | |
Long-term debt | 1,038 | | | 1,780 | | | 3,515 | | | 5,607 | |
Other interest expense | 92 | | | 135 | | | 350 | | | 410 | |
Total interest expense | 1,432 | | | 4,874 | | | 6,768 | | | 14,457 | |
Net interest income | 9,368 | | | 11,625 | | | 30,560 | | | 36,031 | |
Provision for credit losses: | | | | | | | |
Debt securities (1) | 18 | | | 0 | | | 159 | | | 0 | |
Loans | 751 | | | 695 | | | 14,149 | | | 2,043 | |
Net interest income after provision for credit losses | 8,599 | | | 10,930 | | | 16,252 | | | 33,988 | |
Noninterest income (2) | | | | | | | |
Deposit-related fees | 1,299 | | | 1,480 | | | 3,888 | | | 4,289 | |
Trust and investment fees | 3,514 | | | 3,559 | | | 10,439 | | | 10,500 | |
Card fees | 912 | | | 1,027 | | | 2,601 | | | 2,996 | |
Lending-related fees | 352 | | | 374 | | | 1,025 | | | 1,116 | |
Mortgage banking | 1,590 | | | 466 | | | 2,286 | | | 1,932 | |
Net gains from trading activities | 361 | | | 276 | | | 1,232 | | | 862 | |
Net gains on debt securities | 264 | | | 3 | | | 713 | | | 148 | |
Net gains (losses) from equity securities | 649 | | | 956 | | | (219) | | | 2,392 | |
Lease income | 333 | | | 402 | | | 1,021 | | | 1,270 | |
Other | 220 | | | 1,842 | | | 869 | | | 3,667 | |
Total noninterest income | 9,494 | | | 10,385 | | | 23,855 | | | 29,172 | |
Noninterest expense (3) | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Personnel | 8,624 | | | 8,604 | | | 25,863 | | | 26,309 | |
Technology, telecommunications and equipment | 791 | | | 821 | | | 2,261 | | | 2,340 | |
Occupancy | 851 | | | 760 | | | 2,437 | | | 2,196 | |
Operating losses | 1,219 | | | 1,920 | | | 2,902 | | | 2,405 | |
Professional and outside services | 1,760 | | | 1,737 | | | 5,042 | | | 4,956 | |
Leases | 291 | | | 272 | | | 795 | | | 869 | |
Advertising and promotion | 144 | | | 266 | | | 462 | | | 832 | |
Restructuring charges | 718 | | | 0 | | | 718 | | | 0 | |
Other | 831 | | | 819 | | | 2,348 | | | 2,657 | |
Total noninterest expense | 15,229 | | | 15,199 | | | 42,828 | | | 42,564 | |
Income (loss) before income tax expense (benefit) | 2,864 | | | 6,116 | | | (2,721) | | | 20,596 | |
Income tax expense (benefit) | 645 | | | 1,304 | | | (3,113) | | | 3,479 | |
Net income before noncontrolling interests | 2,219 | | | 4,812 | | | 392 | | | 17,117 | |
Less: Net income from noncontrolling interests | 184 | | | 202 | | | 83 | | | 441 | |
Wells Fargo net income | $ | 2,035 | | | 4,610 | | | $ | 309 | | | 16,676 | |
Less: Preferred stock dividends and other | 315 | | | 573 | | | 1,241 | | | 1,284 | |
Wells Fargo net income (loss) applicable to common stock | $ | 1,720 | | | 4,037 | | | $ | (932) | | | 15,392 | |
Per share information | | | | | | | |
Earnings (loss) per common share | $ | 0.42 | | | 0.93 | | | $ | (0.23) | | | 3.45 | |
Diluted earnings (loss) per common share | 0.42 | | | 0.92 | | | (0.23) | | | 3.43 | |
Average common shares outstanding | 4,123.8 | | | 4,358.5 | | | 4,111.4 | | | 4,459.1 | |
Diluted average common shares outstanding (4) | 4,132.2 | | | 4,389.6 | | | 4,111.4 | | | 4,489.5 | |
(1)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 from debt securities was not applicable and is therefore presented as $0 for both the third quarter and first nine months of 2019. For additional information, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report.
(2)In third quarter 2020, service charges on deposit accounts, cash network fees, wire transfer and other remittance fees, and certain other fees were combined into a single line item for deposit-related fees; certain fees associated with lending activities were combined into a single line item for lending-related fees; and certain other fees were reclassified to other noninterest income. Prior period balances have been revised to conform with the current period presentation.
(3)In third quarter 2020, expenses for outside professional services, contract services, and outside data processing were combined into a single line item for professional and outside services expense; expenses for technology and equipment and telecommunications were combined into a single line item for technology, telecommunications and equipment expense; and certain other expenses were reclassified to other noninterest expense. Prior period balances have been revised to conform with the current period presentation.
(4)For the nine months ended September 30, 2020, diluted average common shares outstanding equaled average common shares outstanding because our securities convertible into common shares had an anti-dilutive effect.
The accompanying notes are an integral part of these statements.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Wells Fargo & Company and Subsidiaries | | | | | | | | |
Consolidated Statement of Comprehensive Income (Unaudited) | | | | |
| | Quarter ended September 30, | | Nine months ended September 30, |
(in millions) | | 2020 | | 2019 | | 2020 | | 2019 |
Wells Fargo net income | | $ | 2,035 | | | 4,610 | | | 309 | | | 16,676 | |
Other comprehensive income (loss), before tax: | | | | | | | | |
Debt securities: | | | | | | | | |
Net unrealized gains arising during the period | | 96 | | | 652 | | | 1,582 | | | 5,192 | |
Reclassification of net (gains) losses to net income | | (95) | | | 76 | | | (357) | | | 34 | |
Derivative and hedging activities: | | | | | | | | |
Net unrealized gains (losses) arising during the period | | (70) | | | 10 | | | 2 | | | 32 | |
Reclassification of net losses to net income | | 52 | | | 75 | | | 165 | | | 233 | |
Defined benefit plans adjustments: | | | | | | | | |
Net actuarial and prior service losses arising during the period | | (89) | | | 0 | | | (760) | | | (4) | |
Amortization of net actuarial loss, settlements and other to net income | | 68 | | | 33 | | | 205 | | | 101 | |
Foreign currency translation adjustments: | | | | | | | | |
Net unrealized gains (losses) arising during the period | | 74 | | | (53) | | | (70) | | | 3 | |
| | | | | | | | |
Other comprehensive income, before tax | | 36 | | | 793 | | | 767 | | | 5,591 | |
Income tax benefit (expense) related to other comprehensive income | | 13 | | | (208) | | | (206) | | | (1,375) | |
Other comprehensive income, net of tax | | 49 | | | 585 | | | 561 | | | 4,216 | |
Less: Other comprehensive income from noncontrolling interests | | 1 | | | 0 | | | 0 | | | 0 | |
Wells Fargo other comprehensive income, net of tax | | 48 | | | 585 | | | 561 | | | 4,216 | |
Wells Fargo comprehensive income | | 2,083 | | | 5,195 | | | 870 | | | 20,892 | |
Comprehensive income from noncontrolling interests | | 185 | | | 202 | | | 83 | | | 441 | |
Total comprehensive income | | $ | 2,268 | | | 5,397 | | | 953 | | | 21,333 | |
The accompanying notes are an integral part of these statements.
| | | | | | | | | | | |
Wells Fargo & Company and Subsidiaries | | | |
Consolidated Balance Sheet | | | |
(in millions, except shares) | Sep 30, 2020 | | Dec 31, 2019 |
Assets | (Unaudited) | | |
Cash and due from banks | $ | 25,535 | | | 21,757 | |
Interest-earning deposits with banks | 221,235 | | | 119,493 | |
Total cash, cash equivalents, and restricted cash | 246,770 | | | 141,250 | |
Federal funds sold and securities purchased under resale agreements | 69,304 | | | 102,140 | |
Debt securities: | | | |
Trading, at fair value | 73,253 | | | 79,733 | |
Available-for-sale, at fair value (includes amortized cost of $216,311 and $260,060, net of allowance for credit losses of $79 and $0) (1) | 220,573 | | | 263,459 | |
Held-to-maturity, at amortized cost, net of allowance for credit losses of $26 and $0 (fair value $189,434 and $156,860) (1) | 182,595 | | | 153,933 | |
Mortgage loans held for sale (includes $19,884 and $16,606 carried at fair value) (2) | 23,307 | | | 23,342 | |
Loans held for sale (includes $1,688 and $972 carried at fair value) (2) | 1,697 | | | 977 | |
Loans (includes $148 and $171 carried at fair value) (2) | 920,082 | | | 962,265 | |
Allowance for loan losses | (19,463) | | | (9,551) | |
Net loans | 900,619 | | | 952,714 | |
Mortgage servicing rights: | | | |
Measured at fair value | 6,355 | | | 11,517 | |
Amortized | 1,325 | | | 1,430 | |
Premises and equipment, net | 8,977 | | | 9,309 | |
Goodwill | 26,387 | | | 26,390 | |
Derivative assets | 23,715 | | | 14,203 | |
Equity securities (includes $25,053 and $41,936 carried at fair value) (2) | 51,169 | | | 68,241 | |
Other assets | 86,174 | | | 78,917 | |
Total assets (3) | $ | 1,922,220 | | | 1,927,555 | |
Liabilities | | | |
Noninterest-bearing deposits | $ | 447,011 | | | 344,496 | |
Interest-bearing deposits | 936,204 | | | 978,130 | |
Total deposits | 1,383,215 | | | 1,322,626 | |
Short-term borrowings | 55,224 | | | 104,512 | |
Derivative liabilities | 13,767 | | | 9,079 | |
Accrued expenses and other liabilities | 72,271 | | | 75,163 | |
Long-term debt | 215,711 | | | 228,191 | |
Total liabilities (4) | 1,740,188 | | | 1,739,571 | |
Equity | | | |
Wells Fargo stockholders’ equity: | | | |
Preferred stock | 21,098 | | | 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 | |
Additional paid-in capital | 60,035 | | | 61,049 | |
Retained earnings | 160,913 | | | 166,697 | |
Cumulative other comprehensive income (loss) | (750) | | | (1,311) | |
Treasury stock – 1,349,294,592 shares and 1,347,385,537 shares | (68,384) | | | (68,831) | |
Unearned ESOP shares | (875) | | | (1,143) | |
Total Wells Fargo stockholders’ equity | 181,173 | | | 187,146 | |
Noncontrolling interests | 859 | | | 838 | |
Total equity | 182,032 | | | 187,984 | |
Total liabilities and equity | $ | 1,922,220 | | | 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 additional 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 for which we have elected the fair value option.
(3)Our consolidated assets at September 30, 2020, and December 31, 2019, included 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, $16 million and $16 million; Interest-earning deposits with banks, $0 million and $284 million; Debt securities, $662 million and $540 million; Net loans, $10.6 billion and $13.2 billion; Derivative assets, $1 million and $1 million; Equity securities, $72 million and $118 million; Other assets, $214 million and $239 million; and Total assets, $11.6 billion and $14.4 billion, respectively.
(4)Our consolidated liabilities at September 30, 2020, and December 31, 2019, included the following VIE liabilities for which the VIE creditors do not have recourse to Wells Fargo: Short-term borrowings, $395 million and $401 million; Derivative liabilities, $1 million and $3 million; Accrued expenses and other liabilities, $229 million and $235 million; Long-term debt, $215 million and $587 million; and Total liabilities, $840 million and $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) | | | | |
| | | | | | | |
| Preferred stock | | Common stock |
(in millions, except shares) | Shares | | Amount | | Shares | | Amount |
Balance June 30, 2020 | 5,494,773 | | | $ | 21,098 | | | 4,119,558,592 | | | $ | 9,136 | |
| | | | | | | |
| | | | | | | |
Net income | | | | | | | |
Other comprehensive income (loss), net of tax | | | | | | | |
Noncontrolling interests | | | | | | | |
Common stock issued | | | | | 13,087,759 | | | |
Common stock repurchased | | | | | (129,469) | | | |
Preferred stock redeemed | 0 | | | 0 | | | | | |
| | | | | | | |
Preferred stock released by ESOP | | | | | | | |
Preferred stock converted to common shares | 0 | | | 0 | | | 0 | | | |
| | | | | | | |
Common stock dividends | | | | | | | |
Preferred stock dividends | | | | | | | |
Stock incentive compensation expense | | | | | | | |
Net change in deferred compensation and related plans | | | | | | | |
Net change | 0 | | | 0 | | | 12,958,290 | | | 0 | |
Balance September 30, 2020 | 5,494,773 | | | $ | 21,098 | | | 4,132,516,882 | | | $ | 9,136 | |
Balance June 30, 2019 | 9,184,169 | | | $ | 23,021 | | | 4,419,591,197 | | | $ | 9,136 | |
| | | | | | | |
| | | | | | | |
Net income | | | | | | | |
Other comprehensive income (loss), net of tax | | | | | | | |
Noncontrolling interests | | | | | | | |
Common stock issued | | | | | 5,834,645 | | | |
Common stock repurchased | | | | | (159,099,263) | | | |
Preferred stock redeemed | (1,550,000) | | | (1,330) | | | | | |
| | | | | | | |
Preferred stock released by ESOP | | | | | | | |
Preferred stock converted to common shares | (142,000) | | | (142) | | | 2,815,225 | | | |
| | | | | | | |
Common stock dividends | | | | | | | |
Preferred stock dividends | | | | | | | |
Stock incentive compensation expense | | | | | | | |
Net change in deferred compensation and related plans | | | | | | | |
Net change | (1,692,000) | | | (1,472) | | | (150,449,393) | | | 0 | |
Balance September 30, 2019 | 7,492,169 | | | $ | 21,549 | | | 4,269,141,804 | | | $ | 9,136 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | Quarter ended September 30, |
| | | | | | Wells Fargo stockholders’ equity | | | | |
Additional paid-in capital | | Retained earnings | | Cumulative other comprehensive income | | Treasury stock | | Unearned ESOP shares | | Total Wells Fargo stockholders’ equity | | Noncontrolling interests | | Total equity |
59,923 | | | 159,952 | | | (798) | | | (69,050) | | | (875) | | | 179,386 | | | 736 | | | 180,122 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | 2,035 | | | | | | | | | 2,035 | | | 184 | | | 2,219 | |
| | | | 48 | | | | | | | 48 | | | 1 | | | 49 | |
| | | | | | | | | | 0 | | | (62) | | | (62) | |
0 | | | (343) | | | | | 668 | | | | | 325 | | | | | 325 | |
| | | | | | (3) | | | | | (3) | | | | | (3) | |
| | 0 | | | | | | | | | 0 | | | | | 0 | |
| | | | | | | | | | | | | | |
0 | | | | | | | | | 0 | | | 0 | | | | | 0 | |
0 | | | | | | | 0 | | | | | 0 | | | | | 0 | |
| | | | | | | | | | | | | | |
3 | | | (416) | | | | | | | | | (413) | | | | | (413) | |
| | (315) | | | | | | | | | (315) | | | | | (315) | |
136 | | | | | | | | | | | 136 | | | | | 136 | |
(27) | | | | | | | 1 | | | | | (26) | | | | | (26) | |
112 | | | 961 | | | 48 | | | 666 | | | 0 | | | 1,787 | | | 123 | | | 1,910 | |
60,035 | | | 160,913 | | | (750) | | | (68,384) | | | (875) | | | 181,173 | | | 859 | | | 182,032 | |
60,625 | | | 164,551 | | | (2,224) | | | (54,775) | | | (1,292) | | | 199,042 | | | 995 | | | 200,037 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | 4,610 | | | | | | | | | 4,610 | | | 202 | | | 4,812 | |
| | | | 585 | | | | | | | 585 | | | 0 | | | 585 | |
| | | | | | | | | | 0 | | | (85) | | | (85) | |
(6) | | | (15) | | | | | 299 | | | | | 278 | | | | | 278 | |
| | | | | | (7,448) | | | | | (7,448) | | | | | (7,448) | |
| | (220) | | | | | | | | | (1,550) | | | | | (1,550) | |
| | | | | | | | | | | | | | |
(7) | | | | | | | | | 149 | | | 142 | | | | | 142 | |
(1) | | | | | | | 143 | | | | | 0 | | | | | 0 | |
| | | | | | | | | | | | | | |
23 | | | (2,253) | | | | | | | | | (2,230) | | | | | (2,230) | |
| | (353) | | | | | | | | | (353) | | | | | (353) | |
262 | | | | | | | | | | | 262 | | | | | 262 | |
(30) | | | | | | | (4) | | | | | (34) | | | | | (34) | |
241 | | | 1,769 | | | 585 | | | (7,010) | | | 149 | | | (5,738) | | | 117 | | | (5,621) | |
60,866 | | | 166,320 | | | (1,639) | | | (61,785) | | | (1,143) | | | 193,304 | | | 1,112 | | | 194,416 | |
| | | | | | | | | | | | | | | | | | | | | | | |
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, 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 | | | | | 63,900,366 | | | |
Common stock repurchased | | | | | (75,542,855) | | | |
Preferred stock redeemed | (1,828,720) | | | (2,215) | | | | | |
| | | | | | | |
Preferred stock released by ESOP | | | | | | | |
Preferred stock converted to common shares | (249,176) | | | (249) | | | 9,733,434 | | | |
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 | (1,997,396) | | | (451) | | | (1,909,055) | | | 0 | |
Balance September 30, 2020 | 5,494,773 | | | $ | 21,098 | | | 4,132,516,882 | | | $ | 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 | | | | | 42,384,469 | | | |
Common stock repurchased | | | | | (361,315,717) | | | |
Preferred stock redeemed | (1,550,000) | | | (1,330) | | | | | |
| | | | | | | |
Preferred stock released by ESOP | | | | | | | |
Preferred stock converted to common shares | (335,047) | | | (335) | | | 6,819,444 | | | |
Preferred stock issued | 0 | | | 0 | | | | | |
Common stock dividends | | | | | | | |
Preferred stock dividends | | | | | | | |
Stock incentive compensation expense | | | | | | | |
Net change in deferred compensation and related plans | | | | | | | |
Net change | (1,885,047) | | | (1,665) | | | (312,111,804) | | | 0 | |
Balance September 30, 2019 | 7,492,169 | | | $ | 21,549 | | | 4,269,141,804 | | | $ | 9,136 | |
(1)We adopted CECL effective January 1, 2020. For additional information, see Note 1 (Summary of Significant Accounting Policies) in this Report.
(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 Securities.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | Nine months ended September 30, |
| | | | | | Wells Fargo stockholders’ equity | | | | |
Additional paid-in capital | | Retained earnings | | Cumulative other comprehensive income | | Treasury stock | | Unearned ESOP shares | | Total Wells Fargo stockholders’ equity | | Noncontrolling interests | | Total equity |
61,049 | | | 166,697 | | | (1,311) | | | (68,831) | | | (1,143) | | | 187,146 | | | 838 | | | 187,984 | |
| | 991 | | | 0 | | | | | | | 991 | | | | | 991 | |
61,049 | | | 167,688 | | | (1,311) | | | (68,831) | | | (1,143) | | | 188,137 | | | 838 | | | 188,975 | |
| | 309 | | | | | | | | | 309 | | | 83 | | | 392 | |
| | | | 561 | | | | | | | 561 | | | 0 | | | 561 | |
| | | | | | | | | | 0 | | | (62) | | | (62) | |
207 | | | (1,200) | | | | | 3,362 | | | | | 2,369 | | | | | 2,369 | |
| | | | | | (3,412) | | | | | (3,412) | | | | | (3,412) | |
17 | | | (272) | | | | | | | | | (2,470) | | | | | (2,470) | |
| | | | | | | | | | | | | | |
(19) | | | | | | | | | 268 | | | 249 | | | | | 249 | |
(243) | | | | | | | 492 | | | | | 0 | | | | | 0 | |
(45) | | | | | | | | | | | 1,968 | | | | | 1,968 | |
41 | | | (4,643) | | | | | | | | | (4,602) | | | | | (4,602) | |
| | (969) | | | | | | | | | (969) | | | | | (969) | |
437 | | | | | | | | | | | 437 | | | | | 437 | |
(1,409) | | | | | | | 5 | | | | | (1,404) | | | | | (1,404) | |
(1,014) | | | (6,775) | | | 561 | | | 447 | | | 268 | | | (6,964) | | | 21 | | | (6,943) | |
60,035 | | | 160,913 | | | (750) | | | (68,384) | | | (875) | | | 181,173 | | | 859 | | | 182,032 | |
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 | |
| | 16,676 | | | | | | | | | 16,676 | | | 441 | | | 17,117 | |
| | | | 4,216 | | | | | | | 4,216 | | | 0 | | | 4,216 | |
| | | | | | | | | | 0 | | | (229) | | | (229) | |
(8) | | | (382) | | | | | 2,206 | | | | | 1,816 | | | | | 1,816 | |
| | | | | | (17,166) | | | | | (17,166) | | | | | (17,166) | |
0 | | | (220) | | | | | | | | | (1,550) | | | | | (1,550) | |
| | | | | | | | | | | | | | |
(24) | | | | | | | | | 359 | | | 335 | | | | | 335 | |
(16) | | | | | | | 351 | | | | | 0 | | | | | 0 | |
0 | | | | | | | | | | | 0 | | | | | 0 | |
62 | | | (6,361) | | | | | | | | | (6,299) | | | | | (6,299) | |
| | (1,064) | | | | | | | | | (1,064) | | | | | (1,064) | |
1,053 | | | | | | | | | | | 1,053 | | | | | 1,053 | |
(886) | | | | | | | 18 | | | | | (868) | | | | | (868) | |
181 | | | 8,649 | | | 4,216 | | | (14,591) | | | 359 | | | (2,851) | | | 212 | | | (2,639) | |
60,866 | | | 166,320 | | | (1,639) | | | (61,785) | | | (1,143) | | | 193,304 | | | 1,112 | | | 194,416 | |
| | | | | | | | | | | |
Wells Fargo & Company and Subsidiaries | | | |
Consolidated Statement of Cash Flows (Unaudited) | | | |
| Nine months ended September 30, |
(in millions) | 2020 | | 2019 |
Cash flows from operating activities: | | | |
Net income before noncontrolling interests | $ | 392 | | | 17,117 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Provision for credit losses | 14,308 | | | 2,043 | |
Changes in fair value of MSRs, MLHFS and LHFS carried at fair value | 4,434 | | | 3,704 | |
Depreciation, amortization and accretion | 6,444 | | | 4,940 | |
Other net (gains) losses | 6,753 | | | (2,888) | |
Stock-based compensation | 1,337 | | | 1,885 | |
Originations and purchases of mortgage loans held for sale | (134,318) | | | (109,609) | |
Proceeds from sales of and paydowns on mortgage loans held for sale | 87,350 | | | 70,676 | |
Net change in: | | | |
Debt and equity securities, held for trading | 58,969 | | | 17,104 | |
Loans held for sale | (669) | | | 241 | |
Deferred income taxes | (1,647) | | | (3,142) | |
Derivative assets and liabilities | (5,823) | | | (2,397) | |
Other assets | (9,482) | | | (6,320) | |
Other accrued expenses and liabilities | (3,232) | | | 953 | |
Net cash provided (used) by operating activities | 24,816 | | | (5,693) | |
Cash flows from investing activities: | | | |
Net change in: | | | |
Federal funds sold and securities purchased under resale agreements | 32,836 | | | (22,844) | |
Available-for-sale debt securities: | | | |
Proceeds from sales | 40,709 | | | 7,709 | |
Prepayments and maturities | 59,393 | | | 30,362 | |
Purchases | (54,010) | | | (44,460) | |
Held-to-maturity debt securities: | | | |
Paydowns and maturities | 22,767 | | | 9,154 | |
Purchases | (41,758) | | | (2,929) | |
Equity securities, not held for trading: | | | |
Proceeds from sales and capital returns | 10,344 | | | 4,104 | |
Purchases | (6,518) | | | (4,595) | |
Loans: | | | |
Loans originated by banking subsidiaries, net of principal collected | 33,296 | | | (15,133) | |
Proceeds from sales (including participations) of loans held for investment | 6,828 | | | 10,416 | |
Purchases (including participations) of loans | (1,036) | | | (1,574) | |
Principal collected on nonbank entities’ loans | 7,150 | | | 2,990 | |
Loans originated by nonbank entities | (8,703) | | | (3,816) | |
| | | |
Proceeds from sales of foreclosed assets and short sales | 967 | | | 1,992 | |
Other, net | (223) | | | 1,519 | |
Net cash provided (used) by investing activities | 102,042 | | | (27,105) | |
Cash flows from financing activities: | | | |
Net change in: | | | |
Deposits | 60,589 | | | 22,005 | |
Short-term borrowings | (49,288) | | | 18,121 | |
Long-term debt: | | | |
Proceeds from issuance | 37,901 | | | 40,220 | |
Repayment | (61,151) | | | (45,940) | |
Preferred stock: | | | |
Proceeds from issuance | 1,968 | | | 0 | |
Redeemed | (2,470) | | | (1,550) | |
Cash dividends paid | (910) | | | (1,005) | |
Common stock: | | | |
Proceeds from issuance | 513 | | | 356 | |
Stock tendered for payment of withholding taxes | (326) | | | (283) | |
Repurchased | (3,412) | | | (17,166) | |
Cash dividends paid | (4,454) | | | (6,118) | |
Net change in noncontrolling interests | (67) | | | (221) | |
Other, net | (231) | | | (177) | |
Net cash provided (used) by financing activities | (21,338) | | | 8,242 | |
Net change in cash, cash equivalents, and restricted cash | 105,520 | | | (24,556) | |
Cash, cash equivalents, and restricted cash at beginning of period | 141,250 | | | 173,287 | |
Cash, cash equivalents, and restricted cash at end of period | $ | 246,770 | | | 148,731 | |
Supplemental cash flow disclosures: | | | |
Cash paid for interest | $ | 7,099 | | | 14,505 | |
Cash paid for income taxes | 2,360 | | | 5,248 | |
The accompanying notes are an integral part of these statements. See Note 1 (Summary of Significant Accounting Policies) for noncash activities.
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, 2019 (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 2019 Form 10-K.
Accounting Standards Adopted in 2020
In 2020, we adopted the following new accounting guidance:
•Accounting Standards Update (ASU or Update) 2020-04 – Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
•ASU 2019-04 – Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. This Update includes guidance on recoveries of financial assets, which is included in the discussion for ASU 2016-13 below.
•ASU 2018-17 – Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities
•ASU 2018-15 – Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the Financial Accounting Standards Board (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 2020-04 provides optional, temporary relief to ease the burden of accounting for reference rate reform activities that affect contractual modifications of floating rate financial instruments indexed to interbank offering rates (IBORs) and hedge accounting relationships. Modifications of qualifying contracts are accounted for as the continuation of an existing contract rather than as a new contract. Modifications of qualifying hedging relationships will not require discontinuation of the existing hedge accounting relationships. The application of the relief for qualifying existing hedging relationships may be made on a hedge-by-hedge basis and across multiple reporting periods.
We adopted ASU 2020-04 on April 1, 2020, and the guidance will be followed until the Update terminates on December 31, 2022. This guidance is applied on a prospective basis. The Update did not have a material impact on our consolidated financial statements.
ASU 2018-17 updates the guidance used by decision-makers of VIEs. Indirect interests held through related parties in 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 Update did not have a material impact on our consolidated financial statements.
ASU 2018-15 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
Note 1: Summary of Significant Accounting Policies (continued)
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 | | 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 | | 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 over 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, the premium is amortized into interest income to the earliest call date using the effective interest method. As principal repayments are received on securities (e.g., mortgage-backed securities (MBS)), a proportionate amount of the related premium or discount is recognized in 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 using the specific identification method.
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 LossesContractual Maturities
The ACL is management’s estimateTable 3.6 and Table 3.7 show the remaining contractual maturities, amortized cost, net 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 atACL, fair value or held for sale. Additionally, we maintain an ACL onand weighted average effective yields of 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.respectively. The remaining contractual principal
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
maturities for groups of loans ormortgage-backed securities with similar risk characteristics. For loans and securities that(MBS) do not share similar risk characteristics with other financial assets,consider prepayments. Remaining expected maturities will differ from contractual maturities because borrowers may have 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 atright to prepay obligations before the tax-lot level.underlying mortgages mature.
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.
Note 1: Summary of Significant Accounting Policies (continued)
Table 1.2:3.6: Key Economic VariablesContractual Maturities – Available-for-Sale Debt Securities
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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 |
June 30, 2021 | | | | | | | | | |
Available-for-sale debt securities (1): | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | | | | | | | | | |
Amortized cost, net | $ | 35,741 | | | 5 | | | 17,965 | | | 15,777 | | | 1,994 | |
Fair value | 35,905 | | | 5 | | | 17,978 | | | 15,837 | | | 2,085 | |
Weighted average yield | 0.75 | % | | 2.00 | | | 0.33 | | | 1.13 | | | 1.44 | |
Non-U.S. government securities | | | | | | | | | |
Amortized cost, net | $ | 11,201 | | | 11,176 | | | 25 | | | 0 | | | 0 | |
Fair value | 11,201 | | | 11,176 | | | 25 | | | 0 | | | 0 | |
Weighted average yield | (0.11 | %) | | (0.11) | | | 0.42 | | | 0 | | | 0 | |
Securities of U.S. states and political subdivisions | | | | | | | | | |
Amortized cost, net | $ | 19,121 | | | 1,546 | | | 2,225 | | | 5,244 | | | 10,106 | |
Fair value | 19,499 | | | 1,549 | | | 2,270 | | | 5,253 | | | 10,427 | |
Weighted average yield | 2.07 | % | | 1.46 | | | 1.58 | | | 1.41 | | | 2.62 | |
Federal agency mortgage-backed securities | | | | | | | | | |
Amortized cost, net | $ | 94,186 | | | 8 | | | 171 | | | 3,359 | | | 90,648 | |
Fair value | 96,534 | | | 8 | | | 181 | | | 3,484 | | | 92,861 | |
Weighted average yield | 2.72 | % | | 2.35 | | | 3.30 | | | 2.30 | | | 2.74 | |
Non-agency mortgage-backed securities | | | | | | | | | |
Amortized cost, net | $ | 4,349 | | | 0 | | | 0 | | | 151 | | | 4,198 | |
Fair value | 4,378 | | | 0 | | | 0 | | | 150 | | | 4,228 | |
Weighted average yield | 2.00 | % | | 0 | | | 0 | | | 2.27 | | | 1.99 | |
Collateralized loan obligations | | | | | | | | | |
Amortized cost, net | $ | 12,406 | | | 0 | | | 90 | | | 7,306 | | | 5,010 | |
Fair value | 12,407 | | | 0 | | | 90 | | | 7,304 | | | 5,013 | |
Weighted average yield | 1.42 | % | | 0 | | | 2.21 | | | 1.44 | | | 1.39 | |
Other debt securities | | | | | | | | | |
Amortized cost, net | $ | 9,305 | | | 160 | | | 2,791 | | | 2,865 | | | 3,489 | |
Fair value | 9,973 | | | 160 | | | 3,152 | | | 2,910 | | | 3,751 | |
Weighted average yield | 3.17 | % | | 2.97 | | | 4.23 | | | 3.31 | | | 2.22 | |
Total available-for-sale debt securities | | | | | | | | | |
Amortized cost, net | $ | 186,309 | | | 12,895 | | | 23,267 | | | 34,702 | | | 115,445 | |
Fair value | $ | 189,897 | | | 12,898 | | | 23,696 | | | 34,938 | | | 118,365 | |
Weighted average yield | 2.03 | % | | 0.22 | | | 0.95 | | | 1.54 | | | 2.60 | |
(1)Weighted average yields displayed by maturity bucket are weighted based on amortized cost without effect for any related hedging derivatives and are shown pre-tax.
| | | | | | | | |
78 | Loan PortfolioWells Fargo & Company | | 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 two years to connect the losses estimated for our initial loss forecast period to the period of our historical loss forecast based on economic conditions at the measurement date. Our reversion methodology considers the type of portfolio, point in the credit cycle, expected length of recessions and recoveries, as well as other relevant factors.
•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.
We do not generally record an ACL for accrued interest receivables because 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. Accrued interest receivables are included in other assets, except for certain revolving loans, such as credit card loans.
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 FACTORSTable 3.7: The ACL includes amounts for qualitative factors which may not be adequately reflected in our loss models. These amounts represent management’s judgment 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.
TroubledContractual Maturities – Held-to-Maturity Debt Restructuring and Other Relief Related to COVID-19
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 or less) 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
Note 1: Summary of Significant Accounting Policies (continued)
CARES Act or the Interagency Statement will be assessed for TDR classification.
On April 10, 2020, the FASB Staff issued Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic, a question and answer guide (the guide). The guide provided an election for leases accounted for under Accounting Standards Codification (ASC) 842, Leases, that were modified due to COVID-19 and met certain criteria in order to not require a new
lease classification test upon modification. In second quarter 2020, we elected to apply the lease modification relief provided by the guide.
Supplemental Cash Flow Information
Significant noncash activities are presented in Table 1.3.
Table 1.3:Supplemental Cash Flow InformationSecurities
| | | | | | | | | | | |
| Nine months ended September 30, |
(in millions) | 2020 | | 2019 |
Trading debt securities retained from securitization of mortgage loans held for sale (MLHFS) | $ | 39,626 | | | 31,517 | |
Available-for-sale debt securities retained from securitization of MLHFS | 2,710 | | | 0 | |
Held-to-maturity debt securities retained from securitization of MLHFS | 9,016 | | | 115 | |
| | | |
Transfers from (to) loans to (from) MLHFS | 4,033 | | | 5,409 | |
| | | |
| | | |
Transfers from available-for-sale debt securities to held-to-maturity debt securities | 1,236 | | | 13,833 | |
Operating lease ROU assets acquired with operating lease liabilities (1) | 482 | | | 5,644 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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 |
June 30, 2021 | | | | | | | | | |
Held-to-maturity debt securities (1): | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | | | | | | | | | |
Amortized cost, net | $ | 27,576 | | | 11,386 | | | 12,407 | | | 0 | | | 3,783 | |
Fair value | 28,029 | | | 11,461 | | | 13,140 | | | 0 | | | 3,428 | |
Weighted average yield | 2.10 | % | | 1.98 | | | 2.37 | | | 0 | | | 1.57 | |
Securities of U.S. states and political subdivisions | | | | | | | | | |
Amortized cost, net | $ | 28,243 | | | 673 | | | 2,177 | | | 2,066 | | | 23,327 | |
Fair value | 29,138 | | | 680 | | | 2,246 | | | 2,150 | | | 24,062 | |
Weighted average yield | 2.19 | % | | 2.09 | | | 1.90 | | | 2.65 | | | 2.18 | |
Federal agency mortgage-backed securities | | | | | | | | | |
Amortized cost, net | $ | 182,891 | | | 0 | | | 0 | | | 0 | | | 182,891 | |
Fair value | 184,450 | | | 0 | | | 0 | | | 0 | | | 184,450 | |
Weighted average yield | 2.20 | % | | 0 | | | 0 | | | 0 | | | 2.20 | |
Non-agency mortgage-backed securities | | | | | | | | | |
Amortized cost, net | $ | 948 | | | 0 | | | 15 | | | 0 | | | 933 | |
Fair value | 983 | | | 0 | | | 15 | | | 0 | | | 968 | |
Weighted average yield | 3.09 | % | | 0 | | | 1.56 | | | 0 | | | 3.12 | |
Collateralized loan obligations | | | | | | | | | |
Amortized cost, net | $ | 21,283 | | | 0 | | | 0 | | | 8,155 | | | 13,128 | |
Fair value | 21,487 | | | 0 | | | 0 | | | 8,248 | | | 13,239 | |
Weighted average yield | 1.68 | % | | 0 | | | 0 | | | 1.73 | | | 1.65 | |
Total held-to-maturity debt securities | | | | | | | | | |
Amortized cost, net | $ | 260,941 | | | 12,059 | | | 14,599 | | | 10,221 | | | 224,062 | |
Fair value | 264,087 | | | 12,141 | | | 15,401 | | | 10,398 | | | 226,147 | |
Weighted average yield | 2.15 | % | | 1.98 | | | 2.30 | | | 1.91 | | | 2.16 | |
(1)Includes amounts attributable to new leasesWeighted average yields displayed by maturity bucket are weighted based on amortized cost and changes from modified leases. The nine months ended September 30, 2019, balance also includes $4.9 billion from adoption of ASU 2016-02 – Leases (Topic 842).
are shown pre-tax.
Subsequent Events
We have evaluated the effects of events that have occurred subsequent to September 30, 2020, and, except as disclosed in Note 17 (Preferred Stock) and Note 19 (Employee Benefits and
Other Expenses), there have been no material events that would require recognition in our third quarter 2020 consolidated financial statements or disclosure in the Notes to the consolidated financial statements.
| | |
Note 2: Restructuring Charges
|
The Company is pursuing various initiatives to reduce expenses and create a more efficient and streamlined organization. Actions from these initiatives may include reorganizing and simplifying business processes and structures, reducing headcount, optimizing third-party spending, and rationalizing our branch and administrative locations, which may include consolidations and closures. The evaluation of potential actions will continue in future periods.
Restructuring charges are recorded as a component of noninterest expense on our consolidated statement of income.
The following costs associated with these initiatives are included in restructuring charges
•Personnel costs – Primarily severance costs associated with headcount reductions with payments made over time in accordance with our severance plan.
•Facility closure costs – Write-downs and acceleration of depreciation and amortization of owned or leased assets for branch and administrative locations, as well as related decommissioning costs.
Table 2.1 provides details on our restructuring charges.
Table 2.1:Restructuring Charges
| | | | | | | | | | | |
(in millions) | Personnel costs | Facility closure costs | Total |
Restructuring charges | $ | 694 | | 24 | | 718 | |
Payments and utilization | 0 | | (24) | | (24) | |
| | | |
Accrual balance at September 30, 2020 | $ | 694 | | 0 | | 694 | |
| | | | |
| Note 3:Wells Fargo & CompanyCash, Loan and Dividend Restrictions | 79 |
Cash and cash equivalents may be restricted as to usage or withdrawal. Federal 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) | Sep 30, 2020 | | Dec 31, 2019 |
Required reserve balance for the FRB (1) | $ | 0 | | | 11,374 | |
Reserve balance for non-U.S. central banks | 220 | | | 460 | |
Segregated for benefit of brokerage customers under federal and other brokerage regulations | 875 | | | 733 | |
Related to consolidated variable interest entities (VIEs) that can only be used to settle liabilities of VIEs | 16 | | | 300 | |
(1)Effective March 26, 2020, the FRB reduced reserve requirement ratios to 0%. The amount for December 31, 2019, represents an average for the year ended December 31, 2019.
Federal laws and regulations limit the dividends that a national bank may pay. Our national bank subsidiaries could have declared additional dividends of $2.7 billion at September 30, 2020, without obtaining prior regulatory approval. We have elected to retain higher capital at our national bank subsidiaries 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’s board of directors authorizes it to file a case under the U.S. Bankruptcy Code. Based on retained earnings at September 30, 2020, our nonbank subsidiaries could have declared additional dividends of $27.8 billion at September 30, 2020, without obtaining prior regulatory approval. For additional information see Note 3 (Cash, Loan and Dividend Restrictions) in our 2019 Form 10-K.
The FRB’s Capital Plan Rule (codified at 12 CFR 225.8 of Regulation Y) establishes capital planning and other requirements that govern 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 Parent’s ability to make certain capital distributions is subject to review by the FRB as part of the Parent’s capital plan in connection with the FRB’s annual Comprehensive Capital Analysis and Review (CCAR). The Parent’s ability to take certain capital actions is also subject to the Parent meeting or exceeding certain regulatory capital minimums.
On September 30, 2020, the Board of Governors of the Federal Reserve System (FRB) announced that it was extending through fourth quarter 2020 measures it announced on June 25, 2020, prohibiting large bank holding companies (BHCs) subject to the FRB’s capital plan rule, including Wells Fargo, from making any capital distribution (excluding any capital distribution arising from the issuance of a capital instrument eligible for inclusion in the numerator of a regulatory capital ratio), unless otherwise approved by the FRB. The FRB has generally authorized BHCs to (i) make share repurchases relating to issuances of common stock related to employee stock ownership plans; (ii) provided that the BHC does not increase the amount of its common stock dividends, pay common stock dividends that do not exceed an amount equal to the average of the BHC’s net income for the four preceding calendar quarters, unless otherwise specified by the FRB; and (iii) make scheduled payments on additional tier 1 and tier 2 capital instruments. These provisions may be extended by the FRB quarter-by-quarter.
| | |
Note 4: Trading ActivitiesLoans and Related Allowance for Credit Losses |
Table 4.1 presents a summarytotal 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 trading assetstotal loans outstanding at June 30, 2021, and liabilities measured at fair value through earnings.
December 31, 2020.Table 4.1: Trading Assets and Liabilities
| | | | | | | | | | | |
(in millions) | Sep 30, 2020 | | Dec 31, 2019 |
Trading assets: | | | |
Debt securities | $ | 73,253 | | | 79,733 | |
Equity securities | 14,058 | | | 27,440 | |
Loans held for sale | 1,688 | | | 972 | |
Gross trading derivative assets | 57,990 | | | 34,825 | |
Netting (1) | (35,662) | | | (21,463) | |
Total trading derivative assets | 22,328 | | | 13,362 | |
Total trading assets | 111,327 | | | 121,507 | |
Trading liabilities: | | | |
Short sale | 18,779 | | | 17,430 | |
Gross trading derivative liabilities | 51,241 | | | 33,861 | |
Netting (1) | (39,278) | | | (26,074) | |
Total trading derivative liabilities | 11,963 | | | 7,787 | |
Total trading liabilities | $ | 30,742 | | | 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 Sep 30, | | Nine months ended Sep 30, |
(in millions) | 2020 | | 2019 | | 2020 | | 2019 |
Interest income: | | | | | | | |
Debt securities | $ | 546 | | | 790 | | | $ | 1,971 | | | 2,323 | |
Equity securities | 68 | | | 157 | | | 273 | | | 415 | |
Loans held for sale | 6 | | | 20 | | | 24 | | | 63 | |
Total interest income | 620 | | | 967 | | | 2,268 | | | 2,801 | |
Less: Interest expense | 93 | | | 129 | | | 350 | | | 392 | |
Net interest income | 527 | | | 838 | | | 1,918 | | | 2,409 | |
Net gains (losses) from trading activities (1): | | | | | | | |
Debt securities | 214 | | | 451 | | | 2,898 | | | 1,540 | |
Equity securities | 1,381 | | | (242) | | | (691) | | | 3,061 | |
Loans held for sale | 14 | | | 5 | | | 26 | | | 15 | |
Derivatives (2) | (1,248) | | | 62 | | | (1,001) | | | (3,754) | |
Total net gains from trading activities | 361 | | | 276 | | | 1,232 | | | 862 | |
Total trading-related net interest and noninterest income | $ | 888 | | | 1,114 | | | $ | 3,150 | | | 3,271 | |
(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, net of allowance for credit losses. The net unrealized gains (losses) for available-for-sale debt securities are reported as a component of cumulative 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 first nine months of 2020, we reversed accrued interest receivable on our available-for-sale and held-to-maturity debt securities by reversing interest income of $6 million. loans, except for certain revolving loans, such as credit card loans.
See Note 97 (Other Assets) for additional information on accrued interest receivable. Amounts considered to be uncollectible are reversed through interest income. During the first half of 2021, we reversed accrued interest receivable of $24 million for our commercial portfolio segment and $104 million for our consumer portfolio segment, compared with $21 million and $114 million, respectively, for the same period a year ago.
Table 5.1:4.1: Available-for-Sale and Held-to-Maturity Debt SecuritiesLoans Outstanding
| | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Amortized cost, net (1) | | Gross unrealized gains | | Gross unrealized losses | | Fair value |
September 30, 2020 | | | | | | | |
Available-for-sale debt securities: | | | | | | | |
Securities of U.S. Treasury and federal agencies | $ | 5,826 | | | 149 | | | 0 | | | 5,975 | |
Securities of U.S. states and political subdivisions (2) | 31,563 | | | 239 | | | (291) | | | 31,511 | |
Mortgage-backed securities: | | | | | | | |
Federal agencies | 130,717 | | | 4,582 | | | (72) | | | 135,227 | |
Residential | 539 | | | 3 | | | (1) | | | 541 | |
Commercial | 3,393 | | | 17 | | | (67) | | | 3,343 | |
Total mortgage-backed securities | 134,649 | | | 4,602 | | | (140) | | | 139,111 | |
Corporate debt securities | 5,687 | | | 131 | | | (46) | | | 5,772 | |
Collateralized loan obligations | 25,389 | | | 5 | | | (380) | | | 25,014 | |
Other | 13,197 | | | 80 | | | (87) | | | 13,190 | |
Total available-for-sale debt securities | 216,311 | | | 5,206 | | | (944) | | | 220,573 | |
Held-to-maturity debt securities: | | | | | | | |
Securities of U.S. Treasury and federal agencies | 48,587 | | | 1,765 | | | (65) | | | 50,287 | |
Securities of U.S. states and political subdivisions | 14,232 | | | 682 | | | (4) | | | 14,910 | |
Federal agency and other mortgage-backed securities (3) | 119,766 | | | 4,518 | | | (57) | | | 124,227 | |
Other debt securities | 10 | | | 0 | | | 0 | | | 10 | |
| | | | | | | |
Total held-to-maturity debt securities | 182,595 | | | 6,965 | | | (126) | | | 189,434 | |
Total (4) | $ | 398,906 | | | 12,171 | | | (1,070) | | | 410,007 | |
December 31, 2019 | | | | | | | |
Available-for-sale debt securities: | | | | | | | |
Securities of U.S. Treasury and federal agencies | $ | 14,948 | | | 13 | | | (1) | | | 14,960 | |
Securities of U.S. states and political subdivisions (2) | 39,381 | | | 992 | | | (36) | | | 40,337 | |
Mortgage-backed securities: | | | | | | | |
Federal agencies | 160,318 | | | 2,299 | | | (164) | | | 162,453 | |
Residential | 814 | | | 14 | | | (1) | | | 827 | |
Commercial | 3,899 | | | 41 | | | (6) | | | 3,934 | |
Total mortgage-backed securities | 165,031 | | | 2,354 | | | (171) | | | 167,214 | |
Corporate debt securities | 6,343 | | | 252 | | | (32) | | | 6,563 | |
Collateralized loan obligations | 29,153 | | | 25 | | | (123) | | | 29,055 | |
Other | 5,204 | | | 150 | | | (24) | | | 5,330 | |
Total available-for-sale debt securities | 260,060 | | | 3,786 | | | (387) | | | 263,459 | |
Held-to-maturity debt securities: | | | | | | | |
Securities of U.S. Treasury and federal agencies | 45,541 | | | 617 | | | (19) | | | 46,139 | |
Securities of U.S. states and political subdivisions | 13,486 | | | 286 | | | (13) | | | 13,759 | |
Federal agency and other mortgage-backed securities (3) | 94,869 | | | 2,093 | | | (37) | | | 96,925 | |
Other debt securities | 37 | | | 0 | | | 0 | | | 37 | |
| | | | | | | |
Total held-to-maturity debt securities | 153,933 | | | 2,996 | | | (69) | | | 156,860 | |
Total (4) | $ | 413,993 | | | 6,782 | | | (456) | | | 420,319 | |
(1)Represents amortized cost of the securities, net of the allowance for credit losses of $79 million related to available-for-sale debt securities and $26 million related to held-to-maturity debt securities at September 30, 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 additional 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 net of allowance for credit losses and fair value of these types of securities was $5.6 billion at September 30, 2020, and $5.8 billion at December 31, 2019.
(3)Predominantly consists of federal agency mortgage-backed securities at both September 30, 2020 and December 31, 2019.
(4)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 $97.1 billion and $85.0 billion and a fair value of $100.9 billion and $88.1 billion at September 30, 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.
Note 5: Available-for-Sale and Held-to-Maturity Debt Securities (continued)
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 September 30, | | Nine months ended September 30, |
(in millions) | 2020 | | 2019 | | 2020 | | 2019 |
Purchases of held-to-maturity debt securities: | | | | | | | |
Securities of U.S. Treasury and federal agencies | $ | 0 | | | 0 | | | $ | 3,016 | | | 0 | |
Securities of U.S. states and political subdivisions | 0 | | | 491 | | | 881 | | | 734 | |
Federal agency and other mortgage-backed securities | 23,683 | | | 3,108 | | | 46,578 | | | 3,161 | |
Total purchases of held-to-maturity debt securities | 23,683 | | | 3,599 | | | 50,475 | | | 3,895 | |
Transfers from available-for-sale debt securities to held-to-maturity debt securities: | | | | | | | |
Securities of U.S. states and political subdivisions | 1,236 | | | 4,354 | | | 1,236 | | | 5,912 | |
Federal agency and other mortgage-backed securities | 0 | | | 3,408 | | | 0 | | | 7,921 | |
Total transfers from available-for-sale debt securities to held-to-maturity debt securities | $ | 1,236 | | | 7,762 | | | $ | 1,236 | | | 13,833 | |
| | | | | | | | | | | | | | | | | |
(in millions) | Jun 30, 2021 | | Dec 31, 2020 | | | | | | |
| | | | | | | | | |
| |
| | | | | | | | | |
Commercial: | | | | | | | | | |
Commercial and industrial | $ | 317,618 | | | 318,805 | | | | | | | |
Real estate mortgage | 120,678 | | | 121,720 | | | | | | | |
Real estate construction | 22,406 | | | 21,805 | | | | | | | |
Lease financing | 15,720 | | | 16,087 | | | | | | | |
Total commercial | 476,422 | | | 478,417 | | | | | | | |
Consumer: | | | | | | | | | |
Residential mortgage – first lien | 244,371 | | | 276,674 | | | | | | | |
Residential mortgage – junior lien | 19,637 | | | 23,286 | | | | | | | |
Credit card | 34,936 | | | 36,664 | | | | | | | |
Auto | 51,073 | | | 48,187 | | | | | | | |
Other consumer | 25,861 | | | 24,409 | | | | | | | |
Total consumer | 375,878 | | | 409,220 | | | | | | | |
Total loans | $ | 852,300 | | | 887,637 | | | | | | | |
Our non-U.S. loans are reported by respective class of financing receivable in the table above. Substantially all of our non-U.S. loan portfolio is commercial loans. Table 5.3 shows the composition4.2 presents total non-U.S. commercial loans outstanding by class 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).financing receivable.
Table 5.3:4.2: Income Statement Impacts for Available-for-Sale and Held-to-Maturity Debt SecuritiesNon-U.S. Commercial Loans Outstanding
| | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended September 30, | | Nine months ended September 30, |
(in millions) | 2020 | | 2019 | | 2020 | | 2019 |
Interest income: | | | | | | | |
Available-for-sale | $ | 1,009 | | | 1,957 | | | $ | 4,084 | | | 6,268 | |
Held-to-maturity | 891 | | | 919 | | | 2,809 | | | 2,797 | |
Total interest income (1) | 1,900 | | | 2,876 | | | 6,893 | | | 9,065 | |
Provision for credit losses (2): | | | | | | | |
Available-for-sale | 12 | | | 0 | | | 140 | | | 0 | |
Held-to-maturity | 6 | | | 0 | | | 19 | | | 0 | |
Total provision for credit losses | 18 | | | 0 | | | 159 | | | 0 | |
Realized gains and losses (3): | | | | | | | |
Gross realized gains | 264 | | | 21 | | | 768 | | | 223 | |
Gross realized losses | 0 | | | (12) | | | (40) | | | (17) | |
Impairment write-downs included in earnings: | | | | | | | |
Credit-related (4) | 0 | | | 0 | | | 0 | | | (23) | |
Intent-to-sell | 0 | | | (6) | | | (15) | | | (35) | |
Total impairment write-downs included in earnings | 0 | | | (6) | | | (15) | | | (58) | |
Net realized gains | $ | 264 | | | 3 | | | $ | 713 | | | 148 | |
(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 additional 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 third quarter and first nine months of 2020, credit-related impairment recognized in earnings is classified as provision for credit losses due to our adoption of CECLon January 1, 2020. For additional information, see Note 1 (Summary of Significant Accounting Policies).
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. | | | | | | | | | | | | | | | | | |
(in millions) | Jun 30, 2021 | | Dec 31, 2020 | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| |
| | | | | | | | | |
Non-U.S. commercial loans: | | | | | | | | | |
Commercial and industrial | $ | 71,409 | | | 63,128 | | | | | | | |
Real estate mortgage | 6,619 | | | 7,278 | | | | | | | |
Real estate construction | 1,820 | | | 1,603 | | | | | | | |
Lease financing | 672 | | | 629 | | | | | | | |
Total non-U.S. commercial loans | $ | 80,520 | | | 72,638 | | | | | | | |
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 (NRSROs).
Debt securities rated investment grade, that is those with ratings similar to BBB-/Baa3 or above, as defined by NRSROs, 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 NRSROs, 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. Substantially all of our debt securities were rated by NRSROs at September 30, 2020, and December 31, 2019.
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 |
September 30, 2020 | | | | | |
Total portfolio | $ | 220,573 | | 99 | % | | 182,621 | | 99 | % |
Breakdown by category: | | | | | |
Securities of U.S. Treasury and federal agencies (1) | $ | 141,202 | | 100 | % | | 167,489 | | 100 | % |
Securities of U.S. states and political subdivisions | 31,511 | | 99 | | | 14,245 | | 100 | |
Collateralized loan obligations | 25,014 | | 100 | | | N/A | N/A |
All other debt securities (2) | 22,846 | | 90 | | | 887 | | 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 September 30, 2020 or December 31, 2019. The fair value of available-for-sale debt securities in nonaccrual status was $98 million and $110 million as of September 30, 2020, and December 31, 2019, respectively. There were 0 held-to-
maturity debt securities in nonaccrual status as of September 30, 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 available-for-sale debt securities purchased with credit deterioration during third quarter 2020. There were 0 held-to-maturity debt securities purchased with credit deterioration during the third quarter and first nine months of 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) | | Nine months ended September 30, 2020 |
Available-for-sale debt securities purchased with credit deterioration (PCD): | | |
Par value | 80 | $ | 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 Wells Fargo & Company | |
Note 5: Available-for-Sale and Held-to-Maturity Debt Securities (continued)
Unrealized Losses of Available-for-Sale Debt Securities
Table 5.6 shows the gross unrealized losses and fair value of available-for-sale 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 recorded credit impairment are categorized as being “less than 12 months” or
“12 months or more” in a continuous loss position based on the point in time that the fair value declined to below the (1) for the current period presented, amortized cost basis net of allowance for credit losses, or the (2) for the prior period presented, amortized cost basis.
Table 5.6:Gross Unrealized Losses and Fair Value – Available-for-Sale Debt Securities
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Less than 12 months | | 12 months or more | | Total |
(in millions) | Gross unrealized losses | | Fair value | | Gross unrealized losses | | Fair value | | Gross unrealized losses | | Fair value |
September 30, 2020 | | | | | | | | | | | |
Available-for-sale debt securities: | | | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | $ | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Securities of U.S. states and political subdivisions | (234) | | | 12,366 | | | (57) | | | 1,817 | | | (291) | | | 14,183 | |
Mortgage-backed securities: | | | | | | | | | | | |
Federal agencies | (71) | | | 15,985 | | | (1) | | | 365 | | | (72) | | | 16,350 | |
Residential | 0 | | | 0 | | | (1) | | | 58 | | | (1) | | | 58 | |
Commercial | (45) | | | 1,910 | | | (22) | | | 331 | | | (67) | | | 2,241 | |
Total mortgage-backed securities | (116) | | | 17,895 | | | (24) | | | 754 | | | (140) | | | 18,649 | |
Corporate debt securities | (35) | | | 788 | | | (11) | | | 95 | | | (46) | | | 883 | |
Collateralized loan obligations | (208) | | | 16,696 | | | (172) | | | 7,265 | | | (380) | | | 23,961 | |
Other | (34) | | | 6,545 | | | (53) | | | 1,382 | | | (87) | | | 7,927 | |
Total available-for-sale debt securities | $ | (627) | | | 54,290 | | | (317) | | | 11,313 | | | (944) | | | 65,603 | |
December 31, 2019 | | | | | | | | | | | |
Available-for-sale debt securities: | | | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | $ | 0 | | | 0 | | | (1) | | | 2,423 | | | (1) | | | 2,423 | |
Securities of U.S. states and political subdivisions | (10) | | | 2,776 | | | (26) | | | 2,418 | | | (36) | | | 5,194 | |
Mortgage-backed securities: | | | | | | | | | | | |
Federal agencies | (50) | | | 16,807 | | | (114) | | | 10,641 | | | (164) | | | 27,448 | |
Residential | (1) | | | 149 | | | 0 | | | 0 | | | (1) | | | 149 | |
Commercial | (3) | | | 998 | | | (3) | | | 244 | | | (6) | | | 1,242 | |
Total mortgage-backed securities | (54) | | | 17,954 | | | (117) | | | 10,885 | | | (171) | | | 28,839 | |
Corporate debt securities | (9) | | | 303 | | | (23) | | | 216 | | | (32) | | | 519 | |
Collateralized loan obligations | (13) | | | 5,001 | | | (110) | | | 16,789 | | | (123) | | | 21,790 | |
Other | (12) | | | 1,656 | | | (12) | | | 492 | | | (24) | | | 2,148 | |
Total available-for-sale debt securities | $ | (98) | | | 27,690 | | | (289) | | | 33,223 | | | (387) | | | 60,913 | |
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 debt securities.
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).
Loan Purchases, Sales, and Transfers
Table 4.3 presents the proceeds paid or received for purchases and sales of loans and transfers from loans held for investment to mortgages/loans held for sale. The table excludes loans for
which we have elected the fair value option and government insured/guaranteed residential mortgage – first lien loans because their loan activity normally does not impact the ACL.
Table 4.3:Loan Purchases, Sales, and Transfers
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| 2021 | | 2020 |
(in millions) | Commercial | | Consumer | | Total | | Commercial | | Consumer | | Total |
Quarter ended June 30, | | | | | | | | | | | |
Purchases | $ | 134 | | | 1 | | | 135 | | | 332 | | | 2 | | | 334 | |
Sales | (65) | | | 0 | | | (65) | | | (1,957) | | | (1) | | | (1,958) | |
Transfers (to)/from LHFS | (359) | | | (99) | | | (458) | | | (8) | | | (10,379) | | | (10,387) | |
Six months ended June 30, | | | | | | | | | | | |
Purchases | $ | 182 | | | 2 | | | 184 | | | 673 | | | 3 | | | 676 | |
Sales | (338) | | | (188) | | | (526) | | | (2,770) | | | (27) | | | (2,797) | |
Transfers (to)/from LHFS | (794) | | | (36) | | | (830) | | | 69 | | | (10,377) | | | (10,308) | |
Commitments to Lend
A commitment to lend is a legally binding agreement to lend 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. For unconditionally cancelable commitments at our discretion, we do not recognize an ACL.
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 $82.6 billion at June 30, 2021.
We issue commercial letters of credit to assist customers in purchasing goods or services, typically for international trade. At June 30, 2021, and December 31, 2020, we had $1.4 billion and $1.3 billion, 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 11 (Guarantees and Other Commitments) for additional information on standby letters of credit.
When we enter into 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 are 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, autos, 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 4.4. The table excludes the issued standby and commercial letters of credit and temporary advance arrangements described above.
Table 4.4:Unfunded Credit Commitments
| | | | | | | | | | | |
(in millions) | Jun 30, 2021 | | Dec 31, 2020 |
Commercial: | | | |
Commercial and industrial | $ | 394,370 | | | 378,167 | |
Real estate mortgage | 8,794 | | | 7,993 | |
Real estate construction | 16,260 | | | 15,650 | |
| | | |
Total commercial | 419,424 | | | 401,810 | |
Consumer: | | | |
Residential mortgage – first lien | 37,920 | | | 31,530 | |
Residential mortgage – junior lien | 30,170 | | | 32,820 | |
Credit card | 124,985 | | | 121,096 | |
Other consumer | 54,724 | | | 49,179 | |
Total consumer | 247,799 | | | 234,625 | |
Total unfunded credit commitments | $ | 667,223 | | | 636,435 | |
Note 4: Loans and Related 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 September 30, 2020 | | Nine months ended September 30, 2020 |
(in millions) | Available-for-Sale | Held-to-Maturity | | Available-for-Sale | Held-to-Maturity |
Balance, beginning of period (1) | $ | 114 | | 20 | | | $ | 0 | | 0 | |
Cumulative effect from change in accounting policies (2) | 0 | | 0 | | | 24 | | 7 | |
Balance, beginning of period, adjusted | 114 | | 20 | | | 24 | | 7 | |
| | | | | |
| | | | | |
| | | | | |
Provision for credit losses | 12 | | 6 | | | 140 | | 19 | |
Securities purchased with credit deterioration | 0 | | 0 | | | 11 | | 0 | |
Reduction due to sales | 0 | | 0 | | | (8) | | 0 | |
Reduction due to intent to sell | (2) | | 0 | | | (13) | | 0 | |
Charge-offs | (48) | | 0 | | | (81) | | 0 | |
| | | | | |
Interest income (3) | 3 | | 0 | | | 6 | | 0 | |
Balance, end of period (4) | $ | 79 | | 26 | | | $ | 79 | | 26 | |
(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 $0 at December 31, 2019. For additional information, see Note 1 (Summary of Significant Accounting Policies).
(2)Represents the impact of adoption of CECL on January 1, 2020. For additional information, see Note 1 (Summary of Significant Accounting Policies).
(3)Certain debt securities with an allowance for credit losses calculated by discounting expected cash flows using the securities’ effective interest rate over its remaining life, recognize changes in the allowance for credit losses attributable to the passage of time as interest income.
(4)The allowance for credit losses for debt securities primarily relates to corporate debt securities as of September 30, 2020.
Note 5: Available-for-Sale and Held-to-Maturity Debt Securities (continued)
Contractual Maturities
Table 5.8 shows3.6 and Table 3.7 show the remaining contractual maturities, amortized cost, net of allowance for credit losses,the ACL, fair value and weighted average effective yields of available-for-saleAFS and HTM debt securities.securities, respectively. The remaining contractual principal maturities for MBS do not
maturities for mortgage-backed securities (MBS) do not consider prepayments. Remaining expected maturities will differ from contractual maturities because borrowers may have the right to prepay obligations before the underlying mortgages mature.
Table 5.8:3.6: Contractual Maturities – Available-for-Sale Debt Securities
| By remaining contractual maturity ($ in millions) | 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 | 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 |
September 30, 2020 | | |
June 30, 2021 | | June 30, 2021 | |
Available-for-sale debt securities (1): | Available-for-sale debt securities (1): | | Available-for-sale debt securities (1): | |
Securities of U.S. Treasury and federal agencies | Securities of U.S. Treasury and federal agencies | | Securities of U.S. Treasury and federal agencies | |
Amortized cost, net | | Amortized cost, net | $ | 35,741 | | | 5 | | | 17,965 | | | 15,777 | | | 1,994 | |
Fair value | | Fair value | 35,905 | | | 5 | | | 17,978 | | | 15,837 | | | 2,085 | |
Weighted average yield | | Weighted average yield | 0.75 | % | | 2.00 | | | 0.33 | | | 1.13 | | | 1.44 | |
Non-U.S. government securities | | Non-U.S. government securities | |
Amortized cost, net | Amortized cost, net | $ | 5,826 | | | 511 | | | 2,771 | | | 10 | | | 2,534 | | Amortized cost, net | $ | 11,201 | | | 11,176 | | | 25 | | | 0 | | | 0 | |
Fair value | Fair value | 5,975 | | | 511 | | | 2,777 | | | 11 | | | 2,676 | | Fair value | 11,201 | | | 11,176 | | | 25 | | | 0 | | | 0 | |
Weighted average yield | Weighted average yield | 0.99 | % | | 2.61 | | | 0.28 | | | 2.34 | | | 1.42 | | Weighted average yield | (0.11 | %) | | (0.11) | | | 0.42 | | | 0 | | | 0 | |
Securities of U.S. states and political subdivisions | Securities of U.S. states and political subdivisions | | Securities of U.S. states and political subdivisions | |
Amortized cost, net | Amortized cost, net | $ | 31,563 | | | 2,748 | | | 3,193 | | | 3,558 | | | 22,064 | | Amortized cost, net | $ | 19,121 | | | 1,546 | | | 2,225 | | | 5,244 | | | 10,106 | |
Fair value | Fair value | 31,511 | | | 2,754 | | | 3,246 | | | 3,570 | | | 21,941 | | Fair value | 19,499 | | | 1,549 | | | 2,270 | | | 5,253 | | | 10,427 | |
Weighted average yield | Weighted average yield | 2.34 | % | | 1.37 | | | 1.74 | | | 1.46 | | | 2.68 | | Weighted average yield | 2.07 | % | | 1.46 | | | 1.58 | | | 1.41 | | | 2.62 | |
Mortgage-backed securities: | | |
Federal agencies | | |
Federal agency mortgage-backed securities | | Federal agency mortgage-backed securities | |
Amortized cost, net | Amortized cost, net | $ | 130,717 | | | 0 | | | 138 | | | 2,766 | | | 127,813 | | Amortized cost, net | $ | 94,186 | | | 8 | | | 171 | | | 3,359 | | | 90,648 | |
Fair value | Fair value | 135,227 | | | 0 | | | 146 | | | 2,865 | | | 132,216 | | Fair value | 96,534 | | | 8 | | | 181 | | | 3,484 | | | 92,861 | |
Weighted average yield | Weighted average yield | 3.01 | % | | 0 | | | 3.24 | | | 2.34 | | | 3.02 | | Weighted average yield | 2.72 | % | | 2.35 | | | 3.30 | | | 2.30 | | | 2.74 | |
Residential | | |
Amortized cost, net | $ | 539 | | | 0 | | | 0 | | | 0 | | | 539 | | |
Fair value | 541 | | | 0 | | | 0 | | | 0 | | | 541 | | |
Weighted average yield | 2.24 | % | | 0 | | | 0 | | | 0 | | | 2.24 | | |
Commercial | | |
Amortized cost, net | $ | 3,393 | | | 0 | | | 0 | | | 161 | | | 3,232 | | |
Fair value | 3,343 | | | 0 | | | 0 | | | 159 | | | 3,184 | | |
Weighted average yield | 2.16 | % | | 0 | | | 0 | | | 1.63 | | | 2.18 | | |
Total mortgage-backed securities | | |
Amortized cost, net | $ | 134,649 | | | 0 | | | 138 | | | 2,927 | | | 131,584 | | |
Fair value | 139,111 | | | 0 | | | 146 | | | 3,024 | | | 135,941 | | |
Weighted average yield | 2.98 | % | | 0 | | | 3.24 | | | 2.30 | | | 3.00 | | |
Corporate debt securities | | |
Non-agency mortgage-backed securities | | Non-agency mortgage-backed securities | |
Amortized cost, net | Amortized cost, net | $ | 5,687 | | | 207 | | | 2,390 | | | 2,301 | | | 789 | | Amortized cost, net | $ | 4,349 | | | 0 | | | 0 | | | 151 | | | 4,198 | |
Fair value | Fair value | 5,772 | | | 208 | | | 2,459 | | | 2,326 | | | 779 | | Fair value | 4,378 | | | 0 | | | 0 | | | 150 | | | 4,228 | |
Weighted average yield | Weighted average yield | 4.75 | % | | 6.41 | | | 4.88 | | | 4.61 | | | 4.36 | | Weighted average yield | 2.00 | % | | 0 | | | 0 | | | 2.27 | | | 1.99 | |
Collateralized loan obligations | Collateralized loan obligations | | Collateralized loan obligations | |
Amortized cost, net | Amortized cost, net | $ | 25,389 | | | 0 | | | 249 | | | 12,901 | | | 12,239 | | Amortized cost, net | $ | 12,406 | | | 0 | | | 90 | | | 7,306 | | | 5,010 | |
Fair value | Fair value | 25,014 | | | 0 | | | 248 | | | 12,731 | | | 12,035 | | Fair value | 12,407 | | | 0 | | | 90 | | | 7,304 | | | 5,013 | |
Weighted average yield | Weighted average yield | 1.67 | % | | 0 | | | 2.40 | | | 1.75 | | | 1.57 | | Weighted average yield | 1.42 | % | | 0 | | | 2.21 | | | 1.44 | | | 1.39 | |
Other | | |
Other debt securities | | Other debt securities | |
Amortized cost, net | Amortized cost, net | $ | 13,197 | | | 8,991 | | | 457 | | | 1,087 | | | 2,662 | | Amortized cost, net | $ | 9,305 | | | 160 | | | 2,791 | | | 2,865 | | | 3,489 | |
Fair value | Fair value | 13,190 | | | 8,985 | | | 446 | | | 1,078 | | | 2,681 | | Fair value | 9,973 | | | 160 | | | 3,152 | | | 2,910 | | | 3,751 | |
Weighted average yield | Weighted average yield | 0.42 | % | | (0.15) | | | 1.76 | | | 1.03 | | | 1.84 | | Weighted average yield | 3.17 | % | | 2.97 | | | 4.23 | | | 3.31 | | | 2.22 | |
Total available-for-sale debt securities | Total available-for-sale debt securities | | Total available-for-sale debt securities | |
Amortized cost, net | Amortized cost, net | $ | 216,311 | | | 12,457 | | | 9,198 | | | 22,784 | | | 171,872 | | Amortized cost, net | $ | 186,309 | | | 12,895 | | | 23,267 | | | 34,702 | | | 115,445 | |
Fair value | Fair value | 220,573 | | | 12,458 | | | 9,322 | | | 22,740 | | | 176,053 | | Fair value | $ | 189,897 | | | 12,898 | | | 23,696 | | | 34,938 | | | 118,365 | |
Weighted average yield | Weighted average yield | 2.57 | % | | 0.41 | | | 2.17 | | | 2.03 | | | 2.82 | | Weighted average yield | 2.03 | % | | 0.22 | | | 0.95 | | | 1.54 | | | 2.60 | |
(1)Weighted average yields displayed by maturity bucket are weighted based on amortized cost without effect for any related hedging derivatives and are shown pre-tax.
Table 5.9 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.
Table 5.9:3.7: Contractual Maturities – Held-to-Maturity Debt Securities
| By remaining contractual maturity ($ in millions) | 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 | 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 |
September 30, 2020 | | |
June 30, 2021 | | June 30, 2021 | |
Held-to-maturity debt securities (1): | Held-to-maturity debt securities (1): | | Held-to-maturity debt securities (1): | |
Securities of U.S. Treasury and federal agencies | Securities of U.S. Treasury and federal agencies | | Securities of U.S. Treasury and federal agencies | |
Amortized cost, net | Amortized cost, net | $ | 48,587 | | | 24,742 | | | 20,064 | | | 0 | | | 3,781 | | Amortized cost, net | $ | 27,576 | | | 11,386 | | | 12,407 | | | 0 | | | 3,783 | |
Fair value | Fair value | 50,287 | | | 25,051 | | | 21,275 | | | 0 | | | 3,961 | | Fair value | 28,029 | | | 11,461 | | | 13,140 | | | 0 | | | 3,428 | |
Weighted average yield | Weighted average yield | 2.14 | % | | 2.19 | | | 2.19 | | | 0 | | | 1.57 | | Weighted average yield | 2.10 | % | | 1.98 | | | 2.37 | | | 0 | | | 1.57 | |
Securities of U.S. states and political subdivisions | Securities of U.S. states and political subdivisions | | Securities of U.S. states and political subdivisions | |
Amortized cost, net | Amortized cost, net | $ | 14,232 | | | 292 | | | 1,006 | | | 1,830 | | | 11,104 | | Amortized cost, net | $ | 28,243 | | | 673 | | | 2,177 | | | 2,066 | | | 23,327 | |
Fair value | Fair value | 14,910 | | | 295 | | | 1,059 | | | 1,932 | | | 11,624 | | Fair value | 29,138 | | | 680 | | | 2,246 | | | 2,150 | | | 24,062 | |
Weighted average yield | Weighted average yield | 2.72 | % | | 2.36 | | | 2.59 | | | 2.93 | | | 2.71 | | Weighted average yield | 2.19 | % | | 2.09 | | | 1.90 | | | 2.65 | | | 2.18 | |
Federal agency and other mortgage-backed securities | | |
Federal agency mortgage-backed securities | | Federal agency mortgage-backed securities | |
Amortized cost, net | Amortized cost, net | $ | 119,766 | | | 0 | | | 15 | | | 0 | | | 119,751 | | Amortized cost, net | $ | 182,891 | | | 0 | | | 0 | | | 0 | | | 182,891 | |
Fair value | Fair value | 124,227 | | | 0 | | | 14 | | | 0 | | | 124,213 | | Fair value | 184,450 | | | 0 | | | 0 | | | 0 | | | 184,450 | |
Weighted average yield | Weighted average yield | 2.65 | % | | 0 | | | 1.50 | | | 0 | | | 2.65 | | Weighted average yield | 2.20 | % | | 0 | | | 0 | | | 0 | | | 2.20 | |
Other debt securities | | |
Non-agency mortgage-backed securities | | Non-agency mortgage-backed securities | |
Amortized cost, net | | Amortized cost, net | $ | 948 | | | 0 | | | 15 | | | 0 | | | 933 | |
Fair value | | Fair value | 983 | | | 0 | | | 15 | | | 0 | | | 968 | |
Weighted average yield | | Weighted average yield | 3.09 | % | | 0 | | | 1.56 | | | 0 | | | 3.12 | |
Collateralized loan obligations | | Collateralized loan obligations | |
Amortized cost, net | Amortized cost, net | $ | 10 | | | 0 | | | 0 | | | 10 | | | 0 | | Amortized cost, net | $ | 21,283 | | | 0 | | | 0 | | | 8,155 | | | 13,128 | |
Fair value | Fair value | 10 | | | 0 | | | 0 | | | 10 | | | 0 | | Fair value | 21,487 | | | 0 | | | 0 | | | 8,248 | | | 13,239 | |
Weighted average yield | Weighted average yield | 1.45 | % | | 0 | | | 0 | | | 1.45 | | | 0 | | Weighted average yield | 1.68 | % | | 0 | | | 0 | | | 1.73 | | | 1.65 | |
Total held-to-maturity debt securities | Total held-to-maturity debt securities | | Total held-to-maturity debt securities | |
Amortized cost, net | Amortized cost, net | $ | 182,595 | | | 25,034 | | | 21,085 | | | 1,840 | | | 134,636 | | Amortized cost, net | $ | 260,941 | | | 12,059 | | | 14,599 | | | 10,221 | | | 224,062 | |
Fair value | Fair value | 189,434 | | | 25,346 | | | 22,348 | | | 1,942 | | | 139,798 | | Fair value | 264,087 | | | 12,141 | | | 15,401 | | | 10,398 | | | 226,147 | |
Weighted average yield | Weighted average yield | 2.52 | % | | 2.19 | | | 2.21 | | | 2.92 | | | 2.62 | | Weighted average yield | 2.15 | % | | 1.98 | | | 2.30 | | | 1.91 | | | 2.16 | |
(1)Weighted average yields displayed by maturity bucket are weighted based on amortized cost and are shown pre-tax.
| | |
Note 6:4: Loans and Related Allowance for Credit Losses |
Table 6.14.1 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 SeptemberJune 30, 2020,2021, and December 31, 2019.2020.
Outstanding balances exclude accrued interest receivable on loans, except for certain revolving loans, such as credit card loans.
During the first nine months of 2020, we reversed accrued interest receivable by reversing interest income of $29 million for our commercial portfolio segment and $161 million for our consumer portfolio segment. See Note 97 (Other Assets) for additional information on accrued interest receivable. Amounts considered to be uncollectible are reversed through interest income. During the first half of 2021, we reversed accrued interest receivable of $24 million for our commercial portfolio segment and $104 million for our consumer portfolio segment, compared with $21 million and $114 million, respectively, for the same period a year ago.
Table 6.1:4.1: Loans Outstanding
| (in millions) | (in millions) | Sep 30, 2020 | | Dec 31, 2019 | (in millions) | Jun 30, 2021 | | Dec 31, 2020 | |
| | | Commercial: | Commercial: | | Commercial: | | |
Commercial and industrial | Commercial and industrial | $ | 320,913 | | | 354,125 | | Commercial and industrial | $ | 317,618 | | | 318,805 | | |
Real estate mortgage | Real estate mortgage | 121,910 | | | 121,824 | | Real estate mortgage | 120,678 | | | 121,720 | | |
Real estate construction | Real estate construction | 22,519 | | | 19,939 | | Real estate construction | 22,406 | | | 21,805 | | |
Lease financing | Lease financing | 16,947 | | | 19,831 | | Lease financing | 15,720 | | | 16,087 | | |
Total commercial | Total commercial | 482,289 | | | 515,719 | | Total commercial | 476,422 | | | 478,417 | | |
Consumer: | Consumer: | | Consumer: | | |
Real estate 1-4 family first mortgage | 294,990 | | | 293,847 | | |
Real estate 1-4 family junior lien mortgage | 25,162 | | | 29,509 | | |
Residential mortgage – first lien | | Residential mortgage – first lien | 244,371 | | | 276,674 | | |
Residential mortgage – junior lien | | Residential mortgage – junior lien | 19,637 | | | 23,286 | | |
Credit card | Credit card | 36,021 | | | 41,013 | | Credit card | 34,936 | | | 36,664 | | |
Automobile | 48,450 | | | 47,873 | | |
Other revolving credit and installment | 33,170 | | | 34,304 | | |
Auto | | Auto | 51,073 | | | 48,187 | | |
Other consumer | | Other consumer | 25,861 | | | 24,409 | | |
Total consumer | Total consumer | 437,793 | | | 446,546 | | Total consumer | 375,878 | | | 409,220 | | |
Total loans | Total loans | $ | 920,082 | | | 962,265 | | Total loans | $ | 852,300 | | | 887,637 | | |
Our non-U.S. loans are reported by respective class of financing receivable in the table above. Substantially all of our non-U.S. loan portfolio is commercial loans. Table 6.24.2 presents total non-U.S. commercial loans outstanding by class of financing receivable.
Table 6.2:4.2: Non-U.S. Commercial Loans Outstanding
| (in millions) | (in millions) | Sep 30, 2020 | | Dec 31, 2019 | (in millions) | Jun 30, 2021 | | Dec 31, 2020 | |
Non-U.S. Commercial Loans | | |
| | | Non-U.S. commercial loans: | | Non-U.S. commercial loans: | | |
Commercial and industrial | Commercial and industrial | $ | 61,594 | | | 70,494 | | Commercial and industrial | $ | 71,409 | | | 63,128 | | |
Real estate mortgage | Real estate mortgage | 6,228 | | | 7,004 | | Real estate mortgage | 6,619 | | | 7,278 | | |
Real estate construction | Real estate construction | 1,898 | | | 1,434 | | Real estate construction | 1,820 | | | 1,603 | | |
Lease financing | Lease financing | 1,156 | | | 1,220 | | Lease financing | 672 | | | 629 | | |
Total non-U.S. commercial loans | Total non-U.S. commercial loans | $ | 70,876 | | | 80,152 | | Total non-U.S. commercial loans | $ | 80,520 | | | 72,638 | | |
Loan Purchases, Sales, and Transfers
Table 6.3 summarizes4.3 presents the proceeds paid or received for purchases and sales of loans and transfers from loans held for investment to mortgages/loans held for sale. The table excludes loans for
which we have elected the fair value option and government insured/guaranteed real estate 1-4 familyresidential mortgage – first mortgagelien loans because
their loan activity normally does not impact the ACL. In the first nine months of 2020, we sold $1.2 billion of 1-4 family first mortgage loans for a gain of $724 million, which is included in other noninterest income on our consolidated income statement. These whole loans were designated as MLHFS in 2019.
Table 6.3:4.3: Loan Purchases, Sales, and Transfers
| | | | 2020 | | 2019 | | 2021 | | 2020 |
(in millions) | (in millions) | Commercial | | Consumer | | Total | | Commercial | | Consumer | | Total | (in millions) | Commercial | | Consumer | | Total | | Commercial | | Consumer | | Total |
Quarter ended September 30, | | |
Quarter ended June 30, | | Quarter ended June 30, | |
Purchases | Purchases | $ | 260 | | | 2 | | | 262 | | | 571 | | | 910 | | | 1,481 | | Purchases | $ | 134 | | | 1 | | | 135 | | | 332 | | | 2 | | | 334 | |
Sales | Sales | (564) | | | 0 | | | (564) | | | (433) | | | (85) | | | (518) | | Sales | (65) | | | 0 | | | (65) | | | (1,957) | | | (1) | | | (1,958) | |
Transfers (to) from MLHFS/LHFS | (170) | | | 8,990 | | | 8,820 | | | (25) | | | (37) | | | (62) | | |
Nine months ended September 30, | | |
Transfers (to)/from LHFS | | Transfers (to)/from LHFS | (359) | | | (99) | | | (458) | | | (8) | | | (10,379) | | | (10,387) | |
Six months ended June 30, | | Six months ended June 30, | |
Purchases | Purchases | $ | 1,034 | | | 5 | | | 1,039 | | | 1,570 | | | 918 | | | 2,488 | | Purchases | $ | 182 | | | 2 | | | 184 | | | 673 | | | 3 | | | 676 | |
Sales | Sales | (3,334) | | | (27) | | | (3,361) | | | (1,389) | | | (417) | | | (1,806) | | Sales | (338) | | | (188) | | | (526) | | | (2,770) | | | (27) | | | (2,797) | |
Transfers (to) from MLHFS/LHFS | (101) | | | (1,387) | | | (1,488) | | | (117) | | | (1,889) | | | (2,006) | | |
Transfers (to)/from LHFS | | Transfers (to)/from LHFS | (794) | | | (36) | | | (830) | | | 69 | | | (10,377) | | | (10,308) | |
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. For unconditionally cancelable commitments at our discretion, we do not recognize an ACL.
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 $79.9$82.6 billion at SeptemberJune 30, 2020.2021.
We issue commercial letters of credit to assist customers in purchasing goods or services, typically for international trade. At SeptemberJune 30, 2020,2021, and December 31, 2019,2020, we had $942 million$1.4 billion and $862 million,$1.3 billion, 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 1311 (Guarantees Pledged Assets and Collateral, and Other Commitments) for additional information on standby letters of credit.
When we makeenter into 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 are 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,autos, 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 6.4.4.4. The table excludes the issued standby and commercial letters of credit and temporary advance arrangements described above.
Table 6.4:4.4: Unfunded Credit Commitments
| (in millions) | (in millions) | Sep 30, 2020 | | Dec 31, 2019 | (in millions) | Jun 30, 2021 | | Dec 31, 2020 |
Commercial: | Commercial: | | Commercial: | |
Commercial and industrial | Commercial and industrial | $ | 359,827 | | | 346,991 | | Commercial and industrial | $ | 394,370 | | | 378,167 | |
Real estate mortgage | Real estate mortgage | 8,420 | | | 8,206 | | Real estate mortgage | 8,794 | | | 7,993 | |
Real estate construction | Real estate construction | 16,028 | | | 17,729 | | Real estate construction | 16,260 | | | 15,650 | |
| Total commercial | Total commercial | 384,275 | | | 372,926 | | Total commercial | 419,424 | | | 401,810 | |
Consumer: | Consumer: | | Consumer: | |
Real estate 1-4 family first mortgage | 30,853 | | | 34,391 | | |
Real estate 1-4 family junior lien mortgage | 34,452 | | | 36,916 | | |
Residential mortgage – first lien | | Residential mortgage – first lien | 37,920 | | | 31,530 | |
Residential mortgage – junior lien | | Residential mortgage – junior lien | 30,170 | | | 32,820 | |
Credit card | Credit card | 121,312 | | | 114,933 | | Credit card | 124,985 | | | 121,096 | |
Other revolving credit and installment | 22,239 | | | 25,898 | | |
Other consumer | | Other consumer | 54,724 | | | 49,179 | |
Total consumer | Total consumer | 208,856 | | | 212,138 | | Total consumer | 247,799 | | | 234,625 | |
Total unfunded credit commitments | Total unfunded credit commitments | $ | 593,131 | | | 585,064 | | Total unfunded credit commitments | $ | 667,223 | | | 636,435 | |
Note 6:4: Loans and Related Allowance for Credit Losses (continued)
Allowance for Credit Losses for Loans
Table 6.54.5 presents the allowance for credit losses (ACL) 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 regarding our adoption of CECL is included in Note 1 (Summary of Significant Accounting Policies).
The ACL for loans increased $10.0decreased $3.3 billion from December 31, 2019, driven by a $11.3 billion increase2020, due to improvements in the ACL for loans in the first nine months of 2020 reflecting current and forecasted economic conditions due to the COVID-19 pandemic, partially offset by a $1.3 billion decrease as a result of adopting CECL.conditions.
Table 6.5:4.5: Allowance for Credit Losses for Loans
| | | Quarter ended September 30, | | Nine months ended September 30, | | Quarter ended June 30, | | Six months ended June 30, | |
(in millions) | 2020 | | 2019 | | 2020 | | 2019 | |
($ in millions) | | ($ in millions) | 2021 | | 2020 | | 2021 | | 2020 | |
Balance, beginning of period | Balance, beginning of period | $ | 20,436 | | | 10,603 | | | 10,456 | | | 10,707 | | Balance, beginning of period | $ | 18,043 | | | 12,022 | | | 19,713 | | | 10,456 | | |
| Cumulative effect from change in accounting policies (1) | Cumulative effect from change in accounting policies (1) | 0 | | | 0 | | | (1,337) | | | 0 | | Cumulative effect from change in accounting policies (1) | 0 | | | 0 | | | 0 | | | (1,337) | | |
Allowance for purchased credit-deteriorated (PCD) loans (2) | Allowance for purchased credit-deteriorated (PCD) loans (2) | 0 | | | 0 | | | 8 | | | 0 | | Allowance for purchased credit-deteriorated (PCD) loans (2) | 0 | | | 0 | | | 0 | | | 8 | | |
| Balance, beginning of period, adjusted | Balance, beginning of period, adjusted | 20,436 | | | 10,603 | | | 9,127 | | | 10,707 | | Balance, beginning of period, adjusted | 18,043 | | | 12,022 | | | 19,713 | | | 9,127 | | |
Provision for credit losses | Provision for credit losses | 751 | | | 695 | | | 14,149 | | | 2,043 | | Provision for credit losses | (1,239) | | | 9,565 | | | (2,356) | | | 13,398 | | |
| Interest income on certain loans (3) | (41) | | | (34) | | | (117) | | | (112) | | |
Interest income on certain impaired loans (3) | | Interest income on certain impaired loans (3) | (36) | | | (38) | | | (77) | | | (76) | | |
Loan charge-offs: | Loan charge-offs: | | Loan charge-offs: | | |
Commercial: | Commercial: | | Commercial: | | |
Commercial and industrial | Commercial and industrial | (327) | | | (209) | | | (1,260) | | | (590) | | Commercial and industrial | (149) | | | (556) | | | (308) | | | (933) | | |
Real estate mortgage | Real estate mortgage | (59) | | | (2) | | | (134) | | | (28) | | Real estate mortgage | (11) | | | (72) | | | (63) | | | (75) | | |
Real estate construction | Real estate construction | 0 | | | 0 | | | 0 | | | (1) | | Real estate construction | 0 | | | 0 | | | 0 | | | 0 | | |
Lease financing | Lease financing | (34) | | | (12) | | | (66) | | | (35) | | Lease financing | (10) | | | (19) | | | (31) | | | (32) | | |
Total commercial | Total commercial | (420) | | | (223) | | | (1,460) | | | (654) | | Total commercial | (170) | | | (647) | | | (402) | | | (1,040) | | |
Consumer: | Consumer: | | Consumer: | | |
Real estate 1-4 family first mortgage | (20) | | | (31) | | | (63) | | | (101) | | |
Real estate 1-4 family junior lien mortgage | (22) | | | (27) | | | (70) | | | (90) | | |
Residential mortgage – first lien | | Residential mortgage – first lien | (6) | | | (20) | | | (23) | | | (43) | | |
Residential mortgage – junior lien | | Residential mortgage – junior lien | (12) | | | (18) | | | (31) | | | (48) | | |
Credit card | Credit card | (339) | | | (404) | | | (1,225) | | | (1,278) | | Credit card | (357) | | | (415) | | | (692) | | | (886) | | |
Automobile | (99) | | | (156) | | | (413) | | | (485) | | |
Other revolving credit and installment | (94) | | | (168) | | | (372) | | | (497) | | |
Auto | | Auto | (128) | | | (158) | | | (257) | | | (314) | | |
Other consumer | | Other consumer | (79) | | | (113) | | | (226) | | | (278) | | |
Total consumer | Total consumer | (574) | | | (786) | | | (2,143) | | | (2,451) | | Total consumer | (582) | | | (724) | | | (1,229) | | | (1,569) | | |
Total loan charge-offs | Total loan charge-offs | (994) | | | (1,009) | | | (3,603) | | | (3,105) | | Total loan charge-offs | (752) | | | (1,371) | | | (1,631) | | | (2,609) | | |
Loan recoveries: | Loan recoveries: | | Loan recoveries: | | |
Commercial: | Commercial: | | Commercial: | | |
Commercial and industrial | Commercial and industrial | 53 | | | 62 | | | 132 | | | 151 | | Commercial and industrial | 68 | | | 35 | | | 139 | | | 79 | | |
Real estate mortgage | Real estate mortgage | 3 | | | 10 | | | 13 | | | 26 | | Real estate mortgage | 16 | | | 5 | | | 22 | | | 10 | | |
Real estate construction | Real estate construction | 2 | | | 8 | | | 19 | | | 13 | | Real estate construction | 1 | | | 1 | | | 1 | | | 17 | | |
Lease financing | Lease financing | 6 | | | 4 | | | 14 | | | 15 | | Lease financing | 5 | | | 4 | | | 11 | | | 8 | | |
Total commercial | Total commercial | 64 | | | 84 | | | 178 | | | 205 | | Total commercial | 90 | | | 45 | | | 173 | | | 114 | | |
Consumer: | Consumer: | | Consumer: | | |
Real estate 1-4 family first mortgage | 21 | | | 36 | | | 65 | | | 148 | | |
Real estate 1-4 family junior lien mortgage | 36 | | | 49 | | | 101 | | | 140 | | |
Residential mortgage – first lien | | Residential mortgage – first lien | 25 | | | 18 | | | 66 | | | 44 | | |
Residential mortgage – junior lien | | Residential mortgage – junior lien | 43 | | | 30 | | | 81 | | | 65 | | |
Credit card | Credit card | 94 | | | 85 | | | 276 | | | 258 | | Credit card | 101 | | | 88 | | | 200 | | | 182 | | |
Automobile | 68 | | | 80 | | | 194 | | | 266 | | |
Other revolving credit and installment | 28 | | | 30 | | | 84 | | | 95 | | |
Auto | | Auto | 83 | | | 52 | | | 160 | | | 126 | | |
Other consumer | | Other consumer | 29 | | | 25 | | | 57 | | | 56 | | |
Total consumer | Total consumer | 247 | | | 280 | | | 720 | | | 907 | | Total consumer | 281 | | | 213 | | | 564 | | | 473 | | |
Total loan recoveries | Total loan recoveries | 311 | | | 364 | | | 898 | | | 1,112 | | Total loan recoveries | 371 | | | 258 | | | 737 | | | 587 | | |
Net loan charge-offs | Net loan charge-offs | (683) | | | (645) | | | (2,705) | | | (1,993) | | Net loan charge-offs | (381) | | | (1,113) | | | (894) | | | (2,022) | | |
Other | Other | 8 | | | (6) | | | 17 | | | (32) | | Other | 4 | | | 0 | | | 5 | | | 9 | | |
Balance, end of period | Balance, end of period | $ | 20,471 | | | 10,613 | | | 20,471 | | | 10,613 | | Balance, end of period | $ | 16,391 | | | 20,436 | | | 16,391 | | | 20,436 | | |
| Components: | Components: | | Components: | | |
Allowance for loan losses | Allowance for loan losses | $ | 19,463 | | | 9,715 | | | 19,463 | | | 9,715 | | Allowance for loan losses | $ | 15,148 | | | 18,926 | | | 15,148 | | | 18,926 | | |
Allowance for unfunded credit commitments | Allowance for unfunded credit commitments | 1,008 | | | 898 | | | 1,008 | | | 898 | | Allowance for unfunded credit commitments | 1,243 | | | 1,510 | | | 1,243 | | | 1,510 | | |
Allowance for credit losses for loans | $ | 20,471 | | | 10,613 | | | 20,471 | | | 10,613 | | |
Allowance for credit losses | | Allowance for credit losses | $ | 16,391 | | | 20,436 | | | 16,391 | | | 20,436 | | |
Net loan charge-offs (annualized) as a percentage of average total loans | Net loan charge-offs (annualized) as a percentage of average total loans | 0.29 | % | | 0.27 | | | 0.38 | | | 0.28 | | Net loan charge-offs (annualized) as a percentage of average total loans | 0.18 | % | | 0.46 | | | 0.21 | | | 0.42 | | |
Allowance for loan losses as a percentage of total loans | Allowance for loan losses as a percentage of total loans | 2.12 | | | 1.02 | | | 2.12 | | | 1.02 | | Allowance for loan losses as a percentage of total loans | 1.78 | | | 2.02 | | | 1.78 | | | 2.02 | | |
Allowance for credit losses for loans as a percentage of total loans | Allowance for credit losses for loans as a percentage of total loans | 2.22 | | | 1.11 | | | 2.22 | | | 1.11 | | Allowance for credit losses for loans as a percentage of total loans | 1.92 | | | 2.19 | | | 1.92 | | | 2.19 | | |
(1)Represents the overall decrease in our allowance for credit lossesACL for loans as a result of our adoption of CECL on January 1, 2020.
(2)Represents the allowance estimated for PCIpurchased credit-impaired (PCI) loans that automatically became PCD loans with the adoption of CECL. For additional information, see Note 1 (Summary of Significant Accounting Policies). in our 2020 Form 10-K.
(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 6.64.6 summarizes the activity in the allowance for credit losses for loansACL by our commercial and consumer portfolio segments.
Table 6.6:4.6: Allowance for Credit Losses for Loans Activity by Portfolio Segment
| | | | 2020 | | 2019 | | 2021 | | 2020 |
(in millions) | (in millions) | Commercial | | Consumer | | Total | | Commercial | | Consumer | | Total | (in millions) | Commercial | | Consumer | | Total | | Commercial | | Consumer | | Total |
Quarter ended September 30, | | |
Quarter ended June 30, | | Quarter ended June 30, | |
Balance, beginning of period | Balance, beginning of period | $ | 11,669 | | | 8,767 | | | 20,436 | | | 6,298 | | | 4,305 | | | 10,603 | | Balance, beginning of period | $ | 10,682 | | | 7,361 | | | 18,043 | | | 5,279 | | | 6,743 | | | 12,022 | |
| Provision for credit losses | Provision for credit losses | 241 | | | 510 | | | 751 | | | 84 | | | 611 | | | 695 | | Provision for credit losses | (1,021) | | | (218) | | | (1,239) | | | 6,999 | | | 2,566 | | | 9,565 | |
Interest income on certain loans (1) | (18) | | | (23) | | | (41) | | | (10) | | | (24) | | | (34) | | |
Interest income on certain loans (3) | | Interest income on certain loans (3) | (15) | | | (21) | | | (36) | | | (12) | | | (26) | | | (38) | |
Loan charge-offs | Loan charge-offs | (420) | | | (574) | | | (994) | | | (223) | | | (786) | | | (1,009) | | Loan charge-offs | (170) | | | (582) | | | (752) | | | (647) | | | (724) | | | (1,371) | |
Loan recoveries | Loan recoveries | 64 | | | 247 | | | 311 | | | 84 | | | 280 | | | 364 | | Loan recoveries | 90 | | | 281 | | | 371 | | | 45 | | | 213 | | | 258 | |
Net loan charge-offs | Net loan charge-offs | (356) | | | (327) | | | (683) | | | (139) | | | (506) | | | (645) | | Net loan charge-offs | (80) | | | (301) | | | (381) | | | (602) | | | (511) | | | (1,113) | |
Other | Other | 6 | | | 2 | | | 8 | | | (3) | | | (3) | | | (6) | | Other | 4 | | | 0 | | | 4 | | | 5 | | | (5) | | | 0 | |
Balance, end of period | Balance, end of period | $ | 11,542 | | | 8,929 | | | 20,471 | | | 6,230 | | | 4,383 | | | 10,613 | | Balance, end of period | $ | 9,570 | | | 6,821 | | | 16,391 | | | 11,669 | | | 8,767 | | | 20,436 | |
Nine months ended September 30, | | |
Six months ended June 30, | | Six months ended June 30, | |
Balance, beginning of period | Balance, beginning of period | $ | 6,245 | | | 4,211 | | | 10,456 | | | 6,417 | | | 4,290 | | | 10,707 | | Balance, beginning of period | $ | 11,516 | | | 8,197 | | | 19,713 | | | 6,245 | | | 4,211 | | | 10,456 | |
Cumulative effect from change in accounting policies (1) | Cumulative effect from change in accounting policies (1) | (2,861) | | | 1,524 | | | (1,337) | | | 0 | | | 0 | | | 0 | | Cumulative effect from change in accounting policies (1) | 0 | | | 0 | | | 0 | | | (2,861) | | | 1,524 | | | (1,337) | |
Allowance for purchased credit-deteriorated (PCD) loans (2) | Allowance for purchased credit-deteriorated (PCD) loans (2) | 0 | | | 8 | | | 8 | | | 0 | | | 0 | | | 0 | | Allowance for purchased credit-deteriorated (PCD) loans (2) | 0 | | | 0 | | | 0 | | | 0 | | | 8 | | | 8 | |
Balance, beginning of period, adjusted | Balance, beginning of period, adjusted | 3,384 | | | 5,743 | | | 9,127 | | | 6,417 | | | 4,290 | | | 10,707 | | Balance, beginning of period, adjusted | 11,516 | | | 8,197 | | | 19,713 | | | 3,384 | | | 5,743 | | | 9,127 | |
Provision for credit losses | Provision for credit losses | 9,480 | | | 4,669 | | | 14,149 | | | 294 | | | 1,749 | | | 2,043 | | Provision for credit losses | (1,688) | | | (668) | | | (2,356) | | | 9,239 | | | 4,159 | | | 13,398 | |
Interest income on certain loans (3) | Interest income on certain loans (3) | (44) | | | (73) | | | (117) | | | (35) | | | (77) | | | (112) | | Interest income on certain loans (3) | (34) | | | (43) | | | (77) | | | (26) | | | (50) | | | (76) | |
| Loan charge-offs | Loan charge-offs | (1,460) | | | (2,143) | | | (3,603) | | | (654) | | | (2,451) | | | (3,105) | | Loan charge-offs | (402) | | | (1,229) | | | (1,631) | | | (1,040) | | | (1,569) | | | (2,609) | |
Loan recoveries | Loan recoveries | 178 | | | 720 | | | 898 | | | 205 | | | 907 | | | 1,112 | | Loan recoveries | 173 | | | 564 | | | 737 | | | 114 | | | 473 | | | 587 | |
Net loan charge-offs | Net loan charge-offs | (1,282) | | | (1,423) | | | (2,705) | | | (449) | | | (1,544) | | | (1,993) | | Net loan charge-offs | (229) | | | (665) | | | (894) | | | (926) | | | (1,096) | | | (2,022) | |
Other | Other | 4 | | | 13 | | | 17 | | | 3 | | | (35) | | | (32) | | Other | 5 | | | 0 | | | 5 | | | (2) | | | 11 | | | 9 | |
Balance, end of period | Balance, end of period | $ | 11,542 | | | 8,929 | | | 20,471 | | | 6,230 | | | 4,383 | | | 10,613 | | Balance, end of period | $ | 9,570 | | | 6,821 | | | 16,391 | | | 11,669 | | | 8,767 | | | 20,436 | |
|
(1)Represents the overall decrease in our allowance for credit lossesACL 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 additional information, see Note 1 (Summary of Significant Accounting Policies). in our 2020 Form 10-K.
(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 information 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 for loans | | Recorded investment in loans |
(in millions) | Commercial | | Consumer | | Total | | Commercial | | Consumer | | Total |
December 31, 2019 | |
Collectively evaluated (1) | $ | 5,778 | | | 3,364 | | | 9,142 | | | 512,586 | | | 436,081 | | | 948,667 | |
Individually evaluated (2) | 467 | | | 847 | | | 1,314 | | | 3,133 | | | 9,897 | | | 13,030 | |
PCI (3) | 0 | | | 0 | | | 0 | | | 0 | | | 568 | | | 568 | |
Total | $ | 6,245 | | | 4,211 | | | 10,456 | | | 515,719 | | | 446,546 | | | 962,265 | |
(1)Represents non-impaired loans evaluated collectively for impairment.
(2)Represents impaired loans evaluated individually for impairment.
(3)Represents the allowance for loan losses and related loan carrying value for PCI loans.
Note 6:4: Loans and Related Allowance for Credit Losses (continued)
Credit Quality
We monitor credit quality by evaluating various attributes and utilize such information in our evaluation of the appropriateness of the allowanceACL for credit losses.loans. The following sections provide the credit quality indicators we most closely monitor. The credit quality indicators are generally based on information as of our financial statement date, with the exception of updated Fair Isaac Corporation (FICO) scores and updated loan-to-value (LTV)/combined LTV (CLTV). We obtain FICO scores at loan origination and the scores are generally updated at least quarterly, except in limited circumstances, including compliance with the Fair Credit Reporting Act (FCRA). Generally, the LTV and CLTV indicators are updated in the second month of each quarter, with updates no older than June 30, 2020. 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 additional information, see Note 1 (Summary of Significant Accounting Policies).
March 31, 2021.
COMMERCIAL CREDIT QUALITY INDICATORSWe manage a consistent process for assessing commercial loan credit quality. Generally, commercial
Commercial loans are generally subject to individual risk assessment using our internal borrower and collateral quality ratings, which is our primary credit quality indicator. Our ratings are aligned to federal banking regulators’regulatory definitions of pass and criticized categories with the criticized category includingsegmented among special mention, substandard, doubtful and loss categories.
Table 6.84.7 provides the outstanding balances of our commercial loan portfolio by risk category. In connection with our adoption of CECL, creditCredit 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.troubled debt restructuring (TDR). At SeptemberJune 30, 2020,2021, we had $444.9$442.6 billion and $37.3$33.8 billion of pass and criticized commercial loans, respectively.
Table 6.8:4.7: Commercial LoansLoan Categories by Risk Categories and Vintage(1)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Term loans by origination year | | Revolving loans | | Revolving loans converted to term loans | | Total |
(in millions) | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | |
September 30, 2020 | | | | | | | | | | | | | | | | | |
Commercial and industrial | | | | | | | | | | | | | | | | | |
Pass | $ | 46,064 | | | 39,124 | | | 18,498 | | | 8,711 | | | 4,905 | | | 5,748 | | | 172,440 | | | 2,546 | | | 298,036 | |
Criticized | 1,591 | | | 2,010 | | | 1,893 | | | 1,207 | | | 915 | | | 428 | | | 14,645 | | | 188 | | | 22,877 | |
Total commercial and industrial | 47,655 | | | 41,134 | | | 20,391 | | | 9,918 | | | 5,820 | | | 6,176 | | | 187,085 | | | 2,734 | | | 320,913 | |
Real estate mortgage | | | | | | | | | | | | | | | | | |
Pass | 15,269 | | | 27,768 | | | 20,335 | | | 12,452 | | | 13,232 | | | 16,833 | | | 4,831 | | | 6 | | | 110,726 | |
Criticized | 1,307 | | | 2,106 | | | 2,033 | | | 1,361 | | | 1,393 | | | 2,507 | | | 477 | | | 0 | | | 11,184 | |
Total real estate mortgage | 16,576 | | | 29,874 | | | 22,368 | | | 13,813 | | | 14,625 | | | 19,340 | | | 5,308 | | | 6 | | | 121,910 | |
Real estate construction | | | | | | | | | | | | | | | | | |
Pass | 4,244 | | | 6,828 | | | 5,248 | | | 2,139 | | | 618 | | | 399 | | | 1,506 | | | 3 | | | 20,985 | |
Criticized | 123 | | | 416 | | | 518 | | | 96 | | | 371 | | | 10 | | | 0 | | | 0 | | | 1,534 | |
Total real estate construction | 4,367 | | | 7,244 | | | 5,766 | | | 2,235 | | | 989 | | | 409 | | | 1,506 | | | 3 | | | 22,519 | |
Lease financing | | | | | | | | | | | | | | | | | |
Pass | 2,958 | | | 4,276 | | | 2,496 | | | 1,759 | | | 1,381 | | | 2,324 | | | 0 | | | 0 | | | 15,194 | |
Criticized | 254 | | | 533 | | | 469 | | | 249 | | | 151 | | | 97 | | | 0 | | | 0 | | | 1,753 | |
Total lease financing | 3,212 | | | 4,809 | | | 2,965 | | | 2,008 | | | 1,532 | | | 2,421 | | | 0 | | | 0 | | | 16,947 | |
Total commercial loans | $ | 71,810 | | | 83,061 | | | 51,490 | | | 27,974 | | | 22,966 | | | 28,346 | | | 193,899 | | | 2,743 | | | 482,289 | |
| | | | | | | | | Commercial and industrial | | Real estate mortgage | | Real estate construction | | Lease financing | | Total |
December 31, 2019 | | | | | | | | | | | | | | | | | |
By risk category: | | | | | | | | | | | | | | | | | |
Pass | | | | | | | | | $ | 338,740 | | | 118,054 | | | 19,752 | | | 18,655 | | | 495,201 | |
Criticized | | | | | | | | | 15,385 | | | 3,770 | | | 187 | | | 1,176 | | | 20,518 | |
Total commercial loans | | | | | | | | | $ | 354,125 | | | 121,824 | | | 19,939 | | | 19,831 | | | 515,719 | |
(1)Disclosure is not comparative due to our adoption of CECL on January 1, 2020. For additional information, see Note 1 (Summary of Significant Accounting Policies).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Term loans by origination year | | Revolving loans | | Revolving loans converted to term loans | | Total |
(in millions) | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | |
June 30, 2021 | | | | | | | | | | | | | | | | | |
Commercial and industrial | | | | | | | | | | | | | | | | | |
Pass | $ | 37,051 | | | 25,171 | | | 28,385 | | | 11,075 | | | 5,582 | | | 12,341 | | | 183,360 | | | 341 | | | 303,306 | |
Criticized | 729 | | | 1,317 | | | 1,325 | | | 1,594 | | | 826 | | | 1,078 | | | 7,443 | | | 0 | | | 14,312 | |
Total commercial and industrial | 37,780 | | | 26,488 | | | 29,710 | | | 12,669 | | | 6,408 | | | 13,419 | | | 190,803 | | | 341 | | | 317,618 | |
Real estate mortgage | | | | | | | | | | | | | | | | | |
Pass | 14,713 | | | 18,977 | | | 21,983 | | | 15,350 | | | 9,245 | | | 20,321 | | | 4,478 | | | 1 | | | 105,068 | |
Criticized | 1,664 | | | 2,450 | | | 3,444 | | | 2,679 | | | 1,286 | | | 3,665 | | | 422 | | | 0 | | | 15,610 | |
Total real estate mortgage | 16,377 | | | 21,427 | | | 25,427 | | | 18,029 | | | 10,531 | | | 23,986 | | | 4,900 | | | 1 | | | 120,678 | |
Real estate construction | | | | | | | | | | | | | | | | | |
Pass | 2,800 | | | 4,995 | | | 6,148 | | | 3,607 | | | 775 | | | 359 | | | 1,138 | | | 2 | | | 19,824 | |
Criticized | 354 | | | 501 | | | 746 | | | 418 | | | 442 | | | 120 | | | 1 | | | 0 | | | 2,582 | |
Total real estate construction | 3,154 | | | 5,496 | | | 6,894 | | | 4,025 | | | 1,217 | | | 479 | | | 1,139 | | | 2 | | | 22,406 | |
Lease financing | | | | | | | | | | | | | | | | | |
Pass | 2,244 | | | 3,545 | | | 3,180 | | | 1,752 | | | 1,107 | | | 2,555 | | | 0 | | | 0 | | | 14,383 | |
Criticized | 145 | | | 293 | | | 374 | | | 254 | | | 129 | | | 142 | | | 0 | | | 0 | | | 1,337 | |
Total lease financing | 2,389 | | | 3,838 | | | 3,554 | | | 2,006 | | | 1,236 | | | 2,697 | | | 0 | | | 0 | | | 15,720 | |
Total commercial loans | $ | 59,700 | | | 57,249 | | | 65,585 | | | 36,729 | | | 19,392 | | | 40,581 | | | 196,842 | | | 344 | | | 476,422 | |
| Term loans by origination year | | Revolving loans | | Revolving loans converted to term loans | | Total |
| 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | |
December 31, 2020 | | | | | | | | | | | | | | | | | |
Commercial and industrial | | | | | | | | | | | | | | | | | |
Pass | $ | 56,915 | | | 34,040 | | | 15,936 | | | 7,274 | | | 4,048 | | | 4,738 | | | 177,107 | | | 997 | | | 301,055 | |
Criticized | 1,404 | | | 1,327 | | | 1,357 | | | 972 | | | 672 | | | 333 | | | 11,534 | | | 151 | | | 17,750 | |
Total commercial and industrial | 58,319 | | | 35,367 | | | 17,293 | | | 8,246 | | | 4,720 | | | 5,071 | | | 188,641 | | | 1,148 | | | 318,805 | |
Real estate mortgage | | | | | | | | | | | | | | | | | |
Pass | 22,444 | | | 26,114 | | | 18,679 | | | 11,113 | | | 11,582 | | | 14,663 | | | 5,152 | | | 6 | | | 109,753 | |
Criticized | 2,133 | | | 2,544 | | | 1,817 | | | 1,287 | | | 1,625 | | | 2,082 | | | 479 | | | 0 | | | 11,967 | |
Total real estate mortgage | 24,577 | | | 28,658 | | | 20,496 | | | 12,400 | | | 13,207 | | | 16,745 | | | 5,631 | | | 6 | | | 121,720 | |
Real estate construction | | | | | | | | | | | | | | | | | |
Pass | 5,242 | | | 6,574 | | | 4,771 | | | 1,736 | | | 477 | | | 235 | | | 1,212 | | | 3 | | | 20,250 | |
Criticized | 449 | | | 452 | | | 527 | | | 4 | | | 113 | | | 10 | | | 0 | | | 0 | | | 1,555 | |
Total real estate construction | 5,691 | | | 7,026 | | | 5,298 | | | 1,740 | | | 590 | | | 245 | | | 1,212 | | | 3 | | | 21,805 | |
Lease financing | | | | | | | | | | | | | | | | | |
Pass | 3,970 | | | 3,851 | | | 2,176 | | | 1,464 | | | 1,199 | | | 1,924 | | | 0 | | | 0 | | | 14,584 | |
Criticized | 308 | | | 433 | | | 372 | | | 197 | | | 108 | | | 85 | | | 0 | | | 0 | | | 1,503 | |
Total lease financing | 4,278 | | | 4,284 | | | 2,548 | | | 1,661 | | | 1,307 | | | 2,009 | | | 0 | | | 0 | | | 16,087 | |
Total commercial loans | $ | 92,865 | | | 75,335 | | | 45,635 | | | 24,047 | | | 19,824 | | | 24,070 | | | 195,484 | | | 1,157 | | | 478,417 | |
Table 6.94.8 provides past due information for commercial loans, which we monitor as part of our credit risk management practices; however, delinquency is not a primary credit quality indicator for commercial loans. Payment deferral activities
instituted in response to the COVID-19 pandemic maycould continue to delay the recognition of delinquencies for customers who otherwise would have moved into past due status.
Table 6.9:4.8: Commercial Loan Categories by Delinquency Status
| (in millions) | (in millions) | Commercial and industrial | | Real estate mortgage | | Real estate construction | | Lease financing | | Total | (in millions) | Commercial and industrial | | Real estate mortgage | | Real estate construction | | Lease financing | | Total |
September 30, 2020 | | |
June 30, 2021 | | June 30, 2021 | |
By delinquency status: | By delinquency status: | | By delinquency status: | |
Current-29 days past due (DPD) and still accruing | Current-29 days past due (DPD) and still accruing | $ | 317,563 | | | 120,055 | | | 22,252 | | | 16,518 | | | 476,388 | | Current-29 days past due (DPD) and still accruing | $ | 315,279 | | | 118,719 | | | 22,329 | | | 15,350 | | | 471,677 | |
30-89 DPD and still accruing | 30-89 DPD and still accruing | 455 | | | 465 | | | 233 | | | 242 | | | 1,395 | | 30-89 DPD and still accruing | 483 | | | 256 | | | 25 | | | 155 | | | 919 | |
90+ DPD and still accruing | 90+ DPD and still accruing | 61 | | | 47 | | | 0 | | | 0 | | | 108 | | 90+ DPD and still accruing | 165 | | | 105 | | | 7 | | | 0 | | | 277 | |
Nonaccrual loans | Nonaccrual loans | 2,834 | | | 1,343 | | | 34 | | | 187 | | | 4,398 | | Nonaccrual loans | 1,691 | | | 1,598 | | | 45 | | | 215 | | | 3,549 | |
Total commercial loans | Total commercial loans | $ | 320,913 | | | 121,910 | | | 22,519 | | | 16,947 | | | 482,289 | | Total commercial loans | $ | 317,618 | | | 120,678 | | | 22,406 | | | 15,720 | | | 476,422 | |
December 31, 2019 | | |
December 31, 2020 | | December 31, 2020 | |
By delinquency status: | By delinquency status: | | By delinquency status: | |
Current-29 DPD and still accruing | Current-29 DPD and still accruing | $ | 352,110 | | | 120,967 | | | 19,845 | | | 19,484 | | | 512,406 | | Current-29 DPD and still accruing | $ | 315,493 | | | 119,561 | | | 21,532 | | | 15,595 | | | 472,181 | |
30-89 DPD and still accruing | 30-89 DPD and still accruing | 423 | | | 253 | | | 53 | | | 252 | | | 981 | | 30-89 DPD and still accruing | 575 | | | 347 | | | 224 | | | 233 | | | 1,379 | |
90+ DPD and still accruing | 90+ DPD and still accruing | 47 | | | 31 | | | 0 | | | 0 | | | 78 | | 90+ DPD and still accruing | 39 | | | 38 | | | 1 | | | 0 | | | 78 | |
Nonaccrual loans | Nonaccrual loans | 1,545 | | | 573 | | | 41 | | | 95 | | | 2,254 | | Nonaccrual loans | 2,698 | | | 1,774 | | | 48 | | | 259 | | | 4,779 | |
Total commercial loans | Total commercial loans | $ | 354,125 | | | 121,824 | | | 19,939 | | | 19,831 | | | 515,719 | | Total commercial loans | $ | 318,805 | | | 121,720 | | | 21,805 | | | 16,087 | | | 478,417 | |
CONSUMER CREDIT QUALITY INDICATORS We have various classes of consumer loans that present unique credit risks. Loan delinquency, FICO credit scores and LTV for 1-4 familyresidential mortgage loans are the primary credit quality indicators that we monitor and utilize in our evaluation of the appropriateness of the allowance for credit lossesACL for the consumer loan portfolio segment.
Many of our loss estimation techniques used for the allowanceACL for credit lossesloans rely on delinquency-based models; therefore, delinquency is an important indicator of credit quality in the establishment of our allowanceACL for credit losses.consumer loans.
Table 6.104.9 provides the outstanding balances of our consumer loan portfolio by delinquency status. Payment deferral activities instituted in response to the COVID-19 pandemic maycould continue to delay the recognition of delinquencies for customers who otherwise would have moved into past due status.
In connection with our adoption of CECL, creditCredit 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.
Note 6:4: Loans and Related Allowance for Credit Losses (continued)
Table 6.10:4.9: Consumer Loan Categories by Delinquency Status and Vintage (1)
| | | Term loans by origination year | | Revolving loans | | Revolving loans converted to term loans | | | Term loans by origination year | | Revolving loans | | Revolving loans converted to term loans | |
(in millions) | (in millions) | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | | Total | (in millions) | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Total |
September 30, 2020 | | | | |
Real estate 1-4 family first mortgage | | |
June 30, 2021 | | June 30, 2021 | | | |
Residential mortgage – first lien | | Residential mortgage – first lien | |
By delinquency status: | By delinquency status: | | By delinquency status: | |
Current-29 DPD | Current-29 DPD | $ | 42,388 | | | 49,009 | | | 17,902 | | | 28,860 | | | 34,728 | | | 77,341 | | | 7,300 | | | 1,906 | | | 259,434 | | Current-29 DPD | $ | 30,494 | | | 47,246 | | | 32,078 | | | 10,137 | | | 17,647 | | | 76,251 | | | 5,989 | | | 1,598 | | | 221,440 | |
30-59 DPD | 30-59 DPD | 40 | | | 84 | | | 36 | | | 61 | | | 64 | | | 723 | | | 28 | | | 42 | | | 1,078 | | 30-59 DPD | 28 | | | 33 | | | 52 | | | 21 | | | 34 | | | 604 | | | 15 | | | 30 | | | 817 | |
60-89 DPD | 60-89 DPD | 1 | | | 6 | | | 2 | | | 7 | | | 17 | | | 236 | | | 13 | | | 23 | | | 305 | | 60-89 DPD | 1 | | | 11 | | | 1 | | | 3 | | | 3 | | | 187 | | | 8 | | | 18 | | | 232 | |
90-119 DPD | 90-119 DPD | 2 | | | 6 | | | 2 | | | 7 | | | 2 | | | 194 | | | 9 | | | 19 | | | 241 | | 90-119 DPD | 2 | | | 8 | | | 3 | | | 1 | | | 7 | | | 64 | | | 6 | | | 11 | | | 102 | |
120-179 DPD | 120-179 DPD | 3 | | | 4 | | | 6 | | | 3 | | | 9 | | | 222 | | | 8 | | | 22 | | | 277 | | 120-179 DPD | 0 | | | 12 | | | 6 | | | 3 | | | 3 | | | 85 | | | 16 | | | 23 | | | 148 | |
180+ DPD | 180+ DPD | 1 | | | 0 | | | 4 | | | 15 | | | 14 | | | 543 | | | 12 | | | 129 | | | 718 | | 180+ DPD | 0 | | | 204 | | | 12 | | | 10 | | | 21 | | | 809 | | | 100 | | | 245 | | | 1,401 | |
Government insured/guaranteed loans (2)(1) | Government insured/guaranteed loans (2)(1) | 204 | | | 794 | | | 969 | | | 1,248 | | | 2,646 | | | 27,076 | | | 0 | | | 0 | | | 32,937 | | Government insured/guaranteed loans (2)(1) | 3 | | | 193 | | | 364 | | | 566 | | | 635 | | | 18,470 | | | 0 | | | 0 | | | 20,231 | |
Total real estate 1-4 family first mortgage | 42,639 | | | 49,903 | | | 18,921 | | | 30,201 | | | 37,480 | | | 106,335 | | | 7,370 | | | 2,141 | | | 294,990 | | |
Real estate 1-4 family junior mortgage | | |
Total residential mortgage – first lien | | Total residential mortgage – first lien | 30,528 | | | 47,707 | | | 32,516 | | | 10,741 | | | 18,350 | | | 96,470 | | | 6,134 | | | 1,925 | | | 244,371 | |
Residential mortgage – junior lien | | Residential mortgage – junior lien | |
By delinquency status: | By delinquency status: | | By delinquency status: | |
Current-29 DPD | Current-29 DPD | 16 | | | 41 | | | 47 | | | 43 | | | 35 | | | 1,255 | | | 16,896 | | | 6,302 | | | 24,635 | | Current-29 DPD | 13 | | | 22 | | | 34 | | | 35 | | | 28 | | | 909 | | | 12,913 | | | 4,680 | | | 18,634 | |
30-59 DPD | 30-59 DPD | 1 | | | 0 | | | 0 | | | 0 | | | 0 | | | 23 | | | 57 | | | 86 | | | 167 | | 30-59 DPD | 0 | | | 0 | | | 1 | | | 0 | | | 0 | | | 15 | | | 28 | | | 40 | | | 84 | |
60-89 DPD | 60-89 DPD | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 10 | | | 24 | | | 50 | | | 84 | | 60-89 DPD | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 7 | | | 16 | | | 29 | | | 52 | |
90-119 DPD | 90-119 DPD | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 8 | | | 14 | | | 29 | | | 51 | | 90-119 DPD | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 3 | | | 11 | | | 22 | | | 36 | |
120-179 DPD | 120-179 DPD | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 11 | | | 12 | | | 42 | | | 65 | | 120-179 DPD | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 6 | | | 37 | | | 49 | | | 92 | |
180+ DPD | 180+ DPD | 0 | | | 0 | | | 0 | | | 0 | | | 1 | | | 14 | | | 17 | | | 128 | | | 160 | | 180+ DPD | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 32 | | | 215 | | | 492 | | | 739 | |
Total real estate 1-4 family junior mortgage | 17 | | | 41 | | | 47 | | | 43 | | | 36 | | | 1,321 | | | 17,020 | | | 6,637 | | | 25,162 | | |
Total residential mortgage – junior lien | | Total residential mortgage – junior lien | 13 | | | 22 | | | 35 | | | 35 | | | 28 | | | 972 | | | 13,220 | | | 5,312 | | | 19,637 | |
Credit cards | Credit cards | | Credit cards | |
By delinquency status: | By delinquency status: | | By delinquency status: | |
Current-29 DPD | Current-29 DPD | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 35,123 | | | 264 | | | 35,387 | | Current-29 DPD | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 34,201 | | | 226 | | | 34,427 | |
30-59 DPD | 30-59 DPD | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 196 | | | 13 | | | 209 | | 30-59 DPD | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 135 | | | 7 | | | 142 | |
60-89 DPD | 60-89 DPD | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 118 | | | 10 | | | 128 | | 60-89 DPD | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 90 | | | 6 | | | 96 | |
90-119 DPD | 90-119 DPD | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 93 | | | 10 | | | 103 | | 90-119 DPD | 0 | | | 0 | | | 0 | | | — | | | 0 | | | 0 | | | 80 | | | 7 | | | 87 | |
120-179 DPD | 120-179 DPD | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 185 | | | 6 | | | 191 | | 120-179 DPD | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 182 | | | 2 | | | 184 | |
180+ DPD | 180+ DPD | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 3 | | | 0 | | | 3 | | 180+ DPD | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Total credit cards | Total credit cards | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 35,718 | | | 303 | | | 36,021 | | Total credit cards | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 34,688 | | | 248 | | | 34,936 | |
Automobile | | |
Auto | | Auto | |
By delinquency status: | By delinquency status: | | By delinquency status: | |
Current-29 DPD | Current-29 DPD | 15,736 | | | 16,210 | | | 7,186 | | | 4,087 | | | 3,269 | | | 1,053 | | | 0 | | | 0 | | | 47,541 | | Current-29 DPD | 14,445 | | | 15,920 | | | 11,321 | | | 4,644 | | | 2,309 | | | 1,677 | | | 0 | | | 0 | | | 50,316 | |
30-59 DPD | 30-59 DPD | 66 | | | 185 | | | 126 | | | 90 | | | 127 | | | 62 | | | 0 | | | 0 | | | 656 | | 30-59 DPD | 33 | | | 143 | | | 148 | | | 81 | | | 52 | | | 85 | | | 0 | | | 0 | | | 542 | |
60-89 DPD | 60-89 DPD | 15 | | | 54 | | | 37 | | | 27 | | | 39 | | | 20 | | | 0 | | | 0 | | | 192 | | 60-89 DPD | 8 | | | 42 | | | 44 | | | 24 | | | 14 | | | 25 | | | 0 | | | 0 | | | 157 | |
90-119 DPD | 90-119 DPD | 6 | | | 20 | | | 11 | | | 7 | | | 11 | | | 5 | | | 0 | | | 0 | | | 60 | | 90-119 DPD | 3 | | | 17 | | | 17 | | | 8 | | | 5 | | | 8 | | | 0 | | | 0 | | | 58 | |
120-179 DPD | 120-179 DPD | 0 | | | 1 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 1 | | 120-179 DPD | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
180+ DPD | 180+ DPD | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | 180+ DPD | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Total automobile | 15,823 | | | 16,470 | | | 7,360 | | | 4,211 | | | 3,446 | | | 1,140 | | | 0 | | | 0 | | | 48,450 | | |
Other revolving credit and installment | | |
Total auto | | Total auto | 14,489 | | | 16,122 | | | 11,530 | | | 4,757 | | | 2,380 | | | 1,795 | | | 0 | | | 0 | | | 51,073 | |
Other consumer | | Other consumer | |
By delinquency status: | By delinquency status: | | By delinquency status: | |
Current-29 DPD | Current-29 DPD | 1,820 | | | 2,972 | | | 1,809 | | | 1,239 | | | 1,116 | | | 5,148 | | | 18,688 | | | 165 | | | 32,957 | | Current-29 DPD | 982 | | | 990 | | | 994 | | | 335 | | | 155 | | | 173 | | | 22,011 | | | 150 | | | 25,790 | |
30-59 DPD | 30-59 DPD | 2 | | | 7 | | | 7 | | | 6 | | | 6 | | | 41 | | | 12 | | | 6 | | | 87 | | 30-59 DPD | 1 | | | 2 | | | 3 | | | 2 | | | 1 | | | 2 | | | 8 | | | 3 | | | 22 | |
60-89 DPD | 60-89 DPD | 1 | | | 6 | | | 6 | | | 6 | | | 6 | | | 29 | | | 7 | | | 2 | | | 63 | | 60-89 DPD | 0 | | | 2 | | | 2 | | | 1 | | | 1 | | | 1 | | | 5 | | | 1 | | | 13 | |
90-119 DPD | 90-119 DPD | 0 | | | 3 | | | 3 | | | 3 | | | 3 | | | 21 | | | 5 | | | 2 | | | 40 | | 90-119 DPD | 0 | | | 1 | | | 2 | | | 1 | | | 0 | | | 0 | | | 4 | | | 1 | | | 9 | |
120-179 DPD | 120-179 DPD | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 1 | | | 9 | | | 3 | | | 13 | | 120-179 DPD | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 8 | | | 2 | | | 10 | |
180+ DPD | 180+ DPD | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 1 | | | 3 | | | 6 | | | 10 | | 180+ DPD | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 2 | | | 4 | | | 11 | | | 17 | |
Total other revolving credit and installment | 1,823 | | | 2,988 | | | 1,825 | | | 1,254 | | | 1,131 | | | 5,241 | | | 18,724 | | | 184 | | | 33,170 | | |
Total other consumer | | Total other consumer | 983 | | | 995 | | | 1,001 | | | 339 | | | 157 | | | 178 | | | 22,040 | | | 168 | | | 25,861 | |
Total consumer loans | Total consumer loans | $ | 60,302 | | | 69,402 | | | 28,153 | | | 35,709 | | | 42,093 | | | 114,037 | | | 78,832 | | | 9,265 | | | 437,793 | | Total consumer loans | $ | 46,013 | | | 64,846 | | | 45,082 | | | 15,872 | | | 20,915 | | | 99,415 | | | 76,082 | | | 7,653 | | | 375,878 | |
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(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 | | Term loans by origination year | | Revolving loans | | Revolving loans converted to term loans | |
December 31, 2019 | | |
(in millions) | | (in millions) | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | | Revolving loans | | Revolving loans converted to term loans | | Total |
December 31, 2020 | | December 31, 2020 | | | |
Residential mortgage – first lien | | Residential mortgage – first lien | |
By delinquency status: | By delinquency status: | | By delinquency status: | |
Current-29 DPD | Current-29 DPD | | $ | 279,722 | | | 28,870 | | | 39,935 | | | 46,650 | | | 33,981 | | | 429,158 | | Current-29 DPD | $ | 53,298 | | | 43,297 | | | 14,761 | | | 24,619 | | | 30,533 | | | 67,960 | | | 6,762 | | | 1,719 | | | 242,949 | |
30-59 DPD | 30-59 DPD | | 1,136 | | | 216 | | | 311 | | | 882 | | | 140 | | | 2,685 | | 30-59 DPD | 111 | | | 76 | | | 36 | | | 67 | | | 79 | | | 750 | | | 52 | | | 66 | | | 1,237 | |
60-89 DPD | 60-89 DPD | | 404 | | | 115 | | | 221 | | | 263 | | | 81 | | | 1,084 | | 60-89 DPD | 88 | | | 10 | | | 6 | | | 12 | | | 13 | | | 305 | | | 56 | | | 68 | | | 558 | |
90-119 DPD | 90-119 DPD | | 197 | | | 69 | | | 202 | | | 77 | | | 74 | | | 619 | | 90-119 DPD | 232 | | | 11 | | | 5 | | | 8 | | | 7 | | | 197 | | | 26 | | | 33 | | | 519 | |
120-179 DPD | 120-179 DPD | | 160 | | | 71 | | | 343 | | | 1 | | | 18 | | | 593 | | 120-179 DPD | 3 | | | 4 | | | 1 | | | 3 | | | 5 | | | 151 | | | 17 | | | 29 | | | 213 | |
180+ DPD | 180+ DPD | | 503 | | | 155 | | | 1 | | | 0 | | | 10 | | | 669 | | 180+ DPD | 3 | | | 1 | | | 4 | | | 11 | | | 15 | | | 758 | | | 21 | | | 145 | | | 958 | |
Government insured/guaranteed loans (2) | | 11,170 | | | 0 | | | 0 | | | 0 | | | 0 | | | 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 | | | 0 | | | 0 | | | 0 | | | 568 | | |
Government insured/guaranteed loans (1) | | Government insured/guaranteed loans (1) | 215 | | | 639 | | | 904 | | | 1,076 | | | 2,367 | | | 25,039 | | | 0 | | | 0 | | | 30,240 | |
Total residential mortgage – first lien | | Total residential mortgage – first lien | 53,950 | | | 44,038 | | | 15,717 | | | 25,796 | | | 33,019 | | | 95,160 | | | 6,934 | | | 2,060 | | | 276,674 | |
Residential mortgage – junior lien | | Residential mortgage – junior lien | |
By delinquency status: | | By delinquency status: | |
Current-29 DPD | | Current-29 DPD | 22 | | | 39 | | | 39 | | | 37 | | | 31 | | | 1,115 | | | 15,366 | | | 5,434 | | | 22,083 | |
30-59 DPD | | 30-59 DPD | 0 | | | 0 | | | 1 | | | 1 | | | 0 | | | 22 | | | 113 | | | 160 | | | 297 | |
60-89 DPD | | 60-89 DPD | 0 | | | 0 | | | 1 | | | 0 | | | 0 | | | 11 | | | 154 | | | 271 | | | 437 | |
90-119 DPD | | 90-119 DPD | 0 | | | 0 | | | 0 | | | 1 | | | 0 | | | 7 | | | 45 | | | 84 | | | 137 | |
120-179 DPD | | 120-179 DPD | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 9 | | | 36 | | | 77 | | | 122 | |
180+ DPD | | 180+ DPD | 0 | | | 0 | | | 0 | | | 0 | | | 1 | | | 25 | | | 29 | | | 155 | | | 210 | |
Total residential mortgage – junior lien | | Total residential mortgage – junior lien | 22 | | | 39 | | | 41 | | | 39 | | | 32 | | | 1,189 | | | 15,743 | | | 6,181 | | | 23,286 | |
Credit cards | | Credit cards | |
By delinquency status: | | By delinquency status: | |
Current-29 DPD | | Current-29 DPD | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 35,612 | | | 255 | | | 35,867 | |
30-59 DPD | | 30-59 DPD | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 243 | | | 12 | | | 255 | |
60-89 DPD | | 60-89 DPD | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 167 | | | 10 | | | 177 | |
90-119 DPD | | 90-119 DPD | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 144 | | | 10 | | | 154 | |
120-179 DPD | | 120-179 DPD | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 208 | | | 3 | | | 211 | |
180+ DPD | | 180+ DPD | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Total credit cards | | Total credit cards | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 36,374 | | | 290 | | | 36,664 | |
Auto | | Auto | |
By delinquency status: | | By delinquency status: | |
Current-29 DPD | | Current-29 DPD | 19,625 | | | 14,561 | | | 6,307 | | | 3,459 | | | 2,603 | | | 697 | | | 0 | | | 0 | | | 47,252 | |
30-59 DPD | | 30-59 DPD | 120 | | | 183 | | | 114 | | | 80 | | | 107 | | | 46 | | | 0 | | | 0 | | | 650 | |
60-89 DPD | | 60-89 DPD | 32 | | | 60 | | | 36 | | | 25 | | | 35 | | | 16 | | | 0 | | | 0 | | | 204 | |
90-119 DPD | | 90-119 DPD | 13 | | | 26 | | | 14 | | | 9 | | | 12 | | | 6 | | | 0 | | | 0 | | | 80 | |
120-179 DPD | | 120-179 DPD | 0 | | | 1 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 1 | |
180+ DPD | | 180+ DPD | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Total auto | | Total auto | 19,790 | | | 14,831 | | | 6,471 | | | 3,573 | | | 2,757 | | | 765 | | | 0 | | | 0 | | | 48,187 | |
Other consumer | | Other consumer | |
By delinquency status: | | By delinquency status: | |
Current-29 DPD | | Current-29 DPD | 1,406 | | | 1,383 | | | 577 | | | 261 | | | 59 | | | 193 | | | 20,246 | | | 162 | | | 24,287 | |
30-59 DPD | | 30-59 DPD | 2 | | | 7 | | | 5 | | | 2 | | | 1 | | | 3 | | | 19 | | | 10 | | | 49 | |
60-89 DPD | | 60-89 DPD | 1 | | | 5 | | | 3 | | | 1 | | | 1 | | | 1 | | | 10 | | | 6 | | | 28 | |
90-119 DPD | | 90-119 DPD | 1 | | | 4 | | | 2 | | | 1 | | | 0 | | | 1 | | | 8 | | | 3 | | | 20 | |
120-179 DPD | | 120-179 DPD | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 10 | | | 4 | | | 14 | |
180+ DPD | | 180+ DPD | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 2 | | | 3 | | | 6 | | | 11 | |
Total other consumer | | Total other consumer | 1,410 | | | 1,399 | | | 587 | | | 265 | | | 61 | | | 200 | | | 20,296 | | | 191 | | | 24,409 | |
Total consumer loans | Total consumer loans | | $ | 293,847 | | | 29,509 | | | 41,013 | | | 47,873 | | | 34,304 | | | 446,546 | | Total consumer loans | $ | 75,172 | | | 60,307 | | | 22,816 | | | 29,673 | | | 35,869 | | | 97,314 | | | 79,347 | | | 8,722 | | | 409,220 | |
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(1)Disclosure is not comparative due to our adoption of CECL on January 1, 2020. For additional information, see Note 1 (Summary of Significant Accounting Policies).
(2)Represents loans whose repayments are predominantly insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA). Loans insured/guaranteed by the FHA/VA and 90+ DPD totaled $11.0$6.1 billion and $11.1 billion at SeptemberJune 30, 2020, compared with $6.4 billion at2021, and December 31, 2019.
(3)26% of the adjusted unpaid principal balance for consumer PCI loans was 30+ DPD at December 31, 2019.2020, respectively.
Of the $1.9$2.9 billion of consumer loans not government insured/guaranteed that are 90 days or more past due at SeptemberJune 30, 2020, $5492021, $460 million was accruing, compared with $1.9
$2.7 billion past due and $855$612 million accruing at December 31, 2019.2020.
Note 4: Loans and Related Allowance for Credit Losses (continued)
Table 6.114.10 provides the outstanding balances of our consumer loan portfolio by FICO score. Substantially all of the scored consumer portfolio has an updated FICO score of 680 and above, reflecting a strong current borrower credit profile. FICO scores are 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 $11.3$15.9 billion and $9.1$13.2 billion at SeptemberJune 30, 2020,2021, and December 31, 2019,2020, respectively. Substantially all loans not requiring a FICO score are securities-based loans originated through retail brokerage.
Note 6: Loans and Related Allowance for Credit Losses (continued)
Table 6.11:4.10: Consumer Loan Categories by FICO and Vintage(1)
| | | Term loans by origination year | | Revolving loans | | Revolving loans converted to term loans | | | Term loans by origination year | | Revolving loans | | Revolving loans converted to term loans | |
(in millions) | (in millions) | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | | Total | (in millions) | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Total |
September 30, 2020 | | | | |
June 30, 2021 | | June 30, 2021 | | | |
By FICO: | By FICO: | | By FICO: | |
Real estate 1-4 family first mortgage | | |
Residential mortgage – first lien | | Residential mortgage – first lien | |
800+ | 800+ | $ | 22,861 | | | 32,129 | | | 12,129 | | | 20,712 | | | 25,429 | | | 46,803 | | | 3,644 | | | 510 | | | 164,217 | | 800+ | $ | 14,373 | | | 29,351 | | | 21,113 | | | 6,709 | | | 12,245 | | | 47,225 | | | 2,973 | | | 453 | | | 134,442 | |
760-799 | 760-799 | 13,693 | | | 11,343 | | | 3,522 | | | 5,002 | | | 5,507 | | | 11,999 | | | 1,428 | | | 279 | | | 52,773 | | 760-799 | 11,864 | | | 12,539 | | | 7,250 | | | 2,017 | | | 3,200 | | | 12,684 | | | 1,229 | | | 257 | | | 51,040 | |
720-759 | 720-759 | 4,224 | | | 3,822 | | | 1,376 | | | 1,994 | | | 2,397 | | | 7,526 | | | 910 | | | 273 | | | 22,522 | | 720-759 | 3,281 | | | 4,024 | | | 2,566 | | | 857 | | | 1,343 | | | 7,473 | | | 771 | | | 243 | | | 20,558 | |
680-719 | 680-719 | 1,249 | | | 1,170 | | | 552 | | | 745 | | | 901 | | | 4,718 | | | 557 | | | 230 | | | 10,122 | | 680-719 | 794 | | | 1,103 | | | 788 | | | 363 | | | 603 | | | 4,188 | | | 463 | | | 215 | | | 8,517 | |
640-679 | 640-679 | 253 | | | 292 | | | 184 | | | 237 | | | 267 | | | 2,588 | | | 263 | | | 163 | | | 4,247 | | 640-679 | 129 | | | 294 | | | 222 | | | 107 | | | 143 | | | 2,117 | | | 213 | | | 135 | | | 3,360 | |
600-639 | 600-639 | 30 | | | 77 | | | 66 | | | 91 | | | 77 | | | 1,522 | | | 131 | | | 107 | | | 2,101 | | 600-639 | 30 | | | 47 | | | 75 | | | 37 | | | 51 | | | 1,234 | | | 109 | | | 93 | | | 1,676 | |
< 600 | < 600 | 16 | | | 24 | | | 37 | | | 44 | | | 85 | | | 1,994 | | | 174 | | | 189 | | | 2,563 | | < 600 | 7 | | | 11 | | | 28 | | | 16 | | | 32 | | | 1,303 | | | 139 | | | 145 | | | 1,681 | |
No FICO available | No FICO available | 109 | | | 252 | | | 86 | | | 128 | | | 171 | | | 2,109 | | | 263 | | | 390 | | | 3,508 | | No FICO available | 47 | | | 145 | | | 110 | | | 69 | | | 98 | | | 1,776 | | | 237 | | | 384 | | | 2,866 | |
Government insured/guaranteed loans (2)(1) | Government insured/guaranteed loans (2)(1) | 204 | | | 794 | | | 969 | | | 1,248 | | | 2,646 | | | 27,076 | | | 0 | | | 0 | | | 32,937 | | Government insured/guaranteed loans (2)(1) | 3 | | | 193 | | | 364 | | | 566 | | | 635 | | | 18,470 | | | 0 | | | 0 | | | 20,231 | |
Total real estate 1-4 family first mortgage | 42,639 | | | 49,903 | | | 18,921 | | | 30,201 | | | 37,480 | | | 106,335 | | | 7,370 | | | 2,141 | | | 294,990 | | |
Real estate 1-4 family junior lien mortgage | | |
Total residential mortgage – first lien | | Total residential mortgage – first lien | 30,528 | | | 47,707 | | | 32,516 | | | 10,741 | | | 18,350 | | | 96,470 | | | 6,134 | | | 1,925 | | | 244,371 | |
Residential mortgage – junior lien | | Residential mortgage – junior lien | |
800+ | 800+ | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 325 | | | 8,689 | | | 1,926 | | | 10,940 | | 800+ | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 236 | | | 6,715 | | | 1,612 | | | 8,563 | |
760-799 | 760-799 | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 193 | | | 3,213 | | | 1,100 | | | 4,506 | | 760-799 | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 142 | | | 2,588 | | | 906 | | | 3,636 | |
720-759 | 720-759 | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 233 | | | 2,224 | | | 1,109 | | | 3,566 | | 720-759 | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 169 | | | 1,721 | | | 891 | | | 2,781 | |
680-719 | 680-719 | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 204 | | | 1,337 | | | 930 | | | 2,471 | | 680-719 | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 143 | | | 1,022 | | | 719 | | | 1,884 | |
640-679 | 640-679 | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 114 | | | 546 | | | 528 | | | 1,188 | | 640-679 | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 82 | | | 396 | | | 405 | | | 883 | |
600-639 | 600-639 | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 70 | | | 264 | | | 323 | | | 657 | | 600-639 | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 52 | | | 189 | | | 232 | | | 473 | |
< 600 | < 600 | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 87 | | | 291 | | | 432 | | | 810 | | < 600 | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 53 | | | 195 | | | 267 | | | 515 | |
No FICO available | No FICO available | 17 | | | 41 | | | 47 | | | 43 | | | 36 | | | 95 | | | 456 | | | 289 | | | 1,024 | | No FICO available | 13 | | | 22 | | | 35 | | | 35 | | | 28 | | | 95 | | | 394 | | | 280 | | | 902 | |
Total real estate 1-4 family junior lien mortgage | 17 | | | 41 | | | 47 | | | 43 | | | 36 | | | 1,321 | | | 17,020 | | | 6,637 | | | 25,162 | | |
Total residential mortgage – junior lien | | Total residential mortgage – junior lien | 13 | | | 22 | | | 35 | | | 35 | | | 28 | | | 972 | | | 13,220 | | | 5,312 | | | 19,637 | |
Credit card | Credit card | | Credit card | |
800+ | 800+ | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 3,827 | | | 1 | | | 3,828 | | 800+ | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 3,987 | | | 1 | | | 3,988 | |
760-799 | 760-799 | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 5,312 | | | 7 | | | 5,319 | | 760-799 | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 5,561 | | | 8 | | | 5,569 | |
720-759 | 720-759 | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 7,795 | | | 28 | | | 7,823 | | 720-759 | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 7,825 | | | 30 | | | 7,855 | |
680-719 | 680-719 | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 8,731 | | | 60 | | | 8,791 | | 680-719 | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 8,437 | | | 57 | | | 8,494 | |
640-679 | 640-679 | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 5,495 | | | 65 | | | 5,560 | | 640-679 | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 5,122 | | | 56 | | | 5,178 | |
600-639 | 600-639 | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 2,223 | | | 49 | | | 2,272 | | 600-639 | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 1,929 | | | 39 | | | 1,968 | |
< 600 | < 600 | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 2,325 | | | 92 | | | 2,417 | | < 600 | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 1,819 | | | 56 | | | 1,875 | |
No FICO available | No FICO available | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 10 | | | 1 | | | 11 | | No FICO available | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 8 | | | 1 | | | 9 | |
Total credit card | Total credit card | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 35,718 | | | 303 | | | 36,021 | | Total credit card | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 34,688 | | | 248 | | | 34,936 | |
Automobile | | |
Auto | | Auto | |
800+ | 800+ | 2,102 | | | 2,856 | | | 1,378 | | | 861 | | | 577 | | | 168 | | | 0 | | | 0 | | | 7,942 | | 800+ | 2,576 | | | 2,329 | | | 2,157 | | | 941 | | | 509 | | | 271 | | | 0 | | | 0 | | | 8,783 | |
760-799 | 760-799 | 2,333 | | | 2,951 | | | 1,276 | | | 684 | | | 449 | | | 128 | | | 0 | | | 0 | | | 7,821 | | 760-799 | 2,505 | | | 2,698 | | | 2,145 | | | 850 | | | 390 | | | 216 | | | 0 | | | 0 | | | 8,804 | |
720-759 | 720-759 | 2,565 | | | 2,806 | | | 1,251 | | | 687 | | | 498 | | | 153 | | | 0 | | | 0 | | | 7,960 | | 720-759 | 2,430 | | | 2,721 | | | 1,999 | | | 825 | | | 387 | | | 251 | | | 0 | | | 0 | | | 8,613 | |
680-719 | 680-719 | 2,950 | | | 2,839 | | | 1,224 | | | 648 | | | 505 | | | 157 | | | 0 | | | 0 | | | 8,323 | | 680-719 | 2,518 | | | 2,965 | | | 1,968 | | | 772 | | | 358 | | | 259 | | | 0 | | | 0 | | | 8,840 | |
640-679 | 640-679 | 2,839 | | | 2,190 | | | 871 | | | 464 | | | 409 | | | 137 | | | 0 | | | 0 | | | 6,910 | | 640-679 | 2,267 | | | 2,548 | | | 1,400 | | | 527 | | | 257 | | | 222 | | | 0 | | | 0 | | | 7,221 | |
600-639 | 600-639 | 1,830 | | | 1,335 | | | 542 | | | 315 | | | 328 | | | 121 | | | 0 | | | 0 | | | 4,471 | | 600-639 | 1,418 | | | 1,519 | | | 822 | | | 333 | | | 178 | | | 190 | | | 0 | | | 0 | | | 4,460 | |
< 600 | < 600 | 1,198 | | | 1,460 | | | 814 | | | 541 | | | 660 | | | 263 | | | 0 | | | 0 | | | 4,936 | | < 600 | 775 | | | 1,313 | | | 993 | | | 498 | | | 288 | | | 362 | | | 0 | | | 0 | | | 4,229 | |
No FICO available | No FICO available | 6 | | | 33 | | | 4 | | | 11 | | | 20 | | | 13 | | | 0 | | | 0 | | | 87 | | No FICO available | 0 | | | 29 | | | 46 | | | 11 | | | 13 | | | 24 | | | 0 | | | 0 | | | 123 | |
Total automobile | 15,823 | | | 16,470 | | | 7,360 | | | 4,211 | | | 3,446 | | | 1,140 | | | 0 | | | 0 | | | 48,450 | | |
Other revolving credit and installment | | |
Total auto | | Total auto | 14,489 | | | 16,122 | | | 11,530 | | | 4,757 | | | 2,380 | | | 1,795 | | | 0 | | | 0 | | | 51,073 | |
Other consumer | | Other consumer | |
800+ | 800+ | 621 | | | 964 | | | 583 | | | 432 | | | 439 | | | 2,070 | | | 2,454 | | | 23 | | | 7,586 | | 800+ | 253 | | | 250 | | | 204 | | | 59 | | | 18 | | | 60 | | | 1,839 | | | 19 | | | 2,702 | |
760-799 | 760-799 | 485 | | | 676 | | | 365 | | | 240 | | | 225 | | | 1,058 | | | 1,198 | | | 18 | | | 4,265 | | 760-799 | 265 | | | 225 | | | 186 | | | 59 | | | 15 | | | 31 | | | 943 | | | 22 | | | 1,746 | |
720-759 | 720-759 | 330 | | | 515 | | | 303 | | | 195 | | | 184 | | | 830 | | | 954 | | | 26 | | | 3,337 | | 720-759 | 190 | | | 184 | | | 175 | | | 67 | | | 19 | | | 26 | | | 829 | | | 28 | | | 1,518 | |
680-719 | 680-719 | 180 | | | 363 | | | 229 | | | 147 | | | 134 | | | 590 | | | 838 | | | 28 | | | 2,509 | | 680-719 | 115 | | | 125 | | | 147 | | | 61 | | | 19 | | | 21 | | | 711 | | | 26 | | | 1,225 | |
640-679 | 640-679 | 70 | | | 167 | | | 117 | | | 77 | | | 70 | | | 323 | | | 439 | | | 20 | | | 1,283 | | 640-679 | 47 | | | 52 | | | 74 | | | 34 | | | 12 | | | 11 | | | 343 | | | 19 | | | 592 | |
600-639 | 600-639 | 18 | | | 51 | | | 41 | | | 31 | | | 31 | | | 154 | | | 165 | | | 14 | | | 505 | | 600-639 | 9 | | | 14 | | | 24 | | | 13 | | | 5 | | | 6 | | | 122 | | | 11 | | | 204 | |
< 600 | < 600 | 10 | | | 48 | | | 47 | | | 33 | | | 33 | | | 143 | | | 166 | | | 20 | | | 500 | | < 600 | 3 | | | 13 | | | 27 | | | 16 | | | 6 | | | 7 | | | 121 | | | 14 | | | 207 | |
No FICO available | No FICO available | 109 | | | 204 | | | 140 | | | 99 | | | 15 | | | 73 | | | 1,191 | | | 35 | | | 1,866 | | No FICO available | 101 | | | 132 | | | 164 | | | 30 | | | 63 | | | 16 | | | 1,197 | | | 29 | | | 1,732 | |
FICO not required | FICO not required | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 11,319 | | | 0 | | | 11,319 | | FICO not required | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 15,935 | | | 0 | | | 15,935 | |
Total other revolving credit and installment | 1,823 | | | 2,988 | | | 1,825 | | | 1,254 | | | 1,131 | | | 5,241 | | | 18,724 | | | 184 | | | 33,170 | | |
Total other consumer | | Total other consumer | 983 | | | 995 | | | 1,001 | | | 339 | | | 157 | | | 178 | | | 22,040 | | | 168 | | | 25,861 | |
Total consumer loans | Total consumer loans | $ | 60,302 | | | 69,402 | | | 28,153 | | | 35,709 | | | 42,093 | | | 114,037 | | | 78,832 | | | 9,265 | | | 437,793 | | Total consumer loans | $ | 46,013 | | | 64,846 | | | 45,082 | | | 15,872 | | | 20,915 | | | 99,415 | | | 76,082 | | | 7,653 | | | 375,878 | |
(continued on nextfollowing page)
(continued from priorprevious 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 | | Term loans by origination year | | Revolving loans | | Revolving loans converted to term loans | |
December 31, 2019 | | |
(in millions) | | (in millions) | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | | Revolving loans | | Revolving loans converted to term loans | | Total |
December 31, 2020 | | December 31, 2020 | | | |
By FICO: | By FICO: | | By FICO: | |
Residential mortgage – first lien | | Residential mortgage – first lien | |
800+ | | 800+ | $ | 29,365 | | | 28,652 | | | 9,911 | | | 17,416 | | | 22,215 | | | 40,440 | | | 3,391 | | | 493 | | | 151,883 | |
760-799 | | 760-799 | 17,154 | | | 9,866 | | | 2,908 | | | 4,380 | | | 4,955 | | | 10,843 | | | 1,361 | | | 274 | | | 51,741 | |
720-759 | | 720-759 | 5,274 | | | 3,290 | | | 1,189 | | | 1,829 | | | 2,106 | | | 7,001 | | | 879 | | | 265 | | | 21,833 | |
680-719 | | 680-719 | 1,361 | | | 1,084 | | | 490 | | | 678 | | | 831 | | | 4,403 | | | 520 | | | 221 | | | 9,588 | |
640-679 | | 640-679 | 376 | | | 287 | | | 148 | | | 192 | | | 226 | | | 2,385 | | | 241 | | | 154 | | | 4,009 | |
600-639 | | 600-639 | 55 | | | 56 | | | 44 | | | 56 | | | 92 | | | 1,429 | | | 127 | | | 106 | | | 1,965 | |
< 600 | | < 600 | 14 | | | 29 | | | 36 | | | 44 | | | 66 | | | 1,789 | | | 162 | | | 175 | | | 2,315 | |
No FICO available | | No FICO available | 136 | | | 135 | | | 87 | | | 125 | | | 161 | | | 1,831 | | | 253 | | | 372 | | | 3,100 | |
Government insured/guaranteed loans (1) | | Government insured/guaranteed loans (1) | 215 | | | 639 | | | 904 | | | 1,076 | | | 2,367 | | | 25,039 | | | 0 | | | 0 | | | 30,240 | |
Total residential mortgage – first lien | | Total residential mortgage – first lien | 53,950 | | | 44,038 | | | 15,717 | | | 25,796 | | | 33,019 | | | 95,160 | | | 6,934 | | | 2,060 | | | 276,674 | |
Residential mortgage – junior lien | | Residential mortgage – junior lien | |
800+ | | 800+ | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 293 | | | 7,973 | | | 1,819 | | | 10,085 | |
760-799 | | 760-799 | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 177 | | | 3,005 | | | 1,032 | | | 4,214 | |
720-759 | | 720-759 | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 207 | | | 2,093 | | | 1,034 | | | 3,334 | |
680-719 | | 680-719 | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 183 | | | 1,233 | | | 854 | | | 2,270 | |
640-679 | | 640-679 | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 103 | | | 503 | | | 493 | | | 1,099 | |
600-639 | | 600-639 | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 67 | | | 241 | | | 299 | | | 607 | |
< 600 | | < 600 | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 76 | | | 254 | | | 374 | | | 704 | |
No FICO available | | No FICO available | 22 | | | 39 | | | 41 | | | 39 | | | 32 | | | 83 | | | 441 | | | 276 | | | 973 | |
Total residential mortgage – junior lien | | Total residential mortgage – junior lien | 22 | | | 39 | | | 41 | | | 39 | | | 32 | | | 1,189 | | | 15,743 | | | 6,181 | | | 23,286 | |
Credit card | | Credit card | |
800+ | | 800+ | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 3,860 | | | 1 | | | 3,861 | |
760-799 | | 760-799 | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 5,438 | | | 7 | | | 5,445 | |
720-759 | | 720-759 | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 7,897 | | | 29 | | | 7,926 | |
680-719 | | 680-719 | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 8,854 | | | 60 | | | 8,914 | |
640-679 | | 640-679 | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 5,657 | | | 64 | | | 5,721 | |
600-639 | | 600-639 | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 2,242 | | | 46 | | | 2,288 | |
< 600 | | < 600 | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 2,416 | | | 82 | | | 2,498 | |
No FICO available | | No FICO available | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 10 | | | 1 | | | 11 | |
Total credit card | | Total credit card | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 36,374 | | | 290 | | | 36,664 | |
Auto | | Auto | |
800+ | | 800+ | 2,875 | | | 2,606 | | | 1,211 | | | 731 | | | 452 | | | 104 | | | 0 | | | 0 | | | 7,979 | |
760-799 | | 760-799 | 3,036 | | | 2,662 | | | 1,122 | | | 579 | | | 349 | | | 81 | | | 0 | | | 0 | | | 7,829 | |
720-759 | | 720-759 | 3,162 | | | 2,514 | | | 1,095 | | | 576 | | | 395 | | | 98 | | | 0 | | | 0 | | | 7,840 | |
680-719 | | 680-719 | 3,534 | | | 2,542 | | | 1,066 | | | 545 | | | 400 | | | 105 | | | 0 | | | 0 | | | 8,192 | |
640-679 | | 640-679 | 3,381 | | | 1,948 | | | 763 | | | 395 | | | 334 | | | 94 | | | 0 | | | 0 | | | 6,915 | |
600-639 | | 600-639 | 2,208 | | | 1,165 | | | 479 | | | 274 | | | 276 | | | 87 | | | 0 | | | 0 | | | 4,489 | |
< 600 | | < 600 | 1,581 | | | 1,357 | | | 730 | | | 463 | | | 533 | | | 186 | | | 0 | | | 0 | | | 4,850 | |
No FICO available | | No FICO available | 13 | | | 37 | | | 5 | | | 10 | | | 18 | | | 10 | | | 0 | | | 0 | | | 93 | |
Total auto | | Total auto | 19,790 | | | 14,831 | | | 6,471 | | | 3,573 | | | 2,757 | | | 765 | | | 0 | | | 0 | | | 48,187 | |
Other consumer | | Other consumer | |
800+ | 800+ | | $ | 165,460 | | | 11,851 | | | 4,037 | | | 7,900 | | | 7,585 | | | 196,833 | | 800+ | 353 | | | 287 | | | 94 | | | 35 | | | 10 | | | 71 | | | 2,249 | | | 21 | | | 3,120 | |
760-799 | 760-799 | | 61,559 | | | 5,483 | | | 5,648 | | | 7,624 | | | 4,915 | | | 85,229 | | 760-799 | 342 | | | 279 | | | 93 | | | 29 | | | 10 | | | 34 | | | 1,110 | | | 16 | | | 1,913 | |
720-759 | 720-759 | | 27,879 | | | 4,407 | | | 8,376 | | | 7,839 | | | 4,097 | | | 52,598 | | 720-759 | 262 | | | 258 | | | 107 | | | 35 | | | 11 | | | 30 | | | 915 | | | 26 | | | 1,644 | |
680-719 | 680-719 | | 12,844 | | | 3,192 | | | 9,732 | | | 7,871 | | | 3,212 | | | 36,851 | | 680-719 | 156 | | | 213 | | | 99 | | | 36 | | | 11 | | | 24 | | | 798 | | | 31 | | | 1,368 | |
640-679 | 640-679 | | 5,068 | | | 1,499 | | | 6,626 | | | 6,324 | | | 1,730 | | | 21,247 | | 640-679 | 71 | | | 112 | | | 59 | | | 21 | | | 7 | | | 10 | | | 415 | | | 23 | | | 718 | |
600-639 | 600-639 | | 2,392 | | | 782 | | | 2,853 | | | 4,230 | | | 670 | | | 10,927 | | 600-639 | 18 | | | 36 | | | 22 | | | 9 | | | 4 | | | 8 | | | 151 | | | 13 | | | 261 | |
< 600 | < 600 | | 3,264 | | | 1,164 | | | 3,373 | | | 6,041 | | | 704 | | | 14,546 | | < 600 | 13 | | | 41 | | | 30 | | | 12 | | | 5 | | | 7 | | | 161 | | | 18 | | | 287 | |
No FICO available | No FICO available | | 3,656 | | | 1,118 | | | 368 | | | 44 | | | 2,316 | | | 7,502 | | No FICO available | 195 | | | 173 | | | 83 | | | 88 | | | 3 | | | 16 | | | 1,248 | | | 43 | | | 1,849 | |
FICO not required | FICO not required | | 0 | | | 0 | | | 0 | | | 0 | | | 9,075 | | | 9,075 | | FICO not required | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 13,249 | | | 0 | | | 13,249 | |
Government insured/guaranteed loans (2) | | 11,170 | | | 0 | | | 0 | | | 0 | | | 0 | | | 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 | | | 0 | | | 0 | | | 0 | | | 568 | | |
Total other consumer | | Total other consumer | 1,410 | | | 1,399 | | | 587 | | | 265 | | | 61 | | | 200 | | | 20,296 | | | 191 | | | 24,409 | |
Total consumer loans | Total consumer loans | | $ | 293,847 | | | 29,509 | | | 41,013 | | | 47,873 | | | 34,304 | | | 446,546 | | Total consumer loans | $ | 75,172 | | | 60,307 | | | 22,816 | | | 29,673 | | | 35,869 | | | 97,314 | | | 79,347 | | | 8,722 | | | 409,220 | |
(1)Disclosure is not comparative due to our adoption of CECL on January 1, 2020. For additional 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.
(3)41% of the adjusted unpaid principal balance for consumer PCI loans had FICO scores less than 680 and 19% where no FICO was available to us at December 31, 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 lien 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.
Note 4: Loans and Related Allowance for Credit Losses (continued)
Table 6.124.11 shows the most updated LTV and CLTV distribution of the real estate 1-4 familyresidential mortgage – first lien and residential mortgage – 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.ACL. 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 Related Allowance for Credit Losses (continued)
Table 6.12:4.11: Consumer Loan Categories by LTV/CLTV and Vintage(1)
| | | Term loans by origination year | | Revolving loans | | Revolving loans converted to term loans | | | Term loans by origination year | | Revolving loans | | Revolving loans converted to term loans | |
(in millions) | (in millions) | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | | Total | (in millions) | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Total |
September 30, 2020 | | |
Real estate 1-4 family first mortgage | | |
By LTV/CLTV: | | |
June 30, 2021 | | June 30, 2021 | |
Residential mortgage – first lien | | Residential mortgage – first lien | |
By LTV: | | By LTV: | |
0-60% | | 0-60% | $ | 9,789 | | | 18,204 | | | 14,733 | | | 5,341 | | | 11,884 | | | 66,680 | | | 4,604 | | | 1,567 | | | 132,802 | |
60.01-80% | | 60.01-80% | 20,654 | | | 27,433 | | | 15,773 | | | 4,339 | | | 5,369 | | | 10,096 | | | 1,071 | | | 256 | | | 84,991 | |
80.01-100% | | 80.01-100% | 40 | | | 1,720 | | | 1,498 | | | 416 | | | 382 | | | 801 | | | 304 | | | 68 | | | 5,229 | |
100.01-120% (1) | | 100.01-120% (1) | 0 | | | 35 | | | 52 | | | 19 | | | 16 | | | 101 | | | 72 | | | 17 | | | 312 | |
> 120% (1) | | > 120% (1) | 0 | | | 21 | | | 17 | | | 6 | | | 7 | | | 50 | | | 30 | | | 6 | | | 137 | |
No LTV available | | No LTV available | 42 | | | 101 | | | 79 | | | 54 | | | 57 | | | 272 | | | 53 | | | 11 | | | 669 | |
Government insured/guaranteed loans (3)(2) | | Government insured/guaranteed loans (3)(2) | 3 | | | 193 | | | 364 | | | 566 | | | 635 | | | 18,470 | | | 0 | | | 0 | | | 20,231 | |
Total residential mortgage – first lien | | Total residential mortgage – first lien | 30,528 | | | 47,707 | | | 32,516 | | | 10,741 | | | 18,350 | | | 96,470 | | | 6,134 | | | 1,925 | | | 244,371 | |
Residential mortgage – junior lien | | Residential mortgage – junior lien | |
By CLTV: | | By CLTV: | |
0-60% | 0-60% | $ | 12,777 | | | 15,718 | | | 6,606 | | | 13,753 | | | 21,870 | | | 65,355 | | | 5,138 | | | 1,605 | | | 142,822 | | 0-60% | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 496 | | | 8,124 | | | 3,558 | | | 12,178 | |
60.01-80% | 60.01-80% | 27,558 | | | 28,843 | | | 9,775 | | | 14,099 | | | 12,226 | | | 12,003 | | | 1,485 | | | 359 | | | 106,348 | | 60.01-80% | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 254 | | | 3,718 | | | 1,178 | | | 5,150 | |
80.01-100% | 80.01-100% | 1,981 | | | 4,293 | | | 1,419 | | | 943 | | | 567 | | | 1,321 | | | 488 | | | 119 | | | 11,131 | | 80.01-100% | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 123 | | | 1,051 | | | 424 | | | 1,598 | |
100.01-120% (2) | 100.01-120% (2) | 20 | | | 110 | | | 64 | | | 59 | | | 56 | | | 226 | | | 150 | | | 32 | | | 717 | | 100.01-120% (2) | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 31 | | | 225 | | | 92 | | | 348 | |
> 120% (2) | > 120% (2) | 10 | | | 49 | | | 22 | | | 21 | | | 23 | | | 100 | | | 53 | | | 12 | | | 290 | | > 120% (2) | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 8 | | | 78 | | | 28 | | | 114 | |
No LTV/CLTV available | 89 | | | 96 | | | 66 | | | 78 | | | 92 | | | 254 | | | 56 | | | 14 | | | 745 | | |
Government insured/guaranteed loans (3)(2) | 204 | | | 794 | | | 969 | | | 1,248 | | | 2,646 | | | 27,076 | | | 0 | | | 0 | | | 32,937 | | |
Total real estate 1-4 family first mortgage | 42,639 | | | 49,903 | | | 18,921 | | | 30,201 | | | 37,480 | | | 106,335 | | | 7,370 | | | 2,141 | | | 294,990 | | |
Real estate 1-4 family junior lien mortgage | | |
By LTV/CLTV: | | |
No CLTV available | | No CLTV available | 13 | | | 22 | | | 35 | | | 35 | | | 28 | | | 60 | | | 24 | | | 32 | | | 249 | |
Total residential mortgage – junior lien | | Total residential mortgage – junior lien | 13 | | | 22 | | | 35 | | | 35 | | | 28 | | | 972 | | | 13,220 | | | 5,312 | | | 19,637 | |
Total | | Total | $ | 30,541 | | | 47,729 | | | 32,551 | | | 10,776 | | | 18,378 | | | 97,442 | | | 19,354 | | | 7,237 | | | 264,008 | |
| | | Term loans by origination year | | Revolving loans | | Revolving loans converted to term loans | |
| | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | | Total |
December 31, 2020 | | December 31, 2020 | |
Residential mortgage – first lien | | Residential mortgage – first lien | |
By LTV: | | By LTV: | |
0-60% | | 0-60% | $ | 16,582 | | | 15,449 | | | 6,065 | | | 13,190 | | | 21,097 | | | 59,291 | | | 4,971 | | | 1,587 | | | 138,232 | |
60.01-80% | | 60.01-80% | 34,639 | | | 24,736 | | | 7,724 | | | 10,745 | | | 8,970 | | | 9,333 | | | 1,323 | | | 326 | | | 97,796 | |
80.01-100% | | 80.01-100% | 2,332 | | | 2,975 | | | 900 | | | 654 | | | 441 | | | 1,003 | | | 425 | | | 100 | | | 8,830 | |
100.01-120% (1) | | 100.01-120% (1) | 41 | | | 106 | | | 45 | | | 40 | | | 41 | | | 168 | | | 117 | | | 26 | | | 584 | |
> 120% (1) | | > 120% (1) | 31 | | | 41 | | | 16 | | | 19 | | | 16 | | | 78 | | | 44 | | | 8 | | | 253 | |
No LTV available | | No LTV available | 110 | | | 92 | | | 63 | | | 72 | | | 87 | | | 248 | | | 54 | | | 13 | | | 739 | |
Government insured/guaranteed loans (2) | | Government insured/guaranteed loans (2) | 215 | | | 639 | | | 904 | | | 1,076 | | | 2,367 | | | 25,039 | | | 0 | | | 0 | | | 30,240 | |
Total residential mortgage – first lien | | Total residential mortgage – first lien | 53,950 | | | 44,038 | | | 15,717 | | | 25,796 | | | 33,019 | | | 95,160 | | | 6,934 | | | 2,060 | | | 276,674 | |
Residential mortgage – junior lien | | Residential mortgage – junior lien | |
By CLTV: | | By CLTV: | |
0-60% | 0-60% | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 572 | | | 8,819 | | | 3,829 | | | 13,220 | | 0-60% | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 548 | | | 8,626 | | | 3,742 | | | 12,916 | |
60.01-80% | 60.01-80% | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 373 | | | 5,784 | | | 1,740 | | | 7,897 | | 60.01-80% | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 335 | | | 5,081 | | | 1,554 | | | 6,970 | |
80.01-100% | 80.01-100% | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 229 | | | 1,772 | | | 773 | | | 2,774 | | 80.01-100% | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 187 | | | 1,507 | | | 641 | | | 2,335 | |
100.01-120% (2) | 100.01-120% (2) | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 74 | | | 452 | | | 193 | | | 719 | | 100.01-120% (2) | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 59 | | | 376 | | | 156 | | | 591 | |
> 120% (2) | > 120% (2) | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 22 | | | 167 | | | 61 | | | 250 | | > 120% (2) | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 15 | | | 128 | | | 50 | | | 193 | |
No LTV/CLTV available | 17 | | | 41 | | | 47 | | | 43 | | | 36 | | | 51 | | | 26 | | | 41 | | | 302 | | |
Total real estate 1-4 family junior lien mortgage | 17 | | | 41 | | | 47 | | | 43 | | | 36 | | | 1,321 | | | 17,020 | | | 6,637 | | | 25,162 | | |
No CLTV available | | No CLTV available | 22 | | | 39 | | | 41 | | | 39 | | | 32 | | | 45 | | | 25 | | | 38 | | | 281 | |
Total residential mortgage – junior lien | | Total residential mortgage – junior lien | 22 | | | 39 | | | 41 | | | 39 | | | 32 | | | 1,189 | | | 15,743 | | | 6,181 | | | 23,286 | |
Total | Total | $ | 42,656 | | | 49,944 | | | 18,968 | | | 30,244 | | | 37,516 | | | 107,656 | | | 24,390 | | | 8,778 | | | 320,152 | | Total | $ | 53,972 | | | 44,077 | | | 15,758 | | | 25,835 | | | 33,051 | | | 96,349 | | | 22,677 | | | 8,241 | | | 299,960 | |
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 | | | 0 | | | 11,170 | | |
Total consumer loans (excluding PCI) | | 293,292 | | | 29,496 | | | 322,788 | | |
Total consumer PCI loans (carrying value) (4) | | 555 | | | 13 | | | 568 | | |
Total consumer loans | | $ | 293,847 | | | 29,509 | | | 323,356 | | |
(1)Disclosure is not comparative due to our adoption of CECL on January 1, 2020. For additional 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.
(3)(2)Represents loans whose repayments are predominantly insured by the FHA or guaranteed by the VA.
(4)
9% of the adjusted unpaid principal balance for consumer PCI loans have LTV/CLTV amounts greater than 80% at December 31, 2019.
NONACCRUAL LOANSTable 6.134.12 provides loans on nonaccrual status. In connection with our adoption of CECL, nonaccrual loans may have an allowance for credit lossesACL or a negative allowance for credit losses from expected recoveries of amounts previously written off. Payment
written off. Payment deferral activities instituted in response to the COVID-19 pandemic maycould continue to delay the recognition of delinquencies for customers who otherwise would have moved into nonaccrual status.
Table 6.13:4.12: Nonaccrual Loans(1)
| | | | | | | | | | | | | | | | | | Amortized cost | | Recognized interest income |
| | Amortized cost | | Nine months ended September 30, 2020 | | Nonaccrual loans | | Nonaccrual loans without related allowance for credit losses (1) | | Six months ended June 30, |
(in millions) | (in millions) | Nonaccrual loans | | Nonaccrual loans without related allowance for credit losses (2) | | Recognized interest income | (in millions) | Jun 30, 2021 | | Dec 31, 2020 | | Jun 30, 2021 | | Dec 31, 2020 | | 2021 | | 2020 |
September 30, 2020 | | |
Commercial: | Commercial: | | Commercial: | |
Commercial and industrial | Commercial and industrial | $ | 2,834 | | | 293 | | | 48 | | Commercial and industrial | $ | 1,691 | | | 2,698 | | | 464 | | | 382 | | | 45 | | | 30 | |
Real estate mortgage | Real estate mortgage | 1,343 | | | 113 | | | 25 | | Real estate mortgage | 1,598 | | | 1,774 | | | 201 | | | 93 | | | 33 | | | 17 | |
Real estate construction | Real estate construction | 34 | | | 2 | | | 6 | | Real estate construction | 45 | | | 48 | | | 13 | | | 15 | | | 1 | | | 5 | |
Lease financing | Lease financing | 187 | | | 18 | | | 0 | | Lease financing | 215 | | | 259 | | | 40 | | | 16 | | | 0 | | | 0 | |
Total commercial | Total commercial | 4,398 | | | 426 | | | 79 | | Total commercial | 3,549 | | | 4,779 | | | 718 | | | 506 | | | 79 | | | 52 | |
Consumer: | Consumer: | | Consumer: | |
Real estate 1-4 family first mortgage | 2,641 | | | 1,549 | | | 116 | | |
Real estate 1-4 family junior lien mortgage | 767 | | | 465 | | | 39 | | |
Automobile | 176 | | | 0 | | | 12 | | |
Other revolving credit and installment | 40 | | | 0 | | | 2 | | |
Residential mortgage- first lien | | Residential mortgage- first lien | 2,852 | | | 2,957 | | | 1,949 | | | 1,908 | | | 56 | | | 81 | |
Residential mortgage- junior lien | | Residential mortgage- junior lien | 713 | | | 754 | | | 463 | | | 461 | | | 25 | | | 28 | |
Auto | | Auto | 221 | | | 202 | | | 0 | | | 0 | | | 17 | | | 7 | |
Other consumer | | Other consumer | 36 | | | 36 | | | 0 | | | 0 | | | 1 | | | 1 | |
Total consumer | Total consumer | 3,624 | | | 2,014 | | | 169 | | Total consumer | 3,822 | | | 3,949 | | | 2,412 | | | 2,369 | | | 99 | | | 117 | |
Total nonaccrual loans | Total nonaccrual loans | $ | 8,022 | | | 2,440 | | | 248 | | Total nonaccrual loans | $ | 7,371 | | | 8,728 | | | 3,130 | | | 2,875 | | | 178 | | | 169 | |
December 31, 2019 (1) | | |
Commercial: | | |
Commercial and industrial | $ | 1,545 | | | |
Real estate mortgage | 573 | | | |
Real estate construction | 41 | | | |
Lease financing | 95 | | | |
Total commercial | 2,254 | | | |
Consumer: | | |
Real estate 1-4 family first mortgage | 2,150 | | | |
Real estate 1-4 family junior lien mortgage | 796 | | | |
Automobile | 106 | | | |
Other revolving credit and installment | 40 | | | |
Total consumer | 3,092 | | | |
Total nonaccrual loans (excluding PCI) | $ | 5,346 | | | |
(1)Disclosure is not comparative due to our adoption of CECL on January 1, 2020. For additional 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 FORECLOSUREOur recorded investment in consumer mortgage loans collateralized by residential real estate property that are in process of foreclosure was $2.3 billion$939 million and $3.5$2.1 billion at SeptemberJune 30, 2020,2021, and December 31, 2019,2020, respectively, which included $1.9 billion$650 million and $2.8$1.7 billion, respectively, of loans that are government insured/guaranteed. Under the Consumer Financial Protection Bureau guidelines, we do not commence the foreclosure process on real estate 1-4 familyresidential 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.
Note 6:4: Loans and Related Allowance for Credit Losses (continued)
LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING Certain loans 90 days or more past due are still accruing, because they are (1) well-secured and in the process of collection or (2) real estate 1-4 familyresidential mortgage loans or consumer loans exempt under regulatory rules from being classified as nonaccrual until later delinquency, usually 120 days past due.
Table 6.144.13 shows loans 90 days or more past due and still accruing by class for loans not government insured/guaranteed.
Table 6.14:4.13: Loans 90 Days or More Past Due and Still Accruing
| | | | | | | | | | | |
(in millions) | Sep 30, 2020 | | Dec 31, 2019 |
Total: | $ | 11,698 | | | 7,285 | |
Less: FHA insured/VA guaranteed (1) | 11,041 | | | 6,352 | |
| | | |
Total, not government insured/guaranteed | $ | 657 | | | 933 | |
By segment and class, not government insured/guaranteed: | | | |
Commercial: | | | |
Commercial and industrial | $ | 61 | | | 47 | |
Real estate mortgage | 47 | | | 31 | |
| | | |
Total commercial | 108 | | | 78 | |
Consumer: | | | |
Real estate 1-4 family first mortgage | 97 | | | 112 | |
Real estate 1-4 family junior lien mortgage | 28 | | | 32 | |
Credit card | 297 | | | 546 | |
Automobile | 50 | | | 78 | |
Other revolving credit and installment | 77 | | | 87 | |
Total consumer | 549 | | | 855 | |
Total, not government insured/guaranteed | $ | 657 | | | 933 | |
| | | | | | | | | | | |
($ in millions) | Jun 30, 2021 | | Dec 31, 2020 |
Total: | $ | 4,703 | | | 7,041 | |
Less: FHA insured/VA guaranteed (1) | 3,966 | | | 6,351 | |
| | | |
Total, not government insured/guaranteed | $ | 737 | | | 690 | |
By segment and class, not government insured/guaranteed: | | | |
Commercial: | | | |
Commercial and industrial | $ | 165 | | | 39 | |
Real estate mortgage | 105 | | | 38 | |
Real estate construction | 7 | | | 1 | |
Total commercial | 277 | | | 78 | |
Consumer: | | | |
Residential mortgage – first lien | 73 | | | 135 | |
Residential mortgage – junior lien | 12 | | | 19 | |
Credit card | 271 | | | 365 | |
Auto | 43 | | | 65 | |
Other consumer | 61 | | | 28 | |
Total consumer | 460 | | | 612 | |
Total, not government insured/guaranteed | $ | 737 | | | 690 | |
(1)Represents loans whose repayments are largelypredominantly insured by the FHA or guaranteed by the VA.
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 included loans on nonaccrual status in the commercial portfolio segment and loans modified in a TDR, whether on accrual or nonaccrual status. Impaired loans generally had 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,
such as collateral dependent loans, or when loans are currently performing in accordance with their terms and no loss has been estimated. Impaired loans excluded PCI loans and loans that had been fully charged off or otherwise had zero recorded investment. Table 6.15 included trial modifications that totaled $115 million at December 31, 2019.
For additional information on our legacy impaired loans and allowance for credit losses, see Note 1 (Summary of Significant Accounting Policies) in our 2019 Form 10-K.
Table 6.15:Impaired Loans Summary
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Recorded investment | | |
(in millions) | Unpaid principal balance | | Impaired loans | | Impaired loans with related allowance for credit losses | | Related allowance for credit losses |
December 31, 2019 | | | | | | | |
Commercial: | | | | | | | |
Commercial and industrial | $ | 2,792 | | | 2,003 | | | 1,903 | | | 311 | |
Real estate mortgage | 1,137 | | | 974 | | | 803 | | | 110 | |
Real estate construction | 81 | | | 51 | | | 41 | | | 11 | |
Lease financing | 131 | | | 105 | | | 105 | | | 35 | |
Total commercial | 4,141 | | | 3,133 | | | 2,852 | | | 467 | |
Consumer: | | | | | | | |
Real estate 1-4 family first mortgage | 8,107 | | | 7,674 | | | 4,433 | | | 437 | |
Real estate 1-4 family junior lien mortgage | 1,586 | | | 1,451 | | | 925 | | | 144 | |
Credit card | 520 | | | 520 | | | 520 | | | 209 | |
Automobile | 138 | | | 81 | | | 42 | | | 8 | |
Other revolving credit and installment | 178 | | | 171 | | | 155 | | | 49 | |
Total consumer (1) | 10,529 | | | 9,897 | | | 6,075 | | | 847 | |
Total impaired loans (excluding PCI) | $ | 14,670 | | | 13,030 | | | 8,927 | | | 1,314 | |
(1)Included the recorded investment of $1.2 billion at December 31, 2019 of government insured/guaranteed loans that are predominantly insured by the FHA or guaranteed by the VA and generally do not have an ACL. Impaired loans may also have limited, if any, ACL when the recorded investment of the loan approximates estimated net realizable value as a result of charge-offs prior to a TDR modification.
Note 6: Loans and Related Allowance for Credit Losses (continued)
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 | |
(1)Included 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 $14.6$12.5 billion and $11.8$14.5 billion at SeptemberJune 30, 2020,2021, and December 31, 2019,2020, 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 and the Interagency Statement. For additional information on the TDR relief, see Note 1 (Summary of Significant Accounting Policies). in our 2020 Form 10-K.
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 $477$344 million and $500$489 million at SeptemberJune 30, 2020,2021, and December 31, 2019,2020, respectively.
Table 6.174.14 summarizes our TDR modifications for the periods presented by primary modification type and includes the financial effects of these modifications. For those loans that modify more than once, the table reflects each modification that
occurred during the period. Loans that both modify and payare paid off or written-off within the period, as well as changes in recorded investment during the period for loans modified in prior periods, are not included in the table.
Table 6.17:4.14: TDR Modifications
| | | | Primary modification type (1) | | Financial effects of modifications | | Primary modification type (1) | | Financial effects of modifications |
($ in millions) | ($ in millions) | Principal forgiveness | | Interest rate reduction | | Other concessions (2) | | Total | | Charge- offs (3) | | Weighted average interest rate reduction | | Recorded investment related to interest rate reduction (4) | ($ in millions) | Principal forgiveness | | Interest rate reduction | | Other concessions (2) | | Total | | Charge- offs (3) | | Weighted average interest rate reduction | | Recorded investment related to interest rate reduction (4) |
Quarter ended September 30, 2020 | | |
Quarter ended June 30, 2021 | | Quarter ended June 30, 2021 | |
Commercial: | Commercial: | | Commercial: | |
Commercial and industrial | Commercial and industrial | $ | 0 | | | 7 | | | 882 | | | 889 | | | 44 | | | 0.79 | % | | $ | 7 | | Commercial and industrial | $ | 0 | | | 1 | | | 330 | | | 331 | | | 14 | | | 1.22 | % | | $ | 1 | |
Real estate mortgage | Real estate mortgage | 0 | | | 5 | | | 238 | | | 243 | | | 5 | | | 1.38 | | | 5 | | Real estate mortgage | 41 | | | 5 | | | 86 | | | 132 | | | 0 | | | 1.15 | | | 5 | |
Real estate construction | Real estate construction | 9 | | | 1 | | | 1 | | | 11 | | | 0 | | | 5.25 | | | 1 | | Real estate construction | 0 | | | 0 | | | 2 | | | 2 | | | 0 | | | 0 | | | 0 | |
Lease financing | Lease financing | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | Lease financing | 0 | | | 0 | | | 1 | | | 1 | | | 0 | | | 0 | | | 0 | |
Total commercial | Total commercial | 9 | | | 13 | | | 1,121 | | | 1,143 | | | 49 | | | 1.29 | | | 13 | | Total commercial | 41 | | | 6 | | | 419 | | | 466 | | | 14 | | | 1.17 | | | 6 | |
Consumer: | Consumer: | | | | Consumer: | | | |
Real estate 1-4 family first mortgage | 1 | | | 4 | | | 2,576 | | | 2,581 | | | 1 | | | 2.06 | | | 4 | | |
Real estate 1-4 family junior lien mortgage | 0 | | | 2 | | | 59 | | | 61 | | | 2 | | | 2.63 | | | 2 | | |
Residential mortgage – first lien | | Residential mortgage – first lien | 0 | | | 8 | | | 353 | | | 361 | | | 1 | | | 1.26 | | | 8 | |
Residential mortgage – junior lien | | Residential mortgage – junior lien | 0 | | | 2 | | | 9 | | | 11 | | | 0 | | | 2.51 | | | 2 | |
Credit card | Credit card | 0 | | | 72 | | | 0 | | | 72 | | | 0 | | | 15.06 | | | 72 | | Credit card | 0 | | | 24 | | | 0 | | | 24 | | | 0 | | | 19.02 | | | 24 | |
Automobile | 0 | | | 1 | | | 65 | | | 66 | | | 35 | | | 3.99 | | | 1 | | |
Other revolving credit and installment | 0 | | | 3 | | | 24 | | | 27 | | | 1 | | | 7.36 | | | 3 | | |
Auto | | Auto | 1 | | | 1 | | | 72 | | | 74 | | | 30 | | | 3.93 | | | 1 | |
Other consumer | | Other consumer | 0 | | | 4 | | | 0 | | | 4 | | | 0 | | | 12.02 | | | 4 | |
Trial modifications (5) | Trial modifications (5) | 0 | | | 0 | | | 10 | | | 10 | | | 0 | | | 0 | | | 0 | | Trial modifications (5) | 0 | | | 0 | | | 2 | | | 2 | | | 0 | | | 0 | | | 0 | |
Total consumer | Total consumer | 1 | | | 82 | | | 2,734 | | | 2,817 | | | 39 | | | 13.64 | | | 82 | | Total consumer | 1 | | | 39 | | | 436 | | | 476 | | | 31 | | | 13.24 | | | 39 | |
Total | Total | $ | 10 | | | 95 | | | 3,855 | | | 3,960 | | | 88 | | | 12.07 | % | | $ | 95 | | Total | $ | 42 | | | 45 | | | 855 | | | 942 | | | 45 | | | 11.68 | % | | $ | 45 | |
Quarter ended September 30, 2019 | | |
Quarter ended June 30, 2020 | | Quarter ended June 30, 2020 | |
Commercial: | Commercial: | | Commercial: | |
Commercial and industrial | Commercial and industrial | $ | 13 | | | 9 | | | 209 | | | 231 | | | 39 | | | 0.67 | % | | $ | 9 | | Commercial and industrial | $ | 0 | | | 17 | | | 948 | | | 965 | | | 38 | | | 0.79 | % | | $ | 17 | |
Real estate mortgage | Real estate mortgage | 0 | | | 4 | | | 72 | | | 76 | | | 0 | | | 0.91 | | | 4 | | Real estate mortgage | 0 | | | 5 | | | 98 | | | 103 | | | 0 | | | 1.75 | | | 5 | |
Real estate construction | Real estate construction | 0 | | | 1 | | | 15 | | | 16 | | | 0 | | | 1.00 | | | 1 | | Real estate construction | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Lease financing | Lease financing | 0 | | | 0 | | | 2 | | | 2 | | | 0 | | | 0 | | | 0 | | Lease financing | 0 | | | 0 | | | 1 | | | 1 | | | 0 | | | 0 | | | 0 | |
Total commercial | Total commercial | 13 | | | 14 | | | 298 | | | 325 | | | 39 | | | 0.75 | | | 14 | | Total commercial | 0 | | | 22 | | | 1,047 | | | 1,069 | | | 38 | | | 1.00 | | | 22 | |
Consumer: | Consumer: | | | | Consumer: | | | |
Real estate 1-4 family first mortgage | 24 | | | 4 | | | 199 | | | 227 | | | 0 | | | 2.11 | | | 16 | | |
Real estate 1-4 family junior lien mortgage | 1 | | | 8 | | | 19 | | | 28 | | | 0 | | | 2.49 | | | 9 | | |
Residential mortgage – first lien | | Residential mortgage – first lien | 0 | | | 14 | | | 288 | | | 302 | | | 1 | | | 1.84 | | | 14 | |
Residential mortgage – junior lien | | Residential mortgage – junior lien | 0 | | | 3 | | | 24 | | | 27 | | | 0 | | | 2.39 | | | 3 | |
Credit card | Credit card | 0 | | | 94 | | | 0 | | | 94 | | | 0 | | | 12.78 | | | 94 | | Credit card | 0 | | | 62 | | | 0 | | | 62 | | | 0 | | | 12.79 | | | 62 | |
Automobile | 2 | | | 3 | | | 12 | | | 17 | | | 7 | | | 5.30 | | | 3 | | |
Other revolving credit and installment | 0 | | | 14 | | | 2 | | | 16 | | | 0 | | | 8.38 | | | 14 | | |
Auto | | Auto | 1 | | | 2 | | | 44 | | | 47 | | | 28 | | | 4.42 | | | 2 | |
Other consumer | | Other consumer | 0 | | | 3 | | | 6 | | | 9 | | | 0 | | | 5.90 | | | 3 | |
Trial modifications (5) | Trial modifications (5) | 0 | | | 0 | | | 6 | | | 6 | | | 0 | | | 0 | | | 0 | | Trial modifications (5) | 0 | | | 0 | | | (13) | | | (13) | | | 0 | | | 0 | | | 0 | |
Total consumer | Total consumer | 27 | | | 123 | | | 238 | | | 388 | | | 7 | | | 10.23 | | | 136 | | Total consumer | 1 | | | 84 | | | 349 | | | 434 | | | 29 | | | 10.09 | | | 84 | |
Total | Total | $ | 40 | | | 137 | | | 536 | | | 713 | | | 46 | | | 9.32 | % | | $ | 150 | | Total | $ | 1 | | | 106 | | | 1,396 | | | 1,503 | | | 67 | | | 8.17 | % | | $ | 106 | |
(continued on following page)
Note 6:4: Loans and Related Allowance for Credit Losses (continued)
(continued from previous page)
| | | Primary modification type (1) | | Financial effects of modifications | | Primary modification type (1) | | Financial effects of modifications | |
($ in millions) | ($ in millions) | Principal forgiveness | | Interest rate reduction | | Other concessions (2) | | Total | | Charge- offs (3) | | Weighted average interest rate reduction | | Recorded investment related to interest rate reduction (4) | ($ in millions) | Principal forgiveness | | Interest rate reduction | | Other concessions (2) | | Total | | Charge- offs (3) | | Weighted average interest rate reduction | | Recorded investment related to interest rate reduction (4) | |
Nine months ended September 30, 2020 | | |
Six months ended June 30, 2021 | | Six months ended June 30, 2021 | | |
Commercial: | Commercial: | | Commercial: | | |
Commercial and industrial | Commercial and industrial | $ | 18 | | | 39 | | | 2,144 | | | 2,201 | | | 126 | | | 0.74 | % | | $ | 39 | | Commercial and industrial | $ | 0 | | | 2 | | | 560 | | | 562 | | | 20 | | | 1.10 | % | | $ | 2 | | |
Real estate mortgage | Real estate mortgage | 0 | | | 23 | | | 488 | | | 511 | | | 5 | | | 1.21 | | | 23 | | Real estate mortgage | 41 | | | 9 | | | 186 | | | 236 | | | 0 | | | 1.04 | | | 9 | | |
Real estate construction | Real estate construction | 9 | | | 1 | | | 7 | | | 17 | | | 0 | | | 4.29 | | | 1 | | Real estate construction | 0 | | | 0 | | | 3 | | | 3 | | | 0 | | | 0 | | | 0 | | |
Lease financing | Lease financing | 0 | | | 0 | | | 1 | | | 1 | | | 0 | | | 0 | | | 0 | | Lease financing | 0 | | | 0 | | | 4 | | | 4 | | | 0 | | | 0 | | | 0 | | |
Total commercial | Total commercial | 27 | | | 63 | | | 2,640 | | | 2,730 | | | 131 | | | 0.98 | | | 63 | | Total commercial | 41 | | | 11 | | | 753 | | | 805 | | | 20 | | | 1.05 | | | 11 | | |
Consumer: | Consumer: | | | | Consumer: | | | | |
Real estate 1-4 family first mortgage | 42 | | | 10 | | | 3,021 | | | 3,073 | | | 2 | | | 1.76 | | | 35 | | |
Real estate 1-4 family junior lien mortgage | 4 | | | 10 | | | 95 | | | 109 | | | 2 | | | 2.43 | | | 11 | | |
Residential mortgage – first lien | | Residential mortgage – first lien | 0 | | | 15 | | | 885 | | | 900 | | | 1 | | | 1.53 | | | 15 | | |
Residential mortgage – junior lien | | Residential mortgage – junior lien | 0 | | | 7 | | | 22 | | | 29 | | | 1 | | | 2.44 | | | 7 | | |
Credit card | Credit card | 0 | | | 229 | | | 0 | | | 229 | | | 0 | | | 13.31 | | | 229 | | Credit card | 0 | | | 56 | | | 0 | | | 56 | | | 0 | | | 18.93 | | | 56 | | |
Automobile | 3 | | | 5 | | | 119 | | | 127 | | | 69 | | | 4.45 | | | 5 | | |
Other revolving credit and installment | 0 | | | 18 | | | 32 | | | 50 | | | 1 | | | 7.65 | | | 18 | | |
Auto | | Auto | 1 | | | 2 | | | 86 | | | 89 | | | 37 | | | 3.90 | | | 2 | | |
Other consumer | | Other consumer | 0 | | | 11 | | | 1 | | | 12 | | | 0 | | | 12.14 | | | 11 | | |
Trial modifications (5) | Trial modifications (5) | 0 | | | 0 | | | (1) | | | (1) | | | 0 | | | 0 | | | 0 | | Trial modifications (5) | 0 | | | 0 | | | 2 | | | 2 | | | 0 | | | 0 | | | 0 | | |
Total consumer | Total consumer | 49 | | | 272 | | | 3,266 | | | 3,587 | | | 74 | | | 11.03 | | | 298 | | Total consumer | 1 | | | 91 | | | 996 | | | 1,088 | | | 39 | | | 13.67 | | | 91 | | |
Total | Total | $ | 76 | | | 335 | | | 5,906 | | | 6,317 | | | 205 | | | 9.29 | % | | $ | 361 | | Total | $ | 42 | | | 102 | | | 1,749 | | | 1,893 | | | 59 | | | 12.31 | % | | $ | 102 | | |
Nine months ended September 30, 2019 | | |
Six months ended June 30, 2020 | | Six months ended June 30, 2020 | | |
Commercial: | Commercial: | | Commercial: | | |
Commercial and industrial | Commercial and industrial | $ | 13 | | | 54 | | | 943 | | | 1,010 | | | 78 | | | 0.47 | % | | $ | 54 | | Commercial and industrial | $ | 18 | | | 32 | | | 1,262 | | | 1,312 | | | 82 | | | 0.73 | % | | $ | 32 | | |
Real estate mortgage | Real estate mortgage | 0 | | | 30 | | | 240 | | | 270 | | | 0 | | | 0.59 | | | 30 | | Real estate mortgage | 0 | | | 18 | | | 250 | | | 268 | | | 0 | | | 1.17 | | | 18 | | |
Real estate construction | Real estate construction | 13 | | | 1 | | | 31 | | | 45 | | | 0 | | | 1.00 | | | 1 | | Real estate construction | 0 | | | 0 | | | 6 | | | 6 | | | 0 | | | 2.49 | | | 0 | | |
Lease financing | Lease financing | 0 | | | 0 | | | 2 | | | 2 | | | 0 | | | 0 | | | 0 | | Lease financing | 0 | | | 0 | | | 1 | | | 1 | | | 0 | | | 0 | | | 0 | | |
Total commercial | Total commercial | 26 | | | 85 | | | 1,216 | | | 1,327 | | | 78 | | | 0.51 | | | 85 | | Total commercial | 18 | | | 50 | | | 1,519 | | | 1,587 | | | 82 | | | 0.90 | | | 50 | | |
Consumer: | Consumer: | | | | Consumer: | | | | |
Real estate 1-4 family first mortgage | 87 | | | 9 | | | 674 | | | 770 | | | 1 | | | 1.96 | | | 54 | | |
Real estate 1-4 family junior lien mortgage | 4 | | | 30 | | | 65 | | | 99 | | | 2 | | | 2.38 | | | 32 | | |
Residential mortgage – first lien | | Residential mortgage – first lien | 0 | | | 31 | | | 461 | | | 492 | | | 1 | | | 1.73 | | | 31 | | |
Residential mortgage – junior lien | | Residential mortgage – junior lien | 0 | | | 9 | | | 39 | | | 48 | | | 0 | | | 2.38 | | | 9 | | |
Credit card | Credit card | 0 | | | 280 | | | 0 | | | 280 | | | 0 | | | 13.11 | | | 280 | | Credit card | 0 | | | 157 | | | 0 | | | 157 | | | 0 | | | 12.51 | | | 157 | | |
Automobile | 6 | | | 7 | | | 38 | | | 51 | | | 21 | | | 4.84 | | | 7 | | |
Other revolving credit and installment | 0 | | | 37 | | | 6 | | | 43 | | | 0 | | | 7.92 | | | 37 | | |
Auto | | Auto | 3 | | | 4 | | | 54 | | | 61 | | | 34 | | | 4.56 | | | 4 | | |
Other consumer | | Other consumer | 0 | | | 15 | | | 8 | | | 23 | | | 0 | | | 7.71 | | | 15 | | |
Trial modifications (5) | Trial modifications (5) | 0 | | | 0 | | | 11 | | | 11 | | | 0 | | | 0 | | | 0 | | Trial modifications (5) | 0 | | | 0 | | | (11) | | | (11) | | | 0 | | | 0 | | | 0 | | |
Total consumer | Total consumer | 97 | | | 363 | | | 794 | | | 1,254 | | | 24 | | | 10.19 | | | 410 | | Total consumer | 3 | | | 216 | | | 551 | | | 770 | | | 35 | | | 10.04 | | | 216 | | |
Total | Total | $ | 123 | | | 448 | | | 2,010 | | | 2,581 | | | 102 | | | 8.52 | % | | $ | 495 | | Total | $ | 21 | | | 266 | | | 2,070 | | | 2,357 | | | 117 | | | 8.30 | % | | $ | 266 | | |
(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 $382$202 million and $188$221 million for the quarters ended SeptemberJune 30, 20202021 and 2019,2020, respectively, and $866$458 million and $871$484 million for the first nine monthshalf of 20202021 and 2019,2020, respectively.
(2)Other concessions include loans with payment (principal and/or interest) deferral, loans discharged in bankruptcy, and loans withloan renewals, term extensions or other changes to original contract terms and other interest and noninterest adjustments, but exclude modifications that also forgive principal and/or reduce the contractual interest rate. The reported amounts include COVID-related payment deferrals that are new TDRs and exclude COVID-related payment deferrals previously reported as TDRs given limited current financial effects other than the payment deferral.
(3)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 of $2 million and $16 million for the quarters ended September 30, 2020 and 2019, respectively, and $34 million and $22 million for the first nine months of 2020 and 2019, respectively.
(4)ReflectsRecorded investment related to interest rate reduction reflects the effect of reduced interest rates on loans with an interest rate concession as one of itstheir concession types, which includes loans reported as a principal primary modification type that also have an interest rate concession.
(5)Trial modifications are granted a delay in payments due under the original terms during the trial payment period. However, these loans continue to advance through delinquency status and accrue interest according to their original terms. Any subsequent permanent modification generally includes interest rate related concessions; however, the exact concession type and resulting financial effect are usually not known until the loan is permanently modified. Trial modifications for the period are presented net of previously reported trial modifications that became permanent in the current period.
Table 6.184.15 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 6.18:4.15: Defaulted TDRs
| | | Recorded investment of defaults | | Recorded investment of defaults | |
| | Quarter ended September 30, | | Nine months ended September 30, | | Quarter ended June 30, | | Six months ended June 30, | |
(in millions) | (in millions) | 2020 | | 2019 | | 2020 | | 2019 | (in millions) | 2021 | | 2020 | | 2021 | | 2020 | |
Commercial: | Commercial: | | Commercial: | | |
Commercial and industrial | Commercial and industrial | $ | 138 | | | 24 | | | 360 | | | 72 | | Commercial and industrial | $ | 84 | | | 37 | | | 125 | | | 222 | | |
Real estate mortgage | Real estate mortgage | 3 | | | 5 | | | 105 | | | 38 | | Real estate mortgage | 9 | | | 81 | | | 25 | | | 102 | | |
Real estate construction | Real estate construction | 0 | | | 12 | | | 0 | | | 15 | | Real estate construction | 0 | | | 0 | | | 0 | | | 0 | | |
Lease financing | | Lease financing | 0 | | | 0 | | | 0 | | | 0 | | |
Total commercial | Total commercial | 141 | | | 41 | | | 465 | | | 125 | | Total commercial | 93 | | | 118 | | | 150 | | | 324 | | |
Consumer: | Consumer: | | Consumer: | | |
Real estate 1-4 family first mortgage | 8 | | | 8 | | | 26 | | | 32 | | |
Real estate 1-4 family junior lien mortgage | 1 | | | 2 | | | 9 | | | 11 | | |
Residential mortgage – first lien | | Residential mortgage – first lien | 2 | | | 8 | | | 5 | | | 18 | | |
Residential mortgage – junior lien | | Residential mortgage – junior lien | 0 | | | 6 | | | 1 | | | 8 | | |
Credit card | Credit card | 11 | | | 23 | | | 56 | | | 65 | | Credit card | 6 | | | 19 | | | 16 | | | 45 | | |
Automobile | 11 | | | 2 | | | 14 | | | 9 | | |
Other revolving credit and installment | 1 | | | 2 | | | 4 | | | 5 | | |
Auto | | Auto | 12 | | | 1 | | | 23 | | | 3 | | |
Other consumer | | Other consumer | 0 | | | 2 | | | 1 | | | 3 | | |
Total consumer | Total consumer | 32 | | | 37 | | | 109 | | | 122 | | Total consumer | 20 | | | 36 | | | 46 | | | 77 | | |
Total | Total | $ | 173 | | | 78 | | | 574 | | | 247 | | Total | $ | 113 | | | 154 | | | 196 | | | 401 | | |
| | |
Note 7:5: Leasing Activity |
The information below provides a summary of our leasing activities as a lessor and lessee. See Note 7 (Leasing5
(Leasing Activity) in our 20192020 Form 10-K for additional information about our leasing activities.
As a Lessor
Noninterest income on leases, which is presented in Table 7.1 presents5.1, is included in other noninterest income on our consolidated statement of income. Lease expense, included in other noninterest expense on our consolidated statement of income, was $226 million and $244 million for the compositionquarters ended June 30, 2021 and 2020, respectively, and $452 million and $504 million for the first half of our leasing revenue.2021 and 2020, respectively.
Table 7.1:5.1: Leasing Revenue
| | | Quarter ended September 30, | | Nine months ended September 30, | | Quarter ended June 30, | | Six months ended June 30, |
(in millions) | (in millions) | 2020 | | 2019 | | 2020 | | 2019 | (in millions) | 2021 | | 2020 | | 2021 | | 2020 |
Interest income on lease financing(1) | Interest income on lease financing(1) | $ | 144 | | | 208 | | | $ | 551 | | | 655 | | Interest income on lease financing(1) | $ | 172 | | | 208 | | | 353 | | | 437 | |
Other lease revenues: | Other lease revenues: | | Other lease revenues: | |
Variable revenues on lease financing | Variable revenues on lease financing | 26 | | | 23 | | | 80 | | | 74 | | Variable revenues on lease financing | 25 | | | 26 | | | 51 | | | 54 | |
Fixed revenues on operating leases | Fixed revenues on operating leases | 287 | | | 339 | | | 895 | | | 1,069 | | Fixed revenues on operating leases | 254 | | | 294 | | | 514 | | | 608 | |
Variable revenues on operating leases | Variable revenues on operating leases | 9 | | | 16 | | | 34 | | | 48 | | Variable revenues on operating leases | 18 | | | 12 | | | 36 | | | 25 | |
Other lease-related revenues (1)(2) | Other lease-related revenues (1)(2) | 11 | | | 24 | | | 12 | | | 79 | | Other lease-related revenues (1)(2) | 16 | | | 3 | | | 27 | | | 1 | |
Lease income | 333 | | | 402 | | | 1,021 | | | 1,270 | | |
Noninterest income on leases | | Noninterest income on leases | 313 | | | 335 | | | 628 | | | 688 | |
Total leasing revenue | Total leasing revenue | $ | 477 | | | 610 | | | $ | 1,572 | | | 1,925 | | Total leasing revenue | $ | 485 | | | 543 | | | 981 | | | 1,125 | |
(1) In second quarter 2021, we elected to change the presentation of investment tax credits related to solar energy investments. Prior period balances have been revised to conform with the current period presentation. For additional information, see Note 1 (Summary of Significant Accounting Policies).
(2) Predominantly includes net gains (losses) on disposition of assets leased under operating leases or lease financings.
As a Lessee
Substantially all of our leases are operating leases. Table 7.25.2 presents balances for our operating leases.
Table 7.2:5.2: Operating Lease Right of Use (ROU) Assets and Lease Liabilities
| | | | | | | | |
(in millions) | Sep 30, 2020 | Dec 31, 2019 |
ROU assets | $ | 4,421 | | 4,724 | |
Lease liabilities | 5,022 | | 5,297 | |
| | | | | | | | |
(in millions) | Jun 30, 2021 | Dec 31, 2020 |
ROU assets | $ | 4,053 | | 4,306 | |
Lease liabilities | 4,705 | | 4,962 | |
Table 7.35.3 provides the composition of our lease costs, which are predominantly included in net occupancy expense.
Table 7.3:5.3: Lease Costs
| | | Quarter ended September 30, | | Nine months ended September 30, | | Quarter ended June 30, | | Six months ended June 30, |
(in millions) | (in millions) | 2020 | | 2019 | | 2020 | | 2019 | (in millions) | 2021 | | 2020 | | 2021 | | 2020 |
Fixed lease expense – operating leases | Fixed lease expense – operating leases | $ | 286 | | | 302 | | | $ | 869 | | | 890 | | Fixed lease expense – operating leases | $ | 265 | | | 292 | | | 530 | | | 583 | |
Variable lease expense | Variable lease expense | 81 | | | 81 | | | 227 | | | 234 | | Variable lease expense | 69 | | | 80 | | | 147 | | | 146 | |
Other (1) | Other (1) | (7) | | | (40) | | | (63) | | | (57) | | Other (1) | (28) | | | (42) | | | (31) | | | (56) | |
Total lease costs | Total lease costs | $ | 360 | | | 343 | | | $ | 1,033 | | | 1,067 | | Total lease costs | $ | 306 | | | 330 | | | 646 | | | 673 | |
(1)Predominantly includes gains recognized from sale leaseback transactions and sublease rental income.
| | |
Note 8:6: Equity Securities |
Table 8.16.1 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).method.
Table 6.1: Equity Securities
Table 8.1: Equity Securities | | | | | | | | | | | |
(in millions) | Jun 30, 2021 | | Dec 31, 2020 |
Held for trading at fair value: | | | |
Marketable equity securities (1) | $ | 23,701 | | | 23,032 | |
Not held for trading: | | | |
Fair value: | | | |
Marketable equity securities | 1,624 | | | 1,564 | |
Nonmarketable equity securities (2) | 10,006 | | | 9,413 | |
Total equity securities at fair value | 11,630 | | | 10,977 | |
Equity method: | | | |
Private equity | 2,897 | | | 2,960 | |
Tax-advantaged renewable energy (3) | 3,853 | | | 3,481 | |
New market tax credit and other | 378 | | | 409 | |
Total equity method | 7,128 | | | 6,850 | |
Other methods : | | | |
Low-income housing tax credit investments (3) | 11,439 | | | 11,353 | |
Federal Reserve Bank stock and other at cost (4) | 3,585 | | | 3,588 | |
Private equity (5) | 7,064 | | | 4,208 | |
Total equity securities not held for trading | 40,846 | | | 36,976 | |
Total equity securities | $ | 64,547 | | | 60,008 | |
| | | | | | | | | | | |
(in millions) | Sep 30, 2020 | | Dec 31, 2019 |
Held for trading at fair value: | | | |
Marketable equity securities | $ | 14,058 | | | 27,440 | |
Not held for trading: | | | |
Fair value: | | | |
Marketable equity securities (1) | 2,412 | | | 6,481 | |
Nonmarketable equity securities | 8,583 | | | 8,015 | |
Total equity securities at fair value | 10,995 | | | 14,496 | |
Equity method: | | | |
Low income housing tax credit investments | 11,295 | | | 11,343 | |
Private equity | 2,841 | | | 3,459 | |
Tax-advantaged renewable energy | 4,142 | | | 3,811 | |
New market tax credit and other | 356 | | | 387 | |
Total equity method | 18,634 | | | 19,000 | |
Other: | | | |
Federal Reserve Bank stock and other at cost (2) | 3,585 | | | 4,790 | |
Private equity (3) | 3,897 | | | 2,515 | |
Total equity securities not held for trading | 37,111 | | | 40,801 | |
Total equity securities | $ | 51,169 | | | 68,241 | |
(1)Includes $206 million and $3.8 billion at September 30, 2020, and December 31, 2019, respectively, related to securities held as economic hedges of our deferred compensation plan liabilities. In second quarter 2020, we entered into arrangements to transition our economic hedges of our deferred compensation plan liabilities from equity securities to derivative instruments.
(2)Includes $3.5 billion and $4.8 billion at September 30, 2020, and December 31, 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 additional information on these activities, see Note 42 (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).
FAIR VALUEMarketable equity securities held for purposes other than trading consist of exchange-traded equity funds held to economically hedge obligations related to our deferred compensation plans, as well as 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(2) Substantially all of these securities are economically hedged with equity derivatives.
EQUITY METHODOur equity(3) In second quarter 2021, we elected to change our accounting method investments consist of tax credit and private equity investments, the majority of which are our low incomefor low-income housing tax credit (LIHTC)investments and elected to change the presentation of investment tax credits related to solar energy investments. Prior period balances have been revised to conform with the current period presentation. For additional information, see Note 1 (Summary of Significant Accounting Policies).
(4) Substantially all relates to investments in Federal Reserve Bank stock at both June 30, 2021, and December 31, 2020.
(5) Represents nonmarketable equity securities accounted for under the measurement alternative, which were predominantly securities associated with our affiliated venture capital business.
Low-Income Housing Tax Credit Investments
We invest in affordable housing projects that qualify for the LIHTC,low-income housing tax credit (LIHTC), which are designed to promote private development of low incomelow-income housing. These investments typically generate a return through the realization of federal tax creditcredits and other tax benefits. InTable 6.2 summarizes the third quarteramortization of the investments and first nine months of 2020, we recognized pre-tax losses of $336 millionthe related tax credits and $1.0 billion, respectively, related to our LIHTC investments, compared with $304 million and $875 million, respectively, for the same periods a year ago. These losses wereother tax benefits that are recognized in other noninterestincome tax expense/(benefit) on our consolidated statement of income. We also recognized total tax benefits of $422 million and $1.2 billion in the third quarter and first nine months of 2020, respectively, which included tax credits recorded to income taxes of $339 million and $970 million for the same periods, respectively. In the third quarter and first nine months of 2019, total tax benefits were $362 million and $1.1 billion, respectively, which included tax credits of $286 million and $891 million for the same periods, respectively. We are
periodically required to provide additional financial support during the investment period. A liability is recognized for unfunded commitments that are both legally binding and probable of funding. These commitments are predominantly funded within three years of initial investment. Our liability for these unfunded commitments was $4.0$4.2 billion at Septemberboth June 30, 2020,2021, and $4.3 billion at December 31, 2019.2020. This liability for unfunded commitments is included in long-term debt.debt on our consolidated balance sheet.
Table 6.2: LIHTC Investments (1)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | |
| Quarter ended June 30, | | Six months ended June 30, | | |
(in millions) | 2021 | | 2020 | | 2021 | | 2020 | | |
Proportional amortization of investments | $ | 382 | | | 352 | | | 764 | | | 703 | | | |
Tax credits and other tax benefits | (431) | | | (401) | | | (875) | | | (797) | | | |
Net expense/(benefit) recognized within income tax expense | $ | (49) | | | (49) | | | (111) | | | (94) | | | |
(1)Excludes the impact of the estimated annual effective income tax rate applied to each period.
OTHERNote 6:The remaining portion of our nonmarketable equity securities portfolio consists of securities accounted for using the cost or measurement alternative.
Note 8: Equity Securities (continued(continued)
)
Realized Gains and Losses Not Held for Trading
Table 8.26.3 provides a summary of the net gains and losses from equity securities not held for trading.trading, which excludes equity method adjustments for our share of the investee’s earnings or
losses that are recognized in other noninterest income. Gains and losses for
securities held for trading are reported in net gains fromon trading activities.
and securities.
Table 8.2:6.3: Net Gains (Losses) from Equity Securities Not Held for Trading
| | | | Quarter ended Sep 30, | | Nine months ended Sep 30, | | Quarter ended June 30, | | Six months ended June 30, | |
(in millions) | (in millions) | 2020 | | 2019 | | 2020 | | 2019 | (in millions) | 2021 | | 2020 | | 2021 | | 2020 | |
Net gains (losses) from equity securities carried at fair value: | Net gains (losses) from equity securities carried at fair value: | | Net gains (losses) from equity securities carried at fair value: | | |
Marketable equity securities | Marketable equity securities | $ | 38 | | | 116 | | | $ | (371) | | | 757 | | Marketable equity securities | $ | 74 | | | 394 | | | $ | 134 | | | (409) | | |
Nonmarketable equity securities | Nonmarketable equity securities | 265 | | | 1,477 | | | 585 | | | 3,145 | | Nonmarketable equity securities | 893 | | | 1,424 | | | 535 | | | 320 | | |
Total equity securities carried at fair value | Total equity securities carried at fair value | 303 | | | 1,593 | | | 214 | | | 3,902 | | Total equity securities carried at fair value | 967 | | | 1,818 | | | 669 | | | (89) | | |
Net gains (losses) from nonmarketable equity securities not carried at fair value: | | |
Impairment write-downs (1) | (535) | | | (43) | | | (1,576) | | | (110) | | |
Net unrealized gains related to measurement alternative observable transactions (1) | 1,030 | | | 158 | | | 1,276 | | | 489 | | |
Net gains (losses) from nonmarketable equity securities not carried at fair value (1): | | Net gains (losses) from nonmarketable equity securities not carried at fair value (1): | | |
Impairment write-downs | | Impairment write-downs | (42) | | | (106) | | | (57) | | | (1,041) | | |
Net unrealized gains related to measurement alternative observable transactions | | Net unrealized gains related to measurement alternative observable transactions | 2,037 | | | 24 | | | 2,262 | | | 246 | | |
Net realized gains on sale | Net realized gains on sale | 60 | | | 623 | | | 259 | | | 1,029 | | Net realized gains on sale | 496 | | | 199 | | | 551 | | | 199 | | |
| Total nonmarketable equity securities not carried at fair value | Total nonmarketable equity securities not carried at fair value | 555 | | | 738 | | | (41) | | | 1,408 | | Total nonmarketable equity securities not carried at fair value | 2,491 | | | 117 | | | 2,756 | | | (596) | | |
Net gains (losses) from economic hedge derivatives (2) | (209) | | | (1,375) | | | (392) | | | (2,918) | | |
Net losses from economic hedge derivatives (2) | | Net losses from economic hedge derivatives (2) | (762) | | | (1,402) | | | (337) | | | (183) | | |
Total net gains (losses) from equity securities not held for trading | Total net gains (losses) from equity securities not held for trading | $ | 649 | | | 956 | | | $ | (219) | | | 2,392 | | Total net gains (losses) from equity securities not held for trading | $ | 2,696 | | | 533 | | | $ | 3,088 | | | (868) | | |
|
(1)In third quarter 2020, we recorded $452 million of income related to a change in the accounting measurement model from the equity method to the measurement alternative for certain nonmarketable equity securities from our affiliated venture capital partnerships. This amount is comprised of $(434) million ofIncludes impairment write-downs and $$658 million of net unrealizedrealized gains on sale related to private equity and venture capital investments in consolidated portfolio companies, which are not reported in the table above, as well as $228 million of equity method investment income reported in other noninterest income.securities on our consolidated balance sheet.
(2)Includes net gains (losses) on derivatives not designated as hedging instruments.
Measurement Alternative
Table 8.36.4 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 8.3:6.4: Net Gains (Losses) from Measurement Alternative Equity Securities
| | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended Sep 30, | | Nine months ended Sep 30, |
(in millions) | 2020 | | 2019 | | 2020 | | 2019 |
Net gains (losses) recognized in earnings during the period: | | | | | | | |
Gross unrealized gains due to observable price changes | $ | 1,030 | | | 158 | | | $ | 1,276 | | | 500 | |
Gross unrealized losses due to observable price changes | 0 | | | 0 | | | 0 | | | (11) | |
Impairment write-downs | (506) | | | (20) | | | (918) | | | (53) | |
Realized net gains from sale | 8 | | | 36 | | | 21 | | | 161 | |
Total net gains (losses) recognized during the period | $ | 532 | | | 174 | | | $ | 379 | | | 597 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | |
| Quarter ended June 30, | | Six months ended June 30, | | |
(in millions) | 2021 | | 2020 | | 2021 | | 2020 | | |
Net gains (losses) recognized in earnings during the period: | | | | | | | | | |
Gross unrealized gains due to observable price changes | $ | 2,037 | | | 24 | | | $ | 2,262 | | | 246 | | | |
| | | | | | | | | |
Impairment write-downs | (38) | | | (58) | | | (50) | | | (412) | | | |
Realized net gains from sale | 195 | | | 11 | | | 195 | | | 13 | | | |
Total net gains recognized during the period | $ | 2,194 | | | $ | (23) | | | $ | 2,407 | | | (153) | | | |
Table 8.46.5 presents cumulative carrying value adjustments to nonmarketable equity securities accounted for under the measurement alternative that were still held at the end of each reporting period presented.
Table 8.4:6.5: Measurement Alternative Cumulative Gains (Losses)
| | (in millions) | (in millions) | Sep 30, 2020 | | Dec 31, 2019 | (in millions) | Jun 30, 2021 | | Dec 31, 2020 | |
| | Cumulative gains (losses): | Cumulative gains (losses): | | Cumulative gains (losses): | | |
Gross unrealized gains due to observable price changes | Gross unrealized gains due to observable price changes | $ | 2,138 | | | 973 | | Gross unrealized gains due to observable price changes | $ | 4,577 | | | 2,356 | | |
Gross unrealized losses due to observable price changes | Gross unrealized losses due to observable price changes | (43) | | | (42) | | Gross unrealized losses due to observable price changes | (25) | | | (25) | | |
Impairment write-downs | Impairment write-downs | (1,024) | | | (134) | | Impairment write-downs | (1,008) | | | (969) | | |
Table 9.17.1 presents the components of other assets.
Table 9.1:7.1: Other Assets
| | | | | | | | | | | |
(in millions) | Sep 30, 2020 | | Dec 31, 2019 |
Corporate/bank-owned life insurance | $ | 20,303 | | | 20,070 | |
Accounts receivable (1) | 34,524 | | | 29,137 | |
Interest receivable: | | | |
| | | |
AFS and HTM debt securities | 1,399 | | | 1,729 | |
Loans | 3,074 | | | 3,099 | |
Trading and other | 409 | | | 758 | |
Customer relationship and other amortized intangibles | 352 | | | 423 | |
Foreclosed assets: | | | |
Residential real estate: | | | |
Government insured/guaranteed (1) | 22 | | | 50 | |
Non-government insured/guaranteed | 82 | | | 172 | |
Other | 52 | | | 81 | |
Operating lease assets (lessor) | 7,573 | | | 8,221 | |
Operating lease ROU assets (lessee) | 4,421 | | | 4,724 | |
Due from customers on acceptances | 207 | | | 253 | |
Other | 13,756 | | | 10,200 | |
Total other assets | $ | 86,174 | | | 78,917 | |
(1)Certain government-guaranteed residential real estate mortgage loans upon foreclosure are included in Accounts receivable. For additional information, see Note 1 (Summary of Significant Accounting Policies) in our 2019 Form 10-K. | | | | | | | | | | | |
(in millions) | Jun 30, 2021 | | Dec 31, 2020 |
Corporate/bank-owned life insurance | $ | 20,488 | | | 20,380 | |
Accounts receivable | 24,372 | | | 38,116 | |
Interest receivable: | | | |
AFS and HTM debt securities | 1,366 | | | 1,368 | |
Loans | 2,224 | | | 2,838 | |
Trading and other | 482 | | | 415 | |
Customer relationship and other amortized intangibles | 287 | | | 328 | |
Foreclosed assets: | | | |
Residential real estate | 49 | | | 73 | |
Other | 80 | | | 86 | |
Operating lease assets (lessor) | 6,773 | | | 7,391 | |
Operating lease ROU assets (lessee) | 4,053 | | | 4,306 | |
Due from customers on acceptances | 144 | | | 268 | |
Other | 12,135 | | | 11,768 | |
Total other assets | $ | 72,453 | | | 87,337 | |
| | |
Note 10:8: Securitizations and Variable Interest Entities |
Involvement with Special PurposeVariable Interest Entities (SPEs)(VIEs)
In the normal course of business, we enter into various types of on- and off-balance sheet transactions with SPEs,special purpose entities (SPEs), which are corporations, trusts, limited liability companies or partnerships that are established for a limited purpose. For further description
SPEs are often formed in connection with securitization transactions whereby financial assets are transferred to an SPE. SPEs formed in connection with securitization transactions are generally considered variable interest entities (VIEs). The VIE may alter the risk profile of the asset by entering into derivative transactions or obtaining credit support, and issues various forms of interests in those assets to investors. When we transfer financial assets from our involvementconsolidated balance sheet to a VIE in connection with SPEs, see Note 10 (Securitizationsa securitization, we typically receive cash and Variable Interest Entities)sometimes other interests in our 2019 Form 10-K.
Table 10.1 provides the classifications ofVIE as proceeds for the assets we transfer. In certain transactions with VIEs, we may retain the right to service the transferred assets and liabilities inrepurchase the transferred assets if the outstanding balance of the assets falls below the level at which the cost to service the assets exceed the benefits. In addition, we may purchase the right to service loans transferred to a VIE by a third party.
In connection with 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 |
September 30, 2020 | | | | | |
Cash and due from banks | $ | 0 | | | 16 | | | 0 | | | 16 | |
Interest-earning deposits with banks | 0 | | | 0 | | | 0 | | | 0 | |
| | | | | | | |
Debt securities (1): | | | | | | | |
Trading debt securities | 1,869 | | | 267 | | | 0 | | | 2,136 | |
Available-for-sale debt securities | 1,484 | | | 395 | | | 0 | | | 1,879 | |
Held-to-maturity debt securities | 1,170 | | | 0 | | | 0 | | | 1,170 | |
| | | | | | | |
Loans | 1,960 | | | 10,634 | | | 69 | | | 12,663 | |
Mortgage servicing rights | 7,009 | | | 0 | | | 0 | | | 7,009 | |
Derivative assets | 247 | | | 1 | | | 0 | | | 248 | |
Equity securities | 11,356 | | | 72 | | | 0 | | | 11,428 | |
Other assets | 1,002 | | | 214 | | | 0 | | | 1,216 | |
Total assets | 26,097 | | | 11,599 | | | 69 | | | 37,765 | |
Short-term borrowings | 0 | | | 595 | | | 0 | | | 595 | |
Derivative liabilities | 2 | | | 1 | | | 0 | | | 3 | |
Accrued expenses and other liabilities | 223 | | | 229 | | | 0 | | | 452 | |
Long-term debt | 4,080 | | | 215 | | | 68 | | | 4,363 | |
Total liabilities | 4,305 | | | 1,040 | | | 68 | | | 5,413 | |
Noncontrolling interests | 0 | | | 35 | | | 0 | | | 35 | |
Net assets | $ | 21,792 | | | 10,524 | | | 1 | | | 32,317 | |
December 31, 2019 | | | | | | | |
Cash and due from banks | $ | 0 | | | 16 | | | 0 | | | 16 | |
Interest-earning deposits with banks | 0 | | | 284 | | | 0 | | | 284 | |
| | | | | | | |
Debt securities (1): | | | | | | | |
Trading debt securities | 792 | | | 339 | | | 0 | | | 1,131 | |
Available-for-sale debt securities | 1,696 | | | 201 | | | 0 | | | 1,897 | |
Held-to-maturity debt securities | 791 | | | 0 | | | 0 | | | 791 | |
| | | | | | | |
Loans | 2,127 | | | 13,170 | | | 80 | | | 15,377 | |
Mortgage servicing rights | 11,884 | | | 0 | | | 0 | | | 11,884 | |
Derivative assets | 142 | | | 1 | | | 0 | | | 143 | |
Equity securities | 11,401 | | | 118 | | | 0 | | | 11,519 | |
Other assets | 1,268 | | | 239 | | | 0 | | | 1,507 | |
Total assets | 30,101 | | | 14,368 | | | 80 | | | 44,549 | |
Short-term borrowings | 0 | | | 401 | | | 0 | | | 401 | |
Derivative liabilities | 1 | | | 3 | | | 0 | | | 4 | |
Accrued expenses and other liabilities | 189 | | | 235 | | | 0 | | | 424 | |
Long-term debt | 4,817 | | | 587 | | | 79 | | | 5,483 | |
Total liabilities | 5,007 | | | 1,226 | | | 79 | | | 6,312 | |
Noncontrolling interests | 0 | | | 43 | | | 0 | | | 43 | |
Net assets | $ | 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 Government National Mortgage Association (GNMA).
Transactions with Unconsolidated VIEs
Our transactions with unconsolidated VIEs include predominantly securitizations of residential and commercial mortgage loans, and investments in tax credit structures. Wesecuritization or other VIE activities, we have various forms of ongoing involvement with VIEs, including servicing, which may include:
•underwriting securities issued by VIEs and subsequently making markets in those securities;
•providing credit enhancement on securities issued by VIEs through the use of letters of credit or financial guarantees;
•entering into other derivative contracts with VIEs;
•holding senior or
subordinated interests and entering into liquidity arrangements and 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 include transactions where we were the sponsor or servicer and also have other significant forms of continuing involvement. Sponsorship includes transactions where we solely or materially participated in the initial design or structuring of the VIE or marketed the transaction to investors. We 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 transferred assets to a VIE, account for the transfer as a sale, and service the VIE collateral or have other forms of continuing involvement that may be significant (as described above). We exclude certain transactions with unconsolidated VIEs when our continuing involvement is temporary in nature or insignificant in size. We also exclude 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 and advances | | Derivatives | | Debt, guarantees, and other commitments | | Net assets |
September 30, 2020 | | | | | | | | | | | |
Residential mortgage loan securitizations: | | | | | | | | | | | |
Conforming (2) | $ | 979,592 | | | 2,067 | | | 6,787 | | | 0 | | | (217) | | | 8,637 | |
Other/nonconforming | 5,762 | | | 15 | | | 38 | | | 0 | | | 0 | | | 53 | |
Commercial mortgage loan securitizations (2) | 177,421 | | | 2,512 | | | 1,186 | | | 179 | | | (76) | | | 3,801 | |
Tax credit structures | 39,532 | | | 13,094 | | | 0 | | | 0 | | | (4,010) | | | 9,084 | |
Other asset-based finance structures | 865 | | | 100 | | | 0 | | | 66 | | | 0 | | | 166 | |
Other | 1,153 | | | 51 | | | 0 | | | 0 | | | 0 | | | 51 | |
Total | $ | 1,204,325 | | | 17,839 | | | 8,011 | | | 245 | | | (4,303) | | | 21,792 | |
| | | 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) | | | $ | 2,047 | | | 6,787 | | | 0 | | | 1,355 | | | 10,189 | |
Other/nonconforming | | | 15 | | | 38 | | | 0 | | | 0 | | | 53 | |
Commercial mortgage loan securitizations (2) | | | 2,461 | | | 1,186 | | | 179 | | | 12,200 | | | 16,026 | |
Tax credit structures | | | 13,094 | | | 0 | | | 0 | | | 1,331 | | | 14,425 | |
Other asset-based finance structures | | | 100 | | | 0 | | | 70 | | | 71 | | | 241 | |
Other | | | 51 | | | 0 | | | 0 | | | 157 | | | 208 | |
Total | | | $ | 17,768 | | | 8,011 | | | 249 | | | 15,114 | | | 41,142 | |
| | | | | | | | | | | |
| | | 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 | | | 0 | | | (683) | | | 12,776 | |
Other/nonconforming | 5,178 | | | 6 | | | 152 | | | 0 | | | 0 | | | 158 | |
Commercial mortgage loan securitizations (2) | 169,736 | | | 2,239 | | | 1,069 | | | 80 | | | (43) | | | 3,345 | |
Tax credit structures | 39,091 | | | 12,826 | | | 0 | | | 0 | | | (4,260) | | | 8,566 | |
Other asset-based finance structures | 1,355 | | | 157 | | | 0 | | | 61 | | | (20) | | | 198 | |
Other | 1,167 | | | 51 | | | 0 | | | 0 | | | 0 | | | 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 | | | 0 | | | 937 | | | 13,840 | |
Other/nonconforming | | | 6 | | | 152 | | | 0 | | | 0 | | | 158 | |
Commercial mortgage loan securitizations (2) | | | 2,239 | | | 1,069 | | | 80 | | | 11,667 | | | 15,055 | |
Tax credit structures | | | 12,826 | | | 0 | | | 0 | | | 1,701 | | | 14,527 | |
Other asset-based finance structures | | | 157 | | | 0 | | | 63 | | | 91 | | | 311 | |
Other | | | 51 | | | 0 | | | 0 | | | 157 | | | 208 | |
Total | | | $ | 16,251 | | | 13,152 | | | 143 | | | 14,553 | | | 44,099 | |
(1)Includes total equity interests of $11.4 billion at both September 30, 2020, and December 31, 2019. 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.VIEs;
(2)•Carrying values include assets and related liabilities of $71 million and $556 million at September 30, 2020, and December 31, 2019, respectively, related to certain unexercised unconditional repurchase options. These amounts represent the carrying value of the loans and associated debt that would be payable if the option was exercised to repurchase eligible loans from GNMA residential and multifamily loan securitizations. These amounts are excluded from maximum exposure to lossacting as we are not obligated to exercise the options.servicer or investment manager for VIEs;
In Table 10.2, “Total VIE assets” represents the remaining principal balance of assets held by unconsolidated VIEs using the most current information available. For VIEs that obtain exposure•providing administrative or trustee services to assets synthetically through derivative instruments, the notional amount of the derivative is included in the asset balance. “Carrying value” is the amount in our consolidated balance sheet
VIEs; andrelated•providing seller financing to our involvement with the unconsolidated VIEs. “Maximum exposure to loss” is determined as the carrying value of our 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
Note 10: Securitizations and Variable Interest Entities (continued)
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 disclosure is not an indication of expected loss.
For complete descriptions of our transactions with unconsolidated VIEs with which we have a significant continuing involvement, but we are not the primary beneficiary, see Note 10 (Securitizations and Variable Interest Entities) in our 2019 Form 10-K.
Loan Sales and Securitization Activity
We periodically transfer consumer and commercial loans and other types of financial assets in securitization and whole loan sale transactions.
MORTGAGE LOANS SOLD TO U.S. GOVERNMENT SPONSORED ENTITIES AND TRANSACTIONS WITH GINNIE MAE In the normal course of business we sell originated and purchased residential and commercial mortgage loans to government-sponsored entities (GSEs). These loans are generally transferred into securitizations sponsored by the GSEs, which provide certain credit guarantees to investors and servicers. We also transfer mortgage loans into securitizations pursuant to Government National Mortgage Association (GNMA) guidelines which are insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA). Mortgage loans eligible for securitization with the GSEs or GNMA are considered conforming loans. The GSEs or GNMA design the structure of these securitizations, sponsor the involved VIEs, and have power over the activities most significant to the VIE.
We account for loans transferred in conforming mortgage loan securitization transactions as sales and do not consolidate the VIEs as we are not the primary beneficiary. In exchange for the transfer of loans, we typically receive securities issued by the VIEs which we sell to third parties for cash or hold for investment purposes as HTM or AFS securities. We also retain servicing rights on the transferred loans. As a servicer, we retain the option
to repurchase loans from GNMA loan securitization pools, which becomes exercisable when three scheduled loan payments remain unpaid by the borrower. We repurchased loans of $1.0 billion and $2.9 billion, during the second quarter and first half of 2021, respectively, and $3.6 billion and $5.1 billion during the second quarter and first half of 2020, respectively, which predominantly represented repurchases of government insured loans. We recorded assets and related liabilities of $128 million and $176 million at June 30, 2021, and December 31, 2020, respectively, where we did not exercise our option to repurchase eligible loans.
Upon transfers of loans, we also provide indemnification for losses incurred due to material breaches of contractual representations and warranties, as well as other recourse arrangements. At June 30, 2021, and December 31, 2020, our liability associated with these provisions was $201 million and $221 million, respectively, and the maximum exposure to loss was $13.4 billion and $13.7 billion, respectively.
Off-balance sheet mortgage loans sold or securitized presented in Table 8.5 are predominantly loans securitized by the GSEs and GNMA. See Note 9 (Mortgage Banking Activities) for additional information about residential and commercial servicing rights, advances and servicing fees. Substantially all residential servicing activity is related to assets transferred to GSE and GNMA securitizations.
NONCONFORMING MORTGAGE LOAN SECURITIZATIONS In the normal course of business, we sell nonconforming residential and commercial mortgage loans in securitization transactions that we design and sponsor. Nonconforming mortgage loan securitizations do not involve a government credit guarantee, and accordingly, beneficial interest holders are subject to credit risk of the underlying assets held by the securitization VIE. We typically originate the transferred loans, account for the transfers as sales and do not consolidate the VIE. We also typically retain the servicing rights from these salesright to service the loans and may continue to hold other beneficial interests issued by the VIEs, such as debt securities held for investment purposes. Our servicing role related to nonconforming commercial mortgage loan securitizations is limited to primary or master servicer and the most significant decisions impacting the performance of the VIE are generally made by the special servicer or the controlling class security holder. For our residential nonconforming mortgage loan securitizations accounted for as sales, we either do not hold variable interests that we consider potentially significant or are not the primary servicer for a majority of the VIE assets.
WHOLE LOAN SALE TRANSACTIONS We also sell whole loans to VIEs where we have continuing involvement in the transferred financial assets.form of financing. We may also provide liquidity to
investors in the beneficial interests and credit enhancements. Throughaccount for these transfers as sales, and do not consolidate the VIEs as we may be exposeddo not have the power to liability under limited amountsdirect the most significant activities of recourse as well as standard representations and warranties we make to purchasers and issuers.the VIEs.
Table 10.38.1 presents information about transfers of assets during the period to unconsolidated VIEs or third-party investors for which we recorded the transfers as sales and have continuing involvement with the transferred assets. In connection with these transfers, we received proceeds and recorded servicing assets, securities, and a liability for repurchase losses which reflects management’s estimate of probable losses related to various representations and warranties for the loans transferred. Each of these interests are initially measured at fair value. Servicing rights are classified as Level 3 measurements, and generally securities are initially classified as Level 2.
Sales with continuing involvement include securitizations of conforming residential mortgages that are sold to the government-sponsored entities (GSEs) or GNMA.loans. Substantially all transfers were related to these entitiesresidential mortgage securitizations with the GSEs or GNMA and resulted in no gain or loss because the loans were already measured at fair value on a recurring basis. Each of these interests are initially measured at fair value.
Servicing rights are classified as Level 3 measurements, and generally securities are classified as Level 2.
Table 10.3:8.1: Transfers Withwith Continuing Involvement
| | | | | 2021 | | 2020 | |
(in millions) | (in millions) | | 2020 | | 2019 | (in millions) | Residential mortgages | | Commercial mortgages | | Residential mortgages | | Commercial mortgages | |
Quarter ended September 30, | Residential mortgages | | Commercial mortgages | | Residential mortgages | | Commercial mortgages | |
Quarter ended June 30, | | Quarter ended June 30, | | |
Assets sold | | Assets sold | $ | 45,903 | | | 5,173 | | | 43,602 | | | 2,505 | | |
Proceeds from transfer (1) | | Proceeds from transfer (1) | 46,230 | | | 5,227 | | | 43,605 | | | 2,569 | | |
Net gains (losses) on sale | Net gains (losses) on sale | $ | 1 | | | 54 | | | 25 | | | 72 | | Net gains (losses) on sale | 327 | | | 54 | | | 3 | | | 64 | | |
| Continuing involvement (2): | | Continuing involvement (2): | | |
Servicing rights recognized | | Servicing rights recognized | $ | 487 | | | 24 | | | 443 | | | 48 | | |
Securities recognized (3) | | Securities recognized (3) | 6,171 | | | 39 | | | 590 | | | 12 | | |
Loans recognized | | Loans recognized | 0 | | | 0 | | | 0 | | | 0 | | |
Six months ended June 30, | | Six months ended June 30, | | |
Asset balances sold | Asset balances sold | 71,032 | | | 2,430 | | | 48,378 | | | 4,419 | | Asset balances sold | $ | 86,489 | | | 8,364 | | | 81,987 | | | 5,233 | | |
Proceeds from transfer (1) | | Proceeds from transfer (1) | 86,921 | | | 8,509 | | | 82,025 | | | 5,366 | | |
Net gains (losses) on sale | | Net gains (losses) on sale | 432 | | | 145 | | | 38 | | | 133 | | |
| Continuing involvement (2): | | Continuing involvement (2): | | |
Servicing rights recognized | Servicing rights recognized | 477 | | | 32 | | | 532 | | | 33 | | Servicing rights recognized | $ | 894 | | | 71 | | | 889 | | | 82 | | |
Securities recognized (1) | 12,024 | | | 5 | | | 4,271 | | | 0 | | |
Liability for repurchase losses recognized | 8 | | | 0 | | | 5 | | | 0 | | |
Nine months ended September 30, | | |
Net gains (losses) on sale | $ | 53 | | | 187 | | | 85 | | | 193 | | |
Asset balances sold | 182,473 | | | 7,663 | | | 119,153 | | | 10,479 | | |
Servicing rights recognized | 1,366 | | | 114 | | | 1,239 | | | 92 | | |
Securities recognized (1) | 14,074 | | | 79 | | | 7,665 | | | 0 | | |
Liability for repurchase losses recognized | 15 | | | 0 | | | 13 | | | 0 | | |
Securities recognized (3) | | Securities recognized (3) | 16,394 | | | 68 | | | 590 | | | 74 | | |
Loans recognized | | Loans recognized | 926 | | | 0 | | | 0 | | | 0 | | |
(1)IncludesRepresents cash proceeds and the fair value of non-cash beneficial interests recognized at securitization settlement. Prior periods have been revised to conform with the current period presentation.
(2)Represents assets or liabilities recognized at securitization settlement date related to our continuing involvement in the transferred assets.
(3)Represents debt securities retained upon initial transferobtained at securitization settlement held for investment purposes that are classified as available-for-sale or held-to-maturity, which predominantly relate to agency securities. Excludes trading debt securities held temporarily for market-marking purposes, which are sold to third parties at or shortly after securitization settlement, of $11.2 billion and subsequent sales$18.0 billion during the periods presented, which may result in a net reductionsecond quarter and first half of securities recognized.2021, respectively, and $9.4 billion and $17.1 billion during the second quarter and first half of 2020, respectively.
In the normal course of business we purchase certain non-agency securities at initial securitization or subsequently in the secondary market. We also provide seller financing in the form of loans. We received cash flows of $3.0 billion and $3.1 billion during the second quarter and first half of 2021, respectively, and $44 million and $117 million during the second quarter and first half of 2020, respectively, related to principal and interest payments on these securities and loans.
Table 10.48.2 presents the key weighted averageweighted-average assumptions we used to initially measure residential MSRs atrecognized during the date of securitization.periods presented.
Table 10.4:8.2: Residential Mortgage Servicing Rights
| | | Residential mortgage servicing rights | |
| | 2020 | | 2019 | | 2021 | | 2020 | |
Quarter ended September 30, | | |
Quarter ended June 30, | | Quarter ended June 30, | | |
Prepayment speed (1) | Prepayment speed (1) | 16.7 | % | | 13.2 | | Prepayment speed (1) | 13.4 | % | | 15.0 | | |
Discount rate | Discount rate | 6.7 | | | 7.4 | | Discount rate | 6.1 | | | 7.0 | | |
Cost to service ($ per loan) (2) | Cost to service ($ per loan) (2) | $ | 107 | | | 101 | | Cost to service ($ per loan) (2) | $ | 91 | | | 97 | | |
Nine months ended September 30, | | |
Six months ended June 30, | | Six months ended June 30, | | |
Prepayment speed (1) | Prepayment speed (1) | 15.0 | % | | 13.3 | | Prepayment speed (1) | 13.8 | % | | 14.0 | | |
Discount rate | Discount rate | 6.8 | | | 7.6 | | Discount rate | 6.0 | | | 6.8 | | |
Cost to service ($ per loan) (2) | Cost to service ($ per loan) (2) | $ | 99 | | | 106 | | Cost to service ($ per loan) (2) | $ | 87 | | | 94 | | |
(1)The prepayment speed assumption for residential MSRs 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 due to changes in model assumptions and the mix of modified government-guaranteed loans sold to GNMA.
Table 10.5 presents the proceeds related to transfers accounted for as sales in 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 exclude cash flows from certain debt securities related to loans serviced for FNMA, FHLMC and GNMA and predominantly include principal and interest payments received on retained bonds. Repurchases of assets represent 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 are cash paid to reimburse investors for losses on individual loans that are already liquidated. Repurchases of government insured loans result from the exercise of our option, as servicer, to repurchase loans from GNMA loan securitization pools, when three scheduled loan payments remain unpaid by the borrower. These loans are insured by the FHA or guaranteed by the VA. Cash flows from servicing advances include principal and interest payments to investors required by servicing agreements.
Table 10.5:Cash Inflows (Outflows) From Sales and Securitization Activity
| | | | | | | | | | | | | | | |
| Mortgage loans |
(in millions) | 2020 | | | | 2019 | | |
Quarter ended September 30, | | | | | | | |
Proceeds from securitizations and whole loan sales | $ | 73,673 | | | | | 52,274 | | | |
Fees from servicing rights retained | 676 | | | | | 793 | | | |
Cash flows from other interests held | 174 | | | | | 131 | | | |
Repurchases of assets/loss reimbursements: | | | | | | | |
Non-agency securitizations and whole loan transactions | 1 | | | | | (1,369) | | | |
Government insured loans | (21,905) | | | | | (1,402) | | | |
Agency securitizations | (152) | | | | | (26) | | | |
Servicing advances, net of recoveries | (66) | | | | | 73 | | | |
Nine months ended September 30, | | | | | | | |
Proceeds from securitizations and whole loan sales | $ | 188,911 | | | | | 128,478 | | | |
Fees from servicing rights retained | 2,095 | | | | | 2,359 | | | |
Cash flows from other interests held | 533 | | | | | 375 | | | |
Repurchases of assets/loss reimbursements: | | | | | | | |
Non-agency securitizations and whole loan transactions | 0 | | | | | (1,370) | | | |
Government insured loans | (26,939) | | | | | (4,590) | | | |
Agency securitizations | (213) | | | | | (70) | | | |
Servicing advances, net of recoveries | (126) | | | | | 166 | | | |
Note 10: Securitizations and Variable Interest Entities (continued)
Retained Interests from Unconsolidated VIEs
Table 10.6 provides key economic assumptions and the sensitivity of the current fair value of residential MSRs 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 1615 (Fair Values of Assets and Liabilities) and Note 9 (Mortgage Banking Activities) for additional information on key economic assumptions for residential MSRs. “Other interests held” were obtained when we securitized residential and commercial mortgage loans. Residential mortgage-backed securities retained in securitizations issued through GSEs or GNMA, are excluded
SALE OF STUDENT LOAN PORTFOLIO In the second quarter and first half of 2021, we sold $3.9 billion and $9.5 billion of student loans, servicing-released, respectively. For the same periods, we received $4.0 billion and $9.8 billion in proceeds from the table because thesesales, respectively, and recognized $147 million and $355 million of gains, respectively, which are included in other noninterest income on our consolidated statement of income. In connection with the sales, we provided $1.6 billion and $3.8 billion of collateralized loan financing to a third-party sponsored VIE in the second quarter and first half of 2021, respectively. The loans are measured at amortized cost and are classified in loans on the consolidated balance sheet. The collateral supporting our loan includes the student loans we sold. We do not consolidate the VIE as we do not have power over the significant activities of the entity.
RESECURITIZATION ACTIVITIES We enter into resecuritization transactions as part of our trading activities to accommodate the investment and risk management activities of our customers. In our resecuritization transactions, we transfer trading debt securities haveto VIEs in exchange for new beneficial interests that are sold to third parties at or shortly after securitization settlement. This activity is performed for customers seeking a remotespecific return or risk profile. Substantially all of credit loss due toour transactions involve the GSE or government guarantee. These securities also have economic characteristics similar to GSE or GNMAresecuritization of conforming mortgage-backed securities thatissued by the GSEs or GNMA. We do not consolidate the resecuritization VIEs as we purchase, which are not includedshare in the table. Subordinateddecision-making power with third parties and do not hold significant economic interests include only those bonds whose credit rating was below AAA by a major rating agency at issuance. Senior interests include only those bonds whose credit rating was AAA by a major rating agency at issuance. The information presented excludes trading positions held in inventory.
Table 10.6:Retained Interests from Unconsolidated VIEs
| | | | | | | | | | | | | | | | | | | | | |
| Residential mortgage servicing rights | | | | | | Other interests held |
| | | | | | |
($ in millions, except cost to service amounts) | | | | | | Subordinated bonds | | Senior bonds |
Fair value of interests held at September 30, 2020 | $ | 6,355 | | | | | | | 1,009 | | | 276 | |
Expected weighted average life (in years) | 3.7 | | | | | | 6.8 | | 6.3 |
Key economic assumptions: | | | | | | | | | |
Prepayment speed assumption | 19.7 | % | | | | | | | | |
Decrease in fair value from: | | | | | | | | | |
10% adverse change | $ | 452 | | | | | | | | | |
25% adverse change | 1,044 | | | | | | | | | |
Discount rate assumption | 5.8 | % | | | | | | 5.3 | | | 1.5 | |
Decrease in fair value from: | | | | | | | | | |
100 basis point increase | $ | 236 | | | | | | | 56 | | | 15 | |
200 basis point increase | 454 | | | | | | | 109 | | | 29 | |
Cost to service assumption ($ per loan) | 138 | | | | | | | | | |
Decrease in fair value from: | | | | | | | | | |
10% adverse change | 204 | | | | | | | | | |
25% adverse change | 508 | | | | | | | | | |
Credit loss assumption | | | | | | | 4.5 | % | | 0 | |
Decrease in fair value from: | | | | | | | | | |
10% higher losses | | | | | | | $ | 32 | | | 0 | |
25% higher losses | | | | | | | 35 | | | 0 | |
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 | % | | 0 | |
Decrease in fair value from: | | | | | | | | | |
10% higher losses | | | | | | | $ | 1 | | | 0 | |
25% higher losses | | | | | | | 4 | | | 0 | |
In addition to residential MSRs included in the previous table, we have a small portfolio of commercial MSRs, which are carried at the lower of cost or fair value (LOCOM), with a fair value of $1.4 billionVIEs other than for market-making activities. Table 8.3 presents information about assets transferred to re-securitization VIEs and $1.9 billion at September 30, 2020, and
December 31, 2019, respectively. Prepayment assumptions do not significantly impact values of commercial MSRs and commercial mortgage bonds as commercial loans generally include contractual restrictions on prepayment. Servicing costsTable 8.4 presents information about our resecuritization VIEs.
Note 8: Securitizations and Variable Interest Entities (continued)
are not a driver of our MSR value as we are typically primary or master servicer; the higher costs of servicing delinquent and foreclosed loans is generally borne by the special 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 usedTable 8.3:Transfers to price capital markets instruments. Market interest rates significantly affect interest earned on custodial deposit balances. The sensitivity of the current fair value of our commercial MSRs to a hypothetical immediate adverse 25% change in the assumption about interest earned on deposit balances at September 30, 2020, and December 31, 2019, would result in a decrease in fair value of $89 million and $205 million, respectively. See Note 11 (Mortgage Banking Activities) for additional information on our commercial MSRs.Resecuritization VIEs
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 | | | | | | | | | | | | | |
| |
(in millions) | 2021 | | 2020 | | |
Quarter ended June 30, | | | | | |
Assets sold | $ | 7,873 | | | 19,982 | | | |
Securities recognized | (99) | | | 153 | | | |
Six months ended June 30, | | | | | |
Assets sold | $ | 25,302 | | | 29,454 | | | |
Securities recognized | 915 | | | 815 | | | |
Table 8.4:Resecuritization VIEs
| | | | | | | | |
(in millions) | Jun 30, 2021 | Dec 31, 2020 |
Total VIE assets | $ | 125,543 | | 130,446 | |
Carrying value of securities | 1,137 | | 1,461 | |
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 10.78.5 presents information about the principal balances of off-balance sheet loans that were sold or securitized, including residential mortgage loans sold to FNMA, FHLMC,the GSEs, 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. In accordance with applicable servicing guidelines, delinquency status continues to advance for loans with COVID-related payment deferrals. For loans sold or securitized where servicing is our only form of continuing involvement, we would onlygenerally experience a loss only 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 10.7:8.5: Off-Balance Sheet Loans Sold or Securitized
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Net charge-offs (2) |
| Total loans | | Delinquent loans and foreclosed assets (1) | | Nine months ended Sep 30, |
(in millions) | Sep 30, 2020 | | Dec 31, 2019 | | Sep 30, 2020 | | Dec 31, 2019 | | 2020 | | 2019 |
Commercial: | | | | | | | | | | | |
| | | | | | | | | | | |
Real estate mortgage | $ | 114,479 | | | 112,507 | | | 2,363 | | | 776 | | | 129 | | | 109 | |
Total commercial | 114,479 | | | 112,507 | | | 2,363 | | | 776 | | | 129 | | | 109 | |
Consumer: | | | | | | | | | | | |
Real estate 1-4 family first mortgage | 875,298 | | | 1,008,446 | | | 36,605 | | | 6,664 | | | 71 | | | 180 | |
Real estate 1-4 family junior lien mortgage | 10 | | | 13 | | | 2 | | | 2 | | | 0 | | | 0 | |
| | | | | | | | | | | |
Total consumer | 875,308 | | | 1,008,459 | | | 36,607 | | | 6,666 | | | 71 | | | 180 | |
Total off-balance sheet sold or securitized loans (3) | $ | 989,787 | | | 1,120,966 | | | 38,970 | | | 7,442 | | | 200 | | | 289 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Net charge-offs (2) |
| Total loans | | Delinquent loans and foreclosed assets (1) | | Six months ended June 30, |
(in millions) | Jun 30, 2021 | | Dec 31, 2020 | | Jun 30, 2021 | | Dec 31, 2020 | | 2021 | | 2020 |
Commercial | $ | 116,704 | | | 114,134 | | | 2,363 | | | 2,217 | | | 122 | | | 83 | |
Residential | 738,698 | | | 818,886 | | | 20,869 | | | 29,962 | | | 12 | | | 59 | |
Total off-balance sheet sold or securitized loans (3) | $ | 855,402 | | | 933,020 | | | 23,232 | | | 32,179 | | | 134 | | | 142 | |
(1)Includes $397$203 million and $492$394 million of commercial foreclosed assets and $264$163 million and $356$204 million of consumerresidential foreclosed assets at SeptemberJune 30, 2020,2021, and December 31, 2019,2020, respectively.
(2)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.information
(3)At SeptemberJune 30, 2020,2021, and December 31, 2019,2020, the table includes total loans of $920.7$784.3 billion and $1.0 trillion respectively,$864.8 billion, delinquent loans of $35.0$19.8 billion and $5.2$28.5 billion, respectively, and foreclosed assets of $205$124 million and $251$152 million, respectively, for FNMA, FHLMC and GNMA.
Transactions with Unconsolidated VIEs
MORTGAGE LOAN SECURITIZATIONS Table 8.6 includes nonconforming mortgage loan securitizations where we originate and transfer the loans to the unconsolidated securitization VIEs that we sponsor. For additional information about these VIEs, see the “Loan Sales and Securitization Activity” section within this Note. Nonconforming mortgage loan securitizations also include commercial mortgage loan securitizations sponsored by third parties where we did not originate or transfer the loans but serve as master servicer and invest in securities that could be potentially significant to the VIE.
Conforming loan securitization and resecuritization transactions involving the GSEs and GNMA are excluded from Table 8.6 because we are not the sponsor or we do not have power over the activities most significant to the VIEs. Additionally, due to the nature of the guarantees provided by the GSEs and the FHA and VA, our credit risk associated with these VIEs is limited. For additional information about conforming mortgage loan securitizations and resecuritizations, see the “Loan Sales and Securitization Activity” and "Resecuritization Activities" sections within this Note.
TAX CREDIT STRUCTURESWe co-sponsor and make investments in affordable housing and sustainable energy projects that are designed to generate a return primarily through the realization of federal tax credits. The projects are typically managed by project sponsors who have the power over the VIE’s assets. In some instances, our investments in these structures may require that we fund future capital commitments at the discretion of the project sponsors.
COMMERCIAL REAL ESTATE LOANS We transfer purchased industrial development bonds and GSE credit enhancements to VIEs in exchange for beneficial interests. We own all of the beneficial interests and may also service the underlying mortgages that serve as collateral to the bonds. Prior to first quarter 2021, we consolidated these VIEs as we controlled the key decisions. During first quarter 2021, we amended the structures such that we no longer control the key decisions of the VIEs. The GSEs have the power to direct the servicing and workout activities of the VIE in the event of a default. As a result, we deconsolidated the VIEs during first quarter 2021, and recognized the beneficial interests at fair value on our consolidated balance sheet.
OTHER VIE STRUCTURESWe engage in various forms of structured finance arrangements with other VIEs, including collateralized debt obligations, asset-backed finance structures and other securitizations collateralized by asset classes other than mortgages. Collateral may include rental properties, asset-backed securities, student loans, mortgage loans and auto loans. We may participate in structuring or marketing the arrangements, as well as provide financing, service one or more of the underlying assets, or enter into derivatives with the VIEs. We may also receive fees for those services. We are not the primary beneficiary of these structures because we do not have power to direct the most significant activities of the VIEs.
Table 8.6 provides a summary of our exposure to the unconsolidated VIEs described above, which includes investments in securities, loans, guarantees, liquidity agreements, commitments and certain derivatives. We exclude certain transactions with unconsolidated VIEs when our continuing involvement is temporary or administrative in nature or insignificant in size.
In Table 8.6, “Total VIE assets” represents the remaining principal balance of assets held by unconsolidated VIEs using the most current information available. For VIEs that obtain exposure to assets synthetically through derivative instruments, the 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” is determined as the carrying value of our 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.
Debt, guarantees and other commitments include amounts related to loans sold that we may be required to repurchase, or otherwise indemnify or reimburse the investor or insurer for losses incurred, due to material breach of contractual representations and warranties as well as other retained recourse arrangements. The maximum exposure to loss for material breach of contractual representations and warranties represents a stressed case estimate we utilize for determining stressed case regulatory capital needs and is considered to be a remote scenario.
“Maximum exposure to loss” 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 disclosure is not an indication of expected loss.
Table 8.6:Unconsolidated VIEs
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Carrying value – asset (liability) |
(in millions) | Total VIE assets | | Loans | | Debt securities (1) | | Equity securities | | All other assets (2) | | Debt and other liabilities | | Net assets |
June 30, 2021 | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Nonconforming mortgage loan securitizations | $ | 134,023 | | | 0 | | | 2,401 | | | 0 | | | 663 | | | 0 | | | 3,064 | |
Tax credit structures | 41,058 | | | 1,875 | | | 0 | | | 11,448 | | | 0 | | | (4,218) | | | 9,105 | |
Commercial real estate loans | 5,366 | | | 5,357 | | | 0 | | | 0 | | | 8 | | | 0 | | | 5,365 | |
| | | | | | | | | | | | | |
Other | 6,541 | | | 1,888 | | | 0 | | | 57 | | | 52 | | | (1) | | | 1,996 | |
Total | $ | 186,988 | | | 9,120 | | | 2,401 | | | 11,505 | | | 723 | | | (4,219) | | | 19,530 | |
| | | Maximum exposure to loss |
| | | Loans | | Debt securities (1) | | Equity securities | | All other assets (2) | | Debt, guarantees, and other commitments | | Total exposure |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Nonconforming mortgage loan securitizations | | | $ | 0 | | | 2,401 | | | 0 | | | 663 | | | 31 | | | 3,095 | |
Tax credit structures | | | 1,875 | | | 0 | | | 11,448 | | | 0 | | | 3,023 | | | 16,346 | |
Commercial real estate loans | | | 5,357 | | | 0 | | | 0 | | | 8 | | | 712 | | | 6,077 | |
| | | | | | | | | | | | | |
Other | | | 1,888 | | | 0 | | | 57 | | | 52 | | | 230 | | | 2,227 | |
Total | | | $ | 9,120 | | | 2,401 | | | 11,505 | | | 723 | | | 3,996 | | | 27,745 | |
| | | Carrying value – asset (liability) |
(in millions) | Total VIE assets | | Loans | | Debt securities (1) | | Equity securities | | All other assets (2 | | Debt and other liabilities | | Net assets |
December 31, 2020 | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Nonconforming mortgage loan securitizations | $ | 127,717 | | | 0 | | | 2,303 | | | 0 | | | 606 | | | 0 | | | 2,909 | |
Tax credit structures (3) | 41,125 | | | 1,760 | | | 0 | | | 11,362 | | | 0 | | | (4,202) | | | 8,920 | |
Commercial real estate loans | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| | | | | | | | | | | | | |
Other | 1,991 | | | 89 | | | 0 | | | 51 | | | 62 | | | (1) | | | 201 | |
Total | $ | 170,833 | | | 1,849 | | | 2,303 | | | 11,413 | | | 668 | | | (4,203) | | | 12,030 | |
| | | Maximum exposure to loss |
| | | Loans | | Debt securities (1) | | Equity securities | | All other assets (2) | | Debt, guarantees, and other commitments | | Total exposure |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Nonconforming mortgage loan securitizations | | | $ | 0 | | | 2,303 | | | 0 | | | 607 | | | 34 | | | 2,944 | |
Tax credit structures (3) | | | 1,760 | | | 0 | | | 11,362 | | | 0 | | | 3,108 | | | 16,230 | |
Commercial real estate loans | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| | | | | | | | | | | | | |
Other | | | 89 | | | 0 | | | 51 | | | 62 | | | 230 | | | 432 | |
Total | | | $ | 1,849 | | | 2,303 | | | 11,413 | | | 669 | | | 3,372 | | | 19,606 | |
(1)Includes $317 million and $310 million of securities classified as trading at June 30, 2021, and December 31, 2020, respectively.
(2)All other assets includes mortgage servicing rights, derivative assets, and other assets (predominantly servicing advances).
(3)In second quarter 2021, we elected to change our accounting method for low-income housing tax credit investments. Prior period balances have been revised to conform with the current period presentation. For additional information, see Note 1 (Summary of Significant Accounting Policies).
Note 10:8: Securitizations and Variable Interest Entities (continued)(continued)
TransactionsConsolidated VIEs
We consolidate VIEs where we are the primary beneficiary. We are the primary beneficiary of the following structure types:
COMMERCIAL AND INDUSTRIAL LOANS AND LEASES We securitize dealer floor plan loans and leases in a revolving master trust entity and hold the subordinated notes and residual equity interests. As servicer and residual interest holder, we control the key decisions of the trust and consolidate the entity. The total VIE assets held by the master trust represent a majority of the total VIE assets presented for this category in Table 8.7. In a separate transaction structure, we also provide the majority of debt and equity financing to an SPE that engages in lending and leasing to specific vendors and service the underlying collateral.
OTHER VIE STRUCTURESOther VIEs are primarily related to municipal tender option bond (MTOB) transactions and nonconforming mortgage loan securitizations that we sponsor. MTOBs are vehicles to finance the purchase of municipal bonds through the issuance of short-term debt to investors. Our involvement with Consolidated VIEsMTOBs includes serving as the residual interest
holder, which provides control over the key decisions of the VIE, as well as the remarketing agent or liquidity provider related to the debt issued to investors. We also securitize nonconforming mortgage loans, in which our involvement includes servicer of the underlying assets and Secured Borrowingsholder of subordinate or senior securities issued by the VIE.
Table 10.88.7 presents a summary of financial assets and liabilities for asset transfers accounted for as secured borrowingsof our consolidated VIEs. The carrying value represents assets and involvements withliabilities recorded on our consolidated VIEs.balance sheet. Carrying values of “Assets”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 notional amount of the derivative is included in “Total VIE assets.”
On theour consolidated balance sheet, we separately disclose (1) the consolidated assets of certain VIEs that can only be used to settle the liabilities of those VIEs.VIEs, and (2) the consolidated liabilities of certain VIEs for which the VIE creditors do not have recourse to Wells Fargo.
Table 10.8:8.7: Transactions with Consolidated VIEs and Secured Borrowings
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Carrying value |
(in millions) | Total VIE assets | | Assets | | Liabilities | | Noncontrolling interests | | Net assets |
September 30, 2020 | | | | | | | | | |
Secured borrowings: | | | | | | | | | |
Residential mortgage securitizations | $ | 69 | | | 69 | | | (68) | | | 0 | | | 1 | |
Total secured borrowings | 69 | | | 69 | | | (68) | | | 0 | | | 1 | |
Consolidated VIEs: | | | | | | | | | |
Commercial and industrial loans and leases | 6,978 | | | 4,924 | | | (227) | | | (13) | | | 4,684 | |
Nonconforming residential mortgage loan securitizations | 622 | | | 538 | | | (214) | | | 0 | | | 324 | |
Commercial real estate loans | 5,379 | | | 5,379 | | | 0 | | | 0 | | | 5,379 | |
Municipal tender option bond securitizations | 596 | | | 599 | | | (596) | | | 0 | | | 3 | |
Other | 159 | | | 159 | | | (3) | | | (22) | | | 134 | |
Total consolidated VIEs | 13,734 | | | 11,599 | | | (1,040) | | | (35) | | | 10,524 | |
Total secured borrowings and consolidated VIEs | $ | 13,803 | | | 11,668 | | | (1,108) | | | (35) | | | 10,525 | |
December 31, 2019 | | | | | | | | | |
Secured borrowings: | | | | | | | | | |
Residential mortgage securitizations | $ | 81 | | | 80 | | | (79) | | | 0 | | | 1 | |
Total secured borrowings | 81 | | | 80 | | | (79) | | | 0 | | | 1 | |
Consolidated VIEs: | | | | | | | | | |
Commercial and industrial loans and leases | 8,054 | | | 8,042 | | | (529) | | | (16) | | | 7,497 | |
Nonconforming residential mortgage loan securitizations | 935 | | | 809 | | | (290) | | | 0 | | | 519 | |
Commercial real estate loans | 4,836 | | | 4,836 | | | 0 | | | 0 | | | 4,836 | |
Municipal tender option bond securitizations | 401 | | | 402 | | | (401) | | | 0 | | | 1 | |
Other | 279 | | | 279 | | | (6) | | | (27) | | | 246 | |
Total consolidated VIEs | 14,505 | | | 14,368 | | | (1,226) | | | (43) | | | 13,099 | |
Total secured borrowings and consolidated VIEs | $ | 14,586 | | | 14,448 | | | (1,305) | | | (43) | | | 13,100 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Carrying value – asset (liability) |
(in millions) | Total VIE assets | | Loans | | Debt securities (1) | | All other assets (2) | | Long-term debt | | All other liabilities (3) |
June 30, 2021 | | | | | | | | | | | |
Commercial and industrial loans and leases | $ | 6,981 | | | 3,623 | | | 0 | | | 238 | | | 0 | | | (183) | |
Commercial real estate loans (4) | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Other | 1,138 | | | 452 | | | 518 | | | 96 | | | (178) | | | (404) | |
Total consolidated VIEs | $ | 8,119 | | | 4,075 | | | 518 | | | 334 | | | (178) | | | (587) | |
December 31, 2020 | | | | | | | | | | | |
Commercial and industrial loans and leases | $ | 6,987 | | | 5,005 | | | 0 | | | 223 | | | 0 | | | (200) | |
Commercial real estate loans (4) | 5,369 | | | 5,357 | | | 0 | | | 12 | | | 0 | | | 0 | |
Other | 1,627 | | | 507 | | | 967 | | | 75 | | | (203) | | | (900) | |
Total consolidated VIEs | $ | 13,983 | | | 10,869 | | | 967 | | | 310 | | | (203) | | | (1,100) | |
(1)Includes $117 million and $269 million of securities classified as trading at June 30, 2021, and December 31, 2020, respectively.
(2)All other assets includes cash and due from banks, Interest-earning deposits with banks, derivative assets, equity securities, and other assets.
We have raised financing through(3)All other liabilities includes short-term borrowings, derivative liabilities, and accrued expenses and other liabilities.
(4)For structure description, see the securitization of certain financial assets in transactions"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 thanUnconsolidated VIEs" section within 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 involvement withNote. These consolidated VIEs see Note 10 (Securitizations and Variable Interest Entities)were deconsolidated in our 2019 Form 10-K.first quarter 2021.
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 $698$381 million and $2.1 billion$704 million at SeptemberJune 30, 2020,2021, and December 31, 2019,2020, respectively. During firstIn second quarter 2020,2021, 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$332 million 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 0 impact to earnings. See Note 1716 (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 $30 million and $63 millioninsignificant in the thirdsecond quarter and first nine monthshalf of 2020, respectively, compared with $10 millionboth 2021 and $30 million for the same periods a year ago.
2020.
| | |
Note 11:9: Mortgage Banking Activities |
Mortgage banking activities consist of residential and commercial mortgage originations, sales and servicing.
We apply the amortization method to commercial MSRs and apply the fair value method to residential MSRs. The amortized
cost of commercial MSRs was $1.3 billion and $1.4 billion with an estimated fair value of $1.5 billion and $1.4 billion at June 30, 2021, and June 30, 2020, respectively. Table 11.19.1 presents the changes in MSRs measured using the fair value method.
Table 11.1:9.1: Analysis of Changes in Fair Value MSRs
| | | Quarter ended September 30, | | Nine months ended September 30, | | Quarter ended June 30, | | Six months ended June 30, |
(in millions) | (in millions) | 2020 | | 2019 | | 2020 | | 2019 | (in millions) | 2021 | | 2020 | | 2021 | | 2020 | |
Fair value, beginning of period | Fair value, beginning of period | $ | 6,819 | | | 12,096 | | | $ | 11,517 | | | 14,649 | | Fair value, beginning of period | $ | 7,536 | | | 8,126 | | | 6,125 | | | 11,517 | | |
| Servicing from securitizations or asset transfers (1) | Servicing from securitizations or asset transfers (1) | 351 | | | 538 | | | 1,274 | | | 1,279 | | Servicing from securitizations or asset transfers (1) | 485 | | | 462 | | | 891 | | | 923 | | |
Sales and other (2) | Sales and other (2) | 0 | | | (4) | | | (32) | | | (286) | | Sales and other (2) | (7) | | | (1) | | | (8) | | | (32) | | |
Net additions | Net additions | 351 | | | 534 | | | 1,242 | | | 993 | | Net additions | 478 | | | 461 | | | 883 | | | 891 | | |
Changes in fair value: | Changes in fair value: | | Changes in fair value: | | |
Due to valuation inputs or assumptions: | Due to valuation inputs or assumptions: | | Due to valuation inputs or assumptions: | | |
Mortgage interest rates (3) | Mortgage interest rates (3) | (294) | | | (718) | | | (3,916) | | | (2,811) | | Mortgage interest rates (3) | (529) | | | (600) | | | 1,101 | | | (3,622) | | |
Servicing and foreclosure costs (4) | Servicing and foreclosure costs (4) | 157 | | | 13 | | | (265) | | | 3 | | Servicing and foreclosure costs (4) | 0 | | | (349) | | | 9 | | | (422) | | |
Discount rates | Discount rates | 0 | | | 188 | | | 27 | | | 179 | | Discount rates | 160 | | | 0 | | | 207 | | | 27 | | |
Prepayment estimates and other (5) | Prepayment estimates and other (5) | (80) | | | (445) | | | (451) | | | (302) | | Prepayment estimates and other (5) | (440) | | | (182) | | | (535) | | | (371) | | |
Net changes in valuation inputs or assumptions | Net changes in valuation inputs or assumptions | (217) | | | (962) | | | (4,605) | | | (2,931) | | Net changes in valuation inputs or assumptions | (809) | | | (1,131) | | | 782 | | | (4,388) | | |
Changes due to collection/realization of expected cash flows (6) | Changes due to collection/realization of expected cash flows (6) | (598) | | | (596) | | | (1,799) | | | (1,639) | | Changes due to collection/realization of expected cash flows (6) | (488) | | | (637) | | | (1,073) | | | (1,201) | | |
Total changes in fair value | Total changes in fair value | (815) | | | (1,558) | | | (6,404) | | | (4,570) | | Total changes in fair value | (1,297) | | | (1,768) | | | (291) | | | (5,589) | | |
Fair value, end of period | Fair value, end of period | $ | 6,355 | | | 11,072 | | | $ | 6,355 | | | 11,072 | | Fair value, end of period | $ | 6,717 | | | 6,819 | | | 6,717 | | | 6,819 | | |
(1)Includes impacts associated with exercising cleanup calls on securitizations and our right to repurchase delinquent loans from GNMA loan securitization pools. 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 in MSRs if related to portfolios with servicing liabilities.
(3)Includes prepayment speed changes as well as other valuation changes due to changes in mortgage interest rates.
(4)Includes costs to service and unreimbursed foreclosure costs.
(5)Represents other changes in valuation model inputs or assumptions including prepayment speed estimation changes that are independent of mortgage interest rate changes.
(6)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 presents9.2 provides key economic assumptions and sensitivity of the current fair value of residential MSRs to immediate adverse changes in amortized MSRs.those assumptions. Amounts for residential MSRs include purchased servicing rights as well as servicing
rights resulting from the transfer of loans. See Note 15 (Fair Values of Assets and Liabilities) for additional information on key economic assumptions for residential MSRs.
Table 11.2:9.2: Economic Assumptions and Sensitivity of Residential MSRsAnalysis of
| | | | | | | | | | | |
($ in millions, except cost to service amounts) | Jun 30, 2021 | | Dec 31, 2020 |
Fair value of interests held | $ | 6,717 | | | 6,125 | |
Expected weighted-average life (in years) | 4.2 | | 3.7 |
| | | |
Key economic assumptions: | | | |
Prepayment speed assumption | 17.2 | % | | 19.9 | |
Impact on fair value from 10% adverse change | $ | 417 | | | 434 | |
Impact on fair value from 25% adverse change | 967 | | | 1,002 | |
| | | |
Discount rate assumption | 5.4 | % | | 5.8 | |
Impact on fair value from 100 basis point increase | $ | 274 | | | 229 | |
Impact on fair value from 200 basis point increase | 525 | | | 440 | |
| | | |
Cost to service assumption ($ per loan) | 111 | | | 130 | |
Impact on fair value from 10% adverse change | 171 | | | 181 | |
Impact on fair value from 25% adverse change | 427 | | | 454 | |
The sensitivities in the preceding table are hypothetical and caution should be exercised when relying on this data. Changes in Amortized MSRs
| | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended September 30, | | Nine months ended September 30, |
(in millions) | 2020 | | 2019 | | 2020 | | 2019 |
Balance, beginning of period | $ | 1,361 | | | 1,407 | | | $ | 1,430 | | | 1,443 | |
Purchases | 6 | | | 25 | | | 21 | | | 65 | |
Servicing from securitizations or asset transfers | 32 | | | 33 | | | 114 | | | 92 | |
Amortization (1) | (74) | | | (68) | | | (240) | | | (203) | |
Balance, end of period | $ | 1,325 | | | 1,397 | | | $ | 1,325 | | | 1,397 | |
Fair value of amortized MSRs: | | | | | | | |
Beginning of period | $ | 1,401 | | | 1,897 | | | $ | 1,872 | | | 2,288 | |
End of period | 1,400 | | | 1,813 | | | 1,400 | | | 1,813 | |
(1)Commercial amortized MSRs are evaluated for impairment purposes byvalue based on variations in assumptions generally cannot be extrapolated because the following risk strata: agency (GSEs) for multi-family properties and non-agency. There was a $7 million and $37 million impairment recordedrelationship of the change in the third quarter and first nine monthsassumption to the change in value may not be linear. Also, the effect of 2020, respectively, and an associated valuation allowance of $37 million recorded at September 30, 2020,a variation in a particular assumption on the commercial amortized MSRs.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, which might magnify or counteract the sensitivities.
Note 11:9: Mortgage Banking Activities (continued)(continued)
We present the components of our managed servicing portfolio in Table 11.39.3 at unpaid principal balance for loans serviced and subserviced for others and at book value for owned loans serviced.
Table 11.3:9.3: Managed Servicing Portfolio
| (in billions) | (in billions) | Sep 30, 2020 | | Dec 31, 2019 | (in billions) | Jun 30, 2021 | | Dec 31, 2020 |
Residential mortgage servicing: | Residential mortgage servicing: | | Residential mortgage servicing: | |
Serviced and subserviced for others | Serviced and subserviced for others | $ | 920 | | | 1,065 | | Serviced and subserviced for others | $ | 771 | | | 859 | |
Owned loans serviced | Owned loans serviced | 342 | | | 343 | | Owned loans serviced | 284 | | | 323 | |
| Total residential servicing | Total residential servicing | 1,262 | | | 1,408 | | Total residential servicing | 1,055 | | | 1,182 | |
Commercial mortgage servicing: | Commercial mortgage servicing: | | Commercial mortgage servicing: | |
Serviced and subserviced for others | Serviced and subserviced for others | 579 | | | 575 | | Serviced and subserviced for others | 584 | | | 583 | |
Owned loans serviced | Owned loans serviced | 123 | | | 124 | | Owned loans serviced | 123 | | | 123 | |
| Total commercial servicing | Total commercial servicing | 702 | | | 699 | | Total commercial servicing | 707 | | | 706 | |
Total managed servicing portfolio | Total managed servicing portfolio | $ | 1,964 | | | 2,107 | | Total managed servicing portfolio | $ | 1,762 | | | 1,888 | |
Total serviced for others, excluding subserviced for others | Total serviced for others, excluding subserviced for others | $ | 1,488 | | | 1,629 | | Total serviced for others, excluding subserviced for others | $ | 1,344 | | | 1,431 | |
Ratio of MSRs to related loans serviced for others | 0.52 | % | | 0.79 | | |
MSRs as a percentage of loans serviced for others | | MSRs as a percentage of loans serviced for others | 0.60 | % | | 0.52 | |
Weighted average note rate (mortgage loans serviced for others) | Weighted average note rate (mortgage loans serviced for others) | 4.13 | | | 4.25 | | Weighted average note rate (mortgage loans serviced for others) | 3.93 | | | 4.03 | |
At Septemberboth June 30, 2020,2021, and December 31, 2019,2020, we had servicer advances, net of an allowance for uncollectible amounts, of $2.6 billion and $2.0 billion, respectively.$3.4 billion. As the servicer of loans for others, we advance certain payments of principal, interest, taxes, insurance, and default-related expenses which are generally reimbursed within a short timeframe from cash flows from the trust, GSEs, insurer or borrower. The credit risk related to these advances is limited since the reimbursement is generally senior to cash payments to investors. We also advance payments of taxes and insurance for our owned loans which are collectible
maintain an allowance for uncollectible amounts for advances on loans serviced for others that may not be reimbursed if the payments were not made in accordance with applicable servicing agreements or if the insurance or servicing agreements contain limitations on reimbursements. Servicing advances on owned loans are charged-off when deemed uncollectible.
Table 11.49.4 presents the components of mortgage banking noninterest income.
Table 11.4:9.4: Mortgage Banking Noninterest Income
| | | Quarter ended September 30, | | Nine months ended September 30, | | Quarter ended June 30, | | Six months ended June 30, |
(in millions) | (in millions) | | 2020 | | 2019 | | 2020 | | 2019 | (in millions) | | 2021 | | 2020 | | 2021 | | 2020 | |
Servicing fees: | Servicing fees: | | Servicing fees: | | |
Contractually specified servicing fees, late charges and ancillary fees | Contractually specified servicing fees, late charges and ancillary fees | | $ | 838 | | | 924 | | | $ | 2,452 | | | 2,749 | | Contractually specified servicing fees, late charges and ancillary fees | | $ | 692 | | | 749 | | | 1,416 | | | 1,614 | | |
| Unreimbursed direct servicing costs (1) | Unreimbursed direct servicing costs (1) | | (121) | | | (118) | | | (333) | | | (272) | | Unreimbursed direct servicing costs (1) | | (90) | | | (105) | | | (214) | | | (212) | | |
Servicing fees | Servicing fees | | 717 | | | 806 | | | 2,119 | | | 2,477 | | Servicing fees | | 602 | | | 644 | | | 1,202 | | | 1,402 | | |
Amortization (2) | Amortization (2) | | (74) | | | (68) | | | (240) | | | (203) | | Amortization (2) | | (33) | | | (100) | | | (98) | | | (166) | | |
Changes due to collection/realization of expected cash flows (3) | Changes due to collection/realization of expected cash flows (3) | (A) | (598) | | | (596) | | | (1,799) | | | (1,639) | | Changes due to collection/realization of expected cash flows (3) | (A) | (488) | | | (637) | | | (1,073) | | | (1,201) | | |
Net servicing fees | Net servicing fees | | 45 | | | 142 | | | 80 | | | 635 | | Net servicing fees | | 81 | | | (93) | | | 31 | | | 35 | | |
Changes in fair value of MSRs due to valuation inputs or assumptions (4) | Changes in fair value of MSRs due to valuation inputs or assumptions (4) | (B) | (217) | | | (962) | | | (4,605) | | | (2,931) | | Changes in fair value of MSRs due to valuation inputs or assumptions (4) | (B) | (809) | | | (1,131) | | | 782 | | | (4,388) | | |
Net derivative gains from economic hedges (5) | | 513 | | | 678 | | | 4,448 | | | 2,795 | | |
Net derivative gains (losses) from economic hedges (5) | | Net derivative gains (losses) from economic hedges (5) | | 707 | | | 535 | | | (933) | | | 3,935 | | |
Market-related valuation changes to MSRs, net of hedge results | Market-related valuation changes to MSRs, net of hedge results | | 296 | | | (284) | | | (157) | | | (136) | | Market-related valuation changes to MSRs, net of hedge results | | (102) | | | (596) | | | (151) | | | (453) | | |
Total servicing income (loss), net | | 341 | | | (142) | | | (77) | | | 499 | | |
Net gains on mortgage loan origination/sales activities (6) | | 1,249 | | | 608 | | | 2,363 | | | 1,433 | | |
Total servicing income, net | | Total servicing income, net | | (21) | | | (689) | | | (120) | | | (418) | | |
Net gains on mortgage loan originations/sales (6) | | Net gains on mortgage loan originations/sales (6) | | 1,357 | | | 1,006 | | | 2,782 | | | 1,114 | | |
Total mortgage banking noninterest income | Total mortgage banking noninterest income | | $ | 1,590 | | | 466 | | | $ | 2,286 | | | 1,932 | | Total mortgage banking noninterest income | | $ | 1,336 | | | 317 | | | 2,662 | | | 696 | | |
Total changes in fair value of MSRs carried at fair value | Total changes in fair value of MSRs carried at fair value | (A)+(B) | $ | (815) | | | (1,558) | | | $ | (6,404) | | | (4,570) | | Total changes in fair value of MSRs carried at fair value | (A)+(B) | $ | (1,297) | | | (1,768) | | | (291) | | | (5,589) | | |
(1)Includes costs associated with foreclosures, unreimbursed interest advances to investors, and other interest costs.
(2)Includes a $7$37 million reversal of impairment recorded in the second quarter and $37first half of 2021, on the commercial amortized MSRs. Also, includes $30 million impairment recorded in the thirdsecond quarter and first nine monthshalf of 2020, respectively, on the commercial amortized MSRs.
(3)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.
(4)Refer to the analysis of changes in fair value MSRs presented in Table 11.19.1 in this Note for more detail.
(5)See Note 1514 (Derivatives) for additional discussion and detail on economic hedges.
(6)Includes net gains (losses) of $(297)$(420) million and $(1.6)$845 million in the second quarter and first half of 2021, respectively, and $(393) million and $(1.3) billion in the thirdsecond quarter and first nine monthshalf of 2020, respectively, and $58 million and $(376) million in the third quarter and first nine months of 2019, respectively, related to derivatives used as economic hedges of mortgage loans held for sale and derivative loan commitments.
| | |
Note 12:10: Intangible Assets |
Table 12.110.1 presents the gross carrying value of intangible assets and accumulated amortization.
Table 12.1:10.1: Intangible Assets
| | | September 30, 2020 | | December 31, 2019 | | June 30, 2021 | | December 31, 2020 |
(in millions) | (in millions) | Gross carrying value | | Accumulated amortization | | Net carrying value | | Gross carrying value | | Accumulated amortization | | Net carrying value | (in millions) | Gross carrying value | | Accumulated amortization | | Net carrying value | | Gross carrying value | | Accumulated amortization | | Net carrying value |
Amortized intangible assets (1): | Amortized intangible assets (1): | | Amortized intangible assets (1): | |
MSRs (2) | MSRs (2) | $ | 4,557 | | | (3,232) | | | 1,325 | | | 4,422 | | | (2,992) | | | 1,430 | | MSRs (2) | $ | 4,690 | | | (3,398) | | | 1,292 | | | 4,612 | | | (3,300) | | | 1,312 | |
| Customer relationship and other intangibles | Customer relationship and other intangibles | 879 | | | (527) | | | 352 | | | 947 | | | (524) | | | 423 | | Customer relationship and other intangibles | 879 | | | (592) | | | 287 | | | 879 | | | (551) | | | 328 | |
Total amortized intangible assets | Total amortized intangible assets | $ | 5,436 | | | (3,759) | | | 1,677 | | | 5,369 | | | (3,516) | | | 1,853 | | Total amortized intangible assets | $ | 5,569 | | | (3,990) | | | 1,579 | | | 5,491 | | | (3,851) | | | 1,640 | |
Unamortized intangible assets: | Unamortized intangible assets: | | Unamortized intangible assets: | |
MSRs (carried at fair value) (2) | MSRs (carried at fair value) (2) | $ | 6,355 | | | 11,517 | | | MSRs (carried at fair value) (2) | $ | 6,717 | | | 6,125 | | |
Goodwill | Goodwill | 26,387 | | | 26,390 | | | Goodwill | 26,194 | | | 26,392 | | |
Trademark | Trademark | 14 | | | 14 | | | Trademark | 14 | | | 14 | | |
(1)Balances are excluded commencing in the period following full amortization.
(2)Includes a $5 million and $37 million valuation allowance recorded for amortized MSRs at SeptemberJune 30, 2020.2021, and December 31, 2020, respectively. See Note 119 (Mortgage Banking Activities) for additional information on MSRs.
Table 12.210.2 provides the current year and estimated future amortization expense for amortized intangible assets. We based our projections of amortization expense shown below on existing
asset balances at SeptemberJune 30, 2020.2021. Future amortization expense may vary from these projections.
Table 12.2:10.2: Amortization Expense for Intangible Assets
| (in millions) | (in millions) | | Amortized MSRs | | | Customer relationship and other intangibles | | Total | (in millions) | Amortized MSRs | | | Customer relationship and other intangibles | | Total |
Nine months ended September 30, 2020 (actual) | | $ | 240 | | | | 71 | | | 311 | | |
Estimate for the remainder of 2020 | | $ | 66 | | | | 24 | | | 90 | | |
Six months ended June 30, 2021 (actual) | | Six months ended June 30, 2021 (actual) | $ | 98 | | | | 41 | | | 139 | |
Estimate for the remainder of 2021 | | Estimate for the remainder of 2021 | $ | 127 | | | | 40 | | | 167 | |
Estimate for year ended December 31, | Estimate for year ended December 31, | | | | Estimate for year ended December 31, | | | |
2021 | | 239 | | | | 81 | | | 320 | | |
2022 | 2022 | | 212 | | | | 68 | | | 280 | | 2022 | 232 | | | | 68 | | | 300 | |
2023 | 2023 | | 184 | | | | 59 | | | 243 | | 2023 | 203 | | | | 59 | | | 262 | |
2024 | 2024 | | 159 | | | | 48 | | | 207 | | 2024 | 177 | | | | 48 | | | 225 | |
2025 | 2025 | | 134 | | | | 39 | | | 173 | | 2025 | 152 | | | | 39 | | | 191 | |
2026 | | 2026 | 117 | | | | 32 | | | 149 | |
In the first half of 2021, we announced agreements to sell Wells Fargo Asset Management and Corporate Trust Services and transferred the associated goodwill from the Wealth and Investment Management operating segment and the Commercial Banking operating segment, respectively, to
Corporate. Also in the first half of 2021, we recognized goodwill write-downs related to sales of the student loan portfolio and our Canadian equipment finance business. Table 12.310.3 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 12.3:10.3: Goodwill
| | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Community Banking | | Wholesale Banking | | Wealth and Investment Management | | Consolidated Company |
December 31, 2018 | $ | 16,685 | | | 8,450 | | | 1,283 | | | 26,418 | |
Reclassification of goodwill held for sale to other assets | 0 | | | (25) | | | 0 | | | (25) | |
Reduction in goodwill related to divested business and other | 0 | | | 0 | | | (7) | | | (7) | |
Foreign currency translation | 0 | | | 2 | | | 0 | | | 2 | |
| | | | | | | |
| | | | | | | |
September 30, 2019 | $ | 16,685 | | | 8,427 | | | 1,276 | | | 26,388 | |
December 31, 2019 | $ | 16,685 | | | 8,429 | | | 1,276 | | | 26,390 | |
| | | | | | | |
Foreign currency translation | 0 | | | (3) | | | 0 | | | (3) | |
| | | | | | | |
| | | | | | | |
September 30, 2020 | $ | 16,685 | | | 8,426 | | | 1,276 | | | 26,387 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Consumer Banking and Lending | | | | Commercial Banking | | Corporate and Investment Banking | | Wealth and Investment Management | | Corporate | | Consolidated Company |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
December 31, 2020 | $ | 16,418 | | | | | 3,018 | | | 5,375 | | | 1,276 | | | 305 | | | 26,392 | |
| | | | | | | | | | | | | |
Divestitures | 0 | | | | | 0 | | | 0 | | | 0 | | | (201) | | | (201) | |
Foreign currency translation | 0 | | | | | 3 | | | 0 | | | 0 | | | 0 | | | 3 | |
Transfers of goodwill | 0 | | | | | (80) | | | 0 | | | (932) | | | 1,012 | | | 0 | |
June 30, 2021 | $ | 16,418 | | | | | 2,941 | | | 5,375 | | | 344 | | | 1,116 | | | 26,194 | |
| | |
Note 13:11: 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,
written options, recourse obligations, and other types of similar
arrangements. For complete descriptions of our guarantees, see Note 16 (Guarantees, Pledged Assets and Collateral, and Other Commitments) in our 2019 Form 10-K. Table 13.111.1 shows carrying value, maximum exposure to loss on our guarantees and the related non-investment grade amounts.
Table 13.1:11.1: Guarantees – Carrying Value and Maximum Exposure to Loss
| | | Maximum exposure to loss | | Maximum exposure to loss |
(in millions) | (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 | (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 |
September 30, 2020 | | |
June 30, 2021 | | June 30, 2021 | |
Standby letters of credit | Standby letters of credit | $ | 195 | | | 12,381 | | | 4,287 | | | 1,844 | | | 446 | | | 18,958 | | | 7,484 | | Standby letters of credit | $ | 132 | | | 12,639 | | | 4,838 | | | 1,927 | | | 457 | | | 19,861 | | | 6,873 | |
Direct pay letters of credit | Direct pay letters of credit | 42 | | | 2,227 | | | 2,853 | | | 704 | | | 48 | | | 5,832 | | | 1,175 | | Direct pay letters of credit | 10 | | | 1,927 | | | 2,544 | | | 368 | | | 43 | | | 4,882 | | | 1,140 | |
Written options (1) | Written options (1) | (245) | | | 13,356 | | | 10,851 | | | 2,379 | | | 152 | | | 26,738 | | | 16,205 | | Written options (1) | (548) | | | 12,943 | | | 6,278 | | | 723 | | | 58 | | | 20,002 | | | 13,666 | |
Loans and MLHFS sold with recourse (2) | 34 | | | 231 | | | 752 | | | 1,596 | | | 10,016 | | | 12,595 | | | 10,254 | | |
Loans and LHFS sold with recourse (2) | | Loans and LHFS sold with recourse (2) | 30 | | | 89 | | | 826 | | | 3,010 | | | 9,323 | | | 13,248 | | | 11,216 | |
Exchange and clearing house guarantees | Exchange and clearing house guarantees | 0 | | | 0 | | | 0 | | | 0 | | | 5,516 | | | 5,516 | | | 0 | | Exchange and clearing house guarantees | 0 | | | 0 | | | 0 | | | 0 | | | 5,243 | | | 5,243 | | | 0 | |
Other guarantees and indemnifications (3) | Other guarantees and indemnifications (3) | 1 | | | 567 | | | 1 | | | 1 | | | 1,667 | | | 2,236 | | | 528 | | Other guarantees and indemnifications (3) | 1 | | | 629 | | | 3 | | | 0 | | | 239 | | | 871 | | | 570 | |
Total guarantees | Total guarantees | $ | 27 | | | 28,762 | | | 18,744 | | | 6,524 | | | 17,845 | | | 71,875 | | | 35,646 | | Total guarantees | $ | (375) | | | 28,227 | | | 14,489 | | | 6,028 | | | 15,363 | | | 64,107 | | | 33,465 | |
December 31, 2019 | | |
December 31, 2020 | | December 31, 2020 | |
Standby letters of credit | Standby letters of credit | $ | 36 | | | 11,569 | | | 4,460 | | | 2,812 | | | 467 | | | 19,308 | | | 7,104 | | Standby letters of credit | $ | 156 | | | 11,977 | | | 4,962 | | | 1,897 | | | 433 | | | 19,269 | | | 7,528 | |
Direct pay letters of credit | Direct pay letters of credit | 0 | | | 1,861 | | | 3,815 | | | 824 | | | 105 | | | 6,605 | | | 1,184 | | Direct pay letters of credit | 18 | | | 2,256 | | | 2,746 | | | 531 | | | 39 | | | 5,572 | | | 1,102 | |
Written options (1) | Written options (1) | (345) | | | 17,088 | | | 10,869 | | | 2,341 | | | 273 | | | 30,571 | | | 18,113 | | Written options (1) | (538) | | | 12,735 | | | 7,972 | | | 889 | | | 58 | | | 21,654 | | | 13,394 | |
Loans and MLHFS sold with recourse (2) | 52 | | | 114 | | | 576 | | | 1,356 | | | 10,050 | | | 12,096 | | | 9,835 | | |
Loans and LHFS sold with recourse (2) | | Loans and LHFS sold with recourse (2) | 33 | | | 177 | | | 819 | | | 1,870 | | | 9,723 | | | 12,589 | | | 10,332 | |
Exchange and clearing house guarantees | Exchange and clearing house guarantees | 0 | | | 0 | | | 0 | | | 0 | | | 4,817 | | | 4,817 | | | 0 | | Exchange and clearing house guarantees | 0 | | | 0 | | | 0 | | | 0 | | | 5,510 | | | 5,510 | | | 0 | |
Other guarantees and indemnifications (3) | Other guarantees and indemnifications (3) | 1 | | | 785 | | | 1 | | | 3 | | | 809 | | | 1,598 | | | 698 | | Other guarantees and indemnifications (3) | 0 | | | 734 | | | 1 | | | 1 | | | 1,414 | | | 2,150 | | | 590 | |
Total guarantees | Total guarantees | $ | (256) | | | 31,417 | | | 19,721 | | | 7,336 | | | 16,521 | | | 74,995 | | | 36,934 | | Total guarantees | $ | (331) | | | 27,879 | | | 16,500 | | | 5,188 | | | 17,177 | | | 66,744 | | | 32,946 | |
(1)Written options, which are in the form of derivatives, are also included in the derivative disclosures in Note 1514 (Derivatives). Carrying value net asset position is a result of certain deferred premium option trades.
(2)RepresentRepresents recourse provided, predominantlyall to the GSEs, on loans sold under various programs and arrangements.
(3)Includes indemnifications provided to certain third-party clearing agents. Outstanding customer obligations under these arrangements were $176Estimated maximum exposure to loss was $210 million and $80 million$1.4 billion with related collateral of $1.5$2.1 billion and $696 million at September$1.2 billion as of June 30, 2020,2021, and December 31, 2019,2020, 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 13.111.1 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 64 (Loans and Related Allowance for Credit Losses).
MERCHANT PROCESSING SERVICES We provide debit and credit card transaction processing services through the payment networks directly for merchants and as a sponsor for merchant processing servicers, including our joint venture with a third party that is accounted for as an equity method investment. In our role as the merchant acquiring bank, we have a potential obligation forin connection with payment and delivery disputes between the merchant and the cardholder that are resolved in favor of the cardholder. If we are unable to collect the amounts from the merchant, we incur a loss for the refund to the cardholder. We are secondarily obligated to make a refund for transactions involving the sponsored merchant processing servicers. We generally have a low likelihood of loss sincein connection with our merchant processing services because most products and services are delivered when purchased and amounts are generally refunded when items are returned to the merchant. In addition, we may reduce our risk in connection with these transactions by withholding future payments and requiring cash or other collateral. For the first nine monthshalf of 2020,2021, we processed card transaction volume of $982.7$790.2 billion as a merchant acquiring bank, and related losses, including those from our joint venture entity, were immaterial.
GUARANTEES OF SUBSIDIARIES In the normal course of business, the Parent may provide counterparties with guarantees related to its subsidiaries’ obligations. These obligations are included in the Company’s consolidated balance sheet or are reflected as off-balance sheet commitments, and therefore, the Parent has not recognized a separate liability for these guarantees.
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 securities are not guaranteed by any other subsidiary of the Parent. The guaranteed liabilities were $2.4$1.6 billion and $1.6$2.3 billion at SeptemberJune 30, 20202021, and December 31, 2019,2020, respectively. These guarantees rank on parity with all of the Parent’s other unsecured and unsubordinated indebtedness. The assets of the Parent consist primarily of equity in its subsidiaries, and the Parent is a separate and distinct legal entity from its subsidiaries. As a result, the Parent’s ability to address claims of holders of these debt securities against the Parent under the guarantee depends on the Parent’s receipt of dividends, loan payments and other funds from its subsidiaries. If any of the Parent’s subsidiaries becomes insolvent, the direct creditors of that subsidiary will have a prior claim on that subsidiary’s assets. The rights of the Parent and the rights of the Parent’s creditors will be subject to that prior claim unless the Parent is also a direct creditor of that subsidiary. For additional information regarding other restrictions on the Parent’s ability to receive dividends, loan payments and other funds from its subsidiaries, see Note 23 (Regulatory Capital Requirements and Other Restrictions).
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 both June 30, 2021, and December 31, 2020, we had commitments to purchase debt securities of $18 million and commitments to purchase equity securities of $3.2 billion.
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 Table 11.1 in Other guarantees and indemnifications.
Also, we have commitments to purchase loans and securities under resale agreements from certain counterparties, including central clearing organizations. The amount of our unfunded contractual commitments was $12.9 billion and $12.0 billion as of June 30, 2021, and December 31, 2020, respectively.
Given the nature of these commitments, they are excluded from Table 4.4 (Unfunded Credit Commitments) in Note 4 (Loans and Related Allowance for Credit Losses).
| | |
Note 12: Pledged Assets and Collateral |
Pledged Assets
Table 13.212.1 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 consolidated balance sheet.
TRADING RELATED ACTIVITYOur 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. All of the collateral we pledge related to trading activity pledged collateral is eligible to be repledged or sold by the secured party.
NON-TRADING RELATED ACTIVITY As part of our liquidity management strategy, we may pledge loans, debt securities, and
other financial assets to secure trust and public deposits, borrowings and letters of credit from the Federal Home Loan Bank (FHLB) and FRBthe Board of Governors of the Federal Reserve System (FRB) and for other purposes as required or permitted by law or insurance statutory requirements. Substantially 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 transactions entered into with VIEs. These pledged assets can only be used to settle the liabilities of those entities.
We also have loans recorded on our consolidated balance sheet which represent certain delinquent loans that are eligible for repurchase from GNMA loan securitizations. See Note 108 (Securitizations and Variable Interest Entities) for additional information on consolidated VIE assets and VIEs accounted for as secured borrowings.assets.
Table 13.2:12.1: Pledged Assets
| | | | | | | | | | | |
(in millions) | Sep 30, 2020 | | Dec 31, 2019 |
Related to trading activities: | | | |
Repledged third-party owned debt and equity securities | $ | 37,121 | | | 60,083 | |
Trading debt securities and other | 20,483 | | | 51,083 | |
Equity securities | 835 | | | 1,379 | |
Total pledged assets related to trading activities | 58,439 | | | 112,545 | |
Related to non-trading activities: | | | |
Loans | 364,865 | | | 406,106 | |
Debt securities: | | | |
| | | |
Available-for-sale | 55,479 | | | 61,126 | |
Held-to-maturity | 2,786 | | | 3,685 | |
Mortgage loans held for sale | 0 | | | 2,266 | |
Total pledged assets related to non-trading activities | 423,130 | | | 473,183 | |
Related to VIEs: | | | |
Consolidated VIE assets | 11,599 | | | 14,368 | |
VIEs accounted for as secured borrowings | 69 | | | 80 | |
Loans eligible for repurchase from GNMA securitizations | 76 | | | 568 | |
Total pledged assets related to VIEs | 11,744 | | | 15,016 | |
Total pledged assets | $ | 493,313 | | | 600,744 | |
| | | | | | | | | | | |
(in millions) | Jun 30, 2021 | | Dec 31, 2020 |
Related to trading activities: | | | |
Repledged third-party owned debt and equity securities | $ | 37,134 | | | 44,765 | |
Trading debt securities and other | 18,362 | | | 19,572 | |
Equity securities | 704 | | | 470 | |
Total pledged assets related to trading activities | 56,200 | | | 64,807 | |
Related to non-trading activities: | | | |
Loans | 308,551 | | | 344,220 | |
Debt securities: | | | |
| | | |
Available-for-sale | 59,512 | | | 57,289 | |
Held-to-maturity | 11,552 | | | 17,290 | |
Other financial assets | 531 | | | 230 | |
Total pledged assets related to non-trading activities | 380,146 | | | 419,029 | |
Related to VIEs: | | | |
Consolidated VIE assets | 4,927 | | | 12,146 | |
Loans eligible for repurchase from GNMA securitizations | 130 | | | 179 | |
Total pledged assets related to VIEs | 5,057 | | | 12,325 | |
Total pledged assets | $ | 441,403 | | | 496,161 | |
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. Our securities financing activities primarily involve high quality,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 13.312.2 presents resale and repurchase agreements subject to master
repurchase agreements (MRA) and securities borrowing and lending agreements subject to master securities lending agreements (MSLA). Collateralized financings, and those with a single counterparty, are presented net on our consolidated balance sheet, provided certain criteria are met that permit balance sheet netting. MostSubstantially all 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 consolidated balance sheet against the related liability. Collateral we received includes securities or loans and is not recognized on our consolidated 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
Note 13: Guarantees, Pledged Assets and Collateral, and Other Commitments (continued)
amount of the related recognized asset or liability for each counterparty.
In addition to the amounts included in Table 13.3,12.2, we also have balance sheet netting related to derivatives that is disclosed in Note 1514 (Derivatives).
Table 13.3:12.2: Offsetting – Securities Financing Activities
| (in millions) | (in millions) | Sep 30, 2020 | | Dec 31, 2019 | (in millions) | Jun 30, 2021 | | Dec 31, 2020 |
Assets: | Assets: | | Assets: | |
Resale and securities borrowing agreements | Resale and securities borrowing agreements | | Resale and securities borrowing agreements | |
Gross amounts recognized | Gross amounts recognized | $ | 94,579 | | | 140,773 | | Gross amounts recognized | $ | 101,027 | | | 92,446 | |
Gross amounts offset in consolidated balance sheet (1) | Gross amounts offset in consolidated balance sheet (1) | (11,066) | | | (19,180) | | Gross amounts offset in consolidated balance sheet (1) | (13,845) | | | (11,513) | |
Net amounts in consolidated balance sheet (2) | Net amounts in consolidated balance sheet (2) | 83,513 | | | 121,593 | | Net amounts in consolidated balance sheet (2) | 87,182 | | | 80,933 | |
Collateral not recognized in consolidated balance sheet (3) | Collateral not recognized in consolidated balance sheet (3) | (82,736) | | | (120,786) | | Collateral not recognized in consolidated balance sheet (3) | (86,453) | | | (80,158) | |
Net amount (4) | Net amount (4) | $ | 777 | | | 807 | | Net amount (4) | $ | 729 | | | 775 | |
Liabilities: | Liabilities: | | Liabilities: | |
Repurchase and securities lending agreements | Repurchase and securities lending agreements | | Repurchase and securities lending agreements | |
Gross amounts recognized | Gross amounts recognized | $ | 54,888 | | | 111,038 | | Gross amounts recognized | $ | 47,281 | | | 57,622 | |
Gross amounts offset in consolidated balance sheet (1) | Gross amounts offset in consolidated balance sheet (1) | (11,066) | | | (19,180) | | Gross amounts offset in consolidated balance sheet (1) | (13,844) | | | (11,513) | |
Net amounts in consolidated balance sheet (5) | Net amounts in consolidated balance sheet (5) | 43,822 | | | 91,858 | | Net amounts in consolidated balance sheet (5) | 33,437 | | | 46,109 | |
Collateral pledged but not netted in consolidated balance sheet (6) | Collateral pledged but not netted in consolidated balance sheet (6) | (43,602) | | | (91,709) | | Collateral pledged but not netted in consolidated balance sheet (6) | (33,177) | | | (45,819) | |
Net amount (4) | Net amount (4) | $ | 220 | | | 149 | | Net amount (4) | $ | 260 | | | 290 | |
(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 $69.2$70.1 billion and $102.1$65.6 billion classified on our consolidated balance sheet in federal funds sold and securities purchased under resale agreements at SeptemberJune 30, 2020,2021, and December 31, 2019,2020, respectively. Also includes securities purchased under long-term resale agreements (generally one year or more) classified in loans, which totaled $14.3$17.1 billion and $19.5$15.3 billion, at SeptemberJune 30, 2020,2021, and December 31, 2019,2020, respectively.
(3)Represents the fair value of collateral we have received under enforceable MRAs or MSLAs, limited in the table above to the amount of the recognized asset due from each counterparty. At SeptemberJune 30, 2020,2021, and December 31, 2019,2020, we have received total collateral with a fair value of $106.5$118.9 billion and $150.9$108.5 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 $35.9$34.5 billion and $36.1 billion at SeptemberJune 30, 2020,2021, and $59.1 billion at December 31, 2019.2020, respectively.
(4)Represents the amount of our exposure (assets) or obligation (liabilities) that is not collateralized and/or is not subject to an enforceable MRA or MSLA.
(5)Amount is classified in short-term borrowings on our consolidated balance sheet.
(6)Represents the fair value of collateral we have pledged, related to enforceable MRAs or MSLAs, limited in the table above to the amount of the recognized liability owed to each counterparty. At SeptemberJune 30, 2020,2021, and December 31, 2019,2020, we have pledged total collateral with a fair value of $56.5$48.5 billion and $113.3$59.2 billion, respectively, substantially all of which may be sold or repledged by the counterparty.
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. Our collateral primarily 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 13.412.3 provides the gross amounts recognized on the consolidated balance sheet (before the effects of offsetting) of our liabilities for repurchase and securities lending agreements disaggregated by underlying collateral type.
Note 12: Pledged Assets and Collateral (continued)
Table 13.4:12.3: Gross Obligations by Underlying Collateral Type
| (in millions) | (in millions) | | Sep 30, 2020 | | Dec 31, 2019 | (in millions) | | Jun 30, 2021 | | Dec 31, 2020 |
Repurchase agreements: | Repurchase agreements: | | Repurchase agreements: | |
Securities of U.S. Treasury and federal agencies | Securities of U.S. Treasury and federal agencies | | $ | 22,342 | | | 48,161 | | Securities of U.S. Treasury and federal agencies | | $ | 19,730 | | | 22,922 | |
Securities of U.S. States and political subdivisions | Securities of U.S. States and political subdivisions | | 46 | | | 104 | | Securities of U.S. States and political subdivisions | | 24 | | | 4 | |
Federal agency mortgage-backed securities | Federal agency mortgage-backed securities | | 13,184 | | | 44,737 | | Federal agency mortgage-backed securities | | 8,029 | | | 15,353 | |
Non-agency mortgage-backed securities | Non-agency mortgage-backed securities | | 1,176 | | | 1,818 | | Non-agency mortgage-backed securities | | 860 | | | 1,069 | |
Corporate debt securities | Corporate debt securities | | 8,780 | | | 7,126 | | Corporate debt securities | | 10,047 | | | 9,944 | |
Asset-backed securities | Asset-backed securities | | 1,050 | | | 1,844 | | Asset-backed securities | | 1,262 | | | 1,054 | |
Equity securities | Equity securities | | 1,463 | | | 1,674 | | Equity securities | | 892 | | | 1,500 | |
Other | Other | | 830 | | | 705 | | Other | | 783 | | | 336 | |
Total repurchases | Total repurchases | | 48,871 | | | 106,169 | | Total repurchases | | 41,627 | | | 52,182 | |
Securities lending arrangements: | Securities lending arrangements: | | Securities lending arrangements: | |
Securities of U.S. Treasury and federal agencies | Securities of U.S. Treasury and federal agencies | | 57 | | | 163 | | Securities of U.S. Treasury and federal agencies | | 42 | | | 64 | |
| Federal agency mortgage-backed securities | Federal agency mortgage-backed securities | | 42 | | | 0 | | Federal agency mortgage-backed securities | | 31 | | | 23 | |
| Corporate debt securities | Corporate debt securities | | 98 | | | 223 | | Corporate debt securities | | 45 | | | 79 | |
| Equity securities (1) | Equity securities (1) | | 5,788 | | | 4,481 | | Equity securities (1) | | 5,422 | | | 5,189 | |
Other | Other | | 32 | | | 2 | | Other | | 114 | | | 85 | |
Total securities lending | Total securities lending | | 6,017 | | | 4,869 | | Total securities lending | | 5,654 | | | 5,440 | |
Total repurchases and securities lending | Total repurchases and securities lending | | $ | 54,888 | | | 111,038 | | Total repurchases and securities lending | | $ | 47,281 | | | 57,622 | |
(1)Equity securities are generally exchange traded and represent collateral received from third parties that has been repledged. We received the collateral through either margin lending agreements or contemporaneous securities borrowing transactions with other counterparties.
Table 13.512.4 provides the contractual maturities of our gross obligations under repurchase and securities lending agreements.
Table 13.5:12.4: Contractual Maturities of Gross Obligations
| (in millions) | (in millions) | Overnight/continuous | | Up to 30 days | | 30-90 days | | >90 days | | Total gross obligation | (in millions) | Overnight/continuous | | Up to 30 days | | 30-90 days | | >90 days | | Total gross obligation |
September 30, 2020 | | |
June 30, 2021 | | June 30, 2021 | |
Repurchase agreements | Repurchase agreements | $ | 37,173 | | | 1,963 | | | 6,150 | | | 3,585 | | | 48,871 | | Repurchase agreements | $ | 28,584 | | | 3,093 | | | 4,765 | | | 5,185 | | | 41,627 | |
Securities lending arrangements | Securities lending arrangements | 5,467 | | | 0 | | | 550 | | | 0 | | | 6,017 | | Securities lending arrangements | 4,853 | | | 200 | | | 601 | | | 0 | | | 5,654 | |
Total repurchases and securities lending (1) | Total repurchases and securities lending (1) | $ | 42,640 | | | 1,963 | | | 6,700 | | | 3,585 | | | 54,888 | | Total repurchases and securities lending (1) | $ | 33,437 | | | 3,293 | | | 5,366 | | | 5,185 | | | 47,281 | |
December 31, 2019 | | |
December 31, 2020 | | December 31, 2020 | |
Repurchase agreements | Repurchase agreements | $ | 79,793 | | | 17,681 | | | 4,825 | | | 3,870 | | | 106,169 | | Repurchase agreements | $ | 36,946 | | | 5,251 | | | 5,100 | | | 4,885 | | | 52,182 | |
Securities lending arrangements | Securities lending arrangements | 4,724 | | | 0 | | | 145 | | | 0 | | | 4,869 | | Securities lending arrangements | 4,690 | | | 400 | | | 350 | | | 0 | | | 5,440 | |
Total repurchases and securities lending (1) | Total repurchases and securities lending (1) | $ | 84,517 | | | 17,681 | | | 4,970 | | | 3,870 | | | 111,038 | | Total repurchases and securities lending (1) | $ | 41,636 | | | 5,651 | | | 5,450 | | | 4,885 | | | 57,622 | |
(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 September 30, 2020, and December 31, 2019, we had commitments to purchase debt securities of $18 million in both periods and commitments to purchase equity securities of $3.2 billion and $2.7 billion, respectively.
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. The amount of our unfunded contractual commitments was $9.1 billion and $7.5 billion as of September 30, 2020, and December 31, 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).
| | |
Note 14:13: Legal Actions |
Wells Fargo and certain of our subsidiaries are involved in a number of judicial, regulatory, governmental, arbitration, and other proceedings or investigations concerning matters arising from the conduct of our business activities, and many of those proceedings and investigations expose Wells Fargo to potential financial loss. These proceedings and investigations include actions brought against Wells Fargo and/or our subsidiaries with respect to corporate-related matters and transactions in which Wells Fargo and/or our subsidiaries were involved. In addition, Wells Fargo and our subsidiaries may be requested to provide information or otherwise cooperate with government authorities in the conduct of investigations of other persons or industry groups.
Although there can be no assurance as to the ultimate outcome, Wells Fargo and/or our subsidiaries have generally denied, or believe we have a meritorious defense and will deny, liability in all significant legal actions pending against us, including the matters described below, and we intend to defend vigorously each case, other than matters we describe as having settled. We establish accruals for legal actions when potential losses associated with the actions become probable and the costs can be reasonably estimated. For such accruals, we record the amount we consider to be the best estimate within a range of potential losses that are both probable and estimable; however, if we cannot determine a best estimate, then we record the low end of the range of those potential losses. The actual costs of resolving legal actions may be substantially higher or lower than the amounts accrued for those actions.
ATM ACCESS FEE 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 3 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 3 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 3 cases returned to the district court for further proceedings. The Company has entered into an agreement pursuant to which the Company will pay $20.8 million to resolve the cases, subject to court approval.
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 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 casesactions alleging, among other things, unfair and deceptive practices relating to these CPI policies, have beenwere filed against the Company and consolidated into 1 multi-district litigation in the United States District Court for the Central District of California. TheAs previously disclosed, the Company has reached an agreemententered into a settlement 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 $643 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 granted final approval of the settlement on November 21, 2019. A putative class of shareholderslitigation. Shareholders also filed a putative 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. In 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 misstatements. In addition, 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 related to the unused portion of guaranteed automobile protection (GAP) waiver or insurance agreements between the customer and dealer and, by assignment, the lender. In June 2021, the court granted preliminary approval of an agreement pursuant to which the Company will pay $45 million and make certain changes to its GAP refund practices in order to settle the action. Allegations related to the CPI and GAP programs are among the subjects of a shareholder derivative lawsuitslawsuit pending in federal and state court inthe United States District Court for the Northern District of 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 final approval of the settlement on January 15, 2020, and a notice of appeal has been filed. These and other issues related to the origination, servicing, and collection of consumer automobileauto 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,agencies, including the CFPB. As previously disclosed, the Company entered into an agreement with all 50to resolve investigations by the state Attorneys Generalattorneys general.
COMMERCIAL LENDING SHAREHOLDER LITIGATION In October and November 2020, plaintiffs filed two putative securities fraud class actions in the United States District Court for the Northern District of California alleging that the Company and certain of its former executive officers made false and misleading statements or omissions regarding, among other things, the Company’s commercial lending underwriting practices, the credit quality of its commercial credit portfolios, and the Districtvalue of Columbia to resolve an investigation into the Company’s retail sales practices, CPIits commercial loans, collateralized loan obligations and GAP, and mortgage interest rate lock matters, pursuant to which the Company paid $575 million.commercial mortgage-backed securities.
Note 13: Legal Actions (continued)
CONSENT ORDER DISCLOSURE LITIGATION Wells Fargo shareholders have brought a putative securities fraud class action in the United States District Court for the Southern District of New
York alleging that the Company and certain of its current and former executive officers and directors made false or misleading statements regarding the Company’s efforts to comply with the February 2018 consent order with the Federal Reserve Board and the April 2018 consent orders with the CFPB and OCC. Allegations related to the Company’s efforts to comply with these three consent orders are also among the subjects of a shareholder derivative lawsuit pending in the United States District Court for the Northern District of California.
CONSUMER DEPOSIT ACCOUNT RELATED REGULATORY INVESTIGATIONINVESTIGATIONS 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.
CORONAVIRUS AID, RELIEF, AND ECONOMIC SECURITY ACT/PAYCHECK PROTECTION PROGRAMPlaintiffs have filed putative class actions in various federal courts 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, as well as claims for fees by purported agents who allegedly assisted customers with preparing PPP loan applications submitted to the Company. The Company hasCFPB is also received formal and informal inquiries from federal and state governmental agencies regarding its offering of PPP loans. In addition, Wells Fargo shareholders have brought a securities fraud class action in the United States District Court for the Northern District of California alleging that the Company andinvestigating certain of its executive officers made false or misleading statementsthe Company's past disclosures to customers regarding the Company's participation in the PPP and the Company's compliance with related regulations.
FIDUCIARY AND CUSTODY ACCOUNT FEE CALCULATIONS Federal government agencies are conducting formal or informal inquiries, investigations, or examinations regarding fee calculations withinminimum qualifying debit card usage required for customers to receive a waiver of monthly service fees on 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.consumer deposit accounts.
FOREIGN EXCHANGE BUSINESS The United States Department of Justice (Department of Justice) is investigating certain activities in the Company’s foreign exchange business, including whether customers may have received pricing inconsistent with commitments made to those 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 final approval of the settlement on December 13, 2019, which was appealed to the United States Court of Appeals for the Second Circuit by settlement objector merchants. Several of the opt-out and direct action litigations have been settled 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 LITIGATIONMORTGAGE LENDING MATTERS The Company is a defendant in 2 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 commenced on October 30, 2019, and resulted in a $200 million verdict against the Company. Trial in the second case commenced on January 6, 2020, and resulted in a $102.7 million verdict against the Company. The Company has filed post-trial motions to, among other things, vacate the verdicts, and USAA has filed post-trial motions seeking future royalty payments and damages for willful infringement.
Note 14: Legal Actions (continued)
MORTGAGE LOAN MODIFICATION LITIGATION Plaintiffs representing a putative class of mortgage borrowers have filed separate putative class actions, Hernandez v. Wells Fargo, et al., Coordes v. Wells Fargo, et al., 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, 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 paypaid $18.5 million to resolve the claims of the initial certified class in the Hernandez case, which was approved by the district court in October 2020. The plaintiffs and the Company have informed the district court that they will move to reopen the Hernandez settlement has been reopened to include additional borrowers who the Company determined should have been included in the settlement class oncebecause the total number of additional borrowers has been confirmed. The Company has identified a population of additional borrowers during the relevant class period whose loans had not previously been reviewed for inclusion in the original population of impacted customers. The identification of these additional borrowers may also increaseIn June 2021, the potential class of mortgage borrowers in the other pending matters.
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 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. AnCompany entered into an agreement pursuant to which the Company paid $2.09 billion, was reached in August 2018will pay an additional approximately $22 million to resolve the Department of Justice investigation, which related to certain 2005-2007 residential mortgage-backed securities activities.Hernandez case. In addition,July 2021, the Company reachedentered into an agreement within the Attorney General of the State of Illinois in November 2018Ryder case pursuant to which the Company paid $17will pay $12 million to cover other impacted borrowers who were not included in restitution to certain Illinois state pension fundsthe Hernandez case. The Dore and reached an agreement with the Attorney General of the State of Maryland in June 2020 pursuant to which the Company agreed to pay $20 million in restitution, in each case to resolve claims relating to certain residential mortgage-backed securities activities. Other financial institutionsCoordes cases have entered into similar settlements withbeen voluntarily dismissed. In addition, federal banking regulators and other government agencies have undertaken formal or informal
inquiries or investigations regarding 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.other mortgage servicing matters.
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 LITIGATIONPlaintiffs 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. Plaintiffsarbitration, which was appealed this decisionby plaintiffs to the United States Court of Appeals for the Eleventh Circuit. In April 2021, the Eleventh Circuit upheld the district court's decision.
RETAIL SALES PRACTICES MATTERS 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, (b) state attorneys general, including the New York Attorney General, and (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 certain of the foregoing. In October 2018,As previously disclosed, the Company entered into an agreementagreements 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.attorneys general investigations. On February 21, 2020, the Company entered 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 makemade 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 settlement.
In addition, a number of lawsuits have beenwere filed by non-governmental parties seeking damages or other remedies related to these retail sales practices. First, various class plaintiffs, purporting to represent consumers who allege that they received products or services without their authorization or consent, have brought separate putative class actions againstAs previously disclosed, the Company in the United States District Court for the Northern District of California and various other jurisdictions. On June 14, 2018, the district court granted final approval of a settlement entered into by the Company 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. On July 20, 2020, the United States Court of Appeals for the Ninth Circuit affirmed the district court's order granting final approval of the settlement. On September 29, 2020, the district court approved the settlement distribution to the Jabbari claimants. Second, the Company was subject to a consolidated securities fraud class action alleging certain misstatements and omissions in the Company’s disclosures related to sales practices matters. The Company entered into a settlement agreementvarious settlements to resolve this matter pursuant to which the Company paid $480 million. Third, Wells Fargo shareholders have brought numerous shareholder derivative lawsuits asserting breach of fiduciary duty claims against, among others, 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 as consolidated or coordinated proceedings. 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. The federal court granted final approval of the settlement for its action on April 7, 2020. The state court granted final approval of the settlement for its action on January 15, 2020. Fourth, a purported Employee Retirement Income Security Act (ERISA) class action was filed in the United States District Court for the
these lawsuits.District of Minnesota on behalf of 401(k) plan participants. The district court dismissed the action, and on July 27, 2020, the United States Court of Appeals for the Eighth Circuit affirmed the dismissal.
RMBS TRUSTEE LITIGATION In NovemberDecember 2014, a group of institutional investors (Institutional Investor Plaintiffs), including funds affiliated with BlackRock, Inc.,Phoenix Light SF Limited and certain related entities and the National Credit Union Administration (NCUA) filed a putative class actioncomplaints 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 complaintstrusts. Complaints raising similar allegations have been filed against other trustees in various courts, includingby Commerzbank AG in the Southern District of New York and by IKB International and IKB Deutsche Industriebank in New York state court, and in other states, by RMBS investors. The Federal Court Complaint allegedcourt. In each case, the plaintiffs allege that Wells Fargo Bank, N.A., as trustee, caused losses to investors, and assertedplaintiffs assert 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 damagesThe Company previously settled 2 class actions with similar allegations that were filed in an unspecified amount, reimbursement of expenses, and equitable relief. In DecemberNovember 2014 and December 2015, certain other2016 by institutional investors filed additional 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).
respectively. 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 11 RMBS trusts at issue in the State Court Action (Declaratory Judgment Action). The complaint sought, among other relief, declarations thatMarch 2021, 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 settlemententered into an 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 andcase filed by 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.
NCUA.
Note 14: Legal Actions (continued)
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 3 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
Note 13: Legal Actions (continued)
claims. The motion was denied in June 2018. The case is pending trial.
WHOLESALE BANKING CONSENT ORDER INVESTIGATIONOn November 19, 2015, the Company entered into a consent order with the OCC, pursuant to which the Wholesale Banking group was required to implement customer due diligence standards that include collection of current beneficial ownership information for certain business customers. The Company is responding to inquiries from various federal government agencies regarding potentially inappropriate conduct in connection with the collection of beneficial ownership information.
OUTLOOK As described above, the Company establishes accruals for legal actions when potential losses associated with the actions become probable and the costs can be reasonably estimated. The high end of the range of reasonably possible potential losses in excess of the Company’s accrual for probable and estimable losses was approximately $2.4$2.8 billion as of SeptemberJune 30, 2020.2021. 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 otherthe 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.
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 qualifying hedge accounting relationships (fair value or cash flow 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 additional information on our derivative activities, see Note 1816 (Derivatives) in our 20192020 Form 10-K.
Table 15.114.1 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 theour consolidated 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 15.1:14.1: Notional or Contractual Amounts and Fair Values of Derivatives
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
| Notional or contractual amount | | | | Fair value | | Notional or contractual amount | | | | Fair value |
(in millions) | | Derivative assets | | Derivative liabilities | | | Derivative assets | | Derivative liabilities |
Derivatives designated as hedging instruments | | | | | | | | | | | |
Interest rate contracts | $ | 185,124 | | | 3,483 | | | 1,820 | | | 182,789 | | | 2,595 | | | 1,237 | |
| | | | | | | | | | | |
Foreign exchange contracts | 38,477 | | | 587 | | | 616 | | | 32,386 | | | 341 | | | 1,170 | |
Total derivatives designated as qualifying hedging instruments | | | 4,070 | | | 2,436 | | | | | 2,936 | | | 2,407 | |
Derivatives not designated as hedging instruments | | | | | | | | | | | |
Economic hedges: | | | | | | | | | | | |
Interest rate contracts | 344,263 | | | 470 | | | 266 | | | 235,810 | | | 207 | | | 160 | |
Equity contracts | 23,624 | | | 1,724 | | | 209 | | | 19,263 | | | 1,126 | | | 224 | |
Foreign exchange contracts | 44,282 | | | 422 | | | 555 | | | 26,595 | | | 118 | | | 286 | |
Credit contracts – protection purchased | 81 | | | 32 | | | 0 | | | 1,400 | | | 27 | | | 0 | |
Subtotal | | | 2,648 | | | 1,030 | | | | | 1,478 | | | 670 | |
Customer accommodation trading and other derivatives: | | | | | | | | | | | |
Interest rate contracts | 10,657,433 | | | 37,949 | | | 28,936 | | | 11,117,542 | | | 21,245 | | | 17,969 | |
Commodity contracts | 73,086 | | | 2,344 | | | 2,446 | | | 79,737 | | | 1,421 | | | 1,770 | |
Equity contracts | 305,900 | | | 13,009 | | | 16,066 | | | 272,145 | | | 7,410 | | | 10,240 | |
Foreign exchange contracts | 347,499 | | | 4,880 | | | 4,717 | | | 364,469 | | | 4,755 | | | 4,791 | |
Credit contracts – protection sold | 16,067 | | | 11 | | | 48 | | | 12,215 | | | 12 | | | 65 | |
Credit contracts – protection purchased | 25,657 | | | 75 | | | 17 | | | 24,030 | | | 69 | | | 18 | |
| | | | | | | | | | | |
Subtotal | | | 58,268 | | | 52,230 | | | | | 34,912 | | | 34,853 | |
Total derivatives not designated as hedging instruments | | | 60,916 | | | 53,260 | | | | | 36,390 | | | 35,523 | |
Total derivatives before netting | | | 64,986 | | | 55,696 | | | | | 39,326 | | | 37,930 | |
Netting | | | (41,271) | | | (41,929) | | | | | (25,123) | | | (28,851) | |
Total | | | $ | 23,715 | | | 13,767 | | | | | 14,203 | | | 9,079 | |
Note 15: Derivatives (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
| Notional or | | Fair value | | Notional or | | Fair value |
| contractual | | Derivative | | Derivative | | contractual | | Derivative | | Derivative |
(in millions) | amount | | assets | | liabilities | | amount | | assets | | liabilities |
Derivatives designated as hedging instruments | | | | | | | | | | | |
Interest rate contracts | $ | 166,843 | | | 2,428 | | | 529 | | | 184,090 | | | 3,212 | | | 789 | |
Foreign exchange contracts | 39,001 | | | 1,143 | | | 504 | | | 47,331 | | | 1,381 | | | 607 | |
Total derivatives designated as qualifying hedging instruments | | | 3,571 | | | 1,033 | | | | | 4,593 | | | 1,396 | |
Derivatives not designated as hedging instruments | | | | | | | | | | | |
Economic hedges: | | | | | | | | | | | |
Interest rate contracts | 231,356 | | | 251 | | | 161 | | | 261,159 | | | 341 | | | 344 | |
Equity contracts | 27,740 | | | 1,582 | | | 392 | | | 25,997 | | | 1,363 | | | 490 | |
Foreign exchange contracts | 53,396 | | | 372 | | | 1,292 | | | 47,106 | | | 331 | | | 1,515 | |
Credit contracts | 72 | | | 26 | | | 0 | | | 73 | | | 31 | | | 0 | |
Subtotal | | | 2,231 | | | 1,845 | | | | | 2,066 | | | 2,349 | |
Customer accommodation trading and other derivatives: | | | | | | | | | | | |
Interest rate contracts | 9,256,224 | | | 24,068 | | | 18,785 | | | 7,947,941 | | | 32,510 | | | 25,169 | |
Commodity contracts | 76,612 | | | 7,234 | | | 2,309 | | | 65,790 | | | 2,036 | | | 1,543 | |
Equity contracts | 322,733 | | | 17,697 | | | 21,126 | | | 280,195 | | | 17,522 | | | 21,516 | |
Foreign exchange contracts | 415,458 | | | 6,177 | | | 4,505 | | | 412,879 | | | 6,891 | | | 6,034 | |
Credit contracts | 36,179 | | | 49 | | | 50 | | | 34,329 | | | 64 | | | 58 | |
| | | | | | | | | | | |
Subtotal | | | 55,225 | | | 46,775 | | | | | 59,023 | | | 54,320 | |
Total derivatives not designated as hedging instruments | | | 57,456 | | | 48,620 | | | | | 61,089 | | | 56,669 | |
Total derivatives before netting | | | 61,027 | | | 49,653 | | | | | 65,682 | | | 58,065 | |
Netting | | | (35,612) | | | (35,102) | | | | | (39,836) | | | (41,556) | |
Total | | | $ | 25,415 | | | 14,551 | | | | | 25,846 | | | 16,509 | |
Table 15.214.2 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 consolidated 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 consolidated balance sheet. The “Gross amounts recognized” column in the following table includes $55.9$52.9 billion and $48.6$44.7 billion of gross derivative assets and liabilities, respectively, at SeptemberJune 30, 2020,2021, and $33.7$54.6 billion and $33.5$50.1 billion, respectively, at December 31, 2019,2020, with counterparties subject to enforceable master netting arrangements that are eligible for balance sheet netting adjustments. The majority of these amounts are interest rate contracts executed in over-the-counter (OTC) markets. The remaining gross derivative assets and liabilities of $9.1$8.1 billion and $7.1$5.0 billion, respectively, at SeptemberJune 30, 2020,2021, and $5.6$11.1 billion
and $4.4$8.0 billion, respectively, at December 31, 2019,2020, 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 consolidated balance sheet for these counterparties. Cash collateral receivables and payables that have not been offset against our derivatives were $3.6$2.6 billion and $605$828 million, respectively, at SeptemberJune 30, 2020,2021, and $6.3$1.8 billion and $1.4 billion,$984 million, respectively, at December 31, 2019.2020.
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
Note 14: Derivatives (continued)
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 theour consolidated 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 15.214.2 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 specificcounterparty-specific credit risk limits, using master netting arrangements and obtaining collateral. Derivative contracts executed in OTC markets include bilateral contractual arrangements that are not cleared through a central clearing organization but are typically subject to master netting arrangements. The proportion of these derivative contracts relative to our total derivative assets and liabilities are presented in the “Percent exchanged in over-the-counter market” column in Table 15.2.14.2. 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, Pledged12 (Pledged Assets and Collateral, and Other Commitments)Collateral).
Table 15.2:14.2: Gross Fair Values of Derivative Assets and Liabilities
| (in millions) | (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) | | Net amounts | | Percent exchanged in over-the-counter market | (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) | | Net amounts | | Percent exchanged in over-the-counter market |
September 30, 2020 | | |
June 30, 2021 | | June 30, 2021 | |
Derivative assets | Derivative assets | | Derivative assets | |
Interest rate contracts | Interest rate contracts | $ | 41,902 | | | (26,163) | | | 15,739 | | | (1,380) | | | 14,359 | | | 97 | % | Interest rate contracts | $ | 26,747 | | | (16,711) | | | 10,036 | | | (680) | | | 9,356 | | | 97 | % |
Commodity contracts | Commodity contracts | 2,344 | | | (1,345) | | | 999 | | | (6) | | | 993 | | | 80 | | Commodity contracts | 7,234 | | | (1,481) | | | 5,753 | | | (14) | | | 5,739 | | | 92 | |
Equity contracts | Equity contracts | 14,733 | | | (9,390) | | | 5,343 | | | (794) | | | 4,549 | | | 71 | | Equity contracts | 19,279 | | | (11,488) | | | 7,791 | | | (766) | | | 7,025 | | | 69 | |
Foreign exchange contracts | Foreign exchange contracts | 5,889 | | | (4,306) | | | 1,583 | | | (8) | | | 1,575 | | | 100 | | Foreign exchange contracts | 7,692 | | | (5,892) | | | 1,800 | | | (28) | | | 1,772 | | | 100 | |
Credit contracts – protection sold | 11 | | | (8) | | | 3 | | | 0 | | | 3 | | | 73 | | |
Credit contracts – protection purchased | 107 | | | (59) | | | 48 | | | (2) | | | 46 | | | 88 | | |
Credit contracts | | Credit contracts | 75 | | | (40) | | | 35 | | | (1) | | | 34 | | | 90 | |
| Total derivative assets | Total derivative assets | $ | 64,986 | | | (41,271) | | | 23,715 | | | (2,190) | | | 21,525 | | | Total derivative assets | $ | 61,027 | | | (35,612) | | | 25,415 | | | (1,489) | | | 23,926 | | |
Derivative liabilities | Derivative liabilities | | Derivative liabilities | |
Interest rate contracts | Interest rate contracts | $ | 31,022 | | | (27,112) | | | 3,910 | | | (2,039) | | | 1,871 | | | 97 | % | Interest rate contracts | $ | 19,475 | | | (16,453) | | | 3,022 | | | (1,524) | | | 1,498 | | | 96 | % |
Commodity contracts | Commodity contracts | 2,446 | | | (1,225) | | | 1,221 | | | (6) | | | 1,215 | | | 79 | | Commodity contracts | 2,309 | | | (1,086) | | | 1,223 | | | (17) | | | 1,206 | | | 50 | |
Equity contracts | Equity contracts | 16,275 | | | (9,341) | | | 6,934 | | | (372) | | | 6,562 | | | 73 | | Equity contracts | 21,518 | | | (12,956) | | | 8,562 | | | (749) | | | 7,813 | | | 79 | |
Foreign exchange contracts | Foreign exchange contracts | 5,888 | | | (4,206) | | | 1,682 | | | (624) | | | 1,058 | | | 100 | | Foreign exchange contracts | 6,301 | | | (4,574) | | | 1,727 | | | (423) | | | 1,304 | | | 100 | |
Credit contracts – protection sold | 48 | | | (40) | | | 8 | | | (5) | | | 3 | | | 95 | | |
Credit contracts – protection purchased | 17 | | | (5) | | | 12 | | | 0 | | | 12 | | | 85 | | |
Credit contracts | | Credit contracts | 50 | | | (33) | | | 17 | | | (3) | | | 14 | | | 90 | |
| | Total derivative liabilities | Total derivative liabilities | $ | 55,696 | | | (41,929) | | | 13,767 | | | (3,046) | | | 10,721 | | | Total derivative liabilities | $ | 49,653 | | | (35,102) | | | 14,551 | | | (2,716) | | | 11,835 | | |
December 31, 2019 | | |
December 31, 2020 | | December 31, 2020 | |
Derivative assets | Derivative assets | | Derivative assets | |
Interest rate contracts | Interest rate contracts | $ | 24,047 | | | (14,878) | | | 9,169 | | | (445) | | | 8,724 | | | 95 | % | Interest rate contracts | $ | 36,063 | | | (21,968) | | | 14,095 | | | (1,274) | | | 12,821 | | | 96 | % |
Commodity contracts | Commodity contracts | 1,421 | | | (888) | | | 533 | | | (2) | | | 531 | | | 80 | | Commodity contracts | 2,036 | | | (940) | | | 1,096 | | | (4) | | | 1,092 | | | 84 | |
Equity contracts | Equity contracts | 8,536 | | | (5,570) | | | 2,966 | | | (69) | | | 2,897 | | | 65 | | Equity contracts | 18,885 | | | (10,968) | | | 7,917 | | | (737) | | | 7,180 | | | 74 | |
Foreign exchange contracts | Foreign exchange contracts | 5,214 | | | (3,722) | | | 1,492 | | | (22) | | | 1,470 | | | 100 | | Foreign exchange contracts | 8,603 | | | (5,887) | | | 2,716 | | | (141) | | | 2,575 | | | 100 | |
Credit contracts – protection sold | 12 | | | (9) | | | 3 | | | 0 | | | 3 | | | 84 | | |
Credit contracts – protection purchased | 96 | | | (56) | | | 40 | | | (1) | | | 39 | | | 97 | | |
Credit contracts | | Credit contracts | 95 | | | (73) | | | 22 | | | (1) | | | 21 | | | 90 | |
| | Total derivative assets | Total derivative assets | $ | 39,326 | | | (25,123) | | | 14,203 | | | (539) | | | 13,664 | | | Total derivative assets | $ | 65,682 | | | (39,836) | | | 25,846 | | | (2,157) | | | 23,689 | | |
Derivative liabilities | Derivative liabilities | | Derivative liabilities | |
Interest rate contracts | Interest rate contracts | $ | 19,366 | | | (16,595) | | | 2,771 | | | (545) | | | 2,226 | | | 94 | % | Interest rate contracts | $ | 26,302 | | | (21,934) | | | 4,368 | | | (2,219) | | | 2,149 | | | 95 | % |
Commodity contracts | Commodity contracts | 1,770 | | | (677) | | | 1,093 | | | (2) | | | 1,091 | | | 82 | | Commodity contracts | 1,543 | | | (819) | | | 724 | | | 0 | | | 724 | | | 69 | |
Equity contracts | Equity contracts | 10,464 | | | (6,647) | | | 3,817 | | | (319) | | | 3,498 | | | 81 | | Equity contracts | 22,006 | | | (12,283) | | | 9,723 | | | (837) | | | 8,886 | | | 78 | |
Foreign exchange contracts | Foreign exchange contracts | 6,247 | | | (4,866) | | | 1,381 | | | (169) | | | 1,212 | | | 100 | | Foreign exchange contracts | 8,156 | | | (6,481) | | | 1,675 | | | (529) | | | 1,146 | | | 100 | |
Credit contracts – protection sold | 65 | | | (60) | | | 5 | | | (3) | | | 2 | | | 98 | | |
Credit contracts – protection purchased | 18 | | | (6) | | | 12 | | | 0 | | | 12 | | | 93 | | |
Credit contracts | | Credit contracts | 58 | | | (39) | | | 19 | | | (3) | | | 16 | | | 91 | |
| | Total derivative liabilities | Total derivative liabilities | $ | 37,930 | | | (28,851) | | | 9,079 | | | (1,038) | | | 8,041 | | | Total derivative liabilities | $ | 58,065 | | | (41,556) | | | 16,509 | | | (3,588) | | | 12,921 | | |
(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 related to derivative assets were $507$299 million and $231$399 million and debit valuation adjustments related to derivative liabilities were $236$145 million and $100$201 million at Septemberas of June 30, 2020,2021, and December 31, 2019,2020, respectively. Cash collateral totaled $6.4$5.4 billion and $7.3$5.1 billion, netted against derivative assets and liabilities, respectively, at SeptemberJune 30, 2020,2021, and $2.9$5.5 billion and $6.8$7.5 billion, respectively, at December 31, 2019.2020.
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 21 (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-ratefloating-
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 $175$76 million pre-tax of deferred net losses related to cash flow hedges in OCI at SeptemberJune 30, 2020,2021, 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
Note 15: Derivatives (continued)
September June 30, 2020,2021, we are hedging our foreign currency exposure to the variability of future cash flows for all forecasted transactions for a maximum of 109 years. For additional information on our accounting hedges, see Note 1 (Summary of Significant Accounting Policies) and Note 18 (Derivatives) in our 2019 Form 10-K..
Table 15.314.3 and Table 15.414.4 show the net gains (losses) by income statement line item impacted, related to derivatives in fair value and cash flow hedging relationships, respectively.
Table 15.3:14.3: Gains (Losses) Recognized on Fair Value Hedging Relationships
| | | Net interest income | | Noninterest income | Total recorded in net income | Total recorded in OCI | | Net interest income | | Noninterest income | | Total recorded in net income | | Total recorded in OCI |
(in millions) | (in millions) | Debt securities | | Mortgage loans held for sale | Deposits | Long-term debt | | Other | Derivative gains (losses) | (in millions) | Debt securities | Deposits | Long-term debt | | Other | | Derivative gains (losses) | | Derivative gains (losses) |
Quarter ended September 30, 2020 | | | | |
Quarter ended June 30, 2021 | | Quarter ended June 30, 2021 | |
Total amounts presented in the consolidated statement of income and other comprehensive income | Total amounts presented in the consolidated statement of income and other comprehensive income | $ | 2,446 | | | 232 | | (314) | | (1,038) | | | 220 | | N/A | (18) | | Total amounts presented in the consolidated statement of income and other comprehensive income | $ | 2,199 | | (92) | | (712) | | | 692 | | | N/A | | 37 | |
| Interest contracts: | | | | |
Interest contracts | | Interest contracts | |
Amounts related to interest settlements on derivatives | Amounts related to interest settlements on derivatives | (114) | | | 0 | | 157 | | 542 | | | 0 | | 585 | | | Amounts related to interest settlements on derivatives | (68) | | 74 | | 541 | | | 0 | | | 547 | | |
Recognized on derivatives | Recognized on derivatives | 280 | | | 1 | | (156) | | (1,357) | | | 0 | | (1,232) | | 0 | | Recognized on derivatives | (468) | | (61) | | 2,453 | | | 0 | | | 1,924 | | | 0 | |
Recognized on hedged items | Recognized on hedged items | (265) | | | (1) | | 156 | | 1,269 | | | 0 | | 1,159 | | | Recognized on hedged items | 452 | | 62 | | (2,402) | | | 0 | | | (1,888) | | |
Total gains (losses) (pre-tax) on interest rate contracts | Total gains (losses) (pre-tax) on interest rate contracts | (99) | | | 0 | | 157 | | 454 | | | 0 | | 512 | | 0 | | Total gains (losses) (pre-tax) on interest rate contracts | (84) | | 75 | | 592 | | | 0 | | | 583 | | | 0 | |
Foreign exchange contracts: | | | | |
Foreign exchange contracts | | Foreign exchange contracts | |
Amounts related to interest settlements on derivatives | Amounts related to interest settlements on derivatives | 16 | | | 0 | | 0 | | (5) | | | 0 | | 11 | | | Amounts related to interest settlements on derivatives | 15 | | 0 | | 4 | | | 0 | | | 19 | | |
Recognized on derivatives | Recognized on derivatives | 1 | | | 0 | | 0 | | 52 | | | 856 | | 909 | | (82) | | Recognized on derivatives | 2 | | 0 | | (42) | | | 202 | | | 162 | | | (14) | |
Recognized on hedged items | Recognized on hedged items | (1) | | | 0 | | 0 | | (5) | | | (849) | | (855) | | | Recognized on hedged items | (1) | | 0 | | 44 | | | (203) | | | (160) | | |
Total gains (losses) (pre-tax) on foreign exchange contracts | Total gains (losses) (pre-tax) on foreign exchange contracts | 16 | | | 0 | | 0 | | 42 | | | 7 | | 65 | | (82) | | Total gains (losses) (pre-tax) on foreign exchange contracts | 16 | | 0 | | 6 | | | (1) | | | 21 | | | (14) | |
Total gains (losses) (pre-tax) recognized on fair value hedges | Total gains (losses) (pre-tax) recognized on fair value hedges | $ | (83) | | | 0 | | 157 | | 496 | | | 7 | | 577 | | (82) | | Total gains (losses) (pre-tax) recognized on fair value hedges | $ | (68) | | 75 | | 598 | | | (1) | | | 604 | | | (14) | |
Nine months ended September 30, 2020 | | | | |
Quarter ended June 30, 2020 | | Quarter ended June 30, 2020 | |
Total amounts presented in the consolidated statement of income and other comprehensive income | Total amounts presented in the consolidated statement of income and other comprehensive income | $ | 8,864 | | | 659 | | (2,641) | | (3,515) | | | 869 | | N/A | 167 | | Total amounts presented in the consolidated statement of income and other comprehensive income | $ | 2,946 | | (585) | | (1,237) | | | 912 | | | N/A | | 3 | |
| Interest contracts: | | | | |
Interest contracts | | Interest contracts | |
Amounts related to interest settlements on derivatives | Amounts related to interest settlements on derivatives | (253) | | | 0 | | 379 | | 1,144 | | | 0 | | 1,270 | | | Amounts related to interest settlements on derivatives | (93) | | 152 | | 428 | | | 0 | | | 487 | | |
Recognized on derivatives | Recognized on derivatives | (1,612) | | | (52) | | 288 | | 8,967 | | | 0 | | 7,591 | | 0 | | Recognized on derivatives | (21) | | (86) | | 549 | | | 0 | | | 442 | | | 0 | |
Recognized on hedged items | Recognized on hedged items | 1,654 | | | 53 | | (278) | | (8,775) | | | 0 | | (7,346) | | | Recognized on hedged items | 63 | | 77 | | (618) | | | 0 | | | (478) | | |
Total gains (losses) (pre-tax) on interest rate contracts | Total gains (losses) (pre-tax) on interest rate contracts | (211) | | | 1 | | 389 | | 1,336 | | | 0 | | 1,515 | | 0 | | Total gains (losses) (pre-tax) on interest rate contracts | (51) | | 143 | | 359 | | | 0 | | | 451 | | | 0 | |
Foreign exchange contracts: | | | | |
Foreign exchange contracts | | Foreign exchange contracts | |
Amounts related to interest settlements on derivatives | Amounts related to interest settlements on derivatives | 33 | | | 0 | | 0 | | (136) | | | 0 | | (103) | | | Amounts related to interest settlements on derivatives | 11 | | 0 | | (46) | | | 0 | | | (35) | | |
Recognized on derivatives | Recognized on derivatives | (1) | | | 0 | | 0 | | 276 | | | 780 | | 1,055 | | 5 | | Recognized on derivatives | (1) | | 0 | | 117 | | | 709 | | | 825 | | | (57) | |
Recognized on hedged items | Recognized on hedged items | 2 | | | 0 | | 0 | | (249) | | | (769) | | (1,016) | | | Recognized on hedged items | 1 | | 0 | | (70) | | | (684) | | | (753) | | |
Total gains (losses) (pre-tax) on foreign exchange contracts | Total gains (losses) (pre-tax) on foreign exchange contracts | 34 | | | 0 | | 0 | | (109) | | | 11 | | (64) | | 5 | | Total gains (losses) (pre-tax) on foreign exchange contracts | 11 | | 0 | | 1 | | | 25 | | | 37 | | | (57) | |
Total gains (losses) (pre-tax) recognized on fair value hedges | Total gains (losses) (pre-tax) recognized on fair value hedges | $ | (177) | | | 1 | | 389 | | 1,227 | | | 11 | | 1,451 | | 5 | | Total gains (losses) (pre-tax) recognized on fair value hedges | $ | (40) | | 143 | | 360 | | | 25 | | | 488 | | | (57) | |
(continued on following page)
Note 14: Derivatives (continued)
(continued from previous page)
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 September 30, 2019 | | | | | | | | | |
Total amounts presented in the consolidated statement of income and other comprehensive income | $ | 3,666 | | | 232 | | (2,324) | | (1,780) | | | 1,842 | | N/A | 85 | |
| | | | | | | | | |
Interest contracts: | | | | | | | | | |
Amounts related to interest settlements on derivatives | (1) | | | 1 | | 26 | | 53 | | | 0 | | 79 | | |
Recognized on derivatives | (628) | | | (3) | | 30 | | 2,880 | | | 0 | | 2,279 | | 0 | |
Recognized on hedged items | 631 | | | 1 | | (30) | | (2,809) | | | 0 | | (2,207) | | |
Total gains (losses) (pre-tax) on interest rate contracts | 2 | | | (1) | | 26 | | 124 | | | 0 | | 151 | | 0 | |
Foreign exchange contracts: | | | | | | | | | |
Amounts related to interest settlements on derivatives | 9 | | | 0 | | 0 | | (115) | | | 0 | | (106) | | |
Recognized on derivatives | (2) | | | 0 | | 0 | | 86 | | | (918) | | (834) | | 28 | |
Recognized on hedged items | 3 | | | 0 | | 0 | | (124) | | | 899 | | 778 | | |
Total gains (losses) (pre-tax) on foreign exchange contracts | 10 | | | 0 | | 0 | | (153) | | | (19) | | (162) | | 28 | |
Total gains (losses) (pre-tax) recognized on fair value hedges | $ | 12 | | | (1) | | 26 | | (29) | | | (19) | | (11) | | 28 | |
Nine months ended September 30, 2019 | | | | | | | | | |
Total amounts presented in the consolidated statement of income and other comprehensive income | $ | 11,388 | | | 579 | | (6,563) | | (5,607) | | | 3,667 | | N/A | 265 | |
| | | | | | | | | |
Interest contracts: | | | | | | | | | |
Amounts related to interest settlements on derivatives | 29 | | | 1 | | (4) | | 53 | | | 0 | | 79 | | |
Recognized on derivatives | (2,531) | | | (36) | | 588 | | 7,813 | | | 0 | | 5,834 | | 0 | |
Recognized on hedged items | 2,544 | | | 32 | | (563) | | (7,646) | | | 0 | | (5,633) | | |
Total gains (losses) (pre-tax) on interest rate contracts | 42 | | | (3) | | 21 | | 220 | | | 0 | | 280 | | 0 | |
Foreign exchange contracts: | | | | | | | | | |
Amounts related to interest settlements on derivatives | 29 | | | 0 | | 0 | | (385) | | | 0 | | (356) | | |
Recognized on derivatives | (11) | | | 0 | | 0 | | 583 | | | (994) | | (422) | | 58 | |
Recognized on hedged items | 12 | | | 0 | | 0 | | (576) | | | 975 | | 411 | | |
Total gains (losses) (pre-tax) on foreign exchange contracts | 30 | | | 0 | | 0 | | (378) | | | (19) | | (367) | | 58 | |
Total gains (losses) (pre-tax) recognized on fair value hedges | $ | 72 | | | (3) | | 21 | | (158) | | | (19) | | (87) | | 58 | |
Note 15: Derivatives (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net interest income | | Noninterest income | | Total recorded in net income | | Total recorded in OCI |
(in millions) | Debt securities | | Deposits | Long-term debt | | Other | | Derivative gains (losses) | | Derivative gains (losses) |
Six months ended June 30, 2021 | | | | | | | | | | |
Total amounts presented in the consolidated statement of income and other comprehensive income | $ | 4,511 | | | (204) | | (1,738) | | | 1,674 | | | N/A | | 84 | |
Interest contracts | | | | | | | | | | |
Amounts related to interest settlements on derivatives | (135) | | | 165 | | 1,091 | | | 0 | | | 1,121 | | | |
Recognized on derivatives | 826 | | | (184) | | (4,618) | | | 0 | | | (3,976) | | | 0 | |
Recognized on hedged items | (806) | | | 181 | | 4,542 | | | 0 | | | 3,917 | | | |
Total gains (losses) (pre-tax) on interest rate contracts | (115) | | | 162 | | 1,015 | | | 0 | | | 1,062 | | | 0 | |
Foreign exchange contracts | | | | | | | | | | |
Amounts related to interest settlements on derivatives | 43 | | | 0 | | 3 | | | 0 | | | 46 | | | |
Recognized on derivatives | 3 | | | 0 | | (269) | | | 509 | | | 243 | | | 11 | |
Recognized on hedged items | (2) | | | 0 | | 238 | | | (520) | | | (284) | | | |
Total gains (losses) (pre-tax) on foreign exchange contracts | 44 | | | 0 | | (28) | | | (11) | | | 5 | | | 11 | |
Total gains (losses) (pre-tax) recognized on fair value hedges | $ | (71) | | | 162 | | 987 | | | (11) | | | 1,067 | | | 11 | |
Six months ended June 30, 2020 | | | | | | | | | | |
Total amounts presented in the consolidated statement of income and other comprehensive income | $ | 6,418 | | | (2,327) | | (2,477) | | | 2,213 | | | N/A | | 185 | |
Interest contracts | | | | | | | | | | |
Amounts related to interest settlements on derivatives | (139) | | | 222 | | 602 | | | 0 | | | 685 | | | |
Recognized on derivatives | (1,892) | | | 444 | | 10,324 | | | 0 | | | 8,876 | | | 0 | |
Recognized on hedged items | 1,919 | | | (434) | | (10,044) | | | 0 | | | (8,559) | | | |
Total gains (losses) (pre-tax) on interest rate contracts | (112) | | | 232 | | 882 | | | 0 | | | 1,002 | | | 0 | |
Foreign exchange contracts | | | | | | | | | | |
Amounts related to interest settlements on derivatives | 17 | | | 0 | | (131) | | | 0 | | | (114) | | | |
Recognized on derivatives | (2) | | | 0 | | 224 | | | (76) | | | 146 | | | 87 | |
Recognized on hedged items | 3 | | | 0 | | (244) | | | 80 | | | (161) | | | |
Total gains (losses) (pre-tax) on foreign exchange contracts | 18 | | | 0 | | (151) | | | 4 | | | (129) | | | 87 | |
Total gains (losses) (pre-tax) recognized on fair value hedges | $ | (94) | | | 232 | | 731 | | | 4 | | | 873 | | | 87 | |
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Table 15.4:14.4: Gains (Losses) Recognized on Cash Flow Hedging Relationships
| | | Net interest Income | | Total recorded in net income | Total recorded in OCI | | Net interest income | | Total recorded in net income | Total recorded in OCI |
(in millions) | (in millions) | Loans | Long-term debt | | Derivative gains (losses) | (in millions) | Loans | Long-term debt | | Derivative gains (losses) |
Quarter ended September 30, 2020 | | |
Quarter ended June 30, 2021 | | Quarter ended June 30, 2021 | |
Total amounts presented in the consolidated statement of income and other comprehensive income | Total amounts presented in the consolidated statement of income and other comprehensive income | $ | 7,954 | | (1,038) | | | N/A | (18) | | Total amounts presented in the consolidated statement of income and other comprehensive income | $ | 7,095 | | (712) | | | N/A | 37 | |
Interest rate contracts: | Interest rate contracts: | | Interest rate contracts: | |
Realized gains (losses) (pre-tax) reclassified from OCI into net income | Realized gains (losses) (pre-tax) reclassified from OCI into net income | (53) | | 2 | | | (51) | | 51 | | Realized gains (losses) (pre-tax) reclassified from OCI into net income | (39) | | — | | | (39) | | 39 | |
Net unrealized gains (losses) (pre-tax) recognized in OCI | Net unrealized gains (losses) (pre-tax) recognized in OCI | N/A | | N/A | 0 | | Net unrealized gains (losses) (pre-tax) recognized in OCI | N/A | | N/A | 10 | |
Total gains (losses) (pre-tax) on interest rate contracts | Total gains (losses) (pre-tax) on interest rate contracts | (53) | | 2 | | | (51) | | 51 | | Total gains (losses) (pre-tax) on interest rate contracts | (39) | | 0 | | | (39) | | 49 | |
Foreign exchange contracts: | Foreign exchange contracts: | | Foreign exchange contracts: | |
Realized gains (losses) (pre-tax) reclassified from OCI into net income | Realized gains (losses) (pre-tax) reclassified from OCI into net income | 0 | | (1) | | | (1) | | 1 | | Realized gains (losses) (pre-tax) reclassified from OCI into net income | 0 | | (1) | | | (1) | | 1 | |
Net unrealized gains (losses) (pre-tax) recognized in OCI | Net unrealized gains (losses) (pre-tax) recognized in OCI | N/A | | N/A | 12 | | Net unrealized gains (losses) (pre-tax) recognized in OCI | N/A | | N/A | 1 | |
Total gains (losses) (pre-tax) on foreign exchange contracts | Total gains (losses) (pre-tax) on foreign exchange contracts | 0 | | (1) | | | (1) | | 13 | | Total gains (losses) (pre-tax) on foreign exchange contracts | 0 | | (1) | | | (1) | | 2 | |
Total gains (losses) (pre-tax) recognized on cash flow hedges | Total gains (losses) (pre-tax) recognized on cash flow hedges | $ | (53) | | 1 | | | (52) | | 64 | | Total gains (losses) (pre-tax) recognized on cash flow hedges | $ | (39) | | (1) | | | (40) | | 51 | |
Nine months ended September 30, 2020 | | |
Quarter ended June 30, 2020 | | Quarter ended June 30, 2020 | |
Total amounts presented in the consolidated statement of income and other comprehensive income | Total amounts presented in the consolidated statement of income and other comprehensive income | $ | 26,467 | | (3,515) | | | N/A | 167 | | Total amounts presented in the consolidated statement of income and other comprehensive income | $ | 8,460 | | (1,237) | | | N/A | 3 | |
Interest rate contracts: | Interest rate contracts: | | Interest rate contracts: | |
Realized gains (losses) (pre-tax) reclassified from OCI into net income | Realized gains (losses) (pre-tax) reclassified from OCI into net income | (162) | | 3 | | | (159) | | 159 | | Realized gains (losses) (pre-tax) reclassified from OCI into net income | (53) | | 1 | | | (52) | | 52 | |
Net unrealized gains (losses) (pre-tax) recognized in OCI | Net unrealized gains (losses) (pre-tax) recognized in OCI | N/A | | N/A | 0 | | Net unrealized gains (losses) (pre-tax) recognized in OCI | N/A | | N/A | 0 | |
Total gains (losses) (pre-tax) on interest rate contracts | Total gains (losses) (pre-tax) on interest rate contracts | (162) | | 3 | | | (159) | | 159 | | Total gains (losses) (pre-tax) on interest rate contracts | (53) | | 1 | | | (52) | | 52 | |
Foreign exchange contracts: | Foreign exchange contracts: | | Foreign exchange contracts: | |
Realized gains (losses) (pre-tax) reclassified from OCI into net income | Realized gains (losses) (pre-tax) reclassified from OCI into net income | 0 | | (6) | | | (6) | | 6 | | Realized gains (losses) (pre-tax) reclassified from OCI into net income | 0 | | (3) | | | (3) | | 3 | |
Net unrealized gains (losses) (pre-tax) recognized in OCI | Net unrealized gains (losses) (pre-tax) recognized in OCI | N/A | | N/A | (3) | | Net unrealized gains (losses) (pre-tax) recognized in OCI | N/A | | N/A | 5 | |
Total gains (losses) (pre-tax) on foreign exchange contracts | Total gains (losses) (pre-tax) on foreign exchange contracts | 0 | | (6) | | | (6) | | 3 | | Total gains (losses) (pre-tax) on foreign exchange contracts | 0 | | (3) | | | (3) | | 8 | |
Total gains (losses) (pre-tax) recognized on cash flow hedges | Total gains (losses) (pre-tax) recognized on cash flow hedges | $ | (162) | | (3) | | | (165) | | 162 | | Total gains (losses) (pre-tax) recognized on cash flow hedges | $ | (53) | | (2) | | | (55) | | 60 | |
Quarter ended September 30, 2019 | | |
Six months ended June 30, 2021 | | Six months ended June 30, 2021 | |
Total amounts presented in the consolidated statement of income and other comprehensive income | Total amounts presented in the consolidated statement of income and other comprehensive income | $ | 10,982 | | (1,780) | | | N/A | 85 | | Total amounts presented in the consolidated statement of income and other comprehensive income | $ | 14,296 | | (1,738) | | | N/A | 84 | |
Interest rate contracts: | Interest rate contracts: | | Interest rate contracts: | |
Realized gains (losses) (pre-tax) reclassified from OCI into net income | Realized gains (losses) (pre-tax) reclassified from OCI into net income | (73) | | 0 | | | (73) | | 73 | | Realized gains (losses) (pre-tax) reclassified from OCI into net income | (91) | | — | | | (91) | | 91 | |
Net unrealized gains (losses) (pre-tax) recognized in OCI | Net unrealized gains (losses) (pre-tax) recognized in OCI | N/A | | N/A | 0 | | Net unrealized gains (losses) (pre-tax) recognized in OCI | N/A | | N/A | (10) | |
Total gains (losses) (pre-tax) on interest rate contracts | Total gains (losses) (pre-tax) on interest rate contracts | (73) | | 0 | | | (73) | | 73 | | Total gains (losses) (pre-tax) on interest rate contracts | (91) | | 0 | | | (91) | | 81 | |
Foreign exchange contracts: | Foreign exchange contracts: | | Foreign exchange contracts: | |
Realized gains (losses) (pre-tax) reclassified from OCI into net income | Realized gains (losses) (pre-tax) reclassified from OCI into net income | 0 | | (2) | | | (2) | | 2 | | Realized gains (losses) (pre-tax) reclassified from OCI into net income | 0 | | (2) | | | (2) | | 2 | |
Net unrealized gains (losses) (pre-tax) recognized in OCI | Net unrealized gains (losses) (pre-tax) recognized in OCI | N/A | | N/A | (18) | | Net unrealized gains (losses) (pre-tax) recognized in OCI | N/A | | N/A | (10) | |
Total gains (losses) (pre-tax) on foreign exchange contracts | Total gains (losses) (pre-tax) on foreign exchange contracts | 0 | | (2) | | | (2) | | (16) | | Total gains (losses) (pre-tax) on foreign exchange contracts | 0 | | (2) | | | (2) | | (8) | |
Total gains (losses) (pre-tax) recognized on cash flow hedges | Total gains (losses) (pre-tax) recognized on cash flow hedges | $ | (73) | | (2) | | | (75) | | 57 | | Total gains (losses) (pre-tax) recognized on cash flow hedges | $ | (91) | | (2) | | | (93) | | 73 | |
Nine months ended September 30, 2019 | | |
Six months ended June 30, 2020 | | Six months ended June 30, 2020 | |
Total amounts presented in the consolidated statement of income and other comprehensive income | Total amounts presented in the consolidated statement of income and other comprehensive income | $ | 33,652 | | (5,607) | | | N/A | 265 | | Total amounts presented in the consolidated statement of income and other comprehensive income | $ | 18,543 | | (2,477) | | | N/A | 185 | |
Interest rate contracts: | Interest rate contracts: | | Interest rate contracts: | |
Realized gains (losses) (pre-tax) reclassified from OCI into net income | Realized gains (losses) (pre-tax) reclassified from OCI into net income | (228) | | 1 | | | (227) | | 227 | | Realized gains (losses) (pre-tax) reclassified from OCI into net income | (109) | | 1 | | | (108) | | 108 | |
Net unrealized gains (losses) (pre-tax) recognized in OCI | Net unrealized gains (losses) (pre-tax) recognized in OCI | N/A | | N/A | 0 | | Net unrealized gains (losses) (pre-tax) recognized in OCI | N/A | | N/A | 0 | |
Total gains (losses) (pre-tax) on interest rate contracts | Total gains (losses) (pre-tax) on interest rate contracts | (228) | | 1 | | | (227) | | 227 | | Total gains (losses) (pre-tax) on interest rate contracts | (109) | | 1 | | | (108) | | 108 | |
Foreign exchange contracts: | Foreign exchange contracts: | | Foreign exchange contracts: | |
Realized gains (losses) (pre-tax) reclassified from OCI into net income | Realized gains (losses) (pre-tax) reclassified from OCI into net income | 0 | | (6) | | | (6) | | 6 | | Realized gains (losses) (pre-tax) reclassified from OCI into net income | 0 | | (5) | | | (5) | | 5 | |
Net unrealized gains (losses) (pre-tax) recognized in OCI | Net unrealized gains (losses) (pre-tax) recognized in OCI | N/A | | N/A | (26) | | Net unrealized gains (losses) (pre-tax) recognized in OCI | N/A | | N/A | (15) | |
Total gains (losses) (pre-tax) on foreign exchange contracts | Total gains (losses) (pre-tax) on foreign exchange contracts | 0 | | (6) | | | (6) | | (20) | | Total gains (losses) (pre-tax) on foreign exchange contracts | 0 | | (5) | | | (5) | | (10) | |
Total gains (losses) (pre-tax) recognized on cash flow hedges | Total gains (losses) (pre-tax) recognized on cash flow hedges | $ | (228) | | (5) | | | (233) | | 207 | | Total gains (losses) (pre-tax) recognized on cash flow hedges | $ | (109) | | (4) | | | (113) | | 98 | |
|
Note 14: Derivatives (continued)
Table 15.514.5 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 15.5:14.5: 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) | (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) | (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) |
September 30, 2020 | | | | |
June 30, 2021 | | June 30, 2021 | | | |
Available-for-sale debt securities (5) | Available-for-sale debt securities (5) | $ | 25,969 | | 2,109 | | | 9,435 | | 301 | | Available-for-sale debt securities (5) | $ | 28,655 | | (35) | | | 16,792 | | 994 | |
| Mortgage loans held for sale | 173 | | 5 | | | 0 | | 0 | | |
| Deposits | Deposits | (29,852) | | (604) | | | 0 | | 0 | | Deposits | (14,206) | | (295) | | | 0 | | 0 | |
Long-term debt | Long-term debt | (164,848) | | (14,736) | | | (16,538) | | 60 | | Long-term debt | (148,673) | | (7,312) | | | (5,248) | | 2 | |
December 31, 2019 | | |
December 31, 2020 | | December 31, 2020 | |
Available-for-sale debt securities (5) | Available-for-sale debt securities (5) | $ | 36,896 | | 1,110 | | | 9,486 | | 278 | | Available-for-sale debt securities (5) | $ | 29,538 | | 827 | | | 17,091 | | 1,111 | |
| Mortgage loans held for sale | 961 | | (12) | | | 0 | | 0 | | |
| Deposits | Deposits | (43,716) | | (324) | | | 0 | | 0 | | Deposits | (22,384) | | (477) | | | 0 | | 0 | |
Long-term debt | Long-term debt | (127,423) | | (5,827) | | | (25,750) | | 173 | | Long-term debt | (156,907) | | (12,466) | | | (14,468) | | 31 | |
(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 $9.6for debt securities is $12.0 billion and for long-term debt is $(2.8) billion as of June 30, 2021, and $17.6 billion for debt securities and $(4.5) billion for long-term debt as of September 30, 2020, and $1.2 billion for debt securities and $(5.2)$(4.7) billion for long-term debt as of December 31, 2019.2020.
(3)The balance includes $476$188 million and $138$160 million of debt securities and long-term debt cumulative basis adjustments respectively, as of SeptemberJune 30, 2020,2021, respectively, and $790$205 million and $109$130 million of debt securities and long-term debt cumulative basis adjustments respectively, as of December 31, 2019,2020, respectively, 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.
Note 15: Derivatives (continued)
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 derivativesto manage our exposure to interest rate risk, equity price risk, foreign currency risk, and 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. In second quarter 2020, we entered into arrangements to transition
transition the economic hedges of our deferred compensation plan liabilities from equity securities to derivative instruments. Changes in the fair values of derivatives used to economically hedge the deferred compensation plan are reported in personnel expense.
For additional information on economic hedges and other derivatives, see Note 1814 (Derivatives) to Financial Statements in our 20192020 Form 10-K.
Table 15.614.6 shows the net gains (losses), recognized by income statement lines, related to derivatives not designated as hedging instruments.
Table 15.6:14.6: Gains (Losses) on Derivatives Not Designated as Hedging Instruments
| | | Noninterest income | | Noninterest Expense | | Noninterest income | | Noninterest expense |
(in millions) | (in millions) | Mortgage banking | Net gains (losses) from equity securities | Net gains (losses) from trading activities | Other | Total | | Personnel expense | (in millions) | Mortgage banking | Net gains (losses) on trading and securities | | Other | Total | | Personnel expense |
Quarter ended September 30, 2020 | | |
Quarter ended June 30, 2021 | | Quarter ended June 30, 2021 | | | |
Net gains (losses) recognized on economic hedges derivatives: | Net gains (losses) recognized on economic hedges derivatives: | | Net gains (losses) recognized on economic hedges derivatives: | | | |
Interest contracts (1) | Interest contracts (1) | $ | 216 | | 0 | | 0 | | (27) | | 189 | | | 0 | | Interest contracts (1) | $ | 287 | | 0 | | | 14 | | 301 | | | 0 | |
Equity contracts | Equity contracts | 0 | | (209) | | 0 | | (1) | | (210) | | | (215) | | Equity contracts | 0 | | (762) | | | (4) | | (766) | | | (239) | |
Foreign exchange contracts | Foreign exchange contracts | 0 | | 0 | | 0 | | (523) | | (523) | | | 0 | | Foreign exchange contracts | 0 | | 0 | | | (90) | | (90) | | | 0 | |
Credit contracts | Credit contracts | 0 | | 0 | | 0 | | (3) | | (3) | | | 0 | | Credit contracts | 0 | | 0 | | | (5) | | (5) | | | 0 | |
Subtotal | Subtotal | 216 | | (209) | | 0 | | (554) | | (547) | | | (215) | | Subtotal | 287 | | (762) | | | (85) | | (560) | | | (239) | |
Net gains (losses) recognized on customer accommodation trading and other derivatives: | Net gains (losses) recognized on customer accommodation trading and other derivatives: | | Net gains (losses) recognized on customer accommodation trading and other derivatives: | | | |
Interest contracts | Interest contracts | 485 | | 0 | | 271 | | 0 | | 756 | | | 0 | | Interest contracts | 482 | | (594) | | | 0 | | (112) | | | 0 | |
Commodity contracts | Commodity contracts | 0 | | 0 | | (356) | | 0 | | (356) | | | 0 | | Commodity contracts | 0 | | (36) | | | 0 | | (36) | | | 0 | |
Equity contracts | Equity contracts | 0 | | 0 | | (1,291) | | (142) | | (1,433) | | | 0 | | Equity contracts | 0 | | (922) | | | (304) | | (1,226) | | | 0 | |
Foreign exchange contracts | Foreign exchange contracts | 0 | | 0 | | 160 | | 0 | | 160 | | | 0 | | Foreign exchange contracts | 0 | | (24) | | | 0 | | (24) | | | 0 | |
Credit contracts | Credit contracts | 0 | | 0 | | (32) | | 0 | | (32) | | | 0 | | Credit contracts | 0 | | (43) | | | 0 | | (43) | | | 0 | |
| Subtotal | Subtotal | 485 | | 0 | | (1,248) | | (142) | | (905) | | | 0 | | Subtotal | 482 | | (1,619) | | | (304) | | (1,441) | | | 0 | |
Net gains (losses) recognized related to derivatives not designated as hedging instruments | Net gains (losses) recognized related to derivatives not designated as hedging instruments | $ | 701 | | (209) | | (1,248) | | (696) | | (1,452) | | | (215) | | Net gains (losses) recognized related to derivatives not designated as hedging instruments | $ | 769 | | (2,381) | | | (389) | | (2,001) | | | (239) | |
Nine months ended September 30, 2020 | | |
Quarter ended June 30, 2020 | | Quarter ended June 30, 2020 | | | |
Net gains (losses) recognized on economic hedges derivatives: | Net gains (losses) recognized on economic hedges derivatives: | | Net gains (losses) recognized on economic hedges derivatives: | | | |
Interest contracts (1) | Interest contracts (1) | $ | 2,829 | | 0 | | 0 | | (72) | | 2,757 | | | 0 | | Interest contracts (1) | $ | 142 | | 0 | | | (74) | | 68 | | | 0 | |
Equity contracts | Equity contracts | 0 | | (392) | | 0 | | (35) | | (427) | | | (356) | | Equity contracts | 0 | | (1,402) | | | (6) | | (1,408) | | | (141) | |
Foreign exchange contracts | Foreign exchange contracts | 0 | | 0 | | 0 | | 49 | | 49 | | | 0 | | Foreign exchange contracts | 0 | | 0 | | | (55) | | (55) | | | 0 | |
Credit contracts | Credit contracts | 0 | | 0 | | 0 | | 14 | | 14 | | | 0 | | Credit contracts | 0 | | 0 | | | 1 | | 1 | | | 0 | |
Subtotal | Subtotal | 2,829 | | (392) | | 0 | | (44) | | 2,393 | | | (356) | | Subtotal | 142 | | (1,402) | | | (134) | | (1,394) | | | (141) | |
Net gains (losses) recognized on customer accommodation trading and other derivatives: | Net gains (losses) recognized on customer accommodation trading and other derivatives: | | Net gains (losses) recognized on customer accommodation trading and other derivatives: | | | |
Interest contracts | Interest contracts | 1,584 | | 0 | | (1,516) | | 0 | | 68 | | | 0 | | Interest contracts | 546 | | 676 | | | 0 | | 1,222 | | | 0 | |
Commodity contracts | Commodity contracts | 0 | | 0 | | (468) | | 0 | | (468) | | | 0 | | Commodity contracts | 0 | | (224) | | | 0 | | (224) | | | 0 | |
Equity contracts | Equity contracts | 0 | | 0 | | 1,110 | | (214) | | 896 | | | 0 | | Equity contracts | 0 | | (2,348) | | | (145) | | (2,493) | | | 0 | |
Foreign exchange contracts | Foreign exchange contracts | 0 | | 0 | | (242) | | 0 | | (242) | | | 0 | | Foreign exchange contracts | 0 | | 155 | | | 0 | | 155 | | | 0 | |
Credit contracts | Credit contracts | 0 | | 0 | | 115 | | 0 | | 115 | | | 0 | | Credit contracts | 0 | | (134) | | | 0 | | (134) | | | 0 | |
| Subtotal | Subtotal | 1,584 | | 0 | | (1,001) | | (214) | | 369 | | | 0 | | Subtotal | 546 | | (1,875) | | | (145) | | (1,474) | | | 0 | |
Net gains (losses) recognized related to derivatives not designated as hedging instruments | Net gains (losses) recognized related to derivatives not designated as hedging instruments | $ | 4,413 | | (392) | | (1,001) | | (258) | | 2,762 | | | (356) | | Net gains (losses) recognized related to derivatives not designated as hedging instruments | $ | 688 | | (3,277) | | | (279) | | (2,868) | | | (141) | |
(continued on following page)
Note 14: Derivatives (continued)
(continued from previous page)
| | | | Noninterest income | | Noninterest income | | Noninterest expense |
(in millions) | (in millions) | Mortgage banking | Net gains (losses) from equity securities | Net gains (losses) from trading activities | Other | Total | (in millions) | Mortgage banking | Net gains (losses) on trading and securities | | Other | Total | | Personnel expense |
Quarter ended September 30, 2019 | | |
Six months ended June 30, 2021 | | Six months ended June 30, 2021 | | | |
Net gains (losses) recognized on economic hedges derivatives: | Net gains (losses) recognized on economic hedges derivatives: | | Net gains (losses) recognized on economic hedges derivatives: | | | |
Interest contracts (1) | Interest contracts (1) | $ | 736 | | 0 | | 0 | | 0 | | 736 | | Interest contracts (1) | $ | (88) | | 0 | | | (6) | | (94) | | | 0 | |
Equity contracts | Equity contracts | 0 | | (1,375) | | 0 | | (6) | | (1,381) | | Equity contracts | 0 | | (337) | | | 1 | | (336) | | | (399) | |
Foreign exchange contracts | Foreign exchange contracts | 0 | | 0 | | 0 | | 263 | | 263 | | Foreign exchange contracts | 0 | | 0 | | | (19) | | (19) | | | 0 | |
Credit contracts | Credit contracts | 0 | | 0 | | 0 | | (11) | | (11) | | Credit contracts | 0 | | 0 | | | (5) | | (5) | | | 0 | |
Subtotal | Subtotal | 736 | | (1,375) | | 0 | | 246 | | (393) | | Subtotal | (88) | | (337) | | | (29) | | (454) | | | (399) | |
Net gains (losses) recognized on customer accommodation trading and other derivatives: | Net gains (losses) recognized on customer accommodation trading and other derivatives: | | Net gains (losses) recognized on customer accommodation trading and other derivatives: | | | |
Interest contracts | Interest contracts | 95 | | 0 | | (355) | | 0 | | (260) | | Interest contracts | (49) | | 1,330 | | | 0 | | 1,281 | | | 0 | |
Commodity contracts | Commodity contracts | 0 | | 0 | | 65 | | 0 | | 65 | | Commodity contracts | 0 | | 44 | | | 0 | | 44 | | | 0 | |
Equity contracts | Equity contracts | 0 | | 0 | | 284 | | 10 | | 294 | | Equity contracts | 0 | | (2,085) | | | (393) | | (2,478) | | | 0 | |
Foreign exchange contracts | Foreign exchange contracts | 0 | | 0 | | 78 | | 0 | | 78 | | Foreign exchange contracts | 0 | | 440 | | | 0 | | 440 | | | 0 | |
Credit contracts | Credit contracts | 0 | | 0 | | (10) | | 0 | | (10) | | Credit contracts | 0 | | (71) | | | 0 | | (71) | | | 0 | |
| Subtotal | Subtotal | 95 | | 0 | | 62 | | 10 | | 167 | | Subtotal | (49) | | (342) | | | (393) | | (784) | | | 0 | |
Net gains (losses) recognized related to derivatives not designated as hedging instruments | Net gains (losses) recognized related to derivatives not designated as hedging instruments | $ | 831 | | (1,375) | | 62 | | 256 | | (226) | | Net gains (losses) recognized related to derivatives not designated as hedging instruments | $ | (137) | | (679) | | | (422) | | (1,238) | | | (399) | |
Nine months ended September 30, 2019 | | |
Six months ended June 30, 2020 | | Six months ended June 30, 2020 | | | |
Net gains (losses) recognized on economic hedges derivatives: | Net gains (losses) recognized on economic hedges derivatives: | | Net gains (losses) recognized on economic hedges derivatives: | | | |
Interest contracts (1) | Interest contracts (1) | $ | 2,419 | | 0 | | 0 | | 7 | | 2,426 | | Interest contracts (1) | $ | 2,613 | | 0 | | | (45) | | 2,568 | | | 0 | |
Equity contracts | Equity contracts | 0 | | (2,918) | | 0 | | (6) | | (2,924) | | Equity contracts | 0 | | (183) | | | (34) | | (217) | | | (141) | |
Foreign exchange contracts | Foreign exchange contracts | 0 | | 0 | | 0 | | 403 | | 403 | | Foreign exchange contracts | 0 | | 0 | | | 572 | | 572 | | | 0 | |
Credit contracts | Credit contracts | 0 | | 0 | | 0 | | (1) | | (1) | | Credit contracts | 0 | | 0 | | | 17 | | 17 | | | 0 | |
Subtotal | Subtotal | 2,419 | | (2,918) | | 0 | | 403 | | (96) | | Subtotal | 2,613 | | (183) | | | 510 | | 2,940 | | | (141) | |
Net gains (losses) recognized on customer accommodation trading and other derivatives: | Net gains (losses) recognized on customer accommodation trading and other derivatives: | | Net gains (losses) recognized on customer accommodation trading and other derivatives: | | | |
Interest contracts | Interest contracts | 392 | | 0 | | (861) | | 0 | | (469) | | Interest contracts | 1,099 | | (1,787) | | | 0 | | (688) | | | 0 | |
Commodity contracts | Commodity contracts | 0 | | 0 | | 143 | | 0 | | 143 | | Commodity contracts | 0 | | (112) | | | 0 | | (112) | | | 0 | |
Equity contracts | Equity contracts | 0 | | 0 | | (2,975) | | (396) | | (3,371) | | Equity contracts | 0 | | 2,401 | | | (72) | | 2,329 | | | 0 | |
Foreign exchange contracts | Foreign exchange contracts | 0 | | 0 | | 9 | | 0 | | 9 | | Foreign exchange contracts | 0 | | (402) | | | 0 | | (402) | | | 0 | |
Credit contracts | Credit contracts | 0 | | 0 | | (70) | | 0 | | (70) | | Credit contracts | 0 | | 147 | | | 0 | | 147 | | | 0 | |
| Subtotal | Subtotal | 392 | | 0 | | (3,754) | | (396) | | (3,758) | | Subtotal | 1,099 | | 247 | | | (72) | | 1,274 | | | 0 | |
Net gains (losses) recognized related to derivatives not designated as hedging instruments | Net gains (losses) recognized related to derivatives not designated as hedging instruments | $ | 2,811 | | (2,918) | | (3,754) | | 7 | | (3,854) | | Net gains (losses) recognized related to derivatives not designated as hedging instruments | $ | 3,712 | | 64 | | | 438 | | 4,214 | | | (141) | |
|
(1)Mortgage banking amounts for the thirdsecond quarter and first nine monthshalf of 20202021 are comprised of gains (losses) of $513$707 million and $4.4 billion,$(933) million, respectively, related to derivatives used as economic hedges of MSRs measured at fair value offset by gains (losses) of $(297)$(420) million and $(1.6) billion, respectively,$845 million related to derivatives used as economic hedges of mortgage loans held for sale and derivative loan commitments. The corresponding amounts for the thirdsecond quarter and first nine monthshalf of 20192020 are comprised of gains (losses) of $678$535 million and $2.8$3.9 billion offset by gains (losses) of $58$(393) million and $(376) million,$(1.3) billion, respectively.
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 the 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 15.714.7 provides details of sold and purchased credit derivatives.
Table 15.7:14.7: Sold and Purchased Credit Derivatives
| | | Notional amount | | | Notional amount | |
(in millions) | (in millions) | 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 | (in millions) | 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 |
September 30, 2020 | | |
June 30, 2021 | | June 30, 2021 | |
Credit default swaps on: | Credit default swaps on: | | Credit default swaps on: | |
Corporate bonds | Corporate bonds | $ | 8 | | 3 | | | 3,850 | | | 1,010 | | | 2,677 | | | 1,173 | | | 3,348 | | | 2020 - 2029 | Corporate bonds | $ | 5 | | | 3 | | | 4,724 | | | 1,236 | | | 3,130 | | | 1,594 | | | 3,582 | | | 2021 - 2031 |
Structured products | Structured products | 0 | | 6 | | | 22 | | | 22 | | | 20 | | | 2 | | | 92 | | | 2034 - 2047 | Structured products | 0 | | | 4 | | | 16 | | | 16 | | | 12 | | | 4 | | | 82 | | | 2034 - 2047 |
Credit protection on: | Credit protection on: | | Credit protection on: | |
Default swap index | Default swap index | 1 | | 0 | | | 5,250 | | | 1,239 | | | 2,125 | | | 3,125 | | | 4,762 | | | 2020 - 2029 | Default swap index | 1 | | | 0 | | | 1,760 | | | 698 | | | 924 | | | 836 | | | 3,765 | | | 2021 - 2030 |
Commercial mortgage-backed securities index | Commercial mortgage-backed securities index | 2 | | 26 | | | 311 | | | 54 | | | 286 | | | 25 | | | 75 | | | 2047 - 2072 | Commercial mortgage-backed securities index | 2 | | | 15 | | | 283 | | | 29 | | | 258 | | | 25 | | | 134 | | | 2047 - 2072 |
Asset-backed securities index | Asset-backed securities index | 0 | | 7 | | | 40 | | | 40 | | | 40 | | | 0 | | | 1 | | | 2045 - 2046 | Asset-backed securities index | 0 | | | 7 | | | 41 | | | 41 | | | 40 | | | 1 | | | 1 | | | 2045 - 2046 |
Other | Other | 0 | | 6 | | | 6,594 | | | 6,426 | | | 0 | | | 6,594 | | | 12,312 | | | 2020 - 2040 | Other | 0 | | | 2 | | | 6,300 | | | 6,206 | | | 0 | | | 6,300 | | | 11,199 | | | 2021 - 2040 |
Total credit derivatives | Total credit derivatives | $ | 11 | | 48 | | | 16,067 | | | 8,791 | | | 5,148 | | | 10,919 | | | 20,590 | | | Total credit derivatives | $ | 8 | | | 31 | | | 13,124 | | | 8,226 | | | 4,364 | | | 8,760 | | | 18,763 | | |
December 31, 2019 | | |
December 31, 2020 | | December 31, 2020 | |
Credit default swaps on: | Credit default swaps on: | | Credit default swaps on: | |
Corporate bonds | Corporate bonds | $ | 8 | | 1 | | | 2,855 | | | 707 | | | 1,885 | | | 970 | | | 2,447 | | | 2020 - 2029 | Corporate bonds | $ | 7 | | | 2 | | | 3,767 | | | 971 | | | 2,709 | | | 1,058 | | | 3,012 | | | 2021 - 2029 |
Structured products | Structured products | 0 | | 25 | | | 74 | | | 69 | | | 63 | | | 11 | | | 111 | | | 2022 - 2047 | Structured products | 0 | | | 5 | | | 20 | | | 20 | | | 19 | | | 1 | | | 84 | | | 2034 - 2047 |
Credit protection on: | Credit protection on: | | Credit protection on: | |
Default swap index | Default swap index | 1 | | 0 | | | 2,542 | | | 120 | | | 550 | | | 1,992 | | | 8,105 | | | 2020 - 2029 | Default swap index | 0 | | | 0 | | | 1,582 | | | 731 | | | 559 | | | 1,023 | | | 3,925 | | | 2021 - 2030 |
Commercial mortgage-backed securities index | Commercial mortgage-backed securities index | 3 | | 26 | | | 322 | | | 67 | | | 296 | | | 26 | | | 50 | | | 2047 - 2058 | Commercial mortgage-backed securities index | 3 | | | 21 | | | 297 | | | 42 | | | 272 | | | 25 | | | 75 | | | 2047 - 2072 |
Asset-backed securities index | Asset-backed securities index | 0 | | 8 | | | 41 | | | 41 | | | 41 | | | 0 | | | 1 | | | 2045 - 2046 | Asset-backed securities index | 0 | | | 7 | | | 41 | | | 41 | | | 40 | | | 1 | | | 1 | | | 2045 - 2046 |
Other | Other | 0 | | 5 | | | 6,381 | | | 5,738 | | | 0 | | | 6,381 | | | 11,881 | | | 2020 - 2049 | Other | 0 | | | 4 | | | 6,378 | | | 6,262 | | | 0 | | | 6,378 | | | 11,621 | | | 2021 - 2040 |
Total credit derivatives | Total credit derivatives | $ | 12 | | 65 | | | 12,215 | | | 6,742 | | | 2,835 | | | 9,380 | | | 22,595 | | | Total credit derivatives | $ | 10 | | | 39 | | | 12,085 | | | 8,067 | | | 3,599 | | | 8,486 | | | 18,718 | | |
Protection sold represents the estimated maximum exposure to loss that would be incurred under an assumed hypothetical circumstance, where the value of our interests and any associated collateral declines to zero, without any consideration of recovery or offset from any economic hedges. We believe this hypothetical circumstance to be an extremely remote possibility and accordingly, this required disclosure is not an indication of expected loss. The amounts under non-investment grade represent the notional amounts of those credit derivatives on which we have a higher risk of being required to perform under the terms of the credit derivative and are a function of the underlying assets.
We consider the risk of performance to be high if the underlying assets under the credit derivative have an external rating that is below investment grade or an internal credit default grade that is equivalent thereto. We believe the net protection sold, which is representative of the net notional amount of protection sold and purchased with identical underlyings, in combination with other protection purchased, is more representative of our exposure to loss than either non-investment grade or protection sold. Other protection purchased represents additional protection, which may offset the exposure to loss for protection sold, that was not purchased with an identical underlying of the protection sold.
Credit-Risk Contingent Features
Certain of our derivative contracts contain provisions whereby if the credit rating of our debt were to be downgraded by certain major credit rating agencies, the counterparty could demand additional collateral or require termination or replacement of derivative instruments in a net liability position. Table 15.814.8 illustrates our exposure to such derivativesOTC bilateral derivative contracts with credit-risk contingent features, collateral we have posted, and the additional collateral we would be required to post if the credit rating of our debt was downgraded below investment grade.
Table 15.8:14.8: Credit-Risk Contingent Features
| (in billions) | (in billions) | Sep 30, 2020 | Dec 31, 2019 | (in billions) | Jun 30, 2021 | Dec 31, 2020 |
Net derivative liabilities with credit-risk contingent features | Net derivative liabilities with credit-risk contingent features | $ | 14.9 | | 10.4 | | Net derivative liabilities with credit-risk contingent features | $ | 10.4 | | 10.5 | |
Collateral posted | Collateral posted | 13.2 | | 9.1 | | Collateral posted | 9.4 | | 9.0 | |
Additional collateral to be posted upon a below investment grade credit rating (1) | Additional collateral to be posted upon a below investment grade credit rating (1) | 1.6 | | 1.3 | | Additional collateral to be posted upon a below investment grade credit rating (1) | 1.0 | | 1.5 | |
(1)Any credit rating below investment grade requires us to post the maximum amount of collateral.
| | |
Note 16:15: 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, such as derivatives, residential MSRs, and trading or AFS debt securities, are presented in Table 16.215.1 in this Note. FromAdditionally, 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 LOCOMlower of cost or fair value (LOCOM) accounting, write-downs of individual assets or application of the measurement alternative for nonmarketable equity securities. Assets recorded at fair value on a nonrecurring basis are presented in Table 16.1315.4 in this Note.
We provide in Table 16.19 includes15.8 estimates of fair value for financial instruments that are not recorded at fair value.value, such as loans and debt liabilities carried at amortized cost.
See Note 1 (Summary of Significant Accounting Policies) in our 20192020 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 1917 (Fair Values of Assets and Liabilities) in our 20192020 Form 10-K.
FAIR VALUE HIERARCHY We classify our assets and liabilities measuredrecorded at fair value as either Level 1, Level 2, or Level 3 in the fair value hierarchy. The highest priority (Level 1) is assigned to valuations based on unadjusted quoted prices in active markets and the lowest priority (Level 3) is assigned to valuations based on significant unobservable inputs. See Note 1 (Summary of Significant Accounting Policies) in our 20192020 Form 10-K for a detailed description of the fair 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 if the instrumentThis determination is classified as Level 2 or Level 3. Otherwise, the classification of Level 2 or Level 3 isultimately based upon the specific facts and circumstances of each instrument or instrument category and judgments are made regarding the significance of the Level 3unobservable inputs to the instruments’ fair value measurement in its entirety. If Level 3unobservable inputs are considered significant, the instrument is classified as Level 3.
We do not classify nonmarketable equity securities 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 are classified in the fair value hierarchy.
Fair Value Measurements from Vendors
For certain assets and liabilities, we obtain fair value measurements from vendors and we record the fair value in our financial statements. For additional information, see Note 19 (Fair Values of Assets and Liabilities) in our 2019 Form 10-K.
Table 16.1 presents fair value measurements obtained from third-party pricing services classified within the fair value hierarchy. Fair value measurements obtained from brokers and fair value measurements obtained from third-party pricing services that we have adjusted using internal models or non-vendor data to determine the fair value are excluded from
Table 16.1.
The unadjusted fair value measurements obtained from brokers for available-for-sale debt securities were $19 million in Level 2 assets and $124 million in Level 3 assets at September 30, 2020, and $45 million and $126 million at December 31, 2019, respectively.
Table 16.1:Fair Value Measurements obtained from Third-Party Pricing Services
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
(in millions) | Level 1 | | Level 2 | | Level 3 | | Level 1 | | Level 2 | | Level 3 |
Trading debt securities | 822 | | | 286 | | | 0 | | | 634 | | | 329 | | | 0 | |
Available-for-sale debt securities: | | | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | 5,975 | | | 0 | | | 0 | | | 13,460 | | | 1,500 | | | 0 | |
Securities of U.S. states and political subdivisions | 0 | | | 31,187 | | | 38 | | | 0 | | | 39,868 | | | 34 | |
Mortgage-backed securities | 0 | | | 139,043 | | | 43 | | | 0 | | | 167,172 | | | 42 | |
Other debt securities (1) | 0 | | | 40,614 | | | 569 | | | 0 | | | 38,067 | | | 650 | |
Total available-for-sale debt securities | 5,975 | | | 210,844 | | | 650 | | | 13,460 | | | 246,607 | | | 726 | |
| | | | | | | | | | | |
Marketable equity securities | 0 | | | 105 | | | 0 | | | 0 | | | 110 | | | 0 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Derivative assets | 18 | | | 1 | | | 0 | | | 12 | | | 1 | | | 0 | |
Derivative liabilities | (13) | | | (1) | | | 0 | | | (11) | | | (3) | | | 0 | |
| | | | | | | | | | | |
(1)Includes corporate debt securities, collateralized loan obligations, and other debt securities.
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
Table 16.215.1 presents the balances of assets and liabilities recorded at fair value on a recurring basis.
Table 16.2:15.1: Fair Value on a Recurring Basis
| | | | | | | | | | | | | | | | | | | | | | | | | | | June 30, 2021 | | December 31, 2020 |
(in millions) | (in millions) | Level 1 | | Level 2 | | Level 3 | | Netting (1) | Total | (in millions) | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
September 30, 2020 | | |
Trading debt securities: | Trading debt securities: | | Trading debt securities: | |
Securities of U.S. Treasury and federal agencies | Securities of U.S. Treasury and federal agencies | $ | 29,024 | | | 3,070 | | | 0 | | | — | | 32,094 | | Securities of U.S. Treasury and federal agencies | $ | 29,497 | | | 2,207 | | | 0 | | | 31,704 | | | $ | 32,060 | | | 3,197 | | | 0 | | | 35,257 | |
Securities of U.S. states and political subdivisions | 0 | | | 2,509 | | | 0 | | | — | | 2,509 | | |
Collateralized loan obligations | Collateralized loan obligations | 0 | | | 564 | | | 140 | | | — | | 704 | | Collateralized loan obligations | 0 | | | 469 | | | 158 | | | 627 | | | 0 | | | 534 | | | 148 | | | 682 | |
Corporate debt securities | Corporate debt securities | 56 | | | 12,264 | | | 12 | | | — | | 12,332 | | Corporate debt securities | 0 | | | 12,062 | | | 11 | | | 12,073 | | | 0 | | | 10,696 | | | 13 | | | 10,709 | |
Mortgage-backed securities | 0 | | | 24,829 | | | 11 | | | — | | 24,840 | | |
Other | 0 | | | 774 | | | 0 | | | — | | 774 | | |
Federal agency mortgage-backed securities | | Federal agency mortgage-backed securities | 0 | | | 33,105 | | | 0 | | | 33,105 | | | 0 | | | 23,549 | | | 0 | | | 23,549 | |
Non-agency mortgage-backed securities | | Non-agency mortgage-backed securities | 0 | | | 1,275 | | | 22 | | | 1,297 | | | 0 | | | 1,039 | | | 12 | | | 1,051 | |
Other debt securities | | Other debt securities | 0 | | | 3,920 | | | 1 | | | 3,921 | | | 0 | | | 3,847 | | | 0 | | | 3,847 | |
Total trading debt securities | Total trading debt securities | 29,080 | | | 44,010 | | | 163 | | | — | | 73,253 | | Total trading debt securities | 29,497 | | | 53,038 | | | 192 | | | 82,727 | | | 32,060 | | | 42,862 | | | 173 | | | 75,095 | |
Available-for-sale debt securities: | Available-for-sale debt securities: | | Available-for-sale debt securities: | |
Securities of U.S. Treasury and federal agencies | Securities of U.S. Treasury and federal agencies | 5,975 | | | 0 | | | 0 | | | — | | 5,975 | | Securities of U.S. Treasury and federal agencies | 35,905 | | | 0 | | | 0 | | | 35,905 | | | 22,159 | | | 0 | | | 0 | | | 22,159 | |
Non-U.S. government securities | | Non-U.S. government securities | 0 | | | 11,201 | | | 0 | | | 11,201 | | | 0 | | | 16,813 | | | 0 | | | 16,813 | |
Securities of U.S. states and political subdivisions | Securities of U.S. states and political subdivisions | 0 | | | 31,225 | | | 286 | | | — | | 31,511 | | Securities of U.S. states and political subdivisions | 0 | | | 19,377 | | | 122 | | | 19,499 | | | 0 | | | 19,182 | | | 224 | | | 19,406 | |
Mortgage-backed securities: | | |
Federal agencies | 0 | | | 135,227 | | | 0 | | | — | | 135,227 | | |
Residential | 0 | | | 541 | | | 0 | | | — | | 541 | | |
Commercial | 0 | | | 3,300 | | | 43 | | | — | | 3,343 | | |
Total mortgage-backed securities | 0 | | | 139,068 | | | 43 | | | — | | 139,111 | | |
Corporate debt securities | 36 | | | 4,694 | | | 1,042 | | | — | | 5,772 | | |
Federal agency mortgage-backed securities | | Federal agency mortgage-backed securities | 0 | | | 96,534 | | | 0 | | | 96,534 | | | 0 | | | 139,070 | | | 0 | | | 139,070 | |
Non-agency mortgage-backed securities | | Non-agency mortgage-backed securities | 0 | | | 4,347 | | | 31 | | | 4,378 | | | 0 | | | 3,697 | | | 32 | | | 3,729 | |
Collateralized loan obligations | Collateralized loan obligations | 0 | | | 25,014 | | | 0 | | | — | | 25,014 | | Collateralized loan obligations | 0 | | | 12,407 | | | 0 | | | 12,407 | | | 0 | | | 9,018 | | | 0 | | | 9,018 | |
Other | 0 | | | 12,574 | | | 616 | | | — | | 13,190 | | |
Other debt securities | | Other debt securities | 37 | | | 7,284 | | | 2,652 | | | 9,973 | | | 38 | | | 7,421 | | | 2,738 | | | 10,197 | |
Total available-for-sale debt securities | Total available-for-sale debt securities | 6,011 | | | 212,575 | | | 1,987 | | (2) | — | | 220,573 | | Total available-for-sale debt securities | 35,942 | | | 151,150 | | | 2,805 | | | 189,897 | | | 22,197 | | | 195,201 | | | 2,994 | | | 220,392 | |
Mortgage loans held for sale | 0 | | | 19,037 | | | 847 | | | — | | 19,884 | | |
Loans held for sale | Loans held for sale | 0 | | | 1,680 | | | 8 | | | — | | 1,688 | | Loans held for sale | 0 | | | 17,825 | | | 1,069 | | | 18,894 | | | 0 | | | 17,572 | | | 1,234 | | | 18,806 | |
Loans | 0 | | | 0 | | | 148 | | | — | | 148 | | |
Mortgage servicing rights (residential) | Mortgage servicing rights (residential) | 0 | | | 0 | | | 6,355 | | | — | | 6,355 | | Mortgage servicing rights (residential) | 0 | | | 0 | | | 6,717 | | | 6,717 | | | 0 | | | 0 | | | 6,125 | | | 6,125 | |
Derivative assets: | | |
Derivative assets (gross): | | Derivative assets (gross): | |
Interest rate contracts | Interest rate contracts | 20 | | | 41,402 | | | 480 | | | — | | 41,902 | | Interest rate contracts | 20 | | | 26,370 | | | 357 | | | 26,747 | | | 11 | | | 35,590 | | | 462 | | | 36,063 | |
Commodity contracts | Commodity contracts | 0 | | | 2,305 | | | 39 | | | — | | 2,344 | | Commodity contracts | 0 | | | 7,139 | | | 95 | | | 7,234 | | | 0 | | | 1,997 | | | 39 | | | 2,036 | |
Equity contracts | Equity contracts | 4,341 | | | 8,967 | | | 1,425 | | | — | | 14,733 | | Equity contracts | 4,620 | | | 12,763 | | | 1,896 | | | 19,279 | | | 4,888 | | | 12,384 | | | 1,613 | | | 18,885 | |
Foreign exchange contracts | Foreign exchange contracts | 18 | | | 5,864 | | | 7 | | | — | | 5,889 | | Foreign exchange contracts | 21 | | | 7,664 | | | 7 | | | 7,692 | | | 19 | | | 8,573 | | | 11 | | | 8,603 | |
Credit contracts | Credit contracts | 0 | | | 60 | | | 58 | | | — | | 118 | | Credit contracts | 0 | | | 36 | | | 39 | | | 75 | | | 0 | | | 45 | | | 50 | | | 95 | |
| Netting | 0 | | | 0 | | | 0 | | | (41,271) | | (41,271) | | |
Total derivative assets | 4,379 | | | 58,598 | | | 2,009 | | | (41,271) | | 23,715 | | |
Equity securities – excluding securities at NAV: | | |
Total derivative assets (gross) | | Total derivative assets (gross) | 4,661 | | | 53,972 | | | 2,394 | | | 61,027 | | | 4,918 | | | 58,589 | | | 2,175 | | | 65,682 | |
Equity securities: | | Equity securities: | |
Marketable | Marketable | 16,230 | | | 238 | | | 2 | | | — | | 16,470 | | Marketable | 25,138 | | | 186 | | | 1 | | | 25,325 | | | 23,995 | | | 596 | | | 5 | | | 24,596 | |
Nonmarketable | 0 | | | 15 | | | 8,428 | | | — | | 8,443 | | |
Nonmarketable (1) | | Nonmarketable (1) | 0 | | | 199 | | | 9,659 | | | 9,858 | | | 10 | | | 21 | | | 9,228 | | | 9,259 | |
Total equity securities | Total equity securities | 16,230 | | | 253 | | | 8,430 | | | — | | 24,913 | | Total equity securities | 25,138 | | | 385 | | | 9,660 | | | 35,183 | | | 24,005 | | | 617 | | | 9,233 | | | 33,855 | |
Total assets included in the fair value hierarchy | $ | 55,700 | | | 336,153 | | | 19,947 | | | (41,271) | | 370,529 | | |
Equity securities at NAV (3) | | 140 | | |
Total assets recorded at fair value | | 370,669 | | |
Derivative liabilities: | | |
Total assets prior to derivative netting | | Total assets prior to derivative netting | $ | 95,238 | | | 276,370 | | | 22,837 | | | 394,445 | | | $ | 83,180 | | | 314,841 | | | 21,934 | | | 419,955 | |
Derivative netting (2) | | Derivative netting (2) | | (35,612) | | | (39,836) | |
Total assets after derivative netting | | Total assets after derivative netting | | 358,833 | | | 380,119 | |
Derivative liabilities (gross): | | Derivative liabilities (gross): | |
Interest rate contracts | Interest rate contracts | $ | (32) | | | (30,956) | | | (34) | | | — | | (31,022) | | Interest rate contracts | $ | (14) | | | (19,418) | | | (43) | | | (19,475) | | | $ | (27) | | | (26,259) | | | (16) | | | (26,302) | |
Commodity contracts | Commodity contracts | 0 | | | (2,407) | | | (39) | | | — | | (2,446) | | Commodity contracts | 0 | | | (2,216) | | | (93) | | | (2,309) | | | 0 | | | (1,503) | | | (40) | | | (1,543) | |
Equity contracts | Equity contracts | (4,339) | | | (10,403) | | | (1,533) | | | — | | (16,275) | | Equity contracts | (4,108) | | | (15,089) | | | (2,321) | | | (21,518) | | | (4,860) | | | (15,219) | | | (1,927) | | | (22,006) | |
Foreign exchange contracts | Foreign exchange contracts | (13) | | | (5,868) | | | (7) | | | — | | (5,888) | | Foreign exchange contracts | (14) | | | (6,280) | | | (7) | | | (6,301) | | | (10) | | | (8,134) | | | (12) | | | (8,156) | |
Credit contracts | Credit contracts | 0 | | | (53) | | | (12) | | | — | | (65) | | Credit contracts | 0 | | | (44) | | | (6) | | | (50) | | | 0 | | | (49) | | | (9) | | | (58) | |
| Netting | 0 | | | 0 | | | 0 | | | 41,929 | | 41,929 | | |
Total derivative liabilities | (4,384) | | | (49,687) | | | (1,625) | | | 41,929 | | (13,767) | | |
Short sale liabilities: | | |
Securities of U.S. Treasury and federal agencies | (9,776) | | | (138) | | | 0 | | | — | | (9,914) | | |
Mortgage-backed securities | 0 | | | (924) | | | 0 | | | — | | (924) | | |
Total derivative liabilities (gross) | | Total derivative liabilities (gross) | (4,136) | | | (43,047) | | | (2,470) | | | (49,653) | | | (4,897) | | | (51,164) | | | (2,004) | | | (58,065) | |
| Corporate debt securities | (2) | | | (4,837) | | | 0 | | | — | | (4,839) | | |
Equity securities | (3,053) | | | (45) | | | 0 | | | — | | (3,098) | | |
Other securities | 0 | | | (4) | | | 0 | | | — | | (4) | | |
Total short sale liabilities | (12,831) | | | (5,948) | | | 0 | | | — | | (18,779) | | |
Other liabilities | 0 | | | 0 | | | (2) | | | — | | (2) | | |
Total liabilities recorded at fair value | $ | (17,215) | | | (55,635) | | | (1,627) | | | 41,929 | | (32,548) | | |
| Short-sale trading liabilities | | Short-sale trading liabilities | (15,579) | | | (6,464) | | | 0 | | | (22,043) | | | (15,292) | | | (7,149) | | | 0 | | | (22,441) | |
Total liabilities prior to derivative netting | | Total liabilities prior to derivative netting | $ | (19,715) | | | (49,511) | | | (2,470) | | | (71,696) | | | $ | (20,189) | | | (58,313) | | | (2,004) | | | (80,506) | |
Derivative netting (2) | | Derivative netting (2) | | 35,102 | | | 41,556 | |
Total liabilities after derivative netting | | Total liabilities after derivative netting | | (36,594) | | | (38,950) | |
(1)Excludes $148 million and $154 million of nonmarketable equity securities as of June 30, 2021, and December 31, 2020, respectively, that are measured at fair value using non-published NAV per share (or its equivalent) as a practical expedient that are not classified in the fair value hierarchy.
(2)Represents balance sheet netting of derivative asset and liability balances, related cash collateral and portfolio level counterparty valuation adjustments. See Note 1514 (Derivatives) for additional information.
(2)Largely consists of securities that are investment grade based on ratings received from the ratings agencies or internal credit grades categorized as investment grade if external ratings are not available. The securities are classified as Level 3 due to limited market activity.(3)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 16:15: Fair Values of Assets and Liabilities (continued)
(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 | | | 0 | | | — | | 36,717 | |
Securities of U.S. states and political subdivisions | 0 | | | 2,434 | | | 0 | | | — | | 2,434 | |
Collateralized loan obligations | 0 | | | 555 | | | 183 | | | — | | 738 | |
Corporate debt securities | 0 | | | 11,006 | | | 38 | | | — | | 11,044 | |
Mortgage-backed securities | 0 | | | 27,712 | | | 0 | | | — | | 27,712 | |
Other | 0 | | | 1,086 | | | 2 | | | — | | 1,088 | |
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 | | | 0 | | | — | | 14,960 | |
Securities of U.S. states and political subdivisions | 0 | | | 39,924 | | | 413 | | | — | | 40,337 | |
Mortgage-backed securities: | | | | | | | | |
Federal agencies | 0 | | | 162,453 | | | 0 | | | — | | 162,453 | |
Residential | 0 | | | 827 | | | 0 | | | — | | 827 | |
Commercial | 0 | | | 3,892 | | | 42 | | | — | | 3,934 | |
Total mortgage-backed securities | 0 | | | 167,172 | | | 42 | | | — | | 167,214 | |
Corporate debt securities | 37 | | | 6,159 | | | 367 | | | — | | 6,563 | |
Collateralized loan obligations | 0 | | | 29,055 | | | 0 | | | — | | 29,055 | |
Other | 0 | | | 4,587 | | | 743 | | | — | | 5,330 | |
Total available-for-sale debt securities | 13,497 | | | 248,397 | | | 1,565 | | (2) | — | | 263,459 | |
Mortgage loans held for sale | 0 | | | 15,408 | | | 1,198 | | | — | | 16,606 | |
Loans held for sale | 0 | | | 956 | | | 16 | | | — | | 972 | |
Loans | 0 | | | 0 | | | 171 | | | — | | 171 | |
Mortgage servicing rights (residential) | 0 | | | 0 | | | 11,517 | | | — | | 11,517 | |
Derivative assets: | | | | | | | | |
Interest rate contracts | 26 | | | 23,792 | | | 229 | | | — | | 24,047 | |
Commodity contracts | 0 | | | 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 | 0 | | | 49 | | | 59 | | | — | | 108 | |
| | | | | | | | |
Netting | 0 | | | 0 | | | 0 | | | (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 | 0 | | | 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 | 0 | | | (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 | 0 | | | (53) | | | (30) | | | — | | (83) | |
| | | | | | | | |
Netting | 0 | | | 0 | | | 0 | | | 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) | | | 0 | | | — | | (9,066) | |
Mortgage-backed securities | 0 | | | (2) | | | 0 | | | — | | (2) | |
Corporate debt securities | 0 | | | (5,915) | | | 0 | | | — | | (5,915) | |
Equity securities | (2,447) | | | 0 | | | 0 | | | — | | (2,447) | |
Other securities | 0 | | | 0 | | | 0 | | | — | | 0 | |
Total short sale liabilities | (11,482) | | | (5,948) | | | 0 | | | — | | (17,430) | |
Other liabilities | 0 | | | 0 | | | (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.
(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.
Changes in Fair Value Levels
We monitor the availability of observable market data to assess the appropriate classification of financial instruments within the fair value hierarchy and transfer between Level 1, Level 2, and Level 3 accordingly. Observable market data includes but is not limited to quoted prices and market transactions. Changes in economic conditions or market liquidity generally will drive changes in availability of observable market data. Changes in availability of observable market data, which also may result in
changing the valuation technique used, are generally the cause of transfers between Level 1, Level 2, and Level 3. The amounts reported as transfers represent the fair value as of the beginning of the quarter in which the transfer occurred.
The changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the quarter ended September 30, 2020, are presented in Table 16.3.
Table 16.3:Changes in Level 3 Fair Value Assets and Liabilities Recorded at Fair Value on a Recurring Basis – Quarter ended September 30, 2020
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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 | | Net income | (4) | Other compre-hensive income |
Quarter ended September 30, 2020 | | | | | | | | | | | | | | | | | |
Trading debt securities: | | | | | | | | | | | | | | | | | |
Securities of U.S. states and political subdivisions | $ | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Collateralized loan obligations | 128 | | | 17 | | | 0 | | | (5) | | | 0 | | | 0 | | | 140 | | | 10 | | | 0 | |
Corporate debt securities | 23 | | | (1) | | | 0 | | | (10) | | | 0 | | | 0 | | | 12 | | | (3) | | | 0 | |
Mortgage-backed securities | 49 | | | 1 | | | 0 | | | (3) | | | 0 | | | (36) | | | 11 | | | 0 | | | 0 | |
Other | 23 | | | 0 | | | 0 | | | 0 | | | 0 | | | (23) | | | 0 | | | 0 | | | 0 | |
Total trading debt securities | 223 | | | 17 | | | 0 | | | (18) | | | 0 | | | (59) | | | 163 | | | 7 | | (5) | 0 | |
Available-for-sale debt securities: | | | | | | | | | | | | | | | | | |
Securities of U.S. states and political subdivisions | 351 | | | 5 | | | (5) | | | (65) | | | 0 | | | 0 | | | 286 | | | 0 | | | 1 | |
Mortgage-backed securities: | | | | | | | | | | | | | | | | | |
Residential | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Commercial | 61 | | | (1) | | | (3) | | | 0 | | | 5 | | | (19) | | | 43 | | | (1) | | | (4) | |
Total mortgage-backed securities | 61 | | | (1) | | | (3) | | | 0 | | | 5 | | | (19) | | | 43 | | | (1) | | | (4) | |
Corporate debt securities | 1,051 | | | (22) | | | 6 | | | 1 | | | 6 | | | 0 | | | 1,042 | | | (22) | | | 7 | |
Collateralized loan obligations | 9 | | | 0 | | | 0 | | | 0 | | | 0 | | | (9) | | | 0 | | | 0 | | | 0 | |
Other | 626 | | | 4 | | | 9 | | | (20) | | | 5 | | | (8) | | | 616 | | | 0 | | | 9 | |
Total available-for-sale debt securities | 2,098 | | | (14) | | | 7 | | | (84) | | | 16 | | | (36) | | | 1,987 | | | (23) | | (6) | 13 | |
Mortgage loans held for sale | 751 | | | (7) | | | 0 | | | 44 | | | 63 | | | (4) | | | 847 | | | (6) | | (7) | 0 | |
Loans held for sale | 7 | | | 0 | | | 0 | | | (2) | | | 3 | | | 0 | | | 8 | | | 0 | | (5) | 0 | |
Loans | 152 | | | 0 | | | 0 | | | (4) | | | 0 | | | 0 | | | 148 | | | (2) | | (7) | 0 | |
Mortgage servicing rights (residential)(8) | 6,819 | | | (815) | | | 0 | | | 351 | | | 0 | | | 0 | | | 6,355 | | | (217) | | (7) | 0 | |
Net derivative assets and liabilities: | | | | | | | | | | | | | | | | | |
Interest rate contracts | 523 | | | 469 | | | 0 | | | (546) | | | 0 | | | 0 | | | 446 | | | 226 | | | 0 | |
Commodity contracts | 1 | | | (15) | | | 0 | | | 4 | | | 10 | | | 0 | | | 0 | | | (6) | | | 0 | |
Equity contracts | 20 | | | (191) | | | 0 | | | 78 | | | 0 | | | (15) | | | (108) | | | (114) | | | 0 | |
Foreign exchange contracts | (16) | | | 4 | | | 0 | | | 12 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Credit contracts | 50 | | | (5) | | | 0 | | | 1 | | | 0 | | | 0 | | | 46 | | | (7) | | | 0 | |
| | | | | | | | | | | | | | | | | |
Total derivative contracts | 578 | | | 262 | | | 0 | | | (451) | | | 10 | | | (15) | | | 384 | | | 99 | | (9) | 0 | |
Equity securities: | | | | | | | | | | | | | | | | | |
Marketable | 0 | | | 0 | | | 0 | | | 0 | | | 2 | | | 0 | | | 2 | | | 0 | | | 0 | |
Nonmarketable | 8,165 | | | 253 | | | 0 | | | 0 | | | 10 | | | 0 | | | 8,428 | | | 253 | | | 0 | |
Total equity securities | 8,165 | | | 253 | | | 0 | | | 0 | | | 12 | | | 0 | | | 8,430 | | | 253 | | (10) | 0 | |
| | | | | | | | | | | | | | | | | |
Short sale liabilities | (3) | | | 0 | | | 0 | | | 3 | | | 0 | | | 0 | | | 0 | | | 0 | | (5) | 0 | |
Other liabilities | (2) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (2) | | | 0 | | (7) | 0 | |
(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 from trading activities in the income statement.
(6)Included in net gains from 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 additional 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, net gains (losses) 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 September 30, 2020.
Table 16.4:Gross Purchases, Sales, Issuances and Settlements – Level 3 – Quarter ended September 30, 2020
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Purchases | | Sales | | Issuances | | Settlements | | Net |
Quarter ended September 30, 2020 | | | | | | | | | |
Trading debt securities: | | | | | | | | | |
Securities of U.S. states and political subdivisions | $ | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Collateralized loan obligations | 46 | | | (51) | | | 0 | | | 0 | | | (5) | |
Corporate debt securities | 4 | | | (14) | | | 0 | | | 0 | | | (10) | |
Mortgage-backed securities | 14 | | | (17) | | | 0 | | | 0 | | | (3) | |
Other | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Total trading debt securities | 64 | | | (82) | | | 0 | | | 0 | | | (18) | |
Available-for-sale debt securities: | | | | | | | | | |
Securities of U.S. states and political subdivisions | 0 | | | (35) | | | 0 | | | (30) | | | (65) | |
Mortgage-backed securities: | | | | | | | | | |
Residential | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Commercial | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Total mortgage-backed securities | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Corporate debt securities | 1 | | | 0 | | | 0 | | | 0 | | | 1 | |
Collateralized loan obligations | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Other | 0 | | | 0 | | | 0 | | | (20) | | | (20) | |
Total available-for-sale debt securities | 1 | | | (35) | | | 0 | | | (50) | | | (84) | |
Mortgage loans held for sale | 46 | | | (34) | | | 98 | | | (66) | | | 44 | |
Loans held for sale | 0 | | | (2) | | | 0 | | | 0 | | | (2) | |
Loans | 1 | | | 0 | | | 1 | | | (6) | | | (4) | |
Mortgage servicing rights (residential) (1) | 0 | | | 0 | | | 351 | | | 0 | | | 351 | |
Net derivative assets and liabilities: | | | | | | | | | |
Interest rate contracts | 0 | | | 0 | | | 0 | | | (546) | | | (546) | |
Commodity contracts | 0 | | | 0 | | | 0 | | | 4 | | | 4 | |
Equity contracts | 0 | | | 0 | | | 0 | | | 78 | | | 78 | |
Foreign exchange contracts | 0 | | | 0 | | | 0 | | | 12 | | | 12 | |
Credit contracts | 0 | | | 7 | | | 0 | | | (6) | | | 1 | |
| | | | | | | | | |
Total derivative contracts | 0 | | | 7 | | | 0 | | | (458) | | | (451) | |
Equity securities: | | | | | | | | | |
Marketable | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Nonmarketable | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Total equity securities | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| | | | | | | | | |
Short sale liabilities | 3 | | | 0 | | | 0 | | | 0 | | | 3 | |
Other liabilities | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
(1)For additional information on the changes in mortgage servicing rights, see Note 11 (Mortgage Banking Activities).
Table 16.515.2 presents the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the quarter ended September 30, 2019.basis.
Table 16.5:15.2: Changes in Level 3 Fair Value Assets and Liabilities on a Recurring Basis – Quarter ended September 30, 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 | | |
(in millions) | | Net income | | Other compre- hensive income | | | Transfers into Level 3 (2) | | Transfers out of Level 3 (3) | | Balance, end of period | | (4) | |
Quarter ended September 30, 2019 | | | | | | | | | | | | | | | | | |
Trading debt securities: | | | | | | | | | | | | | | | | | |
Securities of U.S. states and political subdivisions | $ | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | |
Collateralized loan obligations | 249 | | | (11) | | | 0 | | | (4) | | | 0 | | | (2) | | | 232 | | | (13) | | | |
Corporate debt securities | 44 | | | (2) | | | 0 | | | (4) | | | 0 | | | (5) | | | 33 | | | 1 | | | |
Mortgage-backed securities | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | |
Other | 14 | | | (1) | | | 0 | | | (6) | | | 0 | | | 0 | | | 7 | | | 0 | | | |
Total trading debt securities | 307 | | | (14) | | | 0 | | | (14) | | | 0 | | | (7) | | | 272 | | | (12) | | (5) | |
Available-for-sale debt securities: | | | | | | | | | | | | | | | | | |
Securities of U.S. states and political subdivisions | 391 | | | 0 | | | 0 | | | (38) | | | 0 | | | 0 | | | 353 | | | 0 | | | |
Mortgage-backed securities: | | | | | | | | | | | | | | | | | |
Residential | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | |
Commercial | 41 | | | 0 | | | (1) | | | (3) | | | 0 | | | 0 | | | 37 | | | 0 | | | |
Total mortgage-backed securities | 41 | | | 0 | | | (1) | | | (3) | | | 0 | | | 0 | | | 37 | | | 0 | | | |
Corporate debt securities | 383 | | | 6 | | | (8) | | | (14) | | | 0 | | | 0 | | | 367 | | | 0 | | | |
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Other | 990 | | | 6 | | | (11) | | | (105) | | | 0 | | | (153) | | | 727 | | | 0 | | | |
Total available-for-sale debt securities | 1,805 | | | 12 | | | (20) | | | (160) | | | 0 | | | (153) | | | 1,484 | | | 0 | | (6) | |
Mortgage loans held for sale | 1,115 | | | 22 | | | 0 | | | (6) | | | 121 | | | (3) | | | 1,249 | | | 22 | | (7) | |
Loans held for sale | 12 | | | 0 | | | 0 | | | (12) | | | 1 | | | 0 | | | 1 | | | 0 | | (5) | |
Loans | 202 | | | 0 | | | 0 | | | (17) | | | 0 | | | 0 | | | 185 | | | (2) | | (7) | |
Mortgage servicing rights (residential) (8) | 12,096 | | | (1,558) | | | 0 | | | 534 | | | 0 | | | 0 | | | 11,072 | | | (962) | | (7) | |
Net derivative assets and liabilities: | | | | | | | | | | | | | | | | | |
Interest rate contracts | 205 | | | 71 | | | 0 | | | (133) | | | 0 | | | 0 | | | 143 | | | 30 | | | |
Commodity contracts | (29) | | | (85) | | | 0 | | | 61 | | | 0 | | | 23 | | | (30) | | | (6) | | | |
Equity contracts | (228) | | | (298) | | | 0 | | | 263 | | | 0 | | | 60 | | | (203) | | | (80) | | | |
Foreign exchange contracts | (10) | | | 17 | | | 0 | | | (33) | | | 0 | | | 0 | | | (26) | | | 0 | | | |
Credit contracts | 45 | | | (8) | | | 0 | | | 1 | | | 0 | | | 0 | | | 38 | | | (8) | | | |
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Total derivative contracts | (17) | | | (303) | | | 0 | | | 159 | | | 0 | | | 83 | | | (78) | | | (64) | | (9) | |
Equity securities: | | | | | | | | | | | | | | | | | |
Marketable | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | |
Nonmarketable | 7,110 | | | 13 | | | 0 | | | 0 | | | 7 | | | 0 | | | 7,130 | | | 13 | | | |
Total equity securities | 7,110 | | | 13 | | | 0 | | | 0 | | | 7 | | | 0 | | | 7,130 | | | 13 | | (10) | |
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Other liabilities | (2) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (2) | | | 0 | | (7) | |
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| | | | | | | | | | | | | | | | | Net unrealized gains (losses) related to assets and liabilities held at period end | |
(in millions) | Balance, beginning of period | | Net gains/(losses) (1) | | Purchases (2) | | Sales | | Settlements | | Transfers into Level 3 (3) | | Transfers out of Level 3 (4) | | Balance, end of period | | (5) |
Quarter ended June 30, 2021 | | | | | | | | | | | | | | | | | | |
Trading debt securities | $ | 192 | | | 4 | | | 123 | | | (129) | | | (5) | | | 15 | | | (8) | | | 192 | | | 1 | | (6) |
Available-for-sale debt securities | 3,142 | | | 28 | | | 9 | | | 0 | | | (120) | | | 11 | | | (265) | | | 2,805 | | | 41 | | (6) |
Loans held for sale | 1,166 | | | 15 | | | 131 | | | (231) | | | (107) | | | 97 | | | (2) | | | 1,069 | | | 9 | | (7) |
Mortgage servicing rights (residential) (8) | 7,536 | | | (1,297) | | | 485 | | | (7) | | | 0 | | | 0 | | | 0 | | | 6,717 | | | (809) | | (7) |
Net derivative assets and liabilities: | | | | | | | | | | | | | | | | | | |
Interest rate contracts | 1 | | | 458 | | | 0 | | | 0 | | | (145) | | | 0 | | | 0 | | | 314 | | | 167 | | |
Equity contracts | (429) | | | (158) | | | 0 | | | 0 | | | 120 | | | (10) | | | 52 | | | (425) | | | (130) | | |
Other derivative contracts | 56 | | | (67) | | | 2 | | | (1) | | | 42 | | | 0 | | | 3 | | | 35 | | | (16) | | |
Total derivative contracts | (372) | | | 233 | | | 2 | | | (1) | | | 17 | | | (10) | | | 55 | | | (76) | | | 21 | | (9) |
Equity securities | 8,865 | | | 794 | | | 0 | | | 0 | | | 0 | | | 1 | | | 0 | | | 9,660 | | | 794 | | (6) |
Quarter ended June 30, 2020 | | | | | | | | | | | | | | | | | | |
Trading debt securities | $ | 389 | | | 33 | | | 186 | | | (346) | | | (5) | | | 15 | | | (49) | | | 223 | | | 14 | | (6) |
Available-for-sale debt securities | 2,412 | | | 21 | | | 5 | | | (28) | | | (100) | | | 85 | | | (297) | | | 2,098 | | | 8 | | (6) |
Loans held for sale | 3,176 | | | (41) | | | 94 | | | (288) | | | (64) | | | 80 | | | (2,199) | | | 758 | | | (32) | | (7) |
Mortgage servicing rights (residential) (8) | 8,126 | | | (1,768) | | | 462 | | | (1) | | | 0 | | | 0 | | | 0 | | | 6,819 | | | (1,131) | | (7) |
Net derivative assets and liabilities: | | | | | | | | | | | | | | | | | | |
Interest rate contracts | 685 | | | 460 | | | 0 | | | 0 | | | (622) | | | 0 | | | 0 | | | 523 | | | 291 | | |
Equity contracts | 217 | | | (277) | | | 0 | | | 0 | | | 79 | | | 0 | | | 1 | | | 20 | | | (387) | | |
Other derivative contracts | (3) | | | 7 | | | 2 | | | (1) | | | 12 | | | 18 | | | 0 | | | 35 | | | 47 | | |
Total derivative contracts | 899 | | | 190 | | | 2 | | | (1) | | | (531) | | | 18 | | | 1 | | | 578 | | | (49) | | (9) |
Equity securities | 6,754 | | | 1,414 | | | 0 | | | 0 | | | 0 | | | 0 | | | (3) | | | 8,165 | | | 1,414 | | (6) |
Six months ended June 30, 2021 | | | | | | | | | | | | | | | | | | |
Trading debt securities | $ | 173 | | | 20 | | | 292 | | | (302) | | | (5) | | | 22 | | | (8) | | | 192 | | | 5 | | (6) |
Available-for-sale debt securities | 2,994 | | | 21 | | | 24 | | | 0 | | | (188) | | | 253 | | | (299) | | | 2,805 | | | 16 | | (6) |
Loans held for sale | 1,234 | | | (4) | | | 260 | | | (379) | | | (217) | | | 178 | | | (3) | | | 1,069 | | | (5) | | (7) |
Mortgage servicing rights (residential) (8) | 6,125 | | | (291) | | | 891 | | | (8) | | | 0 | | | 0 | | | 0 | | | 6,717 | | | 782 | | (7) |
Net derivative assets and liabilities: | | | | | | | | | | | | | | | | | | |
Interest rate contracts | 446 | | | (83) | | | 0 | | | 0 | | | (44) | | | 0 | | | (5) | | | 314 | | | 109 | | |
Equity contracts | (314) | | | (326) | | | 0 | | | 0 | | | 160 | | | (37) | | | 92 | | | (425) | | | (236) | | |
Other derivative contracts | 39 | | | (40) | | | 2 | | | (1) | | | 32 | | | 0 | | | 3 | | | 35 | | | 4 | | |
Total derivative contracts | 171 | | | (449) | | | 2 | | | (1) | | | 148 | | | (37) | | | 90 | | | (76) | | | (123) | | (9) |
Equity securities | 9,233 | | | 429 | | | 0 | | | (5) | | | 0 | | | 3 | | | 0 | | | 9,660 | | | 429 | | (6) |
Six months ended June 30, 2020 | | | | | | | | | | | | | | | | | | |
Trading debt securities | $ | 223 | | | (85) | | | 476 | | | (439) | | | (15) | | | 115 | | | (52) | | | 223 | | | (69) | | (6) |
Available-for-sale debt securities | 1,565 | | | (121) | | | 31 | | | (33) | | | (148) | | | 1,172 | | | (368) | | | 2,098 | | | (99) | | (6) |
Loans held for sale | 1,214 | | | (104) | | | 960 | | | (358) | | | (162) | | | 1,409 | | | (2,201) | | | 758 | | | (34) | | (7) |
Mortgage servicing rights (residential) (8) | 11,517 | | | (5,589) | | | 923 | | | (33) | | | 1 | | | 0 | | | 0 | | | 6,819 | | | (4,388) | | (7) |
Net derivative assets and liabilities: | | | | | | | | | | | | | | | | | | |
Interest rate contracts | 214 | | | 1,204 | | | 0 | | | 0 | | | (895) | | | 0 | | | 0 | | | 523 | | | 374 | | |
Equity contracts | (269) | | | 153 | | | 0 | | | 0 | | | 152 | | | (10) | | | (6) | | | 20 | | | 48 | | |
Other derivative contracts | (5) | | | (48) | | | 8 | | | (4) | | | 72 | | | 12 | | | 0 | | | 35 | | | 33 | | |
Total derivative contracts | (60) | | | 1,309 | | | 8 | | | (4) | | | (671) | | | 2 | | | (6) | | | 578 | | | 455 | | (9) |
Equity securities | 7,850 | | | 313 | | | 0 | | | 0 | | | 0 | | | 7 | | | (5) | | | 8,165 | | | 310 | | (6) |
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(1)See Table 16.6Includes net gains (losses) included in both net income and other comprehensive income. All amounts represent net gains (losses) included in net income except for detail.$22 million and $36 million included in other comprehensive income from available-for-sale debt securities in the second quarter and first half of 2021, respectively. The corresponding amounts for the second quarter and first half of 2020 were $16 million and $(75) million, respectively.
(2)All assetsIncludes originations of mortgage servicing rights and liabilities transferred into level 3 were previously classified within level 2.loans held for sale.
(3)All assets and liabilities transferred into Level 3 were previously classified within Level 2.
(4)All assets and liabilities transferred out of levelLevel 3 are classified as level 2, except for $153 million of asset-backed securities that were transferred to loans during third quarter 2019.
(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.Level 2.
(5)IncludedIncludes net unrealized gains (losses) related to assets and liabilities held at period end included in both net income and other comprehensive income. All amounts represent net unrealized gains (losses) included in net gainsincome except for $38 million and $31 million included in other comprehensive income from trading activitiesavailable-for-sale debt securities in the income statement.second quarter and first half of 2021 , respectively. The corresponding amounts for the second quarter and first half of 2020 were $13 million and $(40) million, respectively.
(6)Included in net gains from debton trading and securities in the income statement.consolidated statement of income.
(7)Included in mortgage banking and other noninterest income in the income statement.consolidated statement of income.
(8)For additional information on the changes in mortgage servicing rights, see Note 119 (Mortgage Banking Activities).
(9)Included in mortgage banking income, net gains fromon trading activities, net gains (losses) from equityand 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 Valuesconsolidated statement of Assets and Liabilities (continued)
(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 September 30, 2019.
Table 16.6:Gross Purchases, Sales, Issuances and Settlements – Level 3 – Quarter ended September 30, 2019
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Purchases | | Sales | | Issuances | | Settlements | | Net |
Quarter ended September 30, 2019 | | | | | | | | | |
Trading debt securities: | | | | | | | | | |
Securities of U.S. states and political subdivisions | $ | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Collateralized loan obligations | 107 | | | (100) | | | 0 | | | (11) | | | (4) | |
Corporate debt securities | 3 | | | (7) | | | 0 | | | 0 | | | (4) | |
Mortgage-backed securities | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Other | 0 | | | 0 | | | 0 | | | (6) | | | (6) | |
Total trading debt securities | 110 | | | (107) | | | 0 | | | (17) | | | (14) | |
Available-for-sale debt securities: | | | | | | | | | |
Securities of U.S. states and political subdivisions | 0 | | | 0 | | | 12 | | | (50) | | | (38) | |
Mortgage-backed securities: | | | | | | | | | |
Residential | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Commercial | 0 | | | 0 | | | 0 | | | (3) | | | (3) | |
Total mortgage-backed securities | 0 | | | 0 | | | 0 | | | (3) | | | (3) | |
Corporate debt securities | 1 | | | 0 | | | 0 | | | (15) | | | (14) | |
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Other | 0 | | | (4) | | | 10 | | | (111) | | | (105) | |
Total available-for-sale debt securities | 1 | | | (4) | | | 22 | | | (179) | | | (160) | |
Mortgage loans held for sale | 23 | | | (45) | | | 87 | | | (71) | | | (6) | |
Loans held for sale | 0 | | | 0 | | | 0 | | | (12) | | | (12) | |
Loans | 1 | | | 0 | | | 2 | | | (20) | | | (17) | |
Mortgage servicing rights (residential) (1) | 0 | | | (4) | | | 538 | | | 0 | | | 534 | |
Net derivative assets and liabilities: | | | | | | | | | |
Interest rate contracts | 0 | | | 0 | | | (1) | | | (132) | | | (133) | |
Commodity contracts | 0 | | | 0 | | | 0 | | | 61 | | | 61 | |
Equity contracts | 0 | | | 0 | | | 0 | | | 263 | | | 263 | |
Foreign exchange contracts | 0 | | | 0 | | | 0 | | | (33) | | | (33) | |
Credit contracts | 4 | | | (3) | | | 0 | | | 0 | | | 1 | |
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Total derivative contracts | 4 | | | (3) | | | (1) | | | 159 | | | 159 | |
Equity securities: | | | | | | | | | |
Marketable | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Nonmarketable | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Total equity securities | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
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Other liabilities | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
(1)For additional information on the changes in mortgage servicing rights, see Note 11 (Mortgage Banking Activities).
The changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the nine months ended September 30, 2020, are presented in Table 16.7.
Table 16.7:Changes in Level 3 Fair Value Assets and Liabilities on a Recurring Basis – Nine months ended September 30, 2020
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| | | 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 | | Net income | (4) | Other compre- hensive income |
Nine months ended September 30, 2020 | | | | | | | | | | | | | | | | | |
Trading debt securities: | | | | | | | | | | | | | | | | | |
Securities of U.S. states and political subdivisions | $ | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Collateralized loan obligations | 183 | | | (52) | | | 0 | | | 18 | | | 16 | | | (25) | | | 140 | | | (50) | | | 0 | |
Corporate debt securities | 38 | | | (12) | | | 0 | | | (6) | | | 0 | | | (8) | | | 12 | | | (6) | | | 0 | |
Mortgage-backed securities | 0 | | | (6) | | | 0 | | | 20 | | | 52 | | | (55) | | | 11 | | | (1) | | | 0 | |
Other | 2 | | | 2 | | | 0 | | | (28) | | | 47 | | | (23) | | | 0 | | | (1) | | | 0 | |
Total trading debt securities | 223 | | | (68) | | | 0 | | | 4 | | | 115 | | | (111) | | | 163 | | | (58) | | (5) | 0 | |
Available-for-sale debt securities: | | | | | | | | | | | | | | | | | |
Securities of U.S. states and political subdivisions | 413 | | | 6 | | | (5) | | | (109) | | | 67 | | | (86) | | | 286 | | | 0 | | | 1 | |
Mortgage-backed securities: | | | | | | | | | | | | | | | | | |
Residential | 0 | | | 0 | | | (3) | | | 1 | | | 13 | | | (11) | | | 0 | | | 0 | | | 0 | |
Commercial | 42 | | | 0 | | | (17) | | | (3) | | | 160 | | | (139) | | | 43 | | | (3) | | | (6) | |
Total mortgage-backed securities | 42 | | | 0 | | | (20) | | | (2) | | | 173 | | | (150) | | | 43 | | | (3) | | | (6) | |
Corporate debt securities | 367 | | | (76) | | | 33 | | | (45) | | | 837 | | | (74) | | | 1,042 | | | (78) | | | 43 | |
Collateralized loan obligations | 0 | | | 0 | | | (9) | | | 0 | | | 68 | | | (59) | | | 0 | | | 0 | | | 0 | |
Other | 743 | | | 10 | | | (67) | | | (78) | | | 43 | | | (35) | | | 616 | | | (1) | | | (64) | |
Total available-for-sale debt securities | 1,565 | | | (60) | | | (68) | | | (234) | | | 1,188 | | | (404) | | | 1,987 | | | (82) | | (6) | | (26) | |
Mortgage loans held for sale | 1,198 | | | (105) | | | 0 | | | 493 | | | 1,465 | | | (2,204) | | | 847 | | | (32) | | (7) | | 0 | |
Loans held for sale | 16 | | | (6) | | | 0 | | | (11) | | | 10 | | | (1) | | | 8 | | | (4) | | (5) | | 0 | |
Loans | 171 | | | (2) | | | 0 | | | (21) | | | 0 | | | 0 | | | 148 | | | (7) | | (7) | | 0 | |
Mortgage servicing rights (residential) (8) | 11,517 | | | (6,404) | | | 0 | | | 1,242 | | | 0 | | | 0 | | | 6,355 | | | (4,605) | | (7) | | 0 | |
Net derivative assets and liabilities: | | | | | | | | | | | | | | | | | |
Interest rate contracts | 214 | | | 1,673 | | | 0 | | | (1,441) | | | 0 | | | 0 | | | 446 | | | 335 | | | 0 | |
Commodity contracts | (16) | | | (80) | | | 0 | | | 74 | | | 22 | | | 0 | | | 0 | | | 3 | | | 0 | |
Equity contracts | (269) | | | (38) | | | 0 | | | 230 | | | (10) | | | (21) | | | (108) | | | 194 | | | 0 | |
Foreign exchange contracts | (18) | | | 2 | | | 0 | | | 16 | | | 0 | | | 0 | | | 0 | | | 2 | | | 0 | |
Credit contracts | 29 | | | 14 | | | 0 | | | 3 | | | 0 | | | 0 | | | 46 | | | 13 | | | 0 | |
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Total derivative contracts | (60) | | | 1,571 | | | 0 | | | (1,118) | | | 12 | | | (21) | | | 384 | | | 547 | | (9) | | 0 | |
Equity securities: | | | | | | | | | | | | | | | | | |
Marketable | 3 | | | 0 | | | 0 | | | 0 | | | 2 | | | (3) | | | 2 | | | (1) | | | 0 | |
Nonmarketable | 7,847 | | | 566 | | | 0 | | | 0 | | | 17 | | | (2) | | | 8,428 | | | 562 | | | 0 | |
Total equity securities | 7,850 | | | 566 | | | 0 | | | 0 | | | 19 | | | (5) | | | 8,430 | | | 561 | | (10) | | 0 | |
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Short sale liabilities | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | (5) | | 0 | |
Other liabilities | (2) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (2) | | | 0 | | (7) | | 0 | |
(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 from trading activities in the income statement.
(6)Included in net gains from 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 additional 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, net gains (losses) 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 16.8 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 nine months ended September 30, 2020.
Table 16.8:Gross Purchases, Sales, Issuances and Settlements – Level 3 – Nine months ended September 30, 2020
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(in millions) | Purchases | | Sales | | Issuances | | Settlements | | Net |
Nine months ended September 30, 2020 | | | | | | | | | |
Trading debt securities: | | | | | | | | | |
Securities of U.S. states and political subdivisions | $ | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Collateralized loan obligations | 217 | | | (189) | | | 0 | | | (10) | | | 18 | |
Corporate debt securities | 36 | | | (42) | | | 0 | | | 0 | | | (6) | |
Mortgage-backed securities | 281 | | | (257) | | | 0 | | | (4) | | | 20 | |
Other | 6 | | | (33) | | | 0 | | | (1) | | | (28) | |
Total trading debt securities | 540 | | | (521) | | | 0 | | | (15) | | | 4 | |
Available-for-sale debt securities: | | | | | | | | | |
Securities of U.S. states and political subdivisions | 0 | | | (35) | | | 0 | | | (74) | | | (109) | |
Mortgage-backed securities: | | | | | | | | | |
Residential | 25 | | | (23) | | | 0 | | | (1) | | | 1 | |
Commercial | 0 | | | 0 | | | 0 | | | (3) | | | (3) | |
Total mortgage-backed securities | 25 | | | (23) | | | 0 | | | (4) | | | (2) | |
Corporate debt securities | 7 | | | 0 | | | 0 | | | (52) | | | (45) | |
Collateralized loan obligations | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Other | 0 | | | (10) | | | 0 | | | (68) | | | (78) | |
Total available-for-sale debt securities | 32 | | | (68) | | | 0 | | | (198) | | | (234) | |
Mortgage loans held for sale | 101 | | | (384) | | | 1,003 | | | (227) | | | 493 | |
Loans held for sale | 0 | | | (10) | | | 0 | | | (1) | | | (11) | |
Loans | 2 | | | 0 | | | 5 | | | (28) | | | (21) | |
Mortgage servicing rights (residential) (1) | 0 | | | (33) | | | 1,274 | | | 1 | | | 1,242 | |
Net derivative assets and liabilities: | | | | | | | | | |
Interest rate contracts | 0 | | | 0 | | | 0 | | | (1,441) | | | (1,441) | |
Commodity contracts | 0 | | | 0 | | | 0 | | | 74 | | | 74 | |
Equity contracts | 0 | | | 0 | | | 0 | | | 230 | | | 230 | |
Foreign exchange contracts | 0 | | | 0 | | | 0 | | | 16 | | | 16 | |
Credit contracts | 8 | | | 3 | | | 0 | | | (8) | | | 3 | |
| | | | | | | | | |
Total derivative contracts | 8 | | | 3 | | | 0 | | | (1,129) | | | (1,118) | |
Equity securities: | | | | | | | | | |
Marketable | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Nonmarketable | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Total equity securities | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| | | | | | | | | |
Short sale liabilities | 3 | | | (3) | | | 0 | | | 0 | | | 0 | |
Other liabilities | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
(1)For additional information on the changes in mortgage servicing rights, see Note 11 (Mortgage Banking Activities).
income.
The changes in Level 3 assets and liabilities measured at fair value on a recurring basis for nine months ended September 30, 2019, are presented in Table 16.9.
Table 16.9:Changes in Level 3 Fair Value Assets and Liabilities on a Recurring Basis – Nine months ended September 30, 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 | |
(in millions) | | Net income | | Other compre- hensive income | | | Transfers into Level 3 (2) | | Transfers out of Level 3 (3) | | Balance, end of period | | (4) |
Nine months ended September 30, 2019 | | | | | | | | | | | | | | | | |
Trading debt securities: | | | | | | | | | | | | | | | | |
Securities of U.S. states and political subdivisions | $ | 3 | | | 0 | | | 0 | | | (2) | | | 0 | | | (1) | | | 0 | | | 0 | | |
Collateralized loan obligations | 237 | | | (16) | | | 0 | | | 13 | | | 0 | | | (2) | | | 232 | | | (23) | | |
Corporate debt securities | 34 | | | 1 | | | 0 | | | 3 | | | 1 | | | (6) | | | 33 | | | 3 | | |
Mortgage-backed securities | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | |
Other | 16 | | | (3) | | | 0 | | | (6) | | | 0 | | | 0 | | | 7 | | | 0 | | |
Total trading debt securities | 290 | | | (18) | | | 0 | | | 8 | | | 1 | | | (9) | | | 272 | | | (20) | | (5) |
Available-for-sale debt securities: | | | | | | | | | | | | | | | | |
Securities of U.S. states and political subdivisions | 444 | | | 1 | | | 5 | | | (48) | | | 0 | | | (49) | | | 353 | | | 0 | | |
Mortgage-backed securities: | | | | | | | | | | | | | | | | |
Residential | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | |
Commercial | 41 | | | 0 | | | (1) | | | (3) | | | 0 | | | 0 | | | 37 | | | 0 | | |
Total mortgage-backed securities | 41 | | | 0 | | | (1) | | | (3) | | | 0 | | | 0 | | | 37 | | | 0 | | |
Corporate debt securities | 370 | | | 7 | | | (5) | | | (5) | | | 0 | | | 0 | | | 367 | | | 0 | | |
| | | | | | | | | | | | | | | | |
Other | 1,189 | | | 19 | | | (22) | | | (306) | | | 0 | | | (153) | | | 727 | | | 0 | | |
Total available-for-sale debt securities | 2,044 | | | 27 | | | (23) | | | (362) | | | 0 | | | (202) | | | 1,484 | | | 0 | | (6) |
Mortgage loans held for sale | 997 | | | 74 | | | 0 | | | (94) | | | 281 | | | (9) | | | 1,249 | | | 75 | | (7) |
Loans held for sale | 60 | | | 0 | | | 0 | | | (4) | | | 38 | | | (93) | | | 1 | | | 0 | | (5) |
Loans | 244 | | | 1 | | | 0 | | | (60) | | | 0 | | | 0 | | | 185 | | | (6) | | (7) |
Mortgage servicing rights (residential) (8) | 14,649 | | | (4,570) | | | 0 | | | 993 | | | 0 | | | 0 | | | 11,072 | | | (2,931) | | (7) |
Net derivative assets and liabilities: | | | | | | | | | | | | | | | | |
Interest rate contracts | 25 | | | 495 | | | 0 | | | (377) | | | 0 | | | 0 | | | 143 | | | 179 | | |
Commodity contracts | 4 | | | (211) | | | 0 | | | 152 | | | 2 | | | 23 | | | (30) | | | (6) | | |
Equity contracts | (17) | | | (402) | | | 0 | | | 194 | | | 7 | | | 15 | | | (203) | | | (205) | | |
Foreign exchange contracts | (26) | | | 27 | | | 0 | | | (27) | | | 0 | | | 0 | | | (26) | | | 2 | | |
Credit contracts | 35 | | | (3) | | | 0 | | | 6 | | | 0 | | | 0 | | | 38 | | | 2 | | |
| | | | | | | | | | | | | | | | |
Total derivative contracts | 21 | | | (94) | | | 0 | | | (52) | | | 9 | | | 38 | | | (78) | | | (28) | | (9) |
Equity securities: | | | | | | | | | | | | | | | | |
Marketable | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | |
Nonmarketable | 5,468 | | | 1,663 | | | 0 | | | (1) | | | 12 | | | (12) | | | 7,130 | | | 1,664 | | |
Total equity securities | 5,468 | | | 1,663 | | | 0 | | | (1) | | | 12 | | | (12) | | | 7,130 | | | 1,664 | | (10) |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Other liabilities | (2) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (2) | | | 0 | | (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, except for $153 million of asset-backed securities that were transferred to loans during third quarter 2019.
(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 from trading activities in the income statement.
(6)Included in net gains from debt securities in the income statement.
(7)Included in mortgage banking and other noninterest income in the income statement.
(8)For additional 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, net gains (losses) 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 16.10 presents gross purchases, sales, issuances and settlements related to the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for nine months ended September 30, 2019.
Table 16.10:Gross Purchases, Sales, Issuances and Settlements – Level 3 – Nine months ended September 30, 2019
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Purchases | | Sales | | Issuances | | Settlements | | Net |
Nine months ended September 30, 2019 | | | | | | | | | |
Trading debt securities: | | | | | | | | | |
Securities of U.S. states and political subdivisions | $ | 0 | | | 0 | | | 0 | | | (2) | | | (2) | |
Collateralized loan obligations | 281 | | | (252) | | | 0 | | | (16) | | | 13 | |
Corporate debt securities | 14 | | | (11) | | | 0 | | | 0 | | | 3 | |
Mortgage-backed securities | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Other | 0 | | | 0 | | | 0 | | | (6) | | | (6) | |
Total trading debt securities | 295 | | | (263) | | | 0 | | | (24) | | | 8 | |
Available-for-sale debt securities: | | | | | | | | | |
Securities of U.S. states and political subdivisions | 0 | | | 0 | | | 67 | | | (115) | | | (48) | |
Mortgage-backed securities: | | | | | | | | | |
Residential | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Commercial | 0 | | | 0 | | | 0 | | | (3) | | | (3) | |
Total mortgage-backed securities | 0 | | | 0 | | | 0 | | | (3) | | | (3) | |
Corporate debt securities | 12 | | | 0 | | | 0 | | | (17) | | | (5) | |
| | | | | | | | | |
Other | 0 | | | (9) | | | 133 | | | (430) | | | (306) | |
Total available-for-sale debt securities | 12 | | | (9) | | | 200 | | | (565) | | | (362) | |
Mortgage loans held for sale | 69 | | | (185) | | | 187 | | | (165) | | | (94) | |
Loans held for sale | 12 | | | (2) | | | 0 | | | (14) | | | (4) | |
Loans | 3 | | | 0 | | | 7 | | | (70) | | | (60) | |
Mortgage servicing rights (residential) (1) | 0 | | | (286) | | | 1,279 | | | 0 | | | 993 | |
Net derivative assets and liabilities: | | | | | | | | | |
Interest rate contracts | 0 | | | 0 | | | (1) | | | (376) | | | (377) | |
Commodity contracts | 0 | | | 0 | | | 0 | | | 152 | | | 152 | |
Equity contracts | 0 | | | 0 | | | 0 | | | 194 | | | 194 | |
Foreign exchange contracts | 0 | | | 0 | | | 0 | | | (27) | | | (27) | |
Credit contracts | 12 | | | (6) | | | 0 | | | 0 | | | 6 | |
| | | | | | | | | |
Total derivative contracts | 12 | | | (6) | | | (1) | | | (57) | | | (52) | |
Equity securities: | | | | | | | | | |
Marketable | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Nonmarketable | 0 | | | (1) | | | 0 | | | 0 | | | (1) | |
Total equity securities | 0 | | | (1) | | | 0 | | | 0 | | | (1) | |
| | | | | | | | | |
| | | | | | | | | |
Other liabilities | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
(1)For additional information on the changes in mortgage servicing rights, see Note 11 (Mortgage Banking Activities).
Table 16.11 and Table 16.12 provide15.3 provides 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.basis.
The significant unobservable inputs for Level 3 assets and liabilities inherent in the fair values obtained from third-party vendors are not included in the table, as the specific inputs applied are not
provided by the vendor.
In addition, the table excludes the valuation techniquesvendor (for additional information on vendor-developed valuations, see Note 17 (Fair Values of Assets and significant unobservable inputs for certain classes of Level 3 assets and liabilities measured using internal models that we consider, both individually andLiabilities) 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.2020 Form 10-K).
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 19 (Fair Values of Assets and Liabilities) in our 2019 Form 10-K.
Table 16.11: 15.3:Valuation Techniques – Recurring Basis – September 30, 2020
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
($ in millions, except cost to service amounts) | Fair Value Level 3 | | Valuation Technique(s) | | Significant Unobservable Inputs | | Range of Inputs Positive (Negative) | | | Weighted Average |
September 30, 2020 | | | | | | | | | | | | |
Trading and available-for-sale debt securities: | | | | | | | | | | | | |
| | | | | | | | | | | | |
Securities of U.S. states and political subdivisions | $ | 248 | | | Discounted cash flow | | Discount rate | | 0.4 | | - | 4.5 | | % | | 1.2 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| 38 | | | Vendor priced | | | | | | | | | |
Collateralized loan obligations | 140 | | | Market comparable pricing | | Comparability adjustment | | (37.7) | | - | 2.0 | | | | (7.6) | |
| | | | | | | | | | | | |
Corporate debt securities | 859 | | | Discounted cash flow | | Discount rate | | 3.4 | | - | 14.8 | | | | 4.0 | |
| 66 | | | Market comparable pricing | | Comparability adjustment | | (34.5) | | - | 8.3 | | | | (23.4) | |
| 129 | | | Vendor priced | | | | | | | | | |
Mortgage-backed securities | 11 | | | Market comparable pricing | | Comparability adjustment | | (17.1) | | - | (13.5) | | | | (15.2) | |
| 43 | | | Vendor priced | | | | | | | | | |
Other debt securities | 52 | | | Discounted cash flow | | Discount rate | | 1.0 | | - | 2.7 | | | | 2.4 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| 564 | | | Vendor priced | | | | | | | | | |
Mortgage loans held for sale (residential) | 832 | | | Discounted cash flow | | Default rate | | 0.0 | | - | 31.7 | | | | 1.3 | |
| | | | | Discount rate | | 1.6 | | - | 6.1 | | | | 5.1 | |
| | | | | Loss severity | | 0.0 | | - | 30.1 | | | | 20.6 | |
| | | | | Prepayment rate | | 8.5 | | - | 23.5 | | | | 15.7 | |
| 15 | | | Market comparable pricing | | Comparability adjustment | | (50.0) | | - | (14.3) | | | | (37.3) | |
Loans (1) | 148 | | | Discounted cash flow | | Discount rate | | 3.9 | | - | 5.7 | | | | 4.3 | |
| | | | | Default rate | | 0.0 | | | 31.6 | | | | 0.6 | |
| | | | | Prepayment rate | | 8.4 | | - | 100.0 | | | | 84.7 | |
| | | | | Loss severity | | 0.0 | | - | 44.9 | | | | 15.8 | |
Mortgage servicing rights (residential) | 6,355 | | | Discounted cash flow | | Cost to service per loan (2) | | $ | 64 | | - | 907 | | | | 138 | |
| | | | | Discount rate | | 4.8 | | - | 8.6 | | % | | 5.8 | |
| | | | | Prepayment rate (3) | | 12.7 | | - | 24.1 | | | | 19.7 | |
Net derivative assets and (liabilities): | | | | | | | | | | | | |
Interest rate contracts | 195 | | | Discounted cash flow | | Default rate | | 0.0 | | - | 6.0 | | | | 1.6 | |
| | | | | Loss severity | | 50.0 | | - | 50.0 | | | | 50.0 | |
| | | | | Prepayment rate | | 2.8 | | - | 22.0 | | | | 18.1 | |
| (3) | | | Market comparable pricing | | Comparability adjustment | | (33.3) | | | (31.3) | | | | (32.2) | |
Interest rate contracts: derivative loan commitments | 254 | | | Discounted cash flow | | Fall-out factor | | 1.0 | | - | 99.0 | | | | 25.3 | |
| | | | | Initial-value servicing | | (52.8) | | - | 156.0 | | bps | | 58.5 | |
Equity contracts | 177 | | | Discounted cash flow | | Conversion factor | | (8.8) | | - | 0.0 | | % | | (7.8) | |
| | | | | Weighted average life | | 0.3 | - | 2.3 | yrs | | 1.2 |
| (285) | | | Option model | | Correlation factor | | (77.0) | | - | 99.0 | | % | | 38.8 | |
| | | | | Volatility factor | | 6.5 | | - | 101.3 | | | | 17.9 | |
Credit contracts | 35 | | | Market comparable pricing | | Comparability adjustment | | (99.0) | | - | 132.0 | | | | (7.2) | |
| 11 | | | Option model | | Credit spread | | 0.0 | | - | 9.3 | | | | 1.3 | |
| | | | | Loss severity | | 12.0 | | - | 60.0 | | | | 45.5 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Nonmarketable equity securities | 8,428 | | | Market comparable pricing | | Comparability adjustment | | 3.6 | | - | 21.1 | | | | 13.9 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Insignificant Level 3 assets, net of liabilities | 8 | | | | | | | | | | | | |
Total level 3 assets, net of liabilities | $ | 18,320 | | (4) | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
($ in millions, except cost to service amounts) | Fair Value Level 3 | | Valuation Technique | | Significant Unobservable Input | | Range of Inputs | | | Weighted Average |
June 30, 2021 | | | | | | | | | | | | |
Trading and available-for-sale debt securities | $ | 1,926 | | | Discounted cash flow | | Discount rate | | 0.4 | | - | 12.4 | | % | | 4.4 | |
| 747 | | | Vendor priced | | | | | | | | | |
| 193 | | | Market comparable pricing | | Comparability adjustment | | (29.1) | | - | 9.5 | | | | (6.6) | |
| 131 | | | Market comparable pricing | | Multiples | | 0.4x | - | 12.1x | | | 6.5x |
Loans held for sale | 1,069 | | | Discounted cash flow | | Default rate | | 0.0 | | - | 35.7 | | % | | 1.5 | |
| | | | | Discount rate | | 1.1 | | - | 12.5 | | | | 4.6 | |
| | | | | Loss severity | | 0.0 | | - | 32.9 | | | | 15.8 | |
| | | | | Prepayment rate | | 6.9 | | - | 17.6 | | | | 12.9 | |
Mortgage servicing rights (residential) | 6,717 | | | Discounted cash flow | | Cost to service per loan (1) | | $ | 57 | | - | 642 | | | | 111 | |
| | | | | Discount rate | | 4.6 | | - | 8.3 | | % | | 5.4 | |
| | | | | Prepayment rate (2) | | 14.2 | | - | 21.4 | | | | 17.2 | |
Net derivative assets and (liabilities): | | | | | | | | | | | | |
Interest rate contracts | 139 | | | Discounted cash flow | | Default rate | | 0.0 | | - | 6.0 | | | | 1.9 | |
| | | | | Loss severity | | 50.0 | | - | 50.0 | | | | 50.0 | |
| | | | | Prepayment rate | | 2.8 | | - | 22.0 | | | | 18.5 | |
Interest rate contracts: derivative loan commitments | 175 | | | Discounted cash flow | | Fall-out factor | | 1.0 | | - | 99.0 | | | | 20.2 | |
| | | | | Initial-value servicing | | (65.9) | | - | 151.0 | | bps | | 89.9 | |
Equity contracts | 239 | | | Discounted cash flow | | Conversion factor | | (9.3) | | - | 0.0 | | % | | (9.0) | |
| | | | | Weighted average life | | 0.0 | - | 2.5 | yrs | | 1.4 |
| (664) | | | Option model | | Correlation factor | | (77.0) | | - | 99.0 | | % | | 17.5 | |
| | | | | Volatility factor | | 6.5 | | - | 78.8 | | | | 21.8 | |
Nonmarketable equity securities | 9,659 | | | Market comparable pricing | | Comparability adjustment | | (19.3) | | - | (5.5) | | | | (15.6) | |
| | | | | | | | | | | | |
Insignificant Level 3 assets, net of liabilities | 36 | | | | | | | | | | | | |
Total Level 3 assets, net of liabilities | $ | 20,367 | | (3) | | | | | | | | | | |
December 31, 2020 | | | | | | | | | | | | |
Trading and available-for-sale debt securities | $ | 2,126 | | | Discounted cash flow | | Discount rate | | 0.4 | | - | 14.7 | | % | | 3.6 | |
| 759 | | | Vendor priced | | | | | | | | | |
| 173 | | | Market comparable pricing | | Comparability adjustment | | (39.8) | | - | 0.3 | | | | (8.4) | |
| 109 | | | Market comparable pricing | | Multiples | | 7.2x | - | 12.1x | | | 8.0x |
Loans held for sale | 1,234 | | | Discounted cash flow | | Default rate | | 0.0 | | - | 31.6 | | % | | 1.7 | |
| | | | | Discount rate | | 1.3 | | - | 12.0 | | | | 4.5 | |
| | | | | Loss severity | | 0.0 | | - | 32.3 | | | | 18.4 | |
| | | | | Prepayment rate | | 8.3 | | - | 23.6 | | | | 15.1 | |
Mortgage servicing rights (residential) | 6,125 | | | Discounted cash flow | | Cost to service per loan (1) | | $ | 63 | | - | 712 | | | | 130 | |
| | | | | Discount rate | | 4.9 | | - | 8.3 | | % | | 5.8 | |
| | | | | Prepayment rate (2) | | 14.3 | | - | 22.8 | | | | 19.9 | |
Net derivative assets and (liabilities): | | | | | | | | | | | | |
Interest rate contracts | 206 | | | Discounted cash flow | | Default rate | | 0.0 | | - | 6.0 | | | | 1.7 | |
| | | | | Loss severity | | 50.0 | | - | 50.0 | | | | 50.0 | |
| | | | | Prepayment rate | | 2.8 | | - | 22.0 | | | | 18.2 | |
Interest rate contracts: derivative loan commitments | 240 | | | Discounted cash flow | | Fall-out factor | | 1.0 | | - | 99.0 | | | | 28.8 | |
| | | | | Initial-value servicing | | (51.6) | | - | 268.0 | | bps | | 65.5 | |
Equity contracts | 220 | | | Discounted cash flow | | Conversion factor | | (8.6) | | - | 0.0 | | % | | (8.2) | |
| | | | | Weighted average life | | 0.5 | - | 2.0 | yrs | | 1.0 |
| (534) | | | Option model | | Correlation factor | | (77.0) | | - | 99.0 | | % | | 24.8 | |
| | | | | Volatility factor | | 6.5 | | - | 96.6 | | | | 26.4 | |
Nonmarketable equity securities | 9,228 | | | Market comparable pricing | | Comparability adjustment | | (20.3) | | - | (3.2) | | | | (13.8) | |
| | | | | | | | | | | | |
Insignificant Level 3 assets, net of liabilities | 44 | | | | | | | | | | | | |
Total Level 3 assets, net of liabilities | $ | 19,930 | | (3) | | | | | | | | | | |
(1)Consists of reverse mortgage loans.
(2)The high end of the range of inputs is for servicing modified loans. For non-modified loans the range is $64 to $248 per loan.$57 - $239 at June 30, 2021, and $63 - $252 at December 31, 2020.
(3)(2)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.
(4)(3)Consists of total Level 3 assets of $19.9$22.8 billion and $21.9 billion and total Level 3 liabilities of $1.6$2.5 billion and $2.0 billion, before netting of derivative balances.balances, at June 30, 2021, and December 31, 2020, respectively.
Note 16:15: Fair Values of Assets and Liabilities (continued)(continued)
Table 16.12:Valuation Techniques – Recurring Basis – December 31, 2019
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
($ in millions, except cost to service amounts) | Fair Value Level 3 | | Valuation Technique(s) | | Significant Unobservable Inputs | | Range of Inputs Positive (Negative) | | | Weighted Average |
December 31, 2019 | | | | | | | | | | | | |
Trading and available-for-sale debt securities: | | | | | | | | | | | | |
| | | | | | | | | | | | |
Securities of U.S. states and political subdivisions | $ | 379 | | | Discounted cash flow | | Discount rate | | 1.3 | | - | 5.4 | | % | | 2.4 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| 34 | | | Vendor priced | | | | | | | | | |
Collateralized loan obligations | 183 | | | Market comparable pricing | | Comparability adjustment | | (15.0) | | - | 19.2 | | | | 1.3 | |
| | | | | | | | | | | | |
Corporate debt securities | 220 | | | Discounted cash flow | | Discount rate | | 3.2 | | | 14.9 | | | | 9.2 | |
| 60 | | | Market comparable pricing | | Comparability adjustment | | (19.7) | | | 14.0 | | | | (4.4) | |
| 125 | | | Vendor priced | | | | | | | | | |
Other debt securities | 92 | | | Discounted cash flow | | Discount rate | | 2.3 | | - | 3.1 | | | | 2.8 | |
| | | | | | | | | | | | |
| 651 | | | Vendor priced | | | | | | | | | |
Mortgage loans held for sale (residential) | 1,183 | | | Discounted cash flow | | Default rate | | 0.0 | | - | 15.5 | | | | 0.7 | |
| | | | | Discount rate | | 3.0 | | - | 5.6 | | | | 4.5 | |
| | | | | Loss severity | | 0.0 | | - | 43.5 | | | | 21.7 | |
| | | | | Prepayment rate | | 5.7 | | - | 15.4 | | | | 7.8 | |
| 15 | | | Market comparable pricing | | Comparability adjustment | | (56.3) | | - | (6.3) | | | | (40.3) | |
Loans (1) | 171 | | | Discounted cash flow | | Discount rate | | 3.9 | | - | 4.3 | | | | 4.1 | |
| | | | | Prepayment rate | | 6.0 | | - | 100.0 | | | | 85.6 | |
| | | | | Loss severity | | 0.0 | | - | 36.5 | | | | 14.1 | |
Mortgage servicing rights (residential) | 11,517 | | | Discounted cash flow | | Cost to service per loan (2) | | $ | 61 | | - | 495 | | | | 102 | |
| | | | | Discount rate | | 6.0 | | - | 13.6 | | % | | 7.2 | |
| | | | | Prepayment rate (3) | | 9.6 | | - | 24.4 | | | | 11.9 | |
Net derivative assets and (liabilities): | | | | | | | | | | | | |
Interest rate contracts | 146 | | | Discounted cash flow | | Default rate | | 0.0 | | - | 5.0 | | | | 1.7 | |
| | | | | Loss severity | | 50.0 | | - | 50.0 | | | | 50.0 | |
| | | | | Prepayment rate | | 2.8 | | - | 25.0 | | | | 15.0 | |
Interest rate contracts: derivative loan commitments | 68 | | | Discounted cash flow | | Fall-out factor | | 1.0 | | - | 99.0 | | | | 16.7 | |
| | | | | Initial-value servicing | | (32.2) | | - | 149.0 | | bps | | 36.4 | |
Equity contracts | 147 | | | Discounted cash flow | | Conversion factor | | (8.8) | | - | 0.0 | | % | | (7.7) | |
| | | | | Weighted average life | | 0.5 | - | 3.0 | yrs | | 1.5 |
| (416) | | | Option model | | Correlation factor | | (77.0) | | - | 99.0 | | % | | 23.8 | |
| | | | | Volatility factor | | 6.8 | | - | 100.0 | | | | 18.7 | |
Credit contracts | 2 | | | Market comparable pricing | | Comparability adjustment | | (56.1) | | - | 10.8 | | | | (16.0) | |
| 27 | | | Option model | | Credit spread | | 0.0 | | - | 17.8 | | | | 0.8 | |
| | | | | Loss severity | | 12.0 | | - | 60.0 | | | | 45.6 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Nonmarketable equity securities | 7,847 | | | Market comparable pricing | | Comparability adjustment | | (20.2) | | - | (4.2) | | | | (14.6) | |
| | | | | | | | | | | | |
Insignificant Level 3 assets, net of liabilities | 27 | | | | | | | | | | | | |
Total level 3 assets, net of liabilities | $ | 22,478 | | (4) | | | | | | | | | | |
(1)Consists of reverse mortgage loans.
(2)The high end of the range of inputs is for servicing modified loans. For non-modified loans the range is $61 to $231 per loan.
(3)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.
(4)Consists of total Level 3 assets of $24.3 billion and total Level 3 liabilities of $1.8 billion, before netting of derivative balances.
For additional information on the valuation techniques and significant unobservable inputs used forin the valuation of our Level 3 assets and liabilities, including how changes in these inputs affect fair value estimates, see Note 1917 (Fair ValueValues of Assets and Liabilities) in our 20192020 Form 10-K.
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 useapplication of the measurement alternative for nonmarketable equity securities.
Table 16.1315.4 provides the fair value hierarchy and fair value at the date of the nonrecurring fair value adjustment for all assets
that were still held as of SeptemberJune 30, 2020,2021, and December 31, 2019,2020, and for which a nonrecurring fair value adjustment was recorded during the ninesix months ended SeptemberJune 30, 2020,2021, and year ended December 31, 2019.2020.
Table 16.1415.5 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 16.13:15.4: Fair Value on a Nonrecurring Basis
| | | September 30, 2020 | | December 31, 2019 | | June 30, 2021 | | December 31, 2020 |
(in millions) | (in millions) | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | (in millions) | Level 2 | | Level 3 | | Total | | Level 2 | | Level 3 | | Total |
Mortgage loans held for sale (1) | $ | 0 | | | 864 | | | 1,825 | | | 2,689 | | | 0 | | | 2,034 | | | 3,803 | | | 5,837 | | |
Loans held for sale | 0 | | | 9 | | | 0 | | | 9 | | | 0 | | | 5 | | | 0 | | | 5 | | |
Loans held for sale (1) | | Loans held for sale (1) | 2,956 | | | 1,439 | | | 4,395 | | | 2,672 | | | 2,945 | | | 5,617 | |
Loans: | Loans: | | | | | Loans: | |
Commercial | Commercial | 0 | | | 1,065 | | | 0 | | | 1,065 | | | 0 | | | 280 | | | 0 | | | 280 | | Commercial | 432 | | | 0 | | | 432 | | | 1,385 | | | 0 | | | 1,385 | |
Consumer | Consumer | 0 | | | 289 | | | 0 | | | 289 | | | 0 | | | 213 | | | 1 | | | 214 | | Consumer | 221 | | | 0 | | | 221 | | | 395 | | | 0 | | | 395 | |
Total loans | Total loans | 0 | | | 1,354 | | | 0 | | | 1,354 | | | 0 | | | 493 | | | 1 | | | 494 | | Total loans | 653 | | | 0 | | | 653 | | | 1,780 | | | 0 | | | 1,780 | |
Mortgage servicing rights (commercial) | Mortgage servicing rights (commercial) | 0 | | | 0 | | | 534 | | | 534 | | | 0 | | | 0 | | | 0 | | | 0 | | Mortgage servicing rights (commercial) | 0 | | | 567 | | | 567 | | | 0 | | | 510 | | | 510 | |
Nonmarketable equity securities | Nonmarketable equity securities | 0 | | | 1,805 | | | 998 | | | 2,803 | | | 0 | | | 1,308 | | | 173 | | | 1,481 | | Nonmarketable equity securities | 3,882 | | | 85 | | | 3,967 | | | 2,397 | | | 790 | | | 3,187 | |
Other assets | Other assets | 0 | | | 1,098 | | | 417 | | | 1,515 | | | 0 | | | 359 | | | 27 | | | 386 | | Other assets | 976 | | | 157 | | | 1,133 | | | 1,350 | | | 428 | | | 1,778 | |
Total assets at fair value on a nonrecurring basis | Total assets at fair value on a nonrecurring basis | $ | 0 | | | 5,130 | | | 3,774 | | | 8,904 | | | 0 | | | 4,199 | | | 4,004 | | | 8,203 | | Total assets at fair value on a nonrecurring basis | $ | 8,467 | | | 2,248 | | | 10,715 | | | 8,199 | | | 4,673 | | | 12,872 | |
(1)ConsistsPredominantly consists of commercial mortgages and residential real estate 1-4 familymortgage – first mortgagelien 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 16.14:15.5: Change in Value of Assets with Nonrecurring Fair Value Adjustment
| | | | | | | | | | | |
| Nine months ended September 30, |
(in millions) | 2020 | | 2019 |
Mortgage loans held for sale | $ | (72) | | | 14 | |
Loans held for sale | (5) | | | (2) | |
Loans: | | | |
Commercial | (594) | | | (181) | |
Consumer | (192) | | | (168) | |
Total loans | (786) | | | (349) | |
Mortgage servicing rights (commercial) | (37) | | | 0 | |
Nonmarketable equity securities | 102 | | | 379 | |
| | | |
Other assets | (468) | | | (29) | |
Total | $ | (1,266) | | | 13 | |
| | | | | | | | | | | | |
| Six months ended June 30, |
(in millions) | 2021 | | 2020 | |
Loans held for sale | $ | 38 | | | (77) | | |
Loans: | | | | |
Commercial | (182) | | | (392) | | |
Consumer | (90) | | | (128) | | |
Total loans | (272) | | | (520) | | |
Mortgage servicing rights (commercial) | 31 | | | (30) | | |
Nonmarketable equity securities | 2,215 | | | (410) | | |
| | | | |
Other assets | (56) | | | (394) | | |
Total | $ | 1,956 | | | (1,431) | | |
Note 16: Fair Values of Assets and Liabilities (continued)
Table 16.1515.6 provides quantitative information about the valuation techniques and significant unobservable inputs used in the valuation of our Level 3 assets that are measured at fair value on a nonrecurring basis primarilyand determined using an internal model. The table is limited to financial instruments that had nonrecurring fair value adjustments during the periods presented. Weighted averages of inputs are calculated using outstanding unpaid principal balance for cash instruments, such as loans, and carrying value prior to the nonrecurring fair value measurement for nonmarketable equity securities.
We have excluded from the table valuation techniques and significant unobservable inputs for certain classes of Level 3
assets 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 16.15:15.6: Valuation Techniques – Nonrecurring Basis
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
($ in millions) | Fair Value Level 3 | | Valuation Technique(s) (1) | | Significant Unobservable Inputs (1) | | Range of Inputs Positive (Negative) | | Weighted Average |
September 30, 2020 | | | | | | | | | | | |
Residential mortgage loans held for sale | $ | 1,825 | | (2) | Discounted cash flow | | Default rate | (3) | 0.8 | | — | 68.5 | % | | 26.8 | |
| | | | | Discount rate | | 0.6 | | — | 8.5 | | | 3.9 | |
| | | | | Loss severity | | 0.8 | | — | 65.1 | | | 8.1 | |
| | | | | Prepayment rate | (4) | 4.1 | | — | 100.0 | | | 43.3 | |
Mortgage servicing rights (commercial) | 534 | | | Discounted cash flow | | Cost to service per loan | | $ | 150 | | — | 3,377 | | | 2,774 | |
| | | | | Discount rate | | 2.1 | | — | 2.1 | % | | 2.1 | |
| | | | | Prepayment rate | | 0.0 | | — | 20.0 | | | 5.0 | |
Nonmarketable equity securities (5) | 874 | | | Market comparable pricing | | Multiples | | 0.1x | — | 10.9x | | 4.9x |
| 357 | | | Market comparable pricing | | Comparability adjustment | | (100.0) | | — | (47.0) | % | | (51.4) | |
| 77 | | | Other | | Company risk factor | | (100.0) | | — | (20.0) | | | (52.0) | |
| 104 | | | Discounted cash flow | | Discount rate | | 10.0 | | — | 20.0 | | | 11.1 | |
| | | | | Company risk factor | | (72.0) | | — | 0.0 | | | (33.6) | |
| | | | | Crude oil prices ($/barrel) | | $ | 42 | | — | 48 | | | 47 | |
| | | | | Natural gas prices ($/MMBtu) | | 2 | | — | 2 | | | 2 | |
Insignificant level 3 assets | 3 | | | | | | | | | | | |
Total | $ | 3,774 | | | | | | | | | | | |
December 31, 2019 | | | | | | | | | | | |
Residential mortgage loans held for sale | $ | 3,803 | | (2) | Discounted cash flow | | Default rate | (3) | 0.3 | | — | 48.3 | % | | 4.6 | |
| | | | | Discount rate | | 1.5 | | — | 9.4 | | | 4.3 | |
| | | | | Loss severity | | 0.4 | | — | 100.0 | | | 23.4 | |
| | | | | Prepayment rate | (4) | 4.8 | | — | 100.0 | | | 23.2 | |
Insignificant level 3 assets | 201 | | | | | | | | | | | |
Total | $ | 4,004 | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
($ in millions) | Fair Value Level 3 | Valuation Technique (1) | | Significant Unobservable Input (1) | | Range of Inputs Positive (Negative) | | Weighted Average |
June 30, 2021 | | | | | | | | | | |
Loans held for sale (2) | $ | 1,269 | | Discounted cash flow | | Default rate | (3) | 0.8 | | - | 80.2 | % | | 30.3 | |
| | | | Discount rate | | 0.6 | | - | 12.6 | | 3.1 | |
| | | | Loss severity | | 0.3 | | - | 51.0 | | 5.9 | |
| | | | Prepayment rate | (4) | 4.2 | | - | 100.0 | | 41.3 | |
| 170 | | Market comparable pricing | | Comparability adjustment | | (5.9) | | - | (1.4) | | (5.0) | |
Mortgage servicing rights (commercial) | 567 | | Discounted cash flow | | Cost to service per loan | | $ | 150 | | - | 3,381 | | 2,773 | |
| | | | Discount rate | | 4.0 | | - | 4.2 | % | | 4.0 | |
| | | | Prepayment rate | | 0.0 | | - | 20.6 | | 5.5 | |
Nonmarketable equity securities | 15 | | Market comparable pricing | | Multiples | | 2.0x | - | 3.3x | | 2.8x |
| | | | | | | | | | |
| 65 | | Market comparable pricing | | Comparability Adjustment | | (100.0) | | - | (5.3) | % | | (50.0) | |
| 5 | | Discounted cash flow | | Discount rate | | 10.5 | | - | 10.5 | | 10.5 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Other assets | 157 | | Discounted cash flow | | Discount rate | | 0.3 | | - | 4.4 | | 2.9 | |
| | | | | | | | | | |
Total | $ | 2,248 | | | | | | | | | | |
December 31, 2020 | | | | | | | | | | |
Loans held for sale (2) | $ | 1,628 | | Discounted cash flow | | Default rate | (3) | 0.3 | | - | 85.5 | % | | 31.5 | |
| | | | Discount rate | | 0.6 | | - | 11.9 | | 3.0 | |
| | | | Loss severity | | 0.4 | | - | 45.0 | | 8.1 | |
| | | | Prepayment rate | (4) | 8.3 | | - | 100.0 | | 42.5 | |
| 1,317 | | Market comparable pricing | | Comparability adjustment | | (11.6) | | - | (1.8) | | (3.1) | |
Mortgage servicing rights (commercial) | 510 | | Discounted cash flow | | Cost to service per loan | | $ | 150 | | - | 3,377 | | 2,779 | |
| | | | Discount rate | | 1.9 | | - | 1.9 | % | | 1.9 | |
| | | | Prepayment rate | | 0.0 | | - | 20.0 | | 5.4 | |
Nonmarketable equity securities (5) | 844 | | Market comparable pricing | | Multiples | | 0.1x | - | 10.9x | | 5.0x |
| 188 | | Market comparable pricing | | Comparability adjustment | | (100.0) | | - | (20.0) | % | | (61.4) | |
| 76 | | Other | | Company risk factor | | (100.0) | | - | (20.0) | | (57.7) | |
| 91 | | Discounted cash flow | | Discount rate | | 10.0 | | - | 20.0 | | 11.5 | |
| | | | Company risk factor | | (62.6) | | - | 0.0 | | (30.3) | |
| | | | Crude oil prices ($/barrel) | | $ | 42 | | - | 48 | | 47 | |
| | | | Natural gas prices ($/MMBtu) | | 2 | | - | 2 | | 2 | |
Insignificant Level 3 assets | 19 | | | | | | | | | | |
Total | $ | 4,673 | | | | | | | | | | |
(1)Refer toSee Note 1917 (Fair ValueValues of Assets and Liabilities) in our 20192020 Form 10-K for a definition ofadditional information on the valuation technique(s) and significant unobservable inputs used in the valuation of residential mortgage loans held for sale, mortgage servicing rights, and certain nonmarketable equity securities.Level 3 assets.
(2)Consists of approximately $1.4$1.2 billion and $1.3$2.6 billion of government insured/guaranteed loans purchased from GNMA-guaranteed mortgage securitizations at SeptemberJune 30, 20202021, and December 31, 2019,2020, respectively, and approximately $400$200 million and $2.5 billion, respectively,$300 million of other mortgage loans that are not government insured/guaranteed.guaranteed at June 30, 2021, and December 31, 2020.
(3)Applies only to non-government insured/guaranteed loans.
(4)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.
(5)Includes $417 million of private equity and venture capital investments in consolidated portfolio companies classified in other assets on the consolidated balance sheet.sheet at December 31, 2020.
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. Following is a discussion of the portfolios for which we elected the fair value option. For additional information, including
the basis for our fair value
option elections, see Note 1917 (Fair Values of Assets and Liabilities) in our 20192020 Form 10-K.
Table 16.1615.7 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. Nonaccrual loans and loans 90 days or more past due and still accruing included in LHFS for which we have elected the fair value option were insignificant at June 30, 2021, and December 31, 2020.
Table 16.16:15.7: Fair Value Option
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 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 | $ | 19,884 | | | 19,131 | | | 753 | | | 16,606 | | | 16,279 | | | 327 | |
Nonaccrual loans | 158 | | | 190 | | | (32) | | | 133 | | | 157 | | | (24) | |
Loans 90 days or more past due and still accruing | 21 | | | 24 | | | (3) | | | 8 | | | 10 | | | (2) | |
Loans held for sale: | | | | | | | | | | | |
Total loans | 1,688 | | | 1,777 | | | (89) | | | 972 | | | 1,020 | | | (48) | |
Nonaccrual loans | 5 | | | 39 | | | (34) | | | 21 | | | 29 | | | (8) | |
Loans: | | | | | | | | | | | |
Total loans | 148 | | | 180 | | | (32) | | | 171 | | | 201 | | | (30) | |
Nonaccrual loans | 116 | | | 148 | | | (32) | | | 129 | | | 159 | | | (30) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
(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 |
Loans held for sale | $ | 18,894 | | | 18,526 | | | 368 | | | 18,806 | | | 18,217 | | | 589 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Note 15: Fair Values of Assets and Liabilities (continued)
The changes in fair value related to initial measurement and subsequent changes in fair value included in earnings for these assets measured atLHFS accounted for under the fair value are shownoption were $823 million and $1.2 billion in Table 16.17 bythe second quarter and first half of 2021, respectively, and $773 million and $1.1 billion in the second quarter and first half of 2020, respectively. Substantially all of these amounts were included in the mortgage banking noninterest income
line of the consolidated statement line item. Amounts recorded as interest income are excluded from Table 16.17.
Table 16.17: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 September 30, | | | | | | | | | | | | | | | |
Mortgage loans held for sale | $ | 847 | | | 0 | | | | | 0 | | | 256 | | | 0 | | | | | 0 | |
Loans held for sale | 0 | | | 15 | | | | | 0 | | | 0 | | | 5 | | | | | 1 | |
Loans | 0 | | | 0 | | | | | 0 | | | 0 | | | 0 | | | | | 0 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Nine months ended September 30, | | | | | | | | | | | | | | | |
Mortgage loans held for sale | $ | 1,944 | | | 0 | | | | | 0 | | | 849 | | | 0 | | | | | 0 | |
Loans held for sale | 0 | | | 26 | | | | | 0 | | | 0 | | | 15 | | | | | 2 | |
Loans | 0 | | | 0 | | | | | (2) | | | 0 | | | 0 | | | | | 1 | |
of income. 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 16.18 shows the estimated gainsGains and losses from earnings attributable to instrument-specific credit risk related to assets accounted for under the fair value option.
Table 16.18:Fair Value Option – Gains/Losses Attributable to Instrument-Specific Credit Risk
| | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended September 30, | | Nine months ended September 30, |
(in millions) | 2020 | | 2019 | | 2020 | | 2019 |
Gains (losses) attributable to instrument-specific credit risk: | | | | | | | |
Mortgage loans held for sale | $ | 11 | | | (13) | | | $ | (206) | | | (1) | |
Loans held for sale | 13 | | | 5 | | | 27 | | | 16 | |
Total | $ | 24 | | | (8) | | | $ | (179) | | | 15 | |
option in the second quarter and first half of both 2021 and 2020 were insignificant.
Note 16: Fair Values of Assets and Liabilities (continued)
Disclosures about Fair Value of Financial Instruments
Table 16.1915.8 presents a summary of fair value estimates for financial instruments that are not carried at fair value on a recurring basis. Some financial instruments are excluded from the scope of this table, such as certain insurance contracts, certain nonmarketable equity securities, and leases. This table also excludes assets and liabilities that are not financial instruments such as the value of the long-term relationships with our deposit, credit card and trust customers, MSRs, premises and equipment, goodwill and deferred taxes.
Loan commitments, standby letters of credit and commercial and similar letters of credit are not included in
Table 16.19.15.8. A reasonable estimate of the fair value of these instruments is the carrying value of deferred fees plus the allowance for unfunded credit commitments, which totaled $1.2$1.4 billion and $1.0 billion at Septemberboth June 30, 20202021, and December 31, 2019,2020, respectively.
The total of the fair value calculations presented does not represent, and should not be construed to represent, the underlying fair value of the Company.
Table 16.19:15.8: Fair Value Estimates for Financial Instruments
| | | Estimated fair value | | Estimated fair value |
(in millions) | (in millions) | Carrying amount | | Level 1 | | Level 2 | | Level 3 | | Total | (in millions) | Carrying amount | | Level 1 | | Level 2 | | Level 3 | | Total |
September 30, 2020 | | |
June 30, 2021 | | June 30, 2021 | |
Financial assets | Financial assets | | Financial assets | |
Cash and due from banks (1) | Cash and due from banks (1) | $ | 25,535 | | | 25,535 | | | 0 | | | 0 | | | 25,535 | | Cash and due from banks (1) | $ | 25,304 | | | 25,304 | | | 0 | | | 0 | | | 25,304 | |
Interest-earning deposits with banks (1) | Interest-earning deposits with banks (1) | 221,235 | | | 221,026 | | | 209 | | | 0 | | | 221,235 | | Interest-earning deposits with banks (1) | 248,869 | | | 248,686 | | | 183 | | | 0 | | | 248,869 | |
Federal funds sold and securities purchased under resale agreements (1) | Federal funds sold and securities purchased under resale agreements (1) | 69,304 | | | 0 | | | 69,304 | | | 0 | | | 69,304 | | Federal funds sold and securities purchased under resale agreements (1) | 70,149 | | | 0 | | | 70,149 | | | 0 | | | 70,149 | |
Held-to-maturity debt securities, net | 182,595 | | | 50,287 | | | 138,210 | | | 937 | | | 189,434 | | |
Mortgage loans held for sale | 3,423 | | | 0 | | | 1,256 | | | 2,344 | | | 3,600 | | |
Held-to-maturity debt securities | | Held-to-maturity debt securities | 260,941 | | | 28,028 | | | 235,075 | | | 984 | | | 264,087 | |
Loans held for sale | Loans held for sale | 9 | | | 0 | | | 9 | | | 0 | | | 9 | | Loans held for sale | 6,700 | | | 0 | | | 5,259 | | | 1,669 | | | 6,928 | |
Loans, net (2) | Loans, net (2) | 884,183 | | | 0 | | | 56,045 | | | 843,935 | | | 899,980 | | Loans, net (2) | 821,774 | | | 0 | | | 59,140 | | | 781,652 | | | 840,792 | |
Nonmarketable equity securities (cost method) | Nonmarketable equity securities (cost method) | 3,585 | | | 0 | | | 0 | | | 3,629 | | | 3,629 | | Nonmarketable equity securities (cost method) | 3,585 | | | 0 | | | 0 | | | 3,647 | | | 3,647 | |
Total financial assets | Total financial assets | $ | 1,389,869 | | | 296,848 | | | 265,033 | | | 850,845 | | | 1,412,726 | | Total financial assets | $ | 1,437,322 | | | 302,018 | | | 369,806 | | | 787,952 | | | 1,459,776 | |
Financial liabilities | Financial liabilities | | Financial liabilities | |
Deposits (3) | Deposits (3) | $ | 67,625 | | | 0 | | | 45,069 | | | 23,297 | | | 68,366 | | Deposits (3) | $ | 35,964 | | | 0 | | | 18,823 | | | 17,368 | | | 36,191 | |
Short-term borrowings | Short-term borrowings | 55,224 | | | 0 | | | 55,224 | | | 0 | | | 55,224 | | Short-term borrowings | 45,635 | | | 0 | | | 45,635 | | | 0 | | | 45,635 | |
Long-term debt (4) | Long-term debt (4) | 215,682 | | | 0 | | | 216,885 | | | 1,422 | | | 218,307 | | Long-term debt (4) | 179,625 | | | 0 | | | 186,681 | | | 1,282 | | | 187,963 | |
Total financial liabilities | Total financial liabilities | $ | 338,531 | | | 0 | | | 317,178 | | | 24,719 | | | 341,897 | | Total financial liabilities | $ | 261,224 | | | 0 | | | 251,139 | | | 18,650 | | | 269,789 | |
December 31, 2019 | | |
December 31, 2020 | | December 31, 2020 | |
Financial assets | Financial assets | | Financial assets | |
Cash and due from banks (1) | Cash and due from banks (1) | $ | 21,757 | | | 21,757 | | | 0 | | | 0 | | | 21,757 | | Cash and due from banks (1) | $ | 28,236 | | | 28,236 | | | 0 | | | 0 | | | 28,236 | |
Interest-earning deposits with banks (1) | Interest-earning deposits with banks (1) | 119,493 | | | 119,257 | | | 236 | | | 0 | | | 119,493 | | Interest-earning deposits with banks (1) | 236,376 | | | 236,258 | | | 118 | | | 0 | | | 236,376 | |
Federal funds sold and securities purchased under resale agreements (1) | Federal funds sold and securities purchased under resale agreements (1) | 102,140 | | | 0 | | | 102,140 | | | 0 | | | 102,140 | | Federal funds sold and securities purchased under resale agreements (1) | 65,672 | | | 0 | | | 65,672 | | | 0 | | | 65,672 | |
Held-to-maturity debt securities | Held-to-maturity debt securities | 153,933 | | | 46,138 | | | 109,933 | | | 789 | | | 156,860 | | Held-to-maturity debt securities | 205,720 | | | 48,597 | | | 162,777 | | | 933 | | | 212,307 | |
Mortgage loans held for sale | 6,736 | | | 0 | | | 2,939 | | | 4,721 | | | 7,660 | | |
Loans held for sale | Loans held for sale | 5 | | | 0 | | | 5 | | | 0 | | | 5 | | Loans held for sale | 17,578 | | | 0 | | | 14,952 | | | 3,419 | | | 18,371 | |
Loans, net (2) | Loans, net (2) | 933,042 | | | 0 | | | 54,125 | | | 891,714 | | | 945,839 | | Loans, net (2) | 853,595 | | | 0 | | | 56,270 | | | 817,827 | | | 874,097 | |
Nonmarketable equity securities (cost method) | Nonmarketable equity securities (cost method) | 4,790 | | | 0 | | | 0 | | | 4,823 | | | 4,823 | | Nonmarketable equity securities (cost method) | 3,588 | | | 0 | | | 0 | | | 3,632 | | | 3,632 | |
Total financial assets | Total financial assets | $ | 1,341,896 | | | 187,152 | | | 269,378 | | | 902,047 | | | 1,358,577 | | Total financial assets | $ | 1,410,765 | | | 313,091 | | | 299,789 | | | 825,811 | | | 1,438,691 | |
Financial liabilities | Financial liabilities | | Financial liabilities | |
Deposits (3) | Deposits (3) | $ | 118,849 | | | 0 | | | 87,279 | | | 31,858 | | | 119,137 | | Deposits (3) | $ | 52,807 | | | 0 | | | 33,321 | | | 19,940 | | | 53,261 | |
Short-term borrowings | Short-term borrowings | 104,512 | | | 0 | | | 104,513 | | | 0 | | | 104,513 | | Short-term borrowings | 58,999 | | | 0 | | | 58,999 | | | 0 | | | 58,999 | |
Long-term debt (4) | Long-term debt (4) | 228,159 | | | 0 | | | 231,332 | | | 1,720 | | | 233,052 | | Long-term debt (4) | 212,922 | | | 0 | | | 219,321 | | | 1,381 | | | 220,702 | |
Total financial liabilities | Total financial liabilities | $ | 451,520 | | | 0 | | | 423,124 | | | 33,578 | | | 456,702 | | Total financial liabilities | $ | 324,728 | | | 0 | | | 311,641 | | | 21,321 | | | 332,962 | |
(1)Amounts consist of financial instruments for which carrying value approximates fair value.
(2)Excludes lease financing with a carrying amount of $16.3$15.2 billion and $19.5$15.4 billion at SeptemberJune 30, 20202021, and December 31, 2019,2020, respectively.
(3)Excludes deposit liabilities with no defined or contractual maturity of $1.3 trillion and $1.2$1.4 trillion at Septemberboth June 30, 20202021, and December 31, 2019,2020, respectively.
(4)Excludes capital lease obligations under capital leases of $29 million and $32$28 million at Septemberboth June 30, 20202021, and December 31, 2019,2020, respectively.
| | |
Note 17:16: Preferred Stock |
We are authorized to issue 20 million shares of preferred stock and 4 million shares of preference stock, both without par value. Preferred shares outstanding rank senior to common shares both as to dividends and liquidation preference but have no general voting rights. We have not issued any preference shares under this authorization. If issued, preference shares would be limited to 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.
In October 2020,January 2021, we issued $1.2$3.5 billion of our Non-Cumulative Perpetual Class A Preferred Stock, Series AA.BB, and in February 2021, we issued $1.05 billion of our Preferred Stock, Series CC. In March 2021, we redeemed our Preferred Stock Series I, Series P and Series W, and partially redeemed our Preferred Stock, Series N, for an aggregate cost of $4.5 billion. In June 2021, we redeemed the remaining outstanding shares of our Preferred Stock, Series N, for a cost of $350 million. In July 2021, we issued $1.25 billion of our Preferred Stock, Series DD.
Table 17.1:16.1: Preferred Stock Shares
| | | September 30, 2020 | | December 31, 2019 | | June 30, 2021 | | December 31, 2020 |
| | 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 | DEP Shares | | DEP Shares | |
Dividend Equalization Preferred Shares (DEP) | Dividend Equalization Preferred Shares (DEP) | $ | 10 | | | 97,000 | | | $ | 10 | | | 97,000 | | Dividend Equalization Preferred Shares (DEP) | $ | 10 | | | 97,000 | | | $ | 10 | | | 97,000 | |
Series I(1) | Series I(1) | | Series I(1) | |
Floating Class A Preferred Stock (1) | Floating Class A Preferred Stock (1) | 100,000 | | | 25,010 | | | 100,000 | | | 25,010 | | Floating Class A Preferred Stock (1) | 0 | | | 0 | | | 100,000 | | | 25,010 | |
Series K | | |
Floating Non-Cumulative Perpetual Class A Preferred Stock (2) | 0 | | | 0 | | | 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 | | |
Series N | | |
Series L (2) | | Series L (2) | |
7.50% Non-Cumulative Perpetual Convertible Class A Preferred Stock | | 7.50% Non-Cumulative Perpetual Convertible Class A Preferred Stock | 1,000 | | | 4,025,000 | | | 1,000 | | | 4,025,000 | |
Series N (3) | | Series N (3) | |
5.20% Non-Cumulative Perpetual Class A Preferred Stock | 5.20% Non-Cumulative Perpetual Class A Preferred Stock | 25,000 | | | 30,000 | | | 25,000 | | | 30,000 | | 5.20% Non-Cumulative Perpetual Class A Preferred Stock | 0 | | | 0 | | | 25,000 | | | 30,000 | |
Series O | Series O | | Series O | |
5.125% Non-Cumulative Perpetual Class A Preferred Stock | 5.125% Non-Cumulative Perpetual Class A Preferred Stock | 25,000 | | | 27,600 | | | 25,000 | | | 27,600 | | 5.125% Non-Cumulative Perpetual Class A Preferred Stock | 25,000 | | | 27,600 | | | 25,000 | | | 27,600 | |
Series P | | |
Series P (3) | | Series P (3) | |
5.25% Non-Cumulative Perpetual Class A Preferred Stock | 5.25% Non-Cumulative Perpetual Class A Preferred Stock | 25,000 | | | 26,400 | | | 25,000 | | | 26,400 | | 5.25% Non-Cumulative Perpetual Class A Preferred Stock | 0 | | | 0 | | | 25,000 | | | 26,400 | |
Series Q | Series Q | | Series Q | |
5.85% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock | 5.85% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock | 25,000 | | | 69,000 | | | 25,000 | | | 69,000 | | 5.85% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock | 25,000 | | | 69,000 | | | 25,000 | | | 69,000 | |
Series R | Series R | | Series R | |
6.625% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock | 6.625% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock | 25,000 | | | 34,500 | | | 25,000 | | | 34,500 | | 6.625% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock | 25,000 | | | 34,500 | | | 25,000 | | | 34,500 | |
Series S | Series S | | Series S | |
5.90% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock | 5.90% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock | 25,000 | | | 80,000 | | | 25,000 | | | 80,000 | | 5.90% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock | 25,000 | | | 80,000 | | | 25,000 | | | 80,000 | |
Series T | | |
6.00% Non-Cumulative Perpetual Class A Preferred Stock (4) | 25,000 | | | 32,200 | | | 25,000 | | | 32,200 | | |
Series U | Series U | | Series U | |
5.875% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock | 5.875% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock | 25,000 | | | 80,000 | | | 25,000 | | | 80,000 | | 5.875% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock | 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 | | |
Series W | | |
Series W (3) | | Series W (3) | |
5.70% Non-Cumulative Perpetual Class A Preferred Stock | 5.70% Non-Cumulative Perpetual Class A Preferred Stock | 25,000 | | | 40,000 | | | 25,000 | | | 40,000 | | 5.70% Non-Cumulative Perpetual Class A Preferred Stock | 0 | | | 0 | | | 25,000 | | | 40,000 | |
Series X | Series X | | Series X | |
5.50% Non-Cumulative Perpetual Class A Preferred Stock | 5.50% Non-Cumulative Perpetual Class A Preferred Stock | 25,000 | | | 46,000 | | | 25,000 | | | 46,000 | | 5.50% Non-Cumulative Perpetual Class A Preferred Stock | 25,000 | | | 46,000 | | | 25,000 | | | 46,000 | |
Series Y | Series Y | | Series Y | |
5.625% Non-Cumulative Perpetual Class A Preferred Stock | 5.625% Non-Cumulative Perpetual Class A Preferred Stock | 25,000 | | | 27,600 | | | 25,000 | | | 27,600 | | 5.625% Non-Cumulative Perpetual Class A Preferred Stock | 25,000 | | | 27,600 | | | 25,000 | | | 27,600 | |
Series Z | Series Z | | Series Z | |
4.750% Non-Cumulative Perpetual Class A Preferred Stock | 25,000 | | | 80,500 | | | 0 | | | 0 | | |
4.75% Non-Cumulative Perpetual Class A Preferred Stock | | 4.75% Non-Cumulative Perpetual Class A Preferred Stock | 25,000 | | | 80,500 | | | 25,000 | | | 80,500 | |
Series AA | | Series AA | |
4.70% Non-Cumulative Perpetual Class A Preferred Stock | | 4.70% Non-Cumulative Perpetual Class A Preferred Stock | 25,000 | | | 46,800 | | | 25,000 | | | 46,800 | |
Series BB | | Series BB | |
3.90% Fixed-Reset Non-Cumulative Perpetual Class A Preferred Stock | | 3.90% Fixed-Reset Non-Cumulative Perpetual Class A Preferred Stock | 25,000 | | | 140,400 | | | 0 | | | 0 | |
Series CC | | Series CC | |
4.375% Non-Cumulative Perpetual Class A Preferred Stock | | 4.375% Non-Cumulative Perpetual Class A Preferred Stock | 25,000 | | | 46,000 | | | 0 | | | 0 | |
ESOP(4) | ESOP(4) | | ESOP(4) | |
Cumulative Convertible Preferred Stock (5) | Cumulative Convertible Preferred Stock (5) | 0 | | | 822,242 | | | 0 | | | 1,071,418 | | Cumulative Convertible Preferred Stock (5) | 0 | | | 822,242 | | | 0 | | | 822,242 | |
Total | Total | | 5,583,052 | | | 9,251,728 | | Total | | 5,622,642 | | | 5,557,652 | |
(1)Preferred Stock, Series I preferred stock issuance relates to trust preferred securities. See Note 108 (Securitizations and Variable Interest Entities) for additional information. This issuance has a floating interest rate that is the greater of three-month London Interbank Offered Rate (LIBOR) plus 0.93% and 5.56975%.
(2)Floating rate for In first quarter 2021, 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,I, was redeemed.
(3)(2)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)(3)In first quarter 2020, $669 million2021, 16,000 shares of Preferred Stock, Series T, wasN, were redeemed and Preferred Stock, Series P and Series W were fully redeemed; in second quarter 2021, the remaining 14,000 shares of Preferred Stock, Series N, were redeemed.
(5)(4)See the ESOP“ESOP Cumulative Convertible Preferred StockStock” section in this Note for additional information about the liquidation preference.preference for the ESOP Cumulative Convertible Preferred Stock.
Note 17:16: Preferred Stock (continued)(continued)
Table 17.2:16.2: Preferred Stock – Shares Issued and Carrying Value
| | | September 30, 2020 | | December 31, 2019 | | June 30, 2021 | | December 31, 2020 |
(in millions, except shares) | (in millions, except shares) | Shares issued and outstanding | | Liquidation preference value | | Carrying value | | Discount | | Shares issued and outstanding | | Liquidation preference value | | Carrying value | | Discount | (in millions, except shares) | Shares issued and outstanding | | Liquidation preference value | | Carrying value | | Discount | | Shares issued and outstanding | | Liquidation preference value | | Carrying value | | Discount |
DEP Shares | DEP Shares | | DEP Shares | |
Dividend Equalization Preferred Shares (DEP) | Dividend Equalization Preferred Shares (DEP) | 96,546 | | | $ | 0 | | | 0 | | | 0 | | | 96,546 | | | $ | 0 | | | 0 | | | 0 | | Dividend Equalization Preferred Shares (DEP) | 96,546 | | | $ | 0 | | | 0 | | | 0 | | | 96,546 | | | $ | 0 | | | 0 | | | 0 | |
Series I (1) | Series I (1) | | Series I (1) | |
Floating Class A Preferred Stock | Floating Class A Preferred Stock | 25,010 | | | 2,501 | | | 2,501 | | | 0 | | | 25,010 | | | 2,501 | | | 2,501 | | | 0 | | Floating Class A Preferred Stock | 0 | | | 0 | | | 0 | | | 0 | | | 25,010 | | | 2,501 | | | 2,501 | | | 0 | |
Series K (2) | | |
Floating Non-Cumulative Perpetual Class A Preferred Stock | 0 | | | 0 | | | 0 | | | 0 | | | 1,802,000 | | | 1,802 | | | 1,546 | | | 256 | | |
Series L (3) | | |
Series L (2) | | Series L (2) | |
7.50% Non-Cumulative Perpetual Convertible Class A Preferred Stock | 7.50% Non-Cumulative Perpetual Convertible Class A Preferred Stock | 3,967,995 | | | 3,968 | | | 3,200 | | | 768 | | | 3,967,995 | | | 3,968 | | | 3,200 | | | 768 | | 7.50% Non-Cumulative Perpetual Convertible Class A Preferred Stock | 3,967,995 | | | 3,968 | | | 3,200 | | | 768 | | | 3,967,995 | | | 3,968 | | | 3,200 | | | 768 | |
Series N | | |
Series N (3) | | Series N (3) | |
5.20% Non-Cumulative Perpetual Class A Preferred Stock | 5.20% Non-Cumulative Perpetual Class A Preferred Stock | 30,000 | | | 750 | | | 750 | | | 0 | | | 30,000 | | | 750 | | | 750 | | | 0 | | 5.20% Non-Cumulative Perpetual Class A Preferred Stock | 0 | | | 0 | | | 0 | | | 0 | | | 30,000 | | | 750 | | | 750 | | | 0 | |
Series O | Series O | | Series O | |
5.125% Non-Cumulative Perpetual Class A Preferred Stock | 5.125% Non-Cumulative Perpetual Class A Preferred Stock | 26,000 | | | 650 | | | 650 | | | 0 | | | 26,000 | | | 650 | | | 650 | | | 0 | | 5.125% Non-Cumulative Perpetual Class A Preferred Stock | 26,000 | | | 650 | | | 650 | | | 0 | | | 26,000 | | | 650 | | | 650 | | | 0 | |
Series P | | |
Series P (3) | | Series P (3) | |
5.25% Non-Cumulative Perpetual Class A Preferred Stock | 5.25% Non-Cumulative Perpetual Class A Preferred Stock | 25,000 | | | 625 | | | 625 | | | 0 | | | 25,000 | | | 625 | | | 625 | | | 0 | | 5.25% Non-Cumulative Perpetual Class A Preferred Stock | 0 | | | 0 | | | 0 | | | 0 | | | 25,000 | | | 625 | | | 625 | | | 0 | |
Series Q | Series Q | | Series Q | |
5.85% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock | 5.85% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock | 69,000 | | | 1,725 | | | 1,725 | | | 0 | | | 69,000 | | | 1,725 | | | 1,725 | | | 0 | | 5.85% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock | 69,000 | | | 1,725 | | | 1,725 | | | 0 | | | 69,000 | | | 1,725 | | | 1,725 | | | 0 | |
Series R | Series R | | Series R | |
6.625% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock | 6.625% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock | 33,600 | | | 840 | | | 840 | | | 0 | | | 33,600 | | | 840 | | | 840 | | | 0 | | 6.625% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock | 33,600 | | | 840 | | | 840 | | | 0 | | | 33,600 | | | 840 | | | 840 | | | 0 | |
Series S | Series S | | Series S | |
5.90% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock | 5.90% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock | 80,000 | | | 2,000 | | | 2,000 | | | 0 | | | 80,000 | | | 2,000 | | | 2,000 | | | 0 | | 5.90% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock | 80,000 | | | 2,000 | | | 2,000 | | | 0 | | | 80,000 | | | 2,000 | | | 2,000 | | | 0 | |
Series T (4) | | |
6.00% Non-Cumulative Perpetual Class A Preferred Stock | 5,280 | | | 131 | | | 131 | | | 0 | | | 32,000 | | | 800 | | | 800 | | | 0 | | |
Series U | Series U | | Series U | |
5.875% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock | 5.875% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock | 80,000 | | | 2,000 | | | 2,000 | | | 0 | | | 80,000 | | | 2,000 | | | 2,000 | | | 0 | | 5.875% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock | 80,000 | | | 2,000 | | | 2,000 | | | 0 | | | 80,000 | | | 2,000 | | | 2,000 | | | 0 | |
Series V | | |
6.00% Non-Cumulative Perpetual Class A Preferred Stock | 40,000 | | | 1,000 | | | 1,000 | | | 0 | | | 40,000 | | | 1,000 | | | 1,000 | | | 0 | | |
Series W | | |
Series W (3) | | Series W (3) | |
5.70% Non-Cumulative Perpetual Class A Preferred Stock | 5.70% Non-Cumulative Perpetual Class A Preferred Stock | 40,000 | | | 1,000 | | | 1,000 | | | 0 | | | 40,000 | | | 1,000 | | | 1,000 | | | 0 | | 5.70% Non-Cumulative Perpetual Class A Preferred Stock | 0 | | | 0 | | | 0 | | | 0 | | | 40,000 | | | 1,000 | | | 1,000 | | | 0 | |
Series X | Series X | | Series X | |
5.50% Non-Cumulative Perpetual Class A Preferred Stock | 5.50% Non-Cumulative Perpetual Class A Preferred Stock | 46,000 | | | 1,150 | | | 1,150 | | | 0 | | | 46,000 | | | 1,150 | | | 1,150 | | | 0 | | 5.50% Non-Cumulative Perpetual Class A Preferred Stock | 46,000 | | | 1,150 | | | 1,150 | | | 0 | | | 46,000 | | | 1,150 | | | 1,150 | | | 0 | |
Series Y | Series Y | | Series Y | |
5.625% Non-Cumulative Perpetual Class A Preferred Stock | 5.625% Non-Cumulative Perpetual Class A Preferred Stock | 27,600 | | | 690 | | | 690 | | | 0 | | | 27,600 | | | 690 | | | 690 | | | 0 | | 5.625% Non-Cumulative Perpetual Class A Preferred Stock | 27,600 | | | 690 | | | 690 | | | 0 | | | 27,600 | | | 690 | | | 690 | | | 0 | |
Series Z | Series Z | | Series Z | |
4.750% Non-Cumulative Perpetual Class A Preferred Stock | 4.750% Non-Cumulative Perpetual Class A Preferred Stock | 80,500 | | | 2,013 | | | 2,013 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | 4.750% Non-Cumulative Perpetual Class A Preferred Stock | 80,500 | | | 2,013 | | | 2,013 | | | 0 | | | 80,500 | | | 2,013 | | | 2,013 | | | 0 | |
Series AA | | Series AA | |
4.70% Non-Cumulative Perpetual Class A Preferred Stock | | 4.70% Non-Cumulative Perpetual Class A Preferred Stock | 46,800 | | | 1,170 | | | 1,170 | | | 0 | | | 46,800 | | | 1,170 | | | 1,170 | | | 0 | |
Series BB | | Series BB | |
3.90% Fixed-Reset Non-Cumulative Perpetual Class A Preferred Stock | | 3.90% Fixed-Reset Non-Cumulative Perpetual Class A Preferred Stock | 140,400 | | | 3,510 | | | 3,510 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Series CC | | Series CC | |
4.375% Non-Cumulative Perpetual Class A Preferred Stock | | 4.375% Non-Cumulative Perpetual Class A Preferred Stock | 42,000 | | | 1,050 | | | 1,050 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
ESOP(4) | ESOP(4) | | ESOP(4) | |
Cumulative Convertible Preferred Stock | Cumulative Convertible Preferred Stock | 822,242 | | | 823 | | | 823 | | | 0 | | | 1,071,418 | | | 1,072 | | | 1,072 | | | 0 | | Cumulative Convertible Preferred Stock | 822,242 | | | 822 | | | 822 | | | 0 | | | 822,242 | | | 822 | | | 822 | | | 0 | |
Total | Total | 5,494,773 | | | $ | 21,866 | | | 21,098 | | | 768 | | | 7,492,169 | | | $ | 22,573 | | | 21,549 | | | 1,024 | | Total | 5,558,683 | | | $ | 21,588 | | | 20,820 | | | 768 | | | 5,496,293 | | | $ | 21,904 | | | 21,136 | | | 768 | |
(1)Floating rate for Preferred Stock, Series I, is the greater of three-month LIBORLondon Interbank Offered Rate (LIBOR) plus 0.93% and 5.56975%.
(2)Floating rate for In first quarter 2021, 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,I, was redeemed.
(3)(2)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)(3)In first quarter 2020, $6692021, $400 million of Preferred Stock, Series T,N, was redeemed and Preferred Stock, Series P and Series W were fully redeemed; in second quarter 2021, the remaining $350 million of Preferred Stock, Series N, was redeemed.
(4)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.
ESOP CUMULATIVE CONVERTIBLE PREFERRED STOCKAll shares of our ESOP Cumulative Convertible Preferred Stock (ESOP Preferred Stock) were issued to a trustee acting on behalf of the Wells Fargo & Company 401(k) Plan (the 401(k) Plan). Dividends on the ESOP Preferred Stock are cumulative from the date of initial issuance and are payable quarterly at annual rates based upon the year of issuance. Each share of ESOP Preferred Stock released from the unallocated reserve of the 401(k) Plan is converted into shares of our common stock based on the stated
value of the ESOP Preferred Stock and the then current market price of our common stock. The ESOP Preferred Stock is also convertible at the option of the holder at any time, unless previously redeemed. We have the option to redeem the ESOP Preferred Stock at any time, in whole or in part, at a redemption price per share equal to the higher of (a) $1,000 per share plus accrued and unpaid dividends or (b) the fair market value, as defined in the Certificates of Designation for the ESOP Preferred Stock.
Table 17.3:16.3: 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) | (in millions, except shares) | Sep 30, 2020 | | Dec 31, 2019 | | Sep 30, 2020 | | Dec 31, 2019 | | Minimum | | Maximum | (in millions, except shares) | Jun 30, 2021 | | Dec 31, 2020 | | Jun 30, 2021 | | Dec 31, 2020 | | Minimum | | Maximum |
ESOP Preferred Stock | ESOP Preferred Stock | | ESOP Preferred Stock | |
$1,000 liquidation preference per share | $1,000 liquidation preference per share | | $1,000 liquidation preference per share | |
2018 | 2018 | 221,945 | | | 254,945 | | | 222 | | | 255 | | | 7.00 | % | | 8.00 | % | 2018 | 221,945 | | | 221,945 | | | $ | 222 | | | 222 | | | 7.00 | % | | 8.00 | % |
2017 | 2017 | 163,210 | | | 192,210 | | | 163 | | | 192 | | | 7.00 | | | 8.00 | | 2017 | 163,210 | | | 163,210 | | | 163 | | | 163 | | | 7.00 | | | 8.00 | |
2016 | 2016 | 162,450 | | | 197,450 | | | 163 | | | 198 | | | 9.30 | | | 10.30 | | 2016 | 162,450 | | | 162,450 | | | 162 | | | 162 | | | 9.30 | | | 10.30 | |
2015 | 2015 | 92,904 | | | 116,784 | | | 93 | | | 117 | | | 8.90 | | | 9.90 | | 2015 | 92,904 | | | 92,904 | | | 93 | | | 93 | | | 8.90 | | | 9.90 | |
2014 | 2014 | 99,151 | | | 136,151 | | | 99 | | | 136 | | | 8.70 | | | 9.70 | | 2014 | 99,151 | | | 99,151 | | | 99 | | | 99 | | | 8.70 | | | 9.70 | |
2013 | 2013 | 61,948 | | | 97,948 | | | 62 | | | 98 | | | 8.50 | | | 9.50 | | 2013 | 61,948 | | | 61,948 | | | 62 | | | 62 | | | 8.50 | | | 9.50 | |
2012 | 2012 | 20,634 | | | 49,134 | | | 21 | | | 49 | | | 10.00 | | | 11.00 | | 2012 | 20,634 | | | 20,634 | | | 21 | | | 21 | | | 10.00 | | | 11.00 | |
2011 | 0 | | | 26,796 | | | 0 | | | 27 | | | 9.00 | | | 10.00 | | |
Total ESOP Preferred Stock (1) | Total ESOP Preferred Stock (1) | 822,242 | | | 1,071,418 | | | $ | 823 | | | 1,072 | | | Total ESOP Preferred Stock (1) | 822,242 | | | 822,242 | | | $ | 822 | | | 822 | | |
Unearned ESOP shares (2) | Unearned ESOP shares (2) | | $ | (875) | | | (1,143) | | | Unearned ESOP shares (2) | | $ | (875) | | | (875) | | |
(1)At Septemberboth June 30, 2020,2021, and December 31, 2019,2020, additional paid-in capital included $52$53 million and $71 million, respectively, related to ESOP preferred stock.
(2)We recorded a corresponding charge to unearned ESOP shares in connection with the issuance of the ESOP Preferred Stock. The unearned ESOP shares are reduced as shares of the ESOP Preferred Stock are committed to be released.
| | |
Note 18:17: Revenue from Contracts with Customers |
Our revenue includes net interest income on financial instruments and noninterest income. Table 18.117.1 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 reportingaccounting process, see
Note 22 (Operating Segments).
Table 18.1: 17.1:Revenue by Operating Segment
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended September 30, |
| Community Banking | Wholesale Banking | Wealth and Investment Management | Other | Consolidated Company |
(in millions) | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 |
Net interest income (1) | $ | 5,587 | | 6,769 | | 3,481 | | 4,382 | | 771 | | 989 | | (471) | | (515) | | 9,368 | | 11,625 | |
Noninterest income (2) | | | | | | | | | | |
Deposit-related fees | 723 | | 952 | | 574 | | 527 | | 7 | | 6 | | (5) | | (5) | | 1,299 | | 1,480 | |
Trust and investment fees: | | | | | | | | | | |
Brokerage advisory, commissions and other fees: | | | | | | | | | | |
Asset-based revenue (3) | 386 | | 381 | | 0 | | 0 | | 1,768 | | 1,741 | | (386) | | (382) | | 1,768 | | 1,740 | |
Transactional revenue | 86 | | 105 | | 4 | | (8) | | 357 | | 376 | | (86) | | (92) | | 361 | | 381 | |
Other revenue | 17 | | 18 | | 66 | | 70 | | 140 | | 155 | | (16) | | (18) | | 207 | | 225 | |
Total brokerage advisory, commissions and other fees | 489 | | 504 | | 70 | | 62 | | 2,265 | | 2,272 | | (488) | | (492) | | 2,336 | | 2,346 | |
Trust and investment management: | | | | | | | | | | |
Investment management fees | 0 | | 0 | | 0 | | 0 | | 506 | | 510 | | 0 | | 0 | | 506 | | 510 | |
Trust fees | 188 | | 203 | | 85 | | 85 | | 99 | | 106 | | (201) | | (210) | | 171 | | 184 | |
Other revenue | 0 | | 0 | | 55 | | 36 | | 5 | | (1) | | 0 | | 0 | | 60 | | 35 | |
Total trust and investment management | 188 | | 203 | | 140 | | 121 | | 610 | | 615 | | (201) | | (210) | | 737 | | 729 | |
Investment banking | 0 | | (26) | | 440 | | 510 | | 4 | | 0 | | (3) | | 0 | | 441 | | 484 | |
Total trust and investment fees | 677 | | 681 | | 650 | | 693 | | 2,879 | | 2,887 | | (692) | | (702) | | 3,514 | | 3,559 | |
Card fees: | | | | | | | | | | |
Card interchange and network revenues (4) | 733 | | 750 | | 55 | | 90 | | 1 | | 2 | | 0 | | (1) | | 789 | | 841 | |
Other card fees (1) | 123 | | 186 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 123 | | 186 | |
Total card fees | 856 | | 936 | | 55 | | 90 | | 1 | | 2 | | 0 | | (1) | | 912 | | 1,027 | |
Lending-related fees (1) | 42 | | 60 | | 310 | | 314 | | 2 | | 2 | | (2) | | (2) | | 352 | | 374 | |
Mortgage banking (1) | 1,542 | | 339 | | 49 | | 128 | | (3) | | (3) | | 2 | | 2 | | 1,590 | | 466 | |
Net gains (losses) from trading activities (1) | (11) | | 19 | | 363 | | 247 | | 9 | | 10 | | 0 | | 0 | | 361 | | 276 | |
Net gains (losses) on debt securities (1) | 240 | | (1) | | 24 | | 4 | | 0 | | 0 | | 0 | | 0 | | 264 | | 3 | |
Net gains (losses) from equity securities (1) | 587 | | 822 | | 59 | | 135 | | 3 | | (1) | | 0 | | 0 | | 649 | | 956 | |
Lease income (1) | 0 | | 0 | | 333 | | 402 | | 0 | | 0 | | 0 | | 0 | | 333 | | 402 | |
Other (1) | 479 | | 662 | | (304) | | 20 | | 125 | | 1,249 | | (80) | | (89) | | 220 | | 1,842 | |
Total noninterest income | 5,135 | | 4,470 | | 2,113 | | 2,560 | | 3,023 | | 4,152 | | (777) | | (797) | | 9,494 | | 10,385 | |
Total revenue | $ | 10,722 | | 11,239 | | 5,594 | | 6,942 | | 3,794 | | 5,141 | | (1,248) | | (1,312) | | 18,862 | | 22,010 | |
(continued on following page)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Consumer Banking and Lending | | Commercial Banking | | Corporate and Investment Banking | | Wealth and Investment Management | | Corporate | | Reconciling Items (1) | | Consolidated Company |
Quarter ended June 30, 2021 |
Net interest income (2) | $ | 5,618 | | | 1,202 | | | 1,783 | | | 610 | | | (304) | | | (109) | | | 8,800 | |
Noninterest income: | | | | | | | | | | | | | |
Deposit-related fees | 732 | | | 325 | | | 277 | | | 7 | | | 1 | | | 0 | | | 1,342 | |
Lending-related fees (2) | 36 | | | 135 | | | 190 | | | 2 | | | (1) | | | 0 | | | 362 | |
Investment advisory and other asset-based fees (3) | 0 | | | 2 | | | 12 | | | 2,382 | | | 398 | | | 0 | | | 2,794 | |
Commissions and brokerage services fees | 0 | | | 0 | | | 68 | | | 513 | | | (1) | | | 0 | | | 580 | |
Investment banking fees | (2) | | | 9 | | | 580 | | | (1) | | | (16) | | | 0 | | | 570 | |
Card fees: | | | | | | | | | | | | | |
Card interchange and network revenues (4) | 896 | | | 49 | | | 11 | | | 1 | | | 0 | | | 0 | | | 957 | |
Other card fees (2) | 121 | | | 0 | | | 0 | | | 0 | | | (1) | | | 0 | | | 120 | |
Total card fees | 1,017 | | | 49 | | | 11 | | | 1 | | | (1) | | | 0 | | | 1,077 | |
Mortgage banking (2) | 1,158 | | | 0 | | | 181 | | | (3) | | | 0 | | | 0 | | | 1,336 | |
Net gains (losses) from trading activities (2) | 0 | | | (1) | | | 30 | | | 6 | | | (14) | | | 0 | | | 21 | |
Net gains on debt securities (2) | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Net gains from equity securities (2) | 0 | | | 32 | | | 46 | | | 6 | | | 2,612 | | | 0 | | | 2,696 | |
Lease income (2) | 0 | | | 173 | | | 0 | | | 0 | | | 140 | | | 0 | | | 313 | |
Other (2) | 127 | | | 182 | | | 160 | | | 13 | | | 209 | | | (312) | | | 379 | |
Total noninterest income | 3,068 | | | 906 | | | 1,555 | | | 2,926 | | | 3,327 | | | (312) | | | 11,470 | |
Total revenue | $ | 8,686 | | | 2,108 | | | 3,338 | | | 3,536 | | | 3,023 | | | (421) | | | 20,270 | |
Quarter ended June 30, 2020 |
Net interest income (2) | $ | 5,717 | | | 1,554 | | | 1,963 | | | 719 | | | 60 | | | (121) | | | 9,892 | |
Noninterest income: | | | | | | | | | | | | | |
Deposit-related fees | 575 | | | 297 | | | 261 | | | 6 | | | 3 | | | 0 | | | 1,142 | |
Lending-related fees (2) | 33 | | | 125 | | | 163 | | | 2 | | | 0 | | | 0 | | | 323 | |
Investment advisory and other asset-based fees (3) | 0 | | | 8 | | | 24 | | | 1,835 | | | 387 | | | 0 | | | 2,254 | |
Commissions and brokerage services fees | 0 | | | 0 | | | 79 | | | 470 | | | 1 | | | 0 | | | 550 | |
Investment banking fees | (1) | | | 26 | | | 588 | | | 1 | | | (67) | | | 0 | | | 547 | |
Card fees: | | | | | | | | | | | | | |
Card interchange and network revenues (4) | 650 | | | 36 | | | 11 | | | 1 | | | 0 | | | 0 | | | 698 | |
Other card fees (2) | 99 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 99 | |
Total card fees | 749 | | | 36 | | | 11 | | | 1 | | | 0 | | | 0 | | | 797 | |
Mortgage banking (2) | 256 | | | 0 | | | 65 | | | (3) | | | (1) | | | 0 | | | 317 | |
Net gains (losses) from trading activities (2) | 1 | | | 1 | | | 809 | | | 9 | | | (13) | | | 0 | | | 807 | |
Net gains on debt securities (2) | 6 | | | 0 | | | 0 | | | 0 | | | 206 | | | 0 | | | 212 | |
Net gains (losses) from equity securities (2) | 0 | | | (28) | | | 8 | | | 150 | | | 403 | | | 0 | | | 533 | |
Lease income (2) | 0 | | | 189 | | | 5 | | | 0 | | | 141 | | | 0 | | | 335 | |
Other (2) | 272 | | | 143 | | | 83 | | | 16 | | | 258 | | | (195) | | | 577 | |
Total noninterest income | 1,891 | | | 797 | | | 2,096 | | | 2,487 | | | 1,318 | | | (195) | | | 8,394 | |
Total revenue | $ | 7,608 | | | 2,351 | | | 4,059 | | | 3,206 | | | 1,378 | | | (316) | | | 18,286 | |
Six months ended June 30, 2021 |
Net interest income (2) | $ | 11,233 | | | 2,456 | | | 3,562 | | | 1,267 | | | (694) | | | (216) | | | 17,608 | |
Noninterest income: | | | | | | | | | | | | | |
Deposit-related fees | 1,393 | | | 642 | | | 543 | | | 14 | | | 5 | | | 0 | | | 2,597 | |
Lending-related fees (2) | 76 | | | 271 | | | 373 | | | 4 | | | (1) | | | 0 | | | 723 | |
Investment advisory and other asset-based fees (3) | 0 | | | 7 | | | 34 | | | 4,688 | | | 821 | | | 0 | | | 5,550 | |
Commissions and brokerage services fees | 0 | | | 0 | | | 149 | | | 1,068 | | | (1) | | | 0 | | | 1,216 | |
Investment banking fees | (8) | | | 22 | | | 1,191 | | | (2) | | | (65) | | | 0 | | | 1,138 | |
Card fees: | | | | | | | | | | | | | |
Card interchange and network revenues (4) | 1,674 | | | 94 | | | 21 | | | 2 | | | 0 | | | 0 | | | 1,791 | |
Other card fees (2) | 235 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 235 | |
Total card fees | 1,909 | | | 94 | | | 21 | | | 2 | | | 0 | | | 0 | | | 2,026 | |
Mortgage banking (2) | 2,417 | | | 0 | | | 251 | | | (6) | | | 0 | | | 0 | | | 2,662 | |
Net gains (losses) from trading activities (2) | 1 | | | 1 | | | 361 | | | 12 | | | (6) | | | 0 | | | 369 | |
Net gains on debt securities (2) | 0 | | | 0 | | | 0 | | | 0 | | | 151 | | | 0 | | | 151 | |
Net gains from equity securities (2) | 34 | | | 45 | | | 121 | | | 6 | | | 2,882 | | | 0 | | | 3,088 | |
Lease income (2) | 0 | | | 347 | | | 1 | | | 0 | | | 280 | | | 0 | | | 628 | |
Other (2) | 285 | | | 304 | | | 335 | | | 27 | | | 678 | | | (583) | | | 1,046 | |
Total noninterest income | 6,107 | | | 1,733 | | | 3,380 | | | 5,813 | | | 4,744 | | | (583) | | | 21,194 | |
Total revenue | $ | 17,340 | | | 4,189 | | | 6,942 | | | 7,080 | | | 4,050 | | | (799) | | | 38,802 | |
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(continued on following page) | | | | | | | | | | | | | |
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(continued from previous page)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, |
| Community Banking | Wholesale Banking | Wealth and Investment Management | Other | Consolidated Company |
(in millions) | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 |
Net interest income (1) | $ | 18,073 | | 21,083 | | 11,508 | | 13,451 | | 2,374 | | 3,127 | | (1,395) | | (1,630) | | 30,560 | | 36,031 | |
Noninterest income (2) | | | | | | | | | | |
Deposit-related fees | 2,207 | | 2,675 | | 1,676 | | 1,610 | | 20 | | 18 | | (15) | | (14) | | 3,888 | | 4,289 | |
Trust and investment fees: | | | | | | | | | | |
Brokerage advisory, commissions and other fees: | | | | | | | | | | |
Asset-based revenue (3) | 1,126 | | 1,093 | | 0 | | 0 | | 5,141 | | 5,019 | | (1,127) | | (1,094) | | 5,140 | | 5,018 | |
Transactional revenue | 266 | | 288 | | 9 | | 18 | | 1,132 | | 1,153 | | (272) | | (288) | | 1,135 | | 1,171 | |
Other revenue | 48 | | 52 | | 230 | | 196 | | 428 | | 472 | | (46) | | (52) | | 660 | | 668 | |
Total brokerage advisory, commissions and other fees | 1,440 | | 1,433 | | 239 | | 214 | | 6,701 | | 6,644 | | (1,445) | | (1,434) | | 6,935 | | 6,857 | |
Trust and investment management: | | | | | | | | | | |
Investment management fees | 0 | | 0 | | 0 | | 0 | | 1,469 | | 1,488 | | 0 | | 0 | | 1,469 | | 1,488 | |
Trust fees | 557 | | 612 | | 255 | | 250 | | 302 | | 449 | | (592) | | (632) | | 522 | | 679 | |
Other revenue | (1) | | 0 | | 146 | | 102 | | (11) | | 41 | | 0 | | 0 | | 134 | | 143 | |
Total trust and investment management | 556 | | 612 | | 401 | | 352 | | 1,760 | | 1,978 | | (592) | | (632) | | 2,125 | | 2,310 | |
Investment banking | (166) | | (64) | | 1,544 | | 1,397 | | 6 | | 4 | | (5) | | (4) | | 1,379 | | 1,333 | |
Total trust and investment fees | 1,830 | | 1,981 | | 2,184 | | 1,963 | | 8,467 | | 8,626 | | (2,042) | | (2,070) | | 10,439 | | 10,500 | |
Card fees: | | | | | | | | | | |
Card interchange and network revenues (4) | 2,013 | | 2,201 | | 203 | | 271 | | 3 | | 5 | | (2) | | (3) | | 2,217 | | 2,474 | |
Other card fees (1) | 384 | | 522 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 384 | | 522 | |
Total card fees | 2,397 | | 2,723 | | 203 | | 271 | | 3 | | 5 | | (2) | | (3) | | 2,601 | | 2,996 | |
Lending-related fees (1) | 128 | | 191 | | 897 | | 925 | | 6 | | 6 | | (6) | | (6) | | 1,025 | | 1,116 | |
Mortgage banking (1) | 2,135 | | 1,635 | | 154 | | 300 | | (9) | | (9) | | 6 | | 6 | | 2,286 | | 1,932 | |
Net gains (losses) from trading activities (1) | 24 | | 13 | | 1,198 | | 806 | | 8 | | 42 | | 2 | | 1 | | 1,232 | | 862 | |
Net gains (losses) on debt securities (1) | 557 | | 51 | | 156 | | 97 | | 0 | | 0 | | 0 | | 0 | | 713 | | 148 | |
Net gains (losses) from equity securities (1) | (53) | | 1,894 | | (52) | | 328 | | (114) | | 170 | | 0 | | 0 | | (219) | | 2,392 | |
Lease income (1) | 0 | | 0 | | 1,021 | | 1,270 | | 0 | | 0 | | 0 | | 0 | | 1,021 | | 1,270 | |
Other (1) | 1,686 | | 2,548 | | (971) | | 97 | | 414 | | 1,285 | | (260) | | (263) | | 869 | | 3,667 | |
Total noninterest income | 10,911 | | 13,711 | | 6,466 | | 7,667 | | 8,795 | | 10,143 | | (2,317) | | (2,349) | | 23,855 | | 29,172 | |
Total revenue | $ | 28,984 | | 34,794 | | 17,974 | | 21,118 | | 11,169 | | 13,270 | | (3,712) | | (3,979) | | 54,415 | | 65,203 | |
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(continued from previous page) | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
(in millions) | Consumer Banking and Lending | | Commercial Banking | | Corporate and Investment Banking | | Wealth and Investment Management | | Corporate | | Reconciling Items (1) | | Consolidated Company |
Six months ended June 30, 2020 |
Net interest income (2) | $ | 11,719 | | | 3,287 | | | 3,984 | | | 1,557 | | | 939 | | | (264) | | | 21,222 | |
Noninterest income: | | | | | | | | | | | | | |
Deposit-related fees | 1,454 | | | 599 | | | 518 | | | 13 | | | 5 | | | 0 | | | 2,589 | |
Lending-related fees (2) | 81 | | | 253 | | | 335 | | | 4 | | | 0 | | | 0 | | | 673 | |
Investment advisory and other asset-based fees (3) | 0 | | | 16 | | | 40 | | | 3,908 | | | 796 | | | 0 | | | 4,760 | |
Commissions and brokerage services fees | 0 | | | 0 | | | 169 | | | 1,063 | | | (5) | | | 0 | | | 1,227 | |
Investment banking fees | (2) | | | 39 | | | 1,065 | | | 2 | | | (166) | | | 0 | | | 938 | |
Card fees: | | | | | | | | | | | | | |
Card interchange and network revenues (4) | 1,307 | | | 88 | | | 29 | | | 2 | | | 2 | | | 0 | | | 1,428 | |
Other card fees (2) | 261 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 261 | |
Total card fees | 1,568 | | | 88 | | | 29 | | | 2 | | | 2 | | | 0 | | | 1,689 | |
Mortgage banking (2) | 598 | | | 0 | | | 105 | | | (6) | | | (1) | | | 0 | | | 696 | |
Net gains (losses) from trading activities (2) | 1 | | | (4) | | | 844 | | | 8 | | | 22 | | | 0 | | | 871 | |
Net gains on debt securities (2) | 6 | | | 0 | | | 0 | | | 0 | | | 443 | | | 0 | | | 449 | |
Net gains (losses) from equity securities (2) | 0 | | | (222) | | | 124 | | | (111) | | | (659) | | | 0 | | | (868) | |
Lease income (2) | 0 | | | 387 | | | 6 | | | 0 | | | 295 | | | 0 | | | 688 | |
Other (2) | 832 | | | 253 | | | 248 | | | 36 | | | 571 | | | (415) | | | 1,525 | |
Total noninterest income | 4,538 | | | 1,409 | | | 3,483 | | | 4,919 | | | 1,303 | | | (415) | | | 15,237 | |
Total revenue | $ | 16,257 | | | 4,696 | | | 7,467 | | | 6,476 | | | 2,242 | | | (679) | | | 36,459 | |
(1)Taxable-equivalent adjustments related to tax-exempt income on certain loans and debt securities are included in net interest income, while taxable-equivalent adjustments related to income tax credits for low-income housing and renewable energy investments are included in noninterest income, in each case with corresponding impacts to income tax expense (benefit). Adjustments are included in Corporate, Commercial Banking, and Corporate and Investment Banking and are eliminated to reconcile to the Company’s consolidated financial results.
(2)These revenues are related to financial assets and liabilities, including loans, leases, securities and derivatives, with additional details included in other footnotes to our financial statements.
(2)In third quarter 2020, service charges on deposit accounts, cash network fees, wire transfer and other remittance fees, and certain other fees were combined into a single line item for deposit-related fees; certain fees associated with lending activities were combined into a single line item for lending-related fees; and certain other fees were reclassified to other noninterest income. Prior period balances have been revised to conform with the current period presentation.
(3)We earned trailing commissions of $284$300 million and $816$598 million for the thirdsecond quarter and first nine monthshalf of 2020,2021, respectively, and $289$257 million and $858$532 million for the thirdsecond quarter and first nine monthshalf of 2019,2020, respectively.
(4)The cost of credit card rewards and rebates of $318$373 million and $969$683 million for the thirdsecond quarter and first nine monthshalf of 2020,2021, respectively, and $383$266 million and $1.1 billion$651 million for the thirdsecond quarter and first nine monthshalf of 2019,2020, respectively, are presented net against the related revenues.
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.
DEPOSIT-RELATED FEES are earned in connection with depository accounts for commercial and consumer customers and include fees for account charges, overdraft services, cash network fees, wire transfer and other remittance fees, and safe deposit box fees. 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. Cash network fees are earned for processing ATM transactions, and our obligation is completed upon settlement of ATM transactions. Wire transfer and other remittance fees consist of fees earned for providing funds transfer services and issuing cashier’s checks and money orders. Our obligation is satisfied at the time of the performance of the funds transfer service or upon issuance of the cashier’s check or
money order. Safe deposit box fees are generally recognized over time as we provide the services.
BROKERAGEINVESTMENT ADVISORY COMMISSIONS AND OTHER ASSET-BASED FEES are earned for providing brokerage servicesadvisory, asset management and include fees earned on asset-based and transactional accounts and other brokerage advisorytrust services.
Asset-based revenuesFees from advisory account relationships with brokerage customers are charged based on a percentage of the market value of the client’s assets. The servicesServices and obligations related obligations associated with certain of these revenues, which includeto providing investment advice, active management of client assets, and assistance with selecting and engaging a third-party advisory manager are generally satisfied over a month or quarter. The remaining revenues include trailingTrailing commissions which are earned for selling shares to investors. Ourinvestors and 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.
Note 18: Revenue from Contracts with Customers (continued)
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.
TRUST AND INVESTMENT MANAGEMENT FEES are earned for providing trust, investment management and other related services.
InvestmentAsset 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 satisfied 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, whiletime; however, obligations for activities that are transactionaltransitional in nature are satisfied at the time of the transaction.
Other related services include
COMMISSIONS AND BROKERAGE SERVICES FEES are earned for providing brokerage services.
Commissions from transactional accounts with brokerage customers are earned for executing transactions at the custody and safekeeping of accounts.client’s direction. Our obligation for these services is generally satisfied over time.
INVESTMENT BANKING FEES are earned for underwriting debt and equity securities, arranging syndicated loan transactions and performing other advisory services. Our obligation for these services is generally satisfied at closingupon the execution of the transaction.transaction and the fees are based on the size and number of transactions executed.
CARD FEES Fees earned from other brokerage services include creditsecurities clearance, omnibus and debit card interchangenetworking fees received from mutual fund companies in return for providing record keeping and network revenuesother administrative services, 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.annual account maintenance fees charged to customers. Our obligation is satisfied concurrently withat the deliverytime we provide the service which is generally at the time of services on a daily basis. Other card fees represent late fees, cash advance fees, balance transfer fees, and annual fees.the transaction.
For a description of our other revenues, see Note 20 (Revenue from Contracts with Customers) in our 2020 Form 10-K.
| | |
Note 19:18: Employee Benefits and Other Expenses |
Pension and Postretirement Plans
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 0 new benefits have accruedaccrue 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 2321 (Employee Benefits and Other Expenses) in our 20192020 Form 10-K.
We recognize settlement losses for our Cash Balance Plan based on an assessment of whether lump sum benefit payments will, in aggregate for the year, exceed the sum of its annual service and interest cost.cost (threshold). Settlement losses of $29$62 million and $99$70 million were recognized during the thirdsecond quarter 2021 and first nine months of 2020, respectively, representing the pro rata portion of the net loss in cumulative other comprehensive income based on the percentage reduction in the Cash Balance
Plan’s projected benefit obligation attributable to lump sum benefit
payments during the first nine monthshalf of both 2021 and 2020. As a result of the settlement losses, we re-measured the Cash Balance Plan obligation and plan assets as of Septemberboth June 30, 2021 and 2020, and used a discount rate of 2.60%2.80% and 2.75%, respectively, based on our consistent methodology of determining our discount rate using a yield curve with maturity dates that closely match the estimated timing of the expected benefit payments. The result of the settlement losses and re-measurementremeasurement increased the Cash Balance Plan asset by $347 million and other comprehensive income (pre-tax) by $409 million in second quarter 2021, and increased the Cash Balance Plan liability by $89$674 million and $763 million for the third quarter and first nine months of 2020, respectively, and decreased other comprehensive income (pre-tax) by $60 million and $664 million for the third quarter and first nine months of 2020, respectively.
We voluntarily made a $130 million contribution to our Cash Balance Plan in September 2020 and made an additional contribution of $570$604 million in Octobersecond quarter 2020.
Table 19.118.1 presents the components of net periodic benefit cost. Service cost is reported in personnel expense and all other components of net periodic benefit cost are reported in other noninterest expense on the consolidated statement of income.
Table 19.1:18.1: Net Periodic Benefit Cost
| | | 2020 | | 2019 | | 2021 | | 2020 | |
| | Pension benefits | | | Pension benefits | | | Pension benefits | | | Pension benefits | | |
(in millions) | (in millions) | Qualified | | Non-qualified | | Other benefits | | Qualified | | Non-qualified | | Other benefits | (in millions) | Qualified | | Non- qualified | | Other benefits | | Qualified | | Non- qualified | | Other benefits | |
Quarter ended September 30, | | | | |
Quarter ended June 30, | | Quarter ended June 30, | | |
Service cost | Service cost | $ | 4 | | | 0 | | | 0 | | | 3 | | | 0 | | | 0 | | Service cost | $ | 5 | | | 0 | | | 0 | | | 4 | | | 0 | | | 0 | | |
Interest cost | Interest cost | 77 | | | 5 | | | 4 | | | 105 | | | 5 | | | 6 | | Interest cost | 71 | | | 3 | | | 3 | | | 86 | | | 4 | | | 4 | | |
Expected return on plan assets | Expected return on plan assets | (148) | | | 0 | | | (5) | | | (142) | | | 0 | | | (7) | | Expected return on plan assets | (154) | | | 0 | | | (4) | | | (149) | | | 0 | | | (5) | | |
Amortization of net actuarial loss (gain) | Amortization of net actuarial loss (gain) | 43 | | | 3 | | | (5) | | | 37 | | | 3 | | | (5) | | Amortization of net actuarial loss (gain) | 38 | | | 3 | | | (5) | | | 35 | | | 3 | | | (4) | | |
Amortization of prior service credit | Amortization of prior service credit | 0 | | | 0 | | | (2) | | | 0 | | | 0 | | | (2) | | Amortization of prior service credit | 0 | | | 0 | | | (3) | | | 0 | | | 0 | | | (3) | | |
Settlement loss | Settlement loss | 29 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | Settlement loss | 62 | | | 0 | | | 0 | | | 70 | | | 0 | | | 0 | | |
| Net periodic benefit cost | Net periodic benefit cost | $ | 5 | | | 8 | | | (8) | | | 3 | | | 8 | | | (8) | | Net periodic benefit cost | $ | 22 | | | 6 | | | (9) | | | 46 | | | 7 | | | (8) | | |
Nine months ended September 30, | | | | |
Six months ended June 30, | | Six months ended June 30, | | |
Service cost | Service cost | $ | 11 | | | 0 | | | 0 | | | 9 | | | 0 | | | 0 | | Service cost | $ | 9 | | | 0 | | | 0 | | | 7 | | | 0 | | | 0 | | |
Interest cost | Interest cost | 249 | | | 13 | | | 12 | | | 314 | | | 16 | | | 17 | | Interest cost | 142 | | | 6 | | | 6 | | | 172 | | | 8 | | | 8 | | |
Expected return on plan assets | Expected return on plan assets | (445) | | | 0 | | | (16) | | | (426) | | | 0 | | | (21) | | Expected return on plan assets | (306) | | | 0 | | | (9) | | | (297) | | | 0 | | | (11) | | |
Amortization of net actuarial loss (gain) | Amortization of net actuarial loss (gain) | 114 | | | 10 | | | (14) | | | 111 | | | 8 | | | (13) | | Amortization of net actuarial loss (gain) | 75 | | | 7 | | | (10) | | | 71 | | | 7 | | | (9) | | |
Amortization of prior service credit | Amortization of prior service credit | 0 | | | 0 | | | (7) | | | 0 | | | 0 | | | (7) | | Amortization of prior service credit | 0 | | | 0 | | | (5) | | | 0 | | | 0 | | | (5) | | |
Settlement loss | Settlement loss | 99 | | | 3 | | | 0 | | | 0 | | | 2 | | | 0 | | Settlement loss | 62 | | | 2 | | | 0 | | | 70 | | | 3 | | | 0 | | |
| Net periodic benefit cost | Net periodic benefit cost | $ | 28 | | | 26 | | | (25) | | | 8 | | | 26 | | | (24) | | Net periodic benefit cost | $ | (18) | | | 15 | | | (18) | | | 23 | | | 18 | | | (17) | | |
Other Expenses
Federal Deposit Insurance Corporation (FDIC) deposit assessmentRegulatory Charges and Assessments expense, which is included in other noninterest expense, was $248$192 million and $622$409 million in the thirdsecond quarter and first nine monthshalf of 2020,2021, respectively, compared with $145$211 million and $546$374 million in the same periods a year ago.ago, and primarily consisted of Federal Deposit Insurance Corporation (FDIC) deposit assessment expense.
| | |
Note 19: Restructuring Charges |
The Company began pursuing various initiatives to reduce expenses and create a more efficient and streamlined organization in third quarter 2020. Actions from these initiatives may include (i) reorganizing and simplifying business processes and structures to improve internal operations and the customer experience, (ii) reducing headcount, (iii) optimizing third-party spending, including for our technology infrastructure, and (iv) rationalizing our branch and administrative locations, which may include consolidations and closures.
Restructuring charges are recorded as a component of noninterest expense on our consolidated statement of income.
The following costs associated with these initiatives are included in restructuring charges.
•Personnel costs – Severance costs associated with headcount reductions with payments made over time in accordance with our severance plan, as well as payments for other employee benefit costs such as incentive compensation.
•Facility closure costs – Write-downs and acceleration of depreciation and amortization of owned or leased assets for branch and administrative locations, as well as related decommissioning costs.
•Other – Impairment of other assets and costs associated with our technology infrastructure.
Table 19.1 provides details on our restructuring charges.
Table 19.1:Accruals for Restructuring Charges
| | | | | | | | | | | | | | |
(in millions) | Personnel costs | Facility closure costs | Other | Total |
Quarter ended June 30, 2021 | | | | |
Balance, beginning of period | $ | 1,010 | | 0 | | 44 | | 1,054 | |
Restructuring charges | 155 | | 3 | | 0 | | 158 | |
Payments and utilization | (213) | | 4 | | (37) | | (246) | |
Changes in estimates (1) | (148) | | (7) | | (7) | | (162) | |
Balance, end of period | $ | 804 | | 0 | | 0 | | 804 | |
Six months ended June 30, 2021 | | | | |
Balance, beginning of period | $ | 1,170 | | 0 | | 44 | | 1,214 | |
Restructuring charges | 285 | | 18 | | 0 | | 303 | |
Payments and utilization | (370) | | (11) | | (38) | | (419) | |
Changes in estimates (1) | (281) | | (7) | | (6) | | (294) | |
Balance, end of period | $ | 804 | | 0 | | 0 | | 804 | |
Year ended December 31, 2020 | | | | |
Balance, beginning of year | $ | 0 | | 0 | | 0 | | 0 | |
Restructuring charges | 1,371 | | 80 | | 144 | | 1,595 | |
Payments and utilization | (105) | | (80) | | (100) | | (285) | |
Changes in estimates (1) | (96) | | 0 | | 0 | | (96) | |
Balance, end of year | $ | 1,170 | | 0 | | 44 | | 1,214 | |
(1)Represents reduction of expense for changes in previously estimated amounts based on refinements of assumptions.
| | |
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.
Table 20.1: Earnings Per Common Share Calculations
| | | Quarter ended September 30, | | Nine months ended September 30, | | Quarter ended June 30, | | Six months ended June 30, | |
(in millions, except per share amounts) | (in millions, except per share amounts) | 2020 | | 2019 | | 2020 | | 2019 | (in millions, except per share amounts) | 2021 | | 2020 | | 2021 | | 2020 | |
Wells Fargo net income | $ | 2,035 | | | 4,610 | | | $ | 309 | | | 16,676 | | |
Wells Fargo net income (loss) (1) | | Wells Fargo net income (loss) (1) | $ | 6,040 | | | $ | (3,846) | | | $ | 10,676 | | | (2,930) | | |
Less: Preferred stock dividends and other (1)(2) | Less: Preferred stock dividends and other (1)(2) | 315 | | | 573 | | | 1,241 | | | 1,284 | | Less: Preferred stock dividends and other (1)(2) | 297 | | | 314 | | | 677 | | | 926 | | |
Wells Fargo net income (loss) applicable to common stock (numerator)(1) | Wells Fargo net income (loss) applicable to common stock (numerator)(1) | $ | 1,720 | | | 4,037 | | | $ | (932) | | | 15,392 | | Wells Fargo net income (loss) applicable to common stock (numerator)(1) | $ | 5,743 | | | (4,160) | | | $ | 9,999 | | | (3,856) | | |
Earnings (loss) per common share | | |
Earnings per common share | | Earnings per common share | | |
Average common shares outstanding (denominator) | Average common shares outstanding (denominator) | 4,123.8 | | | 4,358.5 | | | 4,111.4 | | | 4,459.1 | | Average common shares outstanding (denominator) | 4,124.6 | | | 4,105.5 | | | 4,132.9 | | | 4,105.2 | | |
Per share | Per share | $ | 0.42 | | | 0.93 | | | $ | (0.23) | | | 3.45 | | Per share | $ | 1.39 | | | (1.01) | | | $ | 2.42 | | | (0.94) | | |
Diluted earnings (loss) per common share | | |
Diluted earnings per common share | | Diluted earnings per common share | | |
Average common shares outstanding | Average common shares outstanding | 4,123.8 | | | 4,358.5 | | | 4,111.4 | | | 4,459.1 | | Average common shares outstanding | 4,124.6 | | | 4,105.5 | | | 4,132.9 | | | 4,105.2 | | |
Add: Stock options (2)(3) | 0 | | | 0.1 | | | 0 | | | 1.0 | | |
Restricted share rights (2)(3) | 8.4 | | | 31.0 | | | 0 | | | 29.4 | | |
| Diluted average common shares outstanding (denominator) (3) | 4,132.2 | | | 4,389.6 | | | 4,111.4 | | | 4,489.5 | | |
Add: Restricted share rights (3) | | Add: Restricted share rights (3) | 31.5 | | | 0 | | | 31.7 | | | 0 | | |
Diluted average common shares outstanding (denominator) | | Diluted average common shares outstanding (denominator) | 4,156.1 | | | 4,105.5 | | | 4,164.6 | | | 4,105.2 | | |
Per share | Per share | $ | 0.42 | | | 0.92 | | | $ | (0.23) | | | 3.43 | | Per share | $ | 1.38 | | | (1.01) | | | $ | 2.40 | | | (0.94) | | |
(1)In second quarter 2021, we elected to change our accounting method for low-income housing tax credit investments and elected to change the presentation of investment tax credits related to solar energy investments. Prior period balances have been revised to conform with the current period presentation. For additional information, see Note 1 (Summary of Significant Accounting Policies).
(2)The nine monthsquarter ended SeptemberJune 30, 2020,2021, balance includes $272included$4 million, and the quarter and ninesix months ended SeptemberJune 30, 2019, balance2021 and 2020, includes $220$48 million and $272 million, respectively, from the elimination of discounts or issuance costs associated with redemptions of preferred stock.
(2)(3)Calculated using the treasury stock method.
(3)For In the nine months ended September 30,second quarter and first half of 2020, diluted average common shares outstanding equaled average common shares outstanding because our securities convertible into common shares had an anti-dilutive effect. Weighted average restricted share rights outstanding were 53.4 million for the nine months ended September 30, 2020.
Table 20.2 presents the outstanding securities 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 | | | | Weighted-average shares |
| | Quarter ended September 30, | | Nine months ended September 30, | | Quarter ended June 30, | | Six months ended June 30, | |
(in millions) | (in millions) | 2020 | | 2019 | | 2020 | | 2019 | (in millions) | 2021 | | 2020 | | 2021 | | 2020 | |
Convertible Preferred Stock, Series L (1) | Convertible Preferred Stock, Series L (1) | 25.3 | | | 25.3 | | | 25.3 | | | 25.3 | | Convertible Preferred Stock, Series L (1) | 25.3 | | | 25.3 | | | 25.3 | | | 25.3 | | |
Restricted share rights (2) | Restricted share rights (2) | 17.7 | | | 0 | | | 1.3 | | | 0 | | Restricted share rights (2) | 0.2 | | | 35.9 | | | 0.1 | | | 0.9 | | |
|
(1)Calculated using the if-converted method.
(2)Calculated using the treasury stock method. Since we had net losses attributable to common shareholders for the second quarter and first half of 2020, all RSRs outstanding were anti-dilutive. Weighted average RSRs outstanding were 50.7 million and 54.7 million for the second quarter and first half of 2020, respectively.
Table 20.3 presents dividends declared per common share.
Table 20.3: Dividends Declared Per Common Share
| | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended September 30, | | Nine months ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Per common share | $ | 0.10 | | | 0.51 | | | $ | 1.12 | | | 1.41 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended June 30, | | Six months ended June 30, | | |
| 2021 | | 2020 | | 2021 | | 2020 | | |
Per common share | $ | 0.10 | | | $ | 0.51 | | | $ | 0.20 | | | 1.02 | | | |
| | | | | | | | | |
| | |
Note 21: Other Comprehensive Income |
Table 21.1 provides the components of OCI,other comprehensive income (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 September 30, | | Nine months ended September 30, | | Quarter ended June 30, | | Six months ended June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 | |
(in millions) | (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 | (in millions) | Before tax | | Tax effect | | Net of tax | | Before tax | | Tax effect | | Net of tax | | Before tax | | Tax effect | | Net of tax | | Before tax | | Tax effect | | Net of tax | |
Debt securities: | Debt securities: | | Debt securities: | | |
Net unrealized gains arising during the period | $ | 96 | | | (18) | | | 78 | | | 652 | | | (159) | | | 493 | | | 1,582 | | | (391) | | | 1,191 | | | 5,192 | | | (1,276) | | | 3,916 | | |
Net unrealized gains (losses) arising during the period | | Net unrealized gains (losses) arising during the period | $ | 272 | | | (68) | | | 204 | | | 1,596 | | | (395) | | | 1,201 | | | (1,740) | | | 432 | | | (1,308) | | | 1,486 | | | (373) | | | 1,113 | | |
Reclassification of net (gains) losses to net income: | Reclassification of net (gains) losses to net income: | | Reclassification of net (gains) losses to net income: | | |
Interest income on debt securities (1) | Interest income on debt securities (1) | 167 | | | (41) | | | 126 | | | 77 | | | (19) | | | 58 | | | 356 | | | (88) | | | 268 | | | 183 | | | (45) | | | 138 | | Interest income on debt securities (1) | 134 | | | (33) | | | 101 | | | 123 | | | (31) | | | 92 | | | 271 | | | (67) | | | 204 | | | 189 | | | (47) | | | 142 | | |
Net gains on debt securities | Net gains on debt securities | (264) | | | 63 | | | (201) | | | (3) | | | 0 | | | (3) | | | (713) | | | 174 | | | (539) | | | (148) | | | 36 | | | (112) | | Net gains on debt securities | 0 | | | 0 | | | 0 | | | (212) | | | 63 | | | (149) | | | (151) | | | 35 | | | (116) | | | (449) | | | 111 | | | (338) | | |
| Other noninterest income | Other noninterest income | 2 | | | 0 | | | 2 | | | 2 | | | (1) | | | 1 | | | 0 | | | 0 | | | 0 | | | (1) | | | 0 | | | (1) | | Other noninterest income | (2) | | | 1 | | | (1) | | | (1) | | | 0 | | | (1) | | | (2) | | | 1 | | | (1) | | | (2) | | | 0 | | | (2) | | |
Subtotal reclassifications to net income | Subtotal reclassifications to net income | (95) | | | 22 | | | (73) | | | 76 | | | (20) | | | 56 | | | (357) | | | 86 | | | (271) | | | 34 | | | (9) | | | 25 | | Subtotal reclassifications to net income | 132 | | | (32) | | | 100 | | | (90) | | | 32 | | | (58) | | | 118 | | | (31) | | | 87 | | | (262) | | | 64 | | | (198) | | |
Net change | Net change | 1 | | | 4 | | | 5 | | | 728 | | | (179) | | | 549 | | | 1,225 | | | (305) | | | 920 | | | 5,226 | | | (1,285) | | | 3,941 | | Net change | 404 | | | (100) | | | 304 | | | 1,506 | | | (363) | | | 1,143 | | | (1,622) | | | 401 | | | (1,221) | | | 1,224 | | | (309) | | | 915 | | |
Derivative and hedging activities: | | |
Derivatives and hedging activities: | | Derivatives and hedging activities: | | |
Fair Value Hedges: | Fair Value Hedges: | | Fair Value Hedges: | | |
Change in fair value of excluded components on fair value hedges (2) | Change in fair value of excluded components on fair value hedges (2) | (82) | | | 20 | | | (62) | | | 28 | | | (7) | | | 21 | | | 5 | | | (2) | | | 3 | | | 58 | | | (14) | | | 44 | | Change in fair value of excluded components on fair value hedges (2) | (14) | | | 3 | | | (11) | | | (57) | | | 13 | | | (44) | | | 11 | | | (3) | | | 8 | | | 87 | | | (22) | | | 65 | | |
Cash Flow Hedges: | Cash Flow Hedges: | | Cash Flow Hedges: | | |
Net unrealized gains (losses) arising during the period on cash flow hedges | Net unrealized gains (losses) arising during the period on cash flow hedges | 12 | | | (3) | | | 9 | | | (18) | | | 4 | | | (14) | | | (3) | | | 1 | | | (2) | | | (26) | | | 6 | | | (20) | | Net unrealized gains (losses) arising during the period on cash flow hedges | 11 | | | (3) | | | 8 | | | 5 | | | (1) | | | 4 | | | (20) | | | 5 | | | (15) | | | (15) | | | 4 | | | (11) | | |
Reclassification of net (gains) losses to net income on cash flow hedges: | | |
| Reclassification of net (gains) losses to net income: | | Reclassification of net (gains) losses to net income: | | |
Interest income on loans | Interest income on loans | 53 | | | (14) | | | 39 | | | 73 | | | (19) | | | 54 | | | 162 | | | (40) | | | 122 | | | 228 | | | (57) | | | 171 | | Interest income on loans | 39 | | | (10) | | | 29 | | | 53 | | | (12) | | | 41 | | | 91 | | | (23) | | | 68 | | | 109 | | | (26) | | | 83 | | |
Interest expense on long-term debt | Interest expense on long-term debt | (1) | | | 1 | | | 0 | | | 2 | | | 0 | | | 2 | | | 3 | | | 0 | | | 3 | | | 5 | | | (1) | | | 4 | | Interest expense on long-term debt | 1 | | | 0 | | | 1 | | | 2 | | | 0 | | | 2 | | | 2 | | | 0 | | | 2 | | | 4 | | | (1) | | | 3 | | |
Subtotal reclassifications to net income | Subtotal reclassifications to net income | 52 | | | (13) | | | 39 | | | 75 | | | (19) | | | 56 | | | 165 | | | (40) | | | 125 | | | 233 | | | (58) | | | 175 | | Subtotal reclassifications to net income | 40 | | | (10) | | | 30 | | | 55 | | | (12) | | | 43 | | | 93 | | | (23) | | | 70 | | | 113 | | | (27) | | | 86 | | |
Net change | Net change | (18) | | | 4 | | | (14) | | | 85 | | | (22) | | | 63 | | | 167 | | | (41) | | | 126 | | | 265 | | | (66) | | | 199 | | Net change | 37 | | | (10) | | | 27 | | | 3 | | | 0 | | | 3 | | | 84 | | | (21) | | | 63 | | | 185 | | | (45) | | | 140 | | |
Defined benefit plans adjustments: | Defined benefit plans adjustments: | | Defined benefit plans adjustments: | | |
Net actuarial and prior service losses arising during the period | (89) | | | 22 | | | (67) | | | 0 | | | 0 | | | 0 | | | (760) | | | 188 | | | (572) | | | (4) | | | 1 | | | (3) | | |
Reclassification of amounts to non interest expense (3): | | |
Net actuarial and prior service gains (losses) arising during the period | | Net actuarial and prior service gains (losses) arising during the period | 347 | | | (85) | | | 262 | | | (674) | | | 167 | | | (507) | | | 357 | | | (88) | | | 269 | | | (671) | | | 166 | | | (505) | | |
Reclassification of amounts to noninterest expense (3): | | Reclassification of amounts to noninterest expense (3): | | |
Amortization of net actuarial loss | Amortization of net actuarial loss | 41 | | | (10) | | | 31 | | | 35 | | | (9) | | | 26 | | | 110 | | | (27) | | | 83 | | | 106 | | | (26) | | | 80 | | Amortization of net actuarial loss | 36 | | | (9) | | | 27 | | | 34 | | | (9) | | | 25 | | | 72 | | | (18) | | | 54 | | | 69 | | | (17) | | | 52 | | |
Settlements and other | Settlements and other | 27 | | | (6) | | | 21 | | | (2) | | | 1 | | | (1) | | | 95 | | | (22) | | | 73 | | | (5) | | | 3 | | | (2) | | Settlements and other | 59 | | | (14) | | | 45 | | | 67 | | | (16) | | | 51 | | | 59 | | | (13) | | | 46 | | | 68 | | | (16) | | | 52 | | |
Subtotal reclassifications to non interest expense | 68 | | | (16) | | | 52 | | | 33 | | | (8) | | | 25 | | | 205 | | | (49) | | | 156 | | | 101 | | | (23) | | | 78 | | |
Subtotal reclassifications to noninterest expense | | Subtotal reclassifications to noninterest expense | 95 | | | (23) | | | 72 | | | 101 | | | (25) | | | 76 | | | 131 | | | (31) | | | 100 | | | 137 | | | (33) | | | 104 | | |
Net change | Net change | (21) | | | 6 | | | (15) | | | 33 | | | (8) | | | 25 | | | (555) | | | 139 | | | (416) | | | 97 | | | (22) | | | 75 | | Net change | 442 | | | (108) | | | 334 | | | (573) | | | 142 | | | (431) | | | 488 | | | (119) | | | 369 | | | (534) | | | 133 | | | (401) | | |
| Foreign currency translation adjustments: | Foreign currency translation adjustments: | | Foreign currency translation adjustments: | | |
Net unrealized gains (losses) arising during the period | Net unrealized gains (losses) arising during the period | 74 | | | (1) | | | 73 | | | (53) | | | 1 | | | (52) | | | (70) | | | 1 | | | (69) | | | 3 | | | (2) | | | 1 | | Net unrealized gains (losses) arising during the period | 23 | | | (1) | | | 22 | | | 51 | | | 0 | | | 51 | | | 36 | | | (3) | | | 33 | | | (144) | | | 2 | | | (142) | | |
Net change | Net change | 74 | | | (1) | | | 73 | | | (53) | | | 1 | | | (52) | | | (70) | | | 1 | | | (69) | | | 3 | | | (2) | | | 1 | | Net change | 23 | | | (1) | | | 22 | | | 51 | | | 0 | | | 51 | | | 36 | | | (3) | | | 33 | | | (144) | | | 2 | | | (142) | | |
Other comprehensive income | $ | 36 | | | 13 | | | 49 | | | 793 | | | (208) | | | 585 | | | 767 | | | (206) | | | 561 | | | 5,591 | | | (1,375) | | | 4,216 | | |
Less: Other comprehensive income from noncontrolling interests, net of tax | | 1 | | | 0 | | | 0 | | | 0 | | |
Wells Fargo other comprehensive income, net of tax | | $ | 48 | | | 585 | | | 561 | | | 4,216 | | |
Other comprehensive income (loss) | | Other comprehensive income (loss) | $ | 906 | | | (219) | | | 687 | | | 987 | | | (221) | | | 766 | | | (1,014) | | | 258 | | | (756) | | | 731 | | | (219) | | | 512 | | |
Less: Other comprehensive income (loss) from noncontrolling interests, net of tax | | Less: Other comprehensive income (loss) from noncontrolling interests, net of tax | | 1 | | | 0 | | | 2 | | | (1) | | |
Wells Fargo other comprehensive income (loss), net of tax | | Wells Fargo other comprehensive income (loss), net of tax | | $ | 686 | | | 766 | | | (758) | | | 513 | | |
(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 hedge effectiveness and recorded in other comprehensive income.
(3)These items are included in the computation of net periodic benefit cost (see Note 1918 (Employee Benefits and Other Expenses) for additional information).
Note 21: Other Comprehensive Income (continued(continued)
Table 21.2 provides the cumulative OCI balance activity on an after-tax basis.
Table 21.2: Cumulative OCI Balances
| (in millions) | (in millions) | Debt securities | | Fair value hedges (1) | | Cash flow hedges (2) | | Defined benefit plans adjustments | | Foreign currency translation adjustments | | Cumulative other comprehensive income | (in millions) | Debt securities | | Fair value hedges (1) | | Cash flow hedges (2) | | Defined benefit plans adjustments | | | Foreign currency translation adjustments | | Cumulative other comprehensive income (loss) |
Quarter ended September 30, 2020 | | |
Quarter ended June 30, 2021 | | Quarter ended June 30, 2021 | | | |
Balance, beginning of period | Balance, beginning of period | $ | 2,467 | | | (115) | | | (223) | | | (2,624) | | | (303) | | | (798) | | Balance, beginning of period | $ | 1,514 | | | (185) | | | (108) | | | (2,369) | | | | (102) | | | (1,250) | |
| Net unrealized gains (losses) arising during the period | Net unrealized gains (losses) arising during the period | 78 | | | (62) | | | 9 | | | (67) | | | 73 | | | 31 | | Net unrealized gains (losses) arising during the period | 204 | | | (11) | | | 8 | | | 262 | | | | 22 | | | 485 | |
Amounts reclassified from accumulated other comprehensive income | Amounts reclassified from accumulated other comprehensive income | (73) | | | 0 | | | 39 | | | 52 | | | 0 | | | 18 | | Amounts reclassified from accumulated other comprehensive income | 100 | | | 0 | | | 30 | | | 72 | | | | 0 | | | 202 | |
Net change | Net change | 5 | | | (62) | | | 48 | | | (15) | | | 73 | | | 49 | | Net change | 304 | | | (11) | | | 38 | | | 334 | | | | 22 | | | 687 | |
Less: Other comprehensive income from noncontrolling interests | Less: Other comprehensive income from noncontrolling interests | 0 | | | 0 | | | 0 | | | 0 | | | 1 | | | 1 | | Less: Other comprehensive income from noncontrolling interests | 1 | | | 0 | | | 0 | | | 0 | | | | 0 | | | 1 | |
Balance, end of period | Balance, end of period | $ | 2,472 | | | (177) | | | (175) | | | (2,639) | | | (231) | | | (750) | | Balance, end of period | $ | 1,817 | | | (196) | | | (70) | | | (2,035) | | | | (80) | | | (564) | |
Quarter ended September 30, 2019 | | |
Quarter ended June 30, 2020 | | Quarter ended June 30, 2020 | | | |
Balance, beginning of period | | Balance, beginning of period | $ | 1,324 | | | (71) | | | (270) | | | (2,193) | | | | (354) | | | (1,564) | |
| Net unrealized gains (losses) arising during the period | | Net unrealized gains (losses) arising during the period | 1,201 | | | (44) | | | 4 | | | (507) | | | | 51 | | | 705 | |
Amounts reclassified from accumulated other comprehensive income | | Amounts reclassified from accumulated other comprehensive income | (58) | | | 0 | | | 43 | | | 76 | | | | 0 | | | 61 | |
Net change | | Net change | 1,143 | | | (44) | | | 47 | | | (431) | | | | 51 | | | 766 | |
Less: Other comprehensive income from noncontrolling interests | | Less: Other comprehensive income from noncontrolling interests | 0 | | | 0 | | | 0 | | | 0 | | | | 0 | | | 0 | |
Balance, end of period | | Balance, end of period | $ | 2,467 | | | (115) | | | (223) | | | (2,624) | | | | (303) | | | (798) | |
Six months ended June 30, 2021 | | Six months ended June 30, 2021 | | | |
Balance, beginning of period | | Balance, beginning of period | $ | 3,039 | | | (204) | | | (125) | | | (2,404) | | | | (112) | | | 194 | |
| Net unrealized gains (losses) arising during the period | | Net unrealized gains (losses) arising during the period | (1,308) | | | 8 | | | (15) | | | 269 | | | | 33 | | | (1,013) | |
Amounts reclassified from accumulated other comprehensive income | | Amounts reclassified from accumulated other comprehensive income | 87 | | | 0 | | | 70 | | | 100 | | | | 0 | | | 257 | |
Net change | | Net change | (1,221) | | | 8 | | | 55 | | | 369 | | | | 33 | | | (756) | |
Less: Other comprehensive income from noncontrolling interests | | Less: Other comprehensive income from noncontrolling interests | 1 | | | 0 | | | 0 | | | 0 | | | | 1 | | | 2 | |
Balance, end of period | | Balance, end of period | $ | 1,817 | | | (196) | | | (70) | | | (2,035) | | | | (80) | | | (564) | |
Six months ended June 30, 2020 | | Six months ended June 30, 2020 | | | |
| Balance, beginning of period | Balance, beginning of period | 751 | | | (155) | | | (394) | | | (2,246) | | | (180) | | | (2,224) | | Balance, beginning of period | $ | 1,552 | | | (180) | | | (298) | | | (2,223) | | | | (162) | | | (1,311) | |
Net unrealized gains (losses) arising during the period | Net unrealized gains (losses) arising during the period | 493 | | | 21 | | | (14) | | | 0 | | | (52) | | | 448 | | Net unrealized gains (losses) arising during the period | 1,113 | | | 65 | | | (11) | | | (505) | | | | (142) | | | 520 | |
Amounts reclassified from accumulated other comprehensive income | Amounts reclassified from accumulated other comprehensive income | 56 | | | 0 | | | 56 | | | 25 | | | 0 | | | 137 | | Amounts reclassified from accumulated other comprehensive income | (198) | | | 0 | | | 86 | | | 104 | | | | 0 | | | (8) | |
Net change | Net change | 549 | | | 21 | | | 42 | | | 25 | | | (52) | | | 585 | | Net change | 915 | | | 65 | | | 75 | | | (401) | | | | (142) | | | 512 | |
| Less: Other comprehensive loss from noncontrolling interests | | Less: Other comprehensive loss from noncontrolling interests | 0 | | | 0 | | | 0 | | | 0 | | | | (1) | | | (1) | |
Balance, end of period | Balance, end of period | $ | 1,300 | | | (134) | | | (352) | | | (2,221) | | | (232) | | | (1,639) | | Balance, end of period | $ | 2,467 | | | (115) | | | (223) | | | (2,624) | | | | (303) | | | (798) | |
Nine months ended September 30, 2020 | | |
Balance, beginning of period | $ | 1,552 | | | (180) | | | (298) | | | (2,223) | | | (162) | | | (1,311) | | |
| Net unrealized gains (losses) arising during the period | 1,191 | | | 3 | | | (2) | | | (572) | | | (69) | | | 551 | | |
Amounts reclassified from accumulated other comprehensive income | (271) | | | 0 | | | 125 | | | 156 | | | 0 | | | 10 | | |
Net change | 920 | | | 3 | | | 123 | | | (416) | | | (69) | | | 561 | | |
Less: Other comprehensive loss from noncontrolling interests | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | |
Balance, end of period | $ | 2,472 | | | (177) | | | (175) | | | (2,639) | | | (231) | | | (750) | | |
Nine months ended September 30, 2019 | | |
Balance, beginning of period | $ | (3,122) | | | (178) | | | (507) | | | (2,296) | | | (233) | | | (6,336) | | |
Transition adjustment (3) | 481 | | | 0 | | | 0 | | | 0 | | | 0 | | | 481 | | |
Balance, January 1, 2019 | (2,641) | | | (178) | | | (507) | | | (2,296) | | | (233) | | | (5,855) | | |
| Net unrealized gains (losses) arising during the period | 3,916 | | | 44 | | | (20) | | | (3) | | | 1 | | | 3,938 | | |
Amounts reclassified from accumulated other comprehensive income | 25 | | | 0 | | | 175 | | | 78 | | | 0 | | | 278 | | |
Net change | 3,941 | | | 44 | | | 155 | | | 75 | | | 1 | | | 4,216 | | |
| Balance, end of period | $ | 1,300 | | | (134) | | | (352) | | | (2,221) | | | (232) | | | (1,639) | | |
|
(1)Substantially all of the beginning and end of period amounts for fair value hedges are foreign exchange contracts.
(2)Substantially allMajority 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. For additional information see Note 1 (Summary of Significant Accounting Policies) in our 2019 Form 10-K.
| | |
Note 22: Operating Segments |
Our management reporting is organized into 4 reportable operating segments: Consumer Banking and Lending; Commercial Banking; Corporate and Investment Banking; and Wealth and Investment Management. All other business activities that are not included in the reportable operating segments are definedhave been included in Corporate. We define our reportable operating segments by type of product type and customer segment, and their results are based on our management reporting process. The management reporting process measures the performance of the reportable operating segments based on the Company’s management structure, and the results are regularly reviewed by our Chief Executive Officer and Operating Committee. The management reporting process is based on U.S. GAAP withand includes specific adjustments, such as for funds transfer pricing for asset/liability management, for shared revenues and expenses, and tax-equivalenttaxable-equivalent adjustments to consistently reflect income from taxable and tax-exempt sources. On February 11, 2020,sources, which allows management to assess performance consistently across the operating segments.
In March 2021, we announced a new organizational structure. We continuean agreement to refinesell our Corporate Trust Services business and, in second quarter 2021, we moved the composition of our operating
segments and allocation methodologies. Additionally, we are still inbusiness from the process of transitioning key leadership positions. We now expect to update ourCommercial Banking operating segment disclosures, including comparative financial results, in fourth quarter 2020. These changes willto Corporate. Prior period balances have been revised to conform with the current period presentation. This change did not impact the previously reported consolidated financial results of the Company. For
In second quarter 2021, we elected to change our accounting method for low-income housing tax credit (LIHTC) investments and elected to change the presentation of investment tax credits related to solar energy investments. These accounting policy changes had a description of our currentnominal impact on reportable operating segment results. Prior period financial statement line items for the Company, as well as for the reportable operating segments, have been revised to conform with the current period presentation. Our LIHTC investments are included in the Corporate and Investment Banking operating segment and our solar energy investments are included in the Commercial Banking operating segment. For additional information, see Note 27 (Operating Segments)1 (Summary of Significant Accounting Policies).
Consumer Banking and Lending offers diversified financial products and services for consumers and small businesses with annual sales generally up to $5 million. These financial products and services include checking and savings accounts, credit and debit cards, as well as home, auto, personal, and small business lending.
Commercial Banking provides financial solutions to private, family owned and certain public companies. Products and services include banking and credit products across multiple industry sectors and municipalities, secured lending and lease products, and treasury management.
Corporate and Investment Banking delivers a suite of capital markets, banking, and financial products and services to corporate, commercial real estate, government and institutional clients globally. Products and services include corporate banking, investment banking, treasury management, commercial real estate lending and servicing, equity and fixed income solutions, as well as sales, trading, and research capabilities.
Wealth and Investment Management provides personalized wealth management, investment and retirement products and services to clients across U.S.-based businesses including Wells Fargo Advisors and The Private Bank. We serve clients’ brokerage needs, and deliver financial planning, private banking, credit, and fiduciary services to high-net worth and ultra-high-net worth individuals and families.
Corporate includes corporate treasury and enterprise functions, net of allocations (including funds transfer pricing, capital, liquidity and certain expenses), in support of the reportable operating segments, as well as our 2019 Form 10-K. investment portfolio and affiliated venture capital and private equity businesses. In addition, Corporate includes all restructuring charges related to our efficiency initiatives. See Note 19 (Restructuring Charges) for additional information on restructuring charges. Corporate also includes certain lines of business that management has determined are no longer consistent with the long-term strategic goals of the Company, as well as results for previously divested businesses.
Basis of Presentation
FUNDS TRANSFER PRICING Corporate treasury manages a funds transfer pricing methodology that considers interest rate risk, liquidity risk, and other product characteristics. Operating segments pay a funding charge for their assets and receive a funding credit for their deposits, both of which are included in net interest income. The net impact of the funding charges or credits is recognized in corporate treasury.
REVENUE AND EXPENSE SHARING When lines of business jointly serve customers, the line of business that is responsible for providing the product or service recognizes revenue or expense with a referral fee paid or an allocation of cost to the other line of business based on established internal revenue-sharing agreements.
When a line of business uses a service provided by another line of business or enterprise function (included in Corporate), expense is generally allocated based on the cost and use of the service provided.
TAXABLE-EQUIVALENT ADJUSTMENTS Taxable-equivalent adjustments related to tax-exempt income on certain loans and debt securities are included in net interest income, while taxable-equivalent adjustments related to income tax credits for low-income housing and renewable energy investments are included in noninterest income, in each case with corresponding impacts to income tax expense (benefit). Adjustments are included in Corporate, Commercial Banking, and Corporate and Investment Banking and are eliminated to reconcile to the Company’s consolidated financial results.
Note 22: Operating Segments (continued)
Table 22.1 presents our results by operating segment.
Table 22.1: Operating Segments
| (income/expense in millions, average balances in billions) | Community Banking | | Wholesale Banking | | Wealth and Investment Management | | Other (1) | | Consolidated Company | |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 | |
Quarter ended September 30, | | |
(in millions) | |
(in millions) | Consumer Banking and Lending | | Commercial Banking | | Corporate and Investment Banking | | Wealth and Investment Management | | Corporate | | Reconciling Items (1) | | Consolidated Company |
Quarter ended June 30, 2021 | | Quarter ended June 30, 2021 | |
Net interest income (2) | Net interest income (2) | $ | 5,587 | | | 6,769 | | | 3,481 | | | 4,382 | | | 771 | | | 989 | | | (471) | | | (515) | | | 9,368 | | | 11,625 | | Net interest income (2) | $ | 5,618 | | | 1,202 | | | 1,783 | | | 610 | | | (304) | | | (109) | | | 8,800 | |
Provision (reversal of provision) for credit losses | 556 | | | 608 | | | 219 | | | 92 | | | (9) | | | 3 | | | 3 | | | (8) | | | 769 | | | 695 | | |
Noninterest income | Noninterest income | 5,135 | | | 4,470 | | | 2,113 | | | 2,560 | | | 3,023 | | | 4,152 | | | (777) | | | (797) | | | 9,494 | | | 10,385 | | Noninterest income | 3,068 | | | 906 | | | 1,555 | | | 2,926 | | | 3,327 | | | (312) | | | 11,470 | |
Total revenue | | Total revenue | 8,686 | | | 2,108 | | | 3,338 | | | 3,536 | | | 3,023 | | | (421) | | | 20,270 | |
Provision for credit losses | | Provision for credit losses | (367) | | | (382) | | | (501) | | | 24 | | | (34) | | | 0 | | | (1,260) | |
Noninterest expense | Noninterest expense | 8,947 | | | 8,766 | | | 4,013 | | | 3,889 | | | 3,184 | | | 3,431 | | | (915) | | | (887) | | | 15,229 | | | 15,199 | | Noninterest expense | 6,202 | | | 1,443 | | | 1,805 | | | 2,891 | | | 1,000 | | | 0 | | | 13,341 | |
Income (loss) before income tax expense (benefit) | Income (loss) before income tax expense (benefit) | 1,219 | | | 1,865 | | | 1,362 | | | 2,961 | | | 619 | | | 1,707 | | | (336) | | | (417) | | | 2,864 | | | 6,116 | | Income (loss) before income tax expense (benefit) | 2,851 | | | 1,047 | | | 2,034 | | | 621 | | | 2,057 | | | (421) | | | 8,189 | |
Income tax expense (benefit) (3) | 703 | | | 667 | | | (127) | | | 315 | | | 153 | | | 426 | | | (84) | | | (104) | | | 645 | | | 1,304 | | |
Income tax expense (benefit) | | Income tax expense (benefit) | 713 | | | 261 | | | 513 | | | 156 | | | 223 | | | (421) | | | 1,445 | |
Net income before noncontrolling interests | | Net income before noncontrolling interests | 2,138 | | | 786 | | | 1,521 | | | 465 | | | 1,834 | | | 0 | | | 6,744 | |
Less: Net income (loss) from noncontrolling interests | | Less: Net income (loss) from noncontrolling interests | 0 | | | 2 | | | (2) | | | 0 | | | 704 | | | 0 | | | 704 | |
Net income | | Net income | $ | 2,138 | | | 784 | | | 1,523 | | | 465 | | | 1,130 | | | 0 | | | 6,040 | |
Quarter ended June 30, 2020 | | Quarter ended June 30, 2020 | |
Net interest income (2) | | Net interest income (2) | $ | 5,717 | | | 1,554 | | | 1,963 | | | 719 | | | 60 | | | (121) | | | 9,892 | |
Noninterest income | | Noninterest income | 1,891 | | | 797 | | | 2,096 | | | 2,487 | | | 1,318 | | | (195) | | | 8,394 | |
Total revenue | | Total revenue | 7,608 | | | 2,351 | | | 4,059 | | | 3,206 | | | 1,378 | | | (316) | | | 18,286 | |
Provision for credit losses | | Provision for credit losses | 3,102 | | | 2,295 | | | 3,756 | | | 255 | | | 126 | | | 0 | | | 9,534 | |
Noninterest expense | | Noninterest expense | 6,933 | | | 1,580 | | | 2,044 | | | 2,743 | | | 1,251 | | | 0 | | | 14,551 | |
Income (loss) before income tax expense (benefit) | | Income (loss) before income tax expense (benefit) | (2,427) | | | (1,524) | | | (1,741) | | | 208 | | | 1 | | | (316) | | | (5,799) | |
Income tax expense (benefit) | | Income tax expense (benefit) | (650) | | | (379) | | | (408) | | | 52 | | | (300) | | | (316) | | | (2,001) | |
Net income (loss) before noncontrolling interests | | Net income (loss) before noncontrolling interests | (1,777) | | | (1,145) | | | (1,333) | | | 156 | | | 301 | | | 0 | | | (3,798) | |
Less: Net income from noncontrolling interests | | Less: Net income from noncontrolling interests | 0 | | | 1 | | | 0 | | | 0 | | | 47 | | | 0 | | | 48 | |
Net income (loss) | | Net income (loss) | $ | (1,777) | | | (1,146) | | | (1,333) | | | 156 | | | 254 | | | 0 | | | (3,846) | |
Six months ended June 30, 2021 | | Six months ended June 30, 2021 | |
| Net interest income (2) | | Net interest income (2) | $ | 11,233 | | | 2,456 | | | 3,562 | | | 1,267 | | | (694) | | | (216) | | | 17,608 | |
Noninterest income | | Noninterest income | 6,107 | | | 1,733 | | | 3,380 | | | 5,813 | | | 4,744 | | | (583) | | | 21,194 | |
Total revenue | | Total revenue | 17,340 | | | 4,189 | | | 6,942 | | | 7,080 | | | 4,050 | | | (799) | | | 38,802 | |
Provision for credit losses | | Provision for credit losses | (786) | | | (781) | | | (785) | | | (19) | | | 63 | | | 0 | | | (2,308) | |
Noninterest expense | | Noninterest expense | 12,469 | | | 3,073 | | | 3,638 | | | 5,919 | | | 2,231 | | | 0 | | | 27,330 | |
Income (loss) before income tax expense (benefit) | | Income (loss) before income tax expense (benefit) | 5,657 | | | 1,897 | | | 4,089 | | | 1,180 | | | 1,756 | | | (799) | | | 13,780 | |
Income tax expense (benefit) | | Income tax expense (benefit) | 1,415 | | | 473 | | | 1,013 | | | 296 | | | (52) | | | (799) | | | 2,346 | |
Net income before noncontrolling interests | | Net income before noncontrolling interests | 4,242 | | | 1,424 | | | 3,076 | | | 884 | | | 1,808 | | | 0 | | | 11,434 | |
Less: Net income (loss) from noncontrolling interests | | Less: Net income (loss) from noncontrolling interests | 0 | | | 3 | | | (2) | | | 0 | | | 757 | | | 0 | | | 758 | |
Net income | | Net income | $ | 4,242 | | | 1,421 | | | 3,078 | | | 884 | | | 1,051 | | | 0 | | | 10,676 | |
Six months ended June 30, 2020 | | Six months ended June 30, 2020 | |
| Net interest income (2) | | Net interest income (2) | $ | 11,719 | | | 3,287 | | | 3,984 | | | 1,557 | | | 939 | | | (264) | | | 21,222 | |
Noninterest income | | Noninterest income | 4,538 | | | 1,409 | | | 3,483 | | | 4,919 | | | 1,303 | | | (415) | | | 15,237 | |
Total revenue | | Total revenue | 16,257 | | | 4,696 | | | 7,467 | | | 6,476 | | | 2,242 | | | (679) | | | 36,459 | |
Provision for credit losses | | Provision for credit losses | 4,671 | | | 3,336 | | | 4,881 | | | 263 | | | 388 | | | 0 | | | 13,539 | |
Noninterest expense | | Noninterest expense | 13,190 | | | 3,153 | | | 3,914 | | | 5,400 | | | 1,942 | | | 0 | | | 27,599 | |
Income (loss) before income tax expense (benefit) | | Income (loss) before income tax expense (benefit) | (1,604) | | | (1,793) | | | (1,328) | | | 813 | | | (88) | | | (679) | | | (4,679) | |
Income tax expense (benefit) | | Income tax expense (benefit) | (445) | | | (442) | | | (307) | | | 204 | | | 21 | | | (679) | | | (1,648) | |
Net income (loss) before noncontrolling interests | Net income (loss) before noncontrolling interests | 516 | | | 1,198 | | | 1,489 | | | 2,646 | | | 466 | | | 1,281 | | | (252) | | | (313) | | | 2,219 | | | 4,812 | | Net income (loss) before noncontrolling interests | (1,159) | | | (1,351) | | | (1,021) | | | 609 | | | (109) | | | 0 | | | (3,031) | |
Less: Net income (loss) from noncontrolling interests | Less: Net income (loss) from noncontrolling interests | 180 | | | 199 | | | 1 | | | 2 | | | 3 | | | 1 | | | 0 | | | 0 | | | 184 | | | 202 | | Less: Net income (loss) from noncontrolling interests | 0 | | | 2 | | | 0 | | | 0 | | | (103) | | | 0 | | | (101) | |
Net income (loss) | Net income (loss) | $ | 336 | | | 999 | | | 1,488 | | | 2,644 | | | 463 | | | 1,280 | | | (252) | | | (313) | | | 2,035 | | | 4,610 | | Net income (loss) | $ | (1,159) | | | (1,353) | | | (1,021) | | | 609 | | | (6) | | | 0 | | | (2,930) | |
| Average loans | $ | 457.6 | | | 459.0 | | | 455.1 | | | 474.3 | | | 79.8 | | | 75.9 | | | (60.8) | | | (59.4) | | | 931.7 | | | 949.8 | | |
Average assets | 1,119.8 | | | 1,033.9 | | | 801.4 | | | 869.2 | | | 88.2 | | | 84.7 | | | (61.7) | | | (60.4) | | | 1,947.7 | | | 1,927.4 | | |
Average deposits | 881.7 | | | 789.7 | | | 418.8 | | | 422.0 | | | 175.3 | | | 142.4 | | | (76.8) | | | (62.7) | | | 1,399.0 | | | 1,291.4 | | |
Nine months ended September 30, | | |
Net interest income (2) | $ | 18,073 | | | 21,083 | | | 11,508 | | | 13,451 | | | 2,374 | | | 3,127 | | | (1,395) | | | (1,630) | | | 30,560 | | | 36,031 | | |
Provision (reversal of provision) for credit losses | 5,652 | | | 1,797 | | | 8,535 | | | 254 | | | 256 | | | 6 | | | (135) | | | (14) | | | 14,308 | | | 2,043 | | |
Noninterest income | 10,911 | | | 13,711 | | | 6,466 | | | 7,667 | | | 8,795 | | | 10,143 | | | (2,317) | | | (2,349) | | | 23,855 | | | 29,172 | | |
Noninterest expense | 24,409 | | | 23,667 | | | 11,739 | | | 11,609 | | | 9,440 | | | 9,980 | | | (2,760) | | | (2,692) | | | 42,828 | | | 42,564 | | |
Income (loss) before income tax expense (benefit) | (1,077) | | | 9,330 | | | (2,300) | | | 9,255 | | | 1,473 | | | 3,284 | | | (817) | | | (1,273) | | | (2,721) | | | 20,596 | | |
Income tax expense (benefit) (3) | (1,319) | | | 1,929 | | | (1,959) | | | 1,049 | | | 369 | | | 819 | | | (204) | | | (318) | | | (3,113) | | | 3,479 | | |
Net income (loss) before noncontrolling interests | 242 | | | 7,401 | | | (341) | | | 8,206 | | | 1,104 | | | 2,465 | | | (613) | | | (955) | | | 392 | | | 17,117 | | |
Less: Net income (loss) from noncontrolling interests | 82 | | | 432 | | | 3 | | | 3 | | | (2) | | | 6 | | | 0 | | | 0 | | | 83 | | | 441 | | |
Net income (loss) | $ | 160 | | | 6,969 | | | (344) | | | 8,203 | | | 1,106 | | | 2,459 | | | (613) | | | (955) | | | 309 | | | 16,676 | | |
| Average loans | $ | 456.5 | | | 458.3 | | | 481.2 | | | 474.9 | | | 79.0 | | | 75.1 | | | (60.8) | | | (59.2) | | | 955.9 | | | 949.1 | | |
Average assets | 1,073.1 | | | 1,024.8 | | | 849.7 | | | 855.4 | | | 88.0 | | | 83.9 | | | (61.7) | | | (60.2) | | | 1,949.1 | | | 1,903.9 | | |
Average deposits | 843.0 | | | 777.7 | | | 438.8 | | | 414.1 | | | 166.2 | | | 146.3 | | | (73.4) | | | (63.9) | | | 1,374.6 | | | 1,274.2 | | |
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| Consumer Banking and Lending | | Commercial Banking | | Corporate and Investment Banking | | Wealth and Investment Management | | Corporate | | Reconciling Items (1) | | Consolidated Company |
Quarter ended June 30, 2021 | | | | | | | | | | | | | |
Loans (average) | $ | 331,892 | | | 178,572 | | | 252,422 | | | 81,784 | | | 10,077 | | | 0 | | | 854,747 | |
Assets (average) | 388,617 | | | 195,453 | | | 513,414 | | | 87,766 | | | 754,629 | | | 0 | | | 1,939,879 | |
Deposits (average) | 835,752 | | | 192,586 | | | 190,810 | | | 174,980 | | | 41,696 | | | 0 | | | 1,435,824 | |
| | | | | | | | | | | | | |
Six months ended June 30, 2021 | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Loans (average) | $ | 342,428 | | | 180,845 | | | 249,302 | | | 81,314 | | | 10,152 | | | 0 | | | 864,041 | |
Assets (average) | 398,530 | | | 197,396 | | | 512,476 | | | 87,562 | | | 741,203 | | | 0 | | | 1,937,167 | |
Deposits (average) | 812,723 | | | 190,984 | | | 192,645 | | | 174,333 | | | 44,080 | | | 0 | | | 1,414,765 | |
| | | | | | | | | | | | | |
Loans (period-end) | 326,760 | | | 178,905 | | | 253,259 | | | 82,783 | | | 10,593 | | | 0 | | | 852,300 | |
Assets (period-end) | 382,464 | | | 196,421 | | | 516,518 | | | 88,678 | | | 761,915 | | | 0 | | | 1,945,996 | |
Deposits (period-end) | 840,434 | | | 197,461 | | | 188,219 | | | 174,267 | | | 40,091 | | | 0 | | | 1,440,472 | |
Quarter ended June 30, 2020 | | | | | | | | | | | | | |
Loans (average) | $ | 369,631 | | | 228,423 | | | 273,587 | | | 78,091 | | | 21,534 | | | 0 | | | 971,266 | |
Assets (average) | 427,065 | | | 243,762 | | | 535,298 | | | 85,438 | | | 655,617 | | | 0 | | | 1,947,180 | |
Deposits (average) | 715,144 | | | 184,132 | | | 239,637 | | | 165,103 | | | 82,640 | | | 0 | | | 1,386,656 | |
| | | | | | | | | | | | | |
Six months ended June 30, 2020 | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Loans (average) | $ | 376,096 | | | 226,641 | | | 265,915 | | | 77,987 | | | 21,517 | | | 0 | | | 968,156 | |
Assets (average) | 433,226 | | | 243,293 | | | 543,455 | | | 85,538 | | | 642,513 | | | 0 | | | 1,948,025 | |
Deposits (average) | 683,925 | | | 175,929 | | | 252,902 | | | 155,246 | | | 94,307 | | | 0 | | | 1,362,309 | |
| | | | | | | | | | | | | |
Loans (period-end) | 368,753 | | | 210,779 | | | 255,574 | | | 78,101 | | | 21,948 | | | 0 | | | 935,155 | |
Assets (period-end) | 432,100 | | | 226,735 | | | 510,205 | | | 84,699 | | | 713,309 | | | 0 | | | 1,967,048 | |
Deposits (period-end) | 746,602 | | | 183,085 | | | 236,620 | | | 168,249 | | | 76,155 | | | 0 | | | 1,410,711 | |
(1)Includes the elimination ofTaxable-equivalent adjustments related to tax-exempt income on certain items thatloans and debt securities are included in more than one business segment, substantially all of which represents productsnet interest income, while taxable-equivalent adjustments related to income tax credits for low-income housing and services for WIM customers served through Communityrenewable energy investments are included in noninterest income, in each case with corresponding impacts to income tax expense (benefit). Adjustments are included in Corporate, Commercial Banking, distribution channels. and Corporate and Investment Banking and are eliminated to reconcile to the Company’s consolidated financial results.
(2)Net interest income is the difference between interest earned on assets andminus the cost ofinterest paid on liabilities to fund those assets. InterestSegment interest earned includes actual interest earnedincome on segment assets as well as a funding credit for their deposits. Segment interest credits for any funding of a segment available to be provided to other segments. The cost ofpaid on liabilities includes actual interest expense on segment liabilities as well as a funding chargescharge for any funding provided from other segments.
(3)Income tax expense (benefit) for our Wholesale Banking operating segment included income tax credits related to low income housing and renewable energy investments of $469 million and $1.4 billion for the third quarter and first nine months of 2020, respectively, and $422 million and $1.3 billion for the third quarter and first nine months of 2019, respectively.their assets.
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Note 23: Regulatory and Agency Capital Requirements and Other Restrictions |
Regulatory Capital Requirements
The Company and each of its subsidiary banks are subject to regulatory capital adequacy requirements promulgated by federal banking regulators. The Federal ReserveFRB 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 in accordance with Basel III capital requirements. Our capital adequacy is assessed based on the lower of our risk-based capital ratios calculated under the Standardized Approach and under the Advanced Approach. 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 requirements for calculating
Common Equity Tier 1 (CET1) and tier 1 capital, along with RWAs, are fully phased-in. However, the requirements for determining tier 2 and total capital are still in accordance with Transition Requirementstransition 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.transition requirements.
At SeptemberJune 30, 2020,2021, 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 September 30, 2020, the Bank met these requirements.
Table 23.1: Regulatory Capital Information(1)
| | | Wells Fargo & Company | | Wells Fargo Bank, N.A. | | Wells Fargo & Company | | Wells Fargo Bank, N.A. | |
| | September 30, 2020 | | December 31, 2019 | | | September 30, 2020 | | December 31, 2019 | | June 30, 2021 | | December 31, 2020 | | June 30, 2021 | | December 31, 2020 | |
(in millions, except ratios) | (in millions, except ratios) | Advanced Approach | | Standardized Approach | | | Advanced Approach | | Standardized Approach | | | Advanced Approach | | Standardized Approach | | | Advanced Approach | | Standardized Approach | | (in millions, except ratios) | 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 | $ | 134,901 | | | 134,901 | | | 138,760 | | | 138,760 | | | 149,252 | | | 149,252 | | | 145,149 | | | 145,149 | | | |
Common Equity Tier 1 | | Common Equity Tier 1 | $ | 143,442 | | | 143,442 | | | 138,297 | | | 138,297 | | | 151,121 | | | 151,121 | | | 150,168 | | | 150,168 | | |
Tier 1 | Tier 1 | 154,743 | | | 154,743 | | | 158,949 | | | 158,949 | | | 149,252 | | | 149,252 | | | 145,149 | | | 145,149 | | | Tier 1 | 162,999 | | | 162,999 | | | 158,196 | | | 158,196 | | | 151,121 | | | 151,121 | | | 150,168 | | | 150,168 | | |
Total | Total | 184,172 | | | 193,799 | | | 188,333 | | | 196,223 | | | 163,768 | | | 173,004 | | | 158,615 | | | 166,056 | | | Total | 190,173 | | | 200,156 | | | 186,934 | | | 196,660 | | | 165,154 | | | 174,641 | | | 164,412 | | | 173,719 | | |
Assets: | Assets: | | Assets: | |
Risk-weighted assets (2) | Risk-weighted assets (2) | $ | 1,171,956 | | | 1,185,610 | | | 1,165,079 | | | 1,245,853 | | | 1,038,062 | | | 1,090,132 | | | 1,047,054 | | | 1,152,791 | | | Risk-weighted assets (2) | 1,126,535 | | | 1,188,727 | | | 1,158,355 | | | 1,193,744 | | | 988,692 | | | 1,087,876 | | | 1,012,751 | | | 1,085,599 | | |
Adjusted average assets (3) | Adjusted average assets (3) | 1,921,303 | | | 1,921,303 | | | 1,913,297 | | | 1,913,297 | | | 1,762,607 | | | 1,762,607 | | | 1,695,807 | | | 1,695,807 | | | Adjusted average assets (3) | 1,911,654 | | | 1,911,654 | | | 1,900,258 | | | 1,900,258 | | | 1,752,195 | | | 1,752,195 | | | 1,735,406 | | | 1,735,406 | | |
Regulatory capital ratios: | Regulatory capital ratios: | | Regulatory capital ratios: | |
Common equity tier 1 capital (2) | 11.51 | % | | 11.38 | | * | | 11.91 | | | 11.14 | | * | | 14.38 | | | 13.69 | | * | | 13.86 | | | 12.59 | | * | |
Common Equity Tier 1 capital | | Common Equity Tier 1 capital | 12.73 | % | | 12.07 | | * | | 11.94 | | | 11.59 | | * | | 15.28 | | | 13.89 | | * | | 14.83 | | | 13.83 | | * |
Tier 1 capital (2) | Tier 1 capital (2) | 13.20 | | | 13.05 | | * | | 13.64 | | | 12.76 | | * | | 14.38 | | | 13.69 | | * | | 13.86 | | | 12.59 | | * | Tier 1 capital (2) | 14.47 | | | 13.71 | | * | | 13.66 | | | 13.25 | | * | | 15.28 | | | 13.89 | | * | | 14.83 | | | 13.83 | | * |
Total capital (2) | Total capital (2) | 15.71 | | * | 16.35 | | | 16.16 | | | 15.75 | | * | | 15.78 | | * | 15.87 | | | 15.15 | | | 14.40 | | * | Total capital (2) | 16.88 | | | 16.84 | | * | | 16.14 | | * | 16.47 | | | | 16.70 | | | 16.05 | | * | | 16.23 | | | 16.00 | | * |
Tier 1 leverage (3) | 8.05 | | | 8.05 | | | 8.31 | | | 8.31 | | | 8.47 | | | 8.47 | | | 8.56 | | | 8.56 | | | |
| | Wells Fargo & Company | | Wells Fargo Bank, N.A. | | |
| | September 30, 2020 | | December 31, 2019 | | September 30, 2020 | | December 31, 2019 | | | Wells Fargo & Company | | Wells Fargo Bank, N.A. | |
Supplementary leverage (4): | | | | | | | | | |
| | | June 30, 2021 | | December 31, 2020 | | June 30, 2021 | | December 31, 2020 | |
Regulatory leverage: | | Regulatory leverage: | | | | | | | | |
Total leverage exposure(3) | Total leverage exposure(3) | $ | 1,997,449 | | | 2,247,729 | | | 2,074,472 | | | 2,006,180 | | | Total leverage exposure(3) | $ | 2,300,416 | | | 1,963,971 | | | 2,117,710 | | | 2,041,952 | | |
Supplementary leverage ratio | 7.75 | % | | 7.07 | | | 7.19 | | | 7.24 | | | |
Supplementary leverage ratio (SLR) (3)(4) | | Supplementary leverage ratio (SLR) (3)(4) | 7.09 | % | | 8.05 | | | 7.14 | | | 7.35 | | |
Tier 1 leverage ratio (5) | | Tier 1 leverage ratio (5) | 8.53 | | | 8.32 | | | 8.62 | | | 8.65 | | |
*Denotes the lowest capitalbinding ratio as determinedbased on the lower calculation under the Advanced and Standardized Approaches.
(1)In second quarter 2020,At June 30, 2021, the Company elected to apply a modifiedimpact of the CECL transition provision issued by federal banking regulators related to the impact of CECL on regulatory capital. The rule permits certain banking organizations to exclude from regulatory capital the initial adoption impact of CECL, plus 25% of the cumulative changes in the ACL under CECL for each period until December 31, 2021, followed by a three-year phase-out of the benefits. The impact of the CECL transition provision on the regulatory capital of the Company at September 30, 2020, was an increase in capital of $1.9 billion,$879 million, reflecting a $991 million (post-tax) increase in capital recognized upon our initial adoption of CECL, offset by 25% of the $11.5$7.5 billion increase in our ACL under CECL from January 1, 2020, through SeptemberJune 30, 2020.2021. The impact of the CECL transition provision on the regulatory capital of the Bank at SeptemberJune 30, 2020,2021, was an increase in capital of $1.8 billion.$879 million.
(2)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.
RWAs for the Company and the Bank included an increase of $1.5 billion$547 million under the Standardized Approach and a decrease of $1.3$1.4 billion under the Advanced Approach related to the impact of the CECL transition provision on the excess allowance for credit losses as of SeptemberJune 30, 2020.2021.
(3)The leverage ratioSLR consists of Tier 1 capital divided by total average assets, excluding goodwill and certain other items.
(4)The supplementary leverage ratio (SLR) consists of Tiertier 1 capital divided by total leverage exposure. Total leverage exposure consists of total average assets, less goodwill and other permitted Tiertier 1 capital deductions (net of deferred tax liabilities), plus certain off-balance sheet exposures.
(4)In 2020, the FRB issued an interim final rule that temporarily allowed the exclusion for on-balance sheet amounts of U.S. Treasury securities and deposits at Federal Reserve Banks from the calculation of total leverage exposure in the denominator of the SLR. The Company adopted this interim final rule, but the Bank did not elect to apply these exclusions. The interim final rule expired on April 1, 2021.
(5)The tier 1 leverage ratio consists of tier 1 capital divided by total average assets, excluding goodwill and certain other items as determined under the rule.
Table 23.2 presents the minimum required regulatory capital ratios under Transition Requirements to which the Company and
the Bank were subject as of SeptemberAt June 30, 2020, and
December 31, 2019.
Table 23.2:Minimum Required Regulatory Capital Ratios – Transition Requirements (1)
| | | | | | | | | | | | | | | | | | | | | | | |
| Wells Fargo & Company | | Wells Fargo Bank, N.A. |
| September 30, 2020 | | December 31, 2019 | | September 30, 2020 | | December 31, 2019 |
Regulatory capital ratios: | | | | | | | |
Common equity tier 1 capital | 9.00 | % | | 9.00 | | | 7.00 | | | 7.00 | |
Tier 1 capital | 10.50 | | | 10.50 | | | 8.50 | | | 8.50 | |
Total capital | 12.50 | | | 12.50 | | | 10.50 | | | 10.50 | |
Tier 1 leverage | 4.00 | | | 4.00 | | | 4.00 | | | 4.00 | |
Supplementary leverage (2) | 5.00 | | | 5.00 | | | 6.00 | | | 6.00 | |
(1)At September 30, 2020,2021, under transition requirements, the CET1, tier 1 and total capital minimum ratio requirements for the Company included a capital conservation buffer of 2.50% and a global systemically important bank (G-SIB) surcharge of 2.00%. OnlyThe G-SIB surcharge is not applicable to the Bank. In addition, the CET1, tier 1 and total capital ratio requirements for the Company and the Bank included a stress capital buffer of 2.50% under the Standardized Approach and a capital conservation buffer applied toof 2.50% under the Bank at September 30, 2020.
(2)Advanced Approach. The Company is required to maintain athese risk-based capital ratios and to maintain an SLR of at least 5.00% (comprised of a 3.00% minimum requirement plus a supplementary leverage buffer of 2.00%) to avoid restrictions on capital distributions and discretionary bonus payments. The Bank is required to maintain aan SLR of at least 6.00% to be considered well-capitalized under applicable regulatory capital adequacy guidelines.rules. Table 23.2 presents the risk-based capital and leverage requirements under transition requirements to which the Company and the Bank
were subject as of June 30, 2021, and December 31, 2020, which were the same under both the Standardized and Advanced Approaches.
Table 23.2:Risk-Based Capital and Leverage Ratios – Transition Requirements
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| Wells Fargo & Company | | | | Wells Fargo Bank, N.A. | | |
| | | | | | | |
| Jun 30, 2021 | | | | Jun 30, 2021 | | |
| and Dec 31, 2020 | | | | and Dec 31, 2020 | | |
Common Equity Tier 1 capital | 9.00 | % | | | | 7.00 | | | |
Tier 1 capital | 10.50 | | | | | 8.50 | | | |
Total capital | 12.50 | | | | | 10.50 | | | |
Tier 1 leverage | 4.00 | | | | | 4.00 | | | |
Supplementary leverage | 5.00 | | | | | 6.00 | | | |
Capital Planning Requirements
The FRB’s capital plan rule establishes capital planning and other requirements that govern capital distributions, including dividends and share repurchases, by certain large bank holding companies (BHCs), including Wells Fargo. The FRB conducts an annual Comprehensive Capital Analysis and Review exercise and 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 Parent’s ability to make certain capital distributions is subject to the requirements of the capital plan rule and is also subject to the Parent meeting or exceeding certain regulatory capital minimums.
On March 25, 2021, the FRB announced that it was extending measures it previously announced limiting large BHCs, including Wells Fargo, from making any capital distribution (excluding any capital distribution arising from the issuance of a capital instrument eligible for inclusion in the numerator of a regulatory capital ratio), unless otherwise approved by the FRB. The FRB generally authorized BHCs to (i) provided that the BHC does not increase the amount of its common stock dividends to be larger than the level paid in second quarter 2020, pay common stock dividends and make share repurchases that, in the aggregate, do not exceed an amount equal to the average of the BHC’s net income for the four preceding calendar quarters; (ii) make share repurchases that equal the amount of share issuances related to expensed employee compensation; and (iii) redeem and make scheduled payments on additional tier 1 and tier 2 capital instruments. These limitations on capital distributions ended on June 30, 2021.
Loan and Dividend Restrictions
Federal law restricts the amount and the terms of both credit and non-credit transactions between a bank and its nonbank affiliates. Additionally, federal laws and regulations limit the dividends that a national bank may pay.
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 subsidiaries of the Parent designated from time to time as material entities for resolution planning purposes or identified from time to time 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’s board of directors authorizes it to file a case under the U.S. Bankruptcy Code.
For additional information on loan and dividend restrictions, see Note 28 (Regulatory Capital Requirements and Other Restrictions) in our 2020 Form 10-K.
Cash Restrictions
Cash and cash equivalents may be restricted as to usage or withdrawal. Table 23.3 provides a summary of restrictions on cash and cash equivalents.
Table 23.3:Nature of Restrictions on Cash and Cash Equivalents
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(in millions) | Jun 30, 2021 | | Dec 31, 2020 |
Reserve balance for non-U.S. central banks | $ | 199 | | | 243 | |
Segregated for benefit of brokerage customers under federal and other brokerage regulations | 878 | | | 957 | |
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Glossary of Acronyms |
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ACL | Allowance for credit losses | HTM | Held-to-maturity |
AFS | Available-for-sale | LCR | Liquidity coverage ratio |
ALCO | Asset/Liability Committee | LHFS | Loans held for sale |
AFSARM | Available-for-saleAdjustable-rate mortgage | LIBOR | London Interbank Offered Rate |
ALCOASC | Asset/Liability CommitteeAccounting Standards Codification | LIHTC | Low incomeLow-income housing tax credit |
ARM ASU | Adjustable-rate mortgageAccounting Standards Update | LOCOM | Lower of cost or fair value |
ASC | Accounting Standards Codification | LTV | Loan-to-value |
ASU | Accounting Standards Update | MBS | Mortgage-backed security |
AUA | Assets under administration | MLHFSLTV | Mortgage loans held for saleLoan-to-value |
AUM | Assets under management | MSRMBS | Mortgage servicing rightMortgage-backed security |
AVM | Automated valuation model | NAVMSR | Net asset valueMortgage servicing right |
BCBS | Basel Committee on Banking Supervision | NAV | Net asset value |
BHC | Bank Supervisionholding company | NPA | Nonperforming asset |
BHCCCAR | Bank holding companyComprehensive Capital Analysis and Review | NSFR | Net stable funding ratio |
CCARCD | Comprehensive Capital Analysis and ReviewCertificate of deposit | OCC | Office of the Comptroller of the Currency |
CD | Certificate of deposit | OCI | Other comprehensive income |
CECL | Current expected credit loss | OTCOCI | Over-the-counterOther comprehensive income |
CET1 | Common Equity Tier 1 | OTTIOTC | Other-than-temporary impairmentOver-the-counter |
CFPB | Consumer Financial Protection Bureau | PCDOTTI | Purchased credit-deterioratedOther-than-temporary impairment |
CLO | Collateralized loan obligation | PCIPCD | Purchased credit-impairedcredit-deteriorated |
CLTV | Combined loan-to-value | PTPPPCI | Pre-tax pre-provision profitPurchased credit-impaired |
CPI | Collateral protection insurance | RBCPTPP | Risk-based capitalPre-tax pre-provision profit |
CRE | Commercial real estate | RMBS | Residential mortgage-backed securities |
DPD | Days past due | ROA | Wells Fargo net income toReturn on average total assets |
ESOP | Employee Stock Ownership Plan | ROE | Wells Fargo net income applicable to common stockReturn on average equity |
FASB | Financial Accounting Standards Board | | to average Wells Fargo common stockholders’ equity |
FDIC | Federal Deposit Insurance Corporation | ROTCE | Return on average tangible common equity |
FDIC | Federal Deposit Insurance Corporation | RWAs | Risk-weighted assets |
FHA | Federal Housing Administration | RWAsSEC | Risk-weighted assetsSecurities and Exchange Commission |
FHLB | Federal Home Loan Bank | SECS&P | Securities and Exchange CommissionStandard & Poor’s Ratings Services |
FHLMC | Federal Home Loan Mortgage Corporation | S&PSLR | Standard & Poor’s Global RatingsSupplementary leverage ratio |
FICO | Fair Isaac Corporation (credit rating) | SLRSOFR | Supplementary leverage ratioSecured Overnight Financing Rate |
FNMA | Federal National Mortgage Association | SOFRSPE | Secured Overnight Financing RateSpecial purpose entity |
FRB | Board of Governors of the Federal Reserve System | SPETDR | Special purpose entityTroubled debt restructuring |
GAAP | Generally accepted accounting principles | TDRTLAC | Troubled debt restructuringTotal Loss Absorbing Capacity |
GNMA | Government National Mortgage Association | TLACVA | Total Loss Absorbing CapacityDepartment of Veterans Affairs |
GSE | Government-sponsored entity | VAVaR | Department of Veterans AffairsValue-at-Risk |
G-SIB | Global systemically important bank | VaRVIE | Value-at-RiskVariable interest entity |
HQLA | High-quality liquid assets | VIE | Variable interest entity |
HTM | Held-to-maturity | WIM | Wealth and Investment Management |
LCR | Liquidity coverage ratio | | | | | | | |
148 | Wells Fargo & Company | |
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
Information in response to this item can be found in Note 1413 (Legal Actions) to Financial Statements in this Report which information is incorporated by reference into this item.
Item 1A. Risk Factors
Information in response to this item can be found under the “Financial Review – Risk Factors” section in this Report which information is incorporated by reference into this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table shows Company repurchases of its common stock for each calendar month in the quarter ended SeptemberJune 30, 2020. In third quarter 2020, share repurchases were limited to repurchases in connection with the Wells Fargo & Company Stock Purchase Plan and Wells Fargo’s deferred compensation plans.2021.
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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 |
July | 49,359 | | | $ | 25.39 | | | 167,453,491 | |
August | 38,074 | | | 24.52 | | | 167,415,417 | |
September | 42,036 | | | 24.18 | | | 167,373,381 | |
Total | 129,469 | | | | | |
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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 authorizations |
April | 20,075,596 | | | $ | 43.60 | | | 629,954,518 | |
May | 10,893,389 | | | 46.11 | | | 619,061,129 | |
June | 4,354,796 | | | 43.08 | | | 614,706,333 | |
Total | 35,323,781 | | | | | |
(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 July 23, 2019. In addition, the Company publicly announced on January 15, 2021, that the Board of Directors authorized the repurchase of an additional 500 million shares of common stock. Unless modified or revoked by the Board, this authorization doesthese authorizations do not expire.
Item 6. Exhibits
A list of exhibits to this Form 10-Q is set forth below.
The Company’s SEC file number is 001-2979. On and before November 2, 1998, the Company filed documents with the SEC under the name Norwest Corporation. The former Wells Fargo & Company filed documents under SEC file number 001-6214.
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Exhibit Number | | Description | | Location |
| | | | Filed herewith. |
| | | | Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed March 1, 2018. |
4(a) | | See Exhibits 3(a) and 3(b). | | |
4(b) | | The Company agrees to furnish upon request to the Commission a copy of each instrument defining the rights of holders of senior and subordinated debt of the Company. | | |
| | | | Filed herewith. |
| | | | Incorporated by reference to Exhibit 22 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. |
| | | | 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: November 2, 2020July 28, 2021 WELLS FARGO & COMPANY
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By: | /s/ MUNEERA S. CARR |
| Muneera S. Carr |
| Executive Vice President, Chief Accounting Officer and Controller |
| (Principal Accounting Officer) |