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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| | | | | |
☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 20222023
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)
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 | New York Stock Exchange (NYSE) |
7.5% Non-Cumulative Perpetual Convertible Class A Preferred Stock, Series L | WFC.PRL | NYSE |
Depositary Shares, each representing a 1/1000th interest in a share of 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 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 |
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series CC | WFC.PRC | NYSE |
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series DD | WFC.PRD | 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 20, 2022July 21, 2023 |
Common stock, $1-2/3 par value | | 3,810,490,8981,823,028,137 |
| FORM 10-Q | FORM 10-Q | | FORM 10-Q | |
CROSS-REFERENCE INDEX | CROSS-REFERENCE INDEX | | CROSS-REFERENCE INDEX | |
PART I | PART I | Financial Information | | PART I | Financial Information | |
Item 1. | Item 1. | Financial Statements | Page | Item 1. | Financial Statements | Page |
| Consolidated Statement of Income | | |
| Consolidated Statement of Comprehensive Income | | |
| | Consolidated Balance Sheet | | | Consolidated Statement of Income | |
| | Consolidated Statement of Changes in Equity | | | Consolidated Statement of Comprehensive Income | |
| | Consolidated Statement of Cash Flows | | | Consolidated Balance Sheet | |
| | Notes to Financial Statements | | | Consolidated Statement of Changes in Equity | |
| | 1 | | — | Summary of Significant Accounting Policies | | | Consolidated Statement of Cash Flows | |
| | 2 | | — | Trading Activities | | | Notes to Financial Statements | |
| | 3 | | — | Available-for-Sale and Held-to-Maturity Debt Securities | | | 1 | | — | Summary of Significant Accounting Policies | |
| | 4 | | — | Loans and Related Allowance for Credit Losses | | | 2 | | — | Trading Activities | |
| | 5 | | — | Leasing Activity | | | 3 | | — | Available-for-Sale and Held-to-Maturity Debt Securities | |
| | 6 | | — | Equity Securities | | | 4 | | — | Equity Securities | |
| | 7 | | — | Other Assets | | | 5 | | — | Loans and Related Allowance for Credit Losses | |
| | 8 | | — | Securitizations and Variable Interest Entities | | | 6 | | — | Mortgage Banking Activities | |
| | 9 | | — | Mortgage Banking Activities | | | 7 | | — | Intangible Assets and Other Assets | |
| | 10 | | — | Intangible Assets | | | 8 | | — | Leasing Activity | |
| | 11 | | — | Guarantees and Other Commitments | | | 9 | | — | Preferred Stock | |
| | 12 | | — | Pledged Assets and Collateral | | | 10 | | — | Legal Actions | |
| | 13 | | — | Legal Actions | | | 11 | | — | Derivatives | |
| | 14 | | — | Derivatives | | | 12 | | — | Fair Values of Assets and Liabilities | |
| | 15 | | — | Fair Values of Assets and Liabilities | | | 13 | | — | Securitizations and Variable Interest Entities | |
| | 16 | | — | Preferred Stock | | | 14 | | — | Guarantees and Other Commitments | |
| | 17 | | — | Revenue from Contracts with Customers | | | 15 | | — | Pledged Assets and Collateral | |
| | 18 | | — | Employee Benefits and Expenses | | | 16 | | — | Operating Segments | |
| | 19 | | — | Restructuring Charges | | | 17 | | — | Revenue and Expenses | |
| | 20 | | — | Earnings and Dividends Per Common Share | | | 18 | | — | Employee Benefits | |
| | 21 | | — | Other Comprehensive Income | | | 19 | | — | Earnings and Dividends Per Common Share | |
| | 22 | | — | Operating Segments | | | 20 | | — | Other Comprehensive Income | |
| | 23 | | — | Regulatory Capital Requirements and Other Restrictions | | | 21 | | — | Regulatory Capital Requirements and Other Restrictions | |
Item 2. | Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations (Financial Review) | | Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations (Financial Review) | |
| | Summary Financial Data | | | Summary Financial Data | |
| | Overview | | | Overview | |
| | Earnings Performance | | | Earnings Performance | |
| | Balance Sheet Analysis | | | Balance Sheet Analysis | |
| | Off-Balance Sheet Arrangements | | | Off-Balance Sheet Arrangements | |
| | Risk Management | | | Risk Management | |
| | Capital Management | | | Capital Management | |
| | Regulatory Matters | | | Regulatory Matters | |
| | Critical Accounting Policies | | | Critical Accounting Policies | |
| | Current Accounting Developments | | | Current Accounting Developments | |
| | Forward-Looking Statements | | | Forward-Looking Statements | |
| | Risk Factors | | | Risk Factors | |
| | Glossary of Acronyms | | | Glossary of Acronyms | |
Item 3. | Item 3. | Quantitative and Qualitative Disclosures About Market Risk | | Item 3. | Quantitative and Qualitative Disclosures About Market Risk | |
Item 4. | Item 4. | Controls and Procedures | | Item 4. | Controls and Procedures | |
| PART II | PART II | Other Information | | PART II | Other Information | |
Item 1. | Item 1. | Legal Proceedings | | Item 1. | Legal Proceedings | |
Item 1A. | Item 1A. | Risk Factors | | Item 1A. | Risk Factors | |
Item 2. | Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | | Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |
Item 5. | | Item 5. | Other Information | |
Item 6. | Item 6. | Exhibits | | Item 6. | Exhibits | |
| Signature | Signature | | Signature | |
FINANCIAL REVIEW
| Summary Financial Data(1) | Summary Financial Data(1) | | | | | | | | Summary Financial Data(1) | | | | | | | |
| | Quarter ended | | Sep 30, 2022 % Change from | | Nine months ended | | | Quarter ended | | Jun 30, 2023 % Change from | | Six months ended | |
($ in millions, except per share amounts) | ($ in millions, except per share amounts) | Sep 30, 2022 | | Jun 30, 2022 | | Sep 30, 2021 | | Jun 30, 2022 | | Sep 30, 2021 | | Sep 30, 2022 | | Sep 30, 2021 | | % Change | ($ in millions, except per share amounts) | Jun 30, 2023 | | Mar 31, 2023 | | Jun 30, 2022 | | Mar 31, 2023 | | Jun 30, 2022 | | Jun 30, 2023 | | Jun 30, 2022 | | % Change |
Selected Income Statement Data | Selected Income Statement Data | | Selected Income Statement Data | |
Total revenue | Total revenue | $ | 19,505 | | | 17,028 | | | 18,834 | | | 15 | % | | 4 | | | $ | 54,125 | | | 57,636 | | | (6) | % | Total revenue | $ | 20,533 | | | 20,729 | | | 17,040 | | | (1) | % | | 20 | | | $ | 41,262 | | | 34,768 | | | 19 | % |
Noninterest expense | Noninterest expense | 14,327 | | | 12,883 | | | 13,303 | | | 11 | | | 8 | | | 41,080 | | | 40,633 | | | 1 | | Noninterest expense | 12,987 | | | 13,676 | | | 12,862 | | | (5) | | | 1 | | | 26,663 | | | 26,713 | | | — | |
Pre-tax pre-provision profit (PTPP) (1)(2) | Pre-tax pre-provision profit (PTPP) (1)(2) | 5,178 | | | 4,145 | | | 5,531 | | | 25 | | | (6) | | | 13,045 | | | 17,003 | | | (23) | | Pre-tax pre-provision profit (PTPP) (1)(2) | 7,546 | | | 7,053 | | | 4,178 | | | 7 | | | 81 | | | 14,599 | | | 8,055 | | | 81 | |
Provision for credit losses(3) | Provision for credit losses(3) | 784 | | | 580 | | | (1,395) | | | 35 | | | 156 | | | 577 | | | (3,703) | | | NM | Provision for credit losses(3) | 1,713 | | | 1,207 | | | 580 | | | 42 | | | 195 | | | 2,920 | | | (207) | | | NM |
Wells Fargo net income | Wells Fargo net income | 3,528 | | | 3,119 | | | 5,122 | | | 13 | | | (31) | | | 10,318 | | | 15,798 | | | (35) | | Wells Fargo net income | 4,938 | | | 4,991 | | | 3,142 | | | (1) | | | 57 | | | 9,929 | | | 6,930 | | | 43 | |
Wells Fargo net income applicable to common stock | Wells Fargo net income applicable to common stock | 3,250 | | | 2,839 | | | 4,787 | | | 14 | | | (32) | | | 9,482 | | | 14,786 | | | (36) | | Wells Fargo net income applicable to common stock | 4,659 | | | 4,713 | | | 2,863 | | | (1) | | | 63 | | | 9,372 | | | 6,372 | | | 47 | |
Common Share Data | Common Share Data | | Common Share Data | |
Diluted earnings per common share | Diluted earnings per common share | 0.85 | | | 0.74 | | | 1.17 | | | 15 | | | (27) | | | 2.47 | | | 3.57 | | | (31) | | Diluted earnings per common share | 1.25 | | | 1.23 | | | 0.75 | | | 2 | | | 67 | | | 2.48 | | | 1.66 | | | 49 | |
Dividends declared per common share | Dividends declared per common share | 0.30 | | | 0.25 | | | 0.20 | | | 20 | | | 50 | | | 0.80 | | | 0.40 | | | 100 | | Dividends declared per common share | 0.30 | | | 0.30 | | | 0.25 | | | — | | | 20 | | | 0.60 | | | 0.50 | | | 20 | |
Common shares outstanding | Common shares outstanding | 3,795.4 | | | 3,793.0 | | | 3,996.9 | | | — | | | (5) | | | Common shares outstanding | 3,667.7 | | | 3,763.2 | | | 3,793.0 | | | (3) | | | (3) | | |
Average common shares outstanding | Average common shares outstanding | 3,796.5 | | | 3,793.8 | | | 4,056.3 | | | — | | | (6) | | | 3,807.0 | | | 4,107.1 | | | (7) | | Average common shares outstanding | 3,699.9 | | | 3,785.6 | | | 3,793.8 | | | (2) | | | (2) | | | 3,742.6 | | | 3,812.3 | | | (2) | |
Diluted average common shares outstanding | Diluted average common shares outstanding | 3,825.1 | | | 3,819.6 | | | 4,090.4 | | | — | | | (6) | | | 3,838.5 | | | 4,140.0 | | | (7) | | Diluted average common shares outstanding | 3,724.9 | | | 3,818.7 | | | 3,819.6 | | | (2) | | | (2) | | | 3,772.4 | | | 3,845.0 | | | (2) | |
Book value per common share (2)(4) | Book value per common share (2)(4) | $ | 41.34 | | | 41.72 | | | 42.47 | | | (1) | | | (3) | | | Book value per common share (2)(4) | $ | 43.87 | | | 43.02 | | | 41.72 | | | 2 | | | 5 | | |
Tangible book value per common share (3)(5) | Tangible book value per common share (3)(5) | 34.27 | | | 34.66 | | | 35.54 | | | (1) | | | (4) | | | Tangible book value per common share (3)(5) | 36.53 | | | 35.87 | | | 34.66 | | | 2 | | | 5 | | |
Selected Equity Data (period-end) | Selected Equity Data (period-end) | | Selected Equity Data (period-end) | |
Total equity | Total equity | 178,409 | | | 179,793 | | | 191,071 | | | (1) | | | (7) | | | Total equity | 181,952 | | | 183,220 | | | 179,798 | | | (1) | | | 1 | | |
Common stockholders’ equity | Common stockholders’ equity | 156,914 | | | 158,256 | | | 169,753 | | | (1) | | | (8) | | | Common stockholders’ equity | 160,916 | | | 161,893 | | | 158,260 | | | (1) | | | 2 | | |
Tangible common equity (3)(5) | Tangible common equity (3)(5) | 130,082 | | | 131,460 | | | 142,047 | | | (1) | | | (8) | | | Tangible common equity (3)(5) | 133,990 | | | 134,992 | | | 131,464 | | | (1) | | | 2 | | |
Performance Ratios | Performance Ratios | | Performance Ratios | |
Return on average assets (ROA) (4)(6) | Return on average assets (ROA) (4)(6) | 0.74 | % | | 0.66 | | | 1.04 | | | 0.73 | % | | 1.09 | | | Return on average assets (ROA) (4)(6) | 1.05 | % | | 1.09 | | | 0.66 | | | 1.07 | % | | 0.73 | | |
Return on average equity (ROE) (5)(7) | Return on average equity (ROE) (5)(7) | 8.0 | | | 7.1 | | | 11.1 | | | 7.8 | | | 11.7 | | | Return on average equity (ROE) (5)(7) | 11.4 | | | 11.7 | | | 7.2 | | | 11.6 | | | 7.9 | | |
Return on average tangible common equity (ROTCE) (3)(5) | Return on average tangible common equity (ROTCE) (3)(5) | 9.6 | | | 8.6 | | | 13.2 | | | 9.4 | | | 14.0 | | | Return on average tangible common equity (ROTCE) (3)(5) | 13.7 | | | 14.0 | | | 8.7 | | | 13.9 | | | 9.5 | | |
Efficiency ratio (6)(8) | Efficiency ratio (6)(8) | 73 | | | 76 | | | 71 | | | 76 | | | 70 | | | Efficiency ratio (6)(8) | 63 | | | 66 | | | 75 | | | 65 | | | 77 | | |
Net interest margin on a taxable-equivalent basis | Net interest margin on a taxable-equivalent basis | 2.83 | | | 2.39 | | | 2.03 | | | 2.46 | | | 2.03 | | | Net interest margin on a taxable-equivalent basis | 3.09 | | | 3.20 | | | 2.39 | | | 3.14 | | | 2.27 | | |
Selected Balance Sheet Data (average) | Selected Balance Sheet Data (average) | | Selected Balance Sheet Data (average) | |
Loans | Loans | $ | 945,465 | | | 926,567 | | | 854,024 | | | 2 | | | 11 | | | $ | 923,520 | | | 860,666 | | | 7 | | Loans | $ | 945,906 | | | 948,651 | | | 926,567 | | | — | | | 2 | | | $ | 947,271 | | | 912,365 | | | 4 | |
Assets | Assets | 1,880,690 | | | 1,902,571 | | | 1,949,700 | | | (1) | | | (4) | | | 1,900,743 | | | 1,941,391 | | | (2) | | Assets | 1,878,253 | | | 1,863,676 | | | 1,902,571 | | | 1 | | | (1) | | | 1,871,005 | | | 1,910,938 | | | (2) | |
Deposits | Deposits | 1,407,851 | | | 1,445,793 | | | 1,450,941 | | | (3) | | | (3) | | | 1,439,033 | | | 1,426,956 | | | 1 | | Deposits | 1,347,449 | | | 1,356,694 | | | 1,445,793 | | | (1) | | | (7) | | | 1,352,046 | | | 1,454,882 | | | (7) | |
Selected Balance Sheet Data (period-end) | Selected Balance Sheet Data (period-end) | | Selected Balance Sheet Data (period-end) | |
Debt securities | Debt securities | 502,035 | | | 516,772 | | | 542,993 | | | (3) | | | (8) | | | Debt securities | 503,468 | | | 511,597 | | | 516,772 | | | (2) | | | (3) | | |
Loans | Loans | 945,906 | | | 943,734 | | | 862,827 | | | — | | | 10 | | | Loans | 947,960 | | | 947,991 | | | 943,734 | | | — | | | — | | |
Allowance for credit losses for loans | Allowance for credit losses for loans | 13,225 | | | 12,884 | | | 14,705 | | | 3 | | | (10) | | | Allowance for credit losses for loans | 14,786 | | | 13,705 | | | 12,884 | | | 8 | | | 15 | | |
Equity securities | Equity securities | 59,560 | | | 61,774 | | | 66,526 | | | (4) | | | (10) | | | Equity securities | 67,471 | | | 60,610 | | | 61,774 | | | 11 | | | 9 | | |
Assets | Assets | 1,877,745 | | | 1,881,142 | | | 1,954,901 | | | — | | | (4) | | | Assets | 1,876,320 | | | 1,886,400 | | | 1,881,141 | | | (1) | | | — | | |
Deposits | Deposits | 1,398,151 | | | 1,425,153 | | | 1,470,379 | | | (2) | | | (5) | | | Deposits | 1,344,584 | | | 1,362,629 | | | 1,425,153 | | | (1) | | | (6) | | |
| Headcount (#) (period-end) | Headcount (#) (period-end) | 239,209 | | | 243,674 | | | 253,871 | | | (2) | | | (6) | | | Headcount (#) (period-end) | 233,834 | | | 235,591 | | | 243,674 | | | (1) | | | (4) | | |
Capital and other metrics | | |
Risk-based capital ratios and components (7): | | |
Capital and Other Metrics | | Capital and Other Metrics | |
Risk-based capital ratios and components (9): | | Risk-based capital ratios and components (9): | |
Standardized Approach: | Standardized Approach: | | Standardized Approach: | |
Common equity tier 1 (CET1) | 10.33 | % | | 10.38 | | | 11.62 | | | |
Common equity Tier 1 (CET1) | | Common equity Tier 1 (CET1) | 10.73 | % | | 10.81 | | | 10.38 | | |
Tier 1 capital | Tier 1 capital | 11.85 | | | 11.89 | | | 13.18 | | | Tier 1 capital | 12.25 | | | 12.34 | | | 11.89 | | |
Total capital | Total capital | 14.55 | | | 14.65 | | | 16.21 | | | Total capital | 15.00 | | | 15.09 | | | 14.65 | | |
Risk-weighted assets (RWAs) (in billions) | Risk-weighted assets (RWAs) (in billions) | $ | 1,255.6 | | | 1,253.6 | | | 1,218.9 | | | — | | | 3 | | | Risk-weighted assets (RWAs) (in billions) | $ | 1,250.7 | | | 1,243.8 | | | 1,253.6 | | | 1 | | | — | | |
Advanced Approach: | Advanced Approach: | | Advanced Approach: | |
Common equity tier 1 (CET1) | 11.75 | % | | 11.60 | | | 12.43 | | | |
Common equity Tier 1 (CET1) | | Common equity Tier 1 (CET1) | 12.00 | % | | 12.03 | | | 11.60 | | |
Tier 1 capital | Tier 1 capital | 13.48 | | | 13.30 | | | 14.11 | | | Tier 1 capital | 13.70 | | | 13.73 | | | 13.30 | | |
Total capital | Total capital | 15.72 | | | 15.58 | | | 16.46 | | | Total capital | 15.82 | | | 15.92 | | | 15.58 | | |
Risk-weighted assets (RWAs) (in billions) | Risk-weighted assets (RWAs) (in billions) | $ | 1,104.1 | | | 1,121.6 | | | 1,138.6 | | | (2) | | | (3) | | | Risk-weighted assets (RWAs) (in billions) | $ | 1,118.4 | | | 1,117.9 | | | 1,121.6 | | | — | | | — | | |
Tier 1 leverage ratio | Tier 1 leverage ratio | 8.03 | % | | 7.96 | | | 8.36 | | | Tier 1 leverage ratio | 8.28 | % | | 8.36 | | | 7.96 | | |
Supplementary Leverage Ratio (SLR) | Supplementary Leverage Ratio (SLR) | 6.65 | | | 6.63 | | | 6.94 | | | Supplementary Leverage Ratio (SLR) | 6.91 | | | 6.96 | | | 6.63 | | |
Total Loss Absorbing Capacity (TLAC) Ratio (8) | 23.00 | | | 22.72 | | | 23.68 | | | |
Liquidity Coverage Ratio (LCR) (9) | 123 | | | 121 | | | 119 | | | |
Total Loss Absorbing Capacity (TLAC) Ratio (10) | | Total Loss Absorbing Capacity (TLAC) Ratio (10) | 23.12 | | | 23.34 | | | 22.72 | | |
Liquidity Coverage Ratio (LCR) (11) | | Liquidity Coverage Ratio (LCR) (11) | 123 | | | 122 | | | 121 | | |
NM -– Not meaningful
(1)In first quarter 2023, we adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2018-12 – Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. We adopted ASU 2018-12 with retrospective application, which required revision of prior period financial statements. 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 the adoption of ASU 2018-12, see 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.
(2)(3)Includes provision for credit losses for loans, debt securities, and interest-earning deposits with banks.
(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.
(3)(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 investments in consolidated portfolio companies, 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.
(4)(6)Represents Wells Fargo net income divided by average assets.
(5)(7)Represents Wells Fargo net income applicable to common stock divided by average common stockholders’ equity.
(6)(8)The efficiency ratio is noninterest expense divided by total revenue (net interest income and noninterest income).
(7)(9)For additional information, see the “Capital Management” section and Note 2321 (Regulatory Capital Requirements and Other Restrictions) to Financial Statements in this Report.
(8)(10)Represents TLAC divided by RWAs, which is our binding TLAC ratio, determined by using the greater of RWAs under the Standardized and Advanced Approaches.
(9)(11)Represents average high-quality liquid assets divided by average projected net cash outflows, as each is defined under the 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, 2021 (20212022 (2022 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“Glossary of AcronymsAcronyms” for definitions of terms used throughout this Report.
Financial Review
Wells Fargo & Company is a leading financial services company that has approximately $1.9 trillion in assets, proudly serves one in three U.S. households and more than 10% of small businesses in the U.S., and is a 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 our four reportable operating segments: Consumer Banking and Lending, Commercial Banking, Corporate and Investment Banking, and Wealth and Investment Management. Wells Fargo ranked No. 4147 on Fortune’s 20222023 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, 2022.2023.
Wells Fargo’s top priority remains building a risk and control infrastructure appropriate for its size and complexity. The 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 are likely to continue to experience issues or delays along the way in satisfying their requirements. We are also likely to continue to identify more issues as we implement our risk and control infrastructure, which may result in additional regulatory actions. Issues or delays with one regulatory action could affect our progress on others, and failureregulators have indicated the potential for escalating consequences for banks that do not timely resolve open issues. Failure to satisfy the requirements of a regulatory action on a timely basis could result in additional penalties, business restrictions, limitations on subsidiary capital distributions, increased capital or liquidity requirements, enforcement actions, and other negative consequences, which could be significant. While we still have significant work to do and have not yet satisfied certain aspects of these regulatory actions, the Company is committed to devoting the resources necessary to operate with strong 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. 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. On September 9, 2021, the OCC assessed a $250 million civil money penalty against the Company related to insufficient progress in addressing requirements under the OCC’s April 2018 consent order and loss mitigation activities in the Company’s Home Lending business. On December 20, 2022, the CFPB modified its consent order to clarify how it would terminate.
Consent Order with the OCC Regarding Loss Mitigation Activities
On September 9, 2021, the Company entered into a consent order with the OCC requiring the Company to improve the execution, risk management, and oversight of loss mitigation activities in its Home Lending business. In addition, the consent order restricts the Company from acquiring certain third-party residential mortgage servicing and limits transfers of certain mortgage loans requiring customer remediation out of the Company’s mortgage servicing portfolio until remediation is provided.
Consent Order with the CFPB Regarding Automobile Lending, Consumer Deposit Accounts, and Mortgage Lending
On December 20, 2022, the Company entered into a consent order with the CFPB requiring the Company to provide customer remediation for multiple matters related to automobile lending, consumer deposit accounts, and mortgage lending; maintain practices designed to ensure auto lending customers receive refunds for the unused portion of certain guaranteed automobile protection agreements; comply with certain business practice requirements related to consumer deposit accounts; and pay a $1.7 billion civil penalty to the CFPB. The required actions related to many of these matters were already substantially complete at the time we entered into the consent order, and the consent order lays out a path to termination after the Company completes the remainder of the required 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 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. On September 8, 2021, the CFPB consent order regarding retail sales practices expired.
For additional information regarding retail sales practices matters, including related legal and regulatory risk, see the “Risk Factors” section in our 20212022 Form 10-K and Note 13 (Legal Actions) to Financial Statements in this Report.10-K.
Customer Remediation Activities
Our priority of rebuilding trust has included an effort to identify 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 accrued for the probable and estimable costs related to our customer remediation activities, 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 and as we continue to strengthen our risk and control infrastructure, we have identified and may in the future 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. We have previously disclosed key areas of focus as part of these activities.
For additional information regarding accruals for customer remediation, see the “Expenses” section in Note 18 (Employee Benefits and Expenses) to Financial Statements in this Report, and for additional information regarding these activities, including related legal and regulatory risk, see the “Risk Factors” section in our 20212022 Form 10-K and Note 13 (Legal Actions) to Financial Statements in this Report.10-K.
Recent Developments
Federal Deposit Insurance Corporation Special Assessment
In May 2023, the Federal Deposit Insurance Corporation (FDIC) proposed a rule to recover by special assessment losses to the FDIC deposit insurance fund as a result of recent bank failures. Under the proposed rule, the FDIC would collect a special assessment based on a calculation using an insured depository institution’s estimated amount of uninsured deposits. As currently proposed, the amount of our special assessment may be up to $1.8 billion (pre-tax), and we expect to expense the entire amount upon the FDIC’s finalization of the rule. The proposed rule may be changed prior to finalization and any changes may affect the timing or amount of the special assessment.
LIBOR Transition
The London Interbank Offered Rate (LIBOR) iswas a widely referenced benchmark rate that seekssought to estimate the cost at which banks cancould borrow on an unsecured basis from other banks. On March 5, 2021, the United Kingdom’s Financial Conduct Authority and ICE Benchmark Administration, the administrator of LIBOR, announced that certain settings of LIBOR would no longer be published on a representative basis after December 31, 2021, and the most commonly used U.S. dollar (USD) LIBOR settings would no longer be published on a representative basis after June 30, 2023. Central banks in various jurisdictions convened committees to identify replacement rates to facilitate the transition away from LIBOR. The committee convened by the Federal Reserve in the United States, the Alternative Reference Rates Committee (ARRC), recommended the Secured Overnight Financing Rate (SOFR) as the replacement rate for USD LIBOR. Additionally, the Federal Reserve, the OCC and the Federal Deposit Insurance Corporation (FDIC) have issued guidance strongly encouraging banking organizations to cease using USD LIBOR as a reference rate in new contracts.
In preparation for the cessation of the various LIBOR settings, we have undertaken a variety of activities. Among other things, we proactively implemented internal “stop-sell” dates to discontinue offering products referencing LIBOR except pursuant to limited exceptions consistent with regulatory guidance. At the same time, we expanded our suite of product offerings that are indexed to alternative reference rates.
We also continue to transition our legacy LIBOR contracts to alternative reference rates. We transitioned substantially all of our legacy contracts with LIBOR settings impacted by the December 31, 2021, cessation date to alternative reference rates, and we will continue to address contracts with LIBOR settings that are impacted by the June 30, 2023, cessation date.
In first quarter 2022, the Adjustable Interest Rate (LIBOR) Act (the LIBOR Act) was enacted into U.S. federal law to provide a statutory framework to replace LIBOR with a benchmark rate based on SOFRthe Secured Overnight Financing Rate (SOFR) in U.S. law contracts that do not have fallback provisions or that have fallback provisions resulting in a replacement rate based on LIBOR. We expect thatThe FRB adopted a final rule implementing the LIBOR Act will allow for the transition of certain of our commercial credit facilitieson December 16, 2022, which became effective on February 27, 2023.
We no longer offer new contracts referencing LIBOR and legacy contracts indexed to USD LIBOR have transitioned to SOFR-based or other contracts that do not have appropriatealternative reference rates in accordance with existing fallback provisions to replace LIBOR.or the LIBOR Act.
For additional information on the amounts of certain of our LIBOR-linked contracts, as well as our transition plans for these contracts, see the “Overview – Recent Developments – LIBOR Transition” section in our 2021 Form 10-K. For information regarding the risks and potential impact of LIBOR or any other referenced financial metric being significantly changed, replaced or discontinued, see the “Risk Factors” section in our 20212022 Form 10-K.
Capital Matters
In June 2023, the Company completed the annual Comprehensive Capital Analysis and Review (CCAR) stress test process. On July 27, 2023, the FRB confirmed that our stress capital buffer for the period October 1, 2023, through September 30, 2024, will be 2.90%, which is lower than our current stress capital buffer of 3.20%.
On July 25, 2023, the Board approved an increase to the Company's third quarter 2023 common stock dividend to $0.35 per share and the Company announced that the Board authorized a new common stock repurchase program of up to $30 billion.
On July 27, 2023, federal banking regulators issued a proposed rule that would impact the way in which risk-based capital requirements are determined for certain banks. The proposed rule would eliminate the current Advanced Approach and replace it with a new expanded risk-based approach for the measurement of risk-weighted assets, including more granular risk weights for credit risk, a new market risk framework, and a new standardized approach for measuring operational risk. The new requirements would be phased in over a three-year period beginning July 1, 2025. The Company expects a significant
increase in its risk-weighted assets and a net increase in its capital requirements based on a preliminary assessment of the proposed rule. The Company is considering a range of potential actions to address the impact of the proposed rule, including balance sheet and capital optimization strategies.
In July 2023, we issued $1.725 billion of our Preferred Stock, Series EE.
For additional information about capital planning, see the “Capital Management – Capital Planning and Stress Testing” section in this Report.
Financial Performance
Adoption of Accounting Standards Update 2018-12
In first quarter 2023, we adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2018-12 –
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Consolidated Financial Highlights | | | | | | | | | | | | | | | |
| Quarter ended Sep 30, | | | | | | Nine months ended Sep 30, | | | | |
($ in millions) | 2022 | | 2021 | | $ Change | | % Change | | 2022 | | 2021 | | $ Change | | % Change |
Selected income statement data | | | | | | | | | | | | | | | |
Net interest income | $ | 12,098 | | | 8,909 | | | 3,189 | | | 36 | % | | $ | 31,517 | | | 26,517 | | | 5,000 | | | 19 | % |
Noninterest income | 7,407 | | | 9,925 | | | (2,518) | | | (25) | | | 22,608 | | | 31,119 | | | (8,511) | | | (27) | |
Total revenue | 19,505 | | | 18,834 | | | 671 | | | 4 | | | 54,125 | | | 57,636 | | | (3,511) | | | (6) | |
Net charge-offs | 399 | | | 257 | | | 142 | | | 55 | | | 1,049 | | | 1,159 | | | (110) | | | (9) | |
Change in the allowance for credit losses | 385 | | | (1,652) | | | 2,037 | | | 123 | | | (472) | | | (4,862) | | | 4,390 | | | 90 | |
Provision for credit losses | 784 | | | (1,395) | | | 2,179 | | | 156 | | | 577 | | | (3,703) | | | 4,280 | | | 116 | |
Noninterest expense | 14,327 | | | 13,303 | | | 1,024 | | | 8 | | | 41,080 | | | 40,633 | | | 447 | | | 1 | |
Income tax expense | 894 | | | 1,521 | | | (627) | | | (41) | | | 2,214 | | | 3,867 | | | (1,653) | | | (43) | |
Wells Fargo net income | 3,528 | | | 5,122 | | | (1,594) | | | (31) | | | 10,318 | | | 15,798 | | | (5,480) | | | (35) | |
Wells Fargo net income applicable to common stock | 3,250 | | | 4,787 | | | (1,537) | | | (32) | | | 9,482 | | | 14,786 | | | (5,304) | | | (36) | |
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Targeted Improvements to the Accounting for Long-Duration Contracts. We adopted this ASU with retrospective application, which required revision of prior period financial statements. 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 the adoption of ASU 2018-12, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report.
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Consolidated Financial Highlights | | | | | | | | | | | | | | | |
| Quarter ended June 30, | | | | | | Six months ended June 30, | | | | |
($ in millions) | 2023 | | 2022 | | $ Change | | % Change | | 2023 | | 2022 | | $ Change | | % Change |
Selected income statement data | | | | | | | | | | | | | | | |
Net interest income | $ | 13,163 | | | 10,198 | | | 2,965 | | | 29 | % | | $ | 26,499 | | | 19,419 | | | 7,080 | | | 36 | % |
Noninterest income | 7,370 | | | 6,842 | | | 528 | | | 8 | | | 14,763 | | | 15,349 | | | (586) | | | (4) | |
Total revenue | 20,533 | | | 17,040 | | | 3,493 | | | 20 | | | 41,262 | | | 34,768 | | | 6,494 | | | 19 | |
Net charge-offs | 764 | | | 345 | | | 419 | | | 121 | | | 1,328 | | | 650 | | | 678 | | | 104 | |
Change in the allowance for credit losses | 949 | | | 235 | | | 714 | | | 304 | | | 1,592 | | | (857) | | | 2,449 | | | 286 | |
Provision for credit losses (1) | 1,713 | | | 580 | | | 1,133 | | | 195 | | | 2,920 | | | (207) | | | 3,127 | | | NM |
Noninterest expense | 12,987 | | | 12,862 | | | 125 | | | 1 | | | 26,663 | | | 26,713 | | | (50) | | | — | |
Income tax expense | 930 | | | 622 | | | 308 | | | 50 | | | 1,896 | | | 1,368 | | | 528 | | | 39 | |
Wells Fargo net income | 4,938 | | | 3,142 | | | 1,796 | | | 57 | | | 9,929 | | | 6,930 | | | 2,999 | | | 43 | |
Wells Fargo net income applicable to common stock | 4,659 | | | 2,863 | | | 1,796 | | | 63 | | | 9,372 | | | 6,372 | | | 3,000 | | | 47 | |
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NM – Not meaningful
(1)Includes provision for credit losses for loans, debt securities, and interest-earning deposits with banks.
In thirdsecond quarter 2022,2023, we generated $3.5$4.9 billion of net income and diluted earnings per common share (EPS) of $0.85,$1.25, compared with $5.1$3.1 billion of net income and diluted EPS of $1.17$0.75 in the same period a year ago. Financial performance for thirdsecond quarter 20222023, compared with the same period a year ago, included the following:
•total revenue increased due to higher net interest income and higher noninterest income;
•provision for credit losses reflected increases for commercial real estate loans, primarily office loans, as well as for increases in credit card loan balances;
•noninterest expense increased due to higher personnel, technology and equipment, and advertising expense, partially offset by lower operating losses;
•average loans increased driven by loan growth across both our commercial and consumer loan portfolios; and
•average deposits decreased driven by reductions in all operating segments, partially offset by growth in Corporate.
In the first half of 2023, we generated $9.9 billion of net income and diluted EPS of $2.48, compared with $6.9 billion of net income and diluted EPS of $1.66 in the same period a year ago. Financial performance for the first half of 2023, compared with the same period a year ago, included the following:
•total revenue increased due to higher net interest income, partially offset by lower mortgage banking income, net gains from equity securities, and investment advisory and other asset-based feenoninterest income;
•provision for credit losses increased reflectingreflected increases for commercial real estate loans, primarily office loans, as well as for increases in credit card loan growth and a less favorable economic environment;balances;
•noninterest expense increaseddecreased due to higherlower operating losses, partially offset by lowerhigher personnel, expense,technology and professionalequipment, and outside servicesadvertising expense;
•average loans increased driven by loan growth across both our commercial and consumer loan portfolios; and
•average deposits decreased driven by reductions in Corporate and Investment Banking, Commercial Banking, Wealth and Investment Management, and Corporate,all operating segments, partially offset by growth in Consumer Banking and Lending.Corporate.
In the first nine months of 2022, we generated $10.3 billion of net income and diluted EPS of $2.47, compared with $15.8 billion of net income and diluted EPS of $3.57 in the same period a year ago. Financial performance for the first nine months of 2022, compared with the same period a year ago, included the following:
•total revenue decreased due to lower net gains from equity securities, mortgage banking, and investment advisory and other asset-based fee income, partially offset by higher net interest income;
•provision for credit losses increased reflecting loan growth and a less favorable economic environment;
•noninterest expense increased due to higher operating losses, partially offset by lower personnel expense, and professional and outside services expense;
•average loans increased driven by loan growth across both our commercial and consumer loan portfolios; and
•average deposits increased driven by growth in Consumer Banking and Lending, partially offset by reductions in Corporate and Investment Banking and Corporate.
Capital and Liquidity
We maintained a strong capital position in the first nine monthshalf of 2022,2023, with total equity of $178.4$182.0 billion at SeptemberJune 30, 2022,2023, compared with $190.1$182.2 billion at December 31, 2021. Our2022. In addition, capital and liquidity and regulatory capital ratios remained strong at SeptemberJune 30, 2022, including:2023, included the following:
•our Common Equity Tier 1 (CET1) ratio was 10.33%10.73% under the Standardized Approach (our binding ratio), which continued to exceed the regulatory minimum and buffers of 9.10%9.20%;
•our total loss absorbing capacity (TLAC) as a percentage of total risk-weighted assets was 23.00%23.12%, compared with the regulatory minimum of 21.50%; and
•our liquidity coverage ratio (LCR) was 123%, which continued to exceed the regulatory minimum of 100%.
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 reflected the following:
•The allowance for credit losses (ACL) for loans of $13.2 billion at September 30, 2022, decreased $563 million from December 31, 2021, reflecting reduced uncertainty around the economic impact of the COVID-19 pandemic on our loan portfolio. This decrease was partially offset by loan growth and a less favorable economic environment.
•Our provision for credit losses for loans was $576 million in the first nine months of 2022, compared with $(3.7) billion in the same period a year ago, reflecting loan growth and a less favorable economic environment.
•The allowance coverage for total loans was 1.40% at September 30, 2022, compared with 1.54% at December 31, 2021.
•Commercial portfolio net loan charge-offs were $6 million in third quarter 2022, compared with net loan charge-offs of $38 million, or 3 basis points, in the same period a year ago.
Credit Quality
Credit quality reflected the following:
•The allowance for credit losses (ACL) for loans of $14.8 billion at June 30, 2023, increased $1.2 billion from December 31, 2022.
•Our provision for credit losses for loans was $3.0 billion in the first half of 2023, compared with $(197) million in the same period a year ago. The ACL for loans and the provision for credit losses for loans reflected increases for commercial real estate loans, primarily office loans, as well as for increases in credit card loan balances.
•The allowance coverage for total loans was 1.56% at June 30, 2023, compared with 1.42% at December 31, 2022.
•Commercial portfolio net loan charge-offs were $200 million, or 15 basis points of average commercial loans, in second quarter 2023, compared with net loan charge-offs of $23 million, or 2 basis points, in the same period a year ago, driven by higher losses across all commercial portfolios.
•Consumer portfolio net loan charge-offs were $393$564 million, or 4058 basis points of average consumer loans, in thirdsecond quarter 2022,2023, compared with net loan charge-offs of $221$321 million, or 2333 basis points, in the same period a year ago, driven by higher losses in all consumer portfolios, primarily in our auto and credit card portfolios.portfolio.
•Nonperforming assets (NPAs) of $5.7$7.0 billion at SeptemberJune 30, 2022, decreased $1.62023, increased $1.3 billion, or 22%, from
December 31, 2021,2022, driven by improved credit quality across ourhigher commercial loan portfolios, and a decrease inreal estate nonaccrual loans, predominantly within the office property type, partially offset by lower residential mortgage nonaccrual loans due to sustained payment performance of borrowers after exiting COVID-19-related accommodation programs.loans. NPAs represented 0.60%0.74% of total loans at SeptemberJune 30, 2022.2023.
•Criticized loans in the commercial portfolio were $29.0 billion at June 30, 2023, compared with $25.0 billion at December 31, 2022, primarily driven by an increase in criticized commercial real estate loans in the office property type.
Wells Fargo net income for thirdsecond quarter 20222023 was $3.5$4.9 billion ($0.851.25 diluted EPS), compared with $5.1$3.1 billion ($1.170.75 diluted EPS) in the same period a year ago. Net income decreasedincreased in thirdsecond quarter 2022,2023, compared with the same period a year ago, predominantly due to a $2.5$3.0 billion decreaseincrease in noninterestnet interest income, partially offset by a $2.2$1.1 billion increase in provision for credit losses, and a $1.0 billion increase in noninterest expense, partially offset by a $3.2 billion increase in net interest income and a $627 million decrease in income tax expense.losses.
Net income for the first nine monthshalf of 20222023 was $10.3$9.9 billion ($2.472.48 diluted EPS), compared with $15.8$6.9 billion ($3.571.66 diluted EPS) in the same period a year ago. Net income decreasedincreased in the first nine monthshalf of 2022,2023, compared with the same period a year ago, predominantly due to a $8.5$7.1 billion decreaseincrease in noninterestnet interest income, andpartially offset by a $4.3$3.1 billion increase in provision for credit losses partially offset byand a $5.0 billion increase in net interest income, a $1.7 billion$586 million decrease in income tax expense, and a $1.1 billion decrease in net income from noncontrolling interests.noninterest income.
Net Interest Income
Net interest income and net interest margin increased in both the thirdsecond quarter and first nine monthshalf of 2022,2023, compared with the same periods a year ago, due to the impact of higher interest rates on earning assets and higher loan balances, and lower mortgage-backed securities (MBS) premium amortization, partially offset by lower interest income from Paycheck Protection Program (PPP) loans and loans purchased from Government National Mortgage Association (GNMA) loan securitization pools, and higher expenses for interest-bearinginterest bearing deposits and long-term debt. Interest income from PPP loans was $85 million in the first nine months of 2022, compared with $389 million in the same period a year ago. Additionally, interest income associated with loans we purchased from GNMA loan securitization pools was $497 million in the first nine months of 2022, compared with $737 million in the same period a year ago. For additional information about loans purchased from GNMA loan securitization pools, see the “Risk Management – Credit Risk Management – Mortgage Banking Activities” section in this Report.
Table 1 presents the individual components of net interest income and 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 ended SeptemberJune 30, 20222023 and 2021.2022.
For additional information about net interest income and net interest margin, see the “Earnings Performance – Net Interest Income” section in our 20212022 Form 10-K.
Table 1: Average Balances, Yields and Rates Paid (Taxable-Equivalent Basis) (1)
| | | Quarter ended September 30, | | Quarter ended June 30, |
| | 2022 | | 2021 | | 2023 | | 2022 |
(in millions) | (in millions) | Average balance | | Interest income/ expense | | Interest rates | | Average balance | | Interest income/ expense | | Interest rates | (in millions) | Average balance | | Interest income/ expense | | Interest rates | | Average balance | | Interest income/ expense | | Interest rates |
Assets | Assets | | Assets | |
Interest-earning deposits with banks | Interest-earning deposits with banks | $ | 130,761 | | | 699 | | | 2.12 | % | | $ | 250,314 | | | 97 | | | 0.15 | % | Interest-earning deposits with banks | $ | 129,236 | | | 1,450 | | | 4.50 | % | | $ | 146,271 | | | 321 | | | 0.88 | % |
Federal funds sold and securities purchased under resale agreements | Federal funds sold and securities purchased under resale agreements | 57,432 | | | 250 | | | 1.73 | | | 68,912 | | | 6 | | | 0.03 | | Federal funds sold and securities purchased under resale agreements | 69,505 | | | 820 | | | 4.73 | | | 60,450 | | | 72 | | | 0.47 | |
Debt securities: | Debt securities: | | Debt securities: | |
Trading debt securities | Trading debt securities | 91,618 | | | 631 | | | 2.75 | | | 88,476 | | | 517 | | | 2.33 | | Trading debt securities | 102,605 | | | 898 | | | 3.50 | | | 89,258 | | | 557 | | | 2.50 | |
Available-for-sale debt securities | Available-for-sale debt securities | 127,821 | | | 792 | | | 2.47 | | | 179,237 | | | 705 | | | 1.57 | | Available-for-sale debt securities | 149,320 | | | 1,388 | | | 3.72 | | | 147,138 | | | 701 | | | 1.91 | |
Held-to-maturity debt securities | Held-to-maturity debt securities | 305,063 | | | 1,704 | | | 2.23 | | | 261,182 | | | 1,223 | | | 1.87 | | Held-to-maturity debt securities | 279,093 | | | 1,829 | | | 2.62 | | | 298,101 | | | 1,536 | | | 2.06 | |
Total debt securities | Total debt securities | 524,502 | | | 3,127 | | | 2.38 | | | 528,895 | | | 2,445 | | | 1.85 | | Total debt securities | 531,018 | | | 4,115 | | | 3.10 | | | 534,497 | | | 2,794 | | | 2.09 | |
Loans held for sale (2) | Loans held for sale (2) | 11,458 | | | 120 | | | 4.18 | | | 24,490 | | | 172 | | | 2.81 | | Loans held for sale (2) | 6,031 | | | 94 | | | 6.22 | | | 14,828 | | | 126 | | | 3.41 | |
Loans: | Loans: | | Loans: | |
Commercial loans: | | |
Commercial and industrial – U.S. | Commercial and industrial – U.S. | 300,097 | | | 3,211 | | | 4.25 | | | 247,095 | | | 1,608 | | | 2.58 | | Commercial and industrial – U.S. | 307,858 | | | 5,156 | | | 6.72 | | | 288,831 | | | 2,179 | | | 3.02 | |
Commercial and industrial – Non-U.S. | Commercial and industrial – Non-U.S. | 81,278 | | | 751 | | | 3.67 | | | 72,331 | | | 361 | | | 1.98 | | Commercial and industrial – Non-U.S. | 75,503 | | | 1,249 | | | 6.64 | | | 81,784 | | | 521 | | | 2.56 | |
Real estate mortgage | 133,720 | | | 1,388 | | | 4.12 | | | 121,453 | | | 817 | | | 2.67 | | |
Real estate construction | 21,571 | | | 268 | | | 4.93 | | | 21,794 | | | 170 | | | 3.10 | | |
Commercial real estate mortgage | | Commercial real estate mortgage | 130,222 | | | 2,076 | | | 6.39 | | | 131,128 | | | 980 | | | 3.00 | |
Commercial real estate construction | | Commercial real estate construction | 24,438 | | | 468 | | | 7.68 | | | 21,328 | | | 191 | | | 3.59 | |
Lease financing | Lease financing | 14,526 | | | 137 | | | 3.76 | | | 15,492 | | | 171 | | | 4.45 | | Lease financing | 15,010 | | | 178 | | | 4.76 | | | 14,445 | | | 153 | | | 4.24 | |
Total commercial loans | Total commercial loans | 551,192 | | | 5,755 | | | 4.14 | | | 478,165 | | | 3,127 | | | 2.60 | | Total commercial loans | 553,031 | | | 9,127 | | | 6.62 | | | 537,516 | | | 4,024 | | | 3.00 | |
Consumer loans: | | | | | |
Residential mortgage – first lien | Residential mortgage – first lien | 253,383 | | | 2,002 | | | 3.16 | | | 243,201 | | | 1,897 | | | 3.12 | | Residential mortgage – first lien | 253,797 | | | 2,109 | | | 3.32 | | | 248,879 | | | 1,943 | | | 3.12 | |
Residential mortgage – junior lien | Residential mortgage – junior lien | 14,226 | | | 189 | | | 5.28 | | | 18,809 | | | 195 | | | 4.11 | | Residential mortgage – junior lien | 12,331 | | | 210 | | | 6.83 | | | 14,998 | | | 168 | | | 4.48 | |
Credit card | Credit card | 42,407 | | | 1,230 | | | 11.51 | | | 35,407 | | | 1,023 | | | 11.47 | | Credit card | 46,762 | | | 1,511 | | | 12.96 | | | 39,614 | | | 1,100 | | | 11.13 | |
Auto | Auto | 54,874 | | | 590 | | | 4.27 | | | 52,370 | | | 586 | | | 4.44 | | Auto | 51,880 | | | 603 | | | 4.67 | | | 56,262 | | | 586 | | | 4.18 | |
Other consumer | Other consumer | 29,383 | | | 413 | | | 5.58 | | | 26,072 | | | 243 | | | 3.70 | | Other consumer | 28,105 | | | 582 | | | 8.29 | | | 29,298 | | | 311 | | | 4.26 | |
Total consumer loans | Total consumer loans | 394,273 | | | 4,424 | | | 4.47 | | | 375,859 | | | 3,944 | | | 4.18 | | Total consumer loans | 392,875 | | | 5,015 | | | 5.11 | | | 389,051 | | | 4,108 | | | 4.23 | |
Total loans (2) | Total loans (2) | 945,465 | | | 10,179 | | | 4.28 | | | 854,024 | | | 7,071 | | | 3.29 | | Total loans (2) | 945,906 | | | 14,142 | | | 5.99 | | | 926,567 | | | 8,132 | | | 3.52 | |
Equity securities | Equity securities | 29,722 | | | 156 | | | 2.09 | | | 32,790 | | | 146 | | | 1.78 | | Equity securities | 27,891 | | | 194 | | | 2.79 | | | 30,770 | | | 193 | | | 2.51 | |
Other | Other | 13,577 | | | 68 | | | 1.97 | | | 10,070 | | | 2 | | | 0.09 | | Other | 10,118 | | | 120 | | | 4.76 | | | 16,085 | | | 26 | | | 0.65 | |
Total interest-earning assets | Total interest-earning assets | $ | 1,712,917 | | | 14,599 | | | 3.39 | % | | $ | 1,769,495 | | | 9,939 | | | 2.24 | % | Total interest-earning assets | $ | 1,719,705 | | | 20,935 | | | 4.88 | % | | $ | 1,729,468 | | | 11,664 | | | 2.70 | % |
Cash and due from banks | Cash and due from banks | 25,646 | | | — | | | 24,201 | | | — | | | Cash and due from banks | 27,344 | | | — | | | 26,018 | | | — | | |
Goodwill | Goodwill | 25,177 | | | — | | | 26,192 | | | — | | | Goodwill | 25,175 | | | — | | | 25,179 | | | — | | |
Other | Other | 116,950 | | | — | | | 129,812 | | | — | | | Other | 106,029 | | | — | | | 121,906 | | | — | | |
Total noninterest-earning assets | Total noninterest-earning assets | $ | 167,773 | | | — | | | 180,205 | | | — | | | Total noninterest-earning assets | $ | 158,548 | | | — | | | 173,103 | | | — | | |
Total assets | Total assets | $ | 1,880,690 | | | 14,599 | | | 1,949,700 | | | 9,939 | | | Total assets | $ | 1,878,253 | | | 20,935 | | | 1,902,571 | | | 11,664 | | |
Liabilities | Liabilities | | | | | Liabilities | | | | |
Deposits: | Deposits: | | Deposits: | |
Demand deposits | Demand deposits | $ | 421,072 | | | 335 | | | 0.32 | % | | $ | 452,301 | | | 29 | | | 0.03 | % | Demand deposits | $ | 415,886 | | | 1,667 | | | 1.61 | % | | $ | 439,983 | | | 90 | | | 0.08 | % |
Savings deposits | Savings deposits | 434,023 | | | 63 | | | 0.06 | | | 426,201 | | | 34 | | | 0.03 | | Savings deposits | 386,831 | | | 734 | | | 0.76 | | | 440,478 | | | 32 | | | 0.03 | |
Time deposits | Time deposits | 29,584 | | | 77 | | | 1.04 | | | 34,171 | | | 25 | | | 0.28 | | Time deposits | 115,025 | | | 1,260 | | | 4.40 | | | 25,381 | | | 26 | | | 0.41 | |
Deposits in non-U.S. offices | Deposits in non-U.S. offices | 17,540 | | | 38 | | | 0.86 | | | 28,341 | | | 11 | | | 0.16 | | Deposits in non-U.S. offices | 19,144 | | | 144 | | | 3.02 | | | 18,684 | | | 10 | | | 0.22 | |
Total interest-bearing deposits | Total interest-bearing deposits | 902,219 | | | 513 | | | 0.23 | | | 941,014 | | | 99 | | | 0.04 | | Total interest-bearing deposits | 936,886 | | | 3,805 | | | 1.63 | | | 924,526 | | | 158 | | | 0.07 | |
Short-term borrowings: | Short-term borrowings: | | | | | Short-term borrowings: | | | | |
Federal funds purchased and securities sold under agreements to repurchase | Federal funds purchased and securities sold under agreements to repurchase | 25,648 | | | 122 | | | 1.88 | | | 32,489 | | | 5 | | | 0.02 | | Federal funds purchased and securities sold under agreements to repurchase | 66,568 | | | 811 | | | 4.89 | | | 22,593 | | | 33 | | | 0.58 | |
Other short-term borrowings | Other short-term borrowings | 13,799 | | | 36 | | | 1.06 | | | 11,410 | | | (12) | | | (0.44) | | Other short-term borrowings | 16,491 | | | 150 | | | 3.65 | | | 12,998 | | | (2) | | | (0.07) | |
Total short-term borrowings | Total short-term borrowings | 39,447 | | | 158 | | | 1.59 | | | 43,899 | | | (7) | | | (0.06) | | Total short-term borrowings | 83,059 | | | 961 | | | 4.64 | | | 35,591 | | | 31 | | | 0.34 | |
Long-term debt | Long-term debt | 158,984 | | | 1,553 | | | 3.90 | | | 174,643 | | | 745 | | | 1.71 | | Long-term debt | 170,843 | | | 2,693 | | | 6.31 | | | 151,230 | | | 1,011 | | | 2.67 | |
Other liabilities | Other liabilities | 36,217 | | | 172 | | | 1.89 | | | 30,387 | | | 88 | | | 1.15 | | Other liabilities | 34,496 | | | 208 | | | 2.41 | | | 35,583 | | | 158 | | | 1.78 | |
Total interest-bearing liabilities | Total interest-bearing liabilities | $ | 1,136,867 | | | 2,396 | | | 0.84 | % | | $ | 1,189,943 | | | 925 | | | 0.31 | % | Total interest-bearing liabilities | $ | 1,225,284 | | | 7,667 | | | 2.51 | % | | $ | 1,146,930 | | | 1,358 | | | 0.47 | % |
Noninterest-bearing demand deposits | Noninterest-bearing demand deposits | 505,632 | | | — | | | 509,927 | | | — | | | Noninterest-bearing demand deposits | 410,563 | | | — | | | 521,267 | | | — | | |
Other noninterest-bearing liabilities | Other noninterest-bearing liabilities | 55,154 | | | — | | | 55,789 | | | — | | | Other noninterest-bearing liabilities | 57,963 | | | — | | | 53,448 | | | — | | |
Total noninterest-bearing liabilities | Total noninterest-bearing liabilities | $ | 560,786 | | | — | | | 565,716 | | | — | | | Total noninterest-bearing liabilities | $ | 468,526 | | | — | | | 574,715 | | | — | | |
Total liabilities | Total liabilities | $ | 1,697,653 | | | 2,396 | | | 1,755,659 | | | 925 | | | Total liabilities | $ | 1,693,810 | | | 7,667 | | | 1,721,645 | | | 1,358 | | |
Total equity | Total equity | 183,037 | | | — | | | 194,041 | | | — | | | Total equity | 184,443 | | | — | | | 180,926 | | | — | | |
Total liabilities and equity | Total liabilities and equity | $ | 1,880,690 | | | 2,396 | | | 1,949,700 | | | 925 | | | Total liabilities and equity | $ | 1,878,253 | | | 7,667 | | | 1,902,571 | | | 1,358 | | |
| Interest rate spread on a taxable-equivalent basis (3) | Interest rate spread on a taxable-equivalent basis (3) | | 2.55 | % | | 1.93 | % | Interest rate spread on a taxable-equivalent basis (3) | | 2.37 | % | | 2.23 | % |
Net interest income and net interest margin on a taxable-equivalent basis (3) | Net interest income and net interest margin on a taxable-equivalent basis (3) | | $ | 12,203 | | | 2.83 | % | | $ | 9,014 | | | 2.03 | % | Net interest income and net interest margin on a taxable-equivalent basis (3) | | $ | 13,268 | | | 3.09 | % | | $ | 10,306 | | | 2.39 | % |
(continued on following page)
Earnings Performance (continued)
(continued from previous page)
| | | | Nine months ended September 30, | | | Six months ended June 30, | |
| | 2022 | | 2021 | | | 2023 | | 2022 | |
(in millions) | (in millions) | Average balance | | Interest income/ expense | | Interest rates | | Average balance | | Interest income/ expense | | Interest rates | | (in millions) | Average balance | | Interest income/ expense | | Interest rates | | Average balance | | Interest income/ expense | | Interest rates | |
Assets | Assets | | | Assets | | |
Interest-earning deposits with banks | Interest-earning deposits with banks | $ | 151,851 | | | 1,116 | | | 0.98 | % | | $ | 243,095 | | | 224 | | | 0.12 | % | | Interest-earning deposits with banks | $ | 122,087 | | | 2,617 | | | 4.32 | % | | $ | 162,570 | | | 417 | | | 0.52 | % | |
Federal funds sold and securities purchased under resale agreements | Federal funds sold and securities purchased under resale agreements | 60,882 | | | 313 | | | 0.69 | | | 71,179 | | | 16 | | | 0.03 | | | Federal funds sold and securities purchased under resale agreements | 69,071 | | | 1,516 | | | 4.43 | | | 62,636 | | | 63 | | | 0.20 | | |
Debt securities: | Debt securities: | | | Debt securities: | | |
Trading debt securities | Trading debt securities | 90,521 | | | 1,741 | | | 2.57 | | | 86,828 | | | 1,552 | | | 2.38 | | | Trading debt securities | 99,522 | | | 1,699 | | | 3.42 | | | 89,964 | | | 1,110 | | | 2.47 | | |
Available-for-sale debt securities | Available-for-sale debt securities | 147,852 | | | 2,216 | | | 2.00 | | | 192,765 | | | 2,232 | | | 1.54 | | | Available-for-sale debt securities | 147,616 | | | 2,670 | | | 3.63 | | | 158,032 | | | 1,424 | | | 1.81 | | |
Held-to-maturity debt securities | Held-to-maturity debt securities | 294,231 | | | 4,619 | | | 2.09 | | | 238,769 | | | 3,356 | | | 1.88 | | | Held-to-maturity debt securities | 279,522 | | | 3,609 | | | 2.59 | | | 288,725 | | | 2,915 | | | 2.02 | | |
Total debt securities | Total debt securities | 532,604 | | | 8,576 | | | 2.15 | | | 518,362 | | | 7,140 | | | 1.84 | | | Total debt securities | 526,660 | | | 7,978 | | | 3.04 | | | 536,721 | | | 5,449 | | | 2.03 | | |
Loans held for sale (2) | Loans held for sale (2) | 15,237 | | | 386 | | | 3.38 | | | 28,702 | | | 696 | | | 3.24 | | | Loans held for sale (2) | 6,320 | | | 191 | | | 6.05 | | | 17,158 | | | 266 | | | 3.10 | | |
Loans: | Loans: | | | Loans: | | |
Commercial loans: | | | |
Commercial and industrial – U.S. | Commercial and industrial – U.S. | 288,420 | | | 7,090 | | | 3.29 | | | 249,359 | | | 4,831 | | | 2.59 | | | Commercial and industrial – U.S. | 307,519 | | | 9,928 | | | 6.51 | | | 282,485 | | | 3,879 | | | 2.77 | | |
Commercial and industrial – Non-U.S. | Commercial and industrial – Non-U.S. | 80,286 | | | 1,675 | | | 2.79 | | | 69,530 | | | 1,073 | | | 2.06 | | | Commercial and industrial – Non-U.S. | 75,800 | | | 2,383 | | | 6.34 | | | 79,782 | | | 924 | | | 2.34 | | |
Real estate mortgage | 130,794 | | | 3,201 | | | 3.27 | | | 120,907 | | | 2,452 | | | 2.71 | | | |
Real estate construction | 21,058 | | | 624 | | | 3.96 | | | 21,855 | | | 505 | | | 3.09 | | | |
Commercial real estate mortgage | | Commercial real estate mortgage | 130,532 | | | 4,025 | | | 6.22 | | | 129,306 | | | 1,813 | | | 2.83 | | |
Commercial real estate construction | | Commercial real estate construction | 24,333 | | | 906 | | | 7.51 | | | 20,797 | | | 356 | | | 3.46 | | |
Lease financing | Lease financing | 14,519 | | | 445 | | | 4.08 | | | 15,617 | | | 529 | | | 4.52 | | | Lease financing | 14,922 | | | 350 | | | 4.69 | | | 14,516 | | | 308 | | | 4.24 | | |
Total commercial loans | Total commercial loans | 535,077 | | | 13,035 | | | 3.26 | | | 477,268 | | | 9,390 | | | 2.63 | | | Total commercial loans | 553,106 | | | 17,592 | | | 6.41 | | | 526,886 | | | 7,280 | | | 2.78 | | |
Consumer loans: | | | | | | |
Residential mortgage – first lien | Residential mortgage – first lien | 248,420 | | | 5,852 | | | 3.14 | | | 252,338 | | | 5,922 | | | 3.13 | | | Residential mortgage – first lien | 254,404 | | | 4,197 | | | 3.30 | | | 245,898 | | | 3,850 | | | 3.13 | | |
Residential mortgage – junior lien | Residential mortgage – junior lien | 15,074 | | | 522 | | | 4.62 | | | 20,516 | | | 634 | | | 4.13 | | | Residential mortgage – junior lien | 12,647 | | | 420 | | | 6.68 | | | 15,505 | | | 333 | | | 4.32 | | |
Credit card | Credit card | 40,077 | | | 3,395 | | | 11.33 | | | 34,942 | | | 3,035 | | | 11.61 | | | Credit card | 46,304 | | | 2,951 | | | 12.85 | | | 38,893 | | | 2,165 | | | 11.22 | | |
Auto | Auto | 55,939 | | | 1,760 | | | 4.21 | | | 50,368 | | | 1,709 | | | 4.54 | | | Auto | 52,470 | | | 1,200 | | | 4.61 | | | 56,480 | | | 1,170 | | | 4.18 | | |
Other consumer | Other consumer | 28,933 | | | 980 | | | 4.53 | | | 25,234 | | | 709 | | | 3.75 | | | Other consumer | 28,340 | | | 1,127 | | | 8.02 | | | 28,703 | | | 567 | | | 3.98 | | |
Total consumer loans | Total consumer loans | 388,443 | | | 12,509 | | | 4.30 | | | 383,398 | | | 12,009 | | | 4.18 | | | Total consumer loans | 394,165 | | | 9,895 | | | 5.04 | | | 385,479 | | | 8,085 | | | 4.21 | | |
Total loans (2) | Total loans (2) | 923,520 | | | 25,544 | | | 3.70 | | | 860,666 | | | 21,399 | | | 3.32 | | | Total loans (2) | 947,271 | | | 27,487 | | | 5.84 | | | 912,365 | | | 15,365 | | | 3.39 | | |
Equity securities | Equity securities | 31,244 | | | 519 | | | 2.22 | | | 30,678 | | | 416 | | | 1.81 | | | Equity securities | 28,269 | | | 364 | | | 2.59 | | | 32,019 | | | 363 | | | 2.27 | | |
Other | Other | 13,727 | | | 97 | | | 0.94 | | | 9,559 | | | 4 | | | 0.06 | | | Other | 10,578 | | | 245 | | | 4.67 | | | 13,804 | | | 29 | | | 0.43 | | |
Total interest-earning assets | Total interest-earning assets | $ | 1,729,065 | | | 36,551 | | | 2.82 | % | | $ | 1,762,241 | | | 29,895 | | | 2.27 | % | | Total interest-earning assets | $ | 1,710,256 | | | 40,398 | | | 4.75 | % | | $ | 1,737,273 | | | 21,952 | | | 2.54 | % | |
Cash and due from banks | Cash and due from banks | 25,549 | | | — | | | 24,377 | | | — | | | | Cash and due from banks | 27,743 | | | — | | | 25,500 | | | — | | | |
Goodwill | Goodwill | 25,179 | | | — | | | 26,262 | | | — | | | | Goodwill | 25,174 | | | — | | | 25,180 | | | — | | | |
Other | Other | 120,950 | | | — | | | 128,511 | | | — | | | | Other | 107,832 | | | — | | | 122,985 | | | — | | | |
Total noninterest-earning assets | Total noninterest-earning assets | $ | 171,678 | | | — | | | 179,150 | | | — | | | | Total noninterest-earning assets | $ | 160,749 | | | — | | | 173,665 | | | — | | | |
Total assets | Total assets | $ | 1,900,743 | | | 36,551 | | | 1,941,391 | | | 29,895 | | | | Total assets | $ | 1,871,005 | | | 40,398 | | | 1,910,938 | | | 21,952 | | | |
Liabilities | Liabilities | | | | | | Liabilities | | | | | |
Deposits: | Deposits: | | | Deposits: | | |
Demand deposits | Demand deposits | $ | 438,676 | | | 463 | | | 0.14 | % | | $ | 449,777 | | | 93 | | | 0.03 | % | | Demand deposits | $ | 418,347 | | | 3,046 | | | 1.47 | % | | $ | 447,624 | | | 128 | | | 0.06 | % | |
Savings deposits | Savings deposits | 438,370 | | | 119 | | | 0.04 | | | 420,202 | | | 98 | | | 0.03 | | | Savings deposits | 394,515 | | | 1,281 | | | 0.66 | | | 440,579 | | | 56 | | | 0.03 | | |
Time deposits | Time deposits | 27,611 | | | 122 | | | 0.59 | | | 38,402 | | | 101 | | | 0.35 | | | Time deposits | 97,045 | | | 1,985 | | | 4.12 | | | 26,608 | | | 45 | | | 0.34 | | |
Deposits in non-U.S. offices | Deposits in non-U.S. offices | 19,212 | | | 50 | | | 0.35 | | | 29,614 | | | 11 | | | 0.05 | | | Deposits in non-U.S. offices | 18,695 | | | 254 | | | 2.74 | | | 20,062 | | | 12 | | | 0.12 | | |
Total interest-bearing deposits | Total interest-bearing deposits | 923,869 | | | 754 | | | 0.11 | | | 937,995 | | | 303 | | | 0.04 | | | Total interest-bearing deposits | 928,602 | | | 6,566 | | | 1.43 | | | 934,873 | | | 241 | | | 0.05 | | |
Short-term borrowings: | Short-term borrowings: | | | | | | Short-term borrowings: | | | | | |
Federal funds purchased and securities sold under agreements to repurchase | Federal funds purchased and securities sold under agreements to repurchase | 22,910 | | | 152 | | | 0.89 | | | 38,736 | | | 10 | | | 0.03 | | | Federal funds purchased and securities sold under agreements to repurchase | 52,977 | | | 1,227 | | | 4.67 | | | 21,518 | | | 30 | | | 0.28 | | |
Other short-term borrowings | Other short-term borrowings | 13,046 | | | 23 | | | 0.24 | | | 11,703 | | | (37) | | | (0.43) | | | Other short-term borrowings | 17,868 | | | 304 | | | 3.43 | | | 12,664 | | | (13) | | | (0.21) | | |
Total short-term borrowings | Total short-term borrowings | 35,956 | | | 175 | | | 0.65 | | | 50,439 | | | (27) | | | (0.07) | | | Total short-term borrowings | 70,845 | | | 1,531 | | | 4.36 | | | 34,182 | | | 17 | | | 0.10 | | |
Long-term debt | Long-term debt | 154,691 | | | 3,325 | | | 2.87 | | | 184,608 | | | 2,483 | | | 1.79 | | | Long-term debt | 171,700 | | | 5,204 | | | 6.07 | | | 152,509 | | | 1,772 | | | 2.32 | | |
Other liabilities | Other liabilities | 34,317 | | | 460 | | | 1.79 | | | 28,999 | | | 298 | | | 1.37 | | | Other liabilities | 33,964 | | | 386 | | | 2.29 | | | 33,350 | | | 288 | | | 1.74 | | |
Total interest-bearing liabilities | Total interest-bearing liabilities | $ | 1,148,833 | | | 4,714 | | | 0.55 | % | | $ | 1,202,041 | | | 3,057 | | | 0.34 | % | | Total interest-bearing liabilities | $ | 1,205,111 | | | 13,687 | | | 2.28 | % | | $ | 1,154,914 | | | 2,318 | | | 0.40 | % | |
Noninterest-bearing demand deposits | Noninterest-bearing demand deposits | 515,164 | | | — | | | 488,961 | | | — | | | | Noninterest-bearing demand deposits | 423,444 | | | — | | | 520,009 | | | — | | | |
Other noninterest-bearing liabilities | Other noninterest-bearing liabilities | 53,295 | | | — | | | 59,010 | | | — | | | | Other noninterest-bearing liabilities | 58,079 | | | — | | | 52,508 | | | — | | | |
Total noninterest-bearing liabilities | Total noninterest-bearing liabilities | $ | 568,459 | | | — | | | 547,971 | | | — | | | | Total noninterest-bearing liabilities | $ | 481,523 | | | — | | | 572,517 | | | — | | | |
Total liabilities | Total liabilities | $ | 1,717,292 | | | 4,714 | | | 1,750,012 | | | 3,057 | | | | Total liabilities | $ | 1,686,634 | | | 13,687 | | | 1,727,431 | | | 2,318 | | | |
Total equity | Total equity | 183,451 | | | — | | | 191,379 | | | — | | | | Total equity | 184,371 | | | — | | | 183,507 | | | — | | | |
Total liabilities and equity | Total liabilities and equity | $ | 1,900,743 | | | 4,714 | | | 1,941,391 | | | 3,057 | | | | Total liabilities and equity | $ | 1,871,005 | | | 13,687 | | | 1,910,938 | | | 2,318 | | | |
| Interest rate spread on a taxable-equivalent basis (3) | Interest rate spread on a taxable-equivalent basis (3) | | 2.27 | % | | 1.93 | % | | Interest rate spread on a taxable-equivalent basis (3) | | 2.47 | % | | 2.14 | % | |
Net interest margin and net interest income on a taxable-equivalent basis (3) | Net interest margin and net interest income on a taxable-equivalent basis (3) | | $ | 31,837 | | | 2.46 | % | | $ | 26,838 | | | 2.03 | % | | Net interest margin and net interest income on a taxable-equivalent basis (3) | | $ | 26,711 | | | 3.14 | % | | $ | 19,634 | | | 2.27 | % | |
(1)The average balance amounts represent amortized costs, except for certain held-to-maturity (HTM) debt securities, which exclude unamortized basis adjustments related to the transfer of those securities from available-for-sale (AFS) debt securities. 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)Nonaccrual loans and any related income are included in their respective loan categories.
(3)Includes taxable-equivalent adjustments of $105 million and $108 million for boththe quarters ended SeptemberJune 30, 2023 and 2022, respectively, and 2021, and $320$212 million and $321$215 million for the first nine monthshalf of 20222023 and 2021,2022, respectively, predominantly related to tax-exempt income on certain loans and securities.
Noninterest Income
Table 2: Noninterest Income
| | | | Quarter ended Sep 30, | | Nine months ended Sep 30, | | | | Quarter ended June 30, | | Six months ended June 30, | | |
(in millions) | (in millions) | 2022 | | 2021 | | $ Change | | % Change | | 2022 | | 2021 | | $ Change | | % Change | | (in millions) | 2023 | | 2022 | | $ Change | | % Change | | 2023 | | 2022 | | $ Change | | % Change | |
Deposit-related fees | Deposit-related fees | $ | 1,289 | | | 1,416 | | | (127) | | | (9) | % | | $ | 4,138 | | | 4,013 | | | 125 | | | 3 | % | | Deposit-related fees | $ | 1,165 | | | 1,376 | | | (211) | | | (15) | % | | $ | 2,313 | | | 2,849 | | | (536) | | | (19) | % | |
Lending-related fees | Lending-related fees | 358 | | | 365 | | | (7) | | | (2) | | | 1,053 | | | 1,088 | | | (35) | | | (3) | | | Lending-related fees | 352 | | | 353 | | | (1) | | | — | | | 708 | | | 695 | | | 13 | | | 2 | | |
Investment advisory and other asset-based fees | Investment advisory and other asset-based fees | 2,111�� | | | 2,882 | | | (771) | | | (27) | | | 6,955 | | | 8,432 | | | (1,477) | | | (18) | | | Investment advisory and other asset-based fees | 2,163 | | | 2,346 | | | (183) | | | (8) | | | 4,277 | | | 4,844 | | | (567) | | | (12) | | |
Commissions and brokerage services fees | Commissions and brokerage services fees | 562 | | | 525 | | | 37 | | | 7 | | | 1,641 | | | 1,741 | | | (100) | | | (6) | | | Commissions and brokerage services fees | 570 | | | 542 | | | 28 | | | 5 | | | 1,189 | | | 1,079 | | | 110 | | | 10 | | |
Investment banking fees | Investment banking fees | 375 | | | 547 | | | (172) | | | (31) | | | 1,108 | | | 1,685 | | | (577) | | | (34) | | | Investment banking fees | 376 | | | 286 | | | 90 | | | 31 | | | 702 | | | 733 | | | (31) | | | (4) | | |
Card fees | Card fees | 1,119 | | | 1,078 | | | 41 | | | 4 | | | 3,260 | | | 3,104 | | | 156 | | | 5 | | | Card fees | 1,098 | | | 1,112 | | | (14) | | | (1) | | | 2,131 | | | 2,141 | | | (10) | | | — | | |
Net servicing income | Net servicing income | 129 | | | 145 | | | (16) | | | (11) | | | 408 | | | 25 | | | 383 | | | NM | | Net servicing income | 100 | | | 125 | | | (25) | | | (20) | | | 212 | | | 279 | | | (67) | | | (24) | | |
Net gains on mortgage loan originations/sales | Net gains on mortgage loan originations/sales | 195 | | | 1,114 | | | (919) | | | (82) | | | 896 | | | 3,896 | | | (3,000) | | | (77) | | | Net gains on mortgage loan originations/sales | 102 | | | 162 | | | (60) | | | (37) | | | 222 | | | 701 | | | (479) | | | (68) | | |
Mortgage banking | Mortgage banking | 324 | | | 1,259 | | | (935) | | | (74) | | | 1,304 | | | 3,921 | | | (2,617) | | | (67) | | | Mortgage banking | 202 | | | 287 | | | (85) | | | (30) | | | 434 | | | 980 | | | (546) | | | (56) | | |
Net gains from trading activities | Net gains from trading activities | 900 | | | 92 | | | 808 | | | 878 | | 1,564 | | | 461 | | | 1,103 | | | 239 | | | Net gains from trading activities | 1,122 | | | 446 | | | 676 | | | 152 | | | 2,464 | | | 664 | | | 1,800 | | | 271 | | |
Net gains from debt securities | Net gains from debt securities | 6 | | | 283 | | | (277) | | | (98) | | 151 | | | 434 | | | (283) | | | (65) | | | Net gains from debt securities | 4 | | | 143 | | | (139) | | | (97) | | | 4 | | | 145 | | | (141) | | | (97) | | |
Net gains (losses) from equity securities | (34) | | | 869 | | | (903) | | | NM | | (73) | | | 3,957 | | | (4,030) | | | NM | | |
Net losses from equity securities | | Net losses from equity securities | (94) | | | (615) | | | 521 | | | 85 | | | (451) | | | (39) | | | (412) | | | NM | |
Lease income | Lease income | 322 | | | 322 | | | — | | | — | | | 982 | | | 950 | | | 32 | | | 3 | | | Lease income | 307 | | | 333 | | | (26) | | | (8) | | | 654 | | | 660 | | | (6) | | | (1) | | |
Other | Other | 75 | | | 287 | | | (212) | | | (74) | | | 525 | | | 1,333 | | | (808) | | | (61) | | | Other | 105 | | | 233 | | | (128) | | | (55) | | | 338 | | | 598 | | | (260) | | | (43) | | |
Total | Total | $ | 7,407 | | | 9,925 | | | (2,518) | | | (25) | | | $ | 22,608 | | | 31,119 | | | (8,511) | | | (27) | | | Total | $ | 7,370 | | | 6,842 | | | 528 | | | 8 | | | $ | 14,763 | | | 15,349 | | | (586) | | | (4) | | |
NM ��– Not meaningfulThirdSecond quarter 20222023 vs. thirdsecond quarter 20212022
Deposit-related fees decreased reflecting:
•our efforts to help customers avoid overdraft fees; and
•lower treasury management fees on commercial accounts driven by a higher earnings credit raterates due to an increase in interest rates; andrates.
•the elimination of non-sufficient funds and other fees.
We have continued to implement our previously announced enhancements and changes to limit consumer overdraft-related fees. We expect this will continue to lower certain deposit-related fees.
Investment advisory and other asset-based fees decreased reflecting:
•lower asset-based and trust fees due to divestitures in fourth quarter 2021; and
•reflecting lower average market valuations.
Fees from the majority of Wealth and Investment Management (WIM) advisory assets are based on a percentage of the market value of the assets at the beginning of the quarter. For additional information on certain client investment assets, see the “Earnings Performance – Operating Segment Results – Wealth and Investment Management – WIM Advisory Assets” section in this Report.
Investment banking fees decreasedincreased due to lower market activity.a $107 million write-down on unfunded leveraged finance commitments in second quarter 2022.
Net servicing income decreased driven by:
•lower servicing fees due to a lower balance of mortgage loans serviced for others;others, including the impact of mortgage servicing right (MSR) sales;
partially offset by:
• a lower decline in residential mortgage servicing rights (MSRs) as a result of reduced prepayment rates, partially offset byhigher income from net unfavorablefavorable hedge results duerelated to interest rate volatility.MSR valuations.
Net gains on mortgage loan originations/sales decreased
driven by:
•due to lower residential mortgage origination volumes and lower gain on sale margins; and
•lower gains related to the resecuritization of loans we purchased from GNMA loan securitization pools.volumes.
For additional information on servicing income and net gains on mortgage loan originations/sales, see Note 96 (Mortgage Banking Activities) to Financial Statements in this Report.
Net gains from trading activities increased reflectingdriven by higher foreign exchange,trading revenue in equities, structured products, credit products, rates, and commodities trading revenue.foreign exchange.
Net gains from debt securities decreased due to lower gains on sales of corporate debtasset-based securities and municipal bonds in our investment portfolio as a result of decreased sales volumes.
Net gains (losses)losses from equity securities decreased reflecting:
•lower impairment of equity securities; and
•higher unrealized gains on marketable equity securities;
partially offset by:
•lower unrealized gains on nonmarketable equity securities driven by our affiliated venture capital and private equity businesses; and
•a $389 million impairment of equity securities (before the impact of noncontrolling interests) in third quarter 2022 primarily in our affiliated venture capital business driven by market conditions;
partially offset by:
•higher realized gains on the sales of equity securities.businesses.
Other income decreased driven by net foreign exchange losses resulting from the revaluation of non-U.S. denominated assets and liabilities.
Earnings Performance (continued)
First nine months of 2022 vs. first nine months of 2021
Deposit-related fees increased reflecting:by:
•lower fee waivers as the first nine months of 2021 included additional accommodationshigher amortization due to support customers;growth in renewable energy investments (offset by benefits and credits in income tax expense); and
•higher overdraftvaluation losses related to the retained litigation risk associated with shares of Visa B common stock that we previously sold.
First half of 2023 vs. first half of 2022
Deposit-related fees driven by increased consumer transaction volumes, partially offset by decreased reflecting:
•the elimination of non-sufficient funds fees and other fees.our efforts to help customers avoid overdraft fees; and
•
We have continuedlower fees on commercial accounts driven by higher earnings credit rates due to implement our previously announced enhancements and changes to limit consumer overdraft-related fees. We expect this will continue to lower certain deposit-related fees.an increase in interest rates.
Investment advisory and other asset-based fees decreased reflecting:
•lower asset-based and trust fees due to divestitures in fourth quarter 2021; and
•reflecting lower average market valuations.
Fees from the majority of WIM advisory assets are based on a percentage of the market value of the assets at the beginning of the quarter. For additional information on certain client investment assets, see the “Earnings Performance – Operating Segment Results – Wealth and Investment Management – WIM Advisory Assets” section in this Report.
Commissions and brokerage services fees decreased driven by lower transactional revenue.increased due to higher service fee rates.
Investment banking feesEarnings Performance decreased due to lower market activity, as well as a $107 million write-down on unfunded leveraged finance commitments in second quarter 2022 due to the widening of market spreads.(continued)
Card fees increased reflecting higher incentives and higher interchange fees, net of rewards, driven by increased purchase and transaction volumes.
Net servicing income increaseddecreased driven byby:
•lower servicing fees due to a lower decline in residential MSRs as a resultbalance of reduced prepayment rates, mortgage loans serviced for others, including the impact of MSR sales;
partially offset byby:
•higher income from net unfavorablefavorable hedge results duerelated to interest rate volatility.MSR valuations.
Net gains on mortgage loan originations/sales decreased
driven by:
•lower residential mortgage origination volumes and lower gain on sale margins;volumes; and
•lower gains related to the resecuritization of loans we purchased from GNMAGovernment National Mortgage Association (GNMA) loan securitization pools.
For additional information on servicing income and net gains on mortgage loan originations/sales, see Note 96 (Mortgage Banking Activities) to Financial Statements in this Report.
Net gains from trading activities increased driven by:
•by higher commodities, foreign exchange, rates, and equities trading revenue;results across all asset classes.
partially offset by:
•lower trading activity in residential MBS and high yield products.
Net gains from debt securities decreased due to lower gains on sales of corporate debtasset-based securities and agency MBSmunicipal bonds in our investment portfolio as a result of decreased sales volumes.
Net gains (losses)losses from equity securities decreasedincreased reflecting:
•lower unrealized and realized gains on nonmarketable equity securities driven by our affiliated venture capital and private equity businesses; and
•a $1.4 billion impairment of equity securities (before the impact of noncontrolling interests) in the first nine months of 2022 predominantly in our affiliated venture capital business driven by market conditions.
Other income decreased driven by:
•a gain on the sale of our student loan portfolio in the first nine months of 2021;
•net foreign exchange losses resulting from the revaluation of non-U.S. denominated assets and liabilities; and
•higher losses due to growth in wind energy investments (offset by benefits and credits in income tax expense);
partially offset by:
•lower valuation losses related toimpairment of equity securities; and
•higher unrealized gains on marketable equity securities.
Other income decreased driven by the retained litigation riskchange in fair value of liabilities associated with sharesour reinsurance business, which was recognized as a result of Visa Class B common stock that we sold.our adoption of ASU 2018-12 in first quarter 2023. For additional information see the “Risk Management – Asset/Liability Management – Market Risk – Equity Securities” sectionon our adoption of ASU 2018-12, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2021 Form 10-K.this Report.
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) | 2022 | | 2021 | | $ Change | | % Change | | 2022 | | 2021 | | $ Change | | % Change | | (in millions) | 2023 | | 2022 | | $ Change | | % Change | | 2023 | | 2022 | | $ Change | | % Change | |
Personnel | Personnel | $ | 8,212 | | | 8,690 | | | (478) | | | (6) | % | | $ | 25,925 | | | 27,066 | | | (1,141) | | | (4) | % | | Personnel | $ | 8,606 | | | 8,442 | | | 164 | | | 2 | % | | $ | 18,021 | | | 17,713 | | | 308 | | | 2 | % | |
Technology, telecommunications and equipment | Technology, telecommunications and equipment | 798 | | | 741 | | | 57 | | | 8 | | | 2,473 | | | 2,400 | | | 73 | | | 3 | | | Technology, telecommunications and equipment | 947 | | | 799 | | | 148 | | | 19 | | | 1,869 | | | 1,675 | | | 194 | | | 12 | | |
Occupancy | Occupancy | 732 | | | 738 | | | (6) | | | (1) | | | 2,159 | | | 2,243 | | | (84) | | | (4) | | | Occupancy | 707 | | | 705 | | | 2 | | | — | | | 1,420 | | | 1,427 | | | (7) | | | — | | |
Operating losses | Operating losses | 2,218 | | | 540 | | | 1,678 | | | 311 | | | 3,467 | | | 1,056 | | | 2,411 | | | 228 | | | Operating losses | 232 | | | 576 | | | (344) | | | (60) | | | 499 | | | 1,249 | | | (750) | | | (60) | | |
Professional and outside services | Professional and outside services | 1,235 | | | 1,417 | | | (182) | | | (13) | | | 3,831 | | | 4,255 | | | (424) | | | (10) | | | Professional and outside services | 1,304 | | | 1,310 | | | (6) | | | — | | | 2,533 | | | 2,596 | | | (63) | | | (2) | | |
Leases (1) | Leases (1) | 186 | | | 220 | | | (34) | | | (15) | | | 559 | | | 672 | | | (113) | | | (17) | | | Leases (1) | 180 | | | 185 | | | (5) | | | (3) | | | 357 | | | 373 | | | (16) | | | (4) | | |
Advertising and promotion | Advertising and promotion | 126 | | | 153 | | | (27) | | | (18) | | | 327 | | | 375 | | | (48) | | | (13) | | | Advertising and promotion | 184 | | | 102 | | | 82 | | | 80 | | | 338 | | | 201 | | | 137 | | | 68 | | |
Restructuring charges | Restructuring charges | — | | | 1 | | | (1) | | | (100) | | | 5 | | | 10 | | | (5) | | | (50) | | | Restructuring charges | — | | | — | | | — | | | — | | — | | | 5 | | | (5) | | | (100) | | |
Other | Other | 820 | | | 803 | | | 17 | | | 2 | | | 2,334 | | | 2,556 | | | (222) | | | (9) | | | Other | 827 | | | 743 | | | 84 | | | 11 | | | 1,626 | | | 1,474 | | | 152 | | | 10 | | |
Total | Total | $ | 14,327 | | | 13,303 | | | 1,024 | | | 8 | | | $ | 41,080 | | | 40,633 | | | 447 | | | 1 | | | Total | $ | 12,987 | | | 12,862 | | | 125 | | | 1 | | | $ | 26,663 | | | 26,713 | | | (50) | | | — | | |
(1)Represents expenses for assets we lease to customers.
ThirdSecond quarter 20222023 vs. thirdsecond quarter 20212022
Personnel expense decreasedincreased driven by:
•lower revenue-related compensationhigher salaries expense, including higher severance expense; and
partially offset by:
•the impact of divestitures and efficiency initiatives.
Technology, telecommunications and equipment expense increased due to higher expensesexpense for the amortization of internally developed software and higher expense for technology contracts.
Operating losses increaseddecreased driven by $2.0 billion of accruals in third quarter 2022, primarily related to a variety of historical matters, including litigation,lower expense for customer remediation and litigation matters.
As previously disclosed, we have outstanding litigation, regulatory, matters.and customer remediation matters that could impact operating losses in the coming quarters.
Advertising and promotion expense increased due to higher marketing and brand campaign volumes.
We expect outstanding litigation,Other expense increased due to higher Federal Deposit Insurance Corporation (FDIC) deposit assessment expense driven by a higher assessment rate.
First half of 2023 vs. first half of 2022
Personnel expense increased driven by:
•higher salaries expense, including higher severance expense;
partially offset by:
•lower incentive compensation expense; and
•the impact of efficiency initiatives.
Technology, telecommunications and equipment expense increased due to higher expense for the amortization of internally developed software and higher expense for technology contracts.
Operating losses decreased driven by lower expense for customer remediation and litigation matters.
As previously disclosed, we have outstanding litigation, regulatory, and customer remediation matters that could result in significant additional expenseimpact operating losses in the coming quarters.
Professional and outside services expense decreased driven by efficiency initiatives to reduce our spending on consultants and contractors.
First nine months of 2022 vs. first nine months of 2021
Personnel expense decreased driven by:
•the impact of divestituresAdvertising and efficiency initiatives;
•lower revenue-related compensation expense; and
•lower incentive compensationpromotion expense including the impact of lower market valuations on stock-based compensation.
Operating losses increased driven by $2.0 billion of accruals in third quarter 2022, primarily relateddue to a variety of historical matters, including litigation, customer remediation,higher marketing and regulatory matters.
We expect outstanding litigation, customer remediation, and regulatory matters could result in significant additional expense in the coming quarters.
Professional and outside services expense decreased driven by efficiency initiatives to reduce our spending on consultants and contractors.
Leases expense decreased driven by lower depreciation expense from a reduction in the size of our operating lease asset portfolio.brand campaign volumes.
Other expensesexpense decreased driven by:
•lower donation expenseincreased due to higher donationsFDIC deposit assessment expense driven by a higher assessment rate.
We expect our FDIC deposit assessment expense will increase significantly as a result of PPP processing fees in the first nine months of 2021; and
•FDIC's proposed rule to charge a write-down of goodwill in the first nine months of 2021 related to the sale of our student loan portfolio.special assessment.
Income Tax Expense
Table 4: Income Tax Expense
| | | | Quarter ended Sep 30, | | Nine months ended Sep 30, | | | | Quarter ended June 30, | | Six months ended June 30, | | |
(in millions) | (in millions) | 2022 | | 2021 | | $ Change | | % Change | | 2022 | | 2021 | | $ Change | | % Change | | (in millions) | 2023 | | 2022 | | $ Change | | % Change | | 2023 | | 2022 | | $ Change | | % Change | |
Income before income tax expense | Income before income tax expense | $ | 4,394 | | | 6,926 | | | (2,532) | | | (37) | % | | $ | 12,468 | | | 20,706 | | | (8,238) | | | (40) | % | | Income before income tax expense | $ | 5,833 | | | 3,598 | | | 2,235 | | | 62 | % | | $ | 11,679 | | | 8,262 | | | 3,417 | | | 41 | % | |
Income tax expense | Income tax expense | 894 | | | 1,521 | | | (627) | | | (41) | | | 2,214 | | | 3,867 | | | (1,653) | | | (43) | | | Income tax expense | 930 | | | 622 | | | 308 | | | 50 | | | 1,896 | | | 1,368 | | | 528 | | | 39 | | |
Effective Income tax rate | 20.2 | % | | 22.9 | | | 17.7 | % | | 19.7 | | | | |
Effective income tax rate (1) | | Effective income tax rate (1) | 15.8 | % | | 16.5 | | | 16.0 | % | | 16.5 | | | |
(1)Represents Income tax expense (benefit) divided by Income (loss) before income tax expense (benefit) less Net income (loss) from noncontrolling interests.
The effectiveFor additional information on income tax rate for both the third quarter and first nine months oftaxes, see Note 22 (Income Taxes) to Financial Statements in our 2022 compared with the same periods a year ago, decreased due to the impact of certain tax credits and benefits on lower pre-tax income.Form 10-K.
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 have been included in Corporate. For additional information, see Table 5. We define our reportable operating segments by type of product 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 bywith our Chief Executive Officer and Operating Committee.relevant senior management. The management reporting process is based on U.S. GAAP and includes specific adjustments, such as funds transfer pricing for asset/liability management, shared revenuesrevenue and expenses, and taxable-equivalent adjustments to consistently reflect income from taxable and tax-exempt sources, which allows management to assess performance consistently across the operating segments.
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. Effective January 1, 2023, management modified its capital allocation methodology to improve alignment of allocated capital with the binding regulatory constraints of the Company. 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 5: 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 6 and the following discussion present our results by reportable operating segment. For additional information, see Note 2216 (Operating Segments) to Financial Statements in this Report.
Table 6: Operating Segment Results – Highlights
| | (in millions) | (in millions) | Consumer Banking and Lending | | Commercial Banking | | Corporate and Investment Banking | | Wealth and Investment Management | | Corporate (1) | | Reconciling Items (2) | | Consolidated Company | (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 September 30, 2022 | | |
Quarter ended June 30, 2023 | | Quarter ended June 30, 2023 | |
Net interest income | | Net interest income | $ | 7,490 | | | 2,501 | | | 2,359 | | | 1,009 | | | (91) | | | (105) | | | 13,163 | |
Noninterest income | | Noninterest income | 1,965 | | | 868 | | | 2,272 | | | 2,639 | | | 121 | | | (495) | | | 7,370 | |
Total revenue | | Total revenue | 9,455 | | | 3,369 | | | 4,631 | | | 3,648 | | | 30 | | | (600) | | | 20,533 | |
Provision for credit losses | | Provision for credit losses | 874 | | | 26 | | | 933 | | | 24 | | | (144) | | | — | | | 1,713 | |
Noninterest expense | | Noninterest expense | 6,027 | | | 1,630 | | | 2,087 | | | 2,974 | | | 269 | | | — | | | 12,987 | |
Income (loss) before income tax expense (benefit) | | Income (loss) before income tax expense (benefit) | 2,554 | | | 1,713 | | | 1,611 | | | 650 | | | (95) | | | (600) | | | 5,833 | |
Income tax expense (benefit) | | Income tax expense (benefit) | 640 | | | 429 | | | 401 | | | 163 | | | (103) | | | (600) | | | 930 | |
Net income before noncontrolling interests | | Net income before noncontrolling interests | 1,914 | | | 1,284 | | | 1,210 | | | 487 | | | 8 | | | — | | | 4,903 | |
Less: Net income (loss) from noncontrolling interests | | Less: Net income (loss) from noncontrolling interests | — | | | 3 | | | — | | | — | | | (38) | | | — | | | (35) | |
Net income | | Net income | $ | 1,914 | | | 1,281 | | | 1,210 | | | 487 | | | 46 | | | — | | | 4,938 | |
Quarter ended June 30, 2022 | | Quarter ended June 30, 2022 | |
Net interest income | Net interest income | $ | 7,102 | | | 1,991 | | | 2,270 | | | 1,088 | | | (248) | | | (105) | | | 12,098 | | Net interest income | $ | 6,372 | | | 1,580 | | | 2,057 | | | 916 | | | (619) | | | (108) | | | 10,198 | |
Noninterest income | Noninterest income | 2,175 | | | 961 | | | 1,790 | | | 2,577 | | | 284 | | | (380) | | | 7,407 | | Noninterest income | 2,135 | | | 912 | | | 1,516 | | | 2,789 | | | (102) | | | (408) | | | 6,842 | |
Total revenue | Total revenue | 9,277 | | | 2,952 | | | 4,060 | | | 3,665 | | | 36 | | | (485) | | | 19,505 | | Total revenue | 8,507 | | | 2,492 | | | 3,573 | | | 3,705 | | | (721) | | | (516) | | | 17,040 | |
Provision for credit losses | Provision for credit losses | 917 | | | (168) | | | 32 | | | 8 | | | (5) | | | — | | | 784 | | Provision for credit losses | 613 | | | 21 | | | (62) | | | (7) | | | 15 | | | — | | | 580 | |
Noninterest expense | Noninterest expense | 6,758 | | | 1,526 | | | 1,900 | | | 2,796 | | | 1,347 | | | — | | | 14,327 | | Noninterest expense | 6,036 | | | 1,478 | | | 1,840 | | | 2,911 | | | 597 | | | — | | | 12,862 | |
Income (loss) before income tax expense (benefit) | Income (loss) before income tax expense (benefit) | 1,602 | | | 1,594 | | | 2,128 | | | 861 | | | (1,306) | | | (485) | | | 4,394 | | Income (loss) before income tax expense (benefit) | 1,858 | | | 993 | | | 1,795 | | | 801 | | | (1,333) | | | (516) | | | 3,598 | |
Income tax expense (benefit) | Income tax expense (benefit) | 401 | | | 409 | | | 536 | | | 222 | | | (189) | | | (485) | | | 894 | | Income tax expense (benefit) | 465 | | | 249 | | | 459 | | | 198 | | | (233) | | | (516) | | | 622 | |
Net income (loss) before noncontrolling interests | Net income (loss) before noncontrolling interests | 1,201 | | | 1,185 | | | 1,592 | | | 639 | | | (1,117) | | | — | | | 3,500 | | Net income (loss) before noncontrolling interests | 1,393 | | | 744 | | | 1,336 | | | 603 | | | (1,100) | | | — | | | 2,976 | |
Less: Net income (loss) from noncontrolling interests | Less: Net income (loss) from noncontrolling interests | — | | | 3 | | | — | | | — | | | (31) | | | — | | | (28) | | Less: Net income (loss) from noncontrolling interests | — | | | 3 | | | — | | | — | | | (169) | | | — | | | (166) | |
Net income (loss) | Net income (loss) | $ | 1,201 | | | 1,182 | | | 1,592 | | | 639 | | | (1,086) | | | — | | | 3,528 | | Net income (loss) | $ | 1,393 | | | 741 | | | 1,336 | | | 603 | | | (931) | | | — | | | 3,142 | |
Quarter ended September 30, 2021 | | |
Net interest income | $ | 5,707 | | | 1,231 | | | 1,866 | | | 637 | | | (427) | | | (105) | | | 8,909 | | |
Noninterest income | 3,097 | | | 845 | | | 1,519 | | | 2,981 | | | 1,752 | | | (269) | | | 9,925 | | |
Total revenue | 8,804 | | | 2,076 | | | 3,385 | | | 3,618 | | | 1,325 | | | (374) | | | 18,834 | | |
Provision for credit losses | (518) | | | (335) | | | (460) | | | (73) | | | (9) | | | — | | | (1,395) | | |
Noninterest expense | 6,053 | | | 1,396 | | | 1,797 | | | 2,917 | | | 1,140 | | | — | | | 13,303 | | |
Income (loss) before income tax expense (benefit) | 3,269 | | | 1,015 | | | 2,048 | | | 774 | | | 194 | | | (374) | | | 6,926 | | |
Income tax expense (benefit) | 818 | | | 254 | | | 518 | | | 195 | | | 110 | | | (374) | | | 1,521 | | |
Net income before noncontrolling interests | 2,451 | | | 761 | | | 1,530 | | | 579 | | | 84 | | | — | | | 5,405 | | |
Less: Net income from noncontrolling interests | — | | | 2 | | | — | | | — | | | 281 | | | — | | | 283 | | |
Net income (loss) | $ | 2,451 | | | 759 | | | 1,530 | | | 579 | | | (197) | | | — | | | 5,122 | | |
| Nine months ended September 30, 2022 | | |
Six months ended June 30, 2023 | | Six months ended June 30, 2023 | |
Net interest income | Net interest income | $ | 19,470 | | | 4,932 | | | 6,317 | | | 2,803 | | | (1,685) | | | (320) | | | 31,517 | | Net interest income | $ | 14,923 | | | 4,990 | | | 4,820 | | | 2,053 | | | (75) | | | (212) | | | 26,499 | |
Noninterest income | Noninterest income | 6,877 | | | 2,839 | | | 4,786 | | | 8,324 | | | 976 | | | (1,194) | | | 22,608 | | Noninterest income | 3,896 | | | 1,686 | | | 4,713 | | | 5,276 | | | 126 | | | (934) | | | 14,763 | |
Total revenue | Total revenue | 26,347 | | | 7,771 | | | 11,103 | | | 11,127 | | | (709) | | | (1,514) | | | 54,125 | | Total revenue | 18,819 | | | 6,676 | | | 9,533 | | | 7,329 | | | 51 | | | (1,146) | | | 41,262 | |
Provision for credit losses | Provision for credit losses | 1,340 | | | (491) | | | (226) | | | (36) | | | (10) | | | — | | | 577 | | Provision for credit losses | 1,741 | | | (17) | | | 1,185 | | | 35 | | | (24) | | | — | | | 2,920 | |
Noninterest expense | Noninterest expense | 19,189 | | | 4,535 | | | 5,723 | | | 8,882 | | | 2,751 | | | — | | | 41,080 | | Noninterest expense | 12,065 | | | 3,382 | | | 4,304 | | | 6,035 | | | 877 | | | — | | | 26,663 | |
Income (loss) before income tax expense (benefit) | Income (loss) before income tax expense (benefit) | 5,818 | | | 3,727 | | | 5,606 | | | 2,281 | | | (3,450) | | | (1,514) | | | 12,468 | | Income (loss) before income tax expense (benefit) | 5,013 | | | 3,311 | | | 4,044 | | | 1,259 | | | (802) | | | (1,146) | | | 11,679 | |
Income tax expense (benefit) | Income tax expense (benefit) | 1,454 | | | 938 | | | 1,420 | | | 574 | | | (658) | | | (1,514) | | | 2,214 | | Income tax expense (benefit) | 1,258 | | | 828 | | | 1,016 | | | 315 | | | (375) | | | (1,146) | | | 1,896 | |
Net income (loss) before noncontrolling interests | Net income (loss) before noncontrolling interests | 4,364 | | | 2,789 | | | 4,186 | | | 1,707 | | | (2,792) | | | — | | | 10,254 | | Net income (loss) before noncontrolling interests | 3,755 | | | 2,483 | | | 3,028 | | | 944 | | | (427) | | | — | | | 9,783 | |
Less: Net income (loss) from noncontrolling interests | Less: Net income (loss) from noncontrolling interests | — | | | 9 | | | — | | | — | | | (73) | | | — | | | (64) | | Less: Net income (loss) from noncontrolling interests | — | | | 6 | | | — | | | — | | | (152) | | | — | | | (146) | |
Net income (loss) | Net income (loss) | $ | 4,364 | | | 2,780 | | | 4,186 | | | 1,707 | | | (2,719) | | | — | | | 10,318 | | Net income (loss) | $ | 3,755 | | | 2,477 | | | 3,028 | | | 944 | | | (275) | | | — | | | 9,929 | |
Nine months ended September 30, 2021 | | |
Six months ended June 30, 2022 | | Six months ended June 30, 2022 | |
Net interest income | Net interest income | $ | 16,940 | | | 3,687 | | | 5,428 | | | 1,904 | | | (1,121) | | | (321) | | | 26,517 | | Net interest income | $ | 12,368 | | | 2,941 | | | 4,047 | | | 1,715 | | | (1,437) | | | (215) | | | 19,419 | |
Noninterest income | Noninterest income | 9,204 | | | 2,578 | | | 4,899 | | | 8,794 | | | 6,496 | | | (852) | | | 31,119 | | Noninterest income | 4,702 | | | 1,878 | | | 2,996 | | | 5,747 | | | 840 | | | (814) | | | 15,349 | |
Total revenue | Total revenue | 26,144 | | | 6,265 | | | 10,327 | | | 10,698 | | | 5,375 | | | (1,173) | | | 57,636 | | Total revenue | 17,070 | | | 4,819 | | | 7,043 | | | 7,462 | | | (597) | | | (1,029) | | | 34,768 | |
Provision for credit losses | Provision for credit losses | (1,304) | | | (1,116) | | | (1,245) | | | (92) | | | 54 | | | — | | | (3,703) | | Provision for credit losses | 423 | | | (323) | | | (258) | | | (44) | | | (5) | | | — | | | (207) | |
Noninterest expense | Noninterest expense | 18,522 | | | 4,469 | | | 5,435 | | | 8,836 | | | 3,371 | | | — | | | 40,633 | | Noninterest expense | 12,431 | | | 3,009 | | | 3,823 | | | 6,086 | | | 1,364 | | | — | | | 26,713 | |
Income (loss) before income tax expense (benefit) | Income (loss) before income tax expense (benefit) | 8,926 | | | 2,912 | | | 6,137 | | | 1,954 | | | 1,950 | | | (1,173) | | | 20,706 | | Income (loss) before income tax expense (benefit) | 4,216 | | | 2,133 | | | 3,478 | | | 1,420 | | | (1,956) | | | (1,029) | | | 8,262 | |
Income tax expense (benefit) | Income tax expense (benefit) | 2,233 | | | 727 | | | 1,531 | | | 491 | | | 58 | | | (1,173) | | | 3,867 | | Income tax expense (benefit) | 1,053 | | | 529 | | | 884 | | | 352 | | | (421) | | | (1,029) | | | 1,368 | |
Net income before noncontrolling interests | 6,693 | | | 2,185 | | | 4,606 | | | 1,463 | | | 1,892 | | | — | | | 16,839 | | |
Net income (loss) before noncontrolling interests | | Net income (loss) before noncontrolling interests | 3,163 | | | 1,604 | | | 2,594 | | | 1,068 | | | (1,535) | | | — | | | 6,894 | |
Less: Net income (loss) from noncontrolling interests | Less: Net income (loss) from noncontrolling interests | — | | | 5 | | | (2) | | | — | | | 1,038 | | | — | | | 1,041 | | Less: Net income (loss) from noncontrolling interests | — | | | 6 | | | — | | | — | | | (42) | | | — | | | (36) | |
Net income | $ | 6,693 | | | 2,180 | | | 4,608 | | | 1,463 | | | 854 | | | — | | | 15,798 | | |
Net income (loss) | | Net income (loss) | $ | 3,163 | | | 1,598 | | | 2,594 | | | 1,068 | | | (1,493) | | | — | | | 6,930 | |
|
(1)All other business activities that are not included in the reportable operating segments have been included in Corporate. For additional information, see the “Corporate” section below.
(2)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.
Earnings Performance (continued)
Consumer Banking and Lending offers diversified financial products and services for consumers and small businesses with annual sales generally up to $10 million. These financial products and services include checking and savings accounts, credit and
debit cards as well as home, auto, personal, and small business lending. Table 6a and Table 6b provide additional information for Consumer Banking and Lending.
Table 6a: Consumer Banking and Lending – Income Statement and Selected Metrics | | | Quarter ended Sep 30, | | Nine months ended Sep 30, | | | | Quarter ended June 30, | | Six months ended June 30, | | |
($ in millions, unless otherwise noted) | ($ in millions, unless otherwise noted) | 2022 | | 2021 | | $ Change | | % Change | | 2022 | | 2021 | | $ Change | | % Change | | ($ in millions, unless otherwise noted) | 2023 | | 2022 | | $ Change | | % Change | | 2023 | | 2022 | | $ Change | | % Change | |
Income Statement | Income Statement | | | Income Statement | | |
Net interest income | Net interest income | $ | 7,102 | | | 5,707 | | | 1,395 | | | 24 | % | | $ | 19,470 | | | 16,940 | | | 2,530 | | | 15 | % | | Net interest income | $ | 7,490 | | | 6,372 | | | 1,118 | | | 18 | % | | $ | 14,923 | | | 12,368 | | | 2,555 | | | 21 | % | |
Noninterest income: | Noninterest income: | | | Noninterest income: | | |
Deposit-related fees | Deposit-related fees | 773 | | | 799 | | | (26) | | | (3) | | | 2,397 | | | 2,192 | | | 205 | | | 9 | | | Deposit-related fees | 666 | | | 779 | | | (113) | | | (15) | | | 1,338 | | | 1,624 | | | (286) | | | (18) | | |
Card fees | Card fees | 1,043 | | | 1,014 | | | 29 | | | 3 | | | 3,042 | | | 2,923 | | | 119 | | | 4 | | | Card fees | 1,022 | | | 1,038 | | | (16) | | | (2) | | | 1,980 | | | 1,999 | | | (19) | | | (1) | | |
Mortgage banking | Mortgage banking | 212 | | | 1,168 | | | (956) | | | (82) | | | 1,077 | | | 3,585 | | | (2,508) | | | (70) | | | Mortgage banking | 132 | | | 211 | | | (79) | | | (37) | | | 292 | | | 865 | | | (573) | | | (66) | | |
Other | Other | 147 | | | 116 | | | 31 | | | 27 | | | 361 | | | 504 | | | (143) | | | (28) | | | Other | 145 | | | 107 | | | 38 | | | 36 | | | 286 | | | 214 | | | 72 | | | 34 | | |
Total noninterest income | Total noninterest income | 2,175 | | | 3,097 | | | (922) | | | (30) | | | 6,877 | | | 9,204 | | | (2,327) | | | (25) | | | Total noninterest income | 1,965 | | | 2,135 | | | (170) | | | (8) | | | 3,896 | | | 4,702 | | | (806) | | | (17) | | |
Total revenue | Total revenue | 9,277 | | | 8,804 | | | 473 | | | 5 | | | 26,347 | | | 26,144 | | | 203 | | | 1 | | | Total revenue | 9,455 | | | 8,507 | | | 948 | | | 11 | | | 18,819 | | | 17,070 | | | 1,749 | | | 10 | | |
Net charge-offs | Net charge-offs | 435 | | | 302 | | | 133 | | | 44 | | | 1,168 | | | 1,031 | | | 137 | | | 13 | | | Net charge-offs | 621 | | | 358 | | | 263 | | | 73 | | | 1,210 | | | 733 | | | 477 | | | 65 | | |
Change in the allowance for credit losses | Change in the allowance for credit losses | 482 | | | (820) | | | 1,302 | | | 159 | | | 172 | | | (2,335) | | | 2,507 | | | 107 | | | Change in the allowance for credit losses | 253 | | | 255 | | | (2) | | | (1) | | | 531 | | | (310) | | | 841 | | | 271 | | |
Provision for credit losses | Provision for credit losses | 917 | | | (518) | | | 1,435 | | | 277 | | | 1,340 | | | (1,304) | | | 2,644 | | | 203 | | | Provision for credit losses | 874 | | | 613 | | | 261 | | | 43 | | | 1,741 | | | 423 | | | 1,318 | | | 312 | | |
Noninterest expense | Noninterest expense | 6,758 | | | 6,053 | | | 705 | | | 12 | | | 19,189 | | | 18,522 | | | 667 | | | 4 | | | Noninterest expense | 6,027 | | | 6,036 | | | (9) | | | — | | | 12,065 | | | 12,431 | | | (366) | | | (3) | | |
Income before income tax expense | Income before income tax expense | 1,602 | | | 3,269 | | | (1,667) | | | (51) | | | 5,818 | | | 8,926 | | | (3,108) | | | (35) | | | Income before income tax expense | 2,554 | | | 1,858 | | | 696 | | | 37 | | | 5,013 | | | 4,216 | | | 797 | | | 19 | | |
Income tax expense | Income tax expense | 401 | | | 818 | | | (417) | | | (51) | | | 1,454 | | | 2,233 | | | (779) | | | (35) | | | Income tax expense | 640 | | | 465 | | | 175 | | | 38 | | | 1,258 | | | 1,053 | | | 205 | | | 19 | | |
Net income | Net income | $ | 1,201 | | | 2,451 | | | (1,250) | | | (51) | | | $ | 4,364 | | | 6,693 | | | (2,329) | | | (35) | | | Net income | $ | 1,914 | | | 1,393 | | | 521 | | | 37 | | | $ | 3,755 | | | 3,163 | | | 592 | | | 19 | | |
Revenue by Line of Business | Revenue by Line of Business | | | | | | Revenue by Line of Business | | | | | |
Consumer and Small Business Banking | Consumer and Small Business Banking | $ | 6,232 | | | 4,822 | | | 1,410 | | | 29 | | | $ | 16,813 | | | 14,086 | | | 2,727 | | | 19 | | | Consumer and Small Business Banking | $ | 6,576 | | | 5,510 | | | 1,066 | | | 19 | | | $ | 13,062 | | | 10,581 | | | 2,481 | | | 23 | | |
Consumer Lending: | Consumer Lending: | | | Consumer Lending: | | |
Home Lending | Home Lending | 973 | | | 2,012 | | | (1,039) | | | (52) | | | 3,435 | | | 6,311 | | | (2,876) | | | (46) | | | Home Lending | 847 | | | 972 | | | (125) | | | (13) | | | 1,710 | | | 2,462 | | | (752) | | | (31) | | |
Credit Card | Credit Card | 1,349 | | | 1,251 | | | 98 | | | 8 | | | 3,918 | | | 3,657 | | | 261 | | | 7 | | | Credit Card | 1,321 | | | 1,304 | | | 17 | | | 1 | | | 2,626 | | | 2,569 | | | 57 | | | 2 | | |
Auto | Auto | 423 | | | 445 | | | (22) | | | (5) | | | 1,303 | | | 1,263 | | | 40 | | | 3 | | | Auto | 378 | | | 436 | | | (58) | | | (13) | | | 770 | | | 880 | | | (110) | | | (13) | | |
Personal Lending | Personal Lending | 300 | | | 274 | | | 26 | | | 9 | | | 878 | | | 827 | | | 51 | | | 6 | | | Personal Lending | 333 | | | 285 | | | 48 | | | 17 | | | 651 | | | 578 | | | 73 | | | 13 | | |
Total revenue | Total revenue | $ | 9,277 | | | 8,804 | | | 473 | | | 5 | | | $ | 26,347 | | | 26,144 | | | 203 | | | 1 | | | Total revenue | $ | 9,455 | | | 8,507 | | | 948 | | | 11 | | | $ | 18,819 | | | 17,070 | | | 1,749 | | | 10 | | |
| Selected Metrics | Selected Metrics | | | Selected Metrics | | |
Consumer Banking and Lending: | Consumer Banking and Lending: | | | Consumer Banking and Lending: | | |
Return on allocated capital (1) | Return on allocated capital (1) | 9.4 | % | | 19.7 | | | 11.6 | % | | 18.1 | | | | Return on allocated capital (1) | 16.9 | % | | 11.1 | | | 16.7 | % | | 12.7 | | | |
Efficiency ratio (2) | Efficiency ratio (2) | 73 | | | 69 | | | 73 | | | 71 | | | | Efficiency ratio (2) | 64 | | | 71 | | | 64 | | | 73 | | | |
| Retail bank branches (#) | Retail bank branches (#) | 4,612 | | | 4,796 | | | (4) | | | 4,612 | | | 4,796 | | | (4) | | | Retail bank branches (#) | 4,455 | | | 4,660 | | | (4) | | | 4,455 | | | 4,660 | | | (4) | | |
Digital active customers (# in millions) (3) | Digital active customers (# in millions) (3) | 33.6 | | | 32.7 | | | 3 | | | 33.6 | | | 32.7 | | | 3 | | | Digital active customers (# in millions) (3) | 34.2 | | | 33.4 | | | 2 | | | 34.2 | | | 33.4 | | | 2 | | |
Mobile active customers (# in millions) (3) | Mobile active customers (# in millions) (3) | 28.3 | | | 27.0 | | | 5 | | | 28.3 | | | 27.0 | | | 5 | | | Mobile active customers (# in millions) (3) | 29.1 | | | 28.0 | | | 4 | | | 29.1 | | | 28.0 | | | 4 | | |
| Consumer and Small Business Banking: | Consumer and Small Business Banking: | | | Consumer and Small Business Banking: | | |
Deposit spread (4) | Deposit spread (4) | 2.1 | % | | 1.5 | | | 1.8 | % | | 1.5 | | | | Deposit spread (4) | 2.6 | % | | 1.7 | | | 2.6 | % | | 1.7 | | | |
Debit card purchase volume ($ in billions) (5) | Debit card purchase volume ($ in billions) (5) | $ | 122.4 | | | 118.6 | | | 3.8 | | | 3 | | | $ | 362.6 | | | 349.1 | | | 13.5 | | | 4 | | | Debit card purchase volume ($ in billions) (5) | $ | 124.9 | | | 125.2 | | | (0.3) | | | — | | | $ | 242.2 | | | 240.2 | | | 2.0 | | | 1 | | |
Debit card purchase transactions (# in millions) (5) | Debit card purchase transactions (# in millions) (5) | 2,501 | | | 2,515 | | | (1) | | | 7,356 | | | 7,285 | | | 1 | | | Debit card purchase transactions (# in millions) (5) | 2,535 | | | 2,517 | | | 1 | | | 4,904 | | | 4,855 | | | 1 | | |
(continued on following page)
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| | | Quarter ended Sep 30, | | Nine months ended Sep 30, | | | | Quarter ended June 30, | | Six months ended June 30, | | |
($ in millions, unless otherwise noted) | ($ in millions, unless otherwise noted) | 2022 | | 2021 | | $ Change | | % Change | | 2022 | | 2021 | | $ Change | | % Change | | ($ in millions, unless otherwise noted) | 2023 | | 2022 | | $ Change | | % Change | | 2023 | | 2022 | | $ Change | | % Change | |
Home Lending: | Home Lending: | | | Home Lending: | | |
Mortgage banking: | Mortgage banking: | | | Mortgage banking: | | |
Net servicing income | Net servicing income | $ | 81 | | | 109 | | | (28) | | | (26) | % | | $ | 274 | | | (90) | | | 364 | | | 404 | % | | Net servicing income | $ | 62 | | | 77 | | | (15) | | | (19) | % | | $ | 146 | | | 193 | | | (47) | | | (24) | % | |
Net gains on mortgage loan originations/sales | Net gains on mortgage loan originations/sales | 131 | | | 1,059 | | | (928) | | | (88) | | | 803 | | | 3,675 | | | (2,872) | | | (78) | | | Net gains on mortgage loan originations/sales | 70 | | | 134 | | | (64) | | | (48) | | | 146 | | | 672 | | | (526) | | | (78) | | |
Total mortgage banking | Total mortgage banking | $ | 212 | | | 1,168 | | | (956) | | | (82) | | | $ | 1,077 | | | 3,585 | | | (2,508) | | | (70) | | | Total mortgage banking | $ | 132 | | | 211 | | | (79) | | | (37) | | | $ | 292 | | | 865 | | | (573) | | | (66) | | |
| Originations ($ in billions): | Originations ($ in billions): | | | Originations ($ in billions): | | |
Retail | Retail | $ | 12.4 | | | 35.2 | | | (22.8) | | | (65) | | | $ | 56.1 | | | 105.7 | | | (49.6) | | | (47) | | | Retail | $ | 7.7 | | | 19.6 | | | (11.9) | | | (61) | | | $ | 13.3 | | | 43.7 | | | (30.4) | | | (70) | | |
Correspondent | Correspondent | 9.1 | | | 16.7 | | | (7.6) | | | (46) | | | 37.4 | | | 51.2 | | | (13.8) | | | (27) | | | Correspondent | 0.1 | | | 14.5 | | | (14.4) | | | (99) | | | 1.1 | | | 28.3 | | | (27.2) | | | (96) | | |
Total originations | Total originations | $ | 21.5 | | | 51.9 | | | (30.4) | | | (59) | | | $ | 93.5 | | | 156.9 | | | (63.4) | | | (40) | | | Total originations | $ | 7.8 | | | 34.1 | | | (26.3) | | | (77) | | | $ | 14.4 | | | 72.0 | | | (57.6) | | | (80) | | |
| % of originations held for sale (HFS) | % of originations held for sale (HFS) | 59.2 | % | | 60.6 | | | 51.2 | % | | 67.3 | | | | % of originations held for sale (HFS) | 45.3 | % | | 46.1 | | | 46.0 | % | | 48.9 | | | |
Third-party mortgage loans serviced (period-end) ($ in billions) (6) | Third-party mortgage loans serviced (period-end) ($ in billions) (6) | $ | 687.4 | | | 739.5 | | | (52.1) | | | (7) | | | $ | 687.4 | | | 739.5 | | | (52.1) | | | (7) | | | Third-party mortgage loans serviced (period-end) ($ in billions) (6) | $ | 609.1 | | | 696.9 | | | (87.8) | | | (13) | | | $ | 609.1 | | | 696.9 | | | (87.8) | | | (13) | | |
Mortgage servicing rights (MSR) carrying value (period-end) | Mortgage servicing rights (MSR) carrying value (period-end) | 9,828 | | | 6,862 | | | 2,966 | | | 43 | | | 9,828 | | | 6,862 | | | 2,966 | | | 43 | | | Mortgage servicing rights (MSR) carrying value (period-end) | 8,251 | | | 9,163 | | | (912) | | | (10) | | | 8,251 | | | 9,163 | | | (912) | | | (10) | | |
Ratio of MSR carrying value (period-end) to third-party mortgage loans serviced (period-end) (6) | Ratio of MSR carrying value (period-end) to third-party mortgage loans serviced (period-end) (6) | 1.43 | % | | 0.93 | | | 1.43 | % | | 0.93 | | | | Ratio of MSR carrying value (period-end) to third-party mortgage loans serviced (period-end) (6) | 1.35 | % | | 1.31 | | | 1.35 | % | | 1.31 | | | |
Home lending loans 30+ days delinquency rate (9)(8) | Home lending loans 30+ days delinquency rate (9)(8) | 0.29 | | | 0.45 | | | 0.29 | | | 0.45 | | | | Home lending loans 30+ days delinquency rate (9)(8) | 0.25 | | | 0.28 | | | 0.25 | | | 0.28 | | | |
| | Credit Card: | Credit Card: | | | Credit Card: | | |
Point of sale (POS) volume ($ in billions) | Point of sale (POS) volume ($ in billions) | $ | 30.7 | | | 24.6 | | | 6.1 | | | 25 | | | $ | 86.8 | | | 67.8 | | | 19.0 | | | 28 | | | Point of sale (POS) volume ($ in billions) | $ | 34.0 | | | 30.1 | | | 3.9 | | | 13 | | | $ | 64.1 | | | 56.1 | | | 8.0 | | | 14 | | |
New accounts (# in thousands) | New accounts (# in thousands) | 584 | | | 526 | | | 11 | | | 1,592 | | | 1,115 | | | 43 | | | New accounts (# in thousands) | 611 | | | 524 | | | 17 | | | 1,178 | | | 1,008 | | | 17 | | |
Credit card loans 30+ days delinquency rate | Credit card loans 30+ days delinquency rate | 1.81 | % | | 1.46 | | | 1.81 | % | | 1.46 | | | | Credit card loans 30+ days delinquency rate | 2.39 | % | | 1.54 | | | 2.39 | % | | 1.54 | | | |
Credit card loans 90+ days delinquency rate | | Credit card loans 90+ days delinquency rate | 1.17 | | | 0.74 | | | 1.17 | | | 0.74 | | | |
| Auto: | Auto: | | | Auto: | | |
Auto originations ($ in billions) | Auto originations ($ in billions) | $ | 5.4 | | | 9.2 | | | (3.8) | | | (41) | | | $ | 18.1 | | | 24.5 | | | (6.4) | | | (26) | | | Auto originations ($ in billions) | $ | 4.8 | | | 5.4 | | | (0.6) | | | (11) | | | $ | 9.8 | | | 12.7 | | | (2.9) | | | (23) | | |
Auto loans 30+ days delinquency rate (8) | Auto loans 30+ days delinquency rate (8) | 2.19 | % | | 1.46 | | | 2.19 | % | | 1.46 | | | | Auto loans 30+ days delinquency rate (8) | 2.55 | % | | 1.95 | | | 2.55 | % | | 1.95 | | | |
| | Personal Lending: | Personal Lending: | | | Personal Lending: | | |
New volume ($ in billions) | New volume ($ in billions) | $ | 3.5 | | | 2.7 | | | 0.8 | | | 30 | | | $ | 9.4 | | | 7.1 | | | 2.3 | | | 32 | | | New volume ($ in billions) | $ | 3.3 | | | 3.3 | | | — | | | — | | | $ | 6.2 | | | 5.9 | | | 0.3 | | | 5 | | |
(1)Return 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)Excludes nonaccrual loans.
(9)Beginning inSecond quarter 2023 vs. second quarter 2020, customer 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 or nonaccrual status.
Third quarter 2022 vs. third quarter 2021
Revenue increased driven by:
•higher net interest income reflectingdriven by higher interest rates and deposit spreads;spreads, partially offset by lower deposit balances;
partially offset by:
•lower deposit-related fees reflecting our efforts to help customers avoid overdraft fees; and
•lower mortgage banking noninterest income due to lower residential mortgage origination volumes.
Provision for credit losses increased due to higher net charge-offs driven by credit card loans.
Noninterest expense was stable, reflecting:
•lower personnel expense driven by lower revenue-related incentive compensation in Home Lending due to lower production, and the impact of efficiency initiatives; and
•lower operating losses reflecting lower expense for customer remediation and litigation matters;
partially offset by:
•higher operating costs, advertising expense, and FDIC assessments.
First half of 2023 vs. first half of 2022
Revenue increased driven by:
•higher net interest income driven by higher interest rates and deposit spreads, partially offset by lower deposit balances;
partially offset by:
•lower mortgage banking noninterest income due to lower residential mortgage origination volumes and gain on sale margins, and lower revenue related to the resecuritization of loans we purchased from GNMA loan securitization pools.pools; and
•lower deposit-related fees reflecting the elimination of non-sufficient funds fees and our efforts to help customers avoid overdraft fees.
Provision for credit losses increasedincluded a $841 million increase in the allowance for credit losses reflecting loan growth, a less favorable economic environment, and higher net charge-offs.
Noninterest expense increased driven by:
•higher operating losses reflecting higher accruals primarily related to a variety of historical matters, including litigation, customer remediation, and regulatory matters; and
•higher operating costs;
partially offset by:
•lower personnel expense driven by lower revenue-related
compensation in Home Lending due to lower production and the impact of efficiency initiatives;
•lower occupancy expense related to efficiency initiatives; and
•lower donation expense due to higher donations of PPP processing fees in third quarter 2021.
First nine months of 2022 vs. first nine months of 2021
Revenue increased driven by:
•higher net interest income reflecting higher interest rates and higher deposit balances and deposit spreads;
•higher deposit-related fees reflecting lower fee waivers as the first nine months of 2021 included additional accommodations to support customers, and higher overdraft fees in the first nine months of 2022 driven by increased consumer transaction volumes, partially offset by the elimination of non-sufficient funds and other fees in 2022; and
•higher card fees reflecting higher incentives and higher interchange fees, net of rewards, driven by increased purchase and transaction volumes;
Earnings Performance (continued)
partially offset by:
•lower mortgage banking noninterest income due to lower origination volumesoutlook and gain on sale margins, and lower revenue related to the resecuritization of loans we purchased from GNMA loan securitization pools.
Provision forportfolio credit losses increasedreflecting loan growth, a less favorable economic environment, andnormalization, as well as higher net charge-offs.charge-offs driven by credit card loans.
Noninterest expense increaseddecreased driven by:
•higherlower operating losses reflecting higher accruals primarily related to a variety of historical matters, including litigation,lower expense for customer remediation and regulatorylitigation matters; and
partially offset by:
•lower personnel expense driven by lower revenue-related incentive compensation in Home Lending due to lower production, and the impact of efficiency initiatives;
•lower occupancy expense and professional and outside services expense related to efficiency initiatives; andpartially offset by:
•lower donationhigher operating costs, advertising expense, due to higher donations of PPP processing fees in the first nine months of 2021.and FDIC assessments.
Table 6b: Consumer Banking and Lending – Balance Sheet
| | | Quarter ended Sep 30, | | Nine months ended Sep 30, | | | | Quarter ended June 30, | | Six months ended June 30, | | |
(in millions) | (in millions) | 2022 | | 2021 | | $ Change | | % Change | | 2022 | | 2021 | | $ Change | | % Change | | (in millions) | 2023 | | 2022 | | $ Change | | % Change | | 2023 | | 2022 | | $ Change | | % Change | |
Selected Balance Sheet Data (average) | Selected Balance Sheet Data (average) | | | Selected Balance Sheet Data (average) | | |
Loans by Line of Business: | Loans by Line of Business: | | | Loans by Line of Business: | | |
Consumer and Small Business Banking | Consumer and Small Business Banking | $ | 9,895 | | | 15,122 | | | (5,227) | | | (35) | % | | $ | 10,315 | | | 17,991 | | | (7,676) | | | (43) | % | | Consumer and Small Business Banking | $ | 9,215 | | | 10,453 | | | (1,238) | | | (12) | % | | $ | 9,289 | | | 10,529 | | | (1,240) | | | (12) | % | |
Consumer Lending: | Consumer Lending: | | | Consumer Lending: | | |
Home Lending | Home Lending | 221,870 | | | 217,011 | | | 4,859 | | | 2 | | | 218,015 | | | 227,663 | | | (9,648) | | | (4) | | | Home Lending | 220,641 | | | 218,371 | | | 2,270 | | | 1 | | | 221,596 | | | 216,055 | | | 5,541 | | | 3 | | |
Credit Card | Credit Card | 35,052 | | | 28,925 | | | 6,127 | | | 21 | | | 33,139 | | | 28,607 | | | 4,532 | | | 16 | | | Credit Card | 39,225 | | | 32,825 | | | 6,400 | | | 19 | | | 38,710 | | | 32,168 | | | 6,542 | | | 20 | | |
Auto | Auto | 55,430 | | | 53,043 | | | 2,387 | | | 5 | | | 56,500 | | | 51,121 | | | 5,379 | | | 11 | | | Auto | 52,476 | | | 56,813 | | | (4,337) | | | (8) | | | 53,073 | | | 57,044 | | | (3,971) | | | (7) | | |
Personal Lending | Personal Lending | 13,397 | | | 11,456 | | | 1,941 | | | 17 | | | 12,588 | | | 11,361 | | | 1,227 | | | 11 | | | Personal Lending | 14,794 | | | 12,397 | | | 2,397 | | | 19 | | | 14,657 | | | 12,177 | | | 2,480 | | | 20 | | |
Total loans | Total loans | $ | 335,644 | | | 325,557 | | | 10,087 | | | 3 | | | $ | 330,557 | | | 336,743 | | | (6,186) | | | (2) | | | Total loans | $ | 336,351 | | | 330,859 | | | 5,492 | | | 2 | | | $ | 337,325 | | | 327,973 | | | 9,352 | | | 3 | | |
Total deposits | Total deposits | 888,037 | | | 848,419 | | | 39,618 | | | 5 | | | 889,366 | | | 824,752 | | | 64,614 | | | 8 | | | Total deposits | 823,339 | | | 898,650 | | | (75,311) | | | (8) | | | 832,252 | | | 890,042 | | | (57,790) | | | (6) | | |
Allocated capital | Allocated capital | 48,000 | | | 48,000 | | | — | | | — | | | 48,000 | | | 48,000 | | | — | | | — | | | Allocated capital | 44,000 | | | 48,000 | | | (4,000) | | | (8) | | | 44,000 | | | 48,000 | | | (4,000) | | | (8) | | |
| Selected Balance Sheet Data (period-end) | Selected Balance Sheet Data (period-end) | | | Selected Balance Sheet Data (period-end) | | |
Loans by Line of Business: | Loans by Line of Business: | | | Loans by Line of Business: | | |
Consumer and Small Business Banking | Consumer and Small Business Banking | $ | 9,898 | | | 13,686 | | | (3,788) | | | (28) | | | $ | 9,898 | | | 13,686 | | | (3,788) | | | (28) | | | Consumer and Small Business Banking | $ | 9,299 | | | 10,400 | | | (1,101) | | | (11) | | | $ | 9,299 | | | 10,400 | | | (1,101) | | | (11) | | |
Consumer Lending: | Consumer Lending: | | | Consumer Lending: | | |
Home Lending | Home Lending | 222,471 | | | 216,649 | | | 5,822 | | | 3 | | | 222,471 | | | 216,649 | | | 5,822 | | | 3 | | | Home Lending | 219,595 | | | 222,088 | | | (2,493) | | | (1) | | | 219,595 | | | 222,088 | | | (2,493) | | | (1) | | |
Credit Card | Credit Card | 35,965 | | | 29,433 | | | 6,532 | | | 22 | | | 35,965 | | | 29,433 | | | 6,532 | | | 22 | | | Credit Card | 40,053 | | | 34,075 | | | 5,978 | | | 18 | | | 40,053 | | | 34,075 | | | 5,978 | | | 18 | | |
Auto | Auto | 55,116 | | | 54,472 | | | 644 | | | 1 | | | 55,116 | | | 54,472 | | | 644 | | | 1 | | | Auto | 52,175 | | | 56,224 | | | (4,049) | | | (7) | | | 52,175 | | | 56,224 | | | (4,049) | | | (7) | | |
Personal Lending | Personal Lending | 13,902 | | | 11,678 | | | 2,224 | | | 19 | | | 13,902 | | | 11,678 | | | 2,224 | | | 19 | | | Personal Lending | 15,095 | | | 12,945 | | | 2,150 | | | 17 | | | 15,095 | | | 12,945 | | | 2,150 | | | 17 | | |
Total loans | Total loans | $ | 337,352 | | | 325,918 | | | 11,434 | | | 4 | | | $ | 337,352 | | | 325,918 | | | 11,434 | | | 4 | | | Total loans | $ | 336,217 | | | 335,732 | | | 485 | | | — | | | $ | 336,217 | | | 335,732 | | | 485 | | | — | | |
Total deposits | Total deposits | 886,991 | | | 858,424 | | | 28,567 | | | 3 | | | 886,991 | | | 858,424 | | | 28,567 | | | 3 | | | Total deposits | 820,495 | | | 892,373 | | | (71,878) | | | (8) | | | 820,495 | | | 892,373 | | | (71,878) | | | (8) | | |
ThirdSecond quarter 20222023 vs. thirdsecond quarter 20212022
Total loans (average)(average and period-end) increased driven by by:
•higher customer purchasepoint of sale volume and the impact of new productsproduct launches in our Credit Card business, as well as business; and
•higher loan balances in our Home Lending, Auto, and Personal Lending businesses, business due to higher origination volumes and slower payment rates;
partially offset by by:
•a decline in PPP loans in Consumer and Small Business Banking.
Total deposits (average) increased driven by higher levels of customer liquidity and savings.
First nine months of 2022 vs. first nine months of 2021
Total loans (average) decreased as paydowns exceeded originations in our Home Lending and Consumer and Small Business Banking businesses, partially offset by higher customer purchase volume and the impact of new products in our Credit Card business, as well as higher loan balances in our Auto business due to lower origination volumes reflecting credit tightening actions and rising interest rates; and
business. Home Lending loan balances were impacted by the resecuritization of loans we purchased from GNMA loan securitization pools and the continued suspension of home equity originations. Consumer and Small Business Banking loan balances were impacted by •a decline in PPP loans.
Total loans (period-end) increased driven by higher customer purchase volume and the impact of new products in our Credit Card business, as well as growth in our Home Lending and Personal Lending businesses, partially offset by a decline in PPPPaycheck Protection Program loans in Consumer and Small Business Banking.
Total deposits (average and period-end) decreased due to consumer deposit outflows on consumer spending, as well as customer migration to higher yielding alternatives.
First half of 2023 vs. first half of 2022
Total loans (average)increased driven by by:
•higher levelspoint of sale volume and the impact of new product launches in our Credit Card business;
•higher loan balances in Home Lending; and
•higher loan balances in our Personal Lending business due to higher origination volumes and slower payment rates;
partially offset by:
•a decline in loan balances in our Auto business due to lower origination volumes reflecting credit tightening actions and rising interest rates; and
•a decline in Paycheck Protection Program loans in Consumer and Small Business Banking.
Total deposits (average) decreased due to consumer deposit outflows on consumer spending, as well as customer liquidity and savings.migration to higher yielding alternatives.
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. Table 6c and Table 6d provide additional information for Commercial Banking.
Table 6c: Commercial Banking – Income Statement and Selected Metrics
| | | Quarter ended Sep 30, | | Nine months ended Sep 30, | | | | Quarter ended June 30, | | Six months ended June 30, | | |
($ in millions) | ($ in millions) | 2022 | | 2021 | | $ Change | | % Change | | 2022 | | 2021 | | $ Change | | % Change | | ($ in millions) | 2023 | | 2022 | | $ Change | | % Change | | 2023 | | 2022 | | $ Change | | % Change | |
Income Statement | Income Statement | | | Income Statement | | |
Net interest income | Net interest income | $ | 1,991 | | | 1,231 | | | 760 | | | 62 | % | | $ | 4,932 | | | 3,687 | | | 1,245 | | | 34 | % | | Net interest income | $ | 2,501 | | | 1,580 | | | 921 | | | 58 | % | | $ | 4,990 | | | 2,941 | | | 2,049 | | | 70 | % | |
Noninterest income: | Noninterest income: | | | Noninterest income: | | |
Deposit-related fees | Deposit-related fees | 256 | | | 323 | | | (67) | | | (21) | | | 894 | | | 965 | | | (71) | | | (7) | | | Deposit-related fees | 248 | | | 310 | | | (62) | | | (20) | | | 484 | | | 638 | | | (154) | | | (24) | | |
Lending-related fees | Lending-related fees | 126 | | | 132 | | | (6) | | | (5) | | | 369 | | | 403 | | | (34) | | | (8) | | | Lending-related fees | 131 | | | 122 | | | 9 | | | 7 | | | 260 | | | 243 | | | 17 | | | 7 | | |
Lease income | Lease income | 176 | | | 165 | | | 11 | | | 7 | | | 534 | | | 512 | | | 22 | | | 4 | | | Lease income | 167 | | | 179 | | | (12) | | | (7) | | | 336 | | | 358 | | | (22) | | | (6) | | |
Other | Other | 403 | | | 225 | | | 178 | | | 79 | | | 1,042 | | | 698 | | | 344 | | | 49 | | | Other | 322 | | | 301 | | | 21 | | | 7 | | | 606 | | | 639 | | | (33) | | | (5) | | |
Total noninterest income | Total noninterest income | 961 | | | 845 | | | 116 | | | 14 | | | 2,839 | | | 2,578 | | | 261 | | | 10 | | | Total noninterest income | 868 | | | 912 | | | (44) | | | (5) | | | 1,686 | | | 1,878 | | | (192) | | | (10) | | |
Total revenue | Total revenue | 2,952 | | | 2,076 | | | 876 | | | 42 | | | 7,771 | | | 6,265 | | | 1,506 | | | 24 | | | Total revenue | 3,369 | | | 2,492 | | | 877 | | | 35 | | | 6,676 | | | 4,819 | | | 1,857 | | | 39 | | |
Net charge-offs | Net charge-offs | (3) | | | 16 | | | (19) | | | NM | | (28) | | | 108 | | | (136) | | | NM | | Net charge-offs | 63 | | | 4 | | | 59 | | | NM | | 24 | | | (25) | | | 49 | | | 196 | | |
Change in the allowance for credit losses | Change in the allowance for credit losses | (165) | | | (351) | | | 186 | | | 53 | | | (463) | | | (1,224) | | | 761 | | | 62 | | | Change in the allowance for credit losses | (37) | | | 17 | | | (54) | | | NM | | (41) | | | (298) | | | 257 | | | 86 | | |
Provision for credit losses | Provision for credit losses | (168) | | | (335) | | | 167 | | | 50 | | | (491) | | | (1,116) | | | 625 | | | 56 | | | Provision for credit losses | 26 | | | 21 | | | 5 | | | 24 | | | (17) | | | (323) | | | 306 | | | 95 | | |
Noninterest expense | Noninterest expense | 1,526 | | | 1,396 | | | 130 | | | 9 | | | 4,535 | | | 4,469 | | | 66 | | | 1 | | | Noninterest expense | 1,630 | | | 1,478 | | | 152 | | | 10 | | | 3,382 | | | 3,009 | | | 373 | | | 12 | | |
Income before income tax expense | Income before income tax expense | 1,594 | | | 1,015 | | | 579 | | | 57 | | | 3,727 | | | 2,912 | | | 815 | | | 28 | | | Income before income tax expense | 1,713 | | | 993 | | | 720 | | | 73 | | | 3,311 | | | 2,133 | | | 1,178 | | | 55 | | |
Income tax expense | Income tax expense | 409 | | | 254 | | | 155 | | | 61 | | | 938 | | | 727 | | | 211 | | | 29 | | | Income tax expense | 429 | | | 249 | | | 180 | | | 72 | | | 828 | | | 529 | | | 299 | | | 57 | | |
Less: Net income from noncontrolling interests | Less: Net income from noncontrolling interests | 3 | | | 2 | | | 1 | | | 50 | | | 9 | | | 5 | | | 4 | | | 80 | | | Less: Net income from noncontrolling interests | 3 | | | 3 | | | — | | | — | | | 6 | | | 6 | | | — | | | — | | |
Net income | Net income | $ | 1,182 | | | 759 | | | 423 | | | 56 | | | $ | 2,780 | | | 2,180 | | | 600 | | | 28 | | | Net income | $ | 1,281 | | | 741 | | | 540 | | | 73 | | | $ | 2,477 | | | 1,598 | | | 879 | | | 55 | | |
| Revenue by Line of Business | Revenue by Line of Business | | | Revenue by Line of Business | | |
Middle Market Banking | Middle Market Banking | $ | 1,793 | | | 1,165 | | | 628 | | | 54 | | | $ | 4,498 | | | 3,475 | | | 1,023 | | | 29 | | | Middle Market Banking | $ | 2,199 | | | 1,459 | | | 740 | | | 51 | | | $ | 4,354 | | | 2,705 | | | 1,649 | | | 61 | | |
Asset-Based Lending and Leasing | Asset-Based Lending and Leasing | 1,159 | | | 911 | | | 248 | | | 27 | | | 3,273 | | | 2,790 | | | 483 | | | 17 | | | Asset-Based Lending and Leasing | 1,170 | | | 1,033 | | | 137 | | | 13 | | | 2,322 | | | 2,114 | | | 208 | | | 10 | | |
Total revenue | Total revenue | $ | 2,952 | | | 2,076 | | | 876 | | | 42 | | | $ | 7,771 | | | 6,265 | | | 1,506 | | | 24 | | | Total revenue | $ | 3,369 | | | 2,492 | | | 877 | | | 35 | | | $ | 6,676 | | | 4,819 | | | 1,857 | | | 39 | | |
| Revenue by Product | Revenue by Product | | | Revenue by Product | | |
Lending and leasing | Lending and leasing | $ | 1,333 | | | 1,190 | | | 143 | | | 12 | | | $ | 3,896 | | | 3,599 | | | 297 | | | 8 | | | Lending and leasing | $ | 1,332 | | | 1,308 | | | 24 | | | 2 | | | $ | 2,656 | | | 2,563 | | | 93 | | | 4 | | |
Treasury management and payments | Treasury management and payments | 1,242 | | | 713 | | | 529 | | | 74 | | | 2,964 | | | 2,114 | | | 850 | | | 40 | | | Treasury management and payments | 1,584 | | | 943 | | | 641 | | | 68 | | | 3,146 | | | 1,722 | | | 1,424 | | | 83 | | |
Other | Other | 377 | | | 173 | | | 204 | | | 118 | | | 911 | | | 552 | | | 359 | | | 65 | | | Other | 453 | | | 241 | | | 212 | | | 88 | | | 874 | | | 534 | | | 340 | | | 64 | | |
Total revenue | Total revenue | $ | 2,952 | | | 2,076 | | | 876 | | | 42 | | | $ | 7,771 | | | 6,265 | | | 1,506 | | | 24 | | | Total revenue | $ | 3,369 | | | 2,492 | | | 877 | | | 35 | | | $ | 6,676 | | | 4,819 | | | 1,857 | | | 39 | | |
| Selected Metrics | Selected Metrics | | | Selected Metrics | | |
Return on allocated capital | Return on allocated capital | 23.1 | % | | 14.5 | | | 18.1 | % | | 14.0 | | | | Return on allocated capital | 19.3 | % | | 14.3 | | | 18.7 | % | | 15.6 | | | |
Efficiency ratio | Efficiency ratio | 52 | | | 67 | | | 58 | | | 71 | | | | Efficiency ratio | 48 | | | 59 | | | 51 | | | 62 | | | |
|
NM – Not meaningful
ThirdSecond quarter 20222023 vs. thirdsecond quarter 20212022
Revenue increased driven by:
•higher net interest income reflecting higher interest rates and deposit spreads as well as higher loan balances;
partially offset by:
•lower deposit-related fees driven by the impact of higher earnings credit rates, which result in lower fees for commercial customers.
Provision for credit losses increased reflecting higher net gains from equity securities;charge-offs driven by a small number of borrowers, with little signs of systemic weakness across the portfolio, partially offset by a $54 million decrease in the allowance for credit losses.
Noninterest expense increased primarily due to higher personnel expense and operating costs, partially offset by the impact of efficiency initiatives.
First half of 2023 vs. first half of 2022
Revenue increased driven by:
•higher other noninterestnet interest income driven byreflecting higher income from renewable energy investments;interest rates and deposit spreads as well as higher loan balances;
partially offset by:
•lower deposit-related fees driven by the impact of higher earnings credit rates, which result in lower fees for commercial customers.
Provision for credit losses reflected loan growth and a less favorable economic environment.growth.
Noninterest expense increased driven by:
•by higher operating costs and operating losses;
partially offset by:
•lower spending due to efficiency initiatives, including lower personnel expense, from reduced headcount.
First nine months of 2022 vs. first nine months of 2021
Revenue increased driven by:
•higher net interest income reflecting higher interest rates and deposit spreads, as well as higher loan balances; and
•higher other noninterest income driven by higher net gains from equity securities and higher income from renewable energy investments;
partially offset by:
•lower deposit-related fees driven by the impact of higher earnings credit rates, which result in lower fees for commercial customers.
Provision for credit losses reflected loan growth and a less favorable economic environment, partially offset by lower net charge-offs.efficiency initiatives.
Earnings Performance (continued)
Table 6d: Commercial Banking – Balance Sheet
| | | Quarter ended Sep 30, | | Nine months ended Sep 30, | | | | Quarter ended June 30, | | Six months ended June 30, | | |
(in millions) | (in millions) | 2022 | | 2021 | | $ Change | | % Change | | 2022 | | 2021 | | $ Change | | % Change | | (in millions) | 2023 | | 2022 | | $ Change | | % Change | | 2023 | | 2022 | | $ Change | | % Change | |
Selected Balance Sheet Data (average) | Selected Balance Sheet Data (average) | | | Selected Balance Sheet Data (average) | | |
Loans: | Loans: | | | Loans: | | |
Commercial and industrial | Commercial and industrial | $ | 150,365 | | | 118,039 | | | 32,326 | | | 27 | % | | $ | 143,383 | | | 118,840 | | | 24,543 | | | 21 | % | | Commercial and industrial | $ | 165,980 | | | 143,833 | | | 22,147 | | | 15 | % | | $ | 164,603 | | | 139,835 | | | 24,768 | | | 18 | % | |
Commercial real estate | Commercial real estate | 45,121 | | | 46,576 | | | (1,455) | | | (3) | | | 44,988 | | | 47,444 | | | (2,456) | | | (5) | | | Commercial real estate | 45,855 | | | 44,790 | | | 1,065 | | | 2 | | | 45,858 | | | 44,921 | | | 937 | | | 2 | | |
Lease financing and other | Lease financing and other | 13,511 | | | 14,007 | | | (496) | | | (4) | | | 13,486 | | | 13,812 | | | (326) | | | (2) | | | Lease financing and other | 13,989 | | | 13,396 | | | 593 | | | 4 | | | 13,872 | | | 13,472 | | | 400 | | | 3 | | |
Total loans | Total loans | $ | 208,997 | | | 178,622 | | | 30,375 | | | 17 | | | $ | 201,857 | | | 180,096 | | | 21,761 | | | 12 | | | Total loans | $ | 225,824 | | | 202,019 | | | 23,805 | | | 12 | | | $ | 224,333 | | | 198,228 | | | 26,105 | | | 13 | | |
Loans by Line of Business: | Loans by Line of Business: | | | | | | Loans by Line of Business: | | | | | |
Middle Market Banking | Middle Market Banking | $ | 117,031 | | | 101,523 | | | 15,508 | | | 15 | | | $ | 112,913 | | | 102,642 | | | 10,271 | | | 10 | | | Middle Market Banking | $ | 122,204 | | | 113,033 | | | 9,171 | | | 8 | | | $ | 121,916 | | | 110,820 | | | 11,096 | | | 10 | | |
Asset-Based Lending and Leasing | Asset-Based Lending and Leasing | 91,966 | | | 77,099 | | | 14,867 | | | 19 | | | 88,944 | | | 77,454 | | | 11,490 | | | 15 | | | Asset-Based Lending and Leasing | 103,620 | | | 88,986 | | | 14,634 | | | 16 | | | 102,417 | | | 87,408 | | | 15,009 | | | 17 | | |
Total loans | Total loans | $ | 208,997 | | | 178,622 | | | 30,375 | | | 17 | | | $ | 201,857 | | | 180,096 | | | 21,761 | | | 12 | | | Total loans | $ | 225,824 | | | 202,019 | | | 23,805 | | | 12 | | | $ | 224,333 | | | 198,228 | | | 26,105 | | | 13 | | |
Total deposits | Total deposits | 180,231 | | | 199,226 | | | (18,995) | | | (10) | | | 189,664 | | | 193,761 | | | (4,097) | | | (2) | | | Total deposits | 166,747 | | | 188,286 | | | (21,539) | | | (11) | | | 168,597 | | | 194,458 | | | (25,861) | | | (13) | | |
Allocated capital | Allocated capital | 19,500 | | | 19,500 | | | — | | | — | | | 19,500 | | | 19,500 | | — | | | — | | | Allocated capital | 25,500 | | | 19,500 | | | 6,000 | | | 31 | | | 25,500 | | | 19,500 | | 6,000 | | | 31 | | |
| Selected Balance Sheet Data (period-end) | Selected Balance Sheet Data (period-end) | | | Selected Balance Sheet Data (period-end) | | |
Loans: | Loans: | | | Loans: | | |
Commercial and industrial | Commercial and industrial | $ | 155,400 | | | 120,203 | | | 35,197 | | | 29 | | | $ | 155,400 | | | 120,203 | | | 35,197 | | | 29 | | | Commercial and industrial | $ | 168,492 | | | 146,656 | | | 21,836 | | | 15 | | | $ | 168,492 | | | 146,656 | | | 21,836 | | | 15 | | |
Commercial real estate | Commercial real estate | 45,540 | | | 46,318 | | | (778) | | | (2) | | | 45,540 | | | 46,318 | | | (778) | | | (2) | | | Commercial real estate | 45,784 | | | 44,992 | | | 792 | | | 2 | | | 45,784 | | | 44,992 | | | 792 | | | 2 | | |
Lease financing and other | Lease financing and other | 13,645 | | | 14,018 | | | (373) | | | (3) | | | 13,645 | | | 14,018 | | | (373) | | | (3) | | | Lease financing and other | 14,435 | | | 13,593 | | | 842 | | | 6 | | | 14,435 | | | 13,593 | | | 842 | | | 6 | | |
Total loans | Total loans | $ | 214,585 | | | 180,539 | | | 34,046 | | | 19 | | | $ | 214,585 | | | 180,539 | | | 34,046 | | | 19 | | | Total loans | $ | 228,711 | | | 205,241 | | | 23,470 | | | 11 | | | $ | 228,711 | | | 205,241 | | | 23,470 | | | 11 | | |
Loans by Line of Business: | Loans by Line of Business: | | | | | | Loans by Line of Business: | | | | | |
Middle Market Banking | Middle Market Banking | $ | 118,627 | | | 102,279 | | | 16,348 | | | 16 | | | $ | 118,627 | | | 102,279 | | | 16,348 | | | 16 | | | Middle Market Banking | $ | 122,104 | | | 116,064 | | | 6,040 | | | 5 | | | $ | 122,104 | | | 116,064 | | | 6,040 | | | 5 | | |
Asset-Based Lending and Leasing | Asset-Based Lending and Leasing | 95,958 | | | 78,260 | | | 17,698 | | | 23 | | | 95,958 | | | 78,260 | | | 17,698 | | | 23 | | | Asset-Based Lending and Leasing | 106,607 | | | 89,177 | | | 17,430 | | | 20 | | | 106,607 | | | 89,177 | | | 17,430 | | | 20 | | |
Total loans | Total loans | $ | 214,585 | | | 180,539 | | | 34,046 | | | 19 | | | $ | 214,585 | | | 180,539 | | | 34,046 | | | 19 | | | Total loans | $ | 228,711 | | | 205,241 | | | 23,470 | | | 11 | | | $ | 228,711 | | | 205,241 | | | 23,470 | | | 11 | | |
Total deposits | Total deposits | 172,727 | | | 204,853 | | | (32,126) | | | (16) | | | 172,727 | | | 204,853 | | | (32,126) | | | (16) | | | Total deposits | 164,764 | | | 183,145 | | | (18,381) | | | (10) | | | 164,764 | | | 183,145 | | | (18,381) | | | (10) | | |
ThirdSecond quarter 20222023 vs. thirdsecond quarter 2021
Total loans (average) increased driven by growth in new commitments with existing and new customers and higher line utilization.
Total deposits (average) decreased reflecting:
•customers continuing to allocate more cash into higher yielding liquid alternatives;
•actions to manage under the asset cap; and
•the transfer of certain customer accounts to the Consumer Banking and Lending operating segment in first quarter 2022.
First nine months of 2022 vs. first nine months of 2021
Total loans (average and period-end) increased driven by new customer growth in new commitments with existing and new customers, as well as higher line utilization.
Total deposits (average and period-end) decreased reflecting:due to customer migration to higher yielding alternatives, partially offset by additions of deposits from new and existing customers.
First half of 2023 vs. first half of 2022
Total loans (average) increased driven by new customer growth and higher line utilization.
•Total deposits (average)customers continuing decreased due to allocate more cash intocustomer migration to higher yielding liquid alternatives;
•actions to manage under the asset cap;alternatives, partially offset by additions of deposits from new and
•the transfer of certain customer accounts to the Consumer Banking and Lending operating segment in first quarter 2022.
existing customers.
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 6e and Table 6f provide additional information for Corporate and Investment Banking.
Table 6e: Corporate and Investment Banking – Income Statement and Selected Metrics
| | | Quarter ended Sep 30, | | Nine months ended Sep 30, | | | | Quarter ended June 30, | | Six months ended June 30, | | |
($ in millions) | ($ in millions) | 2022 | | 2021 | | $ Change | | % Change | | 2022 | | 2021 | | $ Change | | % Change | | ($ in millions) | 2023 | | 2022 | | $ Change | | % Change | | 2023 | | 2022 | | $ Change | | % Change | |
Income Statement | Income Statement | | | Income Statement | | |
Net interest income | Net interest income | $ | 2,270 | | | 1,866 | | | 404 | | | 22 | % | | $ | 6,317 | | | 5,428 | | | 889 | | | 16 | % | | Net interest income | $ | 2,359 | | | 2,057 | | | 302 | | | 15 | % | | $ | 4,820 | | | 4,047 | | | 773 | | | 19 | % | |
Noninterest income: | Noninterest income: | | | Noninterest income: | | |
Deposit-related fees | Deposit-related fees | 255 | | | 286 | | | (31) | | | (11) | | | 828 | | | 829 | | | (1) | | | — | | | Deposit-related fees | 247 | | | 280 | | | (33) | | | (12) | | | 483 | | | 573 | | | (90) | | | (16) | | |
Lending-related fees | Lending-related fees | 198 | | | 196 | | | 2 | | | 1 | | | 578 | | | 569 | | | 9 | | | 2 | | | Lending-related fees | 191 | | | 195 | | | (4) | | | (2) | | | 385 | | | 380 | | | 5 | | | 1 | | |
Investment banking fees | Investment banking fees | 392 | | | 536 | | | (144) | | | (27) | | | 1,161 | | | 1,727 | | | (566) | | | (33) | | | Investment banking fees | 390 | | | 307 | | | 83 | | | 27 | | | 704 | | | 769 | | | (65) | | | (8) | | |
Net gains from trading activities | Net gains from trading activities | 674 | | | 85 | | | 589 | | | 693 | | | 1,280 | | | 446 | | | 834 | | | 187 | | | Net gains from trading activities | 1,081 | | | 378 | | | 703 | | | 186 | | | 2,338 | | | 606 | | | 1,732 | | | 286 | | |
Other | Other | 271 | | | 416 | | | (145) | | | (35) | | | 939 | | | 1,328 | | | (389) | | | (29) | | | Other | 363 | | | 356 | | | 7 | | | 2 | | | 803 | | | 668 | | | 135 | | | 20 | | |
Total noninterest income | Total noninterest income | 1,790 | | | 1,519 | | | 271 | | | 18 | | | 4,786 | | | 4,899 | | | (113) | | | (2) | | | Total noninterest income | 2,272 | | | 1,516 | | | 756 | | | 50 | | | 4,713 | | | 2,996 | | | 1,717 | | | 57 | | |
Total revenue | Total revenue | 4,060 | | | 3,385 | | | 675 | | | 20 | | | 11,103 | | | 10,327 | | | 776 | | | 8 | | | Total revenue | 4,631 | | | 3,573 | | | 1,058 | | | 30 | | | 9,533 | | | 7,043 | | | 2,490 | | | 35 | | |
Net charge-offs | Net charge-offs | (16) | | | (48) | | | 32 | | | 67 | | | (58) | | | (30) | | | (28) | | | (93) | | Net charge-offs | 83 | | | (11) | | | 94 | | | 855 | | | 100 | | | (42) | | | 142 | | | 338 | |
Change in the allowance for credit losses | Change in the allowance for credit losses | 48 | | | (412) | | | 460 | | | 112 | | | (168) | | | (1,215) | | | 1,047 | | | 86 | | | Change in the allowance for credit losses | 850 | | | (51) | | | 901 | | | NM | | 1,085 | | | (216) | | | 1,301 | | | 602 | | |
Provision for credit losses | Provision for credit losses | 32 | | | (460) | | | 492 | | | 107 | | | (226) | | | (1,245) | | | 1,019 | | | 82 | | | Provision for credit losses | 933 | | | (62) | | | 995 | | | NM | | 1,185 | | | (258) | | | 1,443 | | | 559 | | |
Noninterest expense | Noninterest expense | 1,900 | | | 1,797 | | | 103 | | | 6 | | | 5,723 | | | 5,435 | | | 288 | | | 5 | | | Noninterest expense | 2,087 | | | 1,840 | | | 247 | | | 13 | | | 4,304 | | | 3,823 | | | 481 | | | 13 | | |
Income before income tax expense | Income before income tax expense | 2,128 | | | 2,048 | | | 80 | | | 4 | | | 5,606 | | | 6,137 | | | (531) | | | (9) | | | Income before income tax expense | 1,611 | | | 1,795 | | | (184) | | | (10) | | | 4,044 | | | 3,478 | | | 566 | | | 16 | | |
Income tax expense | Income tax expense | 536 | | | 518 | | | 18 | | | 3 | | | 1,420 | | | 1,531 | | | (111) | | | (7) | | | Income tax expense | 401 | | | 459 | | | (58) | | | (13) | | | 1,016 | | | 884 | | | 132 | | | 15 | | |
Less: Net loss from noncontrolling interests | — | | | — | | | — | | | — | | | — | | | (2) | | | 2 | | | 100 | | | |
| Net income | Net income | $ | 1,592 | | | 1,530 | | | 62 | | | 4 | | | $ | 4,186 | | | 4,608 | | | (422) | | | (9) | | | Net income | $ | 1,210 | | | 1,336 | | | (126) | | | (9) | | | $ | 3,028 | | | 2,594 | | | 434 | | | 17 | | |
| Revenue by Line of Business | Revenue by Line of Business | | | Revenue by Line of Business | | |
Banking: | Banking: | | | Banking: | | |
Lending | Lending | $ | 580 | | | 502 | | | 78 | | | 16 | | | $ | 1,629 | | | 1,429 | | | 200 | | | 14 | | | Lending | $ | 685 | | | 528 | | | 157 | | | 30 | | | $ | 1,377 | | | 1,049 | | | 328 | | | 31 | | |
Treasury Management and Payments | Treasury Management and Payments | 670 | | | 372 | | | 298 | | | 80 | | | 1,631 | | | 1,095 | | | 536 | | | 49 | | | Treasury Management and Payments | 762 | | | 529 | | | 233 | | | 44 | | | 1,547 | | | 961 | | | 586 | | | 61 | | |
Investment Banking | Investment Banking | 336 | | | 367 | | | (31) | | | (8) | | | 889 | | | 1,190 | | | (301) | | | (25) | | | Investment Banking | 311 | | | 222 | | | 89 | | | 40 | | | 591 | | | 553 | | | 38 | | | 7 | | |
Total Banking | Total Banking | 1,586 | | | 1,241 | | | 345 | | | 28 | | | 4,149 | | | 3,714 | | | 435 | | | 12 | | | Total Banking | 1,758 | | | 1,279 | | | 479 | | | 37 | | | 3,515 | | | 2,563 | | | 952 | | | 37 | | |
Commercial Real Estate | Commercial Real Estate | 1,212 | | | 942 | | | 270 | | | 29 | | | 3,267 | | | 2,868 | | | 399 | | | 14 | | | Commercial Real Estate | 1,333 | | | 1,060 | | | 273 | | | 26 | | | 2,644 | | | 2,055 | | | 589 | | | 29 | | |
Markets: | Markets: | | | Markets: | | |
Fixed Income, Currencies, and Commodities (FICC) | Fixed Income, Currencies, and Commodities (FICC) | 914 | | | 884 | | | 30 | | | 3 | | | 2,725 | | | 2,916 | | | (191) | | | (7) | | | Fixed Income, Currencies, and Commodities (FICC) | 1,133 | | | 934 | | | 199 | | | 21 | | | 2,418 | | | 1,811 | | | 607 | | | 34 | | |
Equities | Equities | 316 | | | 234 | | | 82 | | | 35 | | | 836 | | | 692 | | | 144 | | | 21 | | | Equities | 397 | | | 253 | | | 144 | | | 57 | | | 834 | | | 520 | | | 314 | | | 60 | | |
Credit Adjustment (CVA/DVA) and Other | Credit Adjustment (CVA/DVA) and Other | 17 | | | 58 | | | (41) | | | (71) | | | 55 | | | 78 | | | (23) | | | (29) | | | Credit Adjustment (CVA/DVA) and Other | 14 | | | 13 | | | 1 | | | 8 | | | 85 | | | 38 | | | 47 | | | 124 | | |
Total Markets | Total Markets | 1,247 | | | 1,176 | | | 71 | | | 6 | | | 3,616 | | | 3,686 | | | (70) | | | (2) | | | Total Markets | 1,544 | | | 1,200 | | | 344 | | | 29 | | | 3,337 | | | 2,369 | | | 968 | | | 41 | | |
Other | Other | 15 | | | 26 | | | (11) | | | (42) | | | 71 | | | 59 | | | 12 | | | 20 | | | Other | (4) | | | 34 | | | (38) | | | NM | | 37 | | | 56 | | | (19) | | | (34) | | |
Total revenue | Total revenue | $ | 4,060 | | | 3,385 | | | 675 | | | 20 | | | $ | 11,103 | | | 10,327 | | | 776 | | | 8 | | | Total revenue | $ | 4,631 | | | 3,573 | | | 1,058 | | | 30 | | | $ | 9,533 | | | 7,043 | | | 2,490 | | | 35 | | |
| Selected Metrics | Selected Metrics | | | Selected Metrics | | |
Return on allocated capital | Return on allocated capital | 16.6 | % | | 16.9 | | | 14.6 | % | | 17.2 | | | | Return on allocated capital | 10.2 | % | | 13.8 | | | 13.0 | % | | 13.5 | | | |
Efficiency ratio | Efficiency ratio | 47 | | | 53 | | | 52 | | | 53 | | | | Efficiency ratio | 45 | | | 51 | | | 45 | | | 54 | | | |
|
NM – Not meaningful
Second quarter 2023 vs. second quarter 2022
Third quarter 2022 vs. third quarter 2021
Revenue increased driven by:
•higher net gains from trading activities reflecting driven by higher foreign exchange,trading revenue in equities, structured products, credit products, rates, and commodities trading revenue; andforeign exchange;
•higher net interest income reflecting higher interest rates, as well as higher loan balances;rates; and
partially offset by:
•lowerhigher investment banking fees, due to lower market activity.as second quarter 2022 included a $107 million write-down on unfunded leveraged finance commitments.
Provision for credit losses reflected loan growth andincreased reflecting a less favorable economic environment.$901 million increase in the allowance for credit losses driven by commercial real estate loans, primarily office loans, as well as higher net charge-offs.
Noninterest expense increased predominantly driven by higher operating costs and personnel expense, partially offset by the impact of efficiency initiatives.
Earnings Performance (continued)
First nine monthshalf of 20222023 vs. first nine monthshalf of 20212022
Revenue increased driven by:
•higher net interest income reflecting higher interest rates, as well as higher loan balances; and
•higher net gains from trading activities driven by higher commodities, foreign exchange, rates,trading results across all asset classes; and equities trading revenue, partially offset by
•lower trading activity in residential MBS and high yield products;higher net interest income reflecting higher interest rates;
partially offset by:
•lower deposit-related fees driven by the impact of higher earnings credit rates, which result in lower fees for corporate banking customers; and
•lower investment banking fees due to lower market activity, as well as a $107 million write-down on unfunded leveraged finance commitments in second quarter 2022 due to theactivity.
widening of market spreads; and
•lower other noninterest income driven by lower mortgage banking income due to lower commercial MBS gain on sale margins and volumes, partially offset by higher income in our low-income housing business.
Provision for credit losses reflected loan growth andincreased reflecting a less favorable economic environment.$1.3 billion increase in the allowance for credit losses driven by commercial real estate loans, primarily office loans, as well as higher net charge-offs.
Noninterest expense increased driven by higher operating lossescosts and operating costs,personnel expense, partially offset by the impact of efficiency initiatives.
Table 6f: Corporate and Investment Banking – Balance Sheet
| | | Quarter ended Sep 30, | | Nine months ended Sep 30, | | | | Quarter ended June 30, | | Six months ended June 30, | | |
(in millions) | (in millions) | 2022 | | 2021 | | $ Change | | % Change | | 2022 | | 2021 | | $ Change | | % Change | | (in millions) | 2023 | | 2022 | | $ Change | | % Change | | 2023 | | 2022 | | $ Change | | % Change | |
Selected Balance Sheet Data (average) | Selected Balance Sheet Data (average) | | | Selected Balance Sheet Data (average) | | |
Loans: | Loans: | | | Loans: | | |
Commercial and industrial | Commercial and industrial | $ | 205,185 | | | 170,486 | | | 34,699 | | | 20 | % | | $ | 199,006 | | | 166,647 | | | 32,359 | | | 19 | % | | Commercial and industrial | $ | 190,529 | | | 200,527 | | | (9,998) | | | (5) | % | | $ | 192,141 | | | 195,865 | | | (3,724) | | | (2) | % | |
Commercial real estate | Commercial real estate | 101,055 | | | 86,809 | | | 14,246 | | | 16 | | | 97,551 | | | 85,349 | | | 12,202 | | | 14 | | | Commercial real estate | 100,941 | | | 98,167 | | | 2,774 | | | 3 | | | 100,956 | | | 95,770 | | | 5,186 | | | 5 | | |
Total loans | Total loans | $ | 306,240 | | | 257,295 | | | 48,945 | | | 19 | | | $ | 296,557 | | | 251,996 | | | 44,561 | | | 18 | | | Total loans | $ | 291,470 | | | 298,694 | | | (7,224) | | | (2) | | | $ | 293,097 | | | 291,635 | | | 1,462 | | | 1 | | |
Loans by Line of Business: | Loans by Line of Business: | | | | | | Loans by Line of Business: | | | | | |
Banking | Banking | $ | 109,909 | | | 95,911 | | | 13,998 | | | 15 | | | $ | 107,200 | | | 91,130 | | | 16,070 | | | 18 | | | Banking | $ | 95,413 | | | 109,123 | | | (13,710) | | | (13) | | | $ | 97,235 | | | 105,822 | | | (8,587) | | | (8) | | |
Commercial Real Estate | Commercial Real Estate | 137,568 | | | 110,683 | | | 26,885 | | | 24 | | | 132,384 | | | 109,073 | | | 23,311 | | | 21 | | | Commercial Real Estate | 136,473 | | | 133,212 | | | 3,261 | | | 2 | | | 136,639 | | | 129,749 | | | 6,890 | | | 5 | | |
Markets | Markets | 58,763 | | | 50,701 | | | 8,062 | | | 16 | | | 56,973 | | | 51,793 | | | 5,180 | | | 10 | | | Markets | 59,584 | | | 56,359 | | | 3,225 | | | 6 | | | 59,223 | | | 56,064 | | | 3,159 | | | 6 | | |
Total loans | Total loans | $ | 306,240 | | | 257,295 | | | 48,945 | | | 19 | | | $ | 296,557 | | | 251,996 | | | 44,561 | | | 18 | | | Total loans | $ | 291,470 | | | 298,694 | | | (7,224) | | | (2) | | | $ | 293,097 | | | 291,635 | | | 1,462 | | | 1 | | |
Trading-related assets: | Trading-related assets: | | | | | | Trading-related assets: | | | | | |
Trading account securities | Trading account securities | $ | 110,919 | | | 112,148 | | | (1,229) | | | (1) | | | $ | 112,351 | | | 107,771 | | | 4,580 | | | 4 | | | Trading account securities | $ | 118,462 | | | 110,499 | | | 7,963 | | | 7 | | | $ | 115,561 | | | 113,079 | | | 2,482 | | | 2 | | |
Reverse repurchase agreements/securities borrowed | Reverse repurchase agreements/securities borrowed | 45,486 | | | 56,758 | | | (11,272) | | | (20) | | | 49,708 | | | 60,903 | | | (11,195) | | | (18) | | | Reverse repurchase agreements/securities borrowed | 60,164 | | | 48,909 | | | 11,255 | | | 23 | | | 58,997 | | | 51,854 | | | 7,143 | | | 14 | | |
Derivative assets | Derivative assets | 28,050 | | | 25,191 | | | 2,859 | | | 11 | | | 28,386 | | | 25,668 | | | 2,718 | | | 11 | | | Derivative assets | 17,522 | | | 30,845 | | | (13,323) | | | (43) | | | 17,724 | | | 28,557 | | | (10,833) | | | (38) | | |
Total trading-related assets | Total trading-related assets | $ | 184,455 | | | 194,097 | | | (9,642) | | | (5) | | | $ | 190,445 | | | 194,342 | | | (3,897) | | | (2) | | | Total trading-related assets | $ | 196,148 | | | 190,253 | | | 5,895 | | | 3 | | | $ | 192,282 | | | 193,490 | | | (1,208) | | | (1) | | |
Total assets | Total assets | 560,509 | | | 524,124 | | | 36,385 | | | 7 | | | 558,773 | | | 516,401 | | | 42,372 | | | 8 | | | Total assets | 550,091 | | | 564,306 | | | (14,215) | | | (3) | | | 549,453 | | | 557,891 | | | (8,438) | | | (2) | | |
Total deposits | Total deposits | 156,830 | | | 189,424 | | | (32,594) | | | (17) | | | 163,578 | | | 191,560 | | | (27,982) | | | (15) | | | Total deposits | 160,251 | | | 164,860 | | | (4,609) | | | (3) | | | 158,908 | | | 167,009 | | | (8,101) | | | (5) | | |
Allocated capital | Allocated capital | 36,000 | | | 34,000 | | | 2,000 | | | 6 | | | 36,000 | | | 34,000 | | | 2,000 | | | 6 | | | Allocated capital | 44,000 | | | 36,000 | | | 8,000 | | | 22 | | | 44,000 | | | 36,000 | | | 8,000 | | | 22 | | |
| Selected Balance Sheet Data (period-end) | Selected Balance Sheet Data (period-end) | | | Selected Balance Sheet Data (period-end) | | |
Loans: | Loans: | | | Loans: | | |
Commercial and industrial | Commercial and industrial | $ | 198,253 | | | 177,002 | | | 21,251 | | | 12 | | | $ | 198,253 | | | 177,002 | | | 21,251 | | | 12 | | | Commercial and industrial | $ | 190,317 | | | 207,414 | | | (17,097) | | | (8) | | | $ | 190,317 | | | 207,414 | | | (17,097) | | | (8) | | |
Commercial real estate | Commercial real estate | 101,440 | | | 86,955 | | | 14,485 | | | 17 | | | 101,440 | | | 86,955 | | | 14,485 | | | 17 | | | Commercial real estate | 101,028 | | | 100,872 | | | 156 | | | — | | | 101,028 | | | 100,872 | | | 156 | | | — | | |
Total loans | Total loans | $ | 299,693 | | | 263,957 | | | 35,736 | | | 14 | | | $ | 299,693 | | | 263,957 | | | 35,736 | | | 14 | | | Total loans | $ | 291,345 | | | 308,286 | | | (16,941) | | | (5) | | | $ | 291,345 | | | 308,286 | | | (16,941) | | | (5) | | |
Loans by Line of Business: | Loans by Line of Business: | | | | | | Loans by Line of Business: | | | | | |
Banking | Banking | $ | 103,809 | | | 99,683 | | | 4,126 | | | 4 | | | $ | 103,809 | | | 99,683 | | | 4,126 | | | 4 | | | Banking | $ | 93,596 | | | 111,639 | | | (18,043) | | | (16) | | | $ | 93,596 | | | 111,639 | | | (18,043) | | | (16) | | |
Commercial Real Estate | Commercial Real Estate | 137,077 | | | 112,050 | | | 25,027 | | | 22 | | | 137,077 | | | 112,050 | | | 25,027 | | | 22 | | | Commercial Real Estate | 136,257 | | | 137,083 | | | (826) | | | (1) | | | 136,257 | | | 137,083 | | | (826) | | | (1) | | |
Markets | Markets | 58,807 | | | 52,224 | | | 6,583 | | | 13 | | | 58,807 | | | 52,224 | | | 6,583 | | | 13 | | | Markets | 61,492 | | | 59,564 | | | 1,928 | | | 3 | | | 61,492 | | | 59,564 | | | 1,928 | | | 3 | | |
Total loans | Total loans | $ | 299,693 | | | 263,957 | | | 35,736 | | | 14 | | | $ | 299,693 | | | 263,957 | | | 35,736 | | | 14 | | | Total loans | $ | 291,345 | | | 308,286 | | | (16,941) | | | (5) | | | $ | 291,345 | | | 308,286 | | | (16,941) | | | (5) | | |
Trading-related assets: | Trading-related assets: | | | | | | Trading-related assets: | | | | | |
Trading account securities | Trading account securities | $ | 113,488 | | | 114,187 | | | (699) | | | (1) | | | $ | 113,488 | | | 114,187 | | | (699) | | | (1) | | | Trading account securities | $ | 130,008 | | | 109,634 | | | 20,374 | | | 19 | | | $ | 130,008 | | | 109,634 | | | 20,374 | | | 19 | | |
Reverse repurchase agreements/securities borrowed | Reverse repurchase agreements/securities borrowed | 44,194 | | | 55,123 | | | (10,929) | | | (20) | | | 44,194 | | | 55,123 | | | (10,929) | | | (20) | | | Reverse repurchase agreements/securities borrowed | 59,020 | | | 42,696 | | | 16,324 | | | 38 | | | 59,020 | | | 42,696 | | | 16,324 | | | 38 | | |
Derivative assets | Derivative assets | 28,545 | | | 27,096 | | | 1,449 | | | 5 | | | 28,545 | | | 27,096 | | | 1,449 | | | 5 | | | Derivative assets | 17,804 | | | 24,540 | | | (6,736) | | | (27) | | | 17,804 | | | 24,540 | | | (6,736) | | | (27) | | |
Total trading-related assets | Total trading-related assets | $ | 186,227 | | | 196,406 | | | (10,179) | | | (5) | | | $ | 186,227 | | | 196,406 | | | (10,179) | | | (5) | | | Total trading-related assets | $ | 206,832 | | | 176,870 | | | 29,962 | | | 17 | | | $ | 206,832 | | | 176,870 | | | 29,962 | | | 17 | | |
Total assets | Total assets | 550,695 | | | 535,385 | | | 15,310 | | | 3 | | | 550,695 | | | 535,385 | | | 15,310 | | | 3 | | | Total assets | 559,520 | | | 567,733 | | | (8,213) | | | (1) | | | 559,520 | | | 567,733 | | | (8,213) | | | (1) | | |
Total deposits | Total deposits | 154,550 | | | 191,786 | | | (37,236) | | | (19) | | | 154,550 | | | 191,786 | | | (37,236) | | | (19) | | | Total deposits | 158,770 | | | 162,439 | | | (3,669) | | | (2) | | | 158,770 | | | 162,439 | | | (3,669) | | | (2) | | |
ThirdSecond quarter 20222023 vs. thirdsecond quarter 20212022
Total assets (average)(average and period-end) decreased reflecting:
•lower loan balances driven by lower originations; and
•lower trading-related derivative assets due to declines in derivative balances for commodities and equities;
partially offset by:
•increased volume of reverse repurchase agreements; and
•higher trading account securities driven by higher loan balances reflecting broad-based loan demand driven by a modest increase in utilization ratesmortgage-backed securities, equity, and bond trading balances.
Total deposits (average and period-end) decreased due to increased client working capital needs,
customer migration to higher yielding alternatives, partially offset by lower trading-related assets reflecting actions to manage under the asset cap.additions of deposits from new and existing customers.
First half of 2023 vs. first half of 2022
Total depositsassets (average) decreased driven by customers continuing to allocate more cash into higher yielding liquid alternatives, as well as actions to manage under the asset cap.
First nine months of 2022 vs. first nine months of 2021
Totallower trading-related derivative assets (average and period-end) increased driven by higher loan balances reflecting broad-based loan demand driven by a modest increase in utilization rates due to increased client working capital needs, partially offset by lower trading-related assets reflecting actions to manage under the asset cap.declines in derivative balances for commodities and equities.
Total deposits (average and period-end)(average) decreased driven by customers continuingdue to allocate more cash intocustomer migration to higher yielding liquid alternatives, as well as actions to manage under the asset cap.partially offset by additions of deposits from new and existing customers.
Wealth and Investment Management provides personalized wealth management, brokerage, financial planning, lending, private banking, trust and fiduciary products and services to affluent, high-net worth and ultra-high-net worth clients. We operate through financial advisors in our brokerage and wealth offices, consumer bank branches, independent offices, and digitally through WellsTrade® and Intuitive Investor®. Table 6g and Table 6h provide additional information for Wealth and Investment Management (WIM).
Table 6g: Wealth and Investment Management
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended Sep 30, | | | | | | Nine months ended Sep 30, | | | | | | | | | | |
($ in millions, unless otherwise noted) | 2022 | | 2021 | | $ Change | | % Change | | 2022 | | 2021 | | $ Change | | % Change | | | | | | |
Income Statement | | | | | | | | | | | | | | | | | | | | | |
Net interest income | $ | 1,088 | | | 637 | | | 451 | | | 71 | % | | $ | 2,803 | | | 1,904 | | | 899 | | | 47 | % | | | | | | |
Noninterest income: | | | | | | | | | | | | | | | | | | | | | |
Investment advisory and other asset-based fees | 2,066 | | | 2,457 | | | (391) | | | (16) | | | 6,848 | | | 7,145 | | | (297) | | | (4) | | | | | | | |
Commissions and brokerage services fees | 486 | | | 458 | | | 28 | | | 6 | | | 1,399 | | | 1,526 | | | (127) | | | (8) | | | | | | | |
Other | 25 | | | 66 | | | (41) | | | (62) | | | 77 | | | 123 | | | (46) | | | (37) | | | | | | | |
Total noninterest income | 2,577 | | | 2,981 | | | (404) | | | (14) | | | 8,324 | | | 8,794 | | | (470) | | | (5) | | | | | | | |
Total revenue | 3,665 | | | 3,618 | | | 47 | | | 1 | | | 11,127 | | | 10,698 | | | 429 | | | 4 | | | | | | | |
Net charge-offs | (1) | | | (3) | | | 2 | | | 67 | | | (5) | | | (9) | | | 4 | | | 44 | | | | | | | |
Change in the allowance for credit losses | 9 | | | (70) | | | 79 | | | 113 | | | (31) | | | (83) | | | 52 | | | 63 | | | | | | | |
Provision for credit losses | 8 | | | (73) | | | 81 | | | 111 | | | (36) | | | (92) | | | 56 | | | 61 | | | | | | | |
Noninterest expense | 2,796 | | | 2,917 | | | (121) | | | (4) | | | 8,882 | | | 8,836 | | | 46 | | | 1 | | | | | | | |
Income before income tax expense | 861 | | | 774 | | | 87 | | | 11 | | | 2,281 | | | 1,954 | | | 327 | | | 17 | | | | | | | |
Income tax expense | 222 | | | 195 | | | 27 | | | 14 | | | 574 | | | 491 | | | 83 | | | 17 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Net income | $ | 639 | | | 579 | | | 60 | | | 10 | | | $ | 1,707 | | | 1,463 | | | 244 | | | 17 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Selected Metrics | | | | | | | | | | | | | | | | | | | | | |
Return on allocated capital | 28.4 | % | | 25.7 | | | | | | | 25.5 | % | | 21.8 | | | | | | | | | | | |
Efficiency ratio | 76 | | | 81 | | | | | | | 80 | | | 83 | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Advisory assets ($ in billions) | $ | 756 | | | 920 | | | (164) | | | (18) | | | $ | 756 | | | 920 | | | (164) | | | (18) | | | | | | | |
Other brokerage assets and deposits ($ in billions) | 1,003 | | | 1,171 | | | (168) | | | (14) | | | 1,003 | | | 1,171 | | | (168) | | | (14) | | | | | | | |
Total client assets ($ in billions) | $ | 1,759 | | | 2,091 | | | (332) | | | (16) | | | $ | 1,759 | | | 2,091 | | | (332) | | | (16) | | | | | | | |
Annualized revenue per advisor ($ in thousands) (1) | 1,212 | | | 1,141 | | | 71 | | | 6 | | | 1,215 | | | 1,094 | | | 121 | | | 11 | | | | | | | |
Total financial and wealth advisors (#) (period-end) | 12,011 | | | 12,552 | | | | | (4) | | | 12,011 | | | 12,552 | | | | | (4) | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Selected Balance Sheet Data (average) | | | | | | | | | | | | | | | | | | | | | |
Total loans | $ | 85,472 | | | 82,785 | | | 2,687 | | | 3 | | | $ | 85,386 | | | 81,810 | | | 3,576 | | | 4 | | | | | | | |
Total deposits | 158,367 | | | 176,570 | | | (18,203) | | | (10) | | | 172,516 | | | 175,087 | | | (2,571) | | | (1) | | | | | | | |
Allocated capital | 8,750 | | | 8,750 | | | — | | | — | | | 8,750 | | | 8,750 | | | — | | | — | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Selected Balance Sheet Data (period-end) | | | | | | | | | | | | | | | | | | | | | |
Total loans | $ | 85,180 | | | 82,824 | | | 2,356 | | | 3 | | | $ | 85,180 | | | 82,824 | | | 2,356 | | | 3 | | | | | | | |
Total deposits | 148,890 | | | 177,809 | | | (28,919) | | | (16) | | | 148,890 | | | 177,809 | | | (28,919) | | | (16) | | | | | | | |
(1)Represents annualized segment total revenue divided by average total financial and wealth advisors for the period. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended June 30, | | | | | | Six months ended June 30, | | | | | | | | | | |
($ in millions, unless otherwise noted) | 2023 | | 2022 | | $ Change | | % Change | | 2023 | | 2022 | | $ Change | | % Change | | | | | | |
Income Statement | | | | | | | | | | | | | | | | | | | | | |
Net interest income | $ | 1,009 | | | 916 | | | 93 | | | 10 | % | | $ | 2,053 | | | 1,715 | | | 338 | | | 20 | % | | | | | | |
Noninterest income: | | | | | | | | | | | | | | | | | | | | | |
Investment advisory and other asset-based fees | 2,110 | | | 2,306 | | | (196) | | | (8) | | | 4,171 | | | 4,782 | | | (611) | | | (13) | | | | | | | |
Commissions and brokerage services fees | 494 | | | 459 | | | 35 | | | 8 | | | 1,035 | | | 913 | | | 122 | | | 13 | | | | | | | |
Other | 35 | | | 24 | | | 11 | | | 46 | | | 70 | | | 52 | | | 18 | | | 35 | | | | | | | |
Total noninterest income | 2,639 | | | 2,789 | | | (150) | | | (5) | | | 5,276 | | | 5,747 | | | (471) | | | (8) | | | | | | | |
Total revenue | 3,648 | | | 3,705 | | | (57) | | | (2) | | | 7,329 | | | 7,462 | | | (133) | | | (2) | | | | | | | |
Net charge-offs | (1) | | | — | | | (1) | | | (100) | | | (2) | | | (4) | | | 2 | | | 50 | | | | | | |
Change in the allowance for credit losses | 25 | | | (7) | | | 32 | | | 457 | | | 37 | | | (40) | | | 77 | | | 193 | | | | | | | |
Provision for credit losses | 24 | | | (7) | | | 31 | | | 443 | | | 35 | | | (44) | | | 79 | | | 180 | | | | | | | |
Noninterest expense | 2,974 | | | 2,911 | | | 63 | | | 2 | | | 6,035 | | | 6,086 | | | (51) | | | (1) | | | | | | | |
Income before income tax expense | 650 | | | 801 | | | (151) | | | (19) | | | 1,259 | | | 1,420 | | | (161) | | | (11) | | | | | | | |
Income tax expense | 163 | | | 198 | | | (35) | | | (18) | | | 315 | | | 352 | | | (37) | | | (11) | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Net income | $ | 487 | | | 603 | | | (116) | | | (19) | | | $ | 944 | | | 1,068 | | | (124) | | | (12) | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Selected Metrics | | | | | | | | | | | | | | | | | | | | | |
Return on allocated capital | 30.5 | % | | 27.1 | | | | | | | 29.7 | % | | 24.1 | | | | | | | | | | | |
Efficiency ratio | 82 | | | 79 | | | | | | | 82 | | | 82 | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Client assets ($ in billions, period-end): | | | | | | | | | | | | | | | | | | | | | |
Advisory assets | $ | 850 | | | 800 | | | 50 | | | 6 | | | $ | 850 | | | 800 | | | 50 | | | 6 | | | | | | | |
Other brokerage assets and deposits | 1,148 | | | 1,035 | | | 113 | | | 11 | | | 1,148 | | | 1,035 | | | 113 | | | 11 | | | | | | | |
Total client assets | $ | 1,998 | | | 1,835 | | | 163 | | | 9 | | | $ | 1,998 | | | 1,835 | | | 163 | | | 9 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Selected Balance Sheet Data (average) | | | | | | | | | | | | | | | | | | | | | |
Total loans | $ | 83,045 | | | 85,912 | | | (2,867) | | | (3) | | | $ | 83,331 | | | 85,342 | | | (2,011) | | | (2) | | | | | | | |
Total deposits | 112,360 | | | 173,670 | | | (61,310) | | | (35) | | | 119,443 | | | 179,708 | | | (60,265) | | | (34) | | | | | | | |
Allocated capital | 6,250 | | | 8,750 | | | (2,500) | | | (29) | | | 6,250 | | | 8,750 | | | (2,500) | | | (29) | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Selected Balance Sheet Data (period-end) | | | | | | | | | | | | | | | | | | | | | |
Total loans | $ | 82,456 | | | 85,342 | | | (2,886) | | | (3) | | | $ | 82,456 | | | 85,342 | | | (2,886) | | | (3) | | | | | | | |
Total deposits | 108,532 | | | 165,633 | | | (57,101) | | | (34) | | | 108,532 | | | 165,633 | | | (57,101) | | | (34) | | | | | | | |
ThirdSecond quarter 20222023 vs. thirdsecond quarter 20212022
Revenue increaseddecreased driven by:
•higher net interest income predominantly driven by higher interest rates;
partially offset by:
•lower investment advisory and other asset-based fees due
to lower average market valuations.valuations and net outflows of advisory assets;
partially offset by:
•higher net interest income reflecting higher interest rates, partially offset by lower deposit balances.
Provision for credit losses Noninterest expensereflected loan growth increased driven by:
•higher operating costs;
partially offset by:
•lower personnel expense driven by lower revenue-related incentive compensation; and a less favorable economic environment.
•the impact of efficiency initiatives.
Total deposits (average and period-end) decreased due to customer migration to higher yielding alternatives.
Earnings Performance (continued)
First half of 2023 vs. first half of 2022
Revenue decreased driven by:
•lower investment advisory and other asset-based fees due to lower average market valuations and net outflows of advisory assets;
partially offset by:
•higher net interest income reflecting higher interest rates, partially offset by lower deposit balances; and
•higher commissions and brokerage services fees due to higher service fee rates.
Provision for credit losses included a $77 million increase in the allowance for credit losses reflecting a less favorable economic outlook and portfolio credit normalization.
Noninterest expense decreased driven by:
•lower personnel expense driven by lower revenue-related incentive compensation; and
•the impact of efficiency initiatives;
partially offset by:
•higher operating costs.
Total deposits (average) decreased as customers continueddue to allocate more cash intocustomer migration to higher yielding liquid alternatives.
First nine months of 2022 vs. first nine months of 2021
Revenue increased driven by:
•higher net interest income predominantly driven by higher interest rates;
partially offset by:
•lower investment advisory and other asset-based fees due to lower average market valuations; and
•lower commissions and brokerage services fees due to lower transactional revenue.
Provision for credit losses reflectedloan growth and a less favorable economic environment.
Noninterest expense increased driven by:
•higher operating costs;
partially offset by:
•lower personnel expense driven by lower revenue-related compensation.
Total deposits (period-end) decreased as customers continued to allocate more cash into higher yielding liquid alternatives.
WIM Advisory Assets In addition to transactional accounts, WIM offers advisory account relationships to brokerage customers. Fees from advisory accounts are generally 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. 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 6h presents advisory assets activity by WIM line of business. 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 thirdboth second quarter 20222023 and 2021,2022, the average fee rate by account type ranged from 50 to 120 basis points.
Table 6h: WIM Advisory 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, 2022 | | |
June 30, 2023 | | June 30, 2023 | |
Client-directed (4) | Client-directed (4) | $ | 167.0 | | 7.1 | | (8.7) | | (7.4) | | 158.0 | | | $ | 205.6 | | 23.4 | | (28.9) | | (42.1) | | 158.0 | | Client-directed (4) | $ | 171.9 | | 8.2 | | (9.1) | | 6.4 | | 177.4 | | | $ | 165.2 | | 16.4 | | (17.5) | | 13.3 | | 177.4 | |
Financial advisor-directed (5) | Financial advisor-directed (5) | 218.6 | | 9.6 | | (11.1) | | (8.0) | | 209.1 | | | 255.5 | | 32.0 | | (32.3) | | (46.1) | | 209.1 | | Financial advisor-directed (5) | 233.1 | | 9.5 | | (10.1) | | 11.2 | | 243.7 | | | 222.9 | | 18.9 | | (19.3) | | 21.2 | | 243.7 | |
Separate accounts (6) | Separate accounts (6) | 171.6 | | 5.5 | | (5.7) | | (7.3) | | 164.1 | | | 203.3 | | 19.1 | | (19.9) | | (38.4) | | 164.1 | | Separate accounts (6) | 182.7 | | 5.8 | | (6.8) | | 6.8 | | 188.5 | | | 176.5 | | 11.7 | | (12.9) | | 13.2 | | 188.5 | |
Mutual fund advisory (7) | Mutual fund advisory (7) | 82.2 | | 1.8 | | (3.2) | | (4.5) | | 76.3 | | | 102.1 | | 7.1 | | (11.2) | | (21.7) | | 76.3 | | Mutual fund advisory (7) | 80.6 | | 1.8 | | (3.1) | | 2.6 | | 81.9 | | | 78.6 | | 3.8 | | (6.2) | | 5.7 | | 81.9 | |
Total Wells Fargo Advisors | Total Wells Fargo Advisors | $ | 639.4 | | 24.0 | | (28.7) | | (27.2) | | 607.5 | | | $ | 766.5 | | 81.6 | | (92.3) | | (148.3) | | 607.5 | | Total Wells Fargo Advisors | $ | 668.3 | | 25.3 | | (29.1) | | 27.0 | | 691.5 | | | $ | 643.2 | | 50.8 | | (55.9) | | 53.4 | | 691.5 | |
The Private Bank (8) | The Private Bank (8) | 160.4 | | 6.1 | | (12.0) | | (5.7) | | 148.8 | | | 198.0 | | 20.6 | | (37.2) | | (32.6) | | 148.8 | | The Private Bank (8) | 156.8 | | 6.1 | | (8.9) | | 4.0 | | 158.0 | | | 153.6 | | 13.4 | | (18.2) | | 9.2 | | 158.0 | |
Total WIM advisory assets | Total WIM advisory assets | $ | 799.8 | | 30.1 | | (40.7) | | (32.9) | | 756.3 | | | $ | 964.5 | | 102.2 | | (129.5) | | (180.9) | | 756.3 | | Total WIM advisory assets | $ | 825.1 | | 31.4 | | (38.0) | | 31.0 | | 849.5 | | | $ | 796.8 | | 64.2 | | (74.1) | | 62.6 | | 849.5 | |
September 30, 2021 | | | | |
June 30, 2022 | | June 30, 2022 | | | |
Client-directed (4) | Client-directed (4) | $ | 201.3 | | 9.4 | | (11.7) | | (2.1) | | 196.9 | | | $ | 186.3 | | 31.1 | | (33.7) | | 13.2 | | 196.9 | | Client-directed (4) | $ | 193.7 | | 7.5 | | (10.0) | | (24.2) | | 167.0 | | | $ | 205.6 | | 16.3 | | (20.2) | | (34.7) | | 167.0 | |
Financial advisor-directed (5) | Financial advisor-directed (5) | 238.0 | | 11.0 | | (9.0) | | (0.7) | | 239.3 | | | 211.0 | | 35.6 | | (28.9) | | 21.6 | | 239.3 | | Financial advisor-directed (5) | 247.2 | | 9.8 | | (11.3) | | (27.1) | | 218.6 | | | 255.5 | | 22.4 | | (21.2) | | (38.1) | | 218.6 | |
Separate accounts (6) | Separate accounts (6) | 192.9 | | 7.5 | | (8.7) | | (0.8) | | 190.9 | | | 174.6 | | 24.0 | | (23.4) | | 15.7 | | 190.9 | | Separate accounts (6) | 192.8 | | 6.1 | | (7.2) | | (20.1) | | 171.6 | | | 203.3 | | 13.6 | | (14.2) | | (31.1) | | 171.6 | |
Mutual fund advisory (7) | Mutual fund advisory (7) | 100.1 | | 3.9 | | (4.0) | | (0.8) | | 99.2 | | | 91.4 | | 12.2 | | (11.1) | | 6.7 | | 99.2 | | Mutual fund advisory (7) | 95.1 | | 2.1 | | (4.0) | | (11.0) | | 82.2 | | | 102.1 | | 5.3 | | (8.0) | | (17.2) | | 82.2 | |
Total Wells Fargo Advisors | Total Wells Fargo Advisors | $ | 732.3 | | 31.8 | | (33.4) | | (4.4) | | 726.3 | | | $ | 663.3 | | 102.9 | | (97.1) | | 57.2 | | 726.3 | | Total Wells Fargo Advisors | $ | 728.8 | | 25.5 | | (32.5) | | (82.4) | | 639.4 | | | $ | 766.5 | | 57.6 | | (63.6) | | (121.1) | | 639.4 | |
The Private Bank (8) | The Private Bank (8) | 198.4 | | 9.6 | | (13.1) | | (1.3) | | 193.6 | | | 189.4 | | 27.8 | | (36.7) | | 13.1 | | 193.6 | | The Private Bank (8) | 183.6 | | 7.1 | | (13.5) | | (16.8) | | 160.4 | | | 198.0 | | 14.5 | | (25.2) | | (26.9) | | 160.4 | |
Total WIM advisory assets | Total WIM advisory assets | $ | 930.7 | | 41.4 | | (46.5) | | (5.7) | | 919.9 | | | $ | 852.7 | | 130.7 | | (133.8) | | 70.3 | | 919.9 | | Total WIM advisory assets | $ | 912.4 | | 32.6 | | (46.0) | | (99.2) | | 799.8 | | | $ | 964.5 | | 72.1 | | (88.8) | | (148.0) | | 799.8 | |
|
(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 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. Table 6i and
Table 6j provide additional information for Corporate.
Table 6i: Corporate – Income Statement
| | | Quarter ended Sep 30, | | Nine months ended Sep 30, | | | | Quarter ended June 30, | | Six months ended June 30, | | |
(in millions) | (in millions) | 2022 | | 2021 | | $ Change | | % Change | | 2022 | | 2021 | | $ Change | | % Change | | (in millions) | 2023 | | 2022 | | $ Change | | % Change | | 2023 | | 2022 | | $ Change | | % Change | |
Income Statement | Income Statement | | | Income Statement | | |
Net interest income | Net interest income | $ | (248) | | | (427) | | | 179 | | | 42 | % | | $ | (1,685) | | | (1,121) | | | (564) | | | (50) | % | | Net interest income | $ | (91) | | | (619) | | | 528 | | | 85 | % | | $ | (75) | | | (1,437) | | | 1,362 | | | 95 | % | |
Noninterest income | Noninterest income | 284 | | | 1,752 | | | (1,468) | | | (84) | | | 976 | | | 6,496 | | | (5,520) | | | (85) | | | Noninterest income | 121 | | | (102) | | | 223 | | | 219 | | | 126 | | | 840 | | | (714) | | | (85) | | |
Total revenue | Total revenue | 36 | | | 1,325 | | | (1,289) | | | (97) | | | (709) | | | 5,375 | | | (6,084) | | | NM | | Total revenue | 30 | | | (721) | | | 751 | | | 104 | | | 51 | | | (597) | | | 648 | | | 109 | |
Net charge-offs | Net charge-offs | (16) | | | (10) | | | (6) | | | (60) | | | (28) | | | 59 | | | (87) | | | NM | | Net charge-offs | (2) | | | (6) | | | 4 | | | 67 | | | (4) | | | (12) | | | 8 | | | 67 | |
Change in the allowance for credit losses | Change in the allowance for credit losses | 11 | | | 1�� | | | 10 | | | NM | | 18 | | | (5) | | | 23 | | | 460 | | | Change in the allowance for credit losses | (142) | | | 21 | | | (163) | | | NM | | (20) | | | 7 | | | (27) | | | NM | |
Provision for credit losses | Provision for credit losses | (5) | | | (9) | | | 4 | | | 44 | | | (10) | | | 54 | | | (64) | | | NM | | Provision for credit losses | (144) | | | 15 | | | (159) | | | NM | | (24) | | | (5) | | | (19) | | | NM | |
Noninterest expense | Noninterest expense | 1,347 | | | 1,140 | | | 207 | | | 18 | | | 2,751 | | | 3,371 | | | (620) | | | (18) | | | Noninterest expense | 269 | | | 597 | | | (328) | | | (55) | | | 877 | | | 1,364 | | | (487) | | | (36) | | |
Income (loss) before income tax benefit | (1,306) | | | 194 | | | (1,500) | | | NM | | (3,450) | | | 1,950 | | | (5,400) | | | NM | | |
Income tax expense (benefit) | (189) | | | 110 | | | (299) | | | NM | | (658) | | | 58 | | | (716) | | | NM | | |
Less: Net income (loss) from noncontrolling interests (1) | (31) | | | 281 | | | (312) | | | NM | | (73) | | | 1,038 | | | (1,111) | | | NM | | |
Loss before income tax benefit | | Loss before income tax benefit | (95) | | | (1,333) | | | 1,238 | | | 93 | | | (802) | | | (1,956) | | | 1,154 | | | 59 | |
Income tax benefit | | Income tax benefit | (103) | | | (233) | | | 130 | | | 56 | | | (375) | | | (421) | | | 46 | | | 11 | |
Less: Net loss from noncontrolling interests (1) | | Less: Net loss from noncontrolling interests (1) | (38) | | | (169) | | | 131 | | | 78 | | | (152) | | | (42) | | | (110) | | | NM | |
Net income (loss) | Net income (loss) | $ | (1,086) | | | (197) | | | (889) | | | NM | | $ | (2,719) | | | 854 | | | (3,573) | | | NM | | Net income (loss) | $ | 46 | | | (931) | | | 977 | | | 105 | | | $ | (275) | | | (1,493) | | | 1,218 | | | 82 | |
|
NM – Not meaningful
(1)Reflects results attributable to noncontrolling interests predominantly associated with the Company’s consolidated venture capital investments.
ThirdSecond quarter 20222023 vs. thirdsecond quarter 20212022
Revenue decreasedincreased driven by:
•higher net interest income reflecting higher interest rates; and
•lower net gains fromimpairments of equity securities due toand higher unrealized gains on marketable equity securities, partially offset by lower unrealized gains on nonmarketable equity securities from our affiliated venture capital and private equity businesses, and higher impairment driven by market conditions;businesses;
•lower investment advisory and other asset-based fees reflecting divestitures in fourth quarter 2021; andpartially offset by:
•lower gains on the sales of corporate debt securities;securities in our investment portfolio.
partially offset
Provision for credit losses reflected a decrease in allowance for credit losses.
Noninterest expense decreased driven by lower operating losses.
First half of 2023 vs. first half of 2022
Revenue increased driven by:
•higher net interest income reflecting higher interest rates, partially offset by the sale of our Corporate Trust Services business in 2021.
Noninterest expense increased due to:
•higher operating losses reflecting higher accruals primarily related to a variety of historical matters, including litigation and regulatory matters; and
•higher pension plan expenses;rates;
partially offset by:
•the impact of divestitures.
First nine months of 2022 vs. first nine months of 2021
Revenue decreased driven by:
•lower net gains from equity securities due to lower unrealized and realized gains on nonmarketable equity securities from our affiliated venture capital and private equity businesses, partially offset by lower impairment of equity securities and higher impairment driven by market conditions;
•lower investment advisory and other asset-based fees reflecting divestitures in fourth quarter 2021;
•lower net interest income due to higher deposit crediting rates paid to the operating segments and the sales of our student loan portfolio and our Corporate Trust Services business in 2021;
•lowerunrealized gains on sales of corporate debt securities; and
•a gain on the sale of our student loan portfolio in the first nine months of 2021;
partially offset by:
•lower valuation losses related to the retained litigation risk associated with shares of Visa Class B common stock that we sold.
Provision for credit losses decreased due to lower net charge-offs driven by the sale of our student loan portfolio in the first nine months of 2021.marketable equity securities.
Noninterest expense decreased due to:driven by:
•the impact of divestitures;
•a write-down of goodwill in the first nine months of 2021 related to the sale of our student loan portfolio; and
•lower lease expense driven by lower depreciation expense from a reduction in the size of our rail car leasing business;
partially offset by:
•higher operating losses reflecting higher accruals primarily related to a variety of historical matters, including litigation and regulatory matters; and
•higher pension plan expenses.losses.
Corporate includes our rail car leasing business, which had long-lived operating lease assets, net of accumulated depreciation, of $4.8 billion and $5.1 billion as of September 30, 2022, and December 31, 2021, respectively. The average age of our rail cars is 21 years and the rail cars are typically leased to customers under short-term leases of 3 to 5 years. Our three largest concentrations, which represented 55% of our rail car fleet as of September 30, 2022, were rail cars used for the transportation of agricultural grain, coal, and cement/sand products. Impairment 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
Earnings Performance (continued)
Corporate includes our rail car leasing business, which had long-lived operating lease assets, net of accumulated depreciation, of $4.5 billion and $4.7 billion as of June 30, 2023, and December 31, 2022, respectively. The average age of our rail cars is 22 years and the rail cars are typically leased to customers under short-term leases of 3 to 5 years. Our four largest concentrations, which represented 67% of our rail car fleet as of June 30, 2023, were rail cars used for the transportation of cement/sand, agricultural grain, plastics, and coal products. We
may incur impairment charges 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) and Note 8 (Leasing Activity) to Financial Statements in our 2022 Form 10-K.
Table 6j: Corporate – Balance Sheet
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended June 30, | | | | | | Six months ended June 30, | | | | | | | | | | |
(in millions) | 2023 | | 2022 | | $ Change | | % Change | | 2023 | | 2022 | | $ Change | | % Change | | | | | | |
Selected Balance Sheet Data (average) | | | | | | | | | | | | | | | | | | | | | |
Cash and due from banks, and interest-earning deposits with banks | $ | 132,505 | | | 145,637 | | | (13,132) | | | (9) | % | | $ | 125,004 | | | 162,101 | | | (37,097) | | | (23) | % | | | | | | |
Available-for-sale debt securities (1) | 130,496 | | | 127,997 | | | 2,499 | | | 2 | | | 129,638 | | | 142,297 | | | (12,659) | | | (9) | | | | | | | |
Held-to-maturity debt securities (1) | 270,999 | | | 291,710 | | | (20,711) | | | (7) | | | 271,854 | | | 283,655 | | | (11,801) | | | (4) | | | | | | | |
Equity securities | 15,327 | | | 15,681 | | | (354) | | | (2) | | | 15,422 | | | 15,720 | | | (298) | | | (2) | | | | | | | |
Total loans | 9,216 | | | 9,083 | | | 133 | | | 1 | | | 9,185 | | | 9,187 | | | (2) | | | — | | | | | | | |
Total assets | 610,417 | | | 642,606 | | | (32,189) | | | (5) | | | 603,293 | | | 664,853 | | | (61,560) | | | (9) | | | | | | | |
Total deposits | 84,752 | | | 20,327 | | | 64,425 | | | 317 | | | 72,846 | | | 23,665 | | | 49,181 | | | 208 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Selected Balance Sheet Data (period-end) | | | | | | | | | | | | | | | | | | | | | |
Cash and due from banks, and interest-earning deposits with banks | $ | 128,077 | | | 123,872 | | | 4,205 | | | 3 | | | $ | 128,077 | | | 123,872 | | | 4,205 | | | 3 | | | | | | | |
Available-for-sale debt securities (1) | 123,169 | | | 114,469 | | | 8,700 | | | 8 | | | 123,169 | | | 114,469 | | | 8,700 | | | 8 | | | | | | | |
Held-to-maturity debt securities (1) | 269,414 | | | 298,895 | | | (29,481) | | | (10) | | | 269,414 | | | 298,895 | | | (29,481) | | | (10) | | | | | | | |
Equity securities | 15,097 | | | 15,004 | | | 93 | | | 1 | | | 15,097 | | | 15,004 | | | 93 | | | 1 | | | | | | | |
Total loans | 9,231 | | | 9,133 | | | 98 | | | 1 | | | 9,231 | | | 9,133 | | | 98 | | | 1 | | | | | | | |
Total assets | 593,597 | | | 611,657 | | | (18,060) | | | (3) | | | 593,597 | | | 611,657 | | | (18,060) | | | (3) | | | | | | | |
Total deposits | 92,023 | | | 21,563 | | | 70,460 | | | 327 | | | 92,023 | | | 21,563 | | | 70,460 | | | 327 | | | | | | | |
(1)In first quarter 2023, we reclassified HTM debt securities with a fair value of $23.2 billion to AFS debt securities in connection with the adoption of ASU 2022-01 – Derivatives and Hedging (Topic 815): Fair Value Hedging – Portfolio Layer Method. For additional information, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2021 Form 10-K.
Table 6j:this Report. Corporate – Balance Sheet
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended Sep 30, | | | | | | Nine months ended Sep 30, | | | | | | | | | | |
(in millions) | 2022 | | 2021 | | $ Change | | % Change | | 2022 | | 2021 | | $ Change | | % Change | | | | | | |
Selected Balance Sheet Data (average) | | | | | | | | | | | | | | | | | | | | | |
Cash, cash equivalents, and restricted cash | $ | 134,725 | | | 250,414 | | | (115,689) | | | (46) | % | | $ | 152,875 | | | 242,853 | | | (89,978) | | | (37) | % | | | | | | |
Available-for-sale debt securities | 110,575 | | | 172,035 | | | (61,460) | | | (36) | | | 131,607 | | | 185,847 | | | (54,240) | | | (29) | | | | | | | |
Held-to-maturity debt securities | 297,335 | | | 260,167 | | | 37,168 | | | 14 | | | 288,265 | | | 238,591 | | | 49,674 | | | 21 | | | | | | | |
Equity securities | 15,423 | | | 13,254 | | | 2,169 | | | 16 | | | 15,620 | | | 11,894 | | | 3,726 | | | 31 | | | | | | | |
Total loans | 9,112 | | | 9,765 | | | (653) | | | (7) | | | 9,163 | | | 10,021 | | | (858) | | | (9) | | | | | | | |
Total assets | 617,713 | | | 762,067 | | | (144,354) | | | (19) | | | 648,966 | | | 748,236 | | | (99,270) | | | (13) | | | | | | | |
Total deposits | 24,386 | | | 37,302 | | | (12,916) | | | (35) | | | 23,909 | | | 41,796 | | | (17,887) | | | (43) | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Selected Balance Sheet Data (period-end) | | | | | | | | | | | | | | | | | | | | | |
Cash, cash equivalents, and restricted cash | $ | 141,743 | | | 241,423 | | | (99,680) | | | (41) | | | $ | 141,743 | | | 241,423 | | | (99,680) | | | (41) | | | | | | | |
Available-for-sale debt securities | 104,726 | | | 173,237 | | | (68,511) | | | (40) | | | 104,726 | | | 173,237 | | | (68,511) | | | (40) | | | | | | | |
Held-to-maturity debt securities | 297,530 | | | 261,583 | | | 35,947 | | | 14 | | | 297,530 | | | 261,583 | | | 35,947 | | | 14 | | | | | | | |
Equity securities | 15,581 | | | 14,022 | | | 1,559 | | | 11 | | | 15,581 | | | 14,022 | | | 1,559 | | | 11 | | | | | | | |
Total loans | 9,096 | | | 9,589 | | | (493) | | | (5) | | | 9,096 | | | 9,589 | | | (493) | | | (5) | | | | | | | |
Total assets | 615,408 | | | 751,155 | | | (135,747) | | | (18) | | | 615,408 | | | 751,155 | | | (135,747) | | | (18) | | | | | | | |
Total deposits | 34,993 | | | 37,507 | | | (2,514) | | | (7) | | | 34,993 | | | 37,507 | | | (2,514) | | | (7) | | | | | | | |
ThirdSecond quarter 20222023 vs. thirdsecond quarter 2021
Total assets (average) decreased reflecting:
•a decrease in cash, cash equivalents, and restricted cash managed by corporate treasury as a result of a decrease in deposits and an increase in loans in the operating segments; and
•lower available-for-sale debt securities due to sales and net unrealized losses, as well as a transfer from available-for-sale debt securities to held-to-maturity debt securities related to portfolio rebalancing to manage liquidity and interest rate risk;
partially offset by:
•an increase in equity securities driven by our affiliated venture capital and private equity businesses.
Total deposits (average) decreased driven by the transition of trust deposits related to divested businesses.
First nine months of 2022 vs. first nine months of 2021
Total assets (average and period-end) decreased reflecting:
•a decrease in average cash cash equivalents, and restricted cashdue from banks, and interest-earning deposits with banks that are managed by corporate treasury as a result of a decrease in long-term debtdeposits in the operating segments and an increase in loans originated in the operating segments; and
•lower available-for-sale debt securities due to sales of and net unrealized losses as well as a transfer from available-for-saleon AFS debt securities to held-to-maturity debt securities related to portfolio rebalancing to manage liquiditysecurities.
Total deposits (average and interest rate risk;period-end) increased driven by issuances of certificates of deposit (CDs).
partially offset by:
First half of 2023 vs. first half of 2022
Total assets (average) decreased reflecting:
•a decrease in cash and due from banks, and interest-earning deposits with banks that are managed by corporate treasury as a result of a decrease in deposits in the operating segments and an increase in equity securities driven by our affiliated venture capitalloans originated in the operating segments; and private equity businesses.
•sales of and net unrealized losses on AFS debt securities.
Total deposits (average) decreasedincreased driven by the transition of trust deposits related to divested businesses.
Total deposits (period-end) decreased driven by the transition of trust deposits related to divested businesses, partially offset by issuances of short-term brokered certificates of deposit (CDs).CDs.
At SeptemberJune 30, 2022,2023, our assets totaled $1.88 trillion, down $70.3$4.7 billion from December 31, 2021.2022.
The following discussion provides additional information about the major components of our consolidated balance sheet. See the “Capital Management” section in this Report for information on changes in our equity.
Available-for-Sale and Held-to-Maturity Debt Securities
Table 7: Available-for-Sale and Held-to-Maturity Debt Securities
| | | September 30, 2022 | | December 31, 2021 | | June 30, 2023 | | December 31, 2022 |
($ in millions) | ($ in millions) | Amortized cost, net (1) | | Net unrealized gains (losses) | | Fair value | | Weighted average expected maturity (yrs) | | Amortized cost, net (1) | | Net unrealized gains (losses) | | Fair value | | Weighted average expected maturity (yrs) | ($ in millions) | Amortized cost, net (1) | | Net unrealized gains (losses) | | Fair value | | Weighted average expected maturity (yrs) | | Amortized cost, net (1) | | Net unrealized gains (losses) | | Fair value | | Weighted average expected maturity (yrs) |
| Available-for-sale (2) | Available-for-sale (2) | $ | 124,906 | | | (9,071) | | | 115,835 | | | 5.6 | | | $ | 175,463 | | | 1,781 | | | 177,244 | | | 5.2 | | Available-for-sale (2) | $ | 142,283 | | | (8,032) | | | 134,251 | | | 4.9 | | | $ | 121,725 | | | (8,131) | | | 113,594 | | | 5.4 | |
Held-to-maturity (3) | Held-to-maturity (3) | 300,434 | | | (44,863) | | | 255,571 | | | 8.2 | | | 272,022 | | | 364 | | | 272,386 | | | 6.3 | | Held-to-maturity (3) | 272,360 | | | (38,524) | | | 233,836 | | | 8.2 | | | 297,059 | | | (41,538) | | | 255,521 | | | 8.1 | |
Total | Total | $ | 425,340 | | | (53,934) | | | 371,406 | | | n/a | | $ | 447,485 | | | 2,145 | | | 449,630 | | | n/a | Total | $ | 414,643 | | | (46,556) | | | 368,087 | | | n/a | | $ | 418,784 | | | (49,669) | | | 369,115 | | | n/a |
|
(1)Represents amortized cost of the securities, net of the allowance for credit losses of $6$7 million and $8$6 million related to available-for-sale debt securities at September 30, 2022, and December 31, 2021, respectively,$76 million and $96$85 million related to held-to-maturity debt securities at both SeptemberJune 30, 2022,2023, and December 31, 2021.2022, respectively.
(2)Available-for-sale debt securities are carried on theour consolidated balance sheet at fair value.
(3)Held-to-maturity debt securities are carried on theour consolidated balance sheet at amortized cost, net of the allowance for credit losses.
Table 7 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 20212022 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 amortized cost, net of the allowance for credit losses, of AFS and HTM debt securities decreased from December 31, 2021.2022. Purchases of AFS and HTM debt securities including HTM debt securities through securitizations of loans held for sale (LHFS), were more than offset by portfolio runoff and sales of AFS debt security sales. securities.
In addition, we transferred AFS debt securities with a fair value of $48.6$3.7 billion to HTM debt securities in the first nine monthshalf of 20222023 due to actions taken to reposition the overall portfolio for capital management purposes. Debt securities transferred from AFS to HTM in the first nine monthshalf of 20222023 had $4.3 billion$320 million of pre-tax unrealized losses at the time of the transfers.
Additionally, in first quarter 2023, we also reclassified HTM debt securities with an aggregate fair value of $23.2 billion and amortized cost of $23.9 billion to AFS debt securities in connection with the adoption of ASU 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging – Portfolio Layer Method. For additional information on our adoption of ASU 2022-01, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report.
The total net unrealized losses on AFS and HTM debt securities at September 30,decreased from December 31, 2022 were driven by higherdue to changes in interest rates and wider credit spreads.rates.
At SeptemberJune 30, 2022,2023, 99% of the combined AFS and HTM debt securities portfolio was rated AA- or above. Ratings are based on external ratings where available and, where not available, based on internal credit grades. See Note 3 (Available-for-Sale and Held-to-Maturity Debt Securities) to Financial Statements in this Report for additional information on AFS and HTM debt securities, including a summary of debt securities by security type.
Balance Sheet Analysis (continued)
Loan Portfolios
Table 8 provides a summary of total outstanding loans by portfolio segment. Commercial loans increaseddecreased from December 31, 2021, primarily2022, predominantly due to an increasea decrease in the commercial and industrialreal estate loan portfolio driven by higher loan demand resulting in increased originations and loan draws, partially offset by paydowns. Consumer loans increased fromas paydowns exceeded
originations and advances. Consumer loans decreased from December 31, 2021, predominantly driven2022, as increases in the credit card portfolio were more than offset by an increasedecreases in all other consumer loan portfolios, primarily the residential mortgage – first lien portfolio due to loan originations, partially offset by loan paydowns and the transfer of first lien mortgage loans to loans held for sale (LHFS), which predominantly related to loans purchased from GNMA loan securitization pools in prior periods.portfolio.
Table 8: Loan Portfolios
| ($ in millions) | ($ in millions) | September 30, 2022 | | December 31, 2021 | | $ Change | | % Change | ($ in millions) | Jun 30, 2023 | | Dec 31, 2022 | | $ Change | | % Change |
Commercial | Commercial | $ | 549,970 | | | 513,120 | | | 36,850 | | | 7 | % | Commercial | $ | 555,621 | | | 557,516 | | | (1,895) | | | — | % |
Consumer | Consumer | 395,936 | | | 382,274 | | | 13,662 | | | 4 | | Consumer | 392,339 | | | 398,355 | | | (6,016) | | | (2) | |
Total loans | Total loans | $ | 945,906 | | | 895,394 | | | 50,512 | | | 6 | | Total loans | $ | 947,960 | | | 955,871 | | | (7,911) | | | (1) | |
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 45 (Loans and Related Allowance for Credit Losses) to Financial Statements in this Report.
See the “Balance Sheet Analysis – Loan Portfolios” section in our 20212022 Form 10-K for additional information regarding contractual loan maturities and the distribution of loans to changes in interest rates.
Deposits
Deposits decreased from December 31, 2021,2022, reflecting:
•customers continuingcustomer migration to allocate more cash into higher yielding liquid alternatives;
•elevated consumer spending, partially offset by higher levels of liquidity and savings for certain consumer customers; and
•the transition of trust deposits related to divested businesses;consumer deposit outflows on consumer spending;
partially offset by:
•higher time deposits driven by issuances of short-term brokered CDs.certificates of deposit (CDs).
Table 9 provides additional information regarding deposits.deposit balances. 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. In response to higher interest rates, our average deposit cost in second quarter 2023 increased to 1.13%, compared with 0.46% in fourth quarter 2022.
Table 9: Deposits
| ($ in millions) | ($ in millions) | Sep 30, 2022 | | % of total deposits | | Dec 31, 2021 | | % of total deposits | | $ Change | | % Change | ($ in millions) | Jun 30, 2023 | | % of total deposits | | Dec 31, 2022 | | % of total deposits | | $ Change | | % Change |
Noninterest-bearing demand deposits | Noninterest-bearing demand deposits | $ | 494,594 | | | 35 | % | | $ | 527,748 | | | 36 | % | | $ | (33,154) | | | (6) | % | Noninterest-bearing demand deposits | $ | 402,322 | | | 30 | % | | $ | 458,010 | | | 33 | % | | $ | (55,688) | | | (12) | % |
Interest-bearing demand deposits | Interest-bearing demand deposits | 418,902 | | | 30 | | | 465,887 | | | 31 | | | (46,985) | | | (10) | | Interest-bearing demand deposits | 417,159 | | | 31 | | | 428,877 | | | 31 | | | (11,718) | | | (3) | |
Savings deposits | Savings deposits | 427,778 | | | 31 | | | 439,600 | | | 30 | | | (11,822) | | | (3) | | Savings deposits | 376,538 | | | 28 | | | 410,139 | | | 30 | | | (33,601) | | | (8) | |
Time deposits | Time deposits | 38,475 | | | 3 | | | 29,461 | | | 2 | | | 9,014 | | | 31 | Time deposits | 126,387 | | | 9 | | | 66,197 | | | 5 | | | 60,190 | | | 91 |
Interest-bearing deposits in non-U.S. offices | Interest-bearing deposits in non-U.S. offices | 18,402 | | | 1 | | | 19,783 | | | 1 | | | (1,381) | | | (7) | | Interest-bearing deposits in non-U.S. offices | 22,178 | | | 2 | | | 20,762 | | | 1 | | | 1,416 | | | 7 | |
Total deposits | Total deposits | $ | 1,398,151 | | | 100 | % | | $ | 1,482,479 | | | 100 | % | | $ | (84,328) | | | (6) | | Total deposits | $ | 1,344,584 | | | 100 | % | | $ | 1,383,985 | | | 100 | % | | $ | (39,401) | | | (3) | |
| | |
Off-Balance Sheet Arrangements |
In the ordinary course of business, we engage in financial transactions that are not recorded on theour consolidated balance sheet, or may be recorded on theour consolidated balance sheet in amounts that are different from the full contract or notional amount of the transaction. Our off-balance sheet arrangements include unfunded credit commitments, transactions with unconsolidated entities, guarantees, commitments to purchase debt and equity securities, 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.
Unfunded Credit Commitments
Unfunded credit commitments are legally binding agreements to lend to customers with terms covering usage of funds, contractual interest rates, expiration dates, and any required collateral. The maximum credit risk for these commitments will generally be lower than the contractual amount because these commitments may expire without being used or may be cancelled at the customer’s request. Our credit risk monitoring activities include managing the amount of commitments, both to individual customers and in total, and the size and maturity structure of these commitments. For additional information, see Note 45 (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 813 (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 1114 (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 1114 (Guarantees 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 theour 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 theour 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 1411 (Derivatives) to Financial Statements in this Report.
Wells Fargo manages a variety of risks that can significantly affect our financial performance and our ability to meet the expectations of our customers, shareholders, regulators and other stakeholders. We continue to monitor our business, including our loan portfolios, for any direct, indirect, and macro-economic impacts stemming from the conflict in Ukraine and any associated economic sanctions.
For additional information about how we manage risk, see the “Risk Management” section in our 20212022 Form 10-K. The discussion that follows supplements our discussion of the management of certain risks contained in the “Risk Management” section in our 20212022 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 the Company’s assets and exposures such as loans, debt securities,security holdings, certain derivatives, and certain derivatives.loans.
The Board’s Risk 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, Corporate Credit Risk, which is part of Independent Risk Management, has oversight responsibility for credit risk. Corporate Credit Risk reports to the Chief Risk Officer and supports periodic reports related to credit risk provided to the Board’s Risk Committee or its Credit Subcommittee.
Loan Portfolio Our loan portfolios represent the largest component of assets on our consolidated balance sheet for which we have credit risk. Table 10 presents our total loans outstanding by portfolio segment and class of financing receivable.
Table 10: Total Loans Outstanding by Portfolio Segment and Class of Financing Receivable
| (in millions) | (in millions) | Sep 30, 2022 | | Dec 31, 2021 | (in millions) | Jun 30, 2023 | | Dec 31, 2022 |
Commercial: | | |
Commercial and industrial | Commercial and industrial | $ | 379,694 | | | 350,436 | | Commercial and industrial | $ | 386,011 | | | 386,806 | |
Real estate mortgage | 133,770 | | | 127,733 | | |
Real estate construction | 21,889 | | | 20,092 | | |
| Commercial real estate | | Commercial real estate | 154,276 | | | 155,802 | |
Lease financing | Lease financing | 14,617 | | | 14,859 | | Lease financing | 15,334 | | | 14,908 | |
Total commercial | Total commercial | 549,970 | | | 513,120 | | Total commercial | 555,621 | | | 557,516 | |
Consumer: | | |
Residential mortgage – first lien | 254,165 | | | 242,270 | | |
Residential mortgage – junior lien | 13,900 | | | 16,618 | | |
| Residential mortgage | | Residential mortgage | 265,085 | | | 269,117 | |
Credit card | Credit card | 43,558 | | | 38,453 | | Credit card | 47,717 | | | 46,293 | |
Auto | Auto | 54,545 | | | 56,659 | | Auto | 51,587 | | | 53,669 | |
Other consumer | Other consumer | 29,768 | | | 28,274 | | Other consumer | 27,950 | | | 29,276 | |
Total consumer | Total consumer | 395,936 | | | 382,274 | | Total consumer | 392,339 | | | 398,355 | |
Total loans | Total loans | $ | 945,906 | | | 895,394 | | Total loans | $ | 947,960 | | | 955,871 | |
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 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.
In addition, the Company will continue to integrate climate considerations into its credit risk management activities.
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 CreditTable 11 provides credit quality in third quarter 2022 reflected:trends.
•Table 11:Nonaccrual loans were $5.6 billion at September 30, 2022, compared with $7.2 billion at December 31, 2021. Commercial nonaccrual loans decreased to $1.7 billion at September 30, 2022, compared with $2.4 billion at December 31, 2021, and consumer nonaccrual loans decreased to $3.9 billion at September 30, 2022, compared with $4.8 billion at December 31, 2021. Nonaccrual loans represented 0.59% of total loans at September 30, 2022, compared with 0.81% at December 31, 2021.Credit Quality Overview
•Net loan charge-offs (recoveries) as a percentage of our average commercial and consumer loan portfolios were 0.00% and 0.40% in the third quarter and 0.00% and 0.36% in the first nine months of 2022, respectively, compared with 0.03% and 0.23% in the third quarter and 0.07% and 0.31%, respectively, in the first nine months of 2021.
•Loans that are not government insured/guaranteed and 90 days or more past due and still accruing were $802 million and $496 million in our commercial and consumer portfolios, respectively, at September 30, 2022, compared with $235 million and $424 million at December 31, 2021.
•Our provision for credit losses for loans was $773 million and $576 million in the third quarter and first nine months of 2022, respectively, compared with $(1.4) billion and $(3.7) billion for the same periods a year ago.
•The ACL for loans decreased to $13.2 billion, or 1.40% of total loans, at September 30, 2022, compared with $13.8 billion, or 1.54%, at December 31, 2021.
| | | | | | | | | | | |
($ in millions) | Jun 30, 2023 | | Dec 31, 2022 |
Nonaccrual loans | | | |
Commercial loans | $ | 3,429 | | | 1,823 | |
Consumer loans | 3,457 | | | 3,803 | |
Total nonaccrual loans | $ | 6,886 | | | 5,626 | |
Nonaccrual loans as a % of total loans | 0.73 | % | | 0.59 | |
| | | |
| | | |
| | | |
| | | |
| | | |
Allowance for credit losses (ACL) for loans | $ | 14,786 | | | 13,609 | |
ACL for loans as a % of total loans | 1.56 | % | | 1.42 | |
| | | |
| Quarter ended June 30, |
| 2023 | | 2022 |
Net loan charge-offs as a % of: | | | |
Average commercial loans | 0.15 | % | | 0.02 | |
Average consumer loans | 0.58 | | | 0.33 | |
| | | |
| Six months ended June 30, |
| 2023 | | 2022 |
Average commercial loans | 0.10 | % | | — | |
Average consumer loans | 0.57 | | | 0.34 | |
Additional information on our loan portfolios and our credit quality trends follows.
Significant Loan Portfolio Reviews Measuring and monitoring our credit risk is an ongoing process that tracks delinquencies, collateral values, Fair Isaac Corporation (FICO) scores, economic trends by geographic areas, loan-level risk grading for certain portfolios (typically commercial) and other indications of credit risk. Our credit risk monitoring process is designed to enable early identification of developing risk and to support our determination of an appropriate allowance for credit losses. The following discussion provides additional characteristics and analysis of our significant portfolios. See Note 45 (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 regulatory definitions of pass and criticized categories with criticized segmented among special mention, substandard, doubtful and loss categories.
We had $11.3$13.0 billion of the commercial and industrial loans and lease financing portfolio internally classified as criticized in accordance with regulatory guidance at SeptemberJune 30, 2022,2023, compared with $13.0$12.6 billion at December 31, 2021. The decline was driven by decreases in the technology, telecom and media, real estate and construction, and oil, gas and pipelines industries, as these industries continued to recover from the economic impacts of the COVID-19 pandemic, partially offset by an increase in the equipment, machinery and parts manufacturing, and auto related industries.2022.
The majority of our commercial and industrial loans and lease financing portfolio is secured by short-term assets, such as accounts receivable, inventory and debt securities, as well as long-lived assets, such as equipment and other business assets. Generally, the primary source of repayment for this portfolio is
the operating cash flows of customers, with the collateral securing this portfolio representing a secondary source of repayment.
The portfolio increasedwas stable at SeptemberJune 30, 2022,2023, compared with December 31, 2021, driven by higher loan demand resulting in increased originations and loan draws, partially offset by paydowns.2022. Table 1112 provides our commercial and industrial loans and lease financing by industry. The industry categories are based on the North American Industry Classification System.
Table 11:12: Commercial and Industrial Loans and Lease Financing by Industry
| | | September 30, 2022 | | December 31, 2021 | | June 30, 2023 | | December 31, 2022 |
($ in millions) | ($ in millions) | Nonaccrual loans | | Loans outstanding balance | | % of total loans | | Total commitments (1) | | Nonaccrual loans | | Loans outstanding balance | | % of total loans | | Total commitments (1) | ($ in millions) | Nonaccrual loans | | Loans outstanding balance | | % of total loans | | Total commitments (1) | | Nonaccrual loans | | Loans outstanding balance | | % of total loans | | Total commitments (1) |
Financials except banks | Financials except banks | $ | 53 | | | 144,595 | | | 15 | % | | $ | 248,059 | | | 104 | | | 142,283 | | | 16 | % | | $ | 236,133 | | Financials except banks | $ | 10 | | | 148,643 | | | 16 | % | | $ | 232,177 | | | 44 | | | 147,171 | | | 15 | % | | $ | 229,822 | |
Technology, telecom and media | Technology, telecom and media | 69 | | | 27,892 | | | 3 | | | 67,050 | | | 64 | | | 23,345 | | | 3 | | | 62,984 | | Technology, telecom and media | 43 | | | 27,186 | | | 3 | | 65,437 | | | 31 | | | 27,767 | | | 3 | | 66,340 | |
Real estate and construction | Real estate and construction | 65 | | | 25,572 | | | 3 | | | 59,197 | | | 78 | | | 25,035 | | | 3 | | | 55,304 | | Real estate and construction | 61 | | | 25,180 | | | 3 | | 55,929 | | | 73 | | | 24,478 | | | 3 | | 56,393 | |
Retail | | Retail | 83 | | | 20,658 | | | 2 | | 50,233 | | | 47 | | | 19,487 | | | 2 | | 49,334 | |
Equipment, machinery and parts manufacturing | Equipment, machinery and parts manufacturing | 14 | | | 22,915 | | | 2 | | | 46,784 | | | 24 | | | 18,130 | | | 2 | | | 43,729 | | Equipment, machinery and parts manufacturing | 187 | | | 26,032 | | | 3 | | 48,614 | | | 83 | | | 23,675 | | | 2 | | 47,507 | |
Retail | 49 | | | 19,673 | | | 2 | | | 45,653 | | | 27 | | | 17,645 | | | 2 | | | 41,344 | | |
Materials and commodities | Materials and commodities | 78 | | | 17,026 | | | 2 | | | 40,173 | | | 32 | | | 14,684 | | | 2 | | | 36,660 | | Materials and commodities | 185 | | | 16,073 | | | 2 | | 40,820 | | | 86 | | | 16,610 | | | 2 | | 39,667 | |
Food and beverage manufacturing | Food and beverage manufacturing | 18 | | | 15,659 | | | 2 | | | 34,794 | | | 7 | | | 13,242 | | | 1 | | | 30,882 | | Food and beverage manufacturing | 3 | | | 16,161 | | | 2 | | 33,081 | | | 17 | | | 17,393 | | | 2 | | 33,951 | |
Oil, gas and pipelines | Oil, gas and pipelines | 55 | | | 9,858 | | | 1 | | | 30,897 | | | 197 | | | 8,828 | | | * | | 28,978 | | Oil, gas and pipelines | 32 | | | 10,456 | | | 1 | | 32,157 | | | 55 | | | 9,991 | | | 1 | | 31,077 | |
Health care and pharmaceuticals | Health care and pharmaceuticals | 21 | | | 14,472 | | | 2 | | | 29,207 | | | 24 | | | 12,847 | | | 1 | | | 28,808 | | Health care and pharmaceuticals | 19 | | | 14,996 | | | 2 | | 30,655 | | | 21 | | | 14,861 | | | 2 | | 30,294 | |
Auto related | Auto related | 9 | | | 12,137 | | | 1 | | | 27,262 | | | 31 | | | 10,629 | | | 1 | | | 25,735 | | Auto related | 8 | | | 13,888 | | | 1 | | 28,264 | | | 10 | | | 13,168 | | | 1 | | 27,451 | |
Commercial services | | Commercial services | 57 | | | 11,206 | | | 1 | | 26,355 | | | 50 | | | 11,418 | | | 1 | | 26,693 | |
Utilities | Utilities | 61 | | | 8,848 | | | * | | 26,090 | | | 77 | | | 6,982 | | | * | | 22,406 | | Utilities | 1 | | | 7,709 | | | * | | 24,736 | | | 18 | | | 9,457 | | | * | | 26,899 | |
Commercial services | 28 | | | 10,818 | | | 1 | | | 25,676 | | | 78 | | | 10,492 | | | 1 | | | 24,617 | | |
Diversified or miscellaneous | Diversified or miscellaneous | 11 | | | 8,219 | | | * | | 21,009 | | | 3 | | | 7,493 | | | * | | 18,317 | | Diversified or miscellaneous | 2 | | | 8,069 | | | * | | 20,156 | | | 2 | | | 8,161 | | | * | | 21,498 | |
Entertainment and recreation | Entertainment and recreation | 35 | | | 11,407 | | | 1 | | | 17,812 | | | 23 | | | 9,907 | | | 1 | | | 17,893 | | Entertainment and recreation | 25 | | | 12,935 | | | 1 | | 19,273 | | | 28 | | | 13,085 | | | 1 | | 18,741 | |
Transportation services | | Transportation services | 147 | | | 8,993 | | | * | | 16,057 | | | 237 | | | 8,389 | | | * | | 16,064 | |
Insurance and fiduciaries | | Insurance and fiduciaries | 1 | | | 5,016 | | | * | | 15,347 | | | 1 | | | 4,691 | | | * | | 15,592 | |
Government and education | | Government and education | 27 | | | 6,168 | | | * | | 12,320 | | | 25 | | | 6,482 | | | * | | 12,590 | |
Banks | Banks | — | | | 15,575 | | | 2 | | | 17,694 | | | — | | | 16,178 | | | 2 | | | 16,612 | | Banks | — | | | 11,080 | | | 1 | | 11,984 | | | — | | | 14,403 | | | 2 | | 16,537 | |
Insurance and fiduciaries | 1 | | | 4,515 | | | * | | 15,630 | | | 1 | | | 3,387 | | | * | | 13,993 | | |
Transportation services | 226 | | | 7,817 | | | * | | 15,405 | | | 288 | | | 8,162 | | | * | | 14,710 | | |
Government and education | 16 | | | 6,578 | | | * | | 12,657 | | | 5 | | | 5,863 | | | * | | 11,193 | | |
Agribusiness | Agribusiness | 25 | | | 6,301 | | | * | | 11,417 | | | 35 | | | 6,086 | | | * | | 11,576 | | Agribusiness | 6 | | | 6,107 | | | * | | 11,510 | | | 24 | | | 6,180 | | | * | | 11,457 | |
Other (2) | Other (2) | 16 | | | 4,434 | | | * | | 11,677 | | | 30 | | | 4,077 | | | * | | 11,583 | | Other (2) | 25 | | | 4,789 | | | * | | 12,187 | | | 13 | | | 4,847 | | | * | | 12,301 | |
Total | Total | $ | 850 | | | 394,311 | | | 42 | % | | $ | 804,143 | | | 1,128 | | | 365,295 | | | 41 | % | | $ | 753,457 | | Total | $ | 922 | | | 401,345 | | | 42 | % | | $ | 787,292 | | | 865 | | | 401,714 | | | 42 | % | | $ | 790,208 | |
*Less than 1%.
(1)Total commitments consist of loans outstanding plus unfunded credit commitments, excluding issued letters of credit. Effective first quarter 2023, unfunded credit commitments exclude discretionary amounts where our approval or consent is required prior to any loan funding or commitment increase. Prior period balances have been revised to conform with the current period presentation. For additional information on issued letters of credit, see
Note 1114 (Guarantees and Other Commitments) to Financial Statements in this Report.
(2)No other single industry had total loans in excess of $3.0 billion and $3.1$2.8 billion at SeptemberJune 30, 2022,2023, and $3.4 billion at December 31, 2021,2022, respectively.
Risk Management – Credit Risk Management (continued)
Table 11a12a provides further loan segmentation for our largest industry category, financials except banks. This category includes loans to investment firms, financial vehicles, nonbank creditors, rental and leasing companies, securities firms, and investment banks. These loans are generally secured and have features to
help manage credit risk, such as structural credit enhancements, collateral eligibility requirements, contractual re-margining of collateral supporting the loans, and loan amounts limited to a percentage of the value of the underlying assets considering underlying credit risk, asset duration, and ongoing performance.
Table 11a:12a: Financials Except Banks Industry Category | | | September 30, 2022 | | December 31, 2021 | | June 30, 2023 | | December 31, 2022 |
($ in millions) | ($ in millions) | Nonaccrual loans | | Loans outstanding balance | | % of total loans | | Total commitments (1) | | Nonaccrual loans | | Loans outstanding balance | | % of total loans | | Total commitments (1) | ($ in millions) | Nonaccrual loans | | Loans outstanding balance | | % of total loans | | Total commitments (1) | | Nonaccrual loans | | Loans outstanding balance | | % of total loans | | Total commitments (1) |
Asset managers and funds (2) | Asset managers and funds (2) | $ | 1 | | | 53,863 | | | 6 | % | | $ | 102,800 | | | 1 | | | 60,518 | | | 7 | % | | $ | 101,035 | | Asset managers and funds (2) | $ | — | | | 51,525 | | | 5 | % | | $ | 96,166 | | | 1 | | | 52,254 | | | 5 | % | | $ | 97,998 | |
Commercial finance (3) | Commercial finance (3) | 33 | | | 51,356 | | | 5 | | | 75,187 | | | 82 | | | 46,043 | | | 5 | | | 69,923 | | Commercial finance (3) | 2 | | | 55,057 | | | 6 | | | 79,987 | | | 31 | | | 53,269 | | | 5 | | | 76,016 | |
Real estate finance (4) | 9 | | | 24,768 | | | 3 | | | 42,863 | | | 9 | | | 23,231 | | | 3 | | | 37,997 | | |
Consumer finance (5) | 10 | | | 14,608 | | | 1 | | | 27,209 | | | 12 | | | 12,491 | | | 1 | | | 27,178 | | |
Consumer finance (4) | | Consumer finance (4) | — | | | 17,639 | | | 2 | | | 28,854 | | | 4 | | | 17,028 | | | 2 | | | 29,047 | |
Real estate finance (5) | | Real estate finance (5) | 8 | | | 24,422 | | | 3 | | | 27,170 | | | 8 | | | 24,620 | | | 3 | | | 26,761 | |
Total | Total | $ | 53 | | | 144,595 | | | 15 | % | | $ | 248,059 | | | 104 | | | 142,283 | | | 16 | % | | $ | 236,133 | | Total | $ | 10 | | | 148,643 | | | 16 | % | | $ | 232,177 | | | 44 | | | 147,171 | | | 15 | % | | $ | 229,822 | |
(1)Total commitments consist of loans outstanding plus unfunded credit commitments. Effective first quarter 2023, unfunded credit commitments excluding issued letters of credit. exclude discretionary amounts where our approval or consent is required prior to any loan funding or commitment increase. Prior period balances have been revised to conform with the current period presentation. For additional information on issued letters of credit, see Note 1114 (Guarantees and Other Commitments) to Financial Statements in this Report.
(2)Includes loans for subscription or capital calls and loans to prime brokerage customers and securities firms.
(3)Includes asset-based lending and leasing, including loans to special purpose entities, loans to commercial leasing entities, structured lending facilities to commercial loan managers, and also includes collateralized loan obligations (CLOs) in loan form, all of which were rated AA or above, of $7.7 billion and $7.8 billion and $8.1 billion at SeptemberJune 30, 2022,2023, and December 31, 2021,2022, respectively.
(4)Includes originators or servicers of financial assets collateralized by commercial or residential real estate loans.
(5)Includes originators or servicers of financial assets collateralized by consumer loans such as auto loans and leases, and credit cards.
(5)Includes originators or servicers of financial assets collateralized by commercial or residential real estate loans.
Our commercial and industrial loans and lease financing portfolio also included non-U.S. loans of $79.6$75.8 billion and $78.0$79.7 billion at SeptemberJune 30, 2022,2023, and December 31, 2021,2022, respectively. Significant industry concentrations of non-U.S. loans at SeptemberJune 30, 2022,2023, and December 31, 2021,2022, respectively, included:
•$44.643.5 billion and $46.7$45.7 billion in the financials except banks industry;
•$15.911.1 billion and $14.1 billion in the banks industry at both periods;industry; and
•$1.71.5 billion and $1.2 billion in the oil, gas and pipelines industry at both periods.industry.
COMMERCIAL REAL ESTATE (CRE) We generally subjectOur CRE loans to individual risk assessment using our internal borrower and collateral quality ratings. We had $10.1 billionloan portfolio is comprised of CRE mortgage loans classified as criticized at September 30, 2022, compared with $13.1 billion at December 31, 2021, and $1.4 billion of CRE construction loans classified as criticized at September 30, 2022, compared with $1.7 billion at December 31, 2021. The decrease in criticized CRE mortgage loans was driven by the hotel/motel and shopping center property types, as these property types continued to recover from the economic impacts of the COVID-19 pandemic, partially offset by an increase in the office buildings property type. The credit quality of certain property types within our CRE loan portfolio, such as office buildings, could continue to be adversely affected due to uncertainty in their recovery from the economic impacts of the COVID-19 pandemic.
loans. The total CRE loan portfolio increased $7.8decreased $1.5 billion from December 31, 2021, predominantly driven by an increase in CRE mortgage loans for apartments, mixed use properties,2022, as paydowns exceeded originations and industrial/warehouse property types, partially offset by a decrease in CRE mortgage loans for office buildings. The CRE loan portfolio included $7.4 billion of non-U.S. CRE loans at September 30, 2022.advances. The portfolio is diversified both geographically and by property type. The largest geographic concentrations of CRE loans are in California, New York, Texas, and Florida, which represented a combined 49%48% of the total CRE portfolio. The largest property type concentrations are apartments at 25%26% and office buildings at 23%21% of the portfolio. Unfunded credit commitments were $8.7 billion and $8.8 billion at June 30, 2023, and December 31, 2022, respectively, for CRE mortgage loans and $16.6 billion and $20.7 billion, respectively, for CRE construction loans.
We generally subject CRE loans to individual risk assessment using our internal borrower and collateral quality ratings. We had
$14.9 billion of CRE mortgage loans classified as criticized at June 30, 2023, compared with $11.3 billion at December 31, 2022, and $1.1 billion of CRE construction loans classified as criticized at both June 30, 2023, and December 31, 2022. The increase in criticized CRE loans was primarily driven by the office property type. The credit quality of the office property type continued to be adversely affected as weakened demand for office space continued to drive higher vacancy rates and deteriorating operating performance. We continue to closely monitor this portfolio. At June 30, 2023, nearly one-third of the CRE loans in the office property type had recourse to a guarantor, typically through a repayment guarantee, in addition to the related collateral. Loans in California and New York represented approximately 40% of the office property type at June 30, 2023.
Table 12 summarizes13 provides our CRE loans by state and property type with the related nonaccrual totals at September 30, 2022.type.
Table 12:13: CRE Loans by State and Property Type
| | | September 30, 2022 | | | | | | | | June 30, 2023 | | December 31, 2022 |
| | Real estate mortgage | | Real estate construction | | Total | | % of total loans | | | Real estate mortgage | | Real estate construction | | Total commercial real estate | | Total commercial real estate |
($ in millions) | ($ in millions) | Nonaccrual loans | | Loans outstanding balance | | Nonaccrual loans | | Loans outstanding balance | | Nonaccrual loans | | Loans outstanding balance | | ($ in millions) | Nonaccrual loans | Loans outstanding balance | | Nonaccrual loans | Loans outstanding balance | | Nonaccrual loans | Loans outstanding balance | Loans as % of total loans | Total commitments (1) | | Loans outstanding balance | Total commitments (1) |
By state: | By state: | | By state: | | |
California | California | $ | 127 | | | 30,306 | | | 1 | | | 4,418 | | | 128 | | | 34,724 | | | 4% | California | | $ | 740 | | 28,465 | | | 1 | | 4,300 | | | 741 | | 32,765 | | 3% | $ | 37,556 | | | 34,285 | | 39,594 | |
New York | New York | 108 | | | 14,738 | | | — | | | 2,108 | | | 108 | | | 16,846 | | | 2 | New York | | 319 | | 14,121 | | | — | | 2,476 | | | 319 | | 16,597 | | 2 | 18,358 | | | 17,294 | | 19,360 | |
Texas | Texas | 30 | | | 11,783 | | | — | | | 1,221 | | | 30 | | | 13,004 | | | 1 | Texas | | 20 | | 11,509 | | | — | | 1,393 | | | 20 | | 12,902 | | 1 | 14,815 | | | 12,807 | | 14,941 | |
Florida | Florida | 10 | | | 9,984 | | | — | | | 1,536 | | | 10 | | | 11,520 | | | 1 | Florida | | 65 | | 9,714 | | | — | | 2,091 | | | 65 | | 11,805 | | 1 | 14,417 | | | 11,418 | | 14,690 | |
Georgia | | Georgia | | 90 | | 4,862 | | | — | | 932 | | | 90 | | 5,794 | | * | 7,288 | | | 5,428 | | 6,651 | |
Washington | Washington | 81 | | | 4,414 | | | — | | | 1,270 | | | 81 | | | 5,684 | | | * | Washington | | 349 | | 4,218 | | | — | | 1,520 | | | 349 | | 5,738 | | * | 6,753 | | | 5,603 | | 6,868 | |
North Carolina | | North Carolina | | 4 | | 4,302 | | | — | | 1,179 | | | 4 | | 5,481 | | * | 6,700 | | | 5,227 | | 6,650 | |
Arizona | Arizona | 14 | | | 5,102 | | | — | | | 543 | | | 14 | | | 5,645 | | | * | Arizona | | 16 | | 4,600 | | | — | | 601 | | | 16 | | 5,201 | | * | 6,107 | | | 5,302 | | 6,288 | |
Georgia | 82 | | | 4,767 | | | — | | | 645 | | | 82 | | | 5,412 | | | * | |
North Carolina | 4 | | | 4,590 | | | — | | | 753 | | | 4 | | | 5,343 | | | * | |
Illinois | 15 | | | 4,091 | | | — | | | 548 | | | 15 | | | 4,639 | | | * | |
New Jersey | | New Jersey | | 6 | | 2,745 | | | — | | 1,490 | | | 6 | | 4,235 | | * | 5,346 | | | 4,119 | | 5,660 | |
Massachusetts | Massachusetts | 4 | | | 3,078 | | | — | | | 955 | | | 4 | | | 4,033 | | | * | Massachusetts | | 4 | | 2,763 | | | 41 | | 1,311 | | | 45 | | 4,074 | | * | 5,187 | | | 4,094 | | 5,324 | |
Other (1)(2) | Other (1)(2) | 375 | | | 40,917 | | | 2 | | | 7,892 | | | 377 | | | 48,809 | | | 5 | Other (1)(2) | | 851 | | 42,256 | | | 1 | | 7,428 | | | 852 | | 49,684 | | 5 | 57,097 | | | 50,225 | | 59,294 | |
Total | Total | $ | 850 | | | 133,770 | | | 3 | | | 21,889 | | | 853 | | | 155,659 | | | 16% | Total | | $ | 2,464 | | 129,555 | | | 43 | | 24,721 | | | 2,507 | | 154,276 | | 16% | $ | 179,624 | | | 155,802 | | 185,320 | |
By property: | By property: | | By property: | | |
Apartments | Apartments | $ | 9 | | | 31,070 | | | — | | | 7,785 | | | 9 | | | 38,855 | | | 4% | Apartments | | $ | 9 | | 30,513 | | | — | | 10,239 | | | 9 | | 40,752 | | 4% | $ | 50,699 | | | 39,743 | | 51,567 | |
Office buildings | 173 | | | 32,219 | | | — | | | 2,975 | | | 173 | | | 35,194 | | | 4 | |
Office (3) | | Office (3) | | 1,517 | | 29,437 | | | — | | 3,652 | | | 1,517 | | 33,089 | | 3 | 36,757 | | | 36,144 | | 40,827 | |
Industrial/warehouse | Industrial/warehouse | 44 | | | 16,970 | | | — | | | 2,483 | | | 44 | | | 19,453 | | | 2 | Industrial/warehouse | | 38 | | 19,654 | | | — | | 4,246 | | | 38 | | 23,900 | | 3 | 27,802 | | | 20,634 | | 24,546 | |
Hotel/motel | Hotel/motel | 153 | | | 11,623 | | | — | | | 1,521 | | | 153 | | | 13,144 | | | 1 | Hotel/motel | | 149 | | 11,911 | | | — | | 1,012 | | | 149 | | 12,923 | | 1 | 13,910 | | | 12,751 | | 13,758 | |
Retail (excluding shopping center) | 85 | | | 11,714 | | | 2 | | | 139 | | | 87 | | | 11,853 | | | 1 | |
Retail (excl shopping center) | | Retail (excl shopping center) | | 355 | | 11,301 | | | 2 | | 111 | | | 357 | | 11,412 | | 1 | 12,334 | | | 11,753 | | 12,486 | |
Shopping center | Shopping center | 253 | | | 9,242 | | | — | | | 583 | | | 253 | | | 9,825 | | | 1 | Shopping center | | 193 | | 8,848 | | | — | | 401 | | | 193 | | 9,249 | | * | 9,816 | | | 9,534 | | 10,131 | |
Institutional | Institutional | 34 | | | 5,536 | | | — | | | 2,451 | | | 34 | | | 7,987 | | | * | Institutional | | 118 | | 4,160 | | | — | | 1,939 | | | 118 | | 6,099 | | * | 6,906 | | | 7,725 | | 9,178 | |
Mixed use properties | Mixed use properties | 57 | | | 6,061 | | | — | | | 1,295 | | | 57 | | | 7,356 | | | * | Mixed use properties | | 72 | | 4,440 | | | 41 | | 903 | | | 113 | | 5,343 | | * | 6,330 | | | 5,887 | | 7,139 | |
Collateral pool | Collateral pool | — | | | 3,083 | | | — | | | 222 | | | — | | | 3,305 | | | * | Collateral pool | | — | | 2,987 | | | — | | 44 | | | — | | 3,031 | | * | 3,410 | | | 3,062 | | 3,662 | |
Storage facility | Storage facility | — | | | 2,737 | | | — | | | 140 | | | — | | | 2,877 | | | * | Storage facility | | — | | 2,819 | | | — | | 164 | | | — | | 2,983 | | * | 3,299 | | | 2,929 | | 3,201 | |
Other | Other | 42 | | | 3,515 | | | 1 | | | 2,295 | | | 43 | | | 5,810 | | | * | Other | | 13 | | 3,485 | | | — | | 2,010 | | | 13 | | 5,495 | | * | 8,361 | | | 5,640 | | 8,825 | |
Total | Total | $ | 850 | | | 133,770 | | | 3 | | | 21,889 | | | 853 | | | 155,659 | | | 16 | % | Total | | $ | 2,464 | | 129,555 | | | 43 | | 24,721 | | | 2,507 | | 154,276 | | 16 | % | $ | 179,624 | | | 155,802 | | 185,320 | |
* Less than 1%.
(1)Total commitments consist of loans outstanding plus unfunded credit commitments, excluding issued letters of credit. For additional information on issued letters of credit, see Note 14 (Guarantees and Other Commitments) to Financial Statements in this Report.
(2)Includes 40 states; nostates and non-U.S. loans. No state in Other had loans in excess of $3.9 billion.$4.1 billion at both June 30, 2023, and December 31, 2022. Non-U.S. loans were $7.5 billion and $7.6 billion at June 30, 2023, and December 31, 2022, respectively.
(3)In second quarter 2023, we reclassified certain CRE loans to better align with regulatory reporting guidance, which resulted in a decrease in loans outstanding of approximately $2.0 billion to the office property type.
Risk Management – Credit Risk Management (continued)
NON-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, 2022,2023, non-U.S. loans totaled $87.1$83.5 billion, representing approximately 9% of our total consolidated loans outstanding, compared with $86.9$87.5 billion, or approximately 10%9% of our total consolidated loans outstanding, at December 31, 2021.2022. Non-U.S. loans were approximately 5%4% and 4%5% of our total consolidated assets at SeptemberJune 30, 2022,2023, and December 31, 2021,2022, respectively.
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
Risk Management – Credit Risk Management (continued)
conditions. We evaluate our individual country risk exposure based on our assessment of thea 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 thea borrower’s primary address.
Our largest single country exposure outside the U.S. at SeptemberJune 30, 2022,2023, was the United Kingdom, which totaled $31.4
$28.6 billion, or approximately 2% of our total assets, and included $4.0$3.2 billion of sovereign claims. Our United Kingdom sovereign claims arise from deposits we have placed with the Bank of England pursuant to regulatory requirements in support of our London branch.
Table 1314 provides information regarding our top 20 exposures by country (excluding the U.S.), based on our
assessment of risk, which gives consideration to the country of any guarantors and/or underlying collateral. With respect to Table 13:14:
•Lending and deposits exposure includes outstanding loans, unfunded credit commitments (excluding discretionary amounts where our approval or consent is required prior to any loan funding or commitment increase), and deposits with non-U.S. banks. These balances are presented prior to the deduction of allowance for credit losses or collateral received under the terms of the credit agreements, if any.
•Securities exposure represents debt and equity securities of non-U.S. issuers. Long and short positions are netted, and net short positions are reflected as negative exposure.
•Derivatives and other exposure represents foreign exchange contracts, derivative contracts, securities resale agreements, and securities lending agreements.
Table 13:14: Select Country Exposures
| | | September 30, 2022 | | June 30, 2023 |
| | Lending and deposits | | Securities | | Derivatives and other | | Total exposure | | Lending and deposits | | Securities | | Derivatives and other | | Total exposure |
($ in millions) | ($ in millions) | Sovereign | | Non-sovereign | | Sovereign | | Non-sovereign | | Sovereign | | Non-sovereign | | Sovereign | | Non- sovereign (1) | | Total | ($ 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 | $ | 4,048 | | | 22,891 | | | — | | | 984 | | | 1 | | | 3,486 | | | 4,049 | | | 27,361 | | | 31,410 | | United Kingdom | $ | 3,184 | | | 23,434 | | | — | | | 599 | | | — | | | 1,372 | | | 3,184 | | | 25,405 | | | 28,589 | |
Canada | Canada | 1 | | | 18,878 | | | — | | | 205 | | | 35 | | | 723 | | | 36 | | | 19,806 | | | 19,842 | | Canada | 9 | | | 16,658 | | | 382 | | | 447 | | | 96 | | | 175 | | | 487 | | | 17,280 | | | 17,767 | |
Cayman Islands | Cayman Islands | — | | | 7,808 | | | — | | | — | | | — | | | 496 | | | — | | | 8,304 | | | 8,304 | | Cayman Islands | — | | | 8,089 | | | — | | | — | | | — | | | 336 | | | — | | | 8,425 | | | 8,425 | |
Japan | | Japan | 6,058 | | | 737 | | | — | | | 383 | | | — | | | 178 | | | 6,058 | | | 1,298 | | | 7,356 | |
Luxembourg | | Luxembourg | — | | | 6,608 | | | — | | | (1) | | | — | | | 281 | | | — | | | 6,888 | | | 6,888 | |
France | | France | 107 | | | 3,893 | | | 540 | | | 239 | | | 644 | | | 61 | | | 1,291 | | | 4,193 | | | 5,484 | |
Ireland | Ireland | 2,047 | | | 4,921 | | | — | | | 199 | | | — | | | 132 | | | 2,047 | | | 5,252 | | | 7,299 | | Ireland | 6 | | | 4,733 | | | — | | | 141 | | | — | | | 233 | | | 6 | | | 5,107 | | | 5,113 | |
Luxembourg | — | | | 6,100 | | | — | | | 8 | | | — | | | 224 | | | — | | | 6,332 | | | 6,332 | | |
Japan | 5,089 | | | 703 | | | — | | | 189 | | | — | | | 242 | | | 5,089 | | | 1,134 | | | 6,223 | | |
France | 108 | | | 3,521 | | | — | | | 33 | | | 257 | | | 75 | | | 365 | | | 3,629 | | | 3,994 | | |
Bermuda | Bermuda | — | | | 3,671 | | | — | | | 16 | | | — | | | 69 | | | — | | | 3,756 | | | 3,756 | | Bermuda | — | | | 3,407 | | | — | | | 34 | | | — | | | 57 | | | — | | | 3,498 | | | 3,498 | |
China | 19 | | | 3,097 | | | 1 | | | 61 | | | 382 | | | 74 | | | 402 | | | 3,232 | | | 3,634 | | |
Germany | | Germany | — | | | 3,000 | | | — | | | 19 | | | — | | | 242 | | | — | | | 3,261 | | | 3,261 | |
Guernsey | Guernsey | — | | | 3,300 | | | — | | | — | | | — | | | 72 | | | — | | | 3,372 | | | 3,372 | | Guernsey | — | | | 3,078 | | | — | | | — | | | — | | | 9 | | | — | | | 3,087 | | | 3,087 | |
Germany | — | | | 2,891 | | | 32 | | | 177 | | | — | | | 101 | | | 32 | | | 3,169 | | | 3,201 | | |
Netherlands | | Netherlands | — | | | 2,644 | | | — | | | 146 | | | — | | | 102 | | | — | | | 2,892 | | | 2,892 | |
South Korea | South Korea | — | | | 2,507 | | | (2) | | | 229 | | | 10 | | | 26 | | | 8 | | | 2,762 | | | 2,770 | | South Korea | — | | | 1,989 | | | 3 | | | 336 | | | 1 | | | 2 | | | 4 | | | 2,327 | | | 2,331 | |
Netherlands | — | | | 2,590 | | | — | | | 31 | | | — | | | 119 | | | — | | | 2,740 | | | 2,740 | | |
Australia | Australia | — | | | 1,597 | | | — | | | 444 | | | — | | | 35 | | | — | | | 2,076 | | | 2,076 | | Australia | — | | | 1,669 | | | — | | | 254 | | | — | | | 16 | | | — | | | 1,939 | | | 1,939 | |
Chile | Chile | — | | | 1,972 | | | — | | | 13 | | | — | | | — | | | — | | | 1,985 | | | 1,985 | | Chile | — | | | 1,639 | | | — | | | 242 | | | — | | | 1 | | | — | | | 1,882 | | | 1,882 | |
China | | China | 12 | | | 1,221 | | | (23) | | | 323 | | | 25 | | | 35 | | | 14 | | | 1,579 | | | 1,593 | |
Brazil | | Brazil | — | | | 1,415 | | | — | | | (7) | | | — | | | 3 | | | — | | | 1,411 | | | 1,411 | |
Switzerland | Switzerland | — | | | 1,532 | | | — | | | 6 | | | — | | | 172 | | | — | | | 1,710 | | | 1,710 | | Switzerland | — | | | 1,155 | | | — | | | (12) | | | — | | | 145 | | | — | | | 1,288 | | | 1,288 | |
Brazil | — | | | 1,290 | | | — | | | 1 | | | 20 | | | 1 | | | 20 | | | 1,292 | | | 1,312 | | |
United Arab Emirates | — | | | 1,115 | | | — | | | 52 | | | — | | | — | | | — | | | 1,167 | | | 1,167 | | |
Belgium | Belgium | — | | | 959 | | | — | | | 1 | | | — | | | 11 | | | — | | | 971 | | | 971 | | Belgium | — | | | 1,057 | | | — | | | (4) | | | — | | | 1 | | | — | | | 1,054 | | | 1,054 | |
Norway | Norway | — | | | 933 | | | — | | | 5 | | | — | | | 20 | | | — | | | 958 | | | 958 | | Norway | — | | | 776 | | | — | | | 220 | | | 1 | | | 22 | | | 1 | | | 1,018 | | | 1,019 | |
Spain | | Spain | — | | | 643 | | | — | | | 144 | | | — | | | 172 | | | — | | | 959 | | | 959 | |
Total top 20 country exposures | Total top 20 country exposures | $ | 11,312 | | | 92,276 | | | 31 | | | 2,654 | | | 705 | | | 6,078 | | | 12,048 | | | 101,008 | | | 113,056 | | Total top 20 country exposures | $ | 9,376 | | | 87,845 | | | 902 | | | 3,503 | | | 767 | | | 3,443 | | | 11,045 | | | 94,791 | | | 105,836 | |
(1)Total non-sovereign exposure comprised $51.1$45.6 billion exposure to financial institutions and $49.9$49.2 billion to non-financial corporations at SeptemberJune 30, 2022.2023.
RESIDENTIAL MORTGAGE LOANS Our residential mortgage loan portfolio is comprised of 1-41–4 family first and junior lien mortgage loans. Residential mortgage – first lien loans comprised 95% of the total residential mortgage loan portfolio at Septemberboth June 30, 2022, compared with 94% at2023, and December 31, 2021.2022.
The outstanding balance of residential mortgage lines of credit was $19.1 billion at September 30, 2022. The unfunded credit commitments for these lines of credit totaled $37.6 billion at September 30, 2022.
The residential mortgage loan portfolio includes some loans with adjustable-rate features. We monitor the risk of default as a result of interest rate increases on adjustable-rate mortgage (ARM) loans, which may be mitigated by product features and some with an interest-only feature as partthat limit the amount of the loan terms. Interest-onlyincrease in the contractual interest rate. The default risk of these loans is considered in our ACL for loans.
ARM loans were approximately 2% and 3%7% of total loans at Septemberboth June 30, 2022,2023, and December 31, 2021, respectively. We believe our origination process appropriately addresses our adjustable-rate mortgage (ARM)2022, with an initial reset risk across our residential mortgage loans and our ACLdate in 2025 or later for loans considersthe majority of this risk.portfolio at June 30, 2023. We do not offer option ARM products, nor do we offer variable-rate mortgage products with fixed payment amounts, commonly referred to within the financial services industry as negative amortizing mortgage loans.
The residential mortgage – junior lien portfolio consists of residential mortgage lines of credit and loans that are
subordinate in rights to an existing lien on the same property. These lines and loans may have draw periods, interest-only
payments, balloon payments, adjustable rates and similar features. The outstanding balance of residential mortgage lines of credit was $16.4 billion at June 30, 2023, compared with $18.3 billion at December 31, 2022. The unfunded credit commitments for these lines of credit totaled $31.9 billion at June 30, 2023, compared with $35.5 billion at December 31, 2022. For additional information on our residential mortgage loan portfolio, see the “Risk Management – Credit Risk Management – Residential Mortgage Loans” section in our 20212022 Form 10-K.
We monitor changes in real estate values and underlying economic or market conditions for all geographic areas of our residential mortgage portfolio as part of our credit risk management process. Our periodic review of this portfolio includes original appraisals adjusted for the change in Home Price Index (HPI) or estimates from automated valuation models (AVMs) to support property values. For additional information about our use of appraisals AVMs, and our policy for their use,AVMs, see Note 45 (Loans and Related Allowance for Credit Losses) to Financial Statements in this Report and the “Risk Management – Credit Risk Management – Residential Mortgage Loans” section in our 20212022 Form 10-K.
Part of our credit monitoring includes tracking delinquency, current FICOFair Isaac Corporation (FICO) credit scores and loan/
combined loan to collateral values (LTV/CLTV) on the entire residential mortgage loan 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 regarding credit quality indicators, see Note 45 (Loans and Related Allowance for Credit Losses) to Financial Statements in this Report.
We continue to modify residential mortgage loans to assist homeowners and other borrowers experiencing financial difficulties. For additional information on loan modifications, see Note 5 (Loans and Related Allowance for Credit Losses) to Financial Statements in this Report and the “Risk Management – Credit Risk Management – Residential Mortgage Loans” section in our 20212022 Form 10-K. Customer payment deferral activities instituted in response to the COVID-19 pandemic could continue to delay the recognition of delinquencies. For 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 our 2021 Form 10-K.
Residential Mortgage – First Lien Portfolio Our residential mortgage – first lien portfolio increased $11.9decreased $2.8 billion from
December 31, 2021, driven by originations,2022, due to loan paydowns, partially offset by loan paydowns and the transfer of first lien mortgage loans to loans held for sale (LHFS), which predominantly related to loans purchased from GNMA loan securitization pools in prior periods.originations.
Table 1415 shows certain delinquency and loss information for the residential mortgage – first lien portfolio and lists the top five states by outstanding balance.
Table 14:15: Residential Mortgage – First Lien Portfolio Performance
| | | Outstanding balance | | % of total loans | | % of loans 30 days or more past due | | | Net loan charge-off rate quarter ended (1)(2) | | Outstanding balance | | % of total loans | | % of loans 30 days or more past due | | | Net loan charge-off rate quarter ended (1) |
($ in millions) | ($ in millions) | Sep 30, 2022 | | Dec 31, 2021 | | Sep 30, 2022 | | Dec 31, 2021 | | Sep 30, 2022 | | Dec 31, 2021 | | | Sep 30, 2022 | | Dec 31, 2021 | ($ in millions) | Jun 30, 2023 | | Dec 31, 2022 | | Jun 30, 2023 | | Dec 31, 2022 | | Jun 30, 2023 | | Dec 31, 2022 | | | Jun 30, 2023 | | Dec 31, 2022 |
| | | California (3)(2) | California (3)(2) | $ | 110,200 | | | 100,933 | | | 11.65 | % | | 11.27 | | | 0.48 | | | 0.95 | | | | — | | | 0.01 | California (3)(2) | $ | 110,513 | | | 110,877 | | | 11.66 | % | | 11.60 | | | 0.36 | | | 0.45 | | | | (0.01) | | | — | |
New York | New York | 31,689 | | | 30,039 | | | 3.35 | | | 3.35 | | | 0.77 | | | 1.34 | | | | (0.04) | | | 0.50 | New York | 31,569 | | | 31,753 | | | 3.33 | | | 3.32 | | | 0.65 | | | 0.80 | | | | (0.01) | | | (0.02) | |
Washington | | Washington | 10,688 | | | 10,523 | | | 1.13 | | | 1.10 | | | 0.23 | | | 0.30 | | | | (0.01) | | | 0.02 | |
Florida | Florida | 10,481 | | | 9,978 | | | 1.11 | | | 1.11 | | | 1.25 | | | 1.93 | | | | (0.01) | | | 0.64 | Florida | 10,307 | | | 10,535 | | | 1.09 | | | 1.10 | | | 0.96 | | | 1.13 | | | | (0.05) | | | (0.14) | |
New Jersey | New Jersey | 10,438 | | | 10,205 | | | 1.10 | | | 1.14 | | | 1.15 | | | 1.95 | | | | (0.01) | | | 0.40 | New Jersey | 10,292 | | | 10,416 | | | 1.09 | | | 1.09 | | | 1.05 | | | 1.24 | | | | 0.01 | | | (0.01) | |
Washington | 10,246 | | | 8,636 | | | 1.08 | | | 0.96 | | | 0.31 | | | 0.47 | | | | — | | | 0.02 | |
Other (4)(3) | Other (4)(3) | 72,687 | | | 69,321 | | | 7.68 | | | 7.74 | | | 0.94 | | | 1.48 | | | | 0.02 | | | 0.25 | Other (4)(3) | 71,619 | | | 72,843 | | | 7.56 | | | 7.62 | | | 0.73 | | | 0.93 | | | | (0.02) | | | — | |
Total | Total | 245,741 | | | 229,112 | | | 25.97 | | | 25.57 | | | 0.71 | | | 1.23 | | | | — | | | 0.18 | Total | 244,988 | | | 246,947 | | | 25.86 | | | 25.83 | | | 0.55 | | | 0.69 | | | | (0.01) | | | (0.01) | |
Government insured/guaranteed loans (5)(4) | Government insured/guaranteed loans (5)(4) | 8,424 | | | 13,158 | | | 0.89 | | | 1.47 | | | | | Government insured/guaranteed loans (5)(4) | 8,067 | | | 8,860 | | | 0.85 | | | 0.93 | | | | |
Total first lien mortgage portfolio | Total first lien mortgage portfolio | $ | 254,165 | | | 242,270 | | | 26.86 | % | | 27.04 | | | | | Total first lien mortgage portfolio | $ | 253,055 | | | 255,807 | | | 26.71 | % | | 26.76 | | | | |
(1)Quarterly net charge-offs as a percentage of average respective loans are annualized.
(2)The net loan charge-off rate for the quarter ended December 31, 2021, includes $120 million of loan charge-offs related to a change in practice to fully charge-off certain delinquent legacy residential mortgage loans.
(3)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.
(4)(3)Consists of 45 states; no state in Other had loans in excess of $7.6 billion and $7.2$7.7 billion at SeptemberJune 30, 2022,2023, and December 31, 2021,2022, respectively.
(5)(4)Represents loans, substantially all of which were purchased from GNMA loan securitization pools, where the repayment of the loans is predominantly insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA). For additional information on GNMA loan securitization pools, see the “Risk Management – Credit Risk Management – Mortgage Banking Activities” section in this Report.
Risk Management – Credit Risk Management (continued)
Residential Mortgage – Junior Lien Portfolio Our residential mortgage – junior lien portfolio decreased $2.7$1.3 billion from December 31, 2021,2022, driven by loan paydowns.
Table 1516 shows certain delinquency and loss information for the residential mortgage – junior lien portfolio and lists the top five states by outstanding balance.
Table 15:16: Residential Mortgage – Junior Lien Portfolio Performance
| | | Outstanding balance | | % of total loans | | % of loans 30 days or more past due | | | Net loan charge-off rate quarter ended (1)(2) | | Outstanding balance | | % of total loans | | % of loans 30 days or more past due | | | Net loan charge-off rate quarter ended (1) |
($ in millions) | ($ in millions) | Sep 30, 2022 | | Dec 31, 2021 | | Sep 30, 2022 | | Dec 31, 2021 | | Sep 30, 2022 | | Dec 31, 2021 | | | Sep 30, 2022 | | Dec 31, 2021 | ($ in millions) | Jun 30, 2023 | | Dec 31, 2022 | | Jun 30, 2023 | | Dec 31, 2022 | | Jun 30, 2023 | | Dec 31, 2022 | | | Jun 30, 2023 | | Dec 31, 2022 |
| | | California | California | $ | 3,662 | | | 4,310 | | | 0.39 | % | | 0.48 | | | 2.06 | | | 3.52 | | | | (0.12) | | | (0.24) | | California | $ | 3,268 | | | 3,550 | | | 0.34 | % | | 0.37 | | | 1.78 | | | 2.02 | | | | (0.07) | | | (0.16) | |
New Jersey | New Jersey | 1,460 | | | 1,728 | | | 0.15 | | | 0.19 | | | 2.57 | | | 2.98 | | | | 0.29 | | | 0.54 | | New Jersey | 1,236 | | | 1,383 | | | 0.13 | | | 0.14 | | | 2.71 | | | 2.76 | | | | — | | | 0.21 | |
Florida | Florida | 1,228 | | | 1,533 | | | 0.13 | | | 0.17 | | | 2.19 | | | 2.54 | | | | (0.70) | | | 0.87 | | Florida | 1,025 | | | 1,165 | | | 0.11 | | | 0.12 | | | 2.52 | | | 2.69 | | | | (0.35) | | | (0.92) | |
Pennsylvania | Pennsylvania | 872 | | | 1,039 | | | 0.09 | | | 0.12 | | | 2.15 | | | 2.19 | | | | (0.27) | | | 0.12 | | Pennsylvania | 744 | | | 832 | | | 0.08 | | | 0.09 | | | 2.80 | | | 2.76 | | | | 0.03 | | | (0.01) | |
New York | New York | 831 | | | 975 | | | 0.09 | | | 0.11 | | | 3.06 | | | 4.05 | | | | (0.44) | | | 2.71 | | New York | 721 | | | 794 | | | 0.08 | | | 0.08 | | | 2.67 | | | 2.86 | | | | 0.36 | | | 0.05 | |
Other (3)(2) | Other (3)(2) | 5,847 | | | 7,033 | | | 0.62 | | | 0.79 | | | 1.93 | | | 2.25 | | | | (0.60) | | | (0.11) | | Other (3)(2) | 5,036 | | | 5,586 | | | 0.53 | | | 0.58 | | | 2.02 | | | 2.05 | | | | (0.31) | | | (0.36) | |
Total junior lien mortgage portfolio | Total junior lien mortgage portfolio | $ | 13,900 | | | 16,618 | | | 1.47 | % | | 1.86 | | | 2.14 | | | 2.91 | | | | (0.36) | | | 0.19 | | Total junior lien mortgage portfolio | $ | 12,030 | | | 13,310 | | | 1.27 | % | | 1.38 | | | 2.16 | | | 2.27 | | | | (0.16) | | | (0.25) | |
(1)Quarterly net charge-offs as a percentage of average respective loans are annualized.
(2)The net loan charge-off rate for the quarter ended December 31, 2021, includes $32 million of loan charge-offs related to a change in practice to fully charge-off certain delinquent legacy residential mortgage loans.
(3)Consists of 45 states; no state in Other had loans in excess of $830$710 million and $980$790 million at SeptemberJune 30, 2022,2023, and December 31, 2021,2022, respectively.
Risk Management – Credit Risk Management (continued)
CREDIT CARD, AUTO, AND OTHER CONSUMER LOANS Table 1617 shows the outstanding balance of our credit card, auto, and other consumer loan portfolios. For information regarding credit quality indicators for these portfolios, see Note 45 (Loans and Related Allowance for Credit Losses) to Financial Statements in this Report.
Table 16:17: Credit Card, Auto, and Other Consumer Loans
| | | September 30, 2022 | | December 31, 2021 | | June 30, 2023 | | December 31, 2022 |
($ in millions) | ($ in millions) | | Outstanding balance | | % of total loans | | Outstanding balance | | % of total loans | ($ in millions) | | Outstanding balance | | % of total loans | | Outstanding balance | | % of total loans |
Credit card | Credit card | | $ | 43,558 | | | 4.60 | % | | $ | 38,453 | | | 4.29 | % | Credit card | | $ | 47,717 | | | 5.03 | % | | $ | 46,293 | | | 4.84 | % |
Auto | Auto | | 54,545 | | | 5.77 | | | 56,659 | | | 6.33 | | Auto | | 51,587 | | | 5.44 | | | 53,669 | | | 5.61 | |
Other consumer (1) | Other consumer (1) | | 29,768 | | | 3.15 | | | 28,274 | | | 3.16 | | Other consumer (1) | | 27,950 | | | 2.95 | | | 29,276 | | | 3.06 | |
Total | Total | | $ | 127,871 | | | 13.52 | % | | $ | 123,386 | | | 13.78 | % | Total | | $ | 127,254 | | | 13.42 | % | | $ | 129,238 | | | 13.51 | % |
(1)Other consumer loans primarily include bothIncludes $17.9 billion and $19.4 billion at June 30, 2023, and December 31, 2022, respectively, of commercial and consumer securities-based loans originated by the WIM operating segment.
Credit Card Our credit card portfolio totaled $43.6 billion at September 30, 2022, compared with $38.5 billion at December 31, 2021. The increase in the outstanding balance at SeptemberJune 30, 2022,2023, compared with December 31, 2021,2022, was due to higher purchase volume and the launch ofdriven by new products.account growth.
Auto Our auto portfolio totaled $54.5 billion at September 30, 2022, compared with $56.7 billion at December 31, 2021. The decrease in the outstanding balance at SeptemberJune 30, 2022,2023, compared with December 31, 2021, decreased2022, was due to lower origination volumes.volumes reflecting credit tightening actions and continued price competition due to rising interest rates.
Other Consumer Other consumer loans totaled $29.8 billion at September 30, 2022, compared with $28.3 billion at December 31, 2021. The increasedecrease in the outstanding balance at SeptemberJune 30, 2022,2023, compared with December 31, 2021,2022, was primarily due to originations of personal lines and loans.a decline in securities-based lending.
NONPERFORMING ASSETS (NONACCRUAL LOANS AND FORECLOSED ASSETS) For information about when we generally place loans on nonaccrual status, see Note 1 (Summary of Significant
Accounting Policies) to Financial Statements in our 20212022 Form 10-K. Customer payment deferral activities in the residential mortgage portfolio instituted in response to the COVID-19 pandemic could continue to delay the recognition of nonaccrual loans for those residential mortgage customers who would have otherwise moved into nonaccrual status. For information on customer accommodations, including loan modifications, in response to the COVID-19 pandemic, see the “Risk Management – Credit Risk Management – COVID-Related Lending Accommodations” section in our 2021 Form 10-K.
Table 1718 summarizes nonperforming assets (NPAs).
Table 17:18: Nonperforming Assets (Nonaccrual Loans and Foreclosed Assets)
| | ($ in millions) | ($ in millions) | | Sep 30, 2022 | | Dec 31, 2021 | ($ in millions) | | Jun 30, 2023 | | Dec 31, 2022 |
Nonaccrual loans: | Nonaccrual loans: | | Nonaccrual loans: | |
Commercial: | | |
Commercial and industrial | Commercial and industrial | | $ | 742 | | | 980 | | Commercial and industrial | | $ | 845 | | | 746 | |
Real estate mortgage | | 850 | | | 1,235 | | |
Real estate construction | | 3 | | | 13 | | |
| Commercial real estate | | Commercial real estate | | 2,507 | | | 958 | |
Lease financing | Lease financing | | 108 | | | 148 | | Lease financing | | 77 | | | 119 | |
Total commercial | Total commercial | | 1,703 | | | 2,376 | | Total commercial | | 3,429 | | | 1,823 | |
Consumer: | | |
Residential mortgage – first lien (1) | | 3,024 | | | 3,803 | | |
Residential mortgage – junior lien (1) | | 653 | | | 801 | | |
| Residential mortgage (1) | | Residential mortgage (1) | | 3,289 | | | 3,611 | |
Auto | Auto | | 171 | | | 198 | | Auto | | 135 | | | 153 | |
Other consumer | Other consumer | | 36 | | | 34 | | Other consumer | | 33 | | | 39 | |
Total consumer | Total consumer | | 3,884 | | | 4,836 | | Total consumer | | 3,457 | | | 3,803 | |
Total nonaccrual loans | Total nonaccrual loans | | $ | 5,587 | | | 7,212 | | Total nonaccrual loans | | $ | 6,886 | | | 5,626 | |
As a percentage of total loans | As a percentage of total loans | | 0.59 | % | | 0.81 | | As a percentage of total loans | | 0.73 | % | | 0.59 | |
Foreclosed assets: | Foreclosed assets: | | Foreclosed assets: | |
Government insured/guaranteed (2) | Government insured/guaranteed (2) | | $ | 20 | | | 16 | | Government insured/guaranteed (2) | | $ | 16 | | | 22 | |
Non-government insured/guaranteed | Non-government insured/guaranteed | | 105 | | | 96 | | Non-government insured/guaranteed | | 117 | | | 115 | |
Total foreclosed assets | Total foreclosed assets | | 125 | | | 112 | | Total foreclosed assets | | 133 | | | 137 | |
Total nonperforming assets | Total nonperforming assets | | $ | 5,712 | | | 7,324 | | Total nonperforming assets | | $ | 7,019 | | | 5,763 | |
As a percentage of total loans | As a percentage of total loans | | 0.60 | % | | 0.82 | | As a percentage of total loans | | 0.74 | % | | 0.60 | |
(1)Residential 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 real estate mortgage loans are excluded from this table and included in Accounts Receivablereceivable in Other Assets. For additional information on the classification of certain government-guaranteed mortgage loans upon foreclosure, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 20212022 Form 10-K.
Commercial nonaccrual loans decreased $673 millionincreased $1.6 billion from December 31, 2021, due to improved credit quality across our2022, driven by an increase in commercial loan portfolios.real estate nonaccrual loans, predominantly within the office property type. For additional information on commercial nonaccrual loans, see the “Risk Management – Credit Risk Management – Commercial and Industrial Loans and Lease Financing” and “Risk Management – Credit Risk Management – Commercial Real Estate” sections in this Report.
Consumer nonaccrual loans decreased $952$346 million from December 31, 2021, driven by a decrease in2022, due to lower residential mortgage nonaccrual loans primarily due to sustained payment performance of borrowers after exiting COVID-19-related accommodation programs.loans.
| | | | | | | | |
34 | Wells Fargo & Company | 35 |
Risk Management – Credit Risk Management (continued)
Table 1819 provides an analysis of the changes in nonaccrual loans. Typically, changes to nonaccrual loans period-over-period represent inflows for loans that are placed on nonaccrual status in accordance with our 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 18:19: Analysis of Changes in Nonaccrual Loans
| | | Quarter ended September 30, | | Nine months ended September 30, | | Quarter ended June 30, | | Six months ended June 30, |
| | (in millions) | (in millions) | 2022 | | 2021 | | 2022 | | 2021 | (in millions) | 2023 | | 2022 | | 2023 | | 2022 |
Commercial nonaccrual loans | Commercial nonaccrual loans | | Commercial nonaccrual loans | |
Balance, beginning of period | Balance, beginning of period | $ | 1,719 | | | 3,549 | | | $ | 2,376 | | | 4,779 | | Balance, beginning of period | $ | 2,275 | | | 1,953 | | | $ | 1,823 | | | 2,376 | |
Inflows | Inflows | 388 | | | 481 | | | 744 | | | 1,814 | | Inflows | 1,761 | | | 165 | | | 2,807 | | | 356 | |
Outflows: | Outflows: | | Outflows: | |
Returned to accruing | Returned to accruing | (89) | | | (203) | | | (371) | | | (667) | | Returned to accruing | (61) | | | (88) | | | (207) | | | (282) | |
Foreclosures | Foreclosures | (1) | | | (4) | | | (20) | | | (13) | | Foreclosures | — | | | — | | | — | | | (19) | |
Charge-offs | Charge-offs | (57) | | | (105) | | | (148) | | | (452) | | Charge-offs | (215) | | | (56) | | | (330) | | | (91) | |
Payments, sales and other | Payments, sales and other | (257) | | | (698) | | | (878) | | | (2,441) | | Payments, sales and other | (331) | | | (255) | | | (664) | | | (621) | |
Total outflows | Total outflows | (404) | | | (1,010) | | | (1,417) | | | (3,573) | | Total outflows | (607) | | | (399) | | | (1,201) | | | (1,013) | |
Balance, end of period | Balance, end of period | 1,703 | | | 3,020 | | | 1,703 | | | 3,020 | | Balance, end of period | 3,429 | | | 1,719 | | | 3,429 | | | 1,719 | |
Consumer nonaccrual loans | Consumer nonaccrual loans | | | | Consumer nonaccrual loans | | | |
Balance, beginning of period | Balance, beginning of period | 4,274 | | | 3,822 | | | 4,836 | | | 3,949 | | Balance, beginning of period | 3,735 | | | 4,918 | | | 3,803 | | | 4,836 | |
Inflows | Inflows | 374 | | | 745 | | | 1,376 | | | 1,762 | | Inflows | 336 | | | 408 | | | 683 | | | 1,002 | |
Outflows: | Outflows: | | Outflows: | |
Returned to accruing | Returned to accruing | (496) | | | (222) | | | (1,411) | | | (574) | | Returned to accruing | (266) | | | (729) | | | (458) | | | (915) | |
Foreclosures | Foreclosures | (24) | | | (18) | | | (59) | | | (53) | | Foreclosures | (25) | | | (17) | | | (51) | | | (35) | |
Charge-offs | Charge-offs | (55) | | | (21) | | | (199) | | | (64) | | Charge-offs | (44) | | | (70) | | | (82) | | | (144) | |
Payments, sales and other | Payments, sales and other | (189) | | | (268) | | | (659) | | | (982) | | Payments, sales and other | (279) | | | (236) | | | (438) | | | (470) | |
Total outflows | Total outflows | (764) | | | (529) | | | (2,328) | | | (1,673) | | Total outflows | (614) | | | (1,052) | | | (1,029) | | | (1,564) | |
Balance, end of period | Balance, end of period | 3,884 | | | 4,038 | | | 3,884 | | | 4,038 | | Balance, end of period | 3,457 | | | 4,274 | | | 3,457 | | | 4,274 | |
Total nonaccrual loans | Total nonaccrual loans | $ | 5,587 | | | 7,058 | | | $ | 5,587 | | | 7,058 | | Total nonaccrual loans | $ | 6,886 | | | 5,993 | | | $ | 6,886 | | | 5,993 | |
We considered the risk of losses on nonaccrual loans in developing our allowance for loan losses. We believe exposure to losses on nonaccrual loans is mitigated by the following factors at SeptemberJune 30, 2022:2023:
•94%98% of total commercial nonaccrual loans are secured, the majority of which are secured by real estate.
•80%84% of commercial nonaccrual loans were current on interest and 79%67% 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.
•99% of total consumer nonaccrual loans are secured, of which 95% are secured by real estate and 98% have a combined LTV (CLTV)CLTV ratio of 80% or less.
•$613533 million of the $765$676 million of consumer loans in bankruptcy or discharged in bankruptcy, and classified as nonaccrual, were current.
Risk Management – Credit Risk Management (continued)
Table 1920 provides a summary of foreclosed assets and an analysis of changes in foreclosed assets.
Table 19:20: Foreclosed Assets
| (in millions) | | (in millions) | | Jun 30, 2023 | | Dec 31, 2022 |
| | | | (in millions) | Sep 30, 2022 | | Dec 31, 2021 | |
Summary by loan segment | Summary by loan segment | | Summary by loan segment | |
Government insured/guaranteed | Government insured/guaranteed | $ | 20 | | | 16 | | Government insured/guaranteed | $ | 16 | | | 22 | |
Commercial | Commercial | 65 | | | 54 | | Commercial | 70 | | | 65 | |
Consumer | Consumer | 40 | | | 42 | | Consumer | 47 | | | 50 | |
Total foreclosed assets | Total foreclosed assets | $ | 125 | | | 112 | | Total foreclosed assets | $ | 133 | | | 137 | |
(in millions) | (in millions) | Quarter ended September 30, | | Nine months ended September 30, | (in millions) | Quarter ended June 30, | | Six months ended June 30, |
2022 | | 2021 | | 2022 | | 2021 | 2023 | | 2022 | | 2023 | | 2022 |
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 | $ | 130 | | | 129 | | | $ | 112 | | | 159 | | Balance, beginning of period | $ | 132 | | | 130 | | | $ | 137 | | | 112 | |
Net change in government insured/guaranteed (1) | Net change in government insured/guaranteed (1) | 1 | | | — | | | 4 | | | (3) | | Net change in government insured/guaranteed (1) | (2) | | | 3 | | | (6) | | | 3 | |
Additions to foreclosed assets (2) | Additions to foreclosed assets (2) | 104 | | | 101 | | | 305 | | | 285 | | Additions to foreclosed assets (2) | 135 | | | 99 | | | 258 | | | 201 | |
Reductions from sales and write-downs | Reductions from sales and write-downs | (110) | | | (109) | | | (296) | | | (320) | | Reductions from sales and write-downs | (132) | | | (102) | | | (256) | | | (186) | |
Balance, end of period | Balance, end of period | $ | 125 | | | 121 | | | $ | 125 | | | 121 | | Balance, end of period | $ | 133 | | | 130 | | | $ | 133 | | | 130 | |
(1)Foreclosed government insured/guaranteed loans are temporarily transferred to and held by us as servicer, until reimbursement is received from the FHA or the VA.
(2)Includes loans moved into foreclosed assets from nonaccrual status and repossessed autos.
As part of our actions to support customers during the COVID-19 pandemic, we temporarily suspended certain residential mortgage foreclosure activities through December 31, 2021. Beginning January 1, 2022, we resumed these mortgage foreclosure activities. For additional information on loans in process of foreclosure, see Note 4 (Loans and Related Allowance for Credit Losses) to Financial Statements in this Report.
TROUBLED DEBT RESTRUCTURINGS (TDRs) Table 20 providesIn January 2023, we adopted ASU 2022-02, which eliminated the accounting and reporting guidance for TDRs. For additional information, regarding the recorded investmentsee Note 1 (Summary of loans modifiedSignificant Accounting Policies) to Financial Statements in TDRs. TDRs decreased fromthis Report.
At December 31, 2021, predominantly driven by a decrease in residential mortgage – first lien loans, partially offset by an increase in trial modifications. The decrease in residential mortgage – first lien loans was due to paydowns and transfers to LHFS, which related to loans purchased from GNMA loan securitization pools.
2022, TDRs totaled $9.2 billion. The amount of our TDRs at September 30, 2022,for COVID-related loan modification programs would have otherwise been higher without the TDR relief provided by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act)
and the InteragencyInteragency Statement on Loan Modifications and Reporting for Financial Institutions Working with
Customers Affected by the Coronavirus (Revised) (Interagency Statement). Customers who are unable to resume making their contractual loan payments upon exiting from these deferral programs may require further assistance and may receive or be eligible to receive modifications, which may be classified as TDRs.modifications. For additional information on customer accommodations, including loan modifications, in response to the CARES Act and the Interagency Statement,COVID-19 pandemic, see the “Risk Management – Credit Risk Management – COVID-Related Lending Accommodations” section in our 2021 Form 10-K.
Table 20:TDR Balances
| | | | | | | | | | | |
| Sep 30, | | Dec 31, |
(in millions) | 2022 | | 2021 |
Commercial: | | | |
Commercial and industrial | $ | 699 | | | 793 | |
Real estate mortgage | 448 | | | 543 | |
Real estate construction | 1 | | | 2 | |
Lease financing | 5 | | | 10 | |
Total commercial TDRs | 1,153 | | | 1,348 | |
Consumer: | | | |
Residential mortgage – first lien | 6,522 | | | 7,282 | |
Residential mortgage – junior lien | 874 | | | 946 | |
Credit card | 369 | | | 309 | |
Auto | 135 | | | 169 | |
Other consumer | 54 | | | 57 | |
Trial modifications | 277 | | | 71 | |
Total consumer TDRs | 8,231 | | | 8,834 | |
Total TDRs | $ | 9,384 | | | 10,182 | |
TDRs on nonaccrual status | $ | 3,219 | | | 3,142 | |
TDRs on accrual status: | | | |
Government insured/guaranteed | 1,837 | | | 2,462 | |
Non-government insured/guaranteed | 4,328 | | | 4,578 | |
Total TDRs | $ | 9,384 | | | 10,182 | |
Risk Management – Credit Risk Management (continued)
For information on our nonaccrual policies when a restructuring is involved, see the “Risk Management – Credit Risk Management – Troubled Debt Restructurings (TDRs)” section in our 2021 Form 10-K. See Note 4 (Loans and Related Allowance for Credit Losses)1 (Summary of Significant Accounting Policies) to Financial Statements in this Report for additional information regarding TDRs.
our 2022 Form 10-K.NET CHARGE-OFFSTable 21 provides an analysis of the changes in TDRs. Loans modified more than once as a TDR are reported as inflows only in the period they are first modified. In addition to foreclosures, sales and transfers to held for sale, we may remove loans from TDR classification, but only if they have been refinanced or restructured at market terms and qualify as a new loan.presents net loan charge-offs.
Table 21: Analysis of Changes in TDRs
| | | | | | | | | | | | | | | | | |
| Quarter ended September 30, | | Nine months ended September 30, |
| | | | | |
| | | | |
(in millions) | 2022 | 2021 | | 2022 | 2021 |
Commercial TDRs | | | | | |
Balance, beginning of period | $ | 1,143 | | 1,894 | | | $ | 1,348 | | 2,731 | |
Inflows (1) | 171 | | 104 | | | 387 | | 595 | |
Outflows | | | | | |
Charge-offs | (6) | | (46) | | | (9) | | (140) | |
Foreclosure | — | | — | | | — | | (5) | |
Payments, sales and other (2) | (155) | | (416) | | | (573) | | (1,645) | |
Balance, end of period | 1,153 | | 1,536 | | | 1,153 | | 1,536 | |
Consumer TDRs | | | | | |
Balance, beginning of period | 8,210 | | 10,642 | | | 8,834 | | 11,792 | |
Inflows (1) | 474 | | 267 | | | 1,415 | | 1,395 | |
Outflows | | | | | |
Charge-offs | (35) | | (30) | | | (106) | | (109) | |
Foreclosure | (14) | | (17) | | | (39) | | (46) | |
Payments, sales and other (2) | (389) | | (906) | | | (2,079) | | (3,063) | |
Net change in trial modifications (3) | (15) | | 12 | | | 206 | | (1) | |
Balance, end of period | 8,231 | | 9,968 | | | 8,231 | | 9,968 | |
Total TDRs | $ | 9,384 | | 11,504 | | | $ | 9,384 | | 11,504 | |
(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 include normal amortization/accretion of loan basis adjustments and loans transferred to LHFS. 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 includes: inflows of new TDRs entering the trial payment period, net of outflows for modifications that either (i) successfully perform and enter into a permanent modification, or (ii) did not successfully perform according to the terms of the trial period plan and are subsequently charged-off, foreclosed upon or otherwise resolved.
NET CHARGE-OFFSTable 22 presents net loan charge-offs.
Table 22:Net Loan Charge-offs
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Quarter ended September 30, | | Nine months ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
($ 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) |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Commercial: | | | | | | | | | | | | | | | |
| Commercial and industrial | $ | 13 | | | 0.01 | % | | $ | 46 | | | 0.06 | % | | $ | 17 | | | 0.01 | % | | $ | 215 | | | 0.09 | % |
| Real estate mortgage | (12) | | | (0.04) | | | (10) | | | (0.03) | | | (21) | | | (0.02) | | | 31 | | | 0.03 | |
| Real estate construction | — | | | — | | | 1 | | | — | | | — | | | — | | | — | | | — | |
| Lease financing | 5 | | | 0.15 | | | 1 | | | 0.03 | | | 4 | | | 0.04 | | | 21 | | | 0.18 | |
Total commercial | 6 | | | — | | | 38 | | | 0.03 | | | — | | | — | | | 267 | | | 0.07 | |
Consumer: | | | | | | | | | | | | | | | |
| Residential mortgage – first lien | (1) | | | — | | | (14) | | | (0.02) | | | (7) | | | — | | | (57) | | | (0.03) | |
| Residential mortgage – junior lien | (13) | | | (0.36) | | | (28) | | | (0.61) | | | (44) | | | (0.39) | | | (78) | | | (0.51) | |
| Credit card | 202 | | | 1.90 | | | 158 | | | 1.77 | | | 577 | | | 1.93 | | | 650 | | | 2.49 | |
| Auto | 121 | | | 0.87 | | | 26 | | | 0.20 | | | 285 | | | 0.68 | | | 123 | | | 0.33 | |
| Other consumer | 84 | | | 1.13 | | | 79 | | | 1.22 | | | 237 | | | 1.10 | | | 248 | | | 1.31 | |
Total consumer | 393 | | | 0.40 | | | 221 | | | 0.23 | | | 1,048 | | | 0.36 | | | 886 | | | 0.31 | |
| Total | $ | 399 | | | 0.17 | % | | $ | 259 | | | 0.12 | % | | $ | 1,048 | | | 0.15 | % | | $ | 1,153 | | | 0.18 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Quarter ended June 30, | | Six months ended June 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
($ 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) |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Commercial and industrial | $ | 119 | | | 0.12 | % | | $ | 27 | | | 0.03 | % | | $ | 162 | | | 0.09 | % | | $ | 4 | | | — | % |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Commercial real estate | 79 | | | 0.21 | | | (4) | | | (0.01) | | | 96 | | | 0.13 | | | (9) | | | (0.01) | |
Lease financing | 2 | | | 0.05 | | | — | | | — | | | 5 | | | 0.06 | | | (1) | | | (0.02) | |
| Total commercial | 200 | | | 0.15 | | | 23 | | | 0.02 | | | 263 | | | 0.10 | | | (6) | | | — | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Residential mortgage | (12) | | | (0.02) | | | (16) | | | (0.03) | | | (23) | | | (0.02) | | | (37) | | | (0.03) | |
Credit card | 396 | | | 3.39 | | | 199 | | | 2.02 | | | 740 | | | 3.22 | | | 375 | | | 1.94 | |
Auto | 89 | | | 0.68 | | | 68 | | | 0.49 | | | 210 | | | 0.81 | | | 164 | | | 0.24 | |
Other consumer | 91 | | | 1.31 | | | 70 | | | 0.98 | | | 178 | | | 1.26 | | | 153 | | | 1.08 | |
| Total consumer | 564 | | | 0.58 | | | 321 | | | 0.33 | | | 1,105 | | | 0.57 | | | 655 | | | 0.34 | |
| Total | $ | 764 | | | 0.32 | % | | $ | 344 | | | 0.15 | % | | $ | 1,368 | | | 0.29 | % | | $ | 649 | | | 0.14 | % |
(1)Net loan charge-offs as a percentage of average respective loans are annualized.
The decreaseincrease in commercial net loan charge-offs in thirdsecond quarter 2022,2023, compared with the same period a year ago, was due to lowerdriven by higher losses in ouracross all commercial and industrial portfolio.portfolios.
The increase in consumer net loan charge-offs in thirdsecond quarter 2022,2023, compared with the same period a year ago, was driven by higher losses in all consumer portfolios, primarily in our auto and credit card portfolios.
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 in our residential mortgage portfolio instituted in response to the COVID-19 pandemic could continue to delay the recognition of residential mortgage loan charge-offs. For information on customer accommodations in response to the COVID-19 pandemic, see the “Risk Management – Credit Risk Management – COVID-Related Lending Accommodations” section in our 2021 Form 10-K.
ALLOWANCE FOR CREDIT LOSSES We maintain an allowance for credit losses (ACL) for loans, which is management’s estimate of the expected life-timelifetime 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 AFS or HTM, other financial assets measured at amortized cost, including deposits with banks, 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 our 20212022 Form 10-K. For additional information on our ACL for loans, see Note 45 (Loans and Related Allowance for Credit Losses) to Financial Statements in this Report, and for additional information on our ACL for debt securities, see Note 3 (Available-for-Sale and Held-to-Maturity Debt Securities) to Financial Statements in this Report.
Table 2322 presents the allocation of the ACL for loans by loan portfolio segment and class.
| | | | | | | | |
| Wells Fargo & Company | 3937 |
Risk Management – Credit Risk Management (continued)
Table 23:22: Allocation of the ACL for Loans
| | | Sep 30, 2022 | | Dec 31, 2021 | | Jun 30, 2023 | | Dec 31, 2022 |
($ in millions) | ($ in millions) | ACL | | Loans as % of total loans | | ACL | | Loans as % of total loans | ($ in millions) | ACL | | ACL as % of loan class | | Loans as % of total loans | | ACL | | ACL as % of loan class | | Loans as % of total loans |
Commercial: | | |
Commercial and industrial | Commercial and industrial | $ | 4,547 | | | 40 | % | | $ | 4,873 | | | 39 | % | Commercial and industrial | $ | 4,266 | | | 1.11 | % | | 41 | | | $ | 4,507 | | | 1.17 | % | | 40 | |
Real estate mortgage | 1,656 | | | 14 | | | 2,085 | | | 14 | | |
Real estate construction | 577 | | | 2 | | | 431 | | | 2 | | |
| Commercial real estate | | Commercial real estate | 3,618 | | | 2.35 | | | 16 | | | 2,231 | | | 1.43 | | | 16 | |
Lease financing | Lease financing | 211 | | | 2 | | | 402 | | | 2 | | Lease financing | 197 | | | 1.28 | | | 1 | | | 218 | | | 1.46 | | | 2 | |
Total commercial | Total commercial | 6,991 | | | 58 | | | 7,791 | | | 57 | | Total commercial | 8,081 | | | 1.45 | | | 58 | | | 6,956 | | | 1.25 | | | 58 | |
Consumer: | | |
Residential mortgage – first lien (1) | 1,027 | | | 27 | | | 1,156 | | | 28 | | |
Residential mortgage – junior lien (1) | (26) | | | 1 | | | 130 | | | 2 | | |
| Residential mortgage (1) | | Residential mortgage (1) | 734 | | | 0.28 | | | 28 | | | 1,096 | | | 0.41 | | | 28 | |
Credit card | Credit card | 3,364 | | | 5 | | | 3,290 | | | 4 | | Credit card | 3,865 | | | 8.10 | | | 5 | | | 3,567 | | | 7.71 | | | 5 | |
Auto | Auto | 1,340 | | | 6 | | | 928 | | | 6 | | Auto | 1,408 | | | 2.73 | | | 6 | | | 1,380 | | | 2.57 | | | 6 | |
Other consumer | Other consumer | 529 | | | 3 | | | 493 | | | 3 | | Other consumer | 698 | | | 2.50 | | | 3 | | | 610 | | | 2.08 | | | 3 | |
Total consumer | Total consumer | 6,234 | | | 42 | | | 5,997 | | | 43 | | Total consumer | 6,705 | | | 1.71 | | | 42 | | | 6,653 | | | 1.67 | | | 42 | |
Total | Total | $ | 13,225 | | | 100 | % | | $ | 13,788 | | | 100 | % | Total | $ | 14,786 | | | 1.56 | % | | 100 | | | $ | 13,609 | | | 1.42 | % | | 100 | |
| Components: | Components: | | | | Components: | | | |
Allowance for loan losses | Allowance for loan losses | | $ | 12,571 | | 12,490 | Allowance for loan losses | | $ | 14,258 | | 12,985 |
Allowance for unfunded credit commitments | Allowance for unfunded credit commitments | | 654 | | 1,298 | Allowance for unfunded credit commitments | | 528 | | 624 |
Allowance for credit losses | Allowance for credit losses | | $ | 13,225 | | 13,788 | Allowance for credit losses | | $ | 14,786 | | 13,609 |
| 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) | | 7.94x | | 7.94 | | Ratio of allowance for loan losses to total net loan charge-offs (2) | | 4.65x | | 8.08 | |
Ratio of allowance for loan losses to total nonaccrual loans | Ratio of allowance for loan losses to total nonaccrual loans | | 2.25 | | | 1.73 | | Ratio of allowance for loan losses to total nonaccrual loans | | 2.07 | | | 2.31 | |
Allowance for loan losses as a percentage of total loans | Allowance for loan losses as a percentage of total loans | | 1.33 | % | | 1.39 | | Allowance for loan losses as a percentage of total loans | | 1.50 | % | | 1.36 | |
Allowance for credit losses for loans as a percentage of total loans | | 1.40 | | | 1.54 | | |
|
(1)Includes negative allowance for expected recoveries of amounts previously charged off.
(2)Total net loan charge-offs are annualized for the quarter ended SeptemberJune 30, 2022.2023.
The ratios for the allowance for loan losses and the ACL for loans presented in Table 2322 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 decreased $563 million,increased $1.2 billion, or 4%9%, from December 31, 2021,2022, reflecting reduced uncertainty around the economic impact of the COVID-19 pandemic on ourincreases for commercial real estate loans, primarily office loans, as well as for increases in credit card loan portfolio. This decrease wasbalances, partially offset by loan growtha decrease for residential mortgage loans related to the adoption of ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and a less favorable economic environment.Vintage Disclosures. For additional information on ASU 2022-02, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report. 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 45 (Loans and Related Allowance for Credit Losses) to Financial Statements in this Report.
We consider multiple economic scenarios to develop our estimate of the ACL for loans, which generally include a base scenario, along with an optimistic (upside) and one or more pessimistic (downside) scenarios. We weighted the base scenario and the downside scenarios in our estimate of the ACL for loans at SeptemberJune 30, 2022.2023. The base scenario assumed modestelevated inflation and economic growth with elevated inflationcontraction in the near term.term, reflecting declining property values and increased unemployment rates from historically low levels. The downside scenarios assumed a more substantial economic contractionscontraction due to declining property values, high inflation, rising interest rates, and declining property values.lower business and consumer confidence.
Additionally, we consider qualitative factors that represent risksthe risk of limitations inherent in our processes and assumptions such as economic environmental factors, modeling assumptions and 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 at September 30 and June 30, 2022,2023, and March 31, 2023, are presented in Table 24.23.
Table 24:23: Forecasted Key Economic Variables
| | | | | | | | | | | | | | | | | | | |
| | | 4Q 2022 | | 2Q 2023 | | 4Q 2023 |
Weighted blend of economic scenarios: | | | | | | | |
U.S. unemployment rate (1): | | | | | | | |
| | | | | | | |
| | | | | | | |
June 30, 2022 | | | 4.1 | % | | 5.2 | | | 6.0 | |
September 30, 2022 | | | 4.4 | | | 5.4 | | | 6.1 | |
| | | | | | | |
U.S. real GDP (2): | | | | | | | |
| | | | | | | |
| | | | | | | |
June 30, 2022 | | | 0.4 | | | (0.3) | | | 1.0 | |
September 30, 2022 | | | (0.7) | | | (1.1) | | | 1.0 | |
| | | | | | | |
Home price index (3): | | | | | | | |
| | | | | | | |
| | | | | | | |
June 30, 2022 | | | 12.7 | | | (0.2) | | | (6.2) | |
September 30, 2022 | | | 9.5 | | | (2.2) | | | (3.7) | |
| | | | | | | |
Commercial real estate asset prices (3): | | | | | | | |
| | | | | | | |
| | | | | | | |
June 30, 2022 | | | (1.0) | | | (2.6) | | | (2.6) | |
September 30, 2022 | | | 3.9 | | | (1.7) | | | (4.7) | |
| | | | | | | | | | | | | | | | | | | |
| | | 4Q 2023 | | 2Q 2024 | | 4Q 2024 |
Weighted blend of economic scenarios: | | | | | | | |
U.S. unemployment rate (1): | | | | | | | |
| | | | | | | |
| | | | | | | |
June 30, 2023 | | | 4.2 | % | | 5.2 | | | 5.9 | |
March 31, 2023 | | | 4.7 | | | 5.6 | | | 6.0 | |
| | | | | | | |
U.S. real GDP (2): | | | | | | | |
| | | | | | | |
| | | | | | | |
June 30, 2023 | | | (1.5) | | | (0.8) | | | 1.0 | |
March 31, 2023 | | | (0.3) | | | 0.5 | | | 1.4 | |
| | | | | | | |
Home price index (3): | | | | | | | |
| | | | | | | |
| | | | | | | |
June 30, 2023 | | | (4.3) | | | (5.9) | | | (6.4) | |
March 31, 2023 | | | (5.5) | | | (7.7) | | | (6.6) | |
| | | | | | | |
Commercial real estate asset prices (3): | | | | | | | |
| | | | | | | |
| | | | | | | |
June 30, 2023 | | | (12.4) | | | (12.6) | | | (7.2) | |
March 31, 2023 | | | (5.2) | | | (8.0) | | | (8.1) | |
(1)Quarterly average.
(2)Percent change from the preceding period, seasonally adjusted annualized rate.
(3)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 real GDP), among other factors.
We believe the ACL for loans of $13.2$14.8 billion at SeptemberJune 30, 2022,2023, was appropriate to cover expected credit losses, including unfunded credit commitments, at that date. The entire allowance is available to absorb 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 20212022 Form 10-K.
MORTGAGE BANKING ACTIVITIES We sell residential and commercial mortgage loans to various parties. In connection with our sales and securitization of residential mortgage loans, we have established a mortgage repurchase liability. For information on our repurchase liability, see the “Risk Management – Credit Risk Management – Mortgage Banking Activities” section in our 20212022 Form 10-K.
In addition to servicing loans in our portfolio, we act as servicer and/or master servicer of residential and commercial 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.
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 for advances of delinquent payments vary by investor and the applicable servicing agreements. See Note 96 (Mortgage Banking Activities) to Financial Statements in this Report for additional information about residential and commercial servicing rights, servicer advances and servicing fees.
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. Uponupon transfer as servicer, we retain the option to repurchase loans from GNMA loan securitization pools, which generally becomes exercisable when three scheduled loan payments remain unpaid by the borrower. We generallymay repurchase these loans for cash and as a result, our total consolidated assets do not change. These repurchased loan balances were $10.0 billion and $17.3 billion at September 30, 2022, and December 31, 2021, respectively, which included $8.2 billion and $12.9 billion, respectively, in our held for investment loan portfolio, with the remainder in loans held for sale.
Repurchased 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 afterAt June 30, 2020, are ineligible2023, and December 31, 2022, these loans, which we have repurchased or have the option to repurchase, were $8.5 billion and $9.8 billion, respectively, which included $7.8 billion and $8.6 billion, respectively, in loans held for inclusioninvestment, with the remainder in future GNMA loan securitization pools until the borrower has timely made six consecutive payments. This requirement may delay our ability to transfer loans into the securitization market.held for sale. See Note 813 (Securitizations and Variable Interest Entities) to Financial Statements in this Report for additional information about our involvement with mortgage loan securitizations.
For additional information about the risks related to our servicing activities, see the “Risk Management – Credit Risk Management – Mortgage Banking Activities” section in our 20212022 Form 10-K. For additional information on mortgage banking
activities, see Note 96 (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. For information on our oversight of asset/liability risks, see the “Risk Management – Asset/Liability Management” section in our 20212022 Form 10-K.
INTEREST RATE RISK Interest rate risk is createdthe risk that market fluctuations in our role asinterest rates, credit spreads, or foreign exchange can cause a financial intermediary for customers based on investmentsloss of the Company’s earnings and capital stemming from mismatches in the Company’s asset and liability cash flows primarily arising from customer-related activities such as loanslending and other extensions of credit and debt securities. Interest rate risk can have a significant impact to our earnings.deposit-taking. We are subject to interest rate risk because:
•assets and liabilities may mature or reprice at different times. If assets reprice faster than liabilities and interest rates are generally rising, earnings will initially increase;
•assets and liabilities may reprice at the same time but by different amounts;
•short-term and long-term market interest rates may change by different amounts. For example, the shape of the yield curve may affect yield for new loans and funding costs differently;
•the remaining maturity for various assets or liabilities may shorten or lengthen as interest rates change. For example, if long-term mortgage interest rates increase sharply, MBS held in the debt securities portfoliomortgage-related products may pay down at a slower rate than anticipated, which could impact portfolio income; or
•interest rates may 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.
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 rates on loans and debt securities, deposit flows and mix, as well as pricing strategies.
Our most recent simulations, as presented in Table 25,24, estimate net interest income sensitivity over the next 12 months using instantaneous movements across the yield curve with both lower and higher interest rates relative to our base scenario. Steeper and flatter scenarios measure non-parallel changes in the yield curve, with long-term interest rates defined as all tenors three years and longer and short-term interest rates defined as 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 25:24:
•Simulations are dynamic and reflect anticipated changes 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.
Risk Management – Asset/Liability Management (continued)
•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 acrossand the alternative scenarios. In higher interest rate scenarios,
Risk Management – Asset/Liability Management (continued)
customer deposit activity that shifts balances into higher-yieldinghigher yielding products could impact expected net interest income.
•The interest rate sensitivity of deposits is modeled using the historical behavior of our deposits portfolio and reflects the expectations of deposit products repricing as market interest rates change (referred to as deposit betas) as well as migration to higher cost deposit products consistent with the base scenario.. Our actual experience in base and alternative scenarios may differ from expectations due to the lag or acceleration of deposit repricing, changes in consumer behavior, and other factors.
•We hold the size of the projected debt and equity securities portfolios constant across scenarios.
Table 25:24: Net Interest Income Sensitivity Over the Next 12 Months Using Instantaneous Movements
| ($ in billions) | ($ in billions) | Sep 30, 2022 | | Dec 31, 2021 | ($ in billions) | Jun 30, 2023 | | Dec 31, 2022 |
Parallel Shift: | | |
Parallel shift: | | Parallel shift: | |
+100 bps shift in interest rates | +100 bps shift in interest rates | $ | 2.6 | | | 7.1 | | +100 bps shift in interest rates | $ | 1.8 | | | 2.3 | |
-100 bps shift in interest rates | -100 bps shift in interest rates | (2.5) | | | (3.3) | | -100 bps shift in interest rates | (2.1) | | | (1.7) | |
| Steeper yield curve: | Steeper yield curve: | | Steeper yield curve: | |
+50 bps shift in long-term interest rates | 0.4 | | | 1.2 | | |
+100 bps shift in long-term interest rates | | +100 bps shift in long-term interest rates | 1.0 | | | 0.8 | |
-100 bps shift in short-term interest rates | | -100 bps shift in short-term interest rates | (1.1) | | | (1.0) | |
| | Flatter yield curve: | Flatter yield curve: | | Flatter yield curve: | |
+50 bps shift in short-term interest rates | 0.9 | | | 2.6 | | |
-50 bps shift in long-term interest rates | (0.4) | | | (1.0) | | |
+100 bps shift in short-term interest rates | | +100 bps shift in short-term interest rates | 0.8 | | | 1.5 | |
-100 bps shift in long-term interest rates | | -100 bps shift in long-term interest rates | (1.0) | | | (0.7) | |
|
The changes in our interest rate sensitivity from December 31, 2021,2022, to SeptemberJune 30, 2022,2023, in Table 2524 reflected updates to our base scenario, which included changes inincluding expectations for both balance sheet composition and interest rates. Our interest rate sensitivity indicates that we would expect to 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 resulting in lower net interest income. For the December 31, 2021 simulations with downward shifts in interest rates, the 0.00% interest rate floor limited the amount of the decline in net interest income. We may have a larger decline in net interest income when interest rates increase for the base scenario relative to the interest rate floor.
The sensitivity results above do not capture noninterest income or expense impacts. Our interest rate sensitive noninterest income and expense are predominantly drivenimpacted by mortgage banking activities andthat may have sensitivity impacts that move in the opposite direction of our net interest income. See the “Risk Management – Asset/Liability Management – Mortgage Banking Interest Rate and Market Risk” section in our 20212022 Form 10-K for additional information.
Interest rate sensitive noninterest income is also impacted by changes in earnings credit for noninterest-bearing deposits that reduce treasury management deposit-related service fees on commercial accounts, and by trading assets, which are generally less sensitive to changes in interest rates than the related funding liabilities.assets. In addition, the impact to net interest income does not include the fair value changes of trading securities, which, along with the effects of related economic hedges, are recorded in noninterest income. In addition to changes in interest rates, net interest income and noninterest income from trading securities may be impacted by the actual composition of the trading portfolio. For additional information on our trading assets and liabilities, see Note 2 (Trading Activities) to Financial Statements in this Report.
We use the debt securities portfolio and exchange-traded and over-the-counter (OTC) interest rate derivatives to manage our interest rate exposures. As interest rates increase, changes in
the fair value of AFS debt securities may negatively affect accumulated other comprehensive income (AOCI), which lowers the amount of our risk-basedregulatory capital. AOCI also includes
unrealized gains or losses related to the transfer of debt securities from AFS to HTM, which are subsequently amortized into earnings over the life of the security with no further impact from interest rate changes. See Note 1 (Summary of Significant Accounting Policies) and Note 3 (Available-for-Sale and Held-to-Maturity Debt Securities) to Financial Statements in this Report for additional information on the debt securities portfolios. We use derivatives for asset/liability management in twothe following main ways:
•to convert the cash flows from selected asset and/or liability instruments/portfolios including investments,certain interest-earning deposits, commercial loans and long-term debt, from floating-rate payments to fixed-rate payments, or vice versa;
•to reduce AOCI sensitivity of our AFS debt securities portfolio; and
•to economically hedge our mortgage origination pipeline, funded mortgage loans, and MSRs.
In the first nine months of 2022, we entered into interest rate swap hedges to reduce AOCI sensitivity of our AFS debt securities portfolio. Additionally, we entered into interest rate swaps to convert the interest cash flows of some floating-rate assets, such as commercial loans, to a fixed-rate.
Derivatives used to hedge our interest rate risk exposures are presented in Note 1411 (Derivatives) to Financial Statements in this Report.
MORTGAGE BANKING INTEREST RATE AND MARKET RISK We originate, fund and service mortgage loans, which subjects us to various risks, including credit, liquidity andmarket, interest rate, risks.credit, and liquidity risks that can be substantial. Based on market conditions and other factors, we reduce credit and liquidity risks by selling or securitizing mortgage loans. We determine whether mortgage loans will be held for investment or held for sale at the time of commitment, but may change our intent to hold loans for investment or sale as part of our corporate asset/liability management activities. We may also retain securities in our investment portfolio at the time we securitize mortgage loans.
Changes in interest rates may impact mortgage banking noninterest income, including origination and servicing fees, and the fair value of our residential MSRs, LHFS, and derivative loan commitments (interest rate “locks”) extended to mortgage applicants. Interest rate changes will generally impact our mortgage banking noninterest income on a lagging basis due to the time it takes for the market to reflect a shift in customer demand, as well as the time required for processing a new application, providing the commitment, and securitizing and selling the loan. The amount and timing of the impact will depend on the magnitude, speed and duration of the changes in interest rates. For additional information on mortgage banking, interest rateincluding key assumptions and market risk,the sensitivity of the fair value of MSRs, 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 and Note 6 (Mortgage Banking Activities), Note 14 (Derivatives), and Note 15 (Fair Values of Assets and Liabilities) to Financial Statements in our 20212022 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 we 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.
MARKET RISK Market risk is the risk of possible economic loss from adverse changes in market risk factors such as interest rates, credit spreads, foreign exchange rates, equity and commodity prices, and the risk of possible loss due to counterparty 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,loans held at fair value, and impairment of private equity investments. For
information on our oversight of market risk, see the “Risk Management – Asset/Liability Management – Market Risk” section in our 20212022 Form 10-K.
MARKET RISK – TRADING ACTIVITIES We engage in trading activities to accommodate the investment and risk management activities of our customers and to execute economic hedging to manage certain balance sheet risks. These trading activities predominantly occur within our CIB businesses and, to a lesser extent, other businesses 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 consolidated statement of income. Changes in fair value of the financial instruments used in our trading activities are reflected in net gains from trading activities. For additional information on the financial instruments used in our trading activities and the income from these trading activities,
see Note 2 (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 on our monitoring activities, sensitivity analysis and stress testing, see the “Risk Management – Asset/Liability Management – Market Risk – Trading Activities” section in our 20212022 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 and monitor line of business and Company-wide risk limits. Trading VaR is calculated based on all trading positions on our consolidated balance sheet.
Table 2625 shows the Company’s Trading General VaR by risk category. The increase in average Company Trading General VaR for the quarter ended SeptemberJune 30, 2022,2023, compared with the same period a year ago, was primarily driven by changes in the portfolio composition.
Table 26:25: Trading 1-Day 99% General VaR by Risk Category
| | | Quarter ended | | Quarter ended |
| | September 30, 2022 | | June 30, 2022 | | September 30, 2021 | | | June 30, 2023 | | March 31, 2023 | | | June 30, 2022 |
(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 | $ | 37 | | | 33 | | | 26 | | | 41 | | | 28 | | | 31 | | | 21 | | | 40 | | | 19 | | | 18 | | | 13 | | | 26 | | | Credit | 50 | | | 39 | | | 21 | | | 51 | | | 34 | | | 27 | | | 20 | | | 37 | | | | 28 | | | 31 | | | 21 | | | 40 | |
Interest rate | Interest rate | 32 | | | 28 | | | 22 | | | 34 | | | 26 | | | 23 | | | 11 | | | 35 | | | 12 | | | 9 | | | 5 | | | 15 | | | Interest rate | 42 | | | 44 | | | 29 | | | 65 | | | 40 | | | 32 | | | 19 | | | 48 | | | | 26 | | | 23 | | | 11 | | | 35 | |
Equity | Equity | 24 | | | 23 | | | 19 | | | 28 | | | 20 | | | 24 | | | 17 | | | 36 | | | 27 | | | 28 | | | 22 | | | 39 | | | Equity | 19 | | | 19 | | | 13 | | | 24 | | | 24 | | | 24 | | | 19 | | | 31 | | | | 20 | | | 24 | | | 17 | | | 36 | |
Commodity | Commodity | 6 | | | 6 | | | 4 | | | 9 | | | 5 | | | 5 | | | 4 | | | 7 | | | 6 | | | 6 | | | 2 | | | 20 | | | Commodity | 4 | | | 4 | | | 3 | | | 6 | | | 3 | | | 4 | | | 3 | | | 8 | | | | 5 | | | 5 | | | 4 | | | 7 | |
Foreign exchange | Foreign exchange | 1 | | | 1 | | | 1 | | | 2 | | | 1 | | | 1 | | | 0 | | | 1 | | | 1 | | | 0 | | | 0 | | | 1 | | | Foreign exchange | 1 | | | 1 | | | 0 | | | 4 | | | 0 | | | 1 | | | 0 | | | 3 | | | | 1 | | 1 | | | 0 | | | 1 | |
Diversification benefit (1) | Diversification benefit (1) | (64) | | | (54) | | | (44) | | | (52) | | | (35) | | | (28) | | | | Diversification benefit (1) | (78) | | | (72) | | | (67) | | | (49) | | | | (44) | | | (52) | | |
Company Trading General VaR | Company Trading General VaR | $ | 36 | | | 37 | | | 36 | | | 32 | | | 30 | | | 33 | | | | Company Trading General VaR | $ | 38 | | | 35 | | | 34 | | | 39 | | | | 36 | | | 32 | | |
(1)The period-end VaR was less than the sum of the VaR components described above, which is due to portfolio diversification. The diversification effect arises because the risks are not perfectly correlated causing a portfolio of positions to usually be less risky than the sum of the risks of the positions alone. The diversification benefit is not meaningful for low and high metrics since they may occur on different days.
MARKET RISK – EQUITY SECURITIES We are directly and indirectly affected by changes in the equity markets. We make and manage direct investments in start-up businesses, emerging growth companies, management buy-outs, acquisitions and corporate recapitalizations. We also invest in non-affiliated funds that make similar private equity investments. For additional information, see the “Risk Management – Asset/Liability Management – Market Risk – Equity Securities” section in our 20212022 Form 10-K.
We also have marketable equity securities that include investments relating to our venture capital activities. The fair value changes in these marketable equity securities are recognized in net income. For additional information, see Note 64 (Equity Securities) to Financial Statements in this Report.
Changes in equity market prices may also indirectly affect our net income by (1) the value of third-party assets under management and, hence, fee income, (2) borrowers whose ability to repay principal and/or interest may be affected by the stock market, or (3) brokerage activity, related commission income and other business activities. Each business line monitors and manages these indirect risks.
LIQUIDITY RISK AND FUNDING Liquidity risk is the risk arising from the inability of the Company to meet obligations when they
come due, or roll over funds at a reasonable cost, without incurring heightened costs. 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. Liquidity risk also considers the stability of deposits, including the risk of losing uninsured or non-operational deposits. The objective of effective liquidity management is to ensure that we can meet our 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, we monitorthe 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 management-level Corporate Asset/Liability Committee and on a quarterly basis by the Board. These guidelines are established and monitored for both the Company and the Parent on a stand-alone basis to ensureso 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,
Risk Management – Asset/Liability Management (continued)
see the “Risk Management – Liquidity Risk and Funding” section in our 20212022 Form 10-K. For additional information on the IHC, see the “Regulatory Matters – ‘Living Will’ Requirements and Related Matters” section in our 2021 Form 10-K.
Liquidity Standards We are subject to a rule issued by the FRB, OCC and FDIC that establishes 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 organization to hold high-quality liquid assets (HQLA) in an amount equal to or greater than its projected net cash outflows during a 30-day stress period. Our HQLA under the rule predominantly consists of central bank deposits, government debt securities, and mortgage-backed securities of federal agencies. The LCR applies to the Company on a consolidated basis and to our insured depository institutions (IDIs) with total assets of $10 billion or more. In addition, rules issued by the FRB impose enhanced liquidity risk management standards on large bank holding companies (BHCs), such as Wells Fargo.
Risk Management – Asset/Liability Management (continued)
TheWe are also subject to a rule issued by the FRB, OCC and FDIC have also issued a rule implementingthat establishes a stable funding requirement, known as the
net stable funding ratio (NSFR), which requires a covered banking organization, such as Wells Fargo, to maintain a minimum amount of stable funding, including common equity, long-term debt and most types of deposits, in relation to its assets, derivative exposures and commitments over a one-year horizon period. The NSFR applies to the Company on a consolidated basis and to our IDIs with total assets of $10 billion or more. As of SeptemberJune 30, 2022,2023, we were compliant with the NSFR requirement.
Liquidity Coverage Ratio As of SeptemberJune 30, 2022,2023, the consolidated Company, Wells Fargo Bank, N.A., and Wells Fargo National Bank West exceeded the minimum LCR requirement of 100%.
Table 2726 presents the Company’s quarterly average values for the daily-calculated LCR and its components calculated pursuant to the LCR rule requirements. The LCR represents average HQLA divided by average projected net cash outflows, as each is defined under the LCR rule.
Table 27:26: Liquidity Coverage Ratio
| | | Average for quarter ended | | Average for quarter ended |
(in millions, except ratio) | (in millions, except ratio) | Sep 30, 2022 | | Jun 30, 2022 | | Sep 30, 2021 | (in millions, except ratio) | Jun 30, 2023 | | Mar 31, 2023 | | Jun 30, 2022 |
HQLA (1): | HQLA (1): | | HQLA (1): | |
Eligible cash | Eligible cash | $ | 125,576 | | 137,147 | | | 244,260 | | Eligible cash | $ | 121,126 | | 108,725 | | | 137,147 | |
Eligible securities (2) | Eligible securities (2) | 238,678 | | 232,815 | | | 138,525 | | Eligible securities (2) | 227,955 | | 239,123 | | | 232,815 | |
Total HQLA | Total HQLA | 364,254 | | 369,962 | | | 382,785 | | Total HQLA | 349,081 | | 347,848 | | | 369,962 | |
Projected net cash outflows(3) | Projected net cash outflows(3) | 296,495 | | 305,212 | | | 320,782 | | Projected net cash outflows(3) | 283,609 | | 284,290 | | | 305,212 | |
LCR | LCR | 123 | % | | 121 | | | 119 | | LCR | 123 | % | | 122 | | | 121 | |
|
(1)Excludes excess HQLA at certain subsidiaries that isare not transferable to other Wells Fargo entities.
(2)Net of applicable haircuts required under the LCR rule.
(3)Projected net cash outflows are calculated by applying a standardized set of outflow and inflow assumptions, defined by the LCR rule, to various exposures and liability types, such as deposits and unfunded loan commitments, which are prescribed based on a number of factors, including the type of customer and the nature of the account.
Liquidity Sources We maintain liquidity in the form of cash, cash equivalentsinterest-earning deposits with banks, and unencumbered high-quality, liquid debt securities. These assets make up our primary sources of 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 2827 at fair value, which also includes encumbered securities that are not included as available HQLA in the calculation of the LCR.
Table 27:Primary Sources of Liquidity
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
(in millions) | Total | | Encumbered | | Unencumbered | | Total | | Encumbered | | Unencumbered |
Interest-earning deposits with banks (1) | $ | 122,503 | | | — | | | 122,503 | | | 124,561 | | | — | | | 124,561 | |
Debt securities of U.S. Treasury and federal agencies | 49,267 | | | 11,549 | | | 37,718 | | | 59,570 | | | 12,080 | | | 47,490 | |
Federal agency mortgage-backed securities (2) | 241,250 | | | 24,523 | | | 216,727 | | | 230,881 | | | 34,151 | | | 196,730 | |
Total | $ | 413,020 | | | 36,072 | | | 376,948 | | | 415,012 | | | 46,231 | | | 368,781 | |
(1)Excludes time deposits, which are included in interest-earning deposits with banks in our consolidated balance sheet.
(2)Encumbered securities at June 30, 2023, included securities with a fair value of $1.5 billion which were purchased in June 2023, but settled in July 2023.
Our cash is predominantlyinterest-earning deposits with banks are mainly on deposit with the Federal Reserve. DebtWe believe the debt securities included as part of our primary sources of liquidity are comprised of U.S. Treasuryin Table 27 provide quick and federal agency debt, and MBS issued by federal agencies within our debt securities portfolio. We believe these debt securities provide quickreliable sources of liquidity through sales or by pledging to obtain financing, regardless of market conditions. Some of these debtDebt securities are within our HTM portfolio and, as such, are not intended for sale but may be pledged to obtain financing.
As of June 30, 2023, we had approximately $438.1 billion of available borrowing capacity at various Federal Home Loan Banks and the Federal Reserve Discount Window, based on collateral pledged. Although available, we do not view this borrowing capacity as a primary source of liquidity.
Table 28:Primary Sources of Liquidity
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
(in millions) | Total | | Encumbered | | Unencumbered | | Total | | Encumbered | | Unencumbered |
Interest-earning deposits with banks | $ | 137,821 | | | — | | | 137,821 | | | 209,614 | | | — | | | 209,614 | |
Debt securities of U.S. Treasury and federal agencies | 59,088 | | | 12,515 | | | 46,573 | | | 56,486 | | | 4,066 | | | 52,420 | |
Federal agency mortgage-backed securities | 234,056 | | | 36,409 | | | 197,647 | | | 293,870 | | | 58,955 | | | 234,915 | |
Total | $ | 430,965 | | | 48,924 | | | 382,041 | | | 559,970 | | | 63,021 | | | 496,949 | |
In addition, to our primary sources of liquidity shown in
Table 28, liquidity is also available through the sale or financing of other debt securities, including trading and/or AFS debt securities, as well as through the sale, securitization, or financing of loans, to the extent such debt securities and loans are not encumbered.
Funding Sources The Parent acts as a source of funding for the Company through the issuance of long-term debt and equity. WFC Holdings, LLC (the “IHC”) is an intermediate holding company and subsidiary of the Parent, which provides funding support for the ongoing operational requirements of the Parent and certain of its direct and indirect subsidiaries. For additional
information on the IHC, see the “Regulatory Matters – ‘Living Will’ Requirements and Related Matters” section in this Report. Additional subsidiary funding is provided by deposits, short-term borrowings and long-term debt.
Deposits have historically provided a sizable source of relatively low-cost funds. Deposits were 148%142% and 166%145% of total loans at SeptemberJune 30, 2022,2023, and December 31, 2021,2022, respectively.
Additional funding is provided by long-term debt and short-term borrowings. As of September 30, 2022, we had approximately $207.5 billion of available borrowing capacity at various Federal Home Loan Banks and the Federal Reserve Discount Window. Table 2928 presents a summary of our short-term borrowings, which generally mature in less than 30 days. The balances of federal funds purchased and securities sold under agreements to
repurchase may vary over time due to client activity, our own demand for financing, and our overall mix of liabilities. For additional information on the classification of our short-term borrowings, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2022 Form 10-K. 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 1215 (Pledged Assets and Collateral) to Financial Statements in this Report.
Table 29:28: Short-Term Borrowings
| (in millions) | (in millions) | September 30, 2022 | | December 31, 2021 | (in millions) | Jun 30, 2023 | | Dec 31, 2022 |
Federal funds purchased and securities sold under agreements to repurchase | Federal funds purchased and securities sold under agreements to repurchase | $ | 25,396 | | | 21,191 | | Federal funds purchased and securities sold under agreements to repurchase | $ | 67,602 | | | 30,623 | |
| Other short-term borrowings(1) | Other short-term borrowings(1) | 22,986 | | | 13,218 | | Other short-term borrowings(1) | 16,653 | | | 20,522 | |
Total | Total | $ | 48,382 | | | 34,409 | | Total | $ | 84,255 | | | 51,145 | |
(1)Includes $2.0 billion and $7.0 billion of Federal Home Loan Bank (FHLB) advances at June 30, 2023, and December 31, 2022, respectively.
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, and we expect the proceeds from securities issued in the future will be used for the same
the same purposes. Depending on market conditions and our liquidity position, we may redeem or repurchase, and subsequently retire, our outstanding debt securities in privately negotiated or open market transactions, by tender offer, or otherwise. We issued $8.5 billion of long-term debt in July 2023. Table 3029 provides the aggregate carrying value of long-term debt maturities (based on contractual payment dates) for the remainder of 20222023 and the following years thereafter, as of SeptemberJune 30, 2022. In October 2022, Wells Fargo Bank, N.A. entered into $10.0 billion in Federal Home Loan Bank advances.2023.
Table 30:29: Maturity of Long-Term Debt
| | | September 30, 2022 | | June 30, 2023 |
(in millions) | (in millions) | Remaining 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | Thereafter | | Total | (in millions) | Remaining 2023 | | 2024 | | 2025 | | 2026 | | 2027 | | Thereafter | | Total |
Wells Fargo & Company (Parent Only) | Wells Fargo & Company (Parent Only) | | Wells Fargo & Company (Parent Only) | |
Senior notes | Senior notes | $ | 2,049 | | | 3,493 | | | 10,892 | | | 13,214 | | | 22,819 | | | 58,520 | | | 110,987 | | Senior notes | $ | 2,099 | | | 8,536 | | | 14,185 | | | 23,463 | | | 7,510 | | | 56,341 | | | 112,134 | |
Subordinated notes | Subordinated notes | — | | | 2,614 | | | 702 | | | 944 | | | 2,624 | | | 14,479 | | | 21,363 | | Subordinated notes | 1,568 | | | 710 | | | 959 | | | 2,611 | | | 2,329 | | | 12,110 | | | 20,287 | |
Junior subordinated notes | Junior subordinated notes | — | | | — | | | — | | | — | | | — | | | 1,166 | | | 1,166 | | Junior subordinated notes | — | | | — | | | — | | | — | | | 349 | | | 821 | | | 1,170 | |
Total long-term debt – Parent | Total long-term debt – Parent | 2,049 | | | 6,107 | | | 11,594 | | | 14,158 | | | 25,443 | | | 74,165 | | | 133,516 | | Total long-term debt – Parent | 3,667 | | | 9,246 | | | 15,144 | | | 26,074 | | | 10,188 | | | 69,272 | | | 133,591 | |
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(1) | Senior notes(1) | 1 | | | 10,003 | | | 3 | | | 173 | | | 80 | | | 136 | | | 10,396 | | Senior notes(1) | 5,002 | | | 17,513 | | | 1,173 | | | 79 | | | 3 | | | 132 | | | 23,902 | |
Subordinated notes | Subordinated notes | — | | | 817 | | | — | | | 149 | | | — | | | 3,257 | | | 4,223 | | Subordinated notes | 949 | | | — | | | 148 | | | — | | | 27 | | | 3,226 | | | 4,350 | |
Junior subordinated notes | Junior subordinated notes | — | | | — | | | — | | | — | | | — | | | 398 | | | 398 | | Junior subordinated notes | — | | | — | | | — | | | — | | | 407 | | | — | | | 407 | |
Other bank debt (1)(2) | Other bank debt (1)(2) | 1,437 | | | 1,652 | | | 1,466 | | | 277 | | | 150 | | | 1,622 | | | 6,604 | | Other bank debt (1)(2) | 1,835 | | | 1,790 | | | 858 | | | 479 | | | 418 | | | 2,184 | | | 7,564 | |
Total long-term debt – Bank | Total long-term debt – Bank | 1,438 | | | 12,472 | | | 1,469 | | | 599 | | | 230 | | | 5,413 | | | 21,621 | | Total long-term debt – Bank | 7,786 | | | 19,303 | | | 2,179 | | | 558 | | | 855 | | | 5,542 | | | 36,223 | |
Other consolidated subsidiaries | Other consolidated subsidiaries | | Other consolidated subsidiaries | |
Senior notes | Senior notes | 3 | | | 455 | | | 92 | | | 409 | | | 221 | | | 95 | | | 1,275 | | Senior notes | 11 | | | 82 | | | 410 | | | 220 | | | — | | | 95 | | | 818 | |
| Total long-term debt – Other consolidated subsidiaries | Total long-term debt – Other consolidated subsidiaries | 3 | | | 455 | | | 92 | | | 409 | | | 221 | | | 95 | | | 1,275 | | Total long-term debt – Other consolidated subsidiaries | 11 | | | 82 | | | 410 | | | 220 | | | — | | | 95 | | | 818 | |
Total long-term debt | Total long-term debt | $ | 3,490 | | | 19,034 | | | 13,155 | | | 15,166 | | | 25,894 | | | 79,673 | | | 156,412 | | Total long-term debt | $ | 11,464 | | | 28,631 | | | 17,733 | | | 26,852 | | | 11,043 | | | 74,909 | | | 170,632 | |
(1)Includes $23.0 billion of FHLB advances.
(2)Primarily relates to unfunded commitments for LIHTClow-income housing tax credit (LIHTC) investments. For additional information, see Note 6 (Equity Securities)16 (Securitizations and Variable Interest Entities) to Financial Statements in our 20212022 Form 10-K.
| | | | | | | | |
| Wells Fargo & Company | 4543 |
Risk Management – Asset/Liability Management (continued)
Credit Ratings Investors in the long-term capital markets, as well as other market participants, generally will consider, among other factors, a company’s debt rating in making investment decisions. Rating agencies base their ratings on many quantitative and qualitative factors, including capital adequacy, liquidity, asset quality, business mix, the level and quality of earnings, and rating agency assumptions regarding the probability and extent of federal financial assistance or support for certain large financial institutions. Adverse changes in these factors could result in a reduction of our credit rating; however, our debt securities do not contain credit rating covenants.
On September 13, 2022, Standard & Poor's (S&P) GlobalMay 18, 2023, DBRS Morningstar affirmed the Company’s ratings and maintained the stable trend. On June 1, 2023, Fitch Ratings affirmed the Company’s ratings and retained the stable
the stable ratings outlook. There were no other actions undertaken by the rating agencies with regard to our credit ratings during thirdsecond quarter 2022.2023.
See the “Risk Factors” section in our 20212022 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 1411 (Derivatives) to Financial Statements in this Report for information regarding additional collateral and funding obligations required for certain derivative instruments in the event our credit ratings were to fall below investment grade.
The credit ratings of the Parent and Wells Fargo Bank, N.A., as of SeptemberJune 30, 2022,2023, are presented in Table 31.30.
Table 31:30: Credit Ratings as of SeptemberJune 30, 20222023
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Wells Fargo & Company | | Wells Fargo Bank, N.A. |
| Senior debt | | Short-term borrowings | | Long-term deposits | | Short-term borrowings |
Moody’s | A1 | | P-1 | | Aa1 | | P-1 |
S&P Global Ratings | BBB+ | | A-2 | | A+ | | A-1 |
Fitch Ratings | A+ | | F1 | | AA | | F1+ |
DBRS Morningstar | AA (low) | | R-1 (middle) | | AA | | R-1 (high) |
| | | | | | | | |
4644 | Wells Fargo & Company | |
We have an active program for managing capital through a comprehensive process for assessing the Company’s overall capital adequacy. Our objective is to maintain capital at an amount commensurate with our risk profile and risk tolerance objectives, and to meet both regulatory and market expectations. We primarily fund our capital needs through the retention of earnings net of both dividends and share repurchases, as well as through the issuance of preferred stock and long- and short-term debt. Retained earnings at SeptemberJune 30, 2022,2023, increased $6.2$7.2 billion from December 31, 2021,2022, predominantly as a result of $10.3$9.9 billion of Wells Fargo net income, partially offset by $3.9$2.9 billion of common and preferred stock dividends. During the first nine monthshalf of 2022,2023, we issued $827$860 million of common stock, substantially all of which was issued in connection with employee compensation and benefits. In the first nine monthshalf of 2022,2023, we repurchased 110187 million shares of common stock at a cost of $6$8.1 billion. In the first nine months of 2022, our AOCI decreased $12.6 billion, predominantly due to net unrealized losses on AFS debt securities. As interest rates increase, changes in the fair value of AFS debt securities may negatively affect AOCI, which lowers the amount of our risk-based capital. For additional information about capital planning, see the “Capital Planning and Stress Testing” section below.
In July 2023, we issued $1.725 billion of our Preferred Stock, Series EE.
Regulatory Capital Requirements
The Company and each of our IDIs are subject to various regulatory capital adequacy requirements administered by the FRB and the OCC. Risk-based capital rules establish risk-adjusted ratios 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 rules contain two frameworks for calculating capital requirements, a Standardized Approach and an Advanced Approach applicable to certain institutions, including Wells Fargo, and we must calculate our risk-based capital ratios under both approaches. The Company is required to satisfy the risk-based capital ratio requirements to avoid restrictions on capital distributions and discretionary bonus payments.
On July 27, 2023, federal banking regulators issued a proposed rule that would impact the way in which risk-based capital requirements are determined for certain banks. The proposed rule would eliminate the current Advanced Approach and replace it with a new expanded risk-based approach for the measurement of risk-weighted assets, including more granular risk weights for credit risk, a new market risk framework, and a new standardized approach for measuring operational risk. The new requirements would be phased in over a three-year period beginning July 1, 2025. The Company expects a significant increase in its risk-weighted assets and a net increase in its capital requirements based on a preliminary assessment of the proposed rule. The Company is considering a range of potential actions to address the impact of the proposed rule, including balance sheet and capital optimization strategies.
Table 31 and Table 32 and Table 33 present the risk-based capital requirements applicable to the Company under the Standardized Approach and Advanced Approach, respectively, as of SeptemberJune 30, 2022.2023.
Table 31: Risk-Based Capital Requirements – Standardized Approach
Table 32: Risk-Based Capital Requirements – StandardizedAdvanced Approach as of September 30, 2022
Table 33: Risk-Based Capital Requirements – Advanced Approach as of September 30, 2022
In addition to the risk-based capital requirements described in Table 3231 and Table 33,32, if the FRB determines that a period of excessive credit growth is contributing to an increase in systemic risk, a countercyclical buffer of up to 2.50% could be added to the risk-based capital ratio requirements under federal banking regulations. The countercyclical buffer in effect at SeptemberJune 30, 2022,2023, was 0.00%.
The capital conservation buffer is applicable to certain institutions, including Wells Fargo, under the Advanced Approach and is intended to absorb losses during times of economic or financial stress.
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| Wells Fargo & Company | 4745 |
Capital Management (continued)
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. Because the stress 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 Standardized Approach, are subject to change in future periods. Our stress capital buffer for the period October 1, 2021,2022, through September 30, 2022, was 3.10%2023, is 3.20%. On August 4, 2022,July 27, 2023, the FRB confirmed that the Company'sCompany’s stress capital buffer for the period October 1, 2022,2023, through September 30, 2023, is 3.20%2024, will be 2.90%.
As a global systemically important bank (G-SIB), we are also subject to the FRB’s rule implementing an additional capital surcharge of between 1.00-4.50% on the risk-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 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. If our annual calculation results in a decrease to our G-SIB capital surcharge, the decrease takes effect the next calendar year. If our annual calculation results in an increase to our G-SIB capital surcharge, the increase takes effect in two calendar years. For 2022, our G-SIB capital surcharge is 1.50%. Our G-SIB capital surcharge will not changecontinue to be 1.50% in 2023. On July 27, 2023, the FRB issued a proposed rule that would impact the methodology used to calculate the G-SIB capital surcharge.
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 risk-weighted assets (RWAs).
The tables that follow provide information about our risk-based capital and related ratios as calculated under Basel III capital rules. Table 3433 summarizes our CET1, tierTier 1 capital, total capital, RWAs and capital ratios at September 30, 2022, and December 31, 2021.ratios.
Table 34:33: Capital Components and Ratios
| | | Standardized Approach | | Advanced Approach | | Standardized Approach | | Advanced Approach |
($ in millions) | ($ in millions) | | Required Capital Ratios (1) | | Sep 30, 2022 | | Dec 31, 2021 | | Required Capital Ratios (1) | | Sep 30, 2022 | | Dec 31, 2021 | ($ in millions) | | Required Capital Ratios (1) | | Jun 30, 2023 | | Dec 31, 2022 | | Required Capital Ratios (1) | | Jun 30, 2023 | | Dec 31, 2022 |
Common Equity Tier 1 | Common Equity Tier 1 | (A) | | $ | 129,758 | | | 140,643 | | | 129,758 | | | 140,643 | | Common Equity Tier 1 | (A) | | $ | 134,221 | | | 133,527 | | | 134,221 | | | 133,527 | |
Tier 1 capital | Tier 1 capital | (B) | | 148,810 | | | 159,671 | | | 148,810 | | | 159,671 | | Tier 1 capital | (B) | | 153,201 | | | 152,567 | | | 153,201 | | | 152,567 | |
Total capital | Total capital | (C) | | 182,690 | | | 196,281 | | | 173,520 | | | 186,553 | | Total capital | (C) | | 187,563 | | | 186,747 | | | 176,926 | | | 177,258 | |
Risk-weighted assets | Risk-weighted assets | (D) | | 1,255,641 | | | 1,239,026 | | | 1,104,116 | | | 1,116,068 | | Risk-weighted assets | (D) | | 1,250,690 | | | 1,259,889 | | | 1,118,379 | | | 1,112,307 | |
Common Equity Tier 1 capital ratio | Common Equity Tier 1 capital ratio | (A)/(D) | 9.10 | % | | 10.33 | | * | 11.35 | | | 8.50 | | | 11.75 | | | 12.60 | | Common Equity Tier 1 capital ratio | (A)/(D) | 9.20 | % | | 10.73 | | * | 10.60 | | | 8.50 | | | 12.00 | | | 12.00 | |
Tier 1 capital ratio | Tier 1 capital ratio | (B)/(D) | 10.60 | | | 11.85 | | * | 12.89 | | | 10.00 | | | 13.48 | | | 14.31 | | Tier 1 capital ratio | (B)/(D) | 10.70 | | | 12.25 | | * | 12.11 | | | 10.00 | | | 13.70 | | | 13.72 | |
Total capital ratio | Total capital ratio | (C)/(D) | 12.60 | | | 14.55 | | * | 15.84 | | | 12.00 | | | 15.72 | | | 16.72 | | Total capital ratio | (C)/(D) | 12.70 | | | 15.00 | | * | 14.82 | | | 12.00 | | | 15.82 | | | 15.94 | |
*Denotes the binding ratio under the Standardized and Advanced Approaches at SeptemberJune 30, 2022.2023.
(1)Represents the minimum ratios required to avoid restrictions on capital distributions and discretionary bonus payments at SeptemberJune 30, 2022.2023.
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4846 | Wells Fargo & Company | |
Table 3534 provides information regarding the calculation and composition of our risk-based capital under the Standardized and Advanced Approaches at September 30, 2022, and December 31, 2021.Approaches.
Table 35:34: Risk-Based Capital Calculation and Components
| (in millions) | (in millions) | | Sep 30, 2022 | | Dec 31, 2021 | (in millions) | | Jun 30, 2023 | | Dec 31, 2022 |
Total equity(1) | Total equity(1) | | $ | 178,409 | | | 190,110 | | Total equity(1) | | $ | 181,952 | | | 182,213 | |
Effect of accounting policy change (1) | | Effect of accounting policy change (1) | | — | | | 338 | |
Total equity (as reported) | | Total equity (as reported) | | 181,952 | | | 181,875 | |
Adjustments: | Adjustments: | | Adjustments: | |
Preferred stock | Preferred stock | | (20,057) | | | (20,057) | | Preferred stock | | (19,448) | | | (19,448) | |
Additional paid-in capital on preferred stock | Additional paid-in capital on preferred stock | | 136 | | | 136 | | Additional paid-in capital on preferred stock | | 173 | | | 173 | |
Unearned ESOP shares | | 646 | | | 646 | | |
| Noncontrolling interests | Noncontrolling interests | | (2,220) | | | (2,504) | | Noncontrolling interests | | (1,761) | | | (1,986) | |
Total common stockholders’ equity | Total common stockholders’ equity | | $ | 156,914 | | | 168,331 | | Total common stockholders’ equity | | $ | 160,916 | | | 160,614 | |
Adjustments: | Adjustments: | | Adjustments: | |
Goodwill | Goodwill | | (25,172) | | | (25,180) | | Goodwill | | (25,175) | | | (25,173) | |
Certain identifiable intangible assets (other than MSRs) | Certain identifiable intangible assets (other than MSRs) | | (171) | | | (225) | | Certain identifiable intangible assets (other than MSRs) | | (145) | | | (152) | |
Goodwill and other intangibles on investments in consolidated portfolio companies (included in other assets) | Goodwill and other intangibles on investments in consolidated portfolio companies (included in other assets) | | (2,378) | | | (2,437) | | Goodwill and other intangibles on investments in consolidated portfolio companies (included in other assets) | | (2,511) | | | (2,427) | |
Applicable deferred taxes related to goodwill and other intangible assets (1) | | 889 | | | 765 | | |
CECL transition provision (2) | | 180 | | | 241 | | |
Applicable deferred taxes related to goodwill and other intangible assets (2) | | Applicable deferred taxes related to goodwill and other intangible assets (2) | | 905 | | | 890 | |
CECL transition provision (3) | | CECL transition provision (3) | | 120 | | | 180 | |
Other | Other | | (504) | | | (852) | | Other | | 111 | | | (405) | |
Common Equity Tier 1 under the Standardized and Advanced Approaches | Common Equity Tier 1 under the Standardized and Advanced Approaches | | $ | 129,758 | | | 140,643 | | Common Equity Tier 1 under the Standardized and Advanced Approaches | | $ | 134,221 | | | 133,527 | |
Preferred stock | Preferred stock | | 20,057 | | | 20,057 | | Preferred stock | | 19,448 | | | 19,448 | |
Additional paid-in capital on preferred stock | Additional paid-in capital on preferred stock | | (136) | | | (136) | | Additional paid-in capital on preferred stock | | (173) | | | (173) | |
Unearned ESOP shares | | (646) | | | (646) | | |
| Other | Other | | (223) | | | (247) | | Other | | (295) | | | (235) | |
Total Tier 1 capital under the Standardized and Advanced Approaches | Total Tier 1 capital under the Standardized and Advanced Approaches | (A) | $ | 148,810 | | | 159,671 | | Total Tier 1 capital under the Standardized and Advanced Approaches | (A) | $ | 153,201 | | | 152,567 | |
| Long-term debt and other instruments qualifying as Tier 2 | Long-term debt and other instruments qualifying as Tier 2 | | 20,539 | | | 22,740 | | Long-term debt and other instruments qualifying as Tier 2 | | 19,681 | | | 20,503 | |
Qualifying allowance for credit losses (3) | | 13,598 | | | 14,149 | | |
Qualifying allowance for credit losses (4) | | Qualifying allowance for credit losses (4) | | 15,110 | | | 13,959 | |
Other | Other | | (257) | | | (279) | | Other | | (429) | | | (282) | |
Total Tier 2 capital under the Standardized Approach | Total Tier 2 capital under the Standardized Approach | (B) | $ | 33,880 | | | 36,610 | | Total Tier 2 capital under the Standardized Approach | (B) | $ | 34,362 | | | 34,180 | |
Total qualifying capital under the Standardized Approach | Total qualifying capital under the Standardized Approach | (A)+(B) | $ | 182,690 | | | 196,281 | | Total qualifying capital under the Standardized Approach | (A)+(B) | $ | 187,563 | | | 186,747 | |
| Long-term debt and other instruments qualifying as Tier 2 | Long-term debt and other instruments qualifying as Tier 2 | | 20,539 | | | 22,740 | | Long-term debt and other instruments qualifying as Tier 2 | | 19,681 | | | 20,503 | |
Qualifying allowance for credit losses (3) | | 4,428 | | | 4,421 | | |
Qualifying allowance for credit losses (4) | | Qualifying allowance for credit losses (4) | | 4,473 | | | 4,470 | |
Other | Other | | (257) | | | (279) | | Other | | (429) | | | (282) | |
Total Tier 2 capital under the Advanced Approach | Total Tier 2 capital under the Advanced Approach | (C) | $ | 24,710 | | | 26,882 | | Total Tier 2 capital under the Advanced Approach | (C) | $ | 23,725 | | | 24,691 | |
Total qualifying capital under the Advanced Approach | Total qualifying capital under the Advanced Approach | (A)+(C) | $ | 173,520 | | | 186,553 | | Total qualifying capital under the Advanced Approach | (A)+(C) | $ | 176,926 | | | 177,258 | |
(1)In first quarter 2023, we adopted ASU 2018-12. We adopted this ASU with retrospective application, which required revision of prior period financial statements. Prior period risk-based capital and certain other regulatory related metrics were not revised. 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.
(2)(3)In second quarter 2020, the Company elected to apply a modified transition provision issued by federal banking regulators related to the impact of the current expected credit loss accounting standard (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 allowance for credit losses (ACL) under CECL for each period until December 31, 2021, followed by a three-year phase-out period in which the benefit is reduced by 25% in year one, 50% in year two and 75% in year three.
(3)(4)Differences between the approaches are driven by the qualifying amounts of ACL includable in Tier 2 capital. Under the Advanced Approach, eligible credit reserves represented by the amount of qualifying ACL in excess of expected credit losses (using regulatory definitions) is limited to 0.60% of Advanced credit RWAs, whereas the Standardized Approach includes ACL in Tier 2 capital up to 1.25% of Standardized credit RWAs. Under both approaches, any excess ACL is deducted from the respective total RWAs.
Table 3635 provides the composition of our RWAs under the Standardized and Advanced Approaches at September 30, 2022, and December 31, 2021.Approaches.
Table 36:35: Risk-Weighted Assets | | | Standardized Approach | | Advanced Approach (1) | | Standardized Approach | | Advanced Approach (1) |
(in millions) | (in millions) | | Sep 30, 2022 | | | | Dec 31, 2021 | | Sep 30, 2022 | | | | Dec 31, 2021 | (in millions) | | Jun 30, 2023 | | | | Dec 31, 2022 | | Jun 30, 2023 | | | | Dec 31, 2022 |
Risk-weighted assets (RWAs): | Risk-weighted assets (RWAs): | | | | | | Risk-weighted assets (RWAs): | | | | | |
Credit risk | Credit risk | | $ | 1,218,406 | | | | | 1,186,810 | | | 752,556 | | | | | 747,714 | | Credit risk | | $ | 1,210,424 | | | | | 1,218,006 | | | 757,013 | | | | | 757,436 | |
Market risk | Market risk | | 37,235 | | | | | 52,216 | | | 37,235 | | | | | 52,216 | | Market risk | | 40,266 | | | | | 41,883 | | | 40,266 | | | | | 41,883 | |
Operational risk | Operational risk | | — | | | | | — | | | 314,325 | | | | | 316,138 | | Operational risk | | — | | | | | — | | | 321,100 | | | | | 312,988 | |
Total RWAs | Total RWAs | | $ | 1,255,641 | | | | | 1,239,026 | | | 1,104,116 | | | | | 1,116,068 | | Total RWAs | | $ | 1,250,690 | | | | | 1,259,889 | | | 1,118,379 | | | | | 1,112,307 | |
(1)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.
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| Wells Fargo & Company | 4947 |
Capital Management (continued)
Table 37 presents the36 provides an analysis of changes in CET1 for the nine months ended September 30, 2022.CET1.
Table 37:36: Analysis of Changes in Common Equity Tier 1
| | | | | | | | | |
(in millions) | | | |
Common Equity Tier 1 at December 31, 20212022 | | $ | 140,643133,527 | | |
Cumulative effect from change in accounting policy (1) | | 323 | | |
Net income applicable to common stock | | 9,4829,372 | | |
Common stock dividends | | (3,045)(2,253) | | |
Common stock issued, repurchased, and stock compensation-related items | | (5,220)(7,400) | | |
Changes in accumulated other comprehensive income (loss) | | (12,640)(79) | | |
Goodwill | | 8 (2) | | |
Certain identifiable intangible assets (other than MSRs) | | 547 | | |
Goodwill and other intangibles on investments in consolidated portfolio companies (included in other assets) | | 59 (84) | | |
Applicable deferred taxes related to goodwill and other intangible assets (1)(2) | | 12415 | | |
CECL transition provision (2)(3) | | (61)(60) | | |
Other (4) | | 354855 | | |
Change in Common Equity Tier 1 | | (10,885)694 | | |
Common Equity Tier 1 at SeptemberJune 30, 20222023 | | $ | 129,758134,221 | | |
(1)Effective January 1, 2023, we adopted ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. 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.
(2)(3)In second quarter 2020, the Company elected to apply a modified 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 allowance for credit losses (ACL) under CECL for each period until December 31, 2021, followed by a three-year phase-out period in which the benefit is reduced by 25% in year one, 50% in year two and 75% in year three.
(4)Includes $338 million related to our first quarter 2023 adoption of ASU 2018-12. For additional information, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report.
Table 3837 presents net changes in the components of RWAs under the Standardized and Advanced Approaches for the nine months ended September 30, 2022.Approaches.
Table 38:37: Analysis of Changes in RWAs
| (in millions) | (in millions) | Standardized Approach | Advanced Approach | (in millions) | Standardized Approach | Advanced Approach |
Risk-weighted assets (RWAs) at December 31, 2021 | $ | 1,239,026 | | 1,116,068 | | |
Risk-weighted assets (RWAs) at December 31, 2022 | | Risk-weighted assets (RWAs) at December 31, 2022 | $ | 1,259,889 | | 1,112,307 | |
Net change in credit risk RWAs | Net change in credit risk RWAs | 31,596 | | 4,842 | | Net change in credit risk RWAs | (7,582) | | (423) | |
Net change in market risk RWAs | Net change in market risk RWAs | (14,981) | | (14,981) | | Net change in market risk RWAs | (1,617) | | (1,617) | |
Net change in operational risk RWAs | Net change in operational risk RWAs | — | | (1,813) | | Net change in operational risk RWAs | — | | 8,112 | |
Total change in RWAs | Total change in RWAs | 16,615 | | (11,952) | | Total change in RWAs | (9,199) | | 6,072 | |
RWAs at September 30, 2022 | $ | 1,255,641 | | 1,104,116 | | |
RWAs at June 30, 2023 | | RWAs at June 30, 2023 | $ | 1,250,690 | | 1,118,379 | |
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5048 | Wells Fargo & Company | |
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 investments in consolidated portfolio companies, net of applicable deferred taxes. The ratios are (i) tangible book value per common share, which represents tangible common equity divided by common shares outstanding; and (ii) return on average tangible common
equity (ROTCE), which represents our annualized earnings 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 3938 provides a reconciliation of these non-GAAP financial measures to GAAP financial measures.
Table 39:38: 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, 2022 | Jun 30, 2022 | Sep 30, 2021 | | | Sep 30, 2022 | Jun 30, 2022 | Sep 30, 2021 | | Sep 30, 2022 | Sep 30, 2021 | (in millions, except ratios) | | Jun 30, 2023 | Mar 31, 2023 | Jun 30, 2022 | | | Jun 30, 2023 | Mar 31, 2023 | Jun 30, 2022 | | Jun 30, 2023 | Jun 30, 2022 | |
Total equity | Total equity | | $ | 178,409 | | 179,793 | | 191,071 | | | | 183,037 | 181,016 | | 194,041 | | | 183,451 | 191,379 | | Total equity | | $ | 181,952 | | 183,220 | | 179,798 | | | | 184,443 | 184,297 | | 180,926 | | | 184,371 | 183,507 | | |
Adjustments: | Adjustments: | | | | Adjustments: | | | | |
Preferred stock(1) | Preferred stock(1) | | (20,057) | | (20,057) | | (20,270) | | | | (20,057) | | (20,057) | | (21,403) | | | (20,057) | | (21,449) | | Preferred stock(1) | | (19,448) | | (19,448) | | (20,057) | | | | (19,448) | | (19,448) | | (20,057) | | | (19,448) | | (20,057) | | |
Additional paid-in capital on preferred stock(1) | Additional paid-in capital on preferred stock(1) | | 136 | | 135 | | 120 | | | | 135 | | 135 | | 145 | | | 135 | | 143 | | Additional paid-in capital on preferred stock(1) | | 173 | | 173 | | 135 | | | | 173 | | 173 | | 135 | | | 173 | | 135 | | |
Unearned ESOP shares(1) | Unearned ESOP shares(1) | | 646 | | 646 | | 875 | | | | 646 | | 646 | | 875 | | | 646 | | 875 | | Unearned ESOP shares(1) | | — | | — | | 646 | | | | — | | — | | 646 | | | — | | 646 | | |
Noncontrolling interests | Noncontrolling interests | | (2,220) | | (2,261) | | (2,043) | | | | (2,258) | | (2,386) | | (1,845) | | | (2,370) | | (1,427) | | Noncontrolling interests | | (1,761) | | (2,052) | | (2,262) | | | | (1,924) | | (2,019) | | (2,386) | | | (1,971) | | (2,427) | | |
Total common stockholders’ equity | Total common stockholders’ equity | (A) | | 156,914 | | 158,256 | | 169,753 | | | | 161,503 | | 159,354 | | 171,813 | | | 161,805 | | 169,521 | | Total common stockholders’ equity | (A) | | 160,916 | | 161,893 | | 158,260 | | | | 163,244 | | 163,003 | | 159,264 | | | 163,125 | | 161,804 | | |
Adjustments: | Adjustments: | | | | Adjustments: | | | | |
Goodwill | Goodwill | | (25,172) | | (25,178) | | (26,191) | | | | (25,177) | | (25,179) | | (26,192) | | | (25,179) | | (26,262) | | Goodwill | | (25,175) | | (25,173) | | (25,178) | | | | (25,175) | | (25,173) | | (25,179) | | | (25,174) | | (25,180) | | |
Certain identifiable intangible assets (other than MSRs) | Certain identifiable intangible assets (other than MSRs) | | (171) | | (191) | | (281) | | | | (181) | | (200) | | (290) | | | (199) | | (310) | | Certain identifiable intangible assets (other than MSRs) | | (145) | | (139) | | (191) | | | | (140) | | (145) | | (200) | | | (142) | | (209) | | |
Goodwill and other intangibles on investments in consolidated portfolio companies (included in other assets) | Goodwill and other intangibles on investments in consolidated portfolio companies (included in other assets) | | (2,378) | | (2,307) | | (2,120) | | | | (2,359) | | (2,304) | | (2,169) | | | (2,352) | | (2,198) | | Goodwill and other intangibles on investments in consolidated portfolio companies (included in other assets) | | (2,511) | | (2,486) | | (2,307) | | | | (2,487) | | (2,440) | | (2,304) | | | (2,464) | | (2,349) | | |
Applicable deferred taxes related to goodwill and other intangible assets (1)(2) | Applicable deferred taxes related to goodwill and other intangible assets (1)(2) | | 889 | | 880 | | 886 | | | | 886 | | 877 | | 882 | | | 855 | | 873 | | Applicable deferred taxes related to goodwill and other intangible assets (1)(2) | | 905 | | 897 | | 880 | | | | 903 | | 895 | | 877 | | | 899 | | 840 | | |
Tangible common equity | Tangible common equity | (B) | | $ | 130,082 | | 131,460 | | 142,047 | | | | 134,672 | | 132,548 | | 144,044 | | | 134,930 | | 141,624 | | Tangible common equity | (B) | | $ | 133,990 | | 134,992 | | 131,464 | | | | 136,345 | | 136,140 | | 132,458 | | | 136,244 | | 134,906 | | |
Common shares outstanding | Common shares outstanding | (C) | | 3,795.4 | | 3,793.0 | | 3,996.9 | | | | N/A | N/A | | N/A | N/A | Common shares outstanding | (C) | | 3,667.7 | | 3,763.2 | | 3,793.0 | | | | 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 | | | $ | 3,250 | | 2,839 | | 4,787 | | | $ | 9,482 | | 14,786 | | Net income applicable to common stock | (D) | | N/A | N/A | | | $ | 4,659 | | 4,713 | | 2,863 | | | $ | 9,372 | | 6,372 | | |
Book value per common share | Book value per common share | (A)/(C) | | $ | 41.34 | | 41.72 | | 42.47 | | | | N/A | N/A | | N/A | N/A | Book value per common share | (A)/(C) | | $ | 43.87 | | 43.02 | | 41.72 | | | | N/A | N/A | | N/A | N/A | |
Tangible book value per common share | Tangible book value per common share | (B)/(C) | | 34.27 | | 34.66 | | 35.54 | | | | N/A | N/A | | N/A | N/A | Tangible book value per common share | (B)/(C) | | 36.53 | | 35.87 | | 34.66 | | | | N/A | N/A | | N/A | N/A | |
Return on average common stockholders’ equity (ROE) | Return on average common stockholders’ equity (ROE) | (D)/(A) | | N/A | N/A | | | 7.98 | % | 7.15 | | 11.05 | | | 7.83 | % | 11.66 | | Return on average common stockholders’ equity (ROE) | (D)/(A) | | N/A | N/A | | | 11.45 | % | 11.73 | | 7.21 | | | 11.59 | % | 7.94 | | |
Return on average tangible common equity (ROTCE) | Return on average tangible common equity (ROTCE) | (D)/(B) | | N/A | N/A | | | 9.57 | | 8.59 | | 13.18 | | | 9.40 | | 13.96 | | Return on average tangible common equity (ROTCE) | (D)/(B) | | N/A | N/A | | | 13.71 | | 14.04 | | 8.67 | | | 13.87 | | 9.52 | | |
(1)In fourth quarter 2022, we redeemed all outstanding shares of our Employee Stock Ownership Plan (ESOP) Cumulative Convertible Preferred Stock in exchange for shares of the Company's common stock. For additional information, see Note 11 (Preferred Stock) to Financial Statements in our 2022 Form 10-K.
(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.
LEVERAGE REQUIREMENTS As a BHC, we are required to maintain a supplementary leverage ratio (SLR) to avoid restrictions on capital distributions and discretionary bonus payments and maintain a minimum tierTier 1 leverage ratio. Table 4039 presents the leverage requirements applicable to the Company as of SeptemberJune 30, 2022.2023.
Table 40:39: Leverage Requirements Applicable to the Company
In addition, our IDIs are required to maintain an SLR of at least 6.00% to be considered well capitalized under applicable regulatory capital adequacy rules and maintain a minimum tierTier 1 leverage ratio of 4.00%.
The FRB and OCC have proposed amendments to the SLR rules. For information regarding the proposed amendments to the SLR rules, see the “Capital Management – Leverage Requirements” section in our 20212022 Form 10-K.
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Capital Management (continued)
At September 30, 2022, the Company’s SLR was 6.65%, and each of our IDIs exceeded their applicable SLR requirements. Table 4140 presents information regarding the calculation and components of the Company’s SLR and tierTier 1 leverage ratio. At June 30, 2023, each of our IDIs exceeded their applicable SLR requirements.
Table 41:40: Leverage Ratios for the Company
| | | | | | | | |
($ in millions) | | Quarter ended SeptemberJune 30, 20222023 |
Tier 1 capital | (A) | $ | 148,810153,201 | |
Total average assets | | 1,880,8711,878,373 | |
Less: Goodwill and other permitted tierTier 1 capital deductions (net of deferred tax liabilities) | | 28,47928,289 | |
Total adjusted average assets | | 1,852,3921,850,084 | |
Plus adjustments for off-balance sheet exposures: | | |
Derivatives (1) | | 69,02357,430 | |
Repo-style transactions (2) | | 3,1424,023 | |
Other (3) | | 312,090306,038 | |
Total off-balance sheet exposures | | 384,255367,491 | |
Total leverage exposure | (B) | $ | 2,236,6472,217,575 | |
Supplementary leverage ratio | (A)/(B) | 6.656.91 | % |
| | |
Tier 1 leverage ratio (4) | | 8.038.28 | % |
(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 counterparty facing the client.
(3)Adjustment represents credit equivalent amounts of other off-balance sheet exposures not already included as derivatives and repo-style transactions exposures.
(4)The tierTier 1 leverage ratio consists of tierTier 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 (consisting of CET1 capital and additional tierTier 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 SeptemberJune 30, 2022,2023, are presented in Table 42.41.
Table 42:41: 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 |
+ |
Greater of method one and method two G-SIB capital surcharge |
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The FRB and OCC have proposed amendments to the TLAC
and eligible unsecured long-term debt requirements. For information regarding these proposed amendments, see the “Capital
“Capital Management – Total Loss Absorbing Capacity” section in our 20212022 Form 10-K.
Table 4342 provides our TLAC and eligible unsecured long-term debt and related ratios as of September 30, 2022.ratios.
Table 43:42: TLAC and Eligible Unsecured Long-Term Debt
| June 30, 2023 | | June 30, 2023 |
($ in millions) | ($ in millions) | | TLAC (1) | | Regulatory Minimum (2) | | Eligible Unsecured Long-term Debt | | Regulatory Minimum | ($ in millions) | | TLAC (1) | | Regulatory Minimum (2) | | Eligible Unsecured Long-term Debt | | Regulatory Minimum |
| September 30, 2022 | |
Total eligible amount | Total eligible amount | | $ | 288,736 | | 133,065 | | | Total eligible amount | | $ | 289,125 | | 130,576 | | |
| Percentage of RWAs (3) | Percentage of RWAs (3) | | 23.00 | % | | 21.50 | | | 10.60 | | | 7.50 | | Percentage of RWAs (3) | | 23.12 | % | | 21.50 | | | 10.44 | | | 7.50 | |
Percentage of total leverage exposure | Percentage of total leverage exposure | | 12.91 | | | 9.50 | | | 5.95 | | | 4.50 | | Percentage of total leverage exposure | | 13.04 | | | 9.50 | | | 5.89 | | | 4.50 | |
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(1)TLAC ratios are calculated using the CECL transition provision issued by federal banking regulators.
(2)Represents the minimum required to avoid restrictions on capital distributions and discretionary bonus payments.
(3)Our minimum TLAC and eligible unsecured long-term debt requirements are calculated based on the greater of RWAs determined under the Standardized and Advanced Approaches.
OTHER REGULATORY CAPITAL AND LIQUIDITY MATTERS For information regarding the U.S. implementation of the Basel III LCR and NSFR, see the “Risk Management – Asset/ Liability Management – Liquidity Risk and Funding – Liquidity Standards” section in this Report.
Our principal U.S. broker-dealer subsidiaries, Wells Fargo Securities, LLC, and Wells Fargo Clearing Services, LLC, are subject to regulations to maintain minimum net capital requirements. As of SeptemberJune 30, 2022,2023, these broker-dealer subsidiaries were in compliance with their respective regulatory minimum net capital requirements.
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, we currently target a long-term CET1surcharge and the stress capital ratio that is 100 basis points above the regulatory minimum and buffers, plus an incremental internal buffer, of up to 25 basis points. Our capital targets are subject to change based on various factors, includingas well as potential changes to the regulatory requirements for our capital ratios, planned capital actions, changes in our risk profile and other factors. Accordingly, our long-term target capital levels are set above their respective regulatory minimums plus buffers.
The FRB capital plan rule establishes capital planning and other requirements that govern capital distributions, including dividends and share repurchases, by certain BHCs, including Wells Fargo. The FRB assesses, among other things, the overall financial condition, risk profile, and capital adequacy of BHCs when evaluating their capital plans.
As part of the annual Comprehensive Capital Analysis and Review, the FRB generates a supervisory stress test. The FRB reviews the supervisory stress test results as required under the Dodd-Frank Act using a common set of capital actions for all large BHCs and also reviews the Company’s proposedCompany’s proposed capital actions.
actions. The FRB published its supervisory stress test results on June 28, 2023.On July 25, 2023, the Board approved an increase to the Company's third quarter 2023 common stock dividend to $0.35 per share.
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.
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. 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 any acquisitions,
market conditions (including the trading price of our stock), and regulatory and legal considerations, including under the FRB’s capital plan rule. Due to the various factors that 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.
At SeptemberJune 30, 2022,2023, we had remaining Board authority to repurchase approximately 25164 million shares, subject to regulatory and legal conditions. The Company publicly announced on July 25, 2023, that the Board authorized a new common stock repurchase program of up to $30 billion. Unless modified or revoked by the Board, this authorization does not expire and supersedes the prior share repurchase authority approved by the Board.
For additional information about share repurchases during thirdsecond quarter 2022,2023, see Part II, Item 2 in this Report.
The U.S. financial services industry is subject to significant regulation and regulatory oversight initiatives. This regulation and oversight may continue to impact how U.S. financial services companies conduct business and may continue to result in increased regulatory compliance costs.
For a discussion of certain consent orders applicable to the Company, see the “Overview” section in this Report. For aThe following supplements our discussion of other significant regulations and regulatory oversight initiatives that have affected or may affect our business seecontained in the “Regulatory Matters” and “Risk Factors” sections in our 20212022 Form 10-K10-K.
“Living Will” Requirements and Related Matters
Rules adopted by the FRB and the “Regulatory Matters” sectionFDIC 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 27, 2023, 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 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. There are substantial differences in the rights of creditors between the orderly liquidation authority and the U.S. Bankruptcy Code, including the right of the FDIC to disregard the strict priority of creditor claims under the U.S. Bankruptcy Code in certain circumstances and the use of an administrative claims procedure instead of a judicial procedure to determine creditors’ claims.
The strategy described in our 2022 Firstmost recent resolution plan is a single point of entry strategy, in which the Parent would be the only material legal entity to enter resolution proceedings. However, 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 Second Quarter Reportsadditional 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 Form 10-Q.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 regulators’ guidance and to facilitate the orderly resolution of the Company, on June 28, 2017, the Parent entered into a support agreement, as amended and restated on June 26, 2019 (the “Support Agreement”), with WFC Holdings, LLC, an intermediate holding company and subsidiary of the Parent (the “IHC”), the Bank, Wells Fargo Securities, LLC (“WFS”), Wells Fargo Clearing Services, LLC (“WFCS”), and certain other subsidiaries of the Parent designated from time to time 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
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Regulatory Matters (continued)
Parent transferred a significant amount of its assets, including the majority of its cash, deposits, liquid securities and intercompany loans (but excluding its equity interests in its subsidiaries and certain other assets), to the IHC and will continue to transfer those types of assets to the IHC from time to time. In the event of our material financial distress or failure, the IHC will be obligated to use the transferred assets to provide capital and/or liquidity to the Bank, WFS, WFCS, and the Covered Entities pursuant to the Support Agreement. Under the Support Agreement, the IHC will also provide funding and liquidity to the Parent through subordinated notes and a committed line of credit, which, together with the issuance of dividends, is expected to provide the Parent, during business as usual operating conditions, with the same access to cash necessary to service its debts, pay dividends, repurchase its shares, and perform its other obligations as it would have had if it had not entered into these arrangements and transferred any assets. If certain liquidity and/ or capital metrics fall below defined triggers, or if the Parent’s board of directors authorizes it to file a case under the U.S. Bankruptcy Code, the subordinated notes would be forgiven, the committed line of credit would terminate, and the IHC’s ability to pay dividends to the Parent would be restricted, any of which could materially and adversely impact the Parent’s liquidity and its ability to satisfy its debts and other obligations, and could result in the commencement of bankruptcy proceedings by the Parent at an earlier time than might have otherwise occurred if the Support Agreement were not implemented. The respective obligations under the Support Agreement of the Parent, the IHC, the Bank, and the Related Support Entities are secured pursuant to a related security agreement.
In addition to our resolution plans, we must also prepare and periodically 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 periodically submit to the OCC a recovery plan that sets forth the Bank’s plan to remain a going concern when the Bank is experiencing considerable financial or operational stress, but has not yet deteriorated to the point where liquidation or resolution is imminent. If either the FRB or the OCC determines that our recovery plan is deficient, they may impose fines, restrictions on our business or ultimately require us to 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 20212022 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. Six of these policies are critical because they require management to make difficult, subjective and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. These policies govern:
•the allowance for credit losses;
•the valuation of residential MSRs;
•the fair value of financial instruments;
•income taxes;
•liability for contingent litigation losses; and
•goodwill impairment.
Management has discussed these critical accounting policies and the related estimates and judgments with the Board’s Audit Committee. For additional information on these policies, see the “Critical Accounting Policies” section and Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 20212022 Form 10-K and Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report.
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54 | Wells Fargo & Company | 53 |
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Current Accounting Developments |
Table 4443 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 44:43: Current Accounting Developments – Issued Standards | | | | | | | | |
Description and Effective Date | | Financial statement impact |
ASU 2018-12Accounting Standards Update (ASU) 2023-02 – Financial ServicesInvestments – InsuranceEquity Method and Joint Ventures (Topic 944)323):
Targeted Improvements to the Accounting for Long-Duration Contracts and subsequent related updatesInvestments in Tax Credit Structures Using the Proportional Amortization Method
|
The Update, effective January 1, 2023,2024 (with early adoption permitted), permits entities to elect to account for additional tax credit investments using the proportional amortization method. The Update requires market risk benefits (features of insurance contractsa separate accounting policy election for each tax credit program. For any tax credit program where the proportional amortization method is elected, all investments within that protectprogram that meet eligibility criteria are required to apply the policyholder from other-than-nominal capital market risk and expose the insurer to that risk) to be measured at fair value through earnings with changes in fair value attributable to our own credit risk recognized in other comprehensive income.proportional amortization method. The Update also requires more frequent updatesadditional disclosures for insurance assumptions, mandatesany tax credit program where the use of a standardized discount rate for traditional long-duration contracts, and simplifies theproportional amortization of deferred acquisition costs.method is elected. | | The most significant impactUpdate eliminates the low-income housing tax credit (LIHTC)-only scope limitation of adoption relatesthe proportional amortization method and permits entities to reinsurance of variable annuity productsaccount for a limited number of our insurance clients. Our reinsurance business is no longer entering into new contracts. These variable annuity products contain guaranteed minimum benefits that require us to make benefit paymentsall tax credit investments made primarily for the remainderpurpose of receiving income tax credits and income tax benefits using a consistent accounting method. Under the proportional amortization method, tax credit investments are carried at amortized cost and amortized in proportion to the income tax credits and income tax benefits received. The amortization of the policyholder's life onceinvestment and the account valuesrelated income tax credits and income tax benefits are exhausted. These guaranteed minimum benefits meetrecorded in income tax expense. The Update may be adopted on either a full retrospective or modified retrospective basis and early adoption is permitted.
Upon adoption of the definitionUpdate, we will identify our tax credit programs and make a separate accounting policy election as to whether to apply the proportional amortization method for each program. For any investments that will apply the proportional amortization method upon adoption of market risk benefits and will be measured at fair value. Thethe Update, the cumulative effect of the difference between fairthe current carrying value and the carrying value upon adoption ofunder the Update, net of income tax adjustments and excluding the impact of our own credit risk,proportional amortization method will be recognized inrecorded as an adjustment to the opening balance of retained earnings, in the earliest period presented and will affect our regulatory capital calculations. At September 30, 2022, our estimated liability related to these guaranteed minimum benefits was approximately $600 million and was associated with approximately $9.7 billion of policyholder account values. We expect future earnings volatility from changes in the fair value of market risk benefits, which are sensitive to changes in equity and fixed income markets, as well as policyholder behavior and changes in mortality assumptions. We plan to economically hedge the market volatility, where feasible. Changes in the accounting for the liability of future policy benefits for traditional long-duration contracts and deferred acquisition costs are not expected to be material. |
ASU 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging – Portfolio Layer Method
|
The Update, effective January 1, 2023 (with early adoption permitted), establishes the portfolio layeris dependent upon which transition method which expands an entity’s ability to achieve fair value hedge accounting for interest rate risk hedges of closed portfolios of financial assets. The Update also provides guidance on the accounting for hedged item basis adjustments under the portfolio layer method. | | The Update improves our ability to use derivatives to hedge interest rate risk exposures associated with portfolios of financial assets, such as fixed-rate available-for-sale debt securities and loans. The Update allows us to hedge a larger proportion of these portfolios by expanding the number and type of derivatives permitted as eligible hedges, as well as by increasing the scope of eligible hedged items to include both prepayable and nonprepayable assets.
is selected.
Upon adoption, any election to designate portfolio layer method hedges is applied prospectively. Additionally, the Update permits a one-time reclassification of debt securities from held-to-maturity to available-for-sale classification as long as the securities are designated in a portfolio layer method hedge no later than 30 days after the adoption date. We are currently evaluating the impact of the Update on our consolidated financial statements.
|
ASU 2022-02, Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures
|
The Update, effective January 1, 2023 (with early adoption permitted), eliminates the accounting guidance for troubled debt restructurings (TDRs) by creditors and introduces new required disclosures for loan modifications made to borrowers experiencing financial difficulty. The Update also amends the guidance for vintage disclosures to require disclosure of current period gross charge-offs by year of origination. | | The Update will impact the measurement of the allowance for credit losses (ACL) and require new disclosures related to loan modifications and credit quality, specifically the Update:
•Eliminates the requirement to use a discounted cash flow (DCF) approach to measure the ACL for certain TDRs and instead allows for the use of an expected loss approach for all loans. Upon adoption, we expect to discontinue using a DCF approach for consumer loans and retain a DCF approach for certain nonperforming commercial loans. Any changes to the ACL as a result of the change in TDR measurement will be included as an adjustment to opening retained earnings as of the beginning of the earliest period presented.
•Requires new disclosures for modifications made to borrowers experiencing financial difficulty in the form of principal forgiveness, interest rate reduction, other than insignificant payment delay, term extension, or a combination of these modifications.
•Requires us to provide current period gross charge-offs by origination date (vintage) in our credit quality disclosures on a prospective basis beginning as of the adoption date.
|
Other Accounting Developments
The following Updates areUpdate is applicable to us but areis not expected to have a material impact on our consolidated financial statements:
•ASU 2021-08 – Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers
•ASU 2021-10 – Government Assistance (Topic 832): Disclosures by Business Entities About Government Assistance
•ASU 2022-03 – Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions
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54 | Wells Fargo & Company | 55 |
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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 expectations regarding noninterest expense and our 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 ofour expectations regarding our mortgage business and any related commitments or 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, declines in commercial real estate prices, U.S. fiscal debt, budget and tax matters, geopolitical matters (including the conflict in Ukraine), 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 ofany changes in industry standards, regulatory or judicial requirements, or guidance impacting our mortgage banking business and any changes in industry standards;strategic plans for the business;
•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;
•resolutionregulatory matters, including the failure to resolve outstanding matters on a timely basis and the potential impact of regulatorynew 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, 2021.2022.
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56 | Wells Fargo & Company | 55 |
Forward-Looking Statements (continued)
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,Company, 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, 2021,2022, 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.
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56 | Wells Fargo & Company | 57 |
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 20212022 Form 10-K.
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58 | Wells Fargo & Company | 57 |
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Disclosure Controls and Procedures |
The Company’s management evaluated the effectiveness, as of SeptemberJune 30, 2022,2023, of the Company’s disclosure controls and procedures. The Company’s chief executive officer and chief financial officer participated in the evaluation. Based on this evaluation, the Company’s chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures were effective as of SeptemberJune 30, 2022.2023.
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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 thirdsecond quarter 20222023 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) | 2023 | | 2022 | | 2023 | | 2022 | | |
Interest income | | | | | | | | | |
Debt securities | $ | 4,037 | | | 2,702 | | | $ | 7,820 | | | 5,265 | | | |
Loans held for sale | 94 | | | 126 | | | 191 | | | 266 | | | |
Loans | 14,115 | | | 8,116 | | | 27,433 | | | 15,334 | | | |
Equity securities | 194 | | | 193 | | | 364 | | | 363 | | | |
Other interest income | 2,390 | | | 419 | | | 4,378 | | | 509 | | | |
Total interest income | 20,830 | | | 11,556 | | | 40,186 | | | 21,737 | | | |
Interest expense | | | | | | | | | |
Deposits | 3,805 | | | 158 | | | 6,566 | | | 241 | | | |
Short-term borrowings | 961 | | | 31 | | | 1,531 | | | 17 | | | |
Long-term debt | 2,693 | | | 1,011 | | | 5,204 | | | 1,772 | | | |
Other interest expense | 208 | | | 158 | | | 386 | | | 288 | | | |
Total interest expense | 7,667 | | | 1,358 | | | 13,687 | | | 2,318 | | | |
Net interest income | 13,163 | | | 10,198 | | | 26,499 | | | 19,419 | | | |
Noninterest income | | | | | | | | | |
Deposit and lending-related fees | 1,517 | | | 1,729 | | | 3,021 | | | 3,544 | | | |
Investment advisory and other asset-based fees | 2,163 | | | 2,346 | | | 4,277 | | | 4,844 | | | |
Commissions and brokerage services fees | 570 | | | 542 | | | 1,189 | | | 1,079 | | | |
Investment banking fees | 376 | | | 286 | | | 702 | | | 733 | | | |
Card fees | 1,098 | | | 1,112 | | | 2,131 | | | 2,141 | | | |
Mortgage banking | 202 | | | 287 | | | 434 | | | 980 | | | |
Net gains (losses) from trading and securities | 1,032 | | | (26) | | | 2,017 | | | 770 | | | |
Other (1) | 412 | | | 566 | | | 992 | | | 1,258 | | | |
Total noninterest income | 7,370 | | | 6,842 | | | 14,763 | | | 15,349 | | | |
Total revenue | 20,533 | | | 17,040 | | | 41,262 | | | 34,768 | | | |
Provision for credit losses | 1,713 | | | 580 | | | 2,920 | | | (207) | | | |
Noninterest expense | | | | | | | | | |
Personnel | 8,606 | | | 8,442 | | | 18,021 | | | 17,713 | | | |
Technology, telecommunications and equipment | 947 | | | 799 | | | 1,869 | | | 1,675 | | | |
Occupancy | 707 | | | 705 | | | 1,420 | | | 1,427 | | | |
Operating losses | 232 | | | 576 | | | 499 | | | 1,249 | | | |
Professional and outside services | 1,304 | | | 1,310 | | | 2,533 | | | 2,596 | | | |
Advertising and promotion | 184 | | | 102 | | | 338 | | | 201 | | | |
Restructuring charges | — | | | — | | | — | | | 5 | | | |
Other (1) | 1,007 | | | 928 | | | 1,983 | | | 1,847 | | | |
Total noninterest expense | 12,987 | | | 12,862 | | | 26,663 | | | 26,713 | | | |
Income before income tax expense | 5,833 | | | 3,598 | | | 11,679 | | | 8,262 | | | |
Income tax expense (1) | 930 | | | 622 | | | 1,896 | | | 1,368 | | | |
Net income before noncontrolling interests | 4,903 | | | 2,976 | | | 9,783 | | | 6,894 | | | |
Less: Net loss from noncontrolling interests | (35) | | | (166) | | | (146) | | | (36) | | | |
Wells Fargo net income (1) | $ | 4,938 | | | 3,142 | | | $ | 9,929 | | | 6,930 | | | |
Less: Preferred stock dividends and other | 279 | | | 279 | | | 557 | | | 558 | | | |
Wells Fargo net income applicable to common stock | $ | 4,659 | | | 2,863 | | | $ | 9,372 | | | 6,372 | | | |
Per share information | | | | | | | | | |
Earnings per common share | $ | 1.26 | | | 0.75 | | | $ | 2.50 | | | 1.67 | | | |
Diluted earnings per common share | 1.25 | | | 0.75 | | | 2.48 | | | 1.66 | | | |
Average common shares outstanding | 3,699.9 | | | 3,793.8 | | | 3,742.6 | | | 3,812.3 | | | |
Diluted average common shares outstanding | 3,724.9 | | | 3,819.6 | | | 3,772.4 | | | 3,845.0 | | | |
(1)In first quarter 2023, we adopted ASU 2018-12 – Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. 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 Statement of Income (Unaudited) |
| Quarter ended September 30, | | Nine months ended September 30, |
(in millions, except per share amounts) | 2022 | | 2021 | | 2022 | | 2021 | | |
Interest income | | | | | | | | | |
Debt securities | $ | 3,043 | | | 2,354 | | | $ | 8,308 | | | 6,865 | | | |
Loans held for sale | 120 | | | 172 | | | 386 | | | 696 | | | |
Loans | 10,158 | | | 7,057 | | | 25,492 | | | 21,353 | | | |
Equity securities | 156 | | | 146 | | | 519 | | | 415 | | | |
Other interest income | 1,017 | | | 105 | | | 1,526 | | | 244 | | | |
Total interest income | 14,494 | | | 9,834 | | | 36,231 | | | 29,573 | | | |
Interest expense | | | | | | | | | |
Deposits | 513 | | | 99 | | | 754 | | | 303 | | | |
Short-term borrowings | 158 | | | (7) | | | 175 | | | (28) | | | |
Long-term debt | 1,553 | | | 745 | | | 3,325 | | | 2,483 | | | |
Other interest expense | 172 | | | 88 | | | 460 | | | 298 | | | |
Total interest expense | 2,396 | | | 925 | | | 4,714 | | | 3,056 | | | |
Net interest income | 12,098 | | | 8,909 | | | 31,517 | | | 26,517 | | | |
Noninterest income | | | | | | | | | |
Deposit and lending-related fees | 1,647 | | | 1,781 | | | 5,191 | | | 5,101 | | | |
Investment advisory and other asset-based fees | 2,111 | | | 2,882 | | | 6,955 | | | 8,432 | | | |
Commissions and brokerage services fees | 562 | | | 525 | | | 1,641 | | | 1,741 | | | |
Investment banking fees | 375 | | | 547 | | | 1,108 | | | 1,685 | | | |
Card fees | 1,119 | | | 1,078 | | | 3,260 | | | 3,104 | | | |
Mortgage banking | 324 | | | 1,259 | | | 1,304 | | | 3,921 | | | |
Net gains from trading and securities | 872 | | | 1,244 | | | 1,642 | | | 4,852 | | | |
Other | 397 | | | 609 | | | 1,507 | | | 2,283 | | | |
Total noninterest income | 7,407 | | | 9,925 | | | 22,608 | | | 31,119 | | | |
Total revenue | 19,505 | | | 18,834 | | | 54,125 | | | 57,636 | | | |
Provision for credit losses | 784 | | | (1,395) | | | 577 | | | (3,703) | | | |
Noninterest expense | | | | | | | | | |
Personnel | 8,212 | | | 8,690 | | | 25,925 | | | 27,066 | | | |
Technology, telecommunications and equipment | 798 | | | 741 | | | 2,473 | | | 2,400 | | | |
Occupancy | 732 | | | 738 | | | 2,159 | | | 2,243 | | | |
Operating losses | 2,218 | | | 540 | | | 3,467 | | | 1,056 | | | |
Professional and outside services | 1,235 | | | 1,417 | | | 3,831 | | | 4,255 | | | |
Advertising and promotion | 126 | | | 153 | | | 327 | | | 375 | | | |
Restructuring charges | — | | | 1 | | | 5 | | | 10 | | | |
Other | 1,006 | | | 1,023 | | | 2,893 | | | 3,228 | | | |
Total noninterest expense | 14,327 | | | 13,303 | | | 41,080 | | | 40,633 | | | |
Income before income tax expense | 4,394 | | | 6,926 | | | 12,468 | | | 20,706 | | | |
Income tax expense | 894 | | | 1,521 | | | 2,214 | | | 3,867 | | | |
Net income before noncontrolling interests | 3,500 | | | 5,405 | | | 10,254 | | | 16,839 | | | |
Less: Net income (loss) from noncontrolling interests | (28) | | | 283 | | | (64) | | | 1,041 | | | |
Wells Fargo net income | $ | 3,528 | | | 5,122 | | | $ | 10,318 | | | 15,798 | | | |
Less: Preferred stock dividends and other | 278 | | | 335 | | | 836 | | | 1,012 | | | |
Wells Fargo net income applicable to common stock | $ | 3,250 | | | 4,787 | | | $ | 9,482 | | | 14,786 | | | |
Per share information | | | | | | | | | |
Earnings per common share | $ | 0.86 | | | 1.18 | | | $ | 2.49 | | | 3.60 | | | |
Diluted earnings per common share | 0.85 | | | 1.17 | | | 2.47 | | | 3.57 | | | |
Average common shares outstanding | 3,796.5 | | | 4,056.3 | | | 3,807.0 | | | 4,107.1 | | | |
Diluted average common shares outstanding | 3,825.1 | | | 4,090.4 | | | 3,838.5 | | | 4,140.0 | | | |
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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) | 2023 | | 2022 | | 2023 | | 2022 | | |
Net income before noncontrolling interests (1) | $ | 4,903 | | | 2,976 | | | 9,783 | | | 6,894 | | | |
Other comprehensive income (loss), after tax: | | | | | | | | | |
Net change in debt securities | (308) | | | (3,620) | | | 54 | | | (8,768) | | | |
Net change in derivatives and hedging activities | (610) | | | (83) | | | (232) | | | (63) | | | |
Defined benefit plans adjustments | 21 | | | (22) | | | 42 | | | 50 | | | |
| | | | | | | | | |
Other (1) | 29 | | | (44) | | | 57 | | | (40) | | | |
Other comprehensive loss, after tax | (868) | | | (3,769) | | | (79) | | | (8,821) | | | |
Total comprehensive income (loss) before noncontrolling interests | 4,035 | | | (793) | | | 9,704 | | | (1,927) | | | |
Less: Other comprehensive income from noncontrolling interests | 1 | | | — | | | — | | | 1 | | | |
Less: Net loss from noncontrolling interests | (35) | | | (166) | | | (146) | | | (36) | | | |
Wells Fargo comprehensive income (loss) | $ | 4,069 | | | (627) | | | 9,850 | | | (1,892) | | | |
(1)In first quarter 2023, we adopted ASU 2018-12 – Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. 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 Statement of Comprehensive Income (Unaudited) |
| Quarter ended September 30, | | Nine months ended September 30, | | |
| | | | | |
(in millions) | 2022 | | 2021 | | 2022 | | 2021 | | |
Net income before noncontrolling interests | $ | 3,500 | | | 5,405 | | | 10,254 | | | 16,839 | | | |
Other comprehensive income (loss), after tax: | | | | | | | | | |
Net change in debt securities | (2,408) | | | (468) | | | (11,176) | | | (1,689) | | | |
Net change in derivatives and hedging activities | (1,111) | | | 38 | | | (1,174) | | | 101 | | | |
Defined benefit plans adjustments | (49) | | | (121) | | | 1 | | | 248 | | | |
| | | | | | | | | |
Other | (166) | | | (64) | | | (291) | | | (31) | | | |
Other comprehensive loss, after tax | (3,734) | | | (615) | | | (12,640) | | | (1,371) | | | |
Total comprehensive income (loss) before noncontrolling interests | (234) | | | 4,790 | | | (2,386) | | | 15,468 | | | |
Less: Other comprehensive income (loss) from noncontrolling interests | 2 | | | (2) | | | 2 | | | — | | | |
Less: Net income (loss) from noncontrolling interests | (28) | | | 283 | | | (64) | | | 1,041 | | | |
Wells Fargo comprehensive income (loss) | $ | (208) | | | 4,509 | | | (2,324) | | | 14,427 | | | |
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Wells Fargo & Company and Subsidiaries |
Consolidated Balance Sheet (Unaudited) |
(in millions, except shares) | Jun 30, 2023 | | Dec 31, 2022 |
Assets | | | |
Cash and due from banks | $ | 31,915 | | | 34,596 | |
Interest-earning deposits with banks | 123,418 | | | 124,561 | |
| | | |
Federal funds sold and securities purchased under resale agreements | 66,500 | | | 68,036 | |
Debt securities: | | | |
Trading, at fair value (includes assets pledged as collateral of $50,474 and $26,932) | 96,857 | | | 86,155 | |
Available-for-sale, at fair value (amortized cost of $142,283 and $121,725, net of allowance for credit losses) | 134,251 | | | 113,594 | |
Held-to-maturity, at amortized cost, net of allowance for credit losses (fair value $233,836 and $255,521) | 272,360 | | | 297,059 | |
Loans held for sale (includes $2,974 and $4,220 carried at fair value) | 6,029 | | | 7,104 | |
Loans | 947,960 | | | 955,871 | |
Allowance for loan losses | (14,258) | | | (12,985) | |
Net loans | 933,702 | | | 942,886 | |
Mortgage servicing rights (includes $8,251 and $9,310 carried at fair value) | 9,345 | | | 10,480 | |
Premises and equipment, net | 8,392 | | | 8,350 | |
Goodwill | 25,175 | | | 25,173 | |
Derivative assets | 17,990 | | | 22,774 | |
Equity securities (includes $31,609 and $28,383 carried at fair value; and assets pledged as collateral of $1,515 and $747) | 67,471 | | | 64,414 | |
Other assets (1) | 82,915 | | | 75,838 | |
Total assets (2) | $ | 1,876,320 | | | 1,881,020 | |
Liabilities | | | |
Noninterest-bearing deposits | $ | 402,322 | | | 458,010 | |
Interest-bearing deposits | 942,262 | | | 925,975 | |
Total deposits | 1,344,584 | | | 1,383,985 | |
Short-term borrowings (includes $201 and $181 carried at fair value) | 84,255 | | | 51,145 | |
Derivative liabilities (1) | 21,431 | | | 20,067 | |
Accrued expenses and other liabilities (includes $27,604 and $20,290 carried at fair value) (1) | 73,466 | | | 68,740 | |
Long-term debt (includes $1,600 and $1,346 carried at fair value) | 170,632 | | | 174,870 | |
Total liabilities (3) | 1,694,368 | | | 1,698,807 | |
Equity | | | |
Wells Fargo stockholders’ equity: | | | |
Preferred stock – aggregate liquidation preference of $20,216 and $20,216 | 19,448 | | | 19,448 | |
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 | 60,173 | | | 60,319 | |
Retained earnings (1) | 195,164 | | | 187,968 | |
Accumulated other comprehensive loss (1) | (13,441) | | | (13,362) | |
Treasury stock, at cost – 1,814,145,600 shares and 1,648,007,022 shares | (89,860) | | | (82,853) | |
Unearned ESOP shares | (429) | | | (429) | |
Total Wells Fargo stockholders’ equity | 180,191 | | | 180,227 | |
Noncontrolling interests | 1,761 | | | 1,986 | |
Total equity | 181,952 | | | 182,213 | |
Total liabilities and equity | $ | 1,876,320 | | | 1,881,020 | |
(1)In first quarter 2023, we adopted ASU 2018-12 – Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. For additional information, see Note 1 (Summary of Significant Accounting Policies).
(2)Our consolidated assets at June 30, 2023, and December 31, 2022, include the following assets of certain variable interest entities (VIEs) that can only be used to settle the liabilities of those VIEs: Debt securities, $71 million and $71 million; Loans, $4.9 billion and $4.8 billion; All other assets, $205 million and $191 million; and Total assets, $5.2 billion and $5.1 billion, respectively.
(3)Our consolidated liabilities at June 30, 2023, and December 31, 2022, include $208 million and $201 million, respectively, of VIE liabilities for which the VIE creditors do not have recourse to Wells Fargo.
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) | Sep 30, 2022 | | Dec 31, 2021 |
Assets | (Unaudited) | | |
Cash and due from banks | $ | 27,634 | | | 24,616 | |
Interest-earning deposits with banks | 137,821 | | | 209,614 | |
Total cash, cash equivalents, and restricted cash | 165,455 | | | 234,230 | |
Federal funds sold and securities purchased under resale agreements | 55,840 | | | 66,223 | |
Debt securities: | | | |
Trading, at fair value | 85,766 | | | 88,265 | |
Available-for-sale, at fair value (includes amortized cost of $124,906 and $175,463, net of allowance for credit losses) | 115,835 | | | 177,244 | |
Held-to-maturity, at amortized cost, net of allowance for credit losses (fair value $255,571 and $272,386) | 300,434 | | | 272,022 | |
Loans held for sale (includes $6,125 and $15,895 carried at fair value) | 9,434 | | | 23,617 | |
Loans | 945,906 | | | 895,394 | |
Allowance for loan losses | (12,571) | | | (12,490) | |
Net loans | 933,335 | | | 882,904 | |
Mortgage servicing rights (includes $9,828 and $6,920 carried at fair value) | 11,027 | | | 8,189 | |
Premises and equipment, net | 8,493 | | | 8,571 | |
Goodwill | 25,172 | | | 25,180 | |
Derivative assets | 29,253 | | | 21,478 | |
Equity securities (includes $24,698 and $39,098 carried at fair value) | 59,560 | | | 72,886 | |
Other assets | 78,141 | | | 67,259 | |
Total assets (1) | $ | 1,877,745 | | | 1,948,068 | |
Liabilities | | | |
Noninterest-bearing deposits | $ | 494,594 | | | 527,748 | |
Interest-bearing deposits | 903,557 | | | 954,731 | |
Total deposits | 1,398,151 | | | 1,482,479 | |
Short-term borrowings (includes $160 and $0 carried at fair value) | 48,382 | | | 34,409 | |
Derivative liabilities | 23,400 | | | 9,424 | |
Accrued expenses and other liabilities (includes $26,057 and $20,685 carried at fair value) | 72,991 | | | 70,957 | |
Long-term debt (includes $755 and $0 carried at fair value) | 156,412 | | | 160,689 | |
Total liabilities (2) | 1,699,336 | | | 1,757,958 | |
Equity | | | |
Wells Fargo stockholders’ equity: | | | |
Preferred stock | 20,057 | | | 20,057 | |
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 | 60,216 | | | 60,196 | |
Retained earnings | 186,551 | | | 180,322 | |
Accumulated other comprehensive income (loss) | (14,344) | | | (1,702) | |
Treasury stock – 1,686,372,007 shares and 1,596,009,977 shares | (84,781) | | | (79,757) | |
Unearned ESOP shares | (646) | | | (646) | |
Total Wells Fargo stockholders’ equity | 176,189 | | | 187,606 | |
Noncontrolling interests | 2,220 | | | 2,504 | |
Total equity | 178,409 | | | 190,110 | |
Total liabilities and equity | $ | 1,877,745 | | | 1,948,068 | |
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Wells Fargo & Company and Subsidiaries | | | | | | | | | | | | | | | | |
Consolidated Statement of Changes in Equity (Unaudited) | | | | | | | | | | |
| Wells Fargo stockholders’ equity | | | | | | |
| Preferred stock | | Common stock | | | | | | | | | | | | | | | | |
($ and shares in millions) | Shares | | Amount | | Shares | | Amount | | Additional paid-in capital | | Retained earnings | | Accumulated other comprehensive income (loss) | | Treasury stock | | Unearned ESOP shares | | | | Noncontrolling interests | | Total equity |
Balance March 31, 2023 | 4.7 | | | $ | 19,448 | | | 3,763.2 | | | $ | 9,136 | | | 59,946 | | | 191,688 | | | (12,572) | | | (86,049) | | | (429) | | | | | 2,052 | | | 183,220 | |
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Net income (loss) | | | | | | | | | | | 4,938 | | | | | | | | | | | (35) | | | 4,903 | |
Other comprehensive income (loss), net of tax | | | | | | | | | | | | | (869) | | | | | | | | | 1 | | | (868) | |
Noncontrolling interests | | | | | | | | | | | | | | | | | | | | | (257) | | | (257) | |
Common stock issued | | | | | 4.7 | | | | | | | (50) | | | | | 234 | | | | | | | | | 184 | |
Common stock repurchased | | | | | (100.2) | | | | | | | | | | | (4,043) | | | | | | | | | (4,043) | |
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Common stock dividends | | | | | | | | | 18 | | | (1,133) | | | | | | | | | | | | | (1,115) | |
Preferred stock dividends | | | | | | | | | | | (279) | | | | | | | | | | | | | (279) | |
Stock-based compensation | | | | | | | | | 237 | | | | | | | | | | | | | | | 237 | |
Net change in deferred compensation and related plans | | | | | | | | | (28) | | | | | | | (2) | | | | | | | | | (30) | |
Net change | — | | | — | | | (95.5) | | | — | | | 227 | | | 3,476 | | | (869) | | | (3,811) | | | — | | | | | (291) | | | (1,268) | |
Balance June 30, 2023 | 4.7 | | | $ | 19,448 | | | 3,667.7 | | | $ | 9,136 | | | 60,173 | | | 195,164 | | | (13,441) | | | (89,860) | | | (429) | | | | | 1,761 | | | 181,952 | |
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Balance March 31, 2022 (1) | 5.3 | | | $ | 20,057 | | | 3,789.9 | | | $ | 9,136 | | | 59,899 | | | 182,563 | | | (6,799) | | | (85,059) | | | (646) | | | | | 2,446 | | | 181,597 | |
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Net income (loss) (1) | | | | | | | | | | | 3,142 | | | | | | | | | | | (166) | | | 2,976 | |
Other comprehensive loss, net of tax (1) | | | | | | | | | | | | | (3,769) | | | | | | | | | — | | | (3,769) | |
Noncontrolling interests | | | | | | | | | | | | | | | | | | | | | (18) | | | (18) | |
Common stock issued | | | | | 3.2 | | | | | | | (26) | | | | | 162 | | | | | | | | | 136 | |
Common stock repurchased | | | | | (0.1) | | | | | | | | | | | (4) | | | | | | | | | (4) | |
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Common stock dividends | | | | | | | | | 13 | | | (961) | | | | | | | | | | | | | (948) | |
Preferred stock dividends | | | | | | | | | | | (279) | | | | | | | | | | | | | (279) | |
Stock-based compensation | | | | | | | | | 152 | | | | | | | | | | | | | | | 152 | |
Net change in deferred compensation and related plans | | | | | | | | | (40) | | | | | | | (5) | | | | | | | | | (45) | |
Net change | — | | | — | | | 3.1 | | | — | | | 125 | | | 1,876 | | | (3,769) | | | 153 | | | — | | | | | (184) | | | (1,799) | |
Balance June 30, 2022 | 5.3 | | | $ | 20,057 | | | 3,793.0 | | | $ | 9,136 | | | 60,024 | | | 184,439 | | | (10,568) | | | (84,906) | | | (646) | | | | | 2,262 | | | 179,798 | |
(1)Our consolidated assets at September 30, 2022, and December 31, 2021, includedIn first quarter 2023, we adopted ASU 2018-12 – Financial Services – Insurance (Topic 944): Targeted Improvements to the following assetsAccounting for Long-Duration Contracts. For additional information, see Note 1 (Summary of certain variable interest entities (VIEs) that can only be used to settle the liabilities of those VIEs: Debt securities, $71 million and $71 million; Loans, $4.6 billion and $4.5 billion; All other assets, $172 million and $234 million; and Total assets, $4.8 billion and $4.8 billion, respectively.
(2)Our consolidated liabilities at September 30, 2022, and December 31, 2021, include the following VIE liabilities for which the VIE creditors do not have recourse to Wells Fargo: Long-term debt, $0 million and $149 million; All other liabilities, $235 million and $259 million; and Total liabilities, $235 million and $408 million, respectively.Significant Accounting Policies).
The accompanying notes are an integral part of these statements.
| Wells Fargo & Company and Subsidiaries | Wells Fargo & Company and Subsidiaries | | | | Wells Fargo & Company and Subsidiaries | | | |
Consolidated Statement of Changes in Equity (Unaudited) | Consolidated Statement of Changes in Equity (Unaudited) | | | | | Consolidated Statement of Changes in Equity (Unaudited) | | | | |
| | Wells Fargo stockholders’ equity | | | | | Wells Fargo stockholders’ equity | | | |
| | Preferred stock | | Common stock | | | | | | Preferred stock | | Common stock | | | | |
($ and shares in millions) | ($ and shares in millions) | Shares | | Amount | | Shares | | Amount | | Additional paid-in capital | | Retained earnings | | Accumulated other comprehensive income (loss) | | Treasury stock | | Unearned ESOP shares | | | Noncontrolling interests | | Total equity | ($ and shares in millions) | Shares | | Amount | | Shares | | Amount | | Additional paid-in capital | | Retained earnings | | Accumulated other comprehensive income (loss) | | Treasury stock | | Unearned ESOP shares | | | Noncontrolling interests | | Total equity |
Balance June 30, 2022 | 5.3 | | | $ | 20,057 | | | 3,793.0 | | | $ | 9,136 | | | 60,024 | | | 184,475 | | | (10,608) | | | (84,906) | | | (646) | | | | 2,261 | | | 179,793 | | |
| Balance December 31, 2022 (1) | | Balance December 31, 2022 (1) | 4.7 | | | $ | 19,448 | | | 3,833.8 | | | $ | 9,136 | | | 60,319 | | | 187,968 | | | (13,362) | | | (82,853) | | | (429) | | | | 1,986 | | | 182,213 | |
Cumulative effect from change in accounting policy (2) | | Cumulative effect from change in accounting policy (2) | | 323 | | | | | 323 | |
Balance January 1, 2023 | | Balance January 1, 2023 | 4.7 | | | 19,448 | | | 3,833.8 | | | 9,136 | | | 60,319 | | | 188,291 | | | (13,362) | | | (82,853) | | | (429) | | | | 1,986 | | | 182,536 | |
| Net income (loss) | Net income (loss) | | 3,528 | | | | (28) | | | 3,500 | | Net income (loss) | | 9,929 | | | | (146) | | | 9,783 | |
Other comprehensive income (loss), net of tax | | (3,736) | | | | 2 | | | (3,734) | | |
Other comprehensive loss, net of tax | | Other comprehensive loss, net of tax | | (79) | | | | — | | | (79) | |
Noncontrolling interests | Noncontrolling interests | | | (15) | | | (15) | | Noncontrolling interests | | | (79) | | | (79) | |
Common stock issued | Common stock issued | | 2.5 | | | (21) | | | 132 | | | | | 111 | | Common stock issued | | 20.5 | | | — | | | (204) | | | 1,064 | | | | | 860 | |
Common stock repurchased | Common stock repurchased | | (0.1) | | | (5) | | | | | (5) | | Common stock repurchased | | (186.6) | | | (8,092) | | | | | (8,092) | |
Preferred stock issued | — | | | — | | | — | | | | | — | | |
Preferred stock redeemed | — | | | — | | | — | | | — | | | | | — | | |
| | Common stock dividends | Common stock dividends | | 15 | | | (1,153) | | | | | (1,138) | | Common stock dividends | | 42 | | | (2,295) | | | | | (2,253) | |
Preferred stock dividends | Preferred stock dividends | | (278) | | | | | (278) | | Preferred stock dividends | | (557) | | | | | (557) | |
Stock-based compensation | Stock-based compensation | | 188 | | | | | 188 | | Stock-based compensation | | 711 | | | | | 711 | |
Net change in deferred compensation and related plans | Net change in deferred compensation and related plans | | (11) | | | (2) | | | | | (13) | | Net change in deferred compensation and related plans | | (899) | | | 21 | | | | | (878) | |
Net change | Net change | — | | | — | | | 2.4 | | | — | | | 192 | | | 2,076 | | | (3,736) | | | 125 | | | — | | | | (41) | | | (1,384) | | Net change | — | | | — | | | (166.1) | | | — | | | (146) | | | 6,873 | | | (79) | | | (7,007) | | | — | | | | (225) | | | (584) | |
Balance September 30, 2022 | 5.3 | | | $ | 20,057 | | | 3,795.4 | | | $ | 9,136 | | | 60,216 | | | 186,551 | | | (14,344) | | | (84,781) | | | (646) | | | | 2,220 | | | 178,409 | | |
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 June 30, 2023 | | Balance June 30, 2023 | 4.7 | | | $ | 19,448 | | | 3,667.7 | | | $ | 9,136 | | | 60,173 | | | 195,164 | | | (13,441) | | | (89,860) | | | (429) | | | | 1,761 | | | 181,952 | |
Balance December 31, 2021 | | Balance December 31, 2021 | 5.3 | | | $ | 20,057 | | | 3,885.8 | | | $ | 9,136 | | | 60,196 | | | 180,322 | | | (1,702) | | | (79,757) | | | (646) | | | | 2,504 | | | 190,110 | |
Cumulative effect from change in accounting policy (1) | | Cumulative effect from change in accounting policy (1) | | (176) | | | (44) | | | | (1) | | | (221) | |
Balance January 1, 2022 | | Balance January 1, 2022 | 5.3 | | | 20,057 | | | 3,885.8 | | | 9,136 | | | 60,196 | | | 180,146 | | | (1,746) | | | (79,757) | | | (646) | | | | 2,503 | | | 189,889 | |
| Net income | | 5,122 | | | | 283 | | | 5,405 | | |
Other comprehensive loss, net of tax | | (613) | | | | (2) | | | (615) | | |
Net income (loss) (1) | | Net income (loss) (1) | | 6,930 | | | | (36) | | | 6,894 | |
Other comprehensive income (loss), net of tax (1) | | Other comprehensive income (loss), net of tax (1) | | (8,822) | | | | 1 | | | (8,821) | |
Noncontrolling interests | Noncontrolling interests | | | (103) | | | (103) | | Noncontrolling interests | | | (206) | | | (206) | |
Common stock issued | Common stock issued | | 3.1 | | | (22) | | | 160 | | | | | 138 | | Common stock issued | | 17.4 | | | — | | | (143) | | | 859 | | | | | 716 | |
Common stock repurchased | Common stock repurchased | | (114.2) | | | (5,291) | | | | | (5,291) | | Common stock repurchased | | (110.2) | | | (6,022) | | | | | (6,022) | |
Preferred stock issued | — | | | 1,250 | | | (23) | | | | | 1,227 | | |
Preferred stock redeemed (1) | (0.1) | | | (1,800) | | | 38 | | | (38) | | | | | (1,800) | | |
| | Common stock dividends | Common stock dividends | | 10 | | | (821) | | | | | (811) | | Common stock dividends | | 29 | | | (1,936) | | | | | (1,907) | |
Preferred stock dividends | Preferred stock dividends | | (297) | | | | | (297) | | Preferred stock dividends | | (558) | | | | | (558) | |
Stock-based compensation | Stock-based compensation | | 139 | | | | | 139 | | Stock-based compensation | | 646 | | | | | 646 | |
Net change in deferred compensation and related plans | Net change in deferred compensation and related plans | | (48) | | | — | | | | | (48) | | Net change in deferred compensation and related plans | | (847) | | | 14 | | | | | (833) | |
Net change | Net change | (0.1) | | | (550) | | | (111.1) | | | — | | | 116 | | | 3,944 | | | (613) | | | (5,131) | | | — | | | | 178 | | | (2,056) | | Net change | — | | | — | | | (92.8) | | | — | | | (172) | | | 4,293 | | | (8,822) | | | (5,149) | | | — | | | | (241) | | | (10,091) | |
Balance September 30, 2021 | 5.5 | | | $ | 20,270 | | | 3,996.9 | | | $ | 9,136 | | | 60,134 | | | 175,709 | | | (1,177) | | | (74,169) | | | (875) | | | | 2,043 | | | 191,071 | | |
Balance June 30, 2022 | | Balance June 30, 2022 | 5.3 | | | $ | 20,057 | | | 3,793.0 | | | $ | 9,136 | | | 60,024 | | | 184,439 | | | (10,568) | | | (84,906) | | | (646) | | | | 2,262 | | | 179,798 | |
(1)RepresentsIn first quarter 2023, we adopted ASU 2018-12 – Financial Services – Insurance (Topic 944): Targeted Improvements to the impactAccounting for Long-Duration Contracts. For additional information, see Note 1 (Summary of the redemptionSignificant Accounting Policies).
(2)Effective January 1, 2023, we adopted ASU 2022-02 – Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. For additional information, see Note 1 (Summary of Preferred Stock, Series O and Series X, in third quarter 2021.Significant Accounting Policies).
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 (Unaudited) | | | | | | | | | | |
| Wells Fargo stockholders’ equity | | | | | | |
| Preferred stock | | Common stock | | | | | | | | | | | | | | | | |
($ and shares in millions) | Shares | | Amount | | Shares | | Amount | | Additional paid-in capital | | Retained earnings | | Accumulated other comprehensive income (loss) | | Treasury stock | | Unearned ESOP shares | | | | Noncontrolling interests | | Total equity |
Balance December 31, 2021 | 5.3 | | | $ | 20,057 | | | 3,885.8 | | | $ | 9,136 | | | 60,196 | | | 180,322 | | | (1,702) | | | (79,757) | | | (646) | | | | | 2,504 | | | 190,110 | |
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Net income (loss) | | | | | | | | | | | 10,318 | | | | | | | | | | | (64) | | | 10,254 | |
Other comprehensive income (loss), net of tax | | | | | | | | | | | | | (12,642) | | | | | | | | | 2 | | | (12,640) | |
Noncontrolling interests | | | | | | | | | | | | | | | | | | | | | (222) | | | (222) | |
Common stock issued | | | | | 19.9 | | | | | | | (164) | | | | | 991 | | | | | | | | | 827 | |
Common stock repurchased | | | | | (110.3) | | | | | | | | | | | (6,027) | | | | | | | | | (6,027) | |
Preferred stock issued | — | | | — | | | | | | | — | | | | | | | | | | | | | | | — | |
Preferred stock redeemed | — | | | — | | | | | | | — | | | — | | | | | | | | | | | | | — | |
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Common stock dividends | | | | | | | | | 44 | | | (3,089) | | | | | | | | | | | | | (3,045) | |
Preferred stock dividends | | | | | | | | | | | (836) | | | | | | | | | | | | | (836) | |
Stock-based compensation | | | | | | | | | 834 | | | | | | | | | | | | | | | 834 | |
Net change in deferred compensation and related plans | | | | | | | | | (858) | | | | | | | 12 | | | | | | | | | (846) | |
Net change | — | | | — | | | (90.4) | | | — | | | 20 | | | 6,229 | | | (12,642) | | | (5,024) | | | — | | | | | (284) | | | (11,701) | |
Balance September 30, 2022 | 5.3 | | | $ | 20,057 | | | 3,795.4 | | | $ | 9,136 | | | 60,216 | | | 186,551 | | | (14,344) | | | (84,781) | | | (646) | | | | | 2,220 | | | 178,409 | |
Balance December 31, 2020 | 5.5 | | | $ | 21,136 | | | 4,144.0 | | | $ | 9,136 | | | 60,197 | | | 162,683 | | | 194 | | | (67,791) | | | (875) | | | | | 1,032 | | | 185,712 | |
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Net income | | | | | | | | | | | 15,798 | | | | | | | | | | | 1,041 | | | 16,839 | |
Other comprehensive loss, net of tax | | | | | | | | | | | | | (1,371) | | | | | | | | | — | | | (1,371) | |
Noncontrolling interests | | | | | | | | | | | | | | | | | | | | | (30) | | | (30) | |
Common stock issued | | | | | 19.6 | | | | | | | (103) | | | | | 1,060 | | | | | | | | | 957 | |
Common stock repurchased | | | | | (166.7) | | | | | | | | | | | (7,452) | | | | | | | | | (7,452) | |
Preferred stock issued | 0.2 | | | 5,810 | | | | | | | (54) | | | | | | | | | | | | | | | 5,756 | |
Preferred stock redeemed (1) | (0.2) | | | (6,676) | | | | | | | 86 | | | (86) | | | | | | | | | | | | | (6,676) | |
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Common stock dividends | | | | | | | | | 20 | | | (1,657) | | | | | | | | | | | | | (1,637) | |
Preferred stock dividends | | | | | | | | | | | (926) | | | | | | | | | | | | | (926) | |
Stock-based compensation | | | | | | | | | 863 | | | | | | | | | | | | | | | 863 | |
Net change in deferred compensation and related plans | | | | | | | | | (978) | | | | | | | 14 | | | | | | | | | (964) | |
Net change | — | | | (866) | | | (147.1) | | | — | | | (63) | | | 13,026 | | | (1,371) | | | (6,378) | | | — | | | | | 1,011 | | | 5,359 | |
Balance September 30, 2021 | 5.5 | | | $ | 20,270 | | | 3,996.9 | | | $ | 9,136 | | | 60,134 | | | 175,709 | | | (1,177) | | | (74,169) | | | (875) | | | | | 2,043 | | | 191,071 | |
(1)Represents the impact of the redemption of Preferred Stock, Series I, Series P and Series W, in first quarter 2021; Preferred Stock, Series N, in second quarter 2021; and Preferred Stock, Series O and
Series X, in third quarter 2021.
The accompanying notes are an integral part of these statements.
| Wells Fargo & Company and Subsidiaries | Consolidated Statement of Cash Flows (Unaudited) | Consolidated Statement of Cash Flows (Unaudited) | Consolidated Statement of Cash Flows (Unaudited) |
| | Nine months ended September 30, | | Six months ended June 30, |
(in millions) | (in millions) | 2022 | | 2021 | | (in millions) | 2023 | | 2022 | |
Cash flows from operating activities: | Cash flows from operating activities: | | | Cash flows from operating activities: | | |
Net income before noncontrolling interests(1) | Net income before noncontrolling interests(1) | $ | 10,254 | | | 16,839 | | | Net income before noncontrolling interests(1) | $ | 9,783 | | | 6,894 | | |
Adjustments to reconcile net income to net cash provided by operating activities: | Adjustments to reconcile net income to net cash provided by operating activities: | | | Adjustments to reconcile net income to net cash provided by operating activities: | | |
Provision for credit losses | Provision for credit losses | 577 | | | (3,703) | | | Provision for credit losses | 2,920 | | | (207) | | |
Changes in fair value of MSRs and LHFS carried at fair value | Changes in fair value of MSRs and LHFS carried at fair value | (1,550) | | | (1,158) | | | Changes in fair value of MSRs and LHFS carried at fair value | 403 | | | (1,236) | | |
Depreciation, amortization and accretion | Depreciation, amortization and accretion | 5,253 | | | 6,090 | | | Depreciation, amortization and accretion | 3,180 | | | 3,563 | | |
Deferred income tax expense (benefit)(1) | Deferred income tax expense (benefit)(1) | 410 | | | (2,689) | | | Deferred income tax expense (benefit)(1) | 732 | | | (244) | | |
Other, net (1) | Other, net (1) | (18,274) | | | (8,446) | | | Other, net (1) | 3,270 | | | (12,071) | | |
Originations and purchases of loans held for sale | Originations and purchases of loans held for sale | (59,971) | | | (123,983) | | | Originations and purchases of loans held for sale | (16,312) | | | (43,271) | | |
Proceeds from sales of and paydowns on loans originally classified as held for sale | Proceeds from sales of and paydowns on loans originally classified as held for sale | 54,904 | | | 78,356 | | | Proceeds from sales of and paydowns on loans originally classified as held for sale | 13,385 | | | 41,623 | | |
Net change in: | Net change in: | | | Net change in: | | |
Debt and equity securities, held for trading | Debt and equity securities, held for trading | 29,988 | | | 7,638 | | | Debt and equity securities, held for trading | (10,426) | | | 20,943 | | |
Derivative assets and liabilities(1) | Derivative assets and liabilities(1) | 4,338 | | | (4,639) | | | Derivative assets and liabilities(1) | 6,129 | | | 3,658 | | |
Other assets | Other assets | (10,673) | | | 16,736 | | | Other assets | (8,433) | | | (13,763) | | |
Other accrued expenses and liabilities(1) | Other accrued expenses and liabilities(1) | 4,547 | | | 2,617 | | | Other accrued expenses and liabilities(1) | 2,020 | | | 1,898 | | |
Net cash provided (used) by operating activities | 19,803 | | | (16,342) | | | |
Net cash provided by operating activities | | Net cash provided by operating activities | 6,651 | | | 7,787 | | |
Cash flows from investing activities: | Cash flows from investing activities: | | | Cash flows from investing activities: | | |
Net change in: | Net change in: | | | Net change in: | | |
Federal funds sold and securities purchased under resale agreements | Federal funds sold and securities purchased under resale agreements | 10,383 | | | (2,135) | | | Federal funds sold and securities purchased under resale agreements | 1,227 | | | 10,677 | | |
Available-for-sale debt securities: | Available-for-sale debt securities: | | | Available-for-sale debt securities: | | |
Proceeds from sales | Proceeds from sales | 16,894 | | | 14,568 | | | Proceeds from sales | 9,906 | | | 15,330 | | |
Prepayments and maturities | 16,824 | | | 61,080 | | | |
Paydowns and maturities | | Paydowns and maturities | 7,326 | | | 11,850 | | |
Purchases | Purchases | (38,834) | | | (84,576) | | | Purchases | (16,759) | | | (31,292) | | |
Held-to-maturity debt securities: | Held-to-maturity debt securities: | | | Held-to-maturity debt securities: | | |
Paydowns and maturities | Paydowns and maturities | 22,807 | | | 60,613 | | | Paydowns and maturities | 8,712 | | | 15,966 | | |
Purchases | Purchases | (2,360) | | | (59,480) | | | Purchases | (4,225) | | | (2,360) | | |
Equity securities, not held for trading: | Equity securities, not held for trading: | | | Equity securities, not held for trading: | | |
Proceeds from sales and capital returns | Proceeds from sales and capital returns | 3,732 | | | 2,706 | | | Proceeds from sales and capital returns | 1,269 | | | 3,090 | | |
Purchases | Purchases | (4,474) | | | (4,480) | | | Purchases | (1,637) | | | (2,744) | | |
Loans: | Loans: | | | Loans: | | |
Loans originated by banking subsidiaries, net of principal collected | Loans originated by banking subsidiaries, net of principal collected | (63,298) | | | 8,292 | | | Loans originated by banking subsidiaries, net of principal collected | 4,169 | | | (56,839) | | |
Proceeds from sales of loans originally classified as held for investment | Proceeds from sales of loans originally classified as held for investment | 10,934 | | | 26,388 | | | Proceeds from sales of loans originally classified as held for investment | 2,615 | | | 8,171 | | |
Purchases of loans | Purchases of loans | (504) | | | (313) | | | Purchases of loans | (908) | | | (376) | | |
Principal collected on nonbank entities’ loans | Principal collected on nonbank entities’ loans | 3,869 | | | 7,642 | | | Principal collected on nonbank entities’ loans | 3,240 | | | 2,705 | | |
Loans originated by nonbank entities | Loans originated by nonbank entities | (3,044) | | | (8,242) | | | Loans originated by nonbank entities | (1,893) | | | (2,244) | | |
Other, net (1) | 521 | | | 1,720 | | | |
Other, net | | Other, net | (396) | | | 597 | | |
Net cash provided (used) by investing activities | Net cash provided (used) by investing activities | (26,550) | | | 23,783 | | | Net cash provided (used) by investing activities | 12,646 | | | (27,469) | | |
Cash flows from financing activities: | Cash flows from financing activities: | | | Cash flows from financing activities: | | |
Net change in: | Net change in: | | | Net change in: | | |
Deposits | Deposits | (84,324) | | | 66,482 | | | Deposits | (39,401) | | | (57,326) | | |
Short-term borrowings | Short-term borrowings | 13,801 | | | (17,019) | | | Short-term borrowings | 33,110 | | | 2,494 | | |
Long-term debt: | Long-term debt: | | | Long-term debt: | | |
Proceeds from issuance | Proceeds from issuance | 36,090 | | | 1,143 | | | Proceeds from issuance | 5,624 | | | 16,378 | | |
Repayment | Repayment | (17,192) | | | (44,739) | | | Repayment | (12,212) | | | (11,978) | | |
Preferred stock: | Preferred stock: | | | Preferred stock: | | |
Proceeds from issuance | — | | | 5,756 | | | |
Redeemed | — | | | (6,675) | | | |
| Cash dividends paid | Cash dividends paid | (777) | | | (867) | | | Cash dividends paid | (557) | | | (558) | | |
Common stock: | Common stock: | | | Common stock: | | |
Repurchased | Repurchased | (6,027) | | | (7,452) | | | Repurchased | (8,021) | | | (6,022) | | |
Cash dividends paid | Cash dividends paid | (3,040) | | | (1,603) | | | Cash dividends paid | (2,249) | | | (1,904) | | |
Other, net (1) | (559) | | | (392) | | | |
Other, net | | Other, net | (330) | | | (492) | | |
Net cash used by financing activities | Net cash used by financing activities | (62,028) | | | (5,366) | | | Net cash used by financing activities | (24,036) | | | (59,408) | | |
Net change in cash, cash equivalents, and restricted cash | Net change in cash, cash equivalents, and restricted cash | (68,775) | | | 2,075 | | | Net change in cash, cash equivalents, and restricted cash | (4,739) | | | (79,090) | | |
Cash, cash equivalents, and restricted cash at beginning of period(2) | Cash, cash equivalents, and restricted cash at beginning of period(2) | 234,230 | | | 264,612 | | | Cash, cash equivalents, and restricted cash at beginning of period(2) | 159,157 | | | 234,230 | | |
Cash, cash equivalents, and restricted cash at end of period(2) | Cash, cash equivalents, and restricted cash at end of period(2) | $ | 165,455 | | | 266,687 | | | Cash, cash equivalents, and restricted cash at end of period(2) | $ | 154,418 | | | 155,140 | | |
Supplemental cash flow disclosures: | Supplemental cash flow disclosures: | | | Supplemental cash flow disclosures: | | |
Cash paid for interest | Cash paid for interest | $ | 4,264 | | | 3,407 | | | Cash paid for interest | $ | 12,848 | | | 2,240 | | |
Cash paid for income taxes, net | 3,863 | | | 3,114 | | | |
Net cash paid (refunded) for income taxes | | Net cash paid (refunded) for income taxes | (1,984) | | | 3,817 | | |
(1)Prior period balances have been revisedIn first quarter 2023, we adopted ASU 2018-12 – Financial Services – Insurance (Topic 944): Targeted Improvements to conformthe Accounting for Long-Duration Contracts. For additional information, see Note 1 (Summary of Significant Accounting Policies).
(2)Includes Cash and due from banks and Interest-earning deposits with the current period presentation.banks on our consolidated balance sheet and excludes time deposits, which are included in Interest-earning deposits with banks.
The accompanying notes are an integral part of these statements. See Note 1 (Summary of Significant Accounting Policies) for noncash activities.
| | | | | | | | |
64 | Wells Fargo & Company | 65 |
Notes to Financial Statements
-See the Glossary“Glossary of AcronymsAcronyms“ 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, 2021 (20212022 (2022 Form 10-K). There were no material changes to these policies in the first nine monthshalf of 2022.2023.
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 45 (Loans and Related Allowance for Credit Losses));
•valuations of residential mortgage servicing rights (MSRs) (Note 86 (Mortgage Banking Activities) and Note 13 (Securitizations and Variable Interest Entities) and Note 9 (Mortgage Banking Activities));
•valuations of financial instruments (Note 1512 (Fair Values of Assets and Liabilities));
•liabilities for contingent litigation losses (Note 1310 (Legal Actions));
•income taxes; and
•goodwill impairment (Note 107 (Intangible Assets and Other 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 20212022 Form 10-K.
Accounting Standards Adopted in 20222023
In 2022, 2023, we adopted the following new accounting guidance:
•Accounting Standards Update (ASU or Update) 2020-06(ASU) 2022-02, Financial Instruments – Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40)Credit Losses (Topic 326): Accounting for Convertible InstrumentsTroubled Debt Restructurings and Contracts in an Entity’s Own EquityVintage Disclosures
•ASU 2021-05 – Leases2022-01, Derivatives and Hedging (Topic 842)815): LessorsFair Value Hedging – Certain LeasesPortfolio Layer Method
•ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Variable Lease PaymentsCustomers
•ASU 2018-12, Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts and subsequent related updates
ASU 2020-062022-02 eliminates the accounting and reporting for troubled debt restructurings (TDRs) by creditors and introduces new required disclosures for loan modifications made to borrowers experiencing financial difficulty. The new required disclosures include information about modifications granted to borrowers experiencing financial difficulty in the form of principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions, or a combination of these modifications. The ASU also requires new disclosures for the financial effects of these modifications and for loan performance in the twelve months following the modification. The Update also amends the guidance for vintage disclosures to require disclosure of current period gross charge-offs by year of origination. See Note 5 (Loans and Related Allowance for Credit Losses) for additional information related to the new disclosures for loan modifications to borrowers experiencing financial difficulty and for gross charge-offs by year of origination, which are provided on a prospective basis.
The Update eliminates the requirement to use a discounted cash flow (DCF) approach to measure the allowance for credit losses (ACL) for TDRs and instead allows for the use of a current expected credit loss approach for all loans. Under a current expected credit loss approach, the impact of loan modifications and the subsequent performance of modified loans, including defaults, is reflected in the historical loss data used to calculate expected lifetime credit losses. Upon adoption on January 1, 2023, we discontinued utilizing a DCF approach to measure credit impairment for consumer loans and certain commercial loans previously modified in a TDR and we removed the interest concession component recognized in the ACL. We elected to apply the modified-retrospective transition approach method, resulting in a cumulative effect adjustment to retained earnings upon adoption, which reflects the difference between the pre-modification and post-modification effective interest rates that would have been recognized over the remaining life of the loans as interest income. Upon adoption, we recognized a decrease in our ACL of $429 million, pre-tax, and an increase to our retained earnings of $323 million, after tax. We continue to use a DCF approach for certain non-accruing, non-collateral dependent commercial loans.
ASU 2022-01simplifies establishes the portfolio layer method, which expands an entity's ability to achieve fair value hedge accounting for interest rate risk hedges of closed portfolios of financial assets. The Update also provides guidance on the accounting for convertiblehedged item basis adjustments under the portfolio layer method.
Note 1: Summary of Significant Accounting Policies (continued)
We adopted ASU 2022-01 on January 1, 2023 on a prospective basis. No cumulative effect adjustment to the opening balance of stockholders’ equity was required upon adoption, as impacts to us were reflected prospectively. The portfolio layer method improves our ability to use derivatives to hedge interest rate risk exposures associated with portfolios of financial instruments that embody characteristicsassets, such as fixed-rate available-for-sale (AFS) debt securities and loans. The Update allows us to hedge a larger proportion of these portfolios by expanding the number and type of derivatives permitted as eligible hedges, as well as by increasing the scope of eligible hedged items to include both prepayable and nonprepayable assets. Unlike other fair value hedging relationships where basis adjustments adjust the carrying amount of the individual hedged item, basis adjustments related to active portfolio layer method hedges are maintained at a portfolio level and not allocated to the individual assets in the portfolio.
Upon adoption, any election to designate portfolio layer method hedges is applied prospectively. Additionally, the Update permits a one-time reclassification of debt securities from held-to-maturity (HTM) to AFS classification as long as the securities are designated in a portfolio layer method hedge no later than 30 days after the adoption date.
In January 2023, we reclassified fixed-rate debt securities with an aggregate fair value of $23.2 billion and equity by (1) eliminating accounting modelsamortized cost of $23.9 billion from HTM to AFS and designated interest rate swaps with notional amounts of $20.1 billion as fair value hedges using the portfolio layer method. The transfer of debt securities was recorded at fair value and resulted in approximately $566 million of unrealized losses associated with AFS debt securities being recorded to other comprehensive income, net of deferred taxes.
See Note 3 (Available-for-Sale and Held-to-Maturity Debt Securities) for convertible financial instrumentsadditional information about the Company's portfolio layer method hedge basis adjustments and HTM to AFS transfers in connection with cash conversionadoption of the Update and beneficial conversion features withinNote 11 (Derivatives) for disclosures regarding our portfolio layer method hedging relationships.
ASU 2021-08 amends Accounting Standards Codification (ASC) 470-20, (2) removing three equity classification requirements for805 – Business Combinations to require entities to recognize and measure contract assets and contract liabilities in a contractbusiness combination in an entity's own equityaccordance with ASC 606 – Revenue Recognition. Prior to qualify for the derivative scope exceptionASU 2021-08, there was diversity in ASC Subtopic 815-40,practice related to recognition treatment, and (3) prescribing the method used for computing earnings per share.acquirers generally measured such items at acquisition date fair value. We adopted this Update prospectively in first quarter 2022.on January 1, 2023. This Update did not have a material impact to our consolidated financial statements.
ASU 2021-052018-12 amends ASC 842 Topic – Leaseschanges the accounting for long-duration insurance contracts or contract features that provide benefits to the policyholder in addition to the policyholder’s account value. These features, which the ASU defines as market risk benefits, protect the policyholder to some degree from capital markets risk and provides specific guidanceexpose the insurer or reinsurer to that risk. The ASU requires all market risk benefits to be measured at fair value through earnings with changes in fair value attributable to our own credit risk recognized in other comprehensive income. We reinsure certain variable annuity products for lessors whose leases include variable lease payments thata limited number of insurance clients with guaranteed minimum benefits which are not dependent onaccounted for as market risk benefits under the ASU. Our reinsurance business is no longer entering into new contracts.
We utilize a reference index ordiscounted cash flow model to value our market risk benefits. Market risk benefits are level 3 fair value liabilities because they are valued using significant unobservable inputs. The fair value of our market risk benefits is sensitive to changes in fixed income and equity markets, as well as policyholder behavior (e.g., withdrawals, lapses, utilization rate) and changes in mortality assumptions. Beginning first quarter 2023, we use derivative instruments, where feasible, to economically hedge the interest rate and otherwise would haveequity markets volatility. The fair value of market risk benefits is measured at the contract level and is recognized in accrued expenses and other liabilities. We recognize changes in fair value for our market risk benefits, excluding the change in fair value related to our own credit risk, in noninterest income along with the changes in fair value of economic hedges. Changes in fair value attributable to our own credit risk are recorded in other comprehensive income. Upon adoption on January 1, 2023, as required under the ASU, we implemented the accounting changes for market risk benefits retrospectively, to the earliest period presented, which resulted in an after-tax cumulative effect adjustment to reduce retained earnings and accumulated other comprehensive income by $176 million and $44 million, respectively, as of January 1, 2022.
The ASU also requires more frequent updates for insurance assumptions, mandates the recognitionuse of a loss at lease commencement (a day 1 loss). Prior to ASU 2016-02, variable lease payments were excluded fromstandardized discount rate for traditional long-duration contracts, and simplifies the definitionamortization of lease paymentsdeferred acquisition costs. The accounting changes for lessors measuring their net investment lossthe liability of future policyholder benefits for traditional long-duration contracts (included in a sales-type lease or direct financing lease. This often resultedaccrued expenses and other liabilities) and deferred acquisition costs (included in a day 1 loss, even if the lessor expected the arrangement to be profitable overall. We adopted this Update prospectively in first quarter 2022. This Updateother assets) did not have a material impact upon adoption.
Table 1.1 presents the impact of adoption to prior period financial statement line items within our consolidated financial statements.statement of income and consolidated balance sheet for the three and six months ended June 30, 2022, and as of December 31, 2022. These adjustments are also reflected in our consolidated statement of changes in equity and consolidated statement of cash flows.
Table 1.1:Impact of Adoption of ASU 2018-12
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| | | Quarter ended June 30, 2022 | | Six months ended June 30, 2022 |
($ in millions, except per share amounts) | | | As reported | | Effect of adoption | | As revised | | As reported | | Effect of adoption | | As revised |
Selected Income Statement Data | | | | | | | | | | | | | |
Noninterest income | | | $ | 6,830 | | | 12 | | | 6,842 | | | $ | 15,201 | | | 148 | | | 15,349 | |
Noninterest expense | | | 12,883 | | | (21) | | | 12,862 | | | 26,753 | | | (40) | | | 26,713 | |
Income tax expense | | | 613 | | | 9 | | | 622 | | | 1,320 | | | 48 | | | 1,368 | |
Net income | | | 3,119 | | | 23 | | | 3,142 | | | 6,790 | | | 140 | | | 6,930 | |
Diluted earnings per common share | | | 0.74 | | | 0.01 | | | 0.75 | | | 1.62 | | | 0.04 | | | 1.66 | |
| | | | | | | | | | | | | |
| | | | | | | | | At December 31, 2022 |
| | | | | | | | | As reported | | Effect of adoption | | As revised |
Selected Balance Sheet Data | | | | | | | | | | | | | |
Other assets | | | | | | | | | 75,834 | | | 4 | | | 75,838 | |
Derivative liabilities | | | | | | | | | 20,085 | | | (18) | | | 20,067 | |
Accrued expenses and other liabilities | | | | | | | | | 69,056 | | | (316) | | | 68,740 | |
Retained earnings | | | | | | | | | 187,649 | | | 319 | | | 187,968 | |
Accumulated other comprehensive income (loss) | | | | | | | | | (13,381) | | | 19 | | | (13,362) | |
Table 1.2 presents the transition adjustments required upon the adoption of ASU 2018-12 as of January 1, 2021.
Table 1.2:Transition Adjustment of ASU 2018-12
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| | | Dec 31, 2020 | | Transition adjustment upon adoption | | Jan 1, 2021 |
Selected Balance Sheet Data | | | | | | | |
Other assets | | | $ | 87,337 | | | 159 | | | 87,496 | |
Derivative liabilities | | | 16,509 | | | (27) | | | 16,482 | |
Accrued expenses and other liabilities | | | 74,360 | | | 903 | | | 75,263 | |
Retained earnings | | | 162,683 | | | (738) | | | 161,945 | |
Accumulated other comprehensive income | | | 194 | | | 20 | | | 214 | |
Supplemental Cash Flow Information
Significant noncash activities are presented in Table 1.1.1.3.
Table 1.1:1.3: Supplemental Cash Flow Information | | | Nine months ended September 30, | | Six months ended June 30, | |
(in millions) | (in millions) | 2022 | | 2021 | | (in millions) | 2023 | | 2022 | |
Available-for-sale debt securities purchased from securitization of LHFS (1) | Available-for-sale debt securities purchased from securitization of LHFS (1) | $ | 1,506 | | | 256 | | | Available-for-sale debt securities purchased from securitization of LHFS (1) | $ | — | | | 1,506 | | |
Held-to-maturity debt securities purchased from securitization of LHFS (1) | Held-to-maturity debt securities purchased from securitization of LHFS (1) | 732 | | | 17,600 | | | Held-to-maturity debt securities purchased from securitization of LHFS (1) | 48 | | | 693 | | |
Transfers from loans to LHFS | Transfers from loans to LHFS | 6,820 | | | 14,842 | | | Transfers from loans to LHFS | 850 | | | 4,970 | | |
Transfers from available-for-sale debt securities to held-to-maturity debt securities | Transfers from available-for-sale debt securities to held-to-maturity debt securities | 48,591 | | | 41,298 | | | Transfers from available-for-sale debt securities to held-to-maturity debt securities | 3,687 | | | 43,041 | | |
Transfers from held-to-maturity debt securities to available-for-sale debt securities (1) | | Transfers from held-to-maturity debt securities to available-for-sale debt securities (1) | 23,919 | | | ��� | | |
(1)Predominantly represents agency mortgage-backedIn first quarter 2023, we reclassified HTM debt securities purchased upon settlementto AFS debt securities in connection with the adoption of the sale and securitization of our conforming residential mortgage loans. See Note 8 (Securitizations and Variable Interest Entities) for additional information.ASU 2022-01.
Subsequent Events
We have evaluated the effects of events that have occurred subsequent to SeptemberJune 30, 2022,2023, and except as disclosed in Note 169 (Preferred Stock), there have been no material events that would require recognition in our thirdsecond quarter 20222023 consolidated financial statements or disclosure in the Notes to the consolidated financial statements.
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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) | (in millions) | Sep 30, 2022 | | Dec 31, 2021 | (in millions) | Jun 30, 2023 | | Dec 31, 2022 |
Trading assets: | Trading assets: | | Trading assets: | |
Debt securities | Debt securities | $ | 85,766 | | | 88,265 | | Debt securities | $ | 96,857 | | | 86,155 | |
Equity securities (1) | Equity securities (1) | 23,111 | | | 27,476 | | Equity securities (1) | 30,327 | | | 26,910 | |
Loans held for sale | Loans held for sale | 1,525 | | | 3,242 | | Loans held for sale | 1,402 | | | 1,466 | |
Gross trading derivative assets (1) | Gross trading derivative assets (1) | 92,103 | | | 48,325 | | Gross trading derivative assets (1) | 67,120 | | | 77,148 | |
Netting (2)(1) | Netting (2)(1) | (64,849) | | | (28,146) | | Netting (2)(1) | (49,435) | | | (54,922) | |
Total trading derivative assets | Total trading derivative assets | 27,254 | | | 20,179 | | Total trading derivative assets | 17,685 | | | 22,226 | |
Total trading assets | Total trading assets | 137,656 | | | 139,162 | | Total trading assets | 146,271 | | | 136,757 | |
Trading liabilities: | Trading liabilities: | | Trading liabilities: | |
Short sale | 26,057 | | | 20,685 | | |
Other liabilities | 915 | | | — | | |
Short sale and other liabilities | | Short sale and other liabilities | 27,705 | | | 20,304 | |
Long-term debt | | Long-term debt | 1,600 | | | 1,346 | |
Gross trading derivative liabilities (1) | Gross trading derivative liabilities (1) | 86,228 | | | 42,449 | | Gross trading derivative liabilities (1) | 73,667 | | | 77,698 | |
Netting (2)(1) | Netting (2)(1) | (64,274) | | | (33,978) | | Netting (2)(1) | (53,292) | | | (59,232) | |
Total trading derivative liabilities | Total trading derivative liabilities | 21,954 | | | 8,471 | | Total trading derivative liabilities | 20,375 | | | 18,466 | |
Total trading liabilities | Total trading liabilities | $ | 48,926 | | | 29,156 | | Total trading liabilities | $ | 49,680 | | | 40,116 | |
(1)In first quarter 2022, we prospectively reclassified certain equity securities and related economic hedge derivatives from “not held for trading activities” to “held for trading activities” to better reflect the business activity of those financial instruments. For additional information on Trading Activities, see Note 1 (Summary of Significant Accounting Policies) in our 2021 Form 10-K.
(2)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 sold, but not yet purchased.
Table 2.2: Net Interest Income and Net Gains (Losses) from Trading Activities
| | | Quarter ended September 30, | | Nine months ended September 30, | | | Quarter ended June 30, | | Six months ended June 30, |
(in millions) | (in millions) | 2022 | | 2021 | | 2022 | | 2021 | | (in millions) | 2023 | | 2022 | | 2023 | | 2022 | |
Interest income: | Interest income: | | | Interest income: | | |
Debt securities | Debt securities | $ | 626 | | | 512 | | | $ | 1,723 | | | 1,537 | | | Debt securities | $ | 894 | | | 549 | | | $ | 1,691 | | | 1,097 | | |
Equity securities (1) | Equity securities (1) | 108 | | | 104 | | | 367 | | | 300 | | | Equity securities (1) | 111 | | | 139 | | | 205 | | | 259 | | |
Loans held for sale | Loans held for sale | 10 | | | 12 | | | 30 | | | 27 | | | Loans held for sale | 22 | | | 9 | | | 41 | | | 20 | | |
Total interest income | Total interest income | 744 | | | 628 | | | 2,120 | | | 1,864 | | | Total interest income | 1,027 | | | 697 | | | 1,937 | | | 1,376 | | |
Less: Interest expense | Less: Interest expense | 153 | | | 90 | | | 443 | | | 305 | | | Less: Interest expense | 161 | | | 158 | | | 304 | | | 290 | | |
Net interest income | Net interest income | 591 | | | 538 | | | 1,677 | | | 1,559 | | | Net interest income | 866 | | | 539 | | | 1,633 | | | 1,086 | | |
Net gains (losses) from trading activities (2): | | | |
Net gains (losses) from trading activities (1): | | Net gains (losses) from trading activities (1): | | |
Debt securities | Debt securities | (3,551) | | | (284) | | | (10,302) | | | (1,621) | | | Debt securities | (569) | | | (3,103) | | | 902 | | | (6,751) | | |
Equity securities (1) | Equity securities (1) | (1,393) | | | 771 | | | (5,823) | | | 2,780 | | | Equity securities (1) | 1,650 | | | (3,606) | | | 3,339 | | | (4,430) | | |
Loans held for sale | Loans held for sale | 3 | | | 9 | | | 13 | | | 48 | | | Loans held for sale | 13 | | | 1 | | | 25 | | | 10 | | |
Other liabilities | 34 | | | — | | | 57 | | | — | | | |
Derivatives (1)(3) | 5,807 | | | (404) | | | 17,619 | | | (746) | | | |
| Long-term debt | | Long-term debt | 9 | | | 11 | | | (21) | | | 23 | | |
Derivatives (2) | | Derivatives (2) | 19 | | | 7,143 | | | (1,781) | | | 11,812 | | |
Total net gains from trading activities | Total net gains from trading activities | 900 | | | 92 | | | 1,564 | | | 461 | | | Total net gains from trading activities | 1,122 | | | 446 | | | 2,464 | | | 664 | | |
Total trading-related net interest and noninterest income | Total trading-related net interest and noninterest income | $ | 1,491 | | | 630 | | | $ | 3,241 | | | 2,020 | | | Total trading-related net interest and noninterest income | $ | 1,988 | | | 985 | | | $ | 4,097 | | | 1,750 | | |
(1)In first quarter 2022, we prospectively reclassified certain equity securities and related economic hedge derivatives from “not held for trading activities” to “held for trading activities” to better reflect the business activity of those financial instruments. For additional information on Trading Activities, see Note 1 (Summary of Significant Accounting Policies) in our 2021 Form 10-K.
(2)Represents realized gains (losses) from our trading activities and unrealized gains (losses) due to changes in fair value of our trading positions.
(3)(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 (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 accumulated other comprehensive income (AOCI), 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(Intangible Assets and 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 thirdsecond quarter and first nine monthshalf of both 20222023 and 20212022 was insignificant.
Table 3.1: Available-for-Sale and Held-to-Maturity Debt Securities Outstanding
| (in millions) | (in millions) | Amortized cost, net (1) | | Gross unrealized gains | | Gross unrealized losses | | Fair value | (in millions) | Amortized cost, net (1) | | Gross unrealized gains | | Gross unrealized losses | | Net unrealized gains (losses) | | Fair value |
September 30, 2022 | | |
June 30, 2023 | | June 30, 2023 | |
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 | $ | 49,200 | | | 7 | | | (2,311) | | | (2,304) | | | 46,896 | |
Non-U.S. government securities | | Non-U.S. government securities | 163 | | | — | | | (1) | | | (1) | | | 162 | |
Securities of U.S. states and political subdivisions (2) | | Securities of U.S. states and political subdivisions (2) | 22,163 | | | 30 | | | (819) | | | (789) | | | 21,374 | |
Federal agency mortgage-backed securities | | Federal agency mortgage-backed securities | 61,974 | | | 3 | | | (4,996) | | | (4,993) | | | 56,981 | |
Non-agency mortgage-backed securities (3) | | Non-agency mortgage-backed securities (3) | 3,183 | | | — | | | (134) | | | (134) | | | 3,049 | |
Collateralized loan obligations | | Collateralized loan obligations | 3,778 | | | — | | | (53) | | | (53) | | | 3,725 | |
Other debt securities | | Other debt securities | 2,046 | | | 54 | | | (36) | | | 18 | | | 2,064 | |
Total available-for-sale debt securities, excluding portfolio level basis adjustments | | Total available-for-sale debt securities, excluding portfolio level basis adjustments | 142,507 | | | 94 | | | (8,350) | | | (8,256) | | | 134,251 | |
Portfolio level basis adjustments (4) | | Portfolio level basis adjustments (4) | (224) | | | 224 | | | — | |
Total available-for-sale debt securities | | Total available-for-sale debt securities | 142,283 | | | 94 | | | (8,350) | | | (8,032) | | | 134,251 | |
Held-to-maturity debt securities: | | Held-to-maturity debt securities: | |
Securities of U.S. Treasury and federal agencies | | Securities of U.S. Treasury and federal agencies | 3,789 | | | — | | | (1,418) | | | (1,418) | | | 2,371 | |
Securities of U.S. states and political subdivisions | | Securities of U.S. states and political subdivisions | 18,986 | | | 2 | | | (3,351) | | | (3,349) | | | 15,637 | |
Federal agency mortgage-backed securities | | Federal agency mortgage-backed securities | 217,322 | | | 71 | | | (33,124) | | | (33,053) | | | 184,269 | |
Non-agency mortgage-backed securities (3) | | Non-agency mortgage-backed securities (3) | 1,266 | | | 2 | | | (154) | | | (152) | | | 1,114 | |
Collateralized loan obligations | | Collateralized loan obligations | 29,272 | | | 5 | | | (435) | | | (430) | | | 28,842 | |
Other debt securities | | Other debt securities | 1,725 | | | — | | | (122) | | | (122) | | | 1,603 | |
Total held-to-maturity debt securities | | Total held-to-maturity debt securities | 272,360 | | | 80 | | | (38,604) | | | (38,524) | | | 233,836 | |
Total | | Total | $ | 414,643 | | | 174 | | | (46,954) | | | (46,556) | | | 368,087 | |
December 31, 2022 | | December 31, 2022 | |
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 | $ | 47,102 | | | 3 | | | (2,375) | | | 44,730 | | Securities of U.S. Treasury and federal agencies | $ | 47,536 | | | 9 | | | (2,260) | | | (2,251) | | | 45,285 | |
Non-U.S. government securities | Non-U.S. government securities | 162 | | | — | | | — | | | 162 | | Non-U.S. government securities | 162 | | | — | | | — | | | — | | | 162 | |
Securities of U.S. states and political subdivisions (2) | Securities of U.S. states and political subdivisions (2) | 11,218 | | | 17 | | | (569) | | | 10,666 | | Securities of U.S. states and political subdivisions (2) | 10,958 | | | 20 | | | (533) | | | (513) | | | 10,445 | |
Federal agency mortgage-backed securities | Federal agency mortgage-backed securities | 56,283 | | | 3 | | | (5,935) | | | 50,351 | | Federal agency mortgage-backed securities | 53,302 | | | 2 | | | (5,167) | | | (5,165) | | | 48,137 | |
Non-agency mortgage-backed securities (3) | Non-agency mortgage-backed securities (3) | 3,546 | | | 1 | | | (121) | | | 3,426 | | Non-agency mortgage-backed securities (3) | 3,423 | | | 1 | | | (140) | | | (139) | | | 3,284 | |
Collateralized loan obligations | Collateralized loan obligations | 4,270 | | | — | | | (136) | | | 4,134 | | Collateralized loan obligations | 4,071 | | | — | | | (90) | | | (90) | | | 3,981 | |
Other debt securities | Other debt securities | 2,325 | | | 82 | | | (41) | | | 2,366 | | Other debt securities | 2,273 | | | 75 | | | (48) | | | 27 | | | 2,300 | |
Total available-for-sale debt securities | Total available-for-sale debt securities | 124,906 | | | 106 | | | (9,177) | | | 115,835 | | Total available-for-sale debt securities | 121,725 | | | 107 | | | (8,238) | | | (8,131) | | | 113,594 | |
Held-to-maturity debt securities: | Held-to-maturity debt securities: | | Held-to-maturity debt securities: | |
Securities of U.S. Treasury and federal agencies | Securities of U.S. Treasury and federal agencies | 16,200 | | | — | | | (1,842) | | | 14,358 | | Securities of U.S. Treasury and federal agencies | 16,202 | | | — | | | (1,917) | | | (1,917) | | | 14,285 | |
Securities of U.S. states and political subdivisions | Securities of U.S. states and political subdivisions | 31,478 | | | 2 | | | (5,563) | | | 25,917 | | Securities of U.S. states and political subdivisions | 30,985 | | | 8 | | | (4,385) | | | (4,377) | | | 26,608 | |
Federal agency mortgage-backed securities | Federal agency mortgage-backed securities | 219,739 | | | — | | | (36,034) | | | 183,705 | | Federal agency mortgage-backed securities | 216,966 | | | 30 | | | (34,252) | | | (34,222) | | | 182,744 | |
Non-agency mortgage-backed securities (3) | Non-agency mortgage-backed securities (3) | 1,243 | | | 1 | | | (174) | | | 1,070 | | Non-agency mortgage-backed securities (3) | 1,253 | | | — | | | (147) | | | (147) | | | 1,106 | |
Collateralized loan obligations | Collateralized loan obligations | 30,046 | | | 1 | | | (1,089) | | | 28,958 | | Collateralized loan obligations | 29,926 | | | 1 | | | (727) | | | (726) | | | 29,200 | |
Other debt securities | Other debt securities | 1,728 | | | — | | | (165) | | | 1,563 | | Other debt securities | 1,727 | | | — | | | (149) | | | (149) | | | 1,578 | |
Total held-to-maturity debt securities | Total held-to-maturity debt securities | 300,434 | | | 4 | | | (44,867) | | | 255,571 | | Total held-to-maturity debt securities | 297,059 | | | 39 | | | (41,577) | | | (41,538) | | | 255,521 | |
Total | Total | $ | 425,340 | | | 110 | | | (54,044) | | | 371,406 | | Total | $ | 418,784 | | | 146 | | | (49,815) | | | (49,669) | | | 369,115 | |
December 31, 2021 | | |
Available-for-sale debt securities: | | |
Securities of U.S. Treasury and federal agencies | $ | 39,668 | | | 185 | | | (192) | | | 39,661 | | |
Non-U.S. government securities | 71 | | | — | | | — | | | 71 | | |
Securities of U.S. states and political subdivisions (2) | 16,618 | | | 350 | | | (51) | | | 16,917 | | |
Federal agency mortgage-backed securities | 104,661 | | | 1,807 | | | (582) | | | 105,886 | | |
Non-agency mortgage-backed securities (3) | 4,515 | | | 32 | | | (15) | | | 4,532 | | |
Collateralized loan obligations | 5,713 | | | 2 | | | (7) | | | 5,708 | | |
Other debt securities | 4,217 | | | 259 | | | (7) | | | 4,469 | | |
Total available-for-sale debt securities | 175,463 | | | 2,635 | | | (854) | | | 177,244 | | |
Held-to-maturity debt securities: | | |
Securities of U.S. Treasury and federal agencies | 16,544 | | | 599 | | | (318) | | | 16,825 | | |
Securities of U.S. states and political subdivisions | 32,689 | | | 847 | | | (61) | | | 33,475 | | |
Federal agency mortgage-backed securities | 188,909 | | | 1,882 | | | (2,807) | | | 187,984 | | |
Non-agency mortgage-backed securities (3) | 1,082 | | | 31 | | | (18) | | | 1,095 | | |
Collateralized loan obligations | 31,067 | | | 194 | | | (2) | | | 31,259 | | |
Other debt securities | 1,731 | | | 17 | | | — | | | 1,748 | | |
Total held-to-maturity debt securities | 272,022 | | | 3,570 | | | (3,206) | | | 272,386 | | |
Total | $ | 447,485 | | | 6,205 | | | (4,060) | | | 449,630 | | |
(1)Represents amortized cost of the securities, net of the ACL of $6$7 million and $8$6 million related to AFS debt securities at SeptemberJune 30, 2022,2023, and December 31, 2021,2022, respectively, and $96$76 million and $85 million related to HTM debt securities at both SeptemberJune 30, 2022,2023, and December 31, 2021.2022, 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 $5.4$4.9 billion at SeptemberJune 30, 2022,2023, and $5.2$5.1 billion at December 31, 2021.2022.
(3)Predominantly consists of commercial mortgage-backed securities at both SeptemberJune 30, 2022,2023, and December 31, 2021.2022.
(4)Represents fair value hedge basis adjustments related to active portfolio layer method hedges of AFS debt securities, which are not allocated to individual securities in the portfolio. For additional information, see Note 11 (Derivatives).
Note 3: Available-for-Sale and Held-to-Maturity Debt Securities (continued)
Table 3.2 details the breakout of purchases of and transfers to HTM debt securities by major category of security. The table excludes the transfer of HTM debt securitieswith a fair value of $23.2 billion to AFS debt securities in first quarter 2023 in
connection with the adoption of ASU 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging – Portfolio Layer Method. For additional information, see Note 1 (Summary of Significant Accounting Policies).
Table 3.2: Held-to-Maturity Debt Securities Purchases and Transfers
| | | Quarter ended September 30, | | Nine months ended September 30, | | | Quarter ended June 30, | | Six months ended June 30, | |
(in millions) | (in millions) | 2022 | | 2021 | | 2022 | | 2021 | | (in millions) | 2023 | | 2022 | | 2023 | | 2022 | |
Purchases of held-to-maturity debt securities (1): | Purchases of held-to-maturity debt securities (1): | | | Purchases of held-to-maturity debt securities (1): | | |
| Securities of U.S. states and political subdivisions | Securities of U.S. states and political subdivisions | $ | — | | | 1,409 | | | $ | 843 | | | 4,492 | | | Securities of U.S. states and political subdivisions | $ | — | | | 9 | | | $ | — | | | 843 | | |
Federal agency mortgage-backed securities | Federal agency mortgage-backed securities | — | | | 14,296 | | | 2,051 | | | 64,018 | | | Federal agency mortgage-backed securities | — | | | — | | | 4,225 | | | 2,051 | | |
Non-agency mortgage-backed securities | Non-agency mortgage-backed securities | 39 | | | 30 | | | 198 | | | 114 | | | Non-agency mortgage-backed securities | 22 | | | 55 | | | 48 | | | 159 | | |
Collateralized loan obligations | — | | | 839 | | | — | | | 8,177 | | | |
| | Total purchases of held-to-maturity debt securities | Total purchases of held-to-maturity debt securities | 39 | | | 16,574 | | | 3,092 | | | 76,801 | | | Total purchases of held-to-maturity debt securities | 22 | | | 64 | | | 4,273 | | | 3,053 | | |
Transfers from available-for-sale debt securities to held-to-maturity debt securities (2): | Transfers from available-for-sale debt securities to held-to-maturity debt securities (2): | | | | | Transfers from available-for-sale debt securities to held-to-maturity debt securities (2): | | | | |
| Federal agency mortgage-backed securities | Federal agency mortgage-backed securities | 5,550 | | | — | | | 48,591 | | | 41,298 | | | Federal agency mortgage-backed securities | — | | | 28,390 | | | 3,687 | | | 43,041 | | |
| Total transfers from available-for-sale debt securities to held-to-maturity debt securities | Total transfers from available-for-sale debt securities to held-to-maturity debt securities | $ | 5,550 | | | — | | | $ | 48,591 | | | 41,298 | | | Total transfers from available-for-sale debt securities to held-to-maturity debt securities | $ | — | | | 28,390 | | | $ | 3,687 | | | 43,041 | | |
(1)Inclusive of securities purchased but not yet settled and noncash purchases from securitization of loans held for sale (LHFS).
(2)Represents fair value as of the date of the transfers. Debt securities transferred from available-for-sale to held-to-maturity had pre-tax unrealized losses recorded in AOCI of $456$0 and $320 million in the second quarter and $4.3first half of 2023, respectively, and $3.5 billion and $3.9 billion in the thirdsecond quarter and first nine monthshalf of 2022, respectively, and $615 million in the first nine months of 2021, at the time of the transfers.
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 September 30, | | Nine months ended September 30, | | | Quarter ended June 30, | | Six months ended June 30, | |
(in millions) | (in millions) | 2022 | | 2021 | | 2022 | | 2021 | | (in millions) | 2023 | | 2022 | | 2023 | | 2022 | |
Interest income (1): | Interest income (1): | | | Interest income (1): | | |
Available-for-sale | Available-for-sale | $ | 777 | | | 676 | | | $ | 2,162 | | | 2,142 | | | Available-for-sale | $ | 1,346 | | | 683 | | | $ | 2,586 | | | 1,385 | | |
Held-to-maturity | Held-to-maturity | 1,640 | | | 1,166 | | | 4,423 | | | 3,186 | | | Held-to-maturity | 1,797 | | | 1,470 | | | 3,543 | | | 2,783 | | |
Total interest income | Total interest income | 2,417 | | | 1,842 | | | 6,585 | | | 5,328 | | | Total interest income | 3,143 | | | 2,153 | | | 6,129 | | | 4,168 | | |
Provision for credit losses: | Provision for credit losses: | | | Provision for credit losses: | | |
Available-for-sale | Available-for-sale | (2) | | | (5) | | | 2 | | | 7 | | | Available-for-sale | — | | | 3 | | | (39) | | | 4 | | |
Held-to-maturity | Held-to-maturity | 13 | | | (3) | | | (1) | | | 33 | | | Held-to-maturity | (1) | | | (1) | | | (9) | | | (14) | | |
Total provision for credit losses | Total provision for credit losses | 11 | | | (8) | | | 1 | | | 40 | | | Total provision for credit losses | (1) | | | 2 | | | (48) | | | (10) | | |
Realized gains and losses (2): | Realized gains and losses (2): | | | Realized gains and losses (2): | | |
Gross realized gains | Gross realized gains | 27 | | | 291 | | | 276 | | | 443 | | | Gross realized gains | 6 | | | 247 | | | 6 | | | 249 | | |
Gross realized losses | Gross realized losses | (21) | | | — | | | (125) | | | (1) | | | Gross realized losses | (2) | | | (104) | | | (2) | | | (104) | | |
| Impairment write-downs | — | | | (8) | | | — | | | (8) | | | |
| Net realized gains | Net realized gains | $ | 6 | | | 283 | | | $ | 151 | | | 434 | | | Net realized gains | $ | 4 | | | 143 | | | $ | 4 | | | 145 | | |
(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 no 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 SeptemberJune 30, 2022,2023, and December 31, 2021.2022.
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.
Table 3.4: Investment Grade Debt Securities
| | | Available-for-Sale | | Held-to-Maturity | | Available-for-Sale | | Held-to-Maturity |
($ in millions) | ($ in millions) | Fair value | % investment grade | | Amortized cost | % investment grade | ($ in millions) | Fair value | % investment grade | | Amortized cost | % investment grade |
September 30, 2022 | | |
June 30, 2023 | | June 30, 2023 | |
Total portfolio (1) | Total portfolio (1) | $ | 115,835 | | 99 | % | | $ | 300,530 | | 99 | % | Total portfolio (1) | $ | 134,251 | | 99 | % | | $ | 272,436 | | 99 | % |
Breakdown by category: | Breakdown by category: | | Breakdown by category: | |
Securities of U.S. Treasury and federal agencies (2) | Securities of U.S. Treasury and federal agencies (2) | $ | 95,081 | | 100 | % | | $ | 235,939 | | 100 | % | Securities of U.S. Treasury and federal agencies (2) | $ | 103,877 | | 100 | % | | $ | 221,110 | | 100 | % |
Securities of U.S. states and political subdivisions | Securities of U.S. states and political subdivisions | 10,666 | | 99 | | | 31,494 | | 100 | | Securities of U.S. states and political subdivisions | 21,374 | | 99 | | | 18,997 | | 100 | |
Collateralized loan obligations (3) | Collateralized loan obligations (3) | 4,134 | | 100 | | | 30,096 | | 100 | | Collateralized loan obligations (3) | 3,725 | | 100 | | | 29,307 | | 100 | |
All other debt securities (4) | All other debt securities (4) | 5,954 | | 89 | | | 3,001 | | 61 | | All other debt securities (4) | 5,275 | | 90 | | | 3,022 | | 61 | |
December 31, 2021 | | |
December 31, 2022 | | December 31, 2022 | |
Total portfolio (1) | Total portfolio (1) | $ | 177,244 | | 99 | % | | $ | 272,118 | | 99 | % | Total portfolio (1) | $ | 113,594 | | 99 | % | | $ | 297,144 | | 99 | % |
Breakdown by category: | Breakdown by category: | | Breakdown by category: | |
Securities of U.S. Treasury and federal agencies (2) | Securities of U.S. Treasury and federal agencies (2) | $ | 145,547 | | 100 | % | | $ | 205,453 | | 100 | % | Securities of U.S. Treasury and federal agencies (2) | $ | 93,422 | | 100 | % | | $ | 233,169 | | 100 | % |
Securities of U.S. states and political subdivisions | Securities of U.S. states and political subdivisions | 16,917 | | 99 | | | 32,704 | | 100 | | Securities of U.S. states and political subdivisions | 10,445 | | 99 | | | 31,000 | | 100 | |
Collateralized loan obligations (3) | Collateralized loan obligations (3) | 5,708 | | 100 | | | 31,128 | | 100 | | Collateralized loan obligations (3) | 3,981 | | 100 | | | 29,972 | | 100 | |
All other debt securities (4) | All other debt securities (4) | 9,072 | | 88 | | | 2,833 | | 64 | | All other debt securities (4) | 5,746 | | 89 | | | 3,003 | | 63 | |
(1)99% and 98% were rated AA- and above at Septemberboth June 30, 2022,2023, and December 31, 2021, respectively.2022.
(2)Includes federal agency mortgage-backed securities.
(3)100% were rated AA- and above at both SeptemberJune 30, 2022,2023, and December 31, 2021, respectively.2022.
(4)Includes non-U.S. government, non-agency mortgage-backed, 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.
Debt securities that are past due and still accruing or in nonaccrual status were insignificant at both SeptemberJune 30, 2022,2023, and December 31, 2021. The carrying value of debt securities in nonaccrual status was insignificant at both September 30, 2022, and December 31, 2021. Charge-offs2022. Net charge-offs on debt securities were insignificant in the thirdsecond quarter and first nine monthshalf of both 20222023 and 2021.2022.
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 thirdsecond quarter and first nine monthshalf of both 20222023 and 2021.2022.
Note 3: Available-for-Sale and Held-to-Maturity Debt Securities (continued)
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 | | Less than 12 months | | 12 months or more | | Total |
(in millions) | (in millions) | Gross unrealized losses | | Fair value | | Gross unrealized losses | | Fair value | | Gross unrealized losses | | Fair value | (in millions) | Gross unrealized losses (1) | | Fair value | | Gross unrealized losses (1) | | Fair value | | Gross unrealized losses (1) | | Fair value |
September 30, 2022 | | |
June 30, 2023 | | June 30, 2023 | |
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 | $ | (449) | | | 13,243 | | | (1,862) | | | 32,037 | | | (2,311) | | | 45,280 | |
Non-U.S. government securities | | Non-U.S. government securities | — | | | — | | | (1) | | | 83 | | | (1) | | | 83 | |
Securities of U.S. states and political subdivisions | | Securities of U.S. states and political subdivisions | (368) | | | 10,972 | | | (451) | | | 3,117 | | | (819) | | | 14,089 | |
Federal agency mortgage-backed securities | | Federal agency mortgage-backed securities | (667) | | | 22,760 | | | (4,329) | | | 33,923 | | | (4,996) | | | 56,683 | |
Non-agency mortgage-backed securities | | Non-agency mortgage-backed securities | (4) | | | 166 | | | (130) | | | 2,862 | | | (134) | | | 3,028 | |
Collateralized loan obligations | | Collateralized loan obligations | — | | | — | | | (53) | | | 3,699 | | | (53) | | | 3,699 | |
Other debt securities | | Other debt securities | (2) | | | 155 | | | (34) | | | 1,310 | | | (36) | | | 1,465 | |
Total available-for-sale debt securities | | Total available-for-sale debt securities | $ | (1,490) | | | 47,296 | | | (6,860) | | | 77,031 | | | (8,350) | | | 124,327 | |
December 31, 2022 | | December 31, 2022 | |
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 | $ | (1,157) | | | 27,415 | | | (1,218) | | | 15,567 | | | (2,375) | | | 42,982 | | Securities of U.S. Treasury and federal agencies | $ | (291) | | | 9,870 | | | (1,969) | | | 27,899 | | | (2,260) | | | 37,769 | |
| Securities of U.S. states and political subdivisions | Securities of U.S. states and political subdivisions | (313) | | | 4,015 | | | (256) | | | 1,147 | | | (569) | | | 5,162 | | Securities of U.S. states and political subdivisions | (72) | | | 2,154 | | | (461) | | | 2,382 | | | (533) | | | 4,536 | |
Federal agency mortgage-backed securities | Federal agency mortgage-backed securities | (5,262) | | | 46,912 | | | (673) | | | 3,311 | | | (5,935) | | | 50,223 | | Federal agency mortgage-backed securities | (3,580) | | | 39,563 | | | (1,587) | | | 8,481 | | | (5,167) | | | 48,044 | |
Non-agency mortgage-backed securities | Non-agency mortgage-backed securities | (78) | | | 2,343 | | | (43) | | | 1,059 | | | (121) | | | 3,402 | | Non-agency mortgage-backed securities | (43) | | | 1,194 | | | (97) | | | 2,068 | | | (140) | | | 3,262 | |
Collateralized loan obligations | Collateralized loan obligations | (117) | | | 3,659 | | | (19) | | | 475 | | | (136) | | | 4,134 | | Collateralized loan obligations | (65) | | | 3,195 | | | (25) | | | 786 | | | (90) | | | 3,981 | |
Other debt securities | Other debt securities | (25) | | | 1,633 | | | (16) | | | 476 | | | (41) | | | 2,109 | | Other debt securities | (31) | | | 1,591 | | | (17) | | | 471 | | | (48) | | | 2,062 | |
Total available-for-sale debt securities | Total available-for-sale debt securities | $ | (6,952) | | | 85,977 | | | (2,225) | | | 22,035 | | | (9,177) | | | 108,012 | | Total available-for-sale debt securities | $ | (4,082) | | | 57,567 | | | (4,156) | | | 42,087 | | | (8,238) | | | 99,654 | |
December 31, 2021 | | |
Available-for-sale debt securities: | | |
Securities of U.S. Treasury and federal agencies | $ | (192) | | | 24,418 | | | — | | | — | | | (192) | | | 24,418 | | |
| Securities of U.S. states and political subdivisions | (36) | | | 2,308 | | | (15) | | | 532 | | | (51) | | | 2,840 | | |
Federal agency mortgage-backed securities | (334) | | | 40,695 | | | (248) | | | 9,464 | | | (582) | | | 50,159 | | |
Non-agency mortgage-backed securities | (4) | | | 1,966 | | | (11) | | | 543 | | | (15) | | | 2,509 | | |
Collateralized loan obligations | (3) | | | 1,619 | | | (4) | | | 1,242 | | | (7) | | | 2,861 | | |
Other debt securities | — | | | — | | | (7) | | | 624 | | | (7) | | | 624 | | |
Total available-for-sale debt securities | $ | (569) | | | 71,006 | | | (285) | | | 12,405 | | | (854) | | | 83,411 | | |
(1)Excludes portfolio level basis adjustments.
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 20212022 Form 10-K.
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) | 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, 2022 | | |
Available-for-sale debt securities (1): | | |
June 30, 2023 | | June 30, 2023 | |
Available-for-sale debt securities (1)(2): | | Available-for-sale debt securities (1)(2): | |
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 | $ | 47,102 | | | 2,039 | | | 17,556 | | | 25,968 | | | 1,539 | | Amortized cost, net | $ | 49,200 | | | 9,180 | | | 28,345 | | | 10,168 | | | 1,507 | |
Fair value | Fair value | 44,730 | | | 2,008 | | | 17,082 | | | 24,160 | | | 1,480 | | Fair value | 46,896 | | | 8,935 | | | 27,075 | | | 9,421 | | | 1,465 | |
Weighted average yield | Weighted average yield | 1.06 | % | | 1.44 | | | 0.39 | | | 1.46 | | | 1.44 | | Weighted average yield | 1.61 | % | | 1.47 | | | 1.67 | | | 1.58 | | | 1.44 | |
Non-U.S. government securities | Non-U.S. government securities | | Non-U.S. government securities | |
Amortized cost, net | Amortized cost, net | $ | 162 | | | 1 | | | 137 | | | 24 | | | — | | Amortized cost, net | $ | 163 | | | 2 | | | 137 | | | 24 | | | — | |
Fair value | Fair value | 162 | | | 1 | | | 137 | | | 24 | | | — | | Fair value | 162 | | | 2 | | | 136 | | | 24 | | | — | |
Weighted average yield | Weighted average yield | 2.31 | % | | 1.51 | | | 2.50 | | | 1.23 | | | — | | Weighted average yield | 4.48 | % | | 5.15 | | | 4.39 | | | 4.91 | | | — | |
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 | $ | 11,218 | | | 1,169 | | | 2,554 | | | 5,064 | | | 2,431 | | Amortized cost, net | $ | 22,163 | | | 2,473 | | | 4,838 | | | 5,066 | | | 9,786 | |
Fair value | Fair value | 10,666 | | | 1,167 | | | 2,539 | | | 4,708 | | | 2,252 | | Fair value | 21,374 | | | 2,467 | | | 4,798 | | | 4,727 | | | 9,382 | |
Weighted average yield | Weighted average yield | 2.74 | % | | 3.14 | | | 2.64 | | | 2.59 | | | 2.96 | | Weighted average yield | 2.89 | % | | 2.94 | | | 3.46 | | | 2.99 | | | 2.55 | |
Federal agency mortgage-backed securities | Federal agency mortgage-backed securities | | Federal agency mortgage-backed securities | |
Amortized cost, net | Amortized cost, net | $ | 56,283 | | | — | | | 306 | | | 898 | | | 55,079 | | Amortized cost, net | $ | 61,974 | | | — | | | 218 | | | 808 | | | 60,948 | |
Fair value | Fair value | 50,351 | | | — | | | 293 | | | 831 | | | 49,227 | | Fair value | 56,981 | | | — | | | 208 | | | 748 | | | 56,025 | |
Weighted average yield | Weighted average yield | 3.25 | % | | — | | | 1.87 | | | 2.45 | | | 3.27 | | Weighted average yield | 3.62 | % | | — | | | 1.96 | | | 2.55 | | | 3.64 | |
Non-agency mortgage-backed securities | Non-agency mortgage-backed securities | | Non-agency mortgage-backed securities | |
Amortized cost, net | Amortized cost, net | $ | 3,546 | | | — | | | — | | | 72 | | | 3,474 | | Amortized cost, net | $ | 3,183 | | | — | | | — | | | 58 | | | 3,125 | |
Fair value | Fair value | 3,426 | | | — | | | — | | | 68 | | | 3,358 | | Fair value | 3,049 | | | — | | | — | | | 43 | | | 3,006 | |
Weighted average yield | Weighted average yield | 3.65 | % | | — | | | — | | | 3.43 | | | 3.66 | | Weighted average yield | 5.11 | % | | — | | | — | | | 3.38 | | | 5.14 | |
Collateralized loan obligations | Collateralized loan obligations | | Collateralized loan obligations | |
Amortized cost, net | Amortized cost, net | $ | 4,270 | | | — | | | 2 | | | 3,865 | | | 403 | | Amortized cost, net | $ | 3,778 | | | — | | | 4 | | | 3,349 | | | 425 | |
Fair value | Fair value | 4,134 | | | — | | | 2 | | | 3,749 | | | 383 | | Fair value | 3,725 | | | — | | | 4 | | | 3,306 | | | 415 | |
Weighted average yield | Weighted average yield | 4.01 | % | | — | | | 4.44 | | | 4.00 | | | 4.01 | | Weighted average yield | 6.57 | % | | — | | | 6.70 | | | 6.57 | | | 6.59 | |
Other debt securities | Other debt securities | | Other debt securities | |
Amortized cost, net | Amortized cost, net | $ | 2,325 | | | 84 | | | 216 | | | 829 | | | 1,196 | | Amortized cost, net | $ | 2,046 | | | 37 | | | 183 | | | 789 | | | 1,037 | |
Fair value | Fair value | 2,366 | | | 82 | | | 212 | | | 827 | | | 1,245 | | Fair value | 2,064 | | | 36 | | | 178 | | | 788 | | | 1,062 | |
Weighted average yield | Weighted average yield | 3.68 | % | | 3.58 | | | 4.42 | | | 2.94 | | | 4.06 | | Weighted average yield | 6.20 | % | | 6.42 | | | 6.77 | | | 5.54 | | | 6.59 | |
Total available-for-sale debt securities | Total available-for-sale debt securities | | Total available-for-sale debt securities | |
Amortized cost, net | Amortized cost, net | $ | 124,906 | | | 3,293 | | | 20,771 | | | 36,720 | | | 64,122 | | Amortized cost, net | $ | 142,507 | | | 11,692 | | | 33,725 | | | 20,262 | | | 76,828 | |
Fair value | Fair value | 115,835 | | | 3,258 | | | 20,265 | | | 34,367 | | | 57,945 | | Fair value | 134,251 | | | 11,440 | | | 32,399 | | | 19,057 | | | 71,355 | |
Weighted average yield | Weighted average yield | 2.42 | % | | 2.10 | | | 0.73 | | | 1.94 | | | 3.25 | | Weighted average yield | 2.96 | % | | 1.80 | | | 1.95 | | | 2.95 | | | 3.58 | |
(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.
(2)Amortized cost, net excludes portfolio level basis adjustments of $(224) million.
Note 3: Available-for-Sale and Held-to-Maturity Debt Securities (continued)
Table 3.7: Contractual Maturities – Held-to-Maturity Debt Securities
| By remaining contractual maturity ($ 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, 2022 | | |
June 30, 2023 | | June 30, 2023 | |
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 | $ | 16,200 | | | — | | | 12,414 | | | — | | | 3,786 | | Amortized cost, net | $ | 3,789 | | | — | | | — | | | — | | | 3,789 | |
Fair value | Fair value | 14,358 | | | — | | | 11,968 | | | — | | | 2,390 | | Fair value | 2,371 | | | — | | | — | | | — | | | 2,371 | |
Weighted average yield | Weighted average yield | 2.18 | % | | — | | | 2.37 | | | — | | | 1.58 | | Weighted average yield | 1.58 | % | | — | | | — | | | — | | | 1.58 | |
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 | $ | 31,478 | | | 1,845 | | | 2,056 | | | 2,100 | | | 25,477 | | Amortized cost, net | $ | 18,986 | | | 128 | | | 551 | | | 802 | | | 17,505 | |
Fair value | Fair value | 25,917 | | | 1,827 | | | 1,977 | | | 2,022 | | | 20,091 | | Fair value | 15,637 | | | 127 | | | 532 | | | 785 | | | 14,193 | |
Weighted average yield | Weighted average yield | 2.13 | % | | 1.64 | | | 1.49 | | | 2.33 | | | 2.20 | | Weighted average yield | 2.36 | % | | 0.36 | | | 1.73 | | | 2.96 | | | 2.37 | |
Federal agency mortgage-backed securities | Federal agency mortgage-backed securities | | Federal agency mortgage-backed securities | |
Amortized cost, net | Amortized cost, net | $ | 219,739 | | | — | | | — | | | — | | | 219,739 | | Amortized cost, net | $ | 217,322 | | | — | | | — | | | — | | | 217,322 | |
Fair value | Fair value | 183,705 | | | — | | | — | | | — | | | 183,705 | | Fair value | 184,269 | | | — | | | — | | | — | | | 184,269 | |
Weighted average yield | Weighted average yield | 2.26 | % | | — | | | — | | | — | | | 2.26 | | Weighted average yield | 2.36 | % | | — | | | — | | | — | | | 2.36 | |
Non-agency mortgage-backed securities | Non-agency mortgage-backed securities | | Non-agency mortgage-backed securities | |
Amortized cost, net | Amortized cost, net | $ | 1,243 | | | 15 | | | 18 | | | 52 | | | 1,158 | | Amortized cost, net | $ | 1,266 | | | 4 | | | 22 | | | 54 | | | 1,186 | |
Fair value | Fair value | 1,070 | | | 14 | | | 17 | | | 47 | | | 992 | | Fair value | 1,114 | | | 5 | | | 22 | | | 51 | | | 1,036 | |
Weighted average yield | Weighted average yield | 3.08 | % | | 3.24 | | | 2.93 | | | 3.47 | | | 3.07 | | Weighted average yield | 3.19 | % | | 3.01 | | | 3.99 | | | 4.19 | | | 3.13 | |
Collateralized loan obligations | Collateralized loan obligations | | Collateralized loan obligations | |
Amortized cost, net | Amortized cost, net | $ | 30,046 | | | — | | | — | | | 13,386 | | | 16,660 | | Amortized cost, net | $ | 29,272 | | | — | | | 53 | | | 14,947 | | | 14,272 | |
Fair value | Fair value | 28,958 | | | — | | | — | | | 13,072 | | | 15,886 | | Fair value | 28,842 | | | — | | | 54 | | | 14,807 | | | 13,981 | |
Weighted average yield | Weighted average yield | 4.09 | % | | — | | | — | | | 4.17 | | | 4.03 | | Weighted average yield | 6.67 | % | | — | | | 6.94 | | | 6.77 | | | 6.57 | |
Other debt securities | Other debt securities | | Other debt securities | |
Amortized cost, net | Amortized cost, net | $ | 1,728 | | | — | | | 759 | | | 969 | | | — | | Amortized cost, net | $ | 1,725 | | | — | | | 755 | | | 970 | | | — | |
Fair value | Fair value | 1,563 | | | — | | | 711 | | | 852 | | | — | | Fair value | 1,603 | | | — | | | 719 | | | 884 | | | — | |
Weighted average yield | Weighted average yield | 4.47 | % | | — | | | 4.13 | | | 4.74 | | | — | | Weighted average yield | 4.47 | % | | — | | | 4.10 | | | 4.75 | | | — | |
Total held-to-maturity debt securities | Total held-to-maturity debt securities | | Total held-to-maturity debt securities | |
Amortized cost, net | Amortized cost, net | $ | 300,434 | | | 1,860 | | | 15,247 | | | 16,507 | | | 266,820 | | Amortized cost, net | $ | 272,360 | | | 132 | | | 1,381 | | | 16,773 | | | 254,074 | |
Fair value | Fair value | 255,571 | | | 1,841 | | | 14,673 | | | 15,993 | | | 223,064 | | Fair value | 233,836 | | | 132 | | | 1,327 | | | 16,527 | | | 215,850 | |
Weighted average yield | Weighted average yield | 2.44 | % | | 1.66 | | | 2.34 | | | 3.97 | | | 2.36 | | Weighted average yield | 2.83 | % | | 0.45 | | | 3.27 | | | 6.46 | | | 2.59 | |
(1)Weighted average yields displayed by maturity bucket are weighted based on amortized cost, excluding unamortized basis adjustments related to the transfer of certain debt securities from AFS to HTM, 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 September 30, 2022, and December 31, 2021.
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 nine months of 2022, we reversed accrued interest receivable of $26 million for our commercial portfolio segment and $100 million for our consumer portfolio segment, compared with $36 million and $143 million, respectively, for the same period a year ago.
Table 4.1:Loans Outstanding
| | | | | | | | | | | | | | | | | |
(in millions) | Sep 30, 2022 | | Dec 31, 2021 | | | | | | |
| | | | | | | | | |
| |
| | | | | | | | | |
Commercial: | | | | | | | | | |
Commercial and industrial | $ | 379,694 | | | 350,436 | | | | | | | |
Real estate mortgage | 133,770 | | | 127,733 | | | | | | | |
Real estate construction | 21,889 | | | 20,092 | | | | | | | |
Lease financing | 14,617 | | | 14,859 | | | | | | | |
Total commercial | 549,970 | | | 513,120 | | | | | | | |
Consumer: | | | | | | | | | |
Residential mortgage – first lien | 254,165 | | | 242,270 | | | | | | | |
Residential mortgage – junior lien | 13,900 | | | 16,618 | | | | | | | |
Credit card | 43,558 | | | 38,453 | | | | | | | |
Auto | 54,545 | | | 56,659 | | | | | | | |
Other consumer | 29,768 | | | 28,274 | | | | | | | |
Total consumer | 395,936 | | | 382,274 | | | | | | | |
Total loans | $ | 945,906 | | | 895,394 | | | | | | | |
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) | Sep 30, 2022 | | Dec 31, 2021 |
| | | |
| | | |
| |
| | | |
Non-U.S. commercial loans: | | | |
Commercial and industrial | $ | 78,930 | | | 77,365 | |
Real estate mortgage | 5,991 | | | 7,070 | |
Real estate construction | 1,368 | | | 1,582 | |
Lease financing | 651 | | | 680 | |
Total non-U.S. commercial loans | $ | 86,940 | | | 86,697 | |
Note 4: Loans and Related Allowance for Credit Losses (continued)
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
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| 2022 | | 2021 |
(in millions) | Commercial | | Consumer | | Total | | Commercial | | Consumer | | Total |
Quarter ended September 30, | | | | | | | | | | | |
Purchases | $ | 127 | | | 1 | | | 128 | | | 124 | | | 1 | | | 125 | |
Sales and net transfers (to)/from LHFS | (785) | | | (1,118) | | | (1,903) | | | (1,186) | | | (11) | | | (1,197) | |
| | | | | | | | | | | |
Nine months ended September 30, | | | | | | | | | | | |
Purchases | $ | 503 | | | 3 | | | 506 | | | 306 | | | 3 | | | 309 | |
Sales and net transfers (to)/from LHFS | (2,097) | | | (1,141) | | | (3,238) | | | (2,318) | | | (235) | | | (2,553) | |
| | | | | | | | | | | |
Unfunded Credit Commitments
Unfunded credit commitments are legally binding agreements to lend to customers with terms covering usage of funds, contractual interest rates, expiration dates, and any required collateral. Our commercial lending commitments include, but are not limited to, (i) commitments for working capital and general corporate purposes, (ii) financing to customers who warehouse financial assets secured by real estate, consumer, or corporate loans, (iii) financing that is expected to be syndicated or replaced with other forms of long-term financing, and (iv) commercial real estate lending. We also originate multipurpose lending commitments under which commercial customers have the option to draw on the facility in one of several forms, including the issuance of letters of credit, which reduces the unfunded commitment amounts of the facility.
The maximum credit risk for these commitments will generally be lower than the contractual amount because these commitments may expire without being used or may be cancelled at the customer’s request. We may reduce or cancel lines of credit in accordance with the contracts and applicable law. Certain commitments either provide us with funding discretion or are subject to loan agreements with covenants regarding the financial performance of the customer or borrowing base formulas that must be met before we are required to fund the commitment. Our credit risk monitoring activities include managing the amount of commitments, both to individual customers and in total, and the size and maturity structure of these commitments. We do not recognize an ACL for commitments that are unconditionally cancellable at our discretion.
We issue commercial letters of credit to assist customers in purchasing goods or services, typically for international trade. At September 30, 2022, and December 31, 2021, we had $1.3 billion and $1.5 billion, respectively, of outstanding issued commercial letters of credit. See Note 11 (Guarantees and Other Commitments) for additional information on issued standby letters of credit.
We may be a fronting bank, whereby we act as a representative for other lenders, and 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 fronting arrangements totaled approximately $89.3 billion at September 30, 2022.
The contractual amount of our unfunded credit commitments, including unissued letters of credit, is summarized in Table 4.4. The table excludes issued letters of credit and is presented net of commitments syndicated to others, including the fronting arrangements described above.
Table 4.4:Unfunded Credit Commitments
| | | | | | | | | | | |
(in millions) | Sep 30, 2022 | | Dec 31, 2021 |
Commercial: | | | |
Commercial and industrial | $ | 409,832 | | | 388,162 | |
Real estate mortgage | 9,524 | | | 11,515 | |
Real estate construction | 22,177 | | | 19,943 | |
| | | |
Total commercial | 441,533 | | | 419,620 | |
Consumer: | | | |
Residential mortgage – first lien | 21,662 | | | 32,992 | |
Residential mortgage – junior lien | 22,744 | | | 27,447 | |
Credit card | 142,519 | | | 130,743 | |
Other consumer | 65,440 | | | 75,919 | |
Total consumer | 252,365 | | | 267,101 | |
Total unfunded credit commitments | $ | 693,898 | | | 686,721 | |
Allowance for Credit Losses
Table 4.5 presents the allowance for credit losses (ACL) for loans, which consists of the allowance for loan losses and the allowance for unfunded credit commitments. The ACL for loans decreased
$563 million from December 31, 2021, reflecting reduced uncertainty around the economic impact of the COVID-19 pandemic on our loan portfolio. This decrease was partially offset by loan growth and a less favorable economic environment.
Table 4.5:Allowance for Credit Losses for Loans
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended September 30, | | Nine months ended September 30, | | |
($ in millions) | 2022 | | 2021 | | 2022 | | 2021 | | | | |
Balance, beginning of period | $ | 12,884 | | | 16,391 | | | $ | 13,788 | | | 19,713 | | | | | |
| | | | | | | | | | | |
Provision for credit losses | 773 | | | (1,387) | | | 576 | | | (3,743) | | | | | |
Interest income on certain loans (1) | (26) | | | (35) | | | (82) | | | (112) | | | | | |
Loan charge-offs: | | | | | | | | | | | |
Commercial: | | | | | | | | | | | |
Commercial and industrial | (85) | | | (144) | | | (209) | | | (452) | | | | | |
Real estate mortgage | (3) | | | (5) | | | (6) | | | (68) | | | | | |
Real estate construction | — | | | (1) | | | — | | | (1) | | | | | |
Lease financing | (11) | | | (7) | | | (20) | | | (38) | | | | | |
Total commercial | (99) | | | (157) | | | (235) | | | (559) | | | | | |
Consumer: | | | | | | | | | | | |
Residential mortgage – first lien | (27) | | | (10) | | | (78) | | | (33) | | | | | |
Residential mortgage – junior lien | (16) | | | (15) | | | (58) | | | (46) | | | | | |
Credit card | (290) | | | (258) | | | (844) | | | (950) | | | | | |
Auto | (199) | | | (107) | | | (515) | | | (364) | | | | | |
Other consumer | (105) | | | (107) | | | (307) | | | (333) | | | | | |
Total consumer | (637) | | | (497) | | | (1,802) | | | (1,726) | | | | | |
Total loan charge-offs | (736) | | | (654) | | | (2,037) | | | (2,285) | | | | | |
Loan recoveries: | | | | | | | | | | | |
Commercial: | | | | | | | | | | | |
Commercial and industrial | 72 | | | 98 | | | 192 | | | 237 | | | | | |
Real estate mortgage | 15 | | | 15 | | | 27 | | | 37 | | | | | |
Real estate construction | — | | | — | | | — | | | 1 | | | | | |
Lease financing | 6 | | | 6 | | | 16 | | | 17 | | | | | |
Total commercial | 93 | | | 119 | | | 235 | | | 292 | | | | | |
Consumer: | | | | | | | | | | | |
Residential mortgage – first lien | 28 | | | 24 | | | 85 | | | 90 | | | | | |
Residential mortgage – junior lien | 29 | | | 43 | | | 102 | | | 124 | | | | | |
Credit card | 88 | | | 100 | | | 267 | | | 300 | | | | | |
Auto | 78 | | | 81 | | | 230 | | | 241 | | | | | |
Other consumer | 21 | | | 28 | | | 70 | | | 85 | | | | | |
Total consumer | 244 | | | 276 | | | 754 | | | 840 | | | | | |
Total loan recoveries | 337 | | | 395 | | | 989 | | | 1,132 | | | | | |
Net loan charge-offs | (399) | | | (259) | | | (1,048) | | | (1,153) | | | | | |
Other | (7) | | | (5) | | | (9) | | | — | | | | | |
Balance, end of period | $ | 13,225 | | | 14,705 | | | $ | 13,225 | | | 14,705 | | | | | |
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Components: | | | | | | | | | | | |
Allowance for loan losses | $ | 12,571 | | | 13,517 | | | $ | 12,571 | | | 13,517 | | | | | |
Allowance for unfunded credit commitments | 654 | | | 1,188 | | | 654 | | | 1,188 | | | | | |
Allowance for credit losses | $ | 13,225 | | | 14,705 | | | $ | 13,225 | | | 14,705 | | | | | |
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Net loan charge-offs (annualized) as a percentage of average total loans | 0.17 | % | | 0.12 | | | 0.15 | | | 0.18 | | | | | |
Allowance for loan losses as a percentage of total loans | 1.33 | | | 1.57 | | | 1.33 | | | 1.57 | | | | | |
Allowance for credit losses for loans as a percentage of total loans | 1.40 | | | 1.70 | | | 1.40 | | | 1.70 | | | | | |
(1)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.
Note 4: Loans and Related Allowance for Credit Losses (continued)
Table 4.6 summarizes the activity in the ACL by our commercial and consumer portfolio segments.
Table 4.6:Allowance for Credit Losses for Loans Activity by Portfolio Segment
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| 2022 | | 2021 |
(in millions) | Commercial | | Consumer | | Total | | Commercial | | Consumer | | Total |
Quarter ended September 30, | | | | | | | | | | | |
Balance, beginning of period | $ | 7,082 | | | 5,802 | | | 12,884 | | | 9,570 | | | 6,821 | | | 16,391 | |
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Provision for credit losses | (72) | | | 845 | | | 773 | | | (949) | | | (438) | | | (1,387) | |
Interest income on certain loans (1) | (6) | | | (20) | | | (26) | | | (13) | | | (22) | | | (35) | |
Loan charge-offs | (99) | | | (637) | | | (736) | | | (157) | | | (497) | | | (654) | |
Loan recoveries | 93 | | | 244 | | | 337 | | | 119 | | | 276 | | | 395 | |
Net loan charge-offs | (6) | | | (393) | | | (399) | | | (38) | | | (221) | | | (259) | |
Other | (7) | | | — | | | (7) | | | (5) | | | — | | | (5) | |
Balance, end of period | $ | 6,991 | | | 6,234 | | | 13,225 | | | 8,565 | | | 6,140 | | | 14,705 | |
Nine months ended September 30, | | | | | | | | | | | |
Balance, beginning of period | $ | 7,791 | | | 5,997 | | | 13,788 | | | 11,516 | | | 8,197 | | | 19,713 | |
Provision for credit losses | (769) | | | 1,345 | | | 576 | | | (2,637) | | | (1,106) | | | (3,743) | |
Interest income on certain loans (1) | (22) | | | (60) | | | (82) | | | (47) | | | (65) | | | (112) | |
Loan charge-offs | (235) | | | (1,802) | | | (2,037) | | | (559) | | | (1,726) | | | (2,285) | |
Loan recoveries | 235 | | | 754 | | | 989 | | | 292 | | | 840 | | | 1,132 | |
Net loan charge-offs | — | | | (1,048) | | | (1,048) | | | (267) | | | (886) | | | (1,153) | |
Other | (9) | | | — | | | (9) | | | — | | | — | | | — | |
Balance, end of period | $ | 6,991 | | | 6,234 | | | 13,225 | | | 8,565 | | | 6,140 | | | 14,705 | |
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(1)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.
Credit Quality
We monitor credit quality by evaluating various attributes and utilize such information in our evaluation of the appropriateness of the ACL for 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.
COMMERCIAL CREDIT QUALITY INDICATORS We manage a consistent process for assessing commercial loan credit quality. 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 regulatory definitions of pass and criticized categories with the criticized segmented among special mention, substandard, doubtful and loss categories.
Table 4.7 provides the outstanding balances of our commercial loan portfolio by risk category and credit quality information by origination year 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 troubled
debt restructuring (TDR). At September 30, 2022, we had $527.1 billion and $22.8 billion of pass and criticized commercial loans, respectively.
Table 4.7:Commercial Loan Categories by Risk Categories and Vintage
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| Term loans by origination year | | Revolving loans | | Revolving loans converted to term loans | | Total |
(in millions) | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | |
September 30, 2022 | | | | | | | | | | | | | | | | | |
Commercial and industrial | | | | | | | | | | | | | | | | | |
Pass | $ | 52,868 | | | 32,696 | | | 10,356 | | | 14,288 | | | 4,400 | | | 6,921 | | | 246,965 | | | 891 | | | 369,385 | |
Criticized | 725 | | | 1,031 | | | 591 | | | 699 | | | 729 | | | 657 | | | 5,877 | | | — | | | 10,309 | |
Total commercial and industrial | 53,593 | | | 33,727 | | | 10,947 | | | 14,987 | | | 5,129 | | | 7,578 | | | 252,842 | | | 891 | | | 379,694 | |
Real estate mortgage | | | | | | | | | | | | | | | | | |
Pass | 28,890 | | | 33,333 | | | 13,802 | | | 14,402 | | | 10,643 | | | 17,535 | | | 5,055 | | | 23 | | | 123,683 | |
Criticized | 1,371 | | | 2,314 | | | 729 | | | 2,568 | | | 1,098 | | | 1,836 | | | 171 | | | — | | | 10,087 | |
Total real estate mortgage | 30,261 | | | 35,647 | | | 14,531 | | | 16,970 | | | 11,741 | | | 19,371 | | | 5,226 | | | 23 | | | 133,770 | |
Real estate construction | | | | | | | | | | | | | | | | | |
Pass | 3,686 | | | 6,855 | | | 3,591 | | | 3,533 | | | 906 | | | 533 | | | 1,352 | | | — | | | 20,456 | |
Criticized | 592 | | | 370 | | | 173 | | | 220 | | | 63 | | | 2 | | | 13 | | | — | | | 1,433 | |
Total real estate construction | 4,278 | | | 7,225 | | | 3,764 | | | 3,753 | | | 969 | | | 535 | | | 1,365 | | | — | | | 21,889 | |
Lease financing | | | | | | | | | | | | | | | | | |
Pass | 3,274 | | | 3,591 | | | 2,267 | | | 1,651 | | | 905 | | | 1,930 | | | — | | | — | | | 13,618 | |
Criticized | 221 | | | 271 | | | 173 | | | 177 | | | 108 | | | 49 | | | — | | | — | | | 999 | |
Total lease financing | 3,495 | | | 3,862 | | | 2,440 | | | 1,828 | | | 1,013 | | | 1,979 | | | — | | | — | | | 14,617 | |
Total commercial loans | $ | 91,627 | | | 80,461 | | | 31,682 | | | 37,538 | | | 18,852 | | | 29,463 | | | 259,433 | | | 914 | | | 549,970 | |
| Term loans by origination year | | Revolving loans | | Revolving loans converted to term loans | | Total |
| 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | |
December 31, 2021 | | | | | | | | | | | | | | | | | |
Commercial and industrial | | | | | | | | | | | | | | | | | |
Pass | $ | 65,562 | | | 15,193 | | | 20,553 | | | 7,400 | | | 3,797 | | | 13,985 | | | 211,452 | | | 679 | | | 338,621 | |
Criticized | 1,657 | | | 884 | | | 1,237 | | | 1,256 | | | 685 | | | 551 | | | 5,528 | | | 17 | | | 11,815 | |
Total commercial and industrial | 67,219 | | | 16,077 | | | 21,790 | | | 8,656 | | | 4,482 | | | 14,536 | | | 216,980 | | | 696 | | | 350,436 | |
Real estate mortgage | | | | | | | | | | | | | | | | | |
Pass | 38,196 | | | 15,929 | | | 19,013 | | | 12,618 | | | 7,451 | | | 16,026 | | | 5,411 | | | 3 | | | 114,647 | |
Criticized | 3,462 | | | 1,119 | | | 2,975 | | | 1,834 | | | 875 | | | 2,421 | | | 400 | | | — | | | 13,086 | |
Total real estate mortgage | 41,658 | | | 17,048 | | | 21,988 | | | 14,452 | | | 8,326 | | | 18,447 | | | 5,811 | | | 3 | | | 127,733 | |
Real estate construction | | | | | | | | | | | | | | | | | |
Pass | 5,895 | | | 4,058 | | | 4,549 | | | 2,167 | | | 379 | | | 329 | | | 1,042 | | | 2 | | | 18,421 | |
Criticized | 510 | | | 266 | | | 586 | | | 234 | | | 68 | | | 7 | | | — | | | — | | | 1,671 | |
Total real estate construction | 6,405 | | | 4,324 | | | 5,135 | | | 2,401 | | | 447 | | | 336 | | | 1,042 | | | 2 | | | 20,092 | |
Lease financing | | | | | | | | | | | | | | | | | |
Pass | 4,100 | | | 3,012 | | | 2,547 | | | 1,373 | | | 838 | | | 1,805 | | | — | | | — | | | 13,675 | |
Criticized | 284 | | | 246 | | | 282 | | | 184 | | | 86 | | | 102 | | | — | | | — | | | 1,184 | |
Total lease financing | 4,384 | | | 3,258 | | | 2,829 | | | 1,557 | | | 924 | | | 1,907 | | | — | | | — | | | 14,859 | |
Total commercial loans | $ | 119,666 | | | 40,707 | | | 51,742 | | | 27,066 | | | 14,179 | | | 35,226 | | | 223,833 | | | 701 | | | 513,120 | |
Note 4: Loans and Related Allowance for Credit Losses (continued)
Table 4.8 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.
Table 4.8:Commercial Loan Categories by Delinquency Status
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(in millions) | Commercial and industrial | | Real estate mortgage | | Real estate construction | | Lease financing | | Total |
September 30, 2022 | | | | | | | | | |
By delinquency status: | | | | | | | | | |
Current-29 days past due (DPD) and still accruing | $ | 376,262 | | | 132,528 | | | 21,697 | | | 14,346 | | | 544,833 | |
30-89 DPD and still accruing | 1,991 | | | 321 | | | 157 | | | 163 | | | 2,632 | |
90+ DPD and still accruing | 699 | | | 71 | | | 32 | | | — | | | 802 | |
Nonaccrual loans | 742 | | | 850 | | | 3 | | | 108 | | | 1,703 | |
Total commercial loans | $ | 379,694 | | | 133,770 | | | 21,889 | | | 14,617 | | | 549,970 | |
December 31, 2021 | | | | | | | | | |
By delinquency status: | | | | | | | | | |
Current-29 DPD and still accruing | $ | 348,033 | | | 126,184 | | | 19,900 | | | 14,568 | | | 508,685 | |
30-89 DPD and still accruing | 1,217 | | | 285 | | | 179 | | | 143 | | | 1,824 | |
90+ DPD and still accruing | 206 | | | 29 | | | — | | | — | | | 235 | |
Nonaccrual loans | 980 | | | 1,235 | | | 13 | | | 148 | | | 2,376 | |
Total commercial loans | $ | 350,436 | | | 127,733 | | | 20,092 | | | 14,859 | | | 513,120 | |
CONSUMER CREDIT QUALITY INDICATORSWe have various classes of consumer loans that present unique credit risks. Loan delinquency, Fair Isaac Corporation (FICO) credit scores and loan-to-value (LTV) for residential mortgage loans are the primary credit quality indicators that we monitor and utilize in our evaluation of the appropriateness of the ACL for the consumer loan portfolio segment.
Many of our loss estimation techniques used for the ACL for loans rely on delinquency-based models; therefore, delinquency is an important indicator of credit quality in the establishment of our ACL for consumer loans.
Table 4.9 provides the outstanding balances of our consumer loan portfolio by delinquency status. Credit quality information is provided with the year of origination for term loans. Revolving loans may convert to term loans as a result of a contractual provision in the original loan agreement or if modified in a TDR. The revolving loans converted to term loans in the credit card loan category represent credit card loans with modified terms that require payment over a specific term.
Payment deferral activities in the residential mortgage portfolio instituted in response to the COVID-19 pandemic could continue to delay the recognition of delinquencies for residential mortgage customers who otherwise would have moved into past due status.
Table 4.9:Consumer Loan Categories by Delinquency Status and Vintage
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| Term loans by origination year | | Revolving loans | | Revolving loans converted to term loans | | |
(in millions) | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | | | Total |
September 30, 2022 | | | | | | | | | | | | | | | | | |
Residential mortgage – first lien | | | | | | | | | | | | | | | | | |
By delinquency status: | | | | | | | | | | | | | | | | | |
Current-29 DPD | $ | 43,335 | | | 66,404 | | | 37,806 | | | 21,208 | | | 6,316 | | | 63,103 | | | 3,836 | | | 1,989 | | | 243,997 | |
30-59 DPD | 91 | | | 53 | | | 19 | | | 29 | | | 12 | | | 487 | | | 13 | | | 41 | | | 745 | |
60-89 DPD | 6 | | | 9 | | | 2 | | | 5 | | | 4 | | | 134 | | | 6 | | | 18 | | | 184 | |
90-119 DPD | 1 | | | 3 | | | — | | | 2 | | | 3 | | | 56 | | | 3 | | | 13 | | | 81 | |
120-179 DPD | — | | | 6 | | | 6 | | | 5 | | | 3 | | | 86 | | | 5 | | | 15 | | | 126 | |
180+ DPD | — | | | 5 | | | 11 | | | 17 | | | 18 | | | 432 | | | 9 | | | 116 | | | 608 | |
Government insured/guaranteed loans (1) | 5 | | | 54 | | | 135 | | | 144 | | | 203 | | | 7,883 | | | — | | | — | | | 8,424 | |
Total residential mortgage – first lien | 43,438 | | | 66,534 | | | 37,979 | | | 21,410 | | | 6,559 | | | 72,181 | | | 3,872 | | | 2,192 | | | 254,165 | |
Residential mortgage – junior lien | | | | | | | | | | | | | | | | | |
By delinquency status: | | | | | | | | | | | | | | | | | |
Current-29 DPD | 21 | | | 32 | | | 17 | | | 22 | | | 20 | | | 554 | | | 8,109 | | | 4,830 | | | 13,605 | |
30-59 DPD | — | | | — | | | — | | | — | | | — | | | 10 | | | 19 | | | 46 | | | 75 | |
60-89 DPD | — | | | — | | | — | | | — | | | — | | | 3 | | | 8 | | | 24 | | | 35 | |
90-119 DPD | — | | | — | | | — | | | — | | | — | | | 2 | | | 4 | | | 15 | | | 21 | |
120-179 DPD | — | | | — | | | — | | | — | | | — | | | 4 | | | 4 | | | 20 | | | 28 | |
180+ DPD | — | | | — | | | — | | | — | | | — | | | 16 | | | 17 | | | 103 | | | 136 | |
Total residential mortgage – junior lien | 21 | | | 32 | | | 17 | | | 22 | | | 20 | | | 589 | | | 8,161 | | | 5,038 | | | 13,900 | |
Credit cards | | | | | | | | | | | | | | | | | |
By delinquency status: | | | | | | | | | | | | | | | | | |
Current-29 DPD | — | | | — | | | — | | | — | | | — | | | — | | | 42,580 | | | 208 | | | 42,788 | |
30-59 DPD | — | | | — | | | — | | | — | | | — | | | — | | | 232 | | | 13 | | | 245 | |
60-89 DPD | — | | | — | | | — | | | — | | | — | | | — | | | 156 | | | 10 | | | 166 | |
90-119 DPD | — | | | — | | | — | | | — | | | — | | | — | | | 133 | | | 8 | | | 141 | |
120-179 DPD | — | | | — | | | — | | | — | | | — | | | — | | | 214 | | | 4 | | | 218 | |
180+ DPD | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total credit cards | — | | | — | | | — | | | — | | | — | | | — | | | 43,315 | | | 243 | | | 43,558 | |
Auto | | | | | | | | | | | | | | | | | |
By delinquency status: | | | | | | | | | | | | | | | | | |
Current-29 DPD | 15,792 | | | 21,136 | | | 8,472 | | | 5,382 | | | 1,806 | | | 670 | | | — | | | — | | | 53,258 | |
30-59 DPD | 105 | | | 376 | | | 180 | | | 124 | | | 53 | | | 41 | | | — | | | — | | | 879 | |
60-89 DPD | 37 | | | 133 | | | 61 | | | 39 | | | 15 | | | 14 | | | — | | | — | | | 299 | |
90-119 DPD | 15 | | | 52 | | | 19 | | | 13 | | | 5 | | | 4 | | | — | | | — | | | 108 | |
120-179 DPD | — | | | 1 | | | — | | | — | | | — | | | — | | | — | | | — | | | 1 | |
180+ DPD | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total auto | 15,949 | | | 21,698 | | | 8,732 | | | 5,558 | | | 1,879 | | | 729 | | | — | | | — | | | 54,545 | |
Other consumer | | | | | | | | | | | | | | | | | |
By delinquency status: | | | | | | | | | | | | | | | | | |
Current-29 DPD | 2,975 | | | 1,372 | | | 409 | | | 337 | | | 86 | | | 98 | | | 24,284 | | | 123 | | | 29,684 | |
30-59 DPD | 7 | | | 8 | | | 2 | | | 2 | | | 1 | | | 2 | | | 9 | | | 3 | | | 34 | |
60-89 DPD | 3 | | | 5 | | | 1 | | | 1 | | | — | | | — | | | 5 | | | 2 | | | 17 | |
90-119 DPD | 2 | | | 5 | | | 1 | | | 1 | | | — | | | — | | | 5 | | | 2 | | | 16 | |
120-179 DPD | — | | | — | | | — | | | — | | | — | | | — | | | 6 | | | 2 | | | 8 | |
180+ DPD | — | | | — | | | — | | | — | | | — | | | 1 | | | — | | | 8 | | | 9 | |
Total other consumer | 2,987 | | | 1,390 | | | 413 | | | 341 | | | 87 | | | 101 | | | 24,309 | | | 140 | | | 29,768 | |
Total consumer loans | $ | 62,395 | | | 89,654 | | | 47,141 | | | 27,331 | | | 8,545 | | | 73,600 | | | 79,657 | | | 7,613 | | | 395,936 | |
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(continued on following page)
Note 4: Loans and Related Allowance for Credit Losses (continued)
(continued from previous page)
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| Term loans by origination year | | Revolving loans | | Revolving loans converted to term loans | | |
(in millions) | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | | | Total |
December 31, 2021 | | | | | | | | | | | | | | | | | |
Residential mortgage – first lien | | | | | | | | | | | | | | | | | |
By delinquency status: | | | | | | | | | | | | | | | | | |
Current-29 DPD | $ | 69,994 | | | 41,527 | | | 24,887 | | | 7,660 | | | 13,734 | | | 61,576 | | | 5,248 | | | 1,673 | | | 226,299 | |
30-59 DPD | 129 | | | 27 | | | 30 | | | 12 | | | 24 | | | 418 | | | 14 | | | 29 | | | 683 | |
60-89 DPD | 10 | | | 7 | | | 2 | | | — | | | 3 | | | 126 | | | 7 | | | 15 | | | 170 | |
90-119 DPD | — | | | 1 | | | 1 | | | 1 | | | 5 | | | 53 | | | 4 | | | 9 | | | 74 | |
120-179 DPD | 1 | | | 16 | | | 2 | | | 2 | | | 1 | | | 63 | | | 4 | | | 14 | | | 103 | |
180+ DPD | — | | | 62 | | | 72 | | | 71 | | | 92 | | | 1,294 | | | 36 | | | 156 | | | 1,783 | |
Government insured/guaranteed loans (1) | 14 | | | 134 | | | 209 | | | 349 | | | 364 | | | 12,088 | | | — | | | — | | | 13,158 | |
Total residential mortgage – first lien | 70,148 | | | 41,774 | | | 25,203 | | | 8,095 | | | 14,223 | | | 75,618 | | | 5,313 | | | 1,896 | | | 242,270 | |
Residential mortgage – junior lien | | | | | | | | | | | | | | | | | |
By delinquency status: | | | | | | | | | | | | | | | | | |
Current-29 DPD | 28 | | | 20 | | | 30 | | | 26 | | | 21 | | | 700 | | | 10,883 | | | 4,426 | | | 16,134 | |
30-59 DPD | — | | | — | | | — | | | — | | | 1 | | | 10 | | | 29 | | | 46 | | | 86 | |
60-89 DPD | — | | | — | | | — | | | — | | | — | | | 4 | | | 10 | | | 21 | | | 35 | |
90-119 DPD | — | | | — | | | — | | | 1 | | | — | | | 3 | | | 4 | | | 12 | | | 20 | |
120-179 DPD | — | | | — | | | — | | | — | | | — | | | 5 | | | 7 | | | 14 | | | 26 | |
180+ DPD | — | | | — | | | 1 | | | — | | | — | | | 40 | | | 59 | | | 217 | | | 317 | |
Total residential mortgage – junior lien | 28 | | | 20 | | | 31 | | | 27 | | | 22 | | | 762 | | | 10,992 | | | 4,736 | | | 16,618 | |
Credit cards | | | | | | | | | | | | | | | | | |
By delinquency status: | | | | | | | | | | | | | | | | | |
Current-29 DPD | — | | | — | | | — | | | — | | | — | | | — | | | 37,686 | | | 192 | | | 37,878 | |
30-59 DPD | — | | | — | | | — | | | — | | | — | | | — | | | 176 | | | 7 | | | 183 | |
60-89 DPD | — | | | — | | | — | | | — | | | — | | | — | | | 118 | | | 5 | | | 123 | |
90-119 DPD | — | | | — | | | — | | | — | | | — | | | — | | | 98 | | | 5 | | | 103 | |
120-179 DPD | — | | | — | | | — | | | — | | | — | | | — | | | 165 | | | 1 | | | 166 | |
180+ DPD | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total credit cards | — | | | — | | | — | | | — | | | — | | | — | | | 38,243 | | | 210 | | | 38,453 | |
Auto | | | | | | | | | | | | | | | | | |
By delinquency status: | | | | | | | | | | | | | | | | | |
Current-29 DPD | 29,246 | | | 12,412 | | | 8,476 | | | 3,271 | | | 1,424 | | | 714 | | | — | | | — | | | 55,543 | |
30-59 DPD | 220 | | | 193 | | | 165 | | | 81 | | | 46 | | | 57 | | | — | | | — | | | 762 | |
60-89 DPD | 69 | | | 67 | | | 53 | | | 25 | | | 14 | | | 21 | | | — | | | — | | | 249 | |
90-119 DPD | 31 | | | 27 | | | 22 | | | 9 | | | 6 | | | 8 | | | — | | | — | | | 103 | |
120-179 DPD | — | | | 1 | | | 1 | | | — | | | — | | | — | | | — | | | — | | | 2 | |
180+ DPD | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total auto | 29,566 | | | 12,700 | | | 8,717 | | | 3,386 | | | 1,490 | | | 800 | | | — | | | — | | | 56,659 | |
Other consumer | | | | | | | | | | | | | | | | | |
By delinquency status: | | | | | | | | | | | | | | | | | |
Current-29 DPD | 2,221 | | | 716 | | | 703 | | | 203 | | | 107 | | | 125 | | | 23,988 | | | 143 | | | 28,206 | |
30-59 DPD | 3 | | | 2 | | | 3 | | | 1 | | | — | | | 2 | | | 10 | | | 4 | | | 25 | |
60-89 DPD | 2 | | | 1 | | | 2 | | | 1 | | | — | | | 1 | | | 5 | | | 1 | | | 13 | |
90-119 DPD | 1 | | | 1 | | | 2 | | | 1 | | | — | | | — | | | 4 | | | — | | | 9 | |
120-179 DPD | — | | | — | | | — | | | — | | | — | | | — | | | 8 | | | 2 | | | 10 | |
180+ DPD | — | | | — | | | — | | | — | | | — | | | 1 | | | 1 | | | 9 | | | 11 | |
Total other consumer | 2,227 | | | 720 | | | 710 | | | 206 | | | 107 | | | 129 | | | 24,016 | | | 159 | | | 28,274 | |
Total consumer loans | $ | 101,969 | | | 55,214 | | | 34,661 | | | 11,714 | | | 15,842 | | | 77,309 | | | 78,564 | | | 7,001 | | | 382,274 | |
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(1)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 $3.0 billion and $5.7 billion at September 30, 2022, and December 31, 2021, respectively.
Of the $1.5 billion of consumer loans not government insured/guaranteed that are 90 days or more past due at September 30, 2022, $496 million was accruing, compared with
$2.7 billion past due and $424 million accruing at December 31, 2021.
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). 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. Substantially
all loans not requiring a FICO score are securities-based loans originated by our retail brokerage business.
Table 4.10 provides the outstanding balances of our consumer loan portfolio by FICO score. Substantially allof the scored consumer portfolio has an updated FICO score of 680 or above.
Table 4.10:Consumer Loan Categories by FICO and Vintage
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Term loans by origination year | | Revolving loans | | Revolving loans converted to term loans | | |
(in millions) | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | | | Total |
September 30, 2022 | | | | | | | | | | | | | | | | | |
By FICO: | | | | | | | | | | | | | | | | | |
Residential mortgage – first lien | | | | | | | | | | | | | | | | | |
800+ | $ | 21,517 | | | 43,132 | | | 26,589 | | | 14,647 | | | 4,258 | | | 38,776 | | | 1,912 | | | 617 | | | 151,448 | |
760-799 | 14,432 | | | 15,486 | | | 7,464 | | | 4,154 | | | 1,165 | | | 10,770 | | | 777 | | | 327 | | | 54,575 | |
720-759 | 5,131 | | | 5,537 | | | 2,675 | | | 1,606 | | | 534 | | | 6,171 | | | 483 | | | 284 | | | 22,421 | |
680-719 | 1,711 | | | 1,622 | | | 772 | | | 531 | | | 215 | | | 3,439 | | | 300 | | | 223 | | | 8,813 | |
640-679 | 450 | | | 445 | | | 165 | | | 188 | | | 91 | | | 1,659 | | | 142 | | | 148 | | | 3,288 | |
600-639 | 89 | | | 93 | | | 65 | | | 44 | | | 23 | | | 940 | | | 62 | | | 81 | | | 1,397 | |
< 600 | 57 | | | 41 | | | 21 | | | 24 | | | 19 | | | 900 | | | 70 | | | 134 | | | 1,266 | |
No FICO available | 46 | | | 124 | | | 93 | | | 72 | | | 51 | | | 1,643 | | | 126 | | | 378 | | | 2,533 | |
Government insured/guaranteed loans (1) | 5 | | | 54 | | | 135 | | | 144 | | | 203 | | | 7,883 | | | — | | | — | | | 8,424 | |
Total residential mortgage – first lien | 43,438 | | | 66,534 | | | 37,979 | | | 21,410 | | | 6,559 | | | 72,181 | | | 3,872 | | | 2,192 | | | 254,165 | |
Residential mortgage – junior lien | | | | | | | | | | | | | | | | | |
800+ | — | | | — | | | — | | | — | | | — | | | 143 | | | 4,215 | | | 1,683 | | | 6,041 | |
760-799 | — | | | — | | | — | | | — | | | — | | | 84 | | | 1,622 | | | 875 | | | 2,581 | |
720-759 | — | | | — | | | — | | | — | | | — | | | 101 | | | 1,081 | | | 812 | | | 1,994 | |
680-719 | — | | | — | | | — | | | — | | | — | | | 86 | | | 611 | | | 630 | | | 1,327 | |
640-679 | — | | | — | | | — | | | — | | | — | | | 47 | | | 233 | | | 327 | | | 607 | |
600-639 | — | | | — | | | — | | | — | | | — | | | 26 | | | 113 | | | 184 | | | 323 | |
< 600 | — | | | — | | | — | | | — | | | — | | | 34 | | | 107 | | | 209 | | | 350 | |
No FICO available | 21 | | | 32 | | | 17 | | | 22 | | | 20 | | | 68 | | | 179 | | | 318 | | | 677 | |
Total residential mortgage – junior lien | 21 | | | 32 | | | 17 | | | 22 | | | 20 | | | 589 | | | 8,161 | | | 5,038 | | | 13,900 | |
Credit card | | | | | | | | | | | | | | | | | |
800+ | — | | | — | | | — | | | — | | | — | | | — | | | 4,885 | | | 2 | | | 4,887 | |
760-799 | — | | | — | | | — | | | — | | | — | | | — | | | 6,812 | | | 8 | | | 6,820 | |
720-759 | — | | | — | | | — | | | — | | | — | | | — | | | 9,397 | | | 26 | | | 9,423 | |
680-719 | — | | | — | | | — | | | — | | | — | | | — | | | 10,151 | | | 48 | | | 10,199 | |
640-679 | — | | | — | | | — | | | — | | | — | | | — | | | 6,750 | | | 49 | | | 6,799 | |
600-639 | — | | | — | | | — | | | — | | | — | | | — | | | 2,706 | | | 35 | | | 2,741 | |
< 600 | — | | | — | | | — | | | — | | | — | | | — | | | 2,507 | | | 74 | | | 2,581 | |
No FICO available | — | | | — | | | — | | | — | | | — | | | — | | | 107 | | | 1 | | | 108 | |
Total credit card | — | | | — | | | — | | | — | | | — | | | — | | | 43,315 | | | 243 | | | 43,558 | |
Auto | | | | | | | | | | | | | | | | | |
800+ | 2,892 | | | 3,635 | | | 1,488 | | | 1,112 | | | 384 | | | 127 | | | — | | | — | | | 9,638 | |
760-799 | 3,004 | | | 3,635 | | | 1,407 | | | 944 | | | 301 | | | 93 | | | — | | | — | | | 9,384 | |
720-759 | 2,686 | | | 3,323 | | | 1,401 | | | 918 | | | 301 | | | 101 | | | — | | | — | | | 8,730 | |
680-719 | 2,525 | | | 3,382 | | | 1,438 | | | 856 | | | 273 | | | 97 | | | — | | | — | | | 8,571 | |
640-679 | 2,178 | | | 2,912 | | | 1,122 | | | 613 | | | 194 | | | 80 | | | — | | | — | | | 7,099 | |
600-639 | 1,409 | | | 1,963 | | | 698 | | | 376 | | | 131 | | | 65 | | | — | | | — | | | 4,642 | |
< 600 | 1,245 | | | 2,837 | | | 1,157 | | | 699 | | | 258 | | | 154 | | | — | | | — | | | 6,350 | |
No FICO available | 10 | | | 11 | | | 21 | | | 40 | | | 37 | | | 12 | | | — | | | — | | | 131 | |
Total auto | 15,949 | | | 21,698 | | | 8,732 | | | 5,558 | | | 1,879 | | | 729 | | | — | | | — | | | 54,545 | |
Other consumer | | | | | | | | | | | | | | | | | |
800+ | 615 | | | 269 | | | 96 | | | 61 | | | 13 | | | 33 | | | 940 | | | 19 | | | 2,046 | |
760-799 | 636 | | | 256 | | | 78 | | | 53 | | | 12 | | | 16 | | | 628 | | | 11 | | | 1,690 | |
720-759 | 618 | | | 267 | | | 70 | | | 56 | | | 15 | | | 16 | | | 588 | | | 16 | | | 1,646 | |
680-719 | 501 | | | 234 | | | 61 | | | 49 | | | 14 | | | 12 | | | 555 | | | 21 | | | 1,447 | |
640-679 | 264 | | | 142 | | | 27 | | | 29 | | | 9 | | | 6 | | | 301 | | | 18 | | | 796 | |
600-639 | 71 | | | 47 | | | 9 | | | 11 | | | 4 | | | 4 | | | 105 | | | 10 | | | 261 | |
< 600 | 30 | | | 44 | | | 11 | | | 14 | | | 5 | | | 5 | | | 103 | | | 12 | | | 224 | |
No FICO available | 252 | | | 131 | | | 61 | | | 68 | | | 15 | | | 9 | | | 954 | | | 33 | | | 1,523 | |
FICO not required | — | | | — | | | — | | | — | | | — | | | — | | | 20,135 | | | — | | | 20,135 | |
Total other consumer | 2,987 | | | 1,390 | | | 413 | | | 341 | | | 87 | | | 101 | | | 24,309 | | | 140 | | | 29,768 | |
Total consumer loans | $ | 62,395 | | | 89,654 | | | 47,141 | | | 27,331 | | | 8,545 | | | 73,600 | | | 79,657 | | | 7,613 | | | 395,936 | |
(continued on following page)
Note 4: Loans and Related Allowance for Credit Losses (continued)
(continued from previous page)
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| Term loans by origination year | | Revolving loans | | Revolving loans converted to term loans | | |
(in millions) | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | | | Total |
December 31, 2021 | | | | | | | | | | | | | | | | | |
By FICO: | | | | | | | | | | | | | | | | | |
Residential mortgage – first lien | | | | | | | | | | | | | | | | | |
800+ | $ | 35,935 | | | 27,396 | | | 16,583 | | | 5,153 | | | 9,430 | | | 37,495 | | | 2,554 | | | 469 | | | 135,015 | |
760-799 | 23,645 | | | 9,814 | | | 5,412 | | | 1,464 | | | 2,485 | | | 10,509 | | | 1,073 | | | 265 | | | 54,667 | |
720-759 | 7,842 | | | 3,083 | | | 1,980 | | | 642 | | | 1,137 | | | 6,277 | | | 646 | | | 238 | | | 21,845 | |
680-719 | 1,986 | | | 876 | | | 645 | | | 283 | | | 501 | | | 3,682 | | | 393 | | | 206 | | | 8,572 | |
640-679 | 449 | | | 233 | | | 187 | | | 89 | | | 129 | | | 1,851 | | | 188 | | | 146 | | | 3,272 | |
600-639 | 101 | | | 63 | | | 46 | | | 31 | | | 41 | | | 1,035 | | | 102 | | | 89 | | | 1,508 | |
< 600 | 15 | | | 13 | | | 24 | | | 19 | | | 41 | | | 1,083 | | | 114 | | | 124 | | | 1,433 | |
No FICO available | 161 | | | 162 | | | 117 | | | 65 | | | 95 | | | 1,598 | | | 243 | | | 359 | | | 2,800 | |
Government insured/guaranteed loans (1) | 14 | | | 134 | | | 209 | | | 349 | | | 364 | | | 12,088 | | | — | | | — | | | 13,158 | |
Total residential mortgage – first lien | 70,148 | | | 41,774 | | | 25,203 | | | 8,095 | | | 14,223 | | | 75,618 | | | 5,313 | | | 1,896 | | | 242,270 | |
Residential mortgage – junior lien | | | | | | | | | | | | | | | | | |
800+ | — | | | — | | | — | | | — | | | — | | | 188 | | | 5,512 | | | 1,481 | | | 7,181 | |
760-799 | — | | | — | | | — | | | — | | | — | | | 110 | | | 2,154 | | | 828 | | | 3,092 | |
720-759 | — | | | — | | | — | | | — | | | — | | | 130 | | | 1,462 | | | 790 | | | 2,382 | |
680-719 | — | | | — | | | — | | | — | | | — | | | 118 | | | 881 | | | 633 | | | 1,632 | |
640-679 | — | | | — | | | — | | | — | | | — | | | 65 | | | 325 | | | 338 | | | 728 | |
600-639 | — | | | — | | | — | | | — | | | — | | | 39 | | | 160 | | | 208 | | | 407 | |
< 600 | — | | | — | | | — | | | — | | | — | | | 43 | | | 164 | | | 215 | | | 422 | |
No FICO available | 28 | | | 20 | | | 31 | | | 27 | | | 22 | | | 69 | | | 334 | | | 243 | | | 774 | |
Total residential mortgage – junior lien | 28 | | | 20 | | | 31 | | | 27 | | | 22 | | | 762 | | | 10,992 | | | 4,736 | | | 16,618 | |
Credit card | | | | | | | | | | | | | | | | | |
800+ | — | | | — | | | — | | | — | | | — | | | — | | | 4,247 | | | 1 | | | 4,248 | |
760-799 | — | | | — | | | — | | | — | | | — | | | — | | | 6,053 | | | 7 | | | 6,060 | |
720-759 | — | | | — | | | — | | | — | | | — | | | — | | | 8,475 | | | 26 | | | 8,501 | |
680-719 | — | | | — | | | — | | | — | | | — | | | — | | | 9,136 | | | 50 | | | 9,186 | |
640-679 | — | | | — | | | — | | | — | | | — | | | — | | | 5,850 | | | 47 | | | 5,897 | |
600-639 | — | | | — | | | — | | | — | | | — | | | — | | | 2,298 | | | 31 | | | 2,329 | |
< 600 | — | | | — | | | — | | | — | | | — | | | — | | | 2,067 | | | 47 | | | 2,114 | |
No FICO available | — | | | — | | | — | | | — | | | — | | | — | | | 117 | | | 1 | | | 118 | |
Total credit card | — | | | — | | | — | | | — | | | — | | | — | | | 38,243 | | | 210 | | | 38,453 | |
Auto | | | | | | | | | | | | | | | | | |
800+ | 4,688 | | | 1,983 | | | 1,680 | | | 690 | | | 318 | | | 108 | | | — | | | — | | | 9,467 | |
760-799 | 4,967 | | | 2,123 | | | 1,586 | | | 586 | | | 234 | | | 87 | | | — | | | — | | | 9,583 | |
720-759 | 4,789 | | | 2,104 | | | 1,503 | | | 583 | | | 241 | | | 106 | | | — | | | — | | | 9,326 | |
680-719 | 5,005 | | | 2,282 | | | 1,441 | | | 526 | | | 218 | | | 111 | | | — | | | — | | | 9,583 | |
640-679 | 4,611 | | | 1,824 | | | 1,025 | | | 369 | | | 160 | | | 99 | | | — | | | — | | | 8,088 | |
600-639 | 3,118 | | | 1,114 | | | 617 | | | 243 | | | 117 | | | 92 | | | — | | | — | | | 5,301 | |
< 600 | 2,372 | | | 1,236 | | | 853 | | | 376 | | | 193 | | | 187 | | | — | | | — | | | 5,217 | |
No FICO available | 16 | | | 34 | | | 12 | | | 13 | | | 9 | | | 10 | | | — | | | — | | | 94 | |
Total auto | 29,566 | | | 12,700 | | | 8,717 | | | 3,386 | | | 1,490 | | | 800 | | | — | | | — | | | 56,659 | |
Other consumer | | | | | | | | | | | | | | | | | |
800+ | 450 | | | 162 | | | 128 | | | 34 | | | 8 | | | 47 | | | 1,343 | | | 22 | | | 2,194 | |
760-799 | 502 | | | 147 | | | 117 | | | 33 | | | 7 | | | 22 | | | 819 | | | 19 | | | 1,666 | |
720-759 | 461 | | | 134 | | | 115 | | | 38 | | | 9 | | | 18 | | | 714 | | | 22 | | | 1,511 | |
680-719 | 349 | | | 95 | | | 99 | | | 37 | | | 9 | | | 15 | | | 630 | | | 22 | | | 1,256 | |
640-679 | 170 | | | 44 | | | 55 | | | 21 | | | 6 | | | 8 | | | 328 | | | 17 | | | 649 | |
600-639 | 42 | | | 13 | | | 19 | | | 9 | | | 3 | | | 4 | | | 117 | | | 9 | | | 216 | |
< 600 | 18 | | | 12 | | | 22 | | | 11 | | | 3 | | | 5 | | | 114 | | | 12 | | | 197 | |
No FICO available | 235 | | | 113 | | | 155 | | | 23 | | | 62 | | | 10 | | | 1,236 | | | 36 | | | 1,870 | |
FICO not required | — | | | — | | | — | | | — | | | — | | | — | | | 18,715 | | | — | | | 18,715 | |
Total other consumer | 2,227 | | | 720 | | | 710 | | | 206 | | | 107 | | | 129 | | | 24,016 | | | 159 | | | 28,274 | |
Total consumer loans | $ | 101,969 | | | 55,214 | | | 34,661 | | | 11,714 | | | 15,842 | | | 77,309 | | | 78,564 | | | 7,001 | | | 382,274 | |
(1)Represents loans whose repayments are predominantly insured by the FHA or guaranteed by the VA.
LTV refers to the ratio comparing the loan’s unpaid principal balance to the property’s collateral value. Combined LTV (CLTV) refers to the combination of first lien mortgage and junior lien mortgage (including unused line amounts for credit line products) ratios. We obtain LTVs and CLTVs 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. Generally, we obtain available LTVs
and CLTVs on a quarterly basis. Certain loans do not have an LTV or CLTV due to a lack of industry data availability and portfolios acquired from or serviced by other institutions.
Table 4.11 shows the most updated LTV and CLTV distribution of the residential mortgage – first lien and residential mortgage – junior lien loan portfolios.
Table 4.11:Consumer Loan Categories by LTV/CLTV and Vintage
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| Term loans by origination year | | Revolving loans | | Revolving loans converted to term loans | | |
(in millions) | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | | Total |
September 30, 2022 | | | | | | | | | | | | | | | | | |
Residential mortgage – first lien | | | | | | | | | | | | | | | | | |
By LTV: | | | | | | | | | | | | | | | | | |
0-60% | $ | 14,608 | | | 38,581 | | | 31,333 | | | 17,850 | | | 5,391 | | | 61,269 | | | 3,570 | | | 2,057 | | | 174,659 | |
60.01-80% | 27,462 | | | 27,485 | | | 6,359 | | | 3,276 | | | 907 | | | 2,773 | | | 226 | | | 107 | | | 68,595 | |
80.01-100% | 1,333 | | | 326 | | | 91 | | | 91 | | | 34 | | | 86 | | | 33 | | | 14 | | | 2,008 | |
100.01-120% (1) | 4 | | | 14 | | | 6 | | | 5 | | | 2 | | | 16 | | | 5 | | | 2 | | | 54 | |
> 120% (1) | 5 | | | 7 | | | 3 | | | 2 | | | — | | | 9 | | | 3 | | | 2 | | | 31 | |
No LTV available | 21 | | | 67 | | | 52 | | | 42 | | | 22 | | | 145 | | | 35 | | | 10 | | | 394 | |
Government insured/guaranteed loans (2) | 5 | | | 54 | | | 135 | | | 144 | | | 203 | | | 7,883 | | | — | | | — | | | 8,424 | |
Total residential mortgage – first lien | 43,438 | | | 66,534 | | | 37,979 | | | 21,410 | | | 6,559 | | | 72,181 | | | 3,872 | | | 2,192 | | | 254,165 | |
Residential mortgage – junior lien | | | | | | | | | | | | | | | | | |
By CLTV: | | | | | | | | | | | | | | | | | |
0-60% | — | | | — | | | — | | | — | | | — | | | 444 | | | 7,180 | | | 4,351 | | | 11,975 | |
60.01-80% | — | | | — | | | — | | | — | | | — | | | 81 | | | 833 | | | 550 | | | 1,464 | |
80.01-100% | — | | | — | | | — | | | — | | | — | | | 16 | | | 119 | | | 97 | | | 232 | |
100.01-120% (1) | — | | | — | | | — | | | — | | | — | | | 2 | | | 15 | | | 12 | | | 29 | |
> 120% (1) | — | | | — | | | — | | | — | | | — | | | 1 | | | 6 | | | 5 | | | 12 | |
No CLTV available | 21 | | | 32 | | | 17 | | | 22 | | | 20 | | | 45 | | | 8 | | | 23 | | | 188 | |
Total residential mortgage – junior lien | 21 | | | 32 | | | 17 | | | 22 | | | 20 | | | 589 | | | 8,161 | | | 5,038 | | | 13,900 | |
Total | $ | 43,459 | | | 66,566 | | | 37,996 | | | 21,432 | | | 6,579 | | | 72,770 | | | 12,033 | | | 7,230 | | | 268,065 | |
| Term loans by origination year | | Revolving loans | | Revolving loans converted to term loans | | |
| 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | | Total |
December 31, 2021 | | | | | | | | | | | | | | | | | |
Residential mortgage – first lien | | | | | | | | | | | | | | | | | |
By LTV: | | | | | | | | | | | | | | | | | |
0-60% | $ | 26,618 | | | 22,882 | | | 16,063 | | | 5,310 | | | 11,030 | | | 57,880 | | | 4,348 | | | 1,644 | | | 145,775 | |
60.01-80% | 42,893 | | | 18,188 | | | 8,356 | | | 2,234 | | | 2,647 | | | 5,017 | | | 674 | | | 188 | | | 80,197 | |
80.01-100% | 486 | | | 437 | | | 474 | | | 147 | | | 134 | | | 339 | | | 157 | | | 42 | | | 2,216 | |
100.01-120% (1) | 10 | | | 31 | | | 24 | | | 11 | | | 7 | | | 48 | | | 33 | | | 8 | | | 172 | |
> 120% (1) | 5 | | | 10 | | | 10 | | | 4 | | | 3 | | | 35 | | | 14 | | | 3 | | | 84 | |
No LTV available | 122 | | | 92 | | | 67 | | | 40 | | | 38 | | | 211 | | | 87 | | | 11 | | | 668 | |
Government insured/guaranteed loans (2) | 14 | | | 134 | | | 209 | | | 349 | | | 364 | | | 12,088 | | | — | | | — | | | 13,158 | |
Total residential mortgage – first lien | 70,148 | | | 41,774 | | | 25,203 | | | 8,095 | | | 14,223 | | | 75,618 | | | 5,313 | | | 1,896 | | | 242,270 | |
Residential mortgage – junior lien | | | | | | | | | | | | | | | | | |
By CLTV: | | | | | | | | | | | | | | | | | |
0-60% | — | | | — | | | — | | | — | | | — | | | 475 | | | 7,949 | | | 3,588 | | | 12,012 | |
60.01-80% | — | | | — | | | — | | | — | | | — | | | 172 | | | 2,329 | | | 823 | | | 3,324 | |
80.01-100% | — | | | — | | | — | | | — | | | — | | | 55 | | | 554 | | | 241 | | | 850 | |
100.01-120% (1) | — | | | — | | | — | | | — | | | — | | | 13 | | | 104 | | | 42 | | | 159 | |
> 120% (1) | — | | | — | | | — | | | — | | | — | | | 3 | | | 35 | | | 13 | | | 51 | |
No CLTV available | 28 | | | 20 | | | 31 | | | 27 | | | 22 | | | 44 | | | 21 | | | 29 | | | 222 | |
Total residential mortgage – junior lien | 28 | | | 20 | | | 31 | | | 27 | | | 22 | | | 762 | | | 10,992 | | | 4,736 | | | 16,618 | |
Total | $ | 70,176 | | | 41,794 | | | 25,234 | | | 8,122 | | | 14,245 | | | 76,380 | | | 16,305 | | | 6,632 | | | 258,888 | |
(1)Reflects total loan balances with LTV/CLTV amounts in excess of 100%. In the event of default, the loss content would generally be limited to only the amount in excess of 100% LTV/CLTV.
(2)Represents loans whose repayments are predominantly insured by the FHA or guaranteed by the VA.
Note 4: Loans and Related Allowance for Credit Losses (continued)
NONACCRUAL LOANS Table 4.12 provides loans on nonaccrual status. Nonaccrual loans may have an ACL or a negative allowance for credit losses from expected recoveries of amounts previously written off. Customer payment deferral activities in
the residential mortgage portfolio instituted in response to the COVID-19 pandemic could continue to delay the recognition of nonaccrual loans for those residential mortgage customers who would have otherwise moved into nonaccrual status.
Table 4.12:Nonaccrual Loans
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amortized cost | | Recognized interest income |
| Nonaccrual loans | | Nonaccrual loans without related allowance for credit losses (1) | | Nine months ended September 30, |
(in millions) | Sep 30, 2022 | | Dec 31, 2021 | | Sep 30, 2022 | | Dec 31, 2021 | | 2022 | | 2021 |
Commercial: | | | | | | | | | | | |
Commercial and industrial | $ | 742 | | | 980 | | | 205 | | | 190 | | | 57 | | | 73 | |
Real estate mortgage | 850 | | | 1,235 | | | 101 | | | 66 | | | 43 | | | 51 | |
Real estate construction | 3 | | | 13 | | | — | | | 5 | | | 1 | | | 3 | |
Lease financing | 108 | | | 148 | | | 5 | | | 9 | | | — | | | 1 | |
Total commercial | 1,703 | | | 2,376 | | | 311 | | | 270 | | | 101 | | | 128 | |
Consumer: | | | | | | | | | | | |
Residential mortgage – first lien | 3,024 | | | 3,803 | | | 2,035 | | | 2,722 | | | 120 | | | 86 | |
Residential mortgage – junior lien | 653 | | | 801 | | | 453 | | | 497 | | | 41 | | | 38 | |
Auto | 171 | | | 198 | | | — | | | — | | | 21 | | | 26 | |
Other consumer | 36 | | | 34 | | | — | | | — | | | 3 | | | 2 | |
Total consumer | 3,884 | | | 4,836 | | | 2,488 | | | 3,219 | | | 185 | | | 152 | |
Total nonaccrual loans | $ | 5,587 | | | 7,212 | | | 2,799 | | | 3,489 | | | 286 | | | 280 | |
(1)Nonaccrual loans may not have an allowance for credit losses if the loss expectations are zero given the related collateral value.
LOANS IN PROCESS OF FORECLOSURE Our recorded investment in consumer mortgage loans collateralized by residential real estate property that are in process of foreclosure was $980 million and $694 million at September 30, 2022, and December 31, 2021, respectively, which included $744 million and $583 million, respectively, of loans that are government insured/guaranteed. Under the Consumer Financial Protection Bureau guidelines, we do not commence the foreclosure process on residential mortgage loans until after the loan is 120 days delinquent. Foreclosure procedures and timelines vary depending on whether the property address resides in a judicial or non-judicial state. Judicial states require the foreclosure to be processed through the state’s courts while non-judicial states are processed without court intervention. Foreclosure timelines vary according to state law.
LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING Certain loans 90 days or more past due are still accruing, because they are (1) well-secured and in the process of collection or (2) residential mortgage or consumer loans exempt under regulatory rules from being classified as nonaccrual until later delinquency, usually 120 days past due.
Table 4.13 shows loans 90 days or more past due and still accruing by class for loans not government insured/guaranteed.
Table 4.13:Loans 90 Days or More Past Due and Still Accruing | | | | | | | | | | | |
($ in millions) | Sep 30, 2022 | | Dec 31, 2021 |
Total: | $ | 3,955 | | | 5,358 | |
Less: FHA insured/VA guaranteed (1) | 2,657 | | | 4,699 | |
| | | |
Total, not government insured/guaranteed | $ | 1,298 | | | 659 | |
By segment and class, not government insured/guaranteed: | | | |
Commercial: | | | |
Commercial and industrial | $ | 699 | | | 206 | |
Real estate mortgage | 71 | | | 29 | |
Real estate construction | 32 | | | — | |
Total commercial | 802 | | | 235 | |
Consumer: | | | |
Residential mortgage – first lien | 13 | | | 37 | |
Residential mortgage – junior lien | 7 | | | 12 | |
Credit card | 359 | | | 269 | |
Auto | 97 | | | 88 | |
Other consumer | 20 | | | 18 | |
Total consumer | 496 | | | 424 | |
Total, not government insured/guaranteed | $ | 1,298 | | | 659 | |
(1)Represents loans whose repayments are predominantly insured by the FHA or guaranteed by the VA.
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 $9.4 billion and $10.2 billion at September 30, 2022, and December 31, 2021, 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 2021 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 $416 million and $431 million at September 30, 2022, and December 31, 2021, respectively.
Table 4.14 summarizes our TDR modifications for the periods presented by primary modification type and includes the financial effects of these modifications. For those loans that modify more than once, the table reflects each modification that occurred during the period. Loans that both modify and are paid off or written-off within the period, as well as changes in recorded investment during the period for loans modified in prior periods, are not included in the table.
Note 4: Loans and Related Allowance for Credit Losses (continued)
Table 4.14:TDR Modifications
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| Primary modification type (1) | | Financial effects of modifications | |
($ 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, 2022 | | | | | | | | | | | | | | |
Commercial: | | | | | | | | | | | | | | |
Commercial and industrial | $ | 7 | | | 4 | | | 76 | | | 87 | | | — | | | 14.26 | % | | $ | 4 | | |
Real estate mortgage | — | | | 1 | | | 37 | | | 38 | | | — | | | 0.25 | | | 1 | | |
Real estate construction | — | | | — | | | — | | | — | | | — | | | — | | | — | | |
Lease financing | — | | | — | | | — | | | — | | | — | | | — | | | — | | |
Total commercial | 7 | | | 5 | | | 113 | | | 125 | | | — | | | 12.15 | | | 5 | | |
Consumer: | | | | | | | | | | | | | | |
Residential mortgage – first lien | — | | | 72 | | | 312 | | | 384 | | | 1 | | | 1.40 | | | 72 | | |
Residential mortgage – junior lien | — | | | 25 | | | 20 | | | 45 | | | — | | | 2.33 | | | 25 | | |
Credit card | — | | | 82 | | | — | | | 82 | | | — | | | 20.45 | | | 82 | | |
Auto | — | | | 2 | | | 8 | | | 10 | | | 2 | | | 3.87 | | | 2 | | |
Other consumer | — | | | 6 | | | 1 | | | 7 | | | 1 | | | 11.46 | | | 5 | | |
Trial modifications (5) | — | | | — | | | — | | | — | | | — | | | — | | | — | | |
Total consumer | — | | | 187 | | | 341 | | | 528 | | | 4 | | | 10.27 | | | 186 | | |
Total | $ | 7 | | | 192 | | | 454 | | | 653 | | | 4 | | | 10.31 | % | | $ | 191 | | |
Quarter ended September 30, 2021 | | | | | | | | | | | | | | |
Commercial: | | | | | | | | | | | | | | |
Commercial and industrial | $ | 2 | | | 6 | | | 192 | | | 200 | | | — | | | 0.61 | % | | $ | 6 | | |
Real estate mortgage | — | | | 2 | | | 26 | | | 28 | | | — | | | 2.95 | | | 2 | | |
Real estate construction | — | | | — | | | — | | | — | | | — | | | — | | | — | | |
Lease financing | — | | | — | | | 3 | | | 3 | | | — | | | — | | | — | | |
Total commercial | 2 | | | 8 | | | 221 | | | 231 | | | — | | | 1.32 | | | 8 | | |
Consumer: | | | | | | | | | | | | | | |
Residential mortgage – first lien | — | | | 11 | | | 204 | | | 215 | | | — | | | 1.68 | | | 11 | | |
Residential mortgage – junior lien | — | | | 3 | | | 7 | | | 10 | | | — | | | 3.45 | | | 3 | | |
Credit card | — | | | 25 | | | — | | | 25 | | | — | | | 19.18 | | | 25 | | |
Auto | — | | | 1 | | | 23 | | | 24 | | | 9 | | | 4.00 | | | 1 | | |
Other consumer | — | | | 4 | | | — | | | 4 | | | — | | | 11.52 | | | 4 | | |
Trial modifications (5) | — | | | — | | | 2 | | | 2 | | | — | | | — | | | — | | |
Total consumer | — | | | 44 | | | 236 | | | 280 | | | 9 | | | 12.54 | | | 44 | | |
Total | $ | 2 | | | 52 | | | 457 | | | 511 | | | 9 | | | 10.69 | % | | $ | 52 | | |
(continued on following page)
(continued from previous page)
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| Primary modification type (1) | | Financial effects of modifications | |
($ 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, 2022 | | | | | | | | | | | | | | |
Commercial: | | | | | | | | | | | | | | |
Commercial and industrial | $ | 7 | | | 18 | | | 224 | | | 249 | | | — | | | 9.76 | % | | $ | 18 | | |
Real estate mortgage | — | | | 11 | | | 101 | | | 112 | | | — | | | 0.94 | | | 11 | | |
Real estate construction | — | | | — | | | 1 | | | 1 | | | — | | | — | | | — | | |
Lease financing | — | | | — | | | 1 | | | 1 | | | — | | | — | | | — | | |
Total commercial | 7 | | | 29 | | | 327 | | | 363 | | | — | | | 6.47 | | | 29 | | |
Consumer: | | | | | | | | | | | | | | |
Residential mortgage – first lien | 1 | | | 238 | | | 950 | | | 1,189 | | | 3 | | | 1.43 | | | 238 | | |
Residential mortgage – junior lien | — | | | 54 | | | 68 | | | 122 | | | 1 | | | 2.36 | | | 54 | | |
Credit card | — | | | 215 | | | — | | | 215 | | | — | | | 19.66 | | | 215 | | |
Auto | 1 | | | 6 | | | 56 | | | 63 | | | 13 | | | 4.44 | | | 6 | | |
Other consumer | — | | | 13 | | | 2 | | | 15 | | | 1 | | | 11.37 | | | 12 | | |
Trial modifications (5) | — | | | — | | | 252 | | | 252 | | | — | | | — | | | — | | |
Total consumer | 2 | | | 526 | | | 1,328 | | | 1,856 | | | 18 | | | 9.27 | | | 525 | | |
Total | $ | 9 | | | 555 | | | 1,655 | | | 2,219 | | | 18 | | | 9.12 | % | | $ | 554 | | |
Nine months ended September 30, 2021 | | | | | | | | | | | | | | |
Commercial: | | | | | | | | | | | | | | |
Commercial and industrial | $ | 2 | | | 8 | | | 752 | | | 762 | | | 20 | | | 0.74 | % | | $ | 8 | | |
Real estate mortgage | 41 | | | 11 | | | 212 | | | 264 | | | — | | | 1.48 | | | 11 | | |
Real estate construction | — | | | — | | | 3 | | | 3 | | | — | | | — | | | — | | |
Lease financing | — | | | — | | | 7 | | | 7 | | | — | | | — | | | — | | |
Total commercial | 43 | | | 19 | | | 974 | | | 1,036 | | | 20 | | | 1.17 | | | 19 | | |
Consumer: | | | | | | | | | | | | | | |
Residential mortgage – first lien | — | | | 26 | | | 1,089 | | | 1,115 | | | 1 | | | 1.60 | | | 26 | | |
Residential mortgage – junior lien | — | | | 10 | | | 29 | | | 39 | | | 1 | | | 2.71 | | | 10 | | |
Credit card | — | | | 81 | | | — | | | 81 | | | — | | | 19.01 | | | 81 | | |
Auto | 1 | | | 3 | | | 109 | | | 113 | | | 46 | | | 3.94 | | | 3 | | |
Other consumer | — | | | 15 | | | 1 | | | 16 | | | — | | | 11.99 | | | 15 | | |
Trial modifications (5) | — | | | — | | | 4 | | | 4 | | | — | | | — | | | — | | |
Total consumer | 1 | | | 135 | | | 1,232 | | | 1,368 | | | 48 | | | 13.31 | | | 135 | | |
Total | $ | 44 | | | 154 | | | 2,206 | | | 2,404 | | | 68 | | | 11.76 | % | | $ | 154 | | |
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(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 $105 million and $188 million for the quarters ended September 30, 2022 and 2021, respectively, and $355 million and $646 million for the first nine months of 2022 and 2021, respectively.
(2)Other concessions include loans with payment (principal and/or interest) deferral, loans discharged in bankruptcy, loan renewals, term extensions and other interest and noninterest adjustments, but exclude modifications that also forgive principal and/or reduce the contractual interest rate. The reported amounts include loans that are new TDRs that may have COVID-related payment deferrals and exclude COVID-related payment deferrals on loans previously reported as TDRs given limited current financial effects other than 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.
(4)Recorded investment related to interest rate reduction reflects the effect of reduced interest rates on loans with an interest rate concession as one of their concession types, which includes loans reported as a principal primary modification type that also have an interest rate concession.
(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.
Note 4: Loans and Related Allowance for Credit Losses (continued)
Table 4.15 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 4.15:Defaulted TDRs
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Recorded investment of defaults | | |
| Quarter ended September 30, | | Nine months ended September 30, | | |
(in millions) | 2022 | | 2021 | | 2022 | | 2021 | | | | | | | |
Commercial: | | | | | | | | | | | | | | |
Commercial and industrial | $ | 1 | | | 4 | | | $ | 53 | | | 129 | | | | | | | | |
Real estate mortgage | 3 | | | 2 | | | 13 | | | 27 | | | | | | | | |
Real estate construction | — | | | — | | | — | | | — | | | | | | | | |
Lease financing | — | | | — | | | — | | | 1 | | | | | | | | |
Total commercial | 4 | | | 6 | | | 66 | | | 157 | | | | | | | | |
Consumer: | | | | | | | | | | | | | | |
Residential mortgage – first lien | 32 | | | 4 | | | 88 | | | 9 | | | | | | | | |
Residential mortgage – junior lien | 4 | | | — | | | 6 | | | 1 | | | | | | | | |
Credit card | 12 | | | 5 | | | 25 | | | 21 | | | | | | | | |
Auto | 4 | | | 11 | | | 17 | | | 34 | | | | | | | | |
Other consumer | — | | | 1 | | | 1 | | | 2 | | | | | | | | |
Total consumer | 52 | | | 21 | | | 137 | | | 67 | | | | | | | | |
Total | $ | 56 | | | 27 | | | $ | 203 | | | 224 | | | | | | | | |
The information below provides a summary of our leasing activities as a lessor and lessee. See Note 5 (Leasing Activity) in our 2021 Form 10-K for additional information about our leasing activities.
As a Lessor
Noninterest income on leases, included in Table 5.1, 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 $186 million and $220 million for the third quarter of 2022 and 2021, respectively, and $559 million and $672 million for the first nine months of 2022 and 2021, respectively.
Table 5.1:Leasing Revenue
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended September 30, | | Nine months ended September 30, | | |
(in millions) | 2022 | | 2021 | | 2022 | | 2021 | | |
Interest income on lease financing | $ | 134 | | | 169 | | | $ | 438 | | | 522 | | | |
Other lease revenue: | | | | | | | | | |
Variable revenue on lease financing | 28 | | | 25 | | | 85 | | | 76 | | | |
Fixed revenue on operating leases | 243 | | | 244 | | | 730 | | | 758 | | | |
Variable revenue on operating leases | 17 | | | 14 | | | 46 | | | 50 | | | |
Other lease-related revenue (1) | 34 | | | 39 | | | 121 | | | 66 | | | |
Noninterest income on leases | 322 | | | 322 | | | 982 | | | 950 | | | |
Total leasing revenue | $ | 456 | | | 491 | | | $ | 1,420 | | | 1,472 | | | |
(1)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 5.2 presents balances for our operating leases.
Table 5.2:Operating Lease Right-of-Use (ROU) Assets and Lease Liabilities | | | | | | | | |
(in millions) | Sep 30, 2022 | Dec 31, 2021 |
ROU assets | $ | 3,804 | | 3,805 | |
Lease liabilities | 4,423 | | 4,476 | |
Table 5.3 provides the composition of our lease costs, which are predominantly included in net occupancy expense.
Table 5.3:Lease Costs
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended September 30, | | Nine months ended September 30, | | |
(in millions) | 2022 | | 2021 | | 2022 | | 2021 | | |
Fixed lease expense – operating leases | $ | 263 | | | 262 | | | $ | 769 | | | 792 | | | |
Variable lease expense | 67 | | | 72 | | | 210 | | | 219 | | | |
Other (1) | (7) | | | (15) | | | (25) | | | (46) | | | |
Total lease costs | $ | 323 | | | 319 | | | $ | 954 | | | 965 | | | |
(1)Predominantly includes gains recognized from sale leaseback transactions and sublease rental income.
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Note 6: Equity Securities
|
Table 6.14.1 provides a summary of our equity securities by business purpose and accounting method.
Table 6.1:4.1: Equity Securities
| (in millions) | (in millions) | Sep 30, 2022 | | Dec 31, 2021 | (in millions) | Jun 30, 2023 | | Dec 31, 2022 |
Held for trading at fair value: | Held for trading at fair value: | | Held for trading at fair value: | |
Marketable equity securities (1) | Marketable equity securities (1) | $ | 14,791 | | | 27,476 | | Marketable equity securities (1) | $ | 19,253 | | | 17,180 | |
Nonmarketable equity securities (3)(1) | Nonmarketable equity securities (3)(1) | 8,320 | | | — | | Nonmarketable equity securities (3)(1) | 11,074 | | | 9,730 | |
Total equity securities held for trading(2) | Total equity securities held for trading(2) | 23,111 | | | 27,476 | | Total equity securities held for trading(2) | 30,327 | | | 26,910 | |
Not held for trading: | Not held for trading: | | Not held for trading: | |
Fair value: | Fair value: | | Fair value: | |
Marketable equity securities | Marketable equity securities | 1,526 | | | 2,578 | | Marketable equity securities | 1,259 | | | 1,436 | |
Nonmarketable equity securities (2) | Nonmarketable equity securities (2) | 61 | | | 9,044 | | Nonmarketable equity securities (2) | 23 | | | 37 | |
Total equity securities not held for trading at fair value | Total equity securities not held for trading at fair value | 1,587 | | | 11,622 | | Total equity securities not held for trading at fair value | 1,282 | | | 1,473 | |
Equity method: | Equity method: | | Equity method: | |
Private equity | Private equity | 2,790 | | | 3,077 | | Private equity | 3,144 | | | 2,836 | |
Tax-advantaged renewable energy(3) | Tax-advantaged renewable energy(3) | 5,258 | | | 4,740 | | Tax-advantaged renewable energy(3) | 6,133 | | | 6,535 | |
New market tax credit and other | New market tax credit and other | 305 | | | 379 | | New market tax credit and other | 300 | | | 298 | |
Total equity method | Total equity method | 8,353 | | | 8,196 | | Total equity method | 9,577 | | | 9,669 | |
Other methods: | Other methods: | | Other methods: | |
Low-income housing tax credit investments (LIHTC) | 12,172 | | | 12,314 | | |
Low-income housing tax credit (LIHTC) investments (3) | | Low-income housing tax credit (LIHTC) investments (3) | 12,821 | | | 12,186 | |
Private equity (4) | Private equity (4) | 10,036 | | | 9,694 | | Private equity (4) | 8,912 | | | 9,276 | |
Federal Reserve Bank stock and other at cost (5) | Federal Reserve Bank stock and other at cost (5) | 4,301 | | | 3,584 | | Federal Reserve Bank stock and other at cost (5) | 4,552 | | | 4,900 | |
Total equity securities not held for trading | Total equity securities not held for trading | 36,449 | | | 45,410 | | Total equity securities not held for trading | 37,144 | | | 37,504 | |
Total equity securities | Total equity securities | $ | 59,560 | | | 72,886 | | Total equity securities | $ | 67,471 | | | 64,414 | |
(1)Represents securities economically hedged with equity derivatives.
(2)Represents securities held as part of our customer accommodation trading activities. For additional information on these activities, see Note 2 (Trading Activities).
(2) In first quarter 2022, we prospectively reclassified certain equity securities(3)See Note 13 (Securitizations and related economic hedge derivatives from “not heldVariable Interest Entities) for trading activities” to “held for trading activities” to better reflect the business activity of those financial instruments. For additional information on Trading Activities, see Note 1 (Summary of Significant Accounting Policies) in our 2021 Form 10-K.about tax credit investments.
(3) Represents securities economically hedged with equity derivatives.
(4)Represents nonmarketable equity securities accounted for under the measurement alternative, which were predominantly securities associated with our affiliated venture capital business.
(5) Substantially all relates toIncludes $3.5 billion of investments in Federal Reserve Bank stock at both SeptemberJune 30, 2022,2023, and December 31, 2021.2022, and $1.0 billion and $1.4 billion of investments in Federal Home Loan Bank stock at June 30, 2023, and December 31, 2022, respectively.
Net Gains and Losses Not Held for Trading
Table 6.24.2 provides a summary of the net gains and losses from equity securities not held for 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 from trading and securities.
Table 6.2:4.2: Net Gains (Losses) from Equity Securities Not Held for Trading
| | | | Quarter ended September 30, | | Nine months ended September 30, | | | Quarter ended June 30, | | Six months ended June 30, |
(in millions) | (in millions) | 2022 | | 2021 | | 2022 | | 2021 | | (in millions) | 2023 | | 2022 | | 2023 | | 2022 | |
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 | $ | (22) | | | (157) | | | $ | (250) | | | (23) | | | Marketable equity securities | $ | 63 | | | (226) | | | $ | 26 | | | (228) | | |
Nonmarketable equity securities (1) | Nonmarketable equity securities (1) | (35) | | | (522) | | | (73) | | | 13 | | | Nonmarketable equity securities (1) | (15) | | | (16) | | | (16) | | | (38) | | |
Total equity securities carried at fair value | Total equity securities carried at fair value | (57) | | | (679) | | | (323) | | | (10) | | | Total equity securities carried at fair value | 48 | | | (242) | | | 10 | | | (266) | | |
Net gains (losses) from nonmarketable equity securities not carried at fair value (2): | | | |
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 | (389) | | | (23) | | | (1,403) | | | (80) | | | Impairment write-downs | (175) | | | (576) | | | (665) | | | (1,014) | | |
Net unrealized gains (3) | 82 | | | 816 | | | 916 | | | 3,078 | | | |
Net unrealized gains (losses) (2) | | Net unrealized gains (losses) (2) | (12) | | | 144 | | | 139 | | | 834 | | |
Net realized gains from sale | Net realized gains from sale | 330 | | | 191 | | | 737 | | | 742 | | | Net realized gains from sale | 45 | | | 59 | | | 65 | | | 407 | | |
| Total nonmarketable equity securities not carried at fair value | Total nonmarketable equity securities not carried at fair value | 23 | | | 984 | | | 250 | | | 3,740 | | | Total nonmarketable equity securities not carried at fair value | (142) | | | (373) | | | (461) | | | 227 | | |
Net gains (losses) from economic hedge derivatives (1) | — | | | 564 | | | — | | | 227 | | | |
Total net gains (losses) from equity securities not held for trading | $ | (34) | | | 869 | | | $ | (73) | | | 3,957 | | | |
| Total net losses from equity securities not held for trading | | Total net losses from equity securities not held for trading | $ | (94) | | | (615) | | | $ | (451) | | | (39) | | |
(1)In first quarter 2022, we prospectively reclassified certain equity securities and related economic hedge derivatives from “not held for trading activities” to “held for trading activities” to better reflect the business activity of those financial instruments. For additional information on Trading Activities, see Note 1 (Summary of Significant Accounting Policies) in our 2021 Form 10-K.
(2)Includes amounts related to private equity and venture capital investments in consolidated portfolio companies, which are not reported in equity securities on our consolidated balance sheet.
(3)(2)Includes unrealized gains (losses) due to observable price changes from equity securities accounted for under the measurement alternative.
| | | | | | | | |
92 | Wells Fargo & Company | 75 |
Note 4: Equity Securities (continued)
Measurement Alternative
Table 6.34.3 provides additional information about the impairment write-downs and observable price changes from nonmarketable
equity securities accounted for under the measurement alternative. Gains and losses related to these adjustments are also included in Table 6.2.4.2.
Table 6.3:4.3: Net Gains (Losses) from Measurement Alternative Equity Securities
| | | | Quarter ended September 30, | | Nine months ended September 30, | | | Quarter ended June 30, | | Six months ended June 30, |
(in millions) | (in millions) | 2022 | | 2021 | | 2022 | | 2021 | | (in millions) | 2023 | | 2022 | | 2023 | | 2022 | |
Net gains (losses) recognized in earnings during the period: | Net gains (losses) recognized in earnings during the period: | | | Net gains (losses) recognized in earnings during the period: | | |
Gross unrealized gains from observable price changes | Gross unrealized gains from observable price changes | $ | 82 | | | 816 | | | $ | 916 | | | 3,078 | | | Gross unrealized gains from observable price changes | $ | 7 | | | 144 | | | $ | 168 | | | 834 | | |
| Gross unrealized losses from observable price changes | | Gross unrealized losses from observable price changes | (19) | | | — | | | (29) | | | — | | |
Impairment write-downs | Impairment write-downs | (270) | | | (19) | | | (1,214) | | | (69) | | | Impairment write-downs | (172) | | | (549) | | | (654) | | | (944) | | |
Net realized gains from sale | Net realized gains from sale | 12 | | | 1 | | | 90 | | | 196 | | | Net realized gains from sale | 24 | | | 45 | | | 36 | | | 78 | | |
Total net gains (losses) recognized during the period | $ | (176) | | | $ | 798 | | | $ | (208) | | | 3,205 | | | |
Total net losses recognized during the period | | Total net losses recognized during the period | $ | (160) | | | $ | (360) | | | $ | (479) | | | (32) | | |
Table 6.44.4 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 6.4:4.4: Measurement Alternative Cumulative Gains (Losses)
| | (in millions) | (in millions) | Sep 30, 2022 | | Dec 31, 2021 | | (in millions) | Jun 30, 2023 | | Dec 31, 2022 | |
| Cumulative gains (losses): | Cumulative gains (losses): | | | Cumulative gains (losses): | | |
Gross unrealized gains from observable price changes | Gross unrealized gains from observable price changes | $ | 7,075 | | | 6,278 | | | Gross unrealized gains from observable price changes | $ | 7,225 | | | 7,141 | | |
Gross unrealized losses from observable price changes | Gross unrealized losses from observable price changes | (1) | | | (3) | | | Gross unrealized losses from observable price changes | (44) | | | (14) | | |
Impairment write-downs | Impairment write-downs | (1,922) | | | (821) | | | Impairment write-downs | (3,435) | | | (2,896) | | |
| | |
Note 5: Loans and Related Allowance for Credit Losses |
Table 5.1 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 both June 30, 2023, and December 31, 2022.
Outstanding balances exclude accrued interest receivable on loans, except for certain revolving loans, such as credit card loans.
See Note 7 (Intangible Assets and Other Assets) for additional information on accrued interest receivable. Amounts considered to be uncollectible are reversed through interest income. During the first half of 2023, we reversed accrued interest receivable of $19 million for our commercial portfolio segment and $118 million for our consumer portfolio segment, compared with $20 million and $65 million, respectively, for the same period a year ago.
Table 5.1:Loans Outstanding
| | | | | | | | | | | | | | | | | |
(in millions) | Jun 30, 2023 | | Dec 31, 2022 | | | | | | |
| | | | | | | | | |
| |
| | | | | | | | | |
Commercial and industrial | $ | 386,011 | | | 386,806 | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Commercial real estate | 154,276 | | | 155,802 | | | | | | | |
Lease financing | 15,334 | | | 14,908 | | | | | | | |
Total commercial | 555,621 | | | 557,516 | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Residential mortgage | 265,085 | | | 269,117 | | | | | | | |
Credit card | 47,717 | | | 46,293 | | | | | | | |
Auto | 51,587 | | | 53,669 | | | | | | | |
Other consumer | 27,950 | | | 29,276 | | | | | | | |
Total consumer | 392,339 | | | 398,355 | | | | | | | |
Total loans | $ | 947,960 | | | 955,871 | | | | | | | |
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 5.2 presents
total non-U.S. commercial loans outstanding by class of financing receivable.
Table 5.2:Non-U.S. Commercial Loans Outstanding
| | | | | | | | | | | |
(in millions) | Jun 30, 2023 | | Dec 31, 2022 |
| | | |
| | | |
| |
| | | |
Commercial and industrial | $ | 75,081 | | | 78,981 | |
| | | |
| | | |
Commercial real estate | 7,539 | | | 7,619 | |
Lease financing | 710 | | | 670 | |
Total non-U.S. commercial loans | $ | 83,330 | | | 87,270 | |
Note 5: Loans and Related Allowance for Credit Losses (continued)
Loan Purchases, Sales, and Transfers
Table 5.3 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 5.3:Loan Purchases, Sales, and Transfers
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| 2023 | | 2022 |
(in millions) | Commercial | | Consumer | | Total | | Commercial | | Consumer | | Total |
Quarter ended June 30, | | | | | | | | | | | |
Purchases | $ | 195 | | | 301 | | | 496 | | | 276 | | | 2 | | | 278 | |
Sales and net transfers (to)/from LHFS | (568) | | | (99) | | | (667) | | | (751) | | | (14) | | | (765) | |
Six months ended June 30, | | | | | | | | | | | |
Purchases | $ | 611 | | | 304 | | | 915 | | | 376 | | | 2 | | | 378 | |
Sales and net transfers (to)/from LHFS | (1,683) | | | (100) | | | (1,783) | | | (1,312) | | | (23) | | | (1,335) | |
Unfunded Credit Commitments
Unfunded credit commitments are legally binding agreements to lend to customers with terms covering usage of funds, contractual interest rates, expiration dates, and any required collateral. Our commercial lending commitments include, but are not limited to, (i) commitments for working capital and general corporate purposes, (ii) financing to customers who warehouse financial assets secured by real estate, consumer, or corporate loans, (iii) financing that is expected to be syndicated or replaced with other forms of long-term financing, and (iv) commercial real estate lending. We also originate multipurpose lending commitments under which commercial customers have the option to draw on the facility in one of several forms, including the issuance of letters of credit, which reduces the unfunded commitment amounts of the facility.
The maximum credit risk for these commitments will generally be lower than the contractual amount because these commitments may expire without being used or may be cancelled at the customer’s request. We may reduce or cancel lines of credit in accordance with the contracts and applicable law. Our credit risk monitoring activities include managing the amount of commitments, both to individual customers and in total, and the size and maturity structure of these commitments. We do not recognize an ACL for commitments that are unconditionally cancellable at our discretion.
We issue commercial letters of credit to assist customers in purchasing goods or services, typically for international trade. At June 30, 2023, and December 31, 2022, we had $1.2 billion and $1.8 billion, respectively, of outstanding issued commercial letters of credit. See Note 14 (Guarantees and Other Commitments) for additional information on issued standby letters of credit.
We may be a fronting bank, whereby we act as a representative for other lenders, and 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 contractual amount of our unfunded credit commitments, including unissued letters of credit, is summarized in Table 5.4. The table is presented net of commitments syndicated to others, including the fronting arrangements described above, and excludes issued letters of credit and discretionary amounts where our approval or consent is required prior to any loan funding or commitment increase.
Table 5.4:Unfunded Credit Commitments
| | | | | | | | | | | |
(in millions) | Jun 30, 2023 | | Dec 31, 2022 |
Commercial and industrial (1) | $ | 385,949 | | | 388,504 | |
| | | |
| | | |
Commercial real estate | 25,348 | | | 29,518 | |
| | | |
Total commercial | 411,297 | | | 418,022 | |
| | | |
| | | |
Residential mortgage (2) | 34,668 | | | 39,155 | |
Credit card | 157,271 | | | 145,526 | |
Other consumer (3) | 78,032 | | | 69,244 | |
Total consumer | 269,971 | | | 253,925 | |
Total unfunded credit commitments | $ | 681,268 | | | 671,947 | |
(1)Effective first quarter 2023, unfunded credit commitments exclude discretionary amounts where our approval or consent is required prior to any loan funding or commitment increase. Prior period balances have been revised to conform with the current period presentation.
(2)Includes lines of credit totaling $31.9 billion and $35.5 billion as of June 30, 2023, and December 31, 2022, respectively.
(3)Predominantly includes securities-based lines of credit.
Allowance for Credit Losses
Table 5.5 presents the allowance for credit losses (ACL) for loans, which consists of the allowance for loan losses and the allowance for unfunded credit commitments. The ACL for loans increased $1.2 billion from December 31, 2022, reflecting increases for
commercial real estate loans, primarily office loans, as well as for increases in credit card loan balances, partially offset by a decrease for residential mortgage loans related to the adoption of ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.
Table 5.5:Allowance for Credit Losses for Loans
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended June 30, | | Six months ended June 30, | | |
($ in millions) | 2023 | | 2022 | | 2023 | | 2022 | | | | |
Balance, beginning of period | $ | 13,705 | | | 12,681 | | | $ | 13,609 | | | 13,788 | | | | | |
Cumulative effect from change in accounting policy (1) | — | | | — | | | (429) | | | — | | | | | |
Balance, beginning of period, adjusted | 13,705 | | | 12,681 | | | 13,180 | | | 13,788 | | | | | |
Provision for credit losses | 1,839 | | | 578 | | | 2,968 | | | (197) | | | | | |
Interest income on certain loans (2) | — | | | (27) | | | — | | | (56) | | | | | |
Loan charge-offs: | | | | | | | | | | | |
Commercial and industrial | (147) | | | (68) | | | (248) | | | (124) | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Commercial real estate | (81) | | | (3) | | | (108) | | | (3) | | | | | |
Lease financing | (6) | | | (5) | | | (13) | | | (9) | | | | | |
Total commercial | (234) | | | (76) | | | (369) | | | (136) | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Residential mortgage | (32) | | | (46) | | | (60) | | | (93) | | | | | |
Credit card | (480) | | | (287) | | | (904) | | | (554) | | | | | |
Auto | (183) | | | (151) | | | (400) | | | (316) | | | | | |
Other consumer | (110) | | | (94) | | | (215) | | | (202) | | | | | |
Total consumer | (805) | | | (578) | | | (1,579) | | | (1,165) | | | | | |
Total loan charge-offs | (1,039) | | | (654) | | | (1,948) | | | (1,301) | | | | | |
Loan recoveries: | | | | | | | | | | | |
Commercial and industrial | 28 | | | 41 | | | 86 | | | 120 | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Commercial real estate | 2 | | | 7 | | | 12 | | | 12 | | | | | |
Lease financing | 4 | | | 5 | | | 8 | | | 10 | | | | | |
Total commercial | 34 | | | 53 | | | 106 | | | 142 | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Residential mortgage | 44 | | | 62 | | | 83 | | | 130 | | | | | |
Credit card | 84 | | | 88 | | | 164 | | | 179 | | | | | |
Auto | 94 | | | 83 | | | 190 | | | 152 | | | | | |
Other consumer | 19 | | | 24 | | | 37 | | | 49 | | | | | |
Total consumer | 241 | | | 257 | | | 474 | | | 510 | | | | | |
Total loan recoveries | 275 | | | 310 | | | 580 | | | 652 | | | | | |
Net loan charge-offs | (764) | | | (344) | | | (1,368) | | | (649) | | | | | |
Other | 6 | | | (4) | | | 6 | | | (2) | | | | | |
Balance, end of period | $ | 14,786 | | | 12,884 | | | $ | 14,786 | | | 12,884 | | | | | |
Components: | | | | | | | | | | | |
Allowance for loan losses | $ | 14,258 | | | 11,786 | | | $ | 14,258 | | | 11,786 | | | | | |
Allowance for unfunded credit commitments | 528 | | | 1,098 | | | 528 | | | 1,098 | | | | | |
Allowance for credit losses | $ | 14,786 | | | 12,884 | | | $ | 14,786 | | | 12,884 | | | | | |
| | | | | | | | | | | |
Net loan charge-offs (annualized) as a percentage of average total loans | 0.32 | % | | 0.15 | | | 0.29 | % | | 0.14 | | | | | |
Allowance for loan losses as a percentage of total loans | 1.50 | | | 1.25 | | | 1.50 | | | 1.25 | | | | | |
Allowance for credit losses for loans as a percentage of total loans | 1.56 | | | 1.37 | | | 1.56 | | | 1.37 | | | | | |
(1)Represents the change in our allowance for credit losses for loans as a result of our adoption of ASU 2022–02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, on January 1, 2023. For additional information, see Note 1 (Summary of Significant Accounting Policies).
(2)Prior to the adoption of ASU 2022–02, loans with an allowance measured by discounting expected cash flows using the loan’s effective interest rate over the remaining life of the loan recognized changes in allowance attributable to the passage of time as interest income.
Note 5: Loans and Related Allowance for Credit Losses (continued)
Table 5.6 summarizes the activity in the ACL by our commercial and consumer portfolio segments.
Table 5.6:Allowance for Credit Losses for Loans Activity by Portfolio Segment
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| 2023 | | 2022 |
(in millions) | Commercial | | Consumer | | Total | | Commercial | | Consumer | | Total |
Quarter ended June 30, | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Balance, beginning of period | $ | 7,224 | | | 6,481 | | | 13,705 | | | 7,148 | | | 5,533 | | | 12,681 | |
Provision for credit losses | 1,056 | | | 783 | | | 1,839 | | | (32) | | | 610 | | | 578 | |
Interest income on certain loans (2) | — | | | — | | | — | | | (7) | | | (20) | | | (27) | |
Loan charge-offs | (234) | | | (805) | | | (1,039) | | | (76) | | | (578) | | | (654) | |
Loan recoveries | 34 | | | 241 | | | 275 | | | 53 | | | 257 | | | 310 | |
Net loan charge-offs | (200) | | | (564) | | | (764) | | | (23) | | | (321) | | | (344) | |
Other | 1 | | | 5 | | | 6 | | | (4) | | | — | | | (4) | |
Balance, end of period | $ | 8,081 | | | 6,705 | | | 14,786 | | | 7,082 | | | 5,802 | | | 12,884 | |
Six months ended June 30, | | | | | | | | | | | |
Balance, beginning of period | $ | 6,956 | | | 6,653 | | | 13,609 | | | 7,791 | | | 5,997 | | | 13,788 | |
Cumulative effect from change in accounting policy (1) | 27 | | | (456) | | | (429) | | | — | | | — | | | — | |
Balance, beginning of period, adjusted | 6,983 | | | 6,197 | | | 13,180 | | | 7,791 | | | 5,997 | | | 13,788 | |
Provision for credit losses | 1,360 | | | 1,608 | | | 2,968 | | | (697) | | | 500 | | | (197) | |
Interest income on certain loans (2) | — | | | — | | | — | | | (16) | | | (40) | | | (56) | |
Loan charge-offs | (369) | | | (1,579) | | | (1,948) | | | (136) | | | (1,165) | | | (1,301) | |
Loan recoveries | 106 | | | 474 | | | 580 | | | 142 | | | 510 | | | 652 | |
Net loan charge-offs | (263) | | | (1,105) | | | (1,368) | | | 6 | | | (655) | | | (649) | |
Other | 1 | | | 5 | | | 6 | | | (2) | | | — | | | (2) | |
Balance, end of period | $ | 8,081 | | | 6,705 | | | 14,786 | | | 7,082 | | | 5,802 | | | 12,884 | |
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(1)Represents the change in our allowance for credit losses for loans as a result of our adoption of ASU 2022–02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, on January 1, 2023. For additional information, see Note 1 (Summary of Significant Accounting Policies).
(2)Prior to the adoption of ASU 2022–02, loans with an allowance measured by discounting expected cash flows using the loan’s effective interest rate over the remaining life of the loan recognized changes in allowance attributable to the passage of time as interest income.
Credit Quality
We monitor credit quality by evaluating various attributes and utilize such information in our evaluation of the appropriateness of the ACL for 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.
COMMERCIAL CREDIT QUALITY INDICATORS We manage a consistent process for assessing commercial loan credit quality. 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 regulatory definitions of pass and criticized categories with the criticized segmented among special mention, substandard, doubtful and loss categories.
Table 5.7 provides the outstanding balances of our commercial loan portfolio by risk category and credit quality information by origination year 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 for a borrower experiencing financial difficulty. At June 30, 2023, we had $526.6 billion and $29.0 billion of pass and criticized commercial loans, respectively. Gross charge-offs by loan class are included in the following table for the six months ended June 30, 2023, which we monitor as part of our credit risk management practices; however, charge-offs are not a primary credit quality indicator for our loan portfolio.
Table 5.7:Commercial Loan Categories by Risk Categories and Vintage
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| Term loans by origination year | | Revolving loans | | Revolving loans converted to term loans | | Total |
(in millions) | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | |
June 30, 2023 | | | | | | | | | | | | | | | | | |
Commercial and industrial | | | | | | | | | | | | | | | | | |
Pass | $ | 23,104 | | | 46,411 | | | 26,818 | | | 9,572 | | | 13,184 | | | 6,280 | | | 248,358 | | | 442 | | | 374,169 | |
Criticized | 475 | | | 932 | | | 1,347 | | | 599 | | | 337 | | | 793 | | | 7,359 | | | — | | | 11,842 | |
Total commercial and industrial | 23,579 | | | 47,343 | | | 28,165 | | | 10,171 | | | 13,521 | | | 7,073 | | | 255,717 | | | 442 | | | 386,011 | |
Gross charge-offs (1) | 46 | | | 14 | | | 19 | | | 3 | | | 5 | | | 3 | | | 158 | | | — | | | 248 | |
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Commercial real estate | | | | | | | | | | | | | | | | | |
Pass | 8,771 | | | 36,283 | | | 36,258 | | | 14,186 | | | 14,228 | | | 22,240 | | | 6,103 | | | 224 | | | 138,293 | |
Criticized | 1,298 | | | 3,223 | | | 3,773 | | | 1,623 | | | 2,672 | | | 3,056 | | | 338 | | | — | | | 15,983 | |
Total commercial real estate | 10,069 | | | 39,506 | | | 40,031 | | | 15,809 | | | 16,900 | | | 25,296 | | | 6,441 | | | 224 | | | 154,276 | |
Gross charge-offs | — | | | 32 | | | — | | | — | | | 36 | | | 40 | | | — | | | — | | | 108 | |
Lease financing | | | | | | | | | | | | | | | | | |
Pass | 2,439 | | | 4,390 | | | 2,851 | | | 1,523 | | | 1,071 | | | 1,878 | | | — | | | — | | | 14,152 | |
Criticized | 172 | | | 335 | | | 252 | | | 174 | | | 138 | | | 111 | | | — | | | — | | | 1,182 | |
Total lease financing | 2,611 | | | 4,725 | | | 3,103 | | | 1,697 | | | 1,209 | | | 1,989 | | | — | | | — | | | 15,334 | |
Gross charge-offs | — | | | 3 | | | 4 | | | 3 | | | 2 | | | 1 | | | — | | | — | | | 13 | |
Total commercial loans | $ | 36,259 | | | 91,574 | | | 71,299 | | | 27,677 | | | 31,630 | | | 34,358 | | | 262,158 | | | 666 | | | 555,621 | |
| Term loans by origination year | | Revolving loans | | Revolving loans converted to term loans | | Total |
| 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | |
December 31, 2022 | | | | | | | | | | | | | | | | | |
Commercial and industrial | | | | | | | | | | | | | | | | | |
Pass | $ | 61,646 | | | 31,376 | | | 11,128 | | | 13,656 | | | 3,285 | | | 5,739 | | | 247,594 | | | 842 | | | 375,266 | |
Criticized | 872 | | | 1,244 | | | 478 | | | 505 | | | 665 | | | 532 | | | 7,244 | | | — | | | 11,540 | |
Total commercial and industrial | 62,518 | | | 32,620 | | | 11,606 | | | 14,161 | | | 3,950 | | | 6,271 | | | 254,838 | | | 842 | | | 386,806 | |
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Commercial real estate | | | | | | | | | | | | | | | | | |
Pass | 38,022 | | | 38,709 | | | 16,564 | | | 16,409 | | | 10,587 | | | 16,159 | | | 6,765 | | | 150 | | | 143,365 | |
Criticized | 2,785 | | | 2,794 | | | 965 | | | 2,958 | | | 1,088 | | | 1,688 | | | 159 | | | — | | | 12,437 | |
Total commercial real estate | 40,807 | | | 41,503 | | | 17,529 | | | 19,367 | | | 11,675 | | | 17,847 | | | 6,924 | | | 150 | | | 155,802 | |
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Lease financing | | | | | | | | | | | | | | | | | |
Pass | 4,543 | | | 3,336 | | | 1,990 | | | 1,427 | | | 765 | | | 1,752 | | | — | | | — | | | 13,813 | |
Criticized | 330 | | | 275 | | | 190 | | | 169 | | | 94 | | | 37 | | | — | | | — | | | 1,095 | |
Total lease financing | 4,873 | | | 3,611 | | | 2,180 | | | 1,596 | | | 859 | | | 1,789 | | | — | | | — | | | 14,908 | |
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Total commercial loans | $ | 108,198 | | | 77,734 | | | 31,315 | | | 35,124 | | | 16,484 | | | 25,907 | | | 261,762 | | | 992 | | | 557,516 | |
(1) Includes charge-offs on overdrafts, which are generally charged-off at 60 days past due.
Note 5: Loans and Related Allowance for Credit Losses (continued)
Table 5.8 provides days past due (DPD) 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.
Table 5.8:Commercial Loan Categories by Delinquency Status
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| Still accruing | | Nonaccrual loans | | Total commercial loans |
(in millions) | Current-29 DPD | | 30-89 DPD | | 90+ DPD | | |
June 30, 2023 | | | | | | | | | |
Commercial and industrial | $ | 384,568 | | | 489 | | | 109 | | | 845 | | | 386,011 | |
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Commercial real estate | 151,314 | | | 446 | | | 9 | | | 2,507 | | | 154,276 | |
Lease financing | 15,118 | | | 139 | | | — | | | 77 | | | 15,334 | |
Total commercial loans | $ | 551,000 | | | 1,074 | | | 118 | | | 3,429 | | | 555,621 | |
December 31, 2022 | | | | | | | | | |
Commercial and industrial | $ | 384,164 | | | 1,313 | | | 583 | | | 746 | | | 386,806 | |
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Commercial real estate | 153,877 | | | 833 | | | 134 | | | 958 | | | 155,802 | |
Lease financing | 14,623 | | | 166 | | | — | | | 119 | | | 14,908 | |
Total commercial loans | $ | 552,664 | | | 2,312 | | | 717 | | | 1,823 | | | 557,516 | |
CONSUMER CREDIT QUALITY INDICATORSWe have various classes of consumer loans that present unique credit risks. Loan delinquency, Fair Isaac Corporation (FICO) credit scores and loan-to-value (LTV) for residential mortgage loans are the primary credit quality indicators that we monitor and utilize in our evaluation of the appropriateness of the ACL for the consumer loan portfolio segment. Gross charge-offs by loan class are included in the following tables for the six months ended June 30, 2023, which we monitor as part of our credit risk management practices; however, charge-offs are not a primary credit quality indicator for our loan portfolio.
Many of our loss estimation techniques used for the ACL for loans rely on delinquency-based models; therefore, delinquency is an important indicator of credit quality in the establishment of our ACL for consumer loans. Credit quality information is provided with the year of origination for term loans. Revolving loans may convert to term loans as a result of a contractual provision in the original loan agreement or if modified for a borrower experiencing financial difficulty.
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). 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.
Table 5.9 provides the outstanding balances of our residential mortgage loans by our primary credit quality indicators.
LTV refers to the ratio comparing the loan’s outstanding balance to the property’s collateral value. Combined LTV (CLTV) refers to the combination of first lien mortgage and junior lien mortgage (including unused line amounts for credit line products) ratios. We obtain LTVs and CLTVs 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. Generally, we obtain available LTVs and CLTVs on a quarterly basis. Certain loans do not have an LTV or CLTV due to a lack of industry data availability and portfolios acquired from or serviced by other institutions.
Table 5.9:Credit Quality Indicators for Residential Mortgage Loans by Vintage | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Term loans by origination year | | Revolving loans | | Revolving loans converted to term loans | | |
(in millions) | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | | | Total |
June 30, 2023 | | | | | | | | | | | | | | | | | |
By delinquency status: | | | | | | | | | | | | | | | | | |
Current-29 DPD | $ | 7,563 | | | 47,273 | | | 64,124 | | | 36,178 | | | 20,093 | | | 64,105 | | | 9,133 | | | 6,933 | | | 255,402 | |
30-89 DPD | 5 | | | 33 | | | 47 | | | 28 | | | 24 | | | 595 | | | 44 | | | 140 | | | 916 | |
90+ DPD | — | | | 15 | | | 14 | | | 10 | | | 17 | | | 376 | | | 28 | | | 240 | | | 700 | |
Government insured/guaranteed loans (1) | — | | | 13 | | | 52 | | | 110 | | | 128 | | | 7,764 | | | — | | | — | | | 8,067 | |
Total residential mortgage | $ | 7,568 | | | 47,334 | | | 64,237 | | | 36,326 | | | 20,262 | | | 72,840 | | | 9,205 | | | 7,313 | | | 265,085 | |
By FICO: | | | | | | | | | | | | | | | | | |
740+ | $ | 6,986 | | | 43,178 | | | 60,223 | | | 34,287 | | | 18,713 | | | 54,060 | | | 7,235 | | | 4,191 | | | 228,873 | |
700-739 | 461 | | | 2,553 | | | 2,598 | | | 1,254 | | | 845 | | | 4,706 | | | 988 | | | 1,008 | | | 14,413 | |
660-699 | 90 | | | 852 | | | 797 | | | 408 | | | 339 | | | 2,418 | | | 479 | | | 638 | | | 6,021 | |
620-659 | 14 | | | 219 | | | 197 | | | 97 | | | 90 | | | 1,082 | | | 173 | | | 332 | | | 2,204 | |
<620 | 2 | | | 84 | | | 74 | | | 59 | | | 47 | | | 1,206 | | | 189 | | | 452 | | | 2,113 | |
No FICO available | 15 | | | 435 | | | 296 | | | 111 | | | 100 | | | 1,604 | | | 141 | | | 692 | | | 3,394 | |
Government insured/guaranteed loans (1) | — | | | 13 | | | 52 | | | 110 | | | 128 | | | 7,764 | | | — | | | — | | | 8,067 | |
Total residential mortgage | $ | 7,568 | | | 47,334 | | | 64,237 | | | 36,326 | | | 20,262 | | | 72,840 | | | 9,205 | | | 7,313 | | | 265,085 | |
By LTV/CLTV: | | | | | | | | | | | | | | | | | |
0-80% | $ | 7,487 | | | 36,290 | | | 62,637 | | | 35,948 | | | 19,871 | | | 64,653 | | | 9,024 | | | 7,113 | | | 243,023 | |
80.01-100% | 70 | | | 10,770 | | | 1,462 | | | 197 | | | 193 | | | 212 | | | 140 | | | 141 | | | 13,185 | |
>100% (2) | — | | | 177 | | | 28 | | | 11 | | | 13 | | | 32 | | | 25 | | | 30 | | | 316 | |
No LTV available | 11 | | | 84 | | | 58 | | | 60 | | | 57 | | | 179 | | | 16 | | | 29 | | | 494 | |
Government insured/guaranteed loans (1) | — | | | 13 | | | 52 | | | 110 | | | 128 | | | 7,764 | | | — | | | — | | | 8,067 | |
Total residential mortgage | $ | 7,568 | | | 47,334 | | | 64,237 | | | 36,326 | | | 20,262 | | | 72,840 | | | 9,205 | | | 7,313 | | | 265,085 | |
Gross charge-offs | $ | — | | | — | | | — | | | — | | | — | | | 28 | | | 2 | | | 30 | | | 60 | |
| Term loans by origination year | | Revolving loans | | Revolving loans converted to term loans | | Total |
(in millions) | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | |
December 31, 2022 | | | | | | | | | | | | | | | | | |
By delinquency status: | | | | | | | | | | | | | | | | | |
Current-29 DPD | $ | 48,581 | | | 65,705 | | | 37,289 | | | 20,851 | | | 6,190 | | | 61,680 | | | 11,031 | | | 6,913 | | | 258,240 | |
30-89 DPD | 65 | | | 66 | | | 32 | | | 33 | | | 21 | | | 683 | | | 58 | | | 159 | | | 1,117 | |
90+ DPD | 6 | | | 17 | | | 15 | | | 25 | | | 15 | | | 530 | | | 32 | | | 260 | | | 900 | |
Government insured/guaranteed loans (1) | 9 | | | 59 | | | 133 | | | 148 | | | 200 | | | 8,311 | | | — | | | — | | | 8,860 | |
Total residential mortgage | $ | 48,661 | | | 65,847 | | | 37,469 | | | 21,057 | | | 6,426 | | | 71,204 | | | 11,121 | | | 7,332 | | | 269,117 | |
By FICO: | | | | | | | | | | | | | | | | | |
740+ | $ | 43,976 | | | 61,450 | | | 35,221 | | | 19,437 | | | 5,610 | | | 51,551 | | | 8,664 | | | 4,139 | | | 230,048 | |
700-739 | 3,245 | | | 2,999 | | | 1,419 | | | 941 | | | 314 | | | 4,740 | | | 1,159 | | | 1,021 | | | 15,838 | |
660-699 | 1,060 | | | 851 | | | 438 | | | 306 | | | 169 | | | 2,388 | | | 567 | | | 656 | | | 6,435 | |
620-659 | 211 | | | 248 | | | 106 | | | 82 | | | 50 | | | 1,225 | | | 223 | | | 349 | | | 2,494 | |
<620 | 59 | | | 81 | | | 44 | | | 46 | | | 28 | | | 1,323 | | | 227 | | | 466 | | | 2,274 | |
No FICO available | 101 | | | 159 | | | 108 | | | 97 | | | 55 | | | 1,666 | | | 281 | | | 701 | | | 3,168 | |
Government insured/guaranteed loans (1) | 9 | | | 59 | | | 133 | | | 148 | | | 200 | | | 8,311 | | | — | | | — | | | 8,860 | |
Total residential mortgage | $ | 48,661 | | | 65,847 | | | 37,469 | | | 21,057 | | | 6,426 | | | 71,204 | | | 11,121 | | | 7,332 | | | 269,117 | |
By LTV/CLTV: | | | | | | | | | | | | | | | | | |
0-80% | $ | 40,869 | | | 64,613 | | | 37,145 | | | 20,744 | | | 6,155 | | | 62,593 | | | 10,923 | | | 7,188 | | | 250,230 | |
80.01-100% | 7,670 | | | 1,058 | | | 112 | | | 97 | | | 30 | | | 107 | | | 109 | | | 97 | | | 9,280 | |
>100% (2) | 48 | | | 20 | | | 13 | | | 6 | | | 3 | | | 23 | | | 28 | | | 16 | | | 157 | |
No LTV available | 65 | | | 97 | | | 66 | | | 62 | | | 38 | | | 170 | | | 61 | | | 31 | | | 590 | |
Government insured/guaranteed loans (1) | 9 | | | 59 | | | 133 | | | 148 | | | 200 | | | 8,311 | | | — | | | — | | | 8,860 | |
Total residential mortgage | $ | 48,661 | | | 65,847 | | | 37,469 | | | 21,057 | | | 6,426 | | | 71,204 | | | 11,121 | | | 7,332 | | | 269,117 | |
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(1)Government insured or guaranteed loans represent 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 $2.8 billion and $3.2 billion at June 30, 2023, and December 31, 2022, respectively.
(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.
Note 5: Loans and Related Allowance for Credit Losses (continued)
Table 5.10 provides the outstanding balances of our credit card loan portfolio by primary credit quality indicators.
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.
For the six months ended June 30, 2023, we had gross charge-offs in the credit card portfolio of $861 million for revolving loans and $43 million for revolving loans converted to term loans.
Table 5.10: Credit Quality Indicators for Credit Card Loans
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| | June 30, 2023 | | December 31, 2022 |
| | Revolving loans | | Revolving loans converted to term loans | | | | Revolving loans | | Revolving loans converted to term loans | | |
(in millions) | | | | Total | | | | Total |
By delinquency status: | | | | | | | | | | | | |
Current-29 DPD | | $ | 46,343 | | | 285 | | | 46,628 | | | 45,131 | | | 223 | | | 45,354 | |
30-89 DPD | | 524 | | | 34 | | | 558 | | | 457 | | | 27 | | | 484 | |
90+ DPD | | 513 | | | 18 | | | 531 | | | 441 | | | 14 | | | 455 | |
Total credit cards | | $ | 47,380 | | | 337 | | | 47,717 | | | 46,029 | | | 264 | | | 46,293 | |
By FICO: | | | | | | | | | | | | |
740+ | | $ | 17,730 | | | 21 | | | 17,751 | | | 16,681 | | | 19 | | | 16,700 | |
700-739 | | 10,894 | | | 44 | | | 10,938 | | | 10,640 | | | 37 | | | 10,677 | |
660-699 | | 9,653 | | | 69 | | | 9,722 | | | 9,573 | | | 55 | | | 9,628 | |
620-659 | | 4,826 | | | 59 | | | 4,885 | | | 4,885 | | | 45 | | | 4,930 | |
<620 | | 4,168 | | | 143 | | | 4,311 | | | 4,071 | | | 107 | | | 4,178 | |
No FICO available | | 109 | | | 1 | | | 110 | | | 179 | | | 1 | | | 180 | |
Total credit cards | | $ | 47,380 | | | 337 | | | 47,717 | | | 46,029 | | | 264 | | | 46,293 | |
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Table 5.11 provides the outstanding balances of our Auto loan portfolio by primary credit quality indicators.
Table 5.11: Credit Quality Indicators for Auto Loans by Vintage | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Term loans by origination year | | Revolving loans | | Revolving loans converted to term loans | | |
(in millions) | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | | | Total |
June 30, 2023 | | | | | | | | | | | | | | | | | |
By delinquency status: | | | | | | | | | | | | | | | | | |
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Current-29 DPD | $ | 8,891 | | | 15,767 | | | 15,507 | | | 5,790 | | | 3,254 | | | 979 | | | — | | | — | | | 50,188 | |
30-89 DPD | 15 | | | 297 | | | 563 | | | 217 | | | 129 | | | 67 | | | — | | | — | | | 1,288 | |
90+ DPD | 1 | | | 28 | | | 52 | | | 16 | | | 9 | | | 5 | | | — | | | — | | | 111 | |
Total auto | $ | 8,907 | | | 16,092 | | | 16,122 | | | 6,023 | | | 3,392 | | | 1,051 | | | — | | | — | | | 51,587 | |
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By FICO: | | | | | | | | | | | | | | | | | |
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740+ | $ | 5,979 | | | 7,901 | | | 6,879 | | | 2,505 | | | 1,509 | | | 421 | | | — | | | — | | | 25,194 | |
700-739 | 1,426 | | | 2,480 | | | 2,416 | | | 971 | | | 540 | | | 157 | | | — | | | — | | | 7,990 | |
660-699 | 917 | | | 2,223 | | | 2,249 | | | 863 | | | 444 | | | 129 | | | — | | | — | | | 6,825 | |
620-659 | 368 | | | 1,531 | | | 1,613 | | | 575 | | | 289 | | | 94 | | | — | | | — | | | 4,470 | |
<620 | 217 | | | 1,953 | | | 2,935 | | | 1,084 | | | 582 | | | 229 | | | — | | | — | | | 7,000 | |
No FICO available | — | | | 4 | | | 30 | | | 25 | | | 28 | | | 21 | | | — | | | — | | | 108 | |
Total auto | $ | 8,907 | | | 16,092 | | | 16,122 | | | 6,023 | | | 3,392 | | | 1,051 | | | — | | | — | | | 51,587 | |
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Gross charge-offs | $ | 1 | | | 118 | | | 195 | | | 51 | | | 29 | | | 6 | | | — | | | — | | | 400 | |
| Term loans by origination year | | Revolving loans | | Revolving loans converted to term loans | | |
(in millions) | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | | | Total |
December 31, 2022 | | | | | | | | | | | | | | | | | |
By delinquency status: | | | | | | | | | | | | | | | | | |
Current-29 DPD | $ | 19,101 | | | 19,126 | | | 7,507 | | | 4,610 | | | 1,445 | | | 421 | | | — | | | — | | | 52,210 | |
30-89 DPD | 218 | | | 585 | | | 253 | | | 167 | | | 69 | | | 45 | | | — | | | — | | | 1,337 | |
90+ DPD | 23 | | | 56 | | | 22 | | | 13 | | | 4 | | | 4 | | | — | | | — | | | 122 | |
Total auto | $ | 19,342 | | | 19,767 | | | 7,782 | | | 4,790 | | | 1,518 | | | 470 | | | — | | | — | | | 53,669 | |
By FICO: | | | | | | | | | | | | | | | | | |
740+ | $ | 9,361 | | | 8,233 | | | 3,193 | | | 2,146 | | | 664 | | | 166 | | | — | | | — | | | 23,763 | |
700-739 | 3,090 | | | 3,033 | | | 1,287 | | | 788 | | | 238 | | | 64 | | | — | | | — | | | 8,500 | |
660-699 | 2,789 | | | 2,926 | | | 1,163 | | | 641 | | | 192 | | | 58 | | | — | | | — | | | 7,769 | |
620-659 | 2,021 | | | 2,156 | | | 796 | | | 421 | | | 130 | | | 47 | | | — | | | — | | | 5,571 | |
<620 | 2,062 | | | 3,389 | | | 1,316 | | | 756 | | | 263 | | | 126 | | | — | | | — | | | 7,912 | |
No FICO available | 19 | | | 30 | | | 27 | | | 38 | | | 31 | | | 9 | | | — | | | — | | | 154 | |
Total auto | $ | 19,342 | | | 19,767 | | | 7,782 | | | 4,790 | | | 1,518 | | | 470 | | | — | | | — | | | 53,669 | |
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Table 5.12 provides the outstanding balances of our Other consumer loans portfolio by primary credit quality indicators.
Table 5.12:Credit Quality Indicators for Other Consumer Loans by Vintage | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Term loans by origination year | | Revolving loans | | Revolving loans converted to term loans | | |
(in millions) | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | | | Total |
June 30, 2023 | | | | | | | | | | | | | | | | | |
By delinquency status: | | | | | | | | | | | | | | | | | |
Current-29 DPD | $ | 2,195 | | | 2,825 | | | 870 | | | 242 | | | 151 | | | 85 | | | 21,352 | | | 117 | | | 27,837 | |
30-89 DPD | 6 | | | 28 | | | 10 | | | 2 | | | 2 | | | 3 | | | 14 | | | 5 | | | 70 | |
90+ DPD | 1 | | | 10 | | | 4 | | | 1 | | | 1 | | | 1 | | | 13 | | | 12 | | | 43 | |
Total other consumer | $ | 2,202 | | | 2,863 | | | 884 | | | 245 | | | 154 | | | 89 | | | 21,379 | | | 134 | | | 27,950 | |
By FICO: | | | | | | | | | | | | | | | | | |
740+ | $ | 1,317 | | | 1,354 | | | 390 | | | 117 | | | 67 | | | 38 | | | 1,347 | | | 34 | | | 4,664 | |
700-739 | 440 | | | 540 | | | 154 | | | 44 | | | 26 | | | 15 | | | 510 | | | 17 | | | 1,746 | |
660-699 | 262 | | | 443 | | | 126 | | | 22 | | | 20 | | | 12 | | | 401 | | | 15 | | | 1,301 | |
620-659 | 64 | | | 188 | | | 60 | | | 9 | | | 9 | | | 8 | | | 154 | | | 14 | | | 506 | |
<620 | 20 | | | 131 | | | 56 | | | 10 | | | 11 | | | 8 | | | 142 | | | 17 | | | 395 | |
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No FICO available (1) | 99 | | | 207 | | | 98 | | | 43 | | | 21 | | | 8 | | | 18,825 | | | 37 | | | 19,338 | |
Total other consumer | $ | 2,202 | | | 2,863 | | | 884 | | | 245 | | | 154 | | | 89 | | | 21,379 | | | 134 | | | 27,950 | |
Gross charge-offs (2) | $ | 54 | | | 83 | | | 28 | | | 5 | | | 5 | | | 3 | | | 30 | | | 7 | | | 215 | |
| Term loans by origination year | | Revolving loans | | Revolving loans converted to term loans | | Total |
(in millions) | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | |
December 31, 2022 | | | | | | | | | | | | | | | | | |
By delinquency status: | | | | | | | | | | | | | | | | | |
Current-29 DPD | $ | 3,718 | | | 1,184 | | | 341 | | | 240 | | | 63 | | | 83 | | | 23,431 | | | 117 | | | 29,177 | |
30-89 DPD | 17 | | | 12 | | | 2 | | | 3 | | | 1 | | | 2 | | | 14 | | | 8 | | | 59 | |
90+ DPD | 5 | | | 5 | | | 1 | | | 1 | | | — | | | 1 | | | 13 | | | 14 | | | 40 | |
Total other consumer | $ | 3,740 | | | 1,201 | | | 344 | | | 244 | | | 64 | | | 86 | | | 23,458 | | | 139 | | | 29,276 | |
By FICO: | | | | | | | | | | | | | | | | | |
740+ | $ | 1,908 | | | 546 | | | 174 | | | 112 | | | 21 | | | 50 | | | 1,660 | | | 43 | | | 4,514 | |
700-739 | 726 | | | 216 | | | 62 | | | 44 | | | 10 | | | 13 | | | 568 | | | 18 | | | 1,657 | |
660-699 | 527 | | | 177 | | | 34 | | | 33 | | | 9 | | | 8 | | | 449 | | | 19 | | | 1,256 | |
620-659 | 204 | | | 81 | | | 13 | | | 14 | | | 4 | | | 5 | | | 181 | | | 11 | | | 513 | |
<620 | 89 | | | 64 | | | 14 | | | 16 | | | 5 | | | 5 | | | 154 | | | 18 | | | 365 | |
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No FICO available (1) | 286 | | | 117 | | | 47 | | | 25 | | | 15 | | | 5 | | | 20,446 | | | 30 | | | 20,971 | |
Total other consumer | $ | 3,740 | | | 1,201 | | | 344 | | | 244 | | | 64 | | | 86 | | | 23,458 | | | 139 | | | 29,276 | |
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(1)Substantially all loans do not require a FICO score and are revolving securities-based loans originated by the Wealth and Investment Management operating segment.
(2)Includes charge-offs on overdrafts, which are generally charged-off at 60 days past due.
Note 5: Loans and Related Allowance for Credit Losses (continued)
NONACCRUAL LOANS Table 5.13 provides loans on nonaccrual status. Nonaccrual loans may have an ACL or a negative
allowance for credit losses from expected recoveries of amounts previously written off.
Table 5.13:Nonaccrual Loans
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| Amortized cost | | Recognized interest income |
| Nonaccrual loans | | Nonaccrual loans without related allowance for credit losses (1) | | Six months ended June 30, |
(in millions) | Jun 30, 2023 | | Dec 31, 2022 | | Jun 30, 2023 | | Dec 31, 2022 | | 2023 | | 2022 |
Commercial and industrial | $ | 845 | | | 746 | | | 241 | | | 174 | | | 12 | | | 41 | |
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Commercial real estate | 2,507 | | | 958 | | | 97 | | | 134 | | | 14 | | | 28 | |
Lease financing | 77 | | | 119 | | | 5 | | | 5 | | | — | | | — | |
Total commercial | 3,429 | | | 1,823 | | | 343 | | | 313 | | | 26 | | | 69 | |
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Residential mortgage | 3,289 | | | 3,611 | | | 2,197 | | | 2,316 | | | 98 | | | 111 | |
Auto | 135 | | | 153 | | | — | | | — | | | 10 | | | 14 | |
Other consumer | 33 | | | 39 | | | — | | | — | | | 2 | | | 2 | |
Total consumer | 3,457 | | | 3,803 | | | 2,197 | | | 2,316 | | | 110 | | | 127 | |
Total nonaccrual loans | $ | 6,886 | | | 5,626 | | | 2,540 | | | 2,629 | | | 136 | | | 196 | |
(1)Nonaccrual loans may not have an allowance for credit losses if the loss expectations are zero given the related collateral value.
LOANS IN PROCESS OF FORECLOSURE Our recorded investment in consumer mortgage loans collateralized by residential real estate property that are in process of foreclosure was $883 million and $1.0 billion at June 30, 2023, and December 31, 2022, respectively, which included $656 million and $771 million, respectively, of loans that are government insured/guaranteed. Under the Consumer Financial Protection Bureau guidelines, we do not commence the foreclosure process on residential 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.
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) residential mortgage or consumer loans exempt under regulatory rules from being classified as nonaccrual until later delinquency, usually 120 days past due.
Table 5.14 shows loans 90 days or more past due and still accruing by class for loans not government insured/guaranteed.
Table 5.14:Loans 90 Days or More Past Due and Still Accruing | | | | | | | | | | | |
(in millions) | Jun 30, 2023 | | Dec 31, 2022 |
Total: | $ | 3,485 | | | 4,340 | |
Less: FHA insured/VA guaranteed (1) | 2,686 | | | 3,005 | |
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Total, not government insured/guaranteed | $ | 799 | | | 1,335 | |
By segment and class, not government insured/guaranteed: | | | |
Commercial and industrial | $ | 109 | | | 583 | |
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Commercial real estate | 9 | | | 134 | |
Total commercial | 118 | | | 717 | |
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Residential mortgage | 25 | | | 28 | |
Credit card | 531 | | | 455 | |
Auto | 96 | | | 111 | |
Other consumer | 29 | | | 24 | |
Total consumer | 681 | | | 618 | |
Total, not government insured/guaranteed | $ | 799 | | | 1,335 | |
(1)Represents loans whose repayments are predominantly insured by the FHA or guaranteed by the VA.
LOAN MODIFICATIONS TO BORROWERS EXPERIENCING FINANCIAL DIFFICULTY We may agree to modify the contractual terms of a loan to a borrower experiencing financial difficulty.
Our commercial loan modifications may include principal forgiveness, interest rate reductions, payment delays, term extensions, or a combination of these modifications. Commercial loan term extensions have terms that vary based on the borrower’s request and are evaluated by our credit teams on an individual basis.
Our consumer loan modifications vary based upon the loan product and the modification program offered to the borrower, and may include interest rate reductions, payment delays, term extensions, principal forbearance or forgiveness, or a combination of these modifications. Generally, our consumer loan modification programs modify the loan terms to achieve payment terms that are more affordable to the borrower and, as a result, increase the likelihood of full repayment of principal and interest.
Our residential mortgage loan modification programs may offer a short-term payment deferral based upon the borrower's demonstrated hardship, up to 12 months. If additional assistance is needed after 12 months, the borrower may request another loan modification. Modifications may also include a trial payment period of three months to determine if the borrower can perform in accordance with the proposed permanent loan modification terms. Loans in a trial payment period continue to advance through delinquency status and accrue interest according to their original terms. Loans in a trial payment period are excluded from our loan modification disclosures until the borrower has successfully completed the trial period and the loan modification is formally executed. Residential mortgage loans in a trial payment period totaled $132 million at June 30, 2023.
Credit card loan modifications result in a reduction in the credit card interest rate and may be offered on a short-term or long-term basis. A short-term interest rate reduction program reduces the borrower’s interest rate for 12 months. A long-term interest rate reduction program provides a reduction of the interest rate over a fixed five-year term. During the modification period, the borrower’s revolving charge privileges are revoked.
Auto loan modifications generally include insignificant (e.g., three months or less) payment deferrals over the loan term.
The following disclosures provide information on loan modifications granted to borrowers experiencing financial difficulty in the form of principal forgiveness, interest rate reductions, other-than-insignificant (e.g., greater than three months) payment delays, term extensions or a combination of these modifications, as well as the financial effects of these modifications, and loan performance in the twelve months following the modification. Loans that both modify and are paid off or charged-off during the period, resulting in an amortized cost balance of zero at the end of the period, are not included in the disclosures below. Additionally, where amortized cost balances are presented below, accrued interest receivable is excluded. See Note 7 (Intangible Assets and Other Assets) for additional information on accrued interest receivable. Borrowers experiencing financial difficulty with modified terms mandated by a bankruptcy court are considered contractually modified loans and are included in these disclosures. These disclosures do not include loans discharged by a bankruptcy court as the only concession, which were insignificant for the second quarter and first half of 2023.
Table 5.15 presents the amortized cost of modified commercial loans by class of financing receivable and by modification type.
Table 5.15:Commercial Loan Modifications
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| | | Modification type (1) | | Modifications as a % of loan class |
($ in millions) | | | Interest rate reduction | | Payment delay | | Term extension | | Term extension & payment delay | | All other modifications and combinations | | Total | |
Quarter ended June 30, 2023 | | | | | | | | | | | | | | | |
Commercial and industrial | | | $ | 5 | | | 21 | | | 199 | | | 4 | | | — | | | 229 | | | 0.06 | % |
Commercial real estate | | | — | | | — | | | 148 | | | — | | | 1 | | | 149 | | | 0.10 | |
Total commercial | | | $ | 5 | | | 21 | | | 347 | | | 4 | | | 1 | | | 378 | | | 0.07 | |
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Six months ended June 30, 2023 | | | | | | | | | | | | | | | |
Commercial and industrial | | | $ | 9 | | | 23 | | | 226 | | | 5 | | | 1 | | | 264 | | | 0.07 | % |
Commercial real estate | | | 7 | | | 1 | | | 190 | | | — | | | 2 | | | 200 | | | 0.13 | |
Total commercial | | | $ | 16 | | | 24 | | | 416 | | | 5 | | | 3 | | | 464 | | | 0.09 | |
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(1)There were no principal forgiveness modifications for the quarter and six months ended June 30, 2023.
Table 5.15a presents the financial effects of modifications made to commercial loans presented by class of financing receivable.
Table 5.15a:Financial Effects of Commercial Loan Modifications
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| | | | | Weighted average interest rate reduction | | Weighted average payments deferred (months) | | Weighted average term extension (months) | | | | | | | | |
Quarter ended June 30, 2023 | | | | | | | | | | | | | | | | | |
Commercial and industrial | | | | | 13.86 | % | | 10 | | 6 | | | | | | | | |
Commercial real estate | | | | | 0.71 | | | 34 | | 7 | | | | | | | | |
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Six months ended June 30, 2023 | | | | | | | | | | | | | | | | | |
Commercial and industrial | | | | | 12.62 | % | | 9 | | 7 | | | | | | | | |
Commercial real estate | | | | | 3.47 | | | 15 | | 10 | | | | | | | | |
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Note 5: Loans and Related Allowance for Credit Losses (continued)
Commercial loans that received a modification during the second quarter and first half of 2023, and subsequently defaulted were insignificant. Defaults that occur on commercial modifications are reported based on a payment default definition of 90 days past due.
Table 5.15b provides past due information for modified commercial loans. For loan modifications that include a payment
deferral, payment performance is not included in the table below until the loan exits the deferral period and payments resume. The table also includes the amount of gross charge-offs that occurred during the second quarter and first half of 2023, inclusive of charge-offs to loans with no amortized cost remaining at period end.
Table 5.15b:Payment Performance of Commercial Loan Modifications
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| By delinquency status | | Gross charge-offs |
(in millions) | Current-29 days past due (DPD) | | 30-89 DPD | | 90+ DPD | | Total | | Quarter ended | | Six months ended |
June 30, 2023 | | | | | | | | | | | |
Commercial and industrial | $ | 235 | | | 3 | | | 1 | | | 239 | | | 5 | | | 15 | |
Commercial real estate | 124 | | | 76 | | | — | | | 200 | | | — | | | — | |
Total commercial | $ | 359 | | | 79 | | | 1 | | | 439 | | | 5 | | | 15 | |
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Table 5.16 presents the amortized cost of modified consumer loans by class of financing receivable and by modification type.
Table 5.16:Consumer Loan Modifications
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| | | Modification type | | | |
($ in millions) | | | Interest rate reduction | | Payment delay (1) | | Term extension | | Interest rate reduction & term extension | | Term extension & payment delay | | Interest rate reduction, term extension & payment delay | | All other modifications and combinations (2) | | Total | | Modifications as a % of loan class | |
Quarter ended June 30, 2023 | | | | | | | | | | | | | | | | | | | | |
Residential mortgage | | | $ | 3 | | | 213 | | | 17 | | | 10 | | | 25 | | | 22 | | | 1 | | | 291 | | | 0.11 | % | |
Credit card | | | 126 | | | — | | | — | | | — | | | — | | | — | | | — | | | 126 | | | 0.26 | | |
Auto | | | 1 | | | 9 | | | — | | | — | | | — | | | — | | | — | | | 10 | | | 0.02 | | |
Other consumer | | | 3 | | | 1 | | | — | | | 8 | | | — | | | — | | | — | | | 12 | | | 0.04 | | |
Total consumer | | | $ | 133 | | | 223 | | | 17 | | | 18 | | | 25 | | | 22 | | | 1 | | | 439 | | | 0.11 | | |
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Six months ended June 30, 2023 | | | | | | | | | | | | | | | | | | | | |
Residential mortgage | | | $ | 7 | | | 461 | | | 41 | | | 23 | | | 54 | | | 53 | | | 3 | | | 642 | | | 0.24 | % | |
Credit card | | | 230 | | | — | | | — | | | — | | | — | | | — | | | — | | | 230 | | | 0.48 | | |
Auto | | | 2 | | | 13 | | | — | | | — | | | — | | | — | | | — | | | 15 | | | 0.03 | | |
Other consumer | | | 6 | | | 2 | | | — | | | 13 | | | — | | | — | | | — | | | 21 | | | 0.08 | | |
Total consumer | | | $ | 245 | | | 476 | | | 41 | | | 36 | | | 54 | | | 53 | | | 3 | | | 908 | | | 0.23 | | |
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(1)Includes residential mortgage loan modifications that defer a set amount of principal to the end of the loan term.
(2)Includes principal forgiveness and other combinations of modifications.
Table 5.16a presents the financial effects of modifications made to consumer loans by class of financing receivable.
Table 5.16a:Financial Effects of Consumer Loan Modifications (1)
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| | | Weighted average interest rate reduction | | Weighted average payments deferred (months) | | Weighted average term extension (years) | | | | | | | | |
Quarter ended June 30, 2023 | | | | | | | | | | | | | | | |
Residential mortgage (2) | | | 1.55 | % | | 4 | | 9.4 | | | | | | | | |
Credit card | | | 22.17 | | | N/A | | N/A | | | | | | | | |
Auto | | | 3.86 | | | 6 | | N/A | | | | | | | | |
Other consumer | | | 12.15 | | | 3 | | 10.9 | | | | | | | | |
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Six months ended June 30, 2023 | | | | | | | | | | | | | | | |
Residential mortgage (2) | | | 1.57 | % | | 4 | | 9.8 | | | | | | | | |
Credit card | | | 21.92 | | | N/A | | N/A | | | | | | | | |
Auto | | | 3.94 | | | 6 | | N/A | | | | | | | | |
Other consumer | | | 11.69 | | | 4 | | 2.7 | | | | | | | | |
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(1)Principal forgiven was insignificant for the quarter and six months ended June 30, 2023.
(2)Excludes the financial effects of residential mortgage loans with a set amount of principal deferred to the end of the loan term. The weighted average period of principal deferred was 26.8 years for the quarter ended June 30, 2023, and 27.0 years for the six months ended June 30, 2023.
Consumer loans that received a modification during the second quarter and first half of 2023, and subsequently defaulted during the respective period totaled $141 million and $158 million, respectively, and predominantly related to payment delay modifications in the residential mortgage loan portfolio. Defaults that occur on consumer modifications are reported based on a payment default definition of 60 days past due.
Table 5.16b provides past due information for modified consumer loans. For loan modifications that include a payment delay, payment performance is not included in the table below until the loan exits the deferral period and payments resume. The table also includes the amount of gross charge-offs that occurred during the second quarter and first half of 2023, inclusive of charge-offs to loans with no amortized cost remaining at period end.
Table 5.16b: Payment Performance of Consumer Loan Modifications
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| By delinquency status | | Gross charge-offs |
(in millions) | Current-29 days past due (DPD) | | 30-89 DPD | | 90+ DPD | | Total | | Quarter ended | | Six months ended |
June 30, 2023 | | | | | | | | | | | |
Residential mortgage (1) | $ | 283 | | | 45 | | | 139 | | | 467 | | | 2 | | | 3 | |
Credit card (2) | 167 | | | 36 | | | 27 | | | 230 | | | 16 | | | 20 | |
Auto | 14 | | | 1 | | | — | | | 15 | | | — | | | — | |
Other consumer | 18 | | | 2 | | | 1 | | | 21 | | | 1 | | | 1 | |
Total | $ | 482 | | | 84 | | | 167 | | | 733 | | | 19 | | | 24 | |
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(1)Includes loans that were past due prior to entering a payment delay modification. Delinquency advancement is paused during the deferral period and resumes upon exit.
(2)Credit card loans that are past due at the time of the modification do not become current until they have three months of consecutive payment performance.
Commitments to lend additional funds on commercial loans that were modified during the six months ended June 30, 2023, were $82 million, substantially all of which were in the commercial and industrial portfolio. Commitments to lend additional funds on consumer loans that were modified during the six months ended June 30, 2023, were insignificant.
TROUBLED DEBT RESTRUCTURINGS (TDRs) In January 2023, we adopted ASU 2022-02, which eliminated the accounting and reporting guidance for TDRs. For additional information, see Note 1 (Summary of Significant Accounting Policies). The following disclosures present TDR information for the periods ended December 31, 2022, and June 30, 2022. 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 $9.2 billion at December 31, 2022. We do not consider loan resolutions such as foreclosure or short sale to be a TDR. In addition, COVID-19-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 2022 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 classified and accounted for as TDRs through December 31, 2022, prior to the adoption of ASU 2022-02. 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 $434 million at December 31, 2022.
Table 5.17 summarizes our TDR modifications by primary modification type and includes the financial effects of these modifications. For those loans that modify more than once, the table reflects each modification that occurred during the period. Loans that both modify and are paid off or written-off within the period, as well as changes in recorded investment during the period for loans modified in prior periods, are not included in the table.
Note 5: Loans and Related Allowance for Credit Losses (continued)
Table 5.17:TDR Modifications
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| Primary modification type (1) | | Financial effects of modifications | |
($ 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) | |
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Quarter ended June 30, 2022 | | | | | | | | | | | | | | |
Commercial and industrial | $ | — | | | 8 | | | 75 | | | 83 | | | — | | | 7.09 | % | | $ | 8 | | |
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Commercial real estate | — | | | 5 | | | 38 | | | 43 | | | — | | | 0.62 | | | 5 | | |
Lease financing | — | | | — | | | 1 | | | 1 | | | — | | | — | | | — | | |
Total commercial | — | | | 13 | | | 114 | | | 127 | | | — | | | 4.38 | | | 13 | | |
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Residential mortgage | — | | | 127 | | | 350 | | | 477 | | | 2 | | | 1.54 | | | 127 | | |
Credit card | — | | | 63 | | | — | | | 63 | | | — | | | 19.23 | | | 63 | | |
Auto | — | | | 1 | | | 8 | | | 9 | | | 2 | | | 4.02 | | | 1 | | |
Other consumer | — | | | 4 | | | — | | | 4 | | | — | | | 11.01 | | | 4 | | |
Trial modifications (5) | — | | | — | | | 41 | | | 41 | | | — | | | — | | | — | | |
Total consumer | — | | | 195 | | | 399 | | | 594 | | | 4 | | | 7.47 | | | 195 | | |
Total | $ | — | | | 208 | | | 513 | | | 721 | | | 4 | | | 7.28 | | | $ | 208 | | |
Six months ended June 30, 2022 | | | | | | | | | | | | | | |
Commercial and industrial | $ | — | | | 14 | | | 148 | | | 162 | | | — | | | 8.37 | % | | $ | 14 | | |
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Commercial real estate | — | | | 10 | | | 65 | | | 75 | | | — | | | 0.99 | | | 10 | | |
Lease financing | — | | | — | | | 1 | | | 1 | | | — | | | — | | | — | | |
Total commercial | — | | | 24 | | | 214 | | | 238 | | | — | | | 5.27 | | | 24 | | |
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Residential mortgage | 1 | | | 195 | | | 686 | | | 882 | | | 3 | | | 1.58 | | | 195 | | |
Credit card | — | | | 133 | | | — | | | 133 | | | — | | | 19.17 | | | 133 | | |
Auto | 1 | | | 4 | | | 48 | | | 53 | | | 11 | | | 4.64 | | | 4 | | |
Other consumer | — | | | 7 | | | 1 | | | 8 | | | — | | | 11.31 | | | 7 | | |
Trial modifications (5) | — | | | — | | | 252 | | | 252 | | | — | | | — | | | — | | |
Total consumer | 2 | | | 339 | | | 987 | | | 1,328 | | | 14 | | | 8.73 | | | 339 | | |
Total | $ | 2 | | | 363 | | | 1,201 | | | 1,566 | | | 14 | | | 8.50 | % | | $ | 363 | | |
(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 $132 million for the quarter ended June 30, 2022, and $250 million for the first half of 2022.
(2)Other concessions include loans with payment (principal and/or interest) deferral, loans discharged in bankruptcy, loan renewals, term extensions and other interest and noninterest adjustments, but exclude modifications that also forgive principal and/or reduce the contractual interest rate. The reported amounts include loans that are new TDRs that may have COVID-19-related payment deferrals and exclude COVID-19-related payment deferrals on loans previously reported as TDRs given limited current financial effects other than 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.
(4)Recorded investment related to interest rate reduction reflects the effect of reduced interest rates on loans with an interest rate concession as one of their concession types, which includes loans reported as a principal primary modification type that also have an interest rate concession.
(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 5.18 summarizes permanent modification TDRs that defaulted during the period presented within 12 months of their permanent modification date. We are reporting these defaulted TDRs based on a payment default definition of 90 days past due for the commercial portfolio segment and 60 days past due for the consumer portfolio segment.
Table 5.18:Defaulted TDRs
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| | | | | Recorded investment of defaults |
| | | | | | | | | | | | June 30, 2022 |
(in millions) | | | | | | | | | | | | Quarter ended | | Six months ended |
Commercial and industrial | | | | | | | | | | | | $ | 3 | | | 52 | |
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Commercial real estate | | | | | | | | | | | | 8 | | | 10 | |
Lease financing | | | | | | | | | | | | — | | | — | |
Total commercial | | | | | | | | | | | | 11 | | | 62 | |
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Residential mortgage | | | | | | | | | | | | 51 | | | 58 | |
Credit card | | | | | | | | | | | | 8 | | | 13 | |
Auto | | | | | | | | | | | | 7 | | | 13 | |
Other consumer | | | | | | | | | | | | 1 | | | 1 | |
Total consumer | | | | | | | | | | | | 67 | | | 85 | |
Total | | | | | | | | | | | | $ | 78 | | | 147 | |
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Note 6: 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 $1.1 billion and $1.2 billion, with an estimated fair value of $1.9 billion and $2.1 billion, at June 30, 2023 and 2022, respectively. Table 6.1 presents the changes in MSRs measured using the fair value method.
Table 6.1:Analysis of Changes in Fair Value MSRs
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| Quarter ended June 30, | | Six months ended June 30, | | |
(in millions) | 2023 | | 2022 | | 2023 | | 2022 | | |
Fair value, beginning of period | $ | 8,819 | | | 8,511 | | | $ | 9,310 | | | 6,920 | | | |
Originations/purchases | 47 | | | 322 | | | 95 | | | 664 | | | |
Sales and other (1) | (606) | | | (251) | | | (599) | | | (250) | | | |
Net additions | (559) | | | 71 | | | (504) | | | 414 | | | |
Changes in fair value: | | | | | | | | | |
Due to valuation inputs or assumptions: | | | | | | | | | |
Market interest rates (2) | 318 | | | 949 | | | 137 | | | 2,648 | | | |
Servicing and foreclosure costs (3) | 1 | | | (9) | | | 2 | | | (12) | | | |
Discount rates | — | | | 31 | | | (25) | | | 86 | | | |
Prepayment estimates and other (4) | (3) | | | (103) | | | (23) | | | (249) | | | |
Net changes in valuation inputs or assumptions | 316 | | | 868 | | | 91 | | | 2,473 | | | |
Changes due to collection/realization of expected cash flows (5) | (325) | | | (287) | | | (646) | | | (644) | | | |
Total changes in fair value | (9) | | | 581 | | | (555) | | | 1,829 | | | |
Fair value, end of period | $ | 8,251 | | | 9,163 | | | $ | 8,251 | | | 9,163 | | | |
(1)In second quarter 2022, MSRs decreased $244 million due to the sale of interest-only strips related to excess servicing cash flows from agency residential mortgage-backed securitizations.
(2)Includes prepayment rate changes as well as other valuation changes due to changes in market interest rates. To reduce exposure to changes in interest rates, MSRs are economically hedged with derivative instruments.
(3)Includes costs to service and unreimbursed foreclosure costs.
(4)Represents other changes in valuation model inputs or assumptions, including prepayment rate estimation changes that are independent of mortgage interest rate changes.
(5)Represents the reduction in the MSR fair value for the cash flows expected to be collected during the period, net of income accreted due to the passage of time.
Table 6.2 provides key weighted-average assumptions used in the valuation of residential MSRs and sensitivity of the current fair value of residential MSRs to immediate adverse changes in those assumptions. Amounts for residential MSRs include
purchased servicing rights as well as servicing rights resulting from the transfer of loans. See Note 12 (Fair Values of Assets and Liabilities) for additional information on key assumptions for residential MSRs.
Table 6.2: Assumptions and Sensitivity of Residential MSRs
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($ in millions, except cost to service amounts) | Jun 30, 2023 | | Dec 31, 2022 |
Fair value of interests held | $ | 8,251 | | | 9,310 | |
Expected weighted-average life (in years) | 6.2 | | 6.3 |
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Key assumptions: | | | |
Prepayment rate assumption (1) | 9.2 | % | | 9.4 | |
Impact on fair value from 10% adverse change | $ | 249 | | | 288 | |
Impact on fair value from 25% adverse change | 595 | | | 688 | |
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Discount rate assumption | 9.2 | % | | 9.1 | |
Impact on fair value from 100 basis point increase | $ | 316 | | | 368 | |
Impact on fair value from 200 basis point increase | 608 | | | 707 | |
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Cost to service assumption ($ per loan) | 102 | | | 102 | |
Impact on fair value from 10% adverse change | 159 | | | 171 | |
Impact on fair value from 25% adverse change | 397 | | | 427 | |
(1)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.
The sensitivities in the preceding table are hypothetical and caution should be exercised when relying on this data. Changes in value based on variations in assumptions generally cannot be extrapolated because the relationship of the change in the assumption to the change in value may not be linear. Also, the effect of a variation in a particular assumption on the value of the other interests held is calculated independently without changing any other assumptions. In reality, changes in one factor may
result in changes in others, which might magnify or counteract the sensitivities.
Note 6: Mortgage Banking Activities (continued)
We present the components of our managed servicing portfolio in Table 6.3 at unpaid principal balance for loans serviced and subserviced for others and at carrying value for owned loans serviced.
Table 6.3:Managed Servicing Portfolio
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(in billions) | Jun 30, 2023 | | Dec 31, 2022 |
Residential mortgage servicing: | | | |
Serviced and subserviced for others | $ | 637 | | | 681 | |
Owned loans serviced | 267 | | | 273 | |
Total residential servicing | 904 | | | 954 | |
Commercial mortgage servicing: | | | |
Serviced and subserviced for others | 562 | | | 577 | |
Owned loans serviced | 131 | | | 133 | |
Total commercial servicing | 693 | | | 710 | |
Total managed servicing portfolio | $ | 1,597 | | | 1,664 | |
Total serviced for others, excluding subserviced for others | $ | 1,162 | | | 1,246 | |
MSRs as a percentage of loans serviced for others | 0.80 | % | | 0.84 | |
Weighted average note rate (mortgage loans serviced for others) | 4.44 | | | 4.30 | |
At June 30, 2023, and December 31, 2022, we had servicer advances, net of an allowance for uncollectible amounts, of $2.1 billion and $2.5 billion, respectively. 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, government-sponsored entities (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 from the borrower. We 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 written-off when deemed uncollectible.
Table 6.4 presents the components of mortgage banking noninterest income.
Table 6.4:Mortgage Banking Noninterest Income
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| | Quarter ended June 30, | | Six months ended June 30, | | |
(in millions) | | 2023 | | 2022 | | 2023 | | 2022 | | |
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Contractually specified servicing fees, late charges and ancillary fees | | $ | 547 | | | 645 | | | $ | 1,114 | | | 1,280 | | | |
Unreimbursed servicing costs (1) | | (45) | | | (57) | | | (78) | | | (81) | | | |
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Amortization for commercial MSRs | | (62) | | | (64) | | | (123) | | | (123) | | | |
Changes due to collection/realization of expected cash flows (2) | (A) | (325) | | | (287) | | | (646) | | | (644) | | | |
Net servicing fees | | 115 | | | 237 | | | 267 | | | 432 | | | |
Changes in fair value of MSRs due to valuation inputs or assumptions (3) | (B) | 316 | | | 868 | | | 91 | | | 2,473 | | | |
Net derivative gains (losses) from economic hedges (4) | | (331) | | | (980) | | | (146) | | | (2,626) | | | |
Market-related valuation changes to MSRs, net of hedge results | | (15) | | | (112) | | | (55) | | | (153) | | | |
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Total net servicing income | | 100 | | | 125 | | | 212 | | | 279 | | | |
Net gains on mortgage loan originations/sales (5) | | 102 | | | 162 | | | 222 | | | 701 | | | |
Total mortgage banking noninterest income | | $ | 202 | | | 287 | | | $ | 434 | | | 980 | | | |
Total changes in fair value of MSRs carried at fair value | (A)+(B) | $ | (9) | | | 581 | | | $ | (555) | | | 1,829 | | | |
(1)Includes costs associated with foreclosures, unreimbursed interest advances to investors, other interest costs and transaction costs associated with sales of MSRs.
(2)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.
(3)Refer to the analysis of changes in fair value MSRs presented in Table 6.1 in this Note for more detail.
(4)See Note 11 (Derivatives) for additional information on economic hedges.
(5)Includes net gains (losses) of $89 million and $50 million in the second quarter and first half of 2023, respectively, and $710 million and $2.0 billion in the second quarter and first half of 2022, respectively, related to derivatives used as economic hedges of mortgage loans held for sale and derivative loan commitments.
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Note 7: Intangible Assets and Other Assets |
Table 7.1 presents the gross carrying value of intangible assets and accumulated amortization.
Table 7.1:Intangible Assets
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| June 30, 2023 | | December 31, 2022 |
(in millions) | Gross carrying value | | Accumulated amortization | | Net carrying value | | Gross carrying value | | Accumulated amortization | | Net carrying value |
Amortized intangible assets: | | | | | | | | | | | |
MSRs | $ | 4,989 | | | (3,895) | | | 1,094 | | | 4,942 | | | (3,772) | | | 1,170 | |
Customer relationship and other intangibles | 773 | | | (628) | | | 145 | | | 754 | | | (602) | | | 152 | |
Total amortized intangible assets | $ | 5,762 | | | (4,523) | | | 1,239 | | | 5,696 | | | (4,374) | | | 1,322 | |
Unamortized intangible assets: | | | | | | | | | | | |
MSRs (carried at fair value) | $ | 8,251 | | | | | | | 9,310 | | | | | |
Goodwill | 25,175 | | | | | | | 25,173 | | | | | |
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Table 7.2 provides the current year and estimated future amortization expense for amortized intangible assets. We based our projections of amortization expense shown below on existing
asset balances at June 30, 2023. Future amortization expense may vary from these projections.
Table 7.2:Amortization Expense for Intangible Assets
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(in millions) | Amortized MSRs | | | | Customer relationship and other intangibles | | Total |
Six months ended June 30, 2023 (actual) | $ | 123 | | | | | 26 | | | 149 | |
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Estimate for the remainder of 2023 | $ | 117 | | | | | 26 | | | 143 | |
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Estimate for year ended December 31, | | | | | | | |
2024 | 213 | | | | | 43 | | | 256 | |
2025 | 184 | | | | | 35 | | | 219 | |
2026 | 148 | | | | | 29 | | | 177 | |
2027 | 117 | | | | | 2 | | | 119 | |
2028 | 97 | | | | | 2 | | | 99 | |
Table 7.3 shows the allocation of goodwill to our reportable operating segments.
Table 7.3:Goodwill
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(in millions) | Consumer Banking and Lending | | Commercial Banking | | Corporate and Investment Banking | | Wealth and Investment Management | | Corporate | | Consolidated Company |
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December 31, 2022 | $ | 16,418 | | | 2,931 | | | 5,375 | | | 344 | | | 105 | | | 25,173 | |
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Foreign currency translation | — | | | 2 | | | — | | | — | | | — | | | 2 | |
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June 30, 2023 | $ | 16,418 | | | 2,933 | | | 5,375 | | | 344 | | | 105 | | | 25,175 | |
Table 7.4 presents the components of other assets.
Table 7.4:Other Assets
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(in millions) | Jun 30, 2023 | | Dec 31, 2022 |
Corporate/bank-owned life insurance (1) | $ | 20,889 | | | 20,807 | |
Accounts receivable (2) | 30,599 | | | 23,646 | |
Interest receivable: | | | |
AFS and HTM debt securities | 1,667 | | | 1,572 | |
Loans | 3,638 | | | 3,470 | |
Trading and other | 829 | | | 767 | |
Operating lease assets (lessor) | 5,510 | | | 5,790 | |
Operating lease ROU assets (lessee) | 3,659 | | | 3,837 | |
Other (3)(4) | 16,124 | | | 15,949 | |
Total other assets | $ | 82,915 | | | 75,838 | |
(1)Corporate/bank-owned life insurance is recorded at cash surrender value.
(2)Primarily includes derivatives clearinghouse receivables, trade date receivables, and servicer advances, which are recorded at amortized cost.
(3)Primarily includes income tax receivables, prepaid expenses, foreclosed assets, and private equity and venture capital investments in consolidated portfolio companies.
(4)In first quarter 2023, we adopted ASU 2018-12 – Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. For additional information, see Note 1 (Summary of Significant Accounting Policies).
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Note 7:8: Other AssetsLeasing Activity |
The information below provides a summary of our leasing activities as a lessor and lessee. See Note 8 (Leasing Activity) in our 2022 Form 10-K for additional information about our leasing activities.
As a Lessor
Noninterest income on leases, included in Table 7.1 presents8.1, 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 $180 million and $185 million for the componentsquarters ended June 30, 2023 and 2022, respectively, and $357 million and $373 million for the first half of other assets.2023 and 2022, respectively.
Table 7.1:8.1: Other AssetsLeasing Revenue
| | | | | | | | | | | |
(in millions) | Sep 30, 2022 | | Dec 31, 2021 |
Corporate/bank-owned life insurance | $ | 20,784 | | | 20,619 | |
Accounts receivable (1) | 26,576 | | | 20,831 | |
Interest receivable: | | | |
AFS and HTM debt securities | 1,444 | | | 1,360 | |
Loans | 2,791 | | | 1,950 | |
Trading and other | 766 | | | 305 | |
Operating lease assets (lessor) | 5,892 | | | 6,182 | |
Operating lease ROU assets (lessee) | 3,804 | | | 3,805 | |
Customer relationship and other amortized intangibles | 167 | | | 211 | |
Foreclosed assets | 125 | | | 112 | |
| | | |
| | | |
Due from customers on acceptances | 145 | | | 155 | |
Other (2) | 15,647 | | | 11,729 | |
Total other assets | $ | 78,141 | | | 67,259 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended June 30, | | Six months ended June 30, |
(in millions) | 2023 | | 2022 | | 2023 | | 2022 | | |
Interest income on lease financing | $ | 176 | | | 152 | | | $ | 345 | | | 304 | | | |
Other lease revenue: | | | | | | | | | |
Variable revenue on lease financing | 24 | | | 27 | | | 49 | | | 57 | | | |
Fixed revenue on operating leases | 245 | | | 242 | | | 494 | | | 487 | | | |
Variable revenue on operating leases | 13 | | | 14 | | | 24 | | | 29 | | | |
Other lease-related revenue (1) | 25 | | | 50 | | | 87 | | | 87 | | | |
Noninterest income on leases | 307 | | | 333 | | | 654 | | | 660 | | | |
Total leasing revenue | $ | 483 | | | 485 | | | $ | 999 | | | 964 | | | |
(1) 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 8.2 presents balances for our operating leases.
Table 8.2:Operating Lease Right-of-Use (ROU) Assets and Lease Liabilities | | | | | | | | |
(in millions) | Jun 30, 2023 | Dec 31, 2022 |
ROU assets | $ | 3,659 | | 3,837 | |
Lease liabilities | 4,262 | | 4,465 | |
Table 8.3 provides the composition of our lease costs, which are predominantly included in net occupancy expense.
Table 8.3:Lease Costs
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended June 30, | | Six months ended June 30, |
(in millions) | 2023 | | 2022 | | 2023 | | 2022 | | |
Fixed lease expense – operating leases | $ | 248 | | | 253 | | | $ | 499 | | | 506 | | | |
Variable lease expense | 70 | | | 70 | | | 141 | | | 143 | | | |
Other (1) | (10) | | | (8) | | | (26) | | | (18) | | | |
Total lease costs | $ | 308 | | | 315 | | | $ | 614 | | | 631 | | | |
(1)PrimarilyPredominantly includes derivatives clearinghouse receivables, trade date receivables,gains recognized from sale leaseback transactions and servicer advances.sublease rental income.
(2)Primarily includes income tax receivables, prepaid expenses, and private equity and venture capital investments in consolidated portfolio companies.
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Note 8:9: Preferred Stock |
We are authorized to issue 20 million shares of preferred stock, without par value. Outstanding preferred shares rank senior to common shares both as to the payment of dividends and liquidation preferences but have no general voting rights. All outstanding preferred stock with a liquidation preference value, except for Series L Preferred Stock, may be redeemed for the liquidation preference value, plus any accrued but unpaid dividends, on any dividend payment date on or after the earliest redemption date for that series. Additionally, these same series of preferred stock may be redeemed following a “regulatory capital treatment event”, as described in the terms of each series.
Capital actions, including redemptions of our preferred stock, may be subject to regulatory approval or conditions.
In addition, we are authorized to issue 4 million shares of preference stock, without par value. We have not issued any preference shares under this authorization. If issued, preference shares would be limited to one vote per share.
In July 2023, we issued $1.725 billion of our Preferred Stock, Series EE.
Table 9.1 summarizes information about our preferred stock.
Table 9.1:Preferred Stock
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | June 30, 2023 | | December 31, 2022 |
(in millions, except shares) | | Earliest redemption date | | Shares authorized and designated | | Shares issued and outstanding | | Liquidation preference value | | Carrying value | | Shares authorized and designated | | Shares issued and outstanding | | Liquidation preference value | | Carrying value |
DEP Shares | | | | | | | | | | | | | | | | | | |
Dividend Equalization Preferred Shares (DEP) | | Currently redeemable | | 97,000 | | | 96,546 | | | $ | — | | | — | | | 97,000 | | | 96,546 | | | $ | — | | | — | |
Preferred Stock: | | | | | | | | | | | | | | | | | | |
Series L (1) | | | | | | | | | | | | | | | | | | |
7.50% Non-Cumulative Perpetual Convertible Class A | | — | | 4,025,000 | | | 3,967,981 | | | 3,968 | | | 3,200 | | | 4,025,000 | | | 3,967,986 | | | 3,968 | | | 3,200 | |
Series Q | | | | | | | | | | | | | | | | | | |
5.85% Fixed-to-Floating Non-Cumulative Perpetual Class A | | 9/15/2023 | | 69,000 | | | 69,000 | | | 1,725 | | | 1,725 | | | 69,000 | | | 69,000 | | | 1,725 | | | 1,725 | |
Series R | | | | | | | | | | | | | | | | | | |
6.625% Fixed-to-Floating Non-Cumulative Perpetual Class A | | 3/15/2024 | | 34,500 | | | 33,600 | | | 840 | | | 840 | | | 34,500 | | | 33,600 | | | 840 | | | 840 | |
Series S | | | | | | | | | | | | | | | | | | |
5.90% Fixed-to-Floating Non-Cumulative Perpetual Class A | | 6/15/2024 | | 80,000 | | | 80,000 | | | 2,000 | | | 2,000 | | | 80,000 | | | 80,000 | | | 2,000 | | | 2,000 | |
Series U | | | | | | | | | | | | | | | | | | |
5.875% Fixed-to-Floating Non-Cumulative Perpetual Class A | | 6/15/2025 | | 80,000 | | | 80,000 | | | 2,000 | | | 2,000 | | | 80,000 | | | 80,000 | | | 2,000 | | | 2,000 | |
Series Y | | | | | | | | | | | | | | | | | | |
5.625% Non-Cumulative Perpetual Class A | | Currently redeemable | | 27,600 | | | 27,600 | | | 690 | | | 690 | | | 27,600 | | | 27,600 | | | 690 | | | 690 | |
Series Z | | | | | | | | | | | | | | | | | | |
4.75% Non-Cumulative Perpetual Class A | | 3/15/2025 | | 80,500 | | | 80,500 | | | 2,013 | | | 2,013 | | | 80,500 | | | 80,500 | | | 2,013 | | | 2,013 | |
Series AA | | | | | | | | | | | | | | | | | | |
4.70% Non-Cumulative Perpetual Class A | | 12/15/2025 | | 46,800 | | | 46,800 | | | 1,170 | | | 1,170 | | | 46,800 | | | 46,800 | | | 1,170 | | | 1,170 | |
Series BB | | | | | | | | | | | | | | | | | | |
3.90% Fixed-Reset Non-Cumulative Perpetual Class A | | 3/15/2026 | | 140,400 | | | 140,400 | | | 3,510 | | | 3,510 | | | 140,400 | | | 140,400 | | | 3,510 | | | 3,510 | |
Series CC | | | | | | | | | | | | | | | | | | |
4.375% Non-Cumulative Perpetual Class A | | 3/15/2026 | | 46,000 | | | 42,000 | | | 1,050 | | | 1,050 | | | 46,000 | | | 42,000 | | | 1,050 | | | 1,050 | |
Series DD | | | | | | | | | | | | | | | | | | |
4.25% Non-Cumulative Perpetual Class A | | 9/15/2026 | | 50,000 | | | 50,000 | | | 1,250 | | | 1,250 | | | 50,000 | | | 50,000 | | | 1,250 | | | 1,250 | |
Total | | | | 4,776,800 | | | 4,714,427 | | | $ | 20,216 | | | 19,448 | | | 4,776,800 | | | 4,714,432 | | | $ | 20,216 | | | 19,448 | |
(1)At the option of the holder, each share of Series L Preferred Stock may be converted at any time into 6.3814 shares of common stock, plus cash in lieu of fractional shares, subject to anti-dilution adjustments. If converted within 30 days of certain liquidation or change of control events, the holder may receive up to 16.5916 additional shares, or, at our option, receive an equivalent amount of cash in lieu of common stock. We may convert some or all of the Series L Preferred Stock into shares of common stock if the closing price of our common stock exceeds 130 percent of the conversion price of the Series L Preferred Stock for 20 trading days during any period of 30 consecutive trading days. We declared dividends of $74 million on Series L Preferred Stock for both quarters ended June 30, 2023, and June 30, 2022.
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 or other adverse consequences. 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 to or otherwise cooperate with government authorities in the conduct of investigations of other persons or industry groups.
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. There can be no assurance as to the ultimate outcome of legal actions, including the matters described below, and the actual costs of resolving legal actions may be substantially higher or lower than the amounts accrued for those actions.
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. Shareholders 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. On May 1, 2023, the court granted preliminary approval of an agreement pursuant to which the Company agreed to pay $300 million to resolve this action. Additionally, a number of other lawsuits were filed by non-governmental parties seeking damages or other remedies related to these CPI policies and related to the unused portion of guaranteed automobile protection (GAP) waiver or insurance agreements. As previously disclosed, the Company entered into various settlements to resolve these lawsuits, while others were dismissed. In addition, federal and state government agencies, including the CFPB, have undertaken formal or informal inquiries, investigations, or examinations regarding these and other issues related to the origination, servicing, and collection of consumer auto loans, including related insurance products. On December 20, 2022, the Company entered into a consent order with the CFPB to resolve the CFPB’s investigations related to automobile lending, consumer deposit accounts, and mortgage lending. The consent order requires, among other things, remediation to customers and the payment of a $1.7 billion civil penalty to the CFPB. As previously disclosed, the Company entered into an agreement to resolve investigations by state attorneys general.
COMPANY 401(K) PLAN MATTERS Federal government agencies, including the United States Department of Labor (Department of Labor), have undertaken reviews of certain transactions associated with the Employee Stock Ownership Plan feature of the Company’s 401(k) plan, including the manner in which the 401(k) plan purchased certain securities used in connection with the Company’s contributions to the 401(k) plan. As previously disclosed, the Company entered into an agreement to resolve the Department of Labor’s review. On September 26, 2022, participants in the Company’s 401(k) plan filed a putative class action in the United States District Court for the District of Minnesota alleging that the Company violated the Employee Retirement Income Security Act of 1974 in connection with certain of these transactions.
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. On May 16, 2023, the court granted preliminary approval of an agreement pursuant to which the Company agreed to pay $1.0 billion to resolve this action. Allegations related to the Company’s efforts to comply with these three consent orders are also among the subjects of shareholder derivative lawsuits filed in California state and federal court.
HIRING PRACTICES MATTERS Government agencies, including the United States Department of Justice and the United States Securities and Exchange Commission, have undertaken formal or informal inquiries or investigations regarding the Company’s hiring practices related to diversity. A putative securities fraud class action has also been filed in the United States District Court for the Northern District of California alleging that the Company and certain of its executive officers made false or misleading statements about the Company’s hiring practices related to diversity. Allegations related to the Company’s hiring practices related to diversity are also among the subjects of shareholder derivative lawsuits filed in the United States District Court for the Northern District of California and in California state court.
INTERCHANGE LITIGATIONPlaintiffs representing a 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 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. On March 15, 2023, the Second Circuit affirmed the damages class settlement. Settlement objector merchants filed a petition for a rehearing by the Second Circuit en banc, which was denied. On September 27, 2021, the district court granted the plaintiffs’ motion for class certification in the equitable relief case. Several of the opt-out and direct action litigations have been settled while others remain pending.
RECORD-KEEPING INVESTIGATIONS The United States Securities and Exchange Commission and the United States Commodity Futures Trading Commission have undertaken investigations regarding the Company’s compliance with records retention requirements relating to business communications sent over unapproved electronic messaging channels. The Company is in resolution discussions with these agencies, although there can be no assurance as to the outcome of these discussions.
RMBS TRUSTEE LITIGATION In December 2014, Phoenix Light SF Limited (Phoenix Light) and certain related entities filed a complaint in the United States District Court for the Southern District of New York alleging claims against Wells Fargo Bank, N.A., in its capacity as trustee for a number of residential mortgage-backed securities (RMBS) trusts. Complaints raising similar allegations have been filed by Commerzbank AG in the Southern District of New York, IKB International and IKB Deutsche Industriebank in New York state court, and Park Royal I LLC and Park Royal II LLC in New York state court. In each case, the plaintiffs allege that Wells Fargo Bank, N.A., as trustee,
caused losses to investors, and plaintiffs 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. In July 2022, the district court dismissed Phoenix Light’s claims and certain of the claims asserted by Commerzbank AG, and subsequently entered judgment in each case in favor of Wells Fargo Bank, N.A. In August 2022, Phoenix Light and Commerzbank AG each appealed the district court’s decision to the United States Court of Appeals for the Second Circuit. Phoenix Light dismissed its appeal in May 2023, terminating its case. The Company previously settled two class actions filed by institutional investors and an action filed by the National Credit Union Administration with similar allegations.
SEMINOLE TRIBE TRUSTEE LITIGATION The Seminole Tribe of Florida filed a complaint in Florida state court alleging that Wells Fargo, as trustee, charged excess fees in connection with the administration of a minor’s trust and failed to invest the assets of the trust prudently. The complaint was later amended to include three individual current and former beneficiaries as plaintiffs and to remove the Tribe as a party to the case.
OUTLOOKAs described above, the Company establishes accruals for legal actions when potential losses associated with the actions become probable and the costs can be reasonably estimated. The high end of the range of reasonably possible losses in excess of the Company’s accrual for probable and estimable losses was approximately $1.5 billion as of June 30, 2023. 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. Based on information currently available, advice of counsel, available insurance coverage, and established reserves, Wells Fargo believes that the eventual outcome of the 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 derivatives activities, see Note 14 (Derivatives) in our 2022 Form 10-K.
Table 11.1 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 our 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 derivative cash flows are determined.
Table 11.1:Notional or Contractual Amounts and Fair Values of Derivatives
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
| Notional or contractual amount | | Fair value | | Notional or contractual amount | | Fair value |
| | Derivative assets | | Derivative liabilities | | | Derivative assets | | Derivative liabilities |
(in millions) | | | | | |
Derivatives designated as hedging instruments | | | | | | | | | | | |
Interest rate contracts | $ | 313,176 | | | 615 | | | 562 | | | 263,876 | | | 670 | | | 579 | |
Commodity contracts | 4,629 | | | 58 | | | 39 | | | 1,681 | | | 9 | | | 25 | |
Foreign exchange contracts | 4,875 | | | 71 | | | 485 | | | 15,544 | | | 161 | | | 1,015 | |
Total derivatives designated as qualifying hedging instruments | | | 744 | | | 1,086 | | | | | 840 | | | 1,619 | |
Derivatives not designated as hedging instruments | | | | | | | | | | | |
Economic hedges: | | | | | | | | | | | |
Interest rate contracts | 64,868 | | | 348 | | | 204 | | | 65,727 | | | 410 | | | 253 | |
Equity contracts (1) | 4,856 | | | 149 | | | 45 | | | 3,326 | | | — | | | 242 | |
Foreign exchange contracts | 33,940 | | | 177 | | | 410 | | | 38,139 | | | 490 | | | 968 | |
Credit contracts | 360 | | | 16 | | | — | | | 290 | | | 14 | | | — | |
Subtotal | | | 690 | | | 659 | | | | | 914 | | | 1,463 | |
Customer accommodation trading and other derivatives: | | | | | | | | | | | |
Interest rate contracts | 13,385,477 | | | 35,103 | | | 41,032 | | | 10,156,300 | | | 40,006 | | | 42,641 | |
Commodity contracts | 85,438 | | | 3,110 | | | 2,565 | | | 96,001 | | | 5,991 | | | 3,420 | |
Equity contracts | 402,439 | | | 12,632 | | | 13,288 | | | 390,427 | | | 9,573 | | | 8,012 | |
Foreign exchange contracts | 1,681,353 | | | 16,244 | | | 17,797 | | | 1,475,224 | | | 21,562 | | | 24,703 | |
Credit contracts | 53,003 | | | 63 | | | 25 | | | 45,359 | | | 52 | | | 36 | |
| | | | | | | | | | | |
Subtotal | | | 67,152 | | | 74,707 | | | | | 77,184 | | | 78,812 | |
Total derivatives not designated as hedging instruments | | | 67,842 | | | 75,366 | | | | | 78,098 | | | 80,275 | |
Total derivatives before netting | | | 68,586 | | | 76,452 | | | | | 78,938 | | | 81,894 | |
Netting | | | (50,596) | | | (55,021) | | | | | (56,164) | | | (61,827) | |
Total | | | $ | 17,990 | | | 21,431 | | | | | 22,774 | | | 20,067 | |
(1) In first quarter 2023, we adopted ASU 2018-12 – Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. For additional information, see Note 1 (Summary of Significant Accounting Policies).
Balance Sheet Offsetting
We execute substantially all of our derivative transactions under master netting arrangements. Where legally enforceable, these master netting arrangements give the ability, in the event of default by the counterparty, to liquidate securities held as collateral and to offset receivables and payables with the same counterparty. We reflect all derivative balances and related cash collateral subject to enforceable master netting arrangements on a net basis on our consolidated balance sheet. We do not net non-cash collateral that we receive or pledge against derivative balances on our consolidated balance sheet.
For disclosure purposes, we present “Total Derivatives, net” which represents the aggregate of our net exposure to each counterparty after considering the balance sheet netting
adjustments and any non-cash collateral. We manage derivative exposure by monitoring the credit risk associated with each counterparty using counterparty-specific credit risk limits, using master netting arrangements and obtaining collateral.
Table 11.2 provides information on the fair values of derivative assets and liabilities subject to enforceable master netting arrangements, 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. 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 15 (Pledged Assets and Collateral).
Table 11.2:Offsetting of Derivative Assets and Liabilities | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
(in millions) | Derivative Assets | | Derivative Liabilities | | Derivative Assets | | Derivative Liabilities |
Interest rate contracts | | | | | | | |
Over-the-counter (OTC) | $ | 34,048 | | | 37,461 | | | 37,000 | | | 37,598 | |
OTC cleared | 389 | | | 497 | | | 649 | | | 845 | |
Exchange traded | 255 | | | 283 | | | 262 | | | 193 | |
Total interest rate contracts | 34,692 | | | 38,241 | | | 37,911 | | | 38,636 | |
Commodity contracts | | | | | | | |
OTC | 2,379 | | | 1,967 | | | 4,833 | | | 2,010 | |
Exchange traded | 588 | | | 501 | | | 876 | | | 1,134 | |
Total commodity contracts | 2,967 | | | 2,468 | | | 5,709 | | | 3,144 | |
Equity contracts | | | | | | | |
OTC | 6,130 | | | 8,739 | | | 4,269 | | | 4,475 | |
Exchange traded | 3,731 | | | 2,939 | | | 3,742 | | | 2,409 | |
Total equity contracts | 9,861 | | | 11,678 | | | 8,011 | | | 6,884 | |
Foreign exchange contracts | | | | | | | |
OTC | 16,316 | | | 17,756 | | | 21,537 | | | 26,127 | |
| | | | | | | |
Total foreign exchange contracts | 16,316 | | | 17,756 | | | 21,537 | | | 26,127 | |
Credit contracts | | | | | | | |
OTC | 54 | | | 16 | | | 39 | | | 22 | |
| | | | | | | |
Total credit contracts | 54 | | | 16 | | | 39 | | | 22 | |
Total derivatives subject to enforceable master netting arrangements, gross | 63,890 | | | 70,159 | | | 73,207 | | | 74,813 | |
Less: Gross amounts offset | | | | | | | |
Counterparty netting (1) | (45,600) | | | (45,611) | | | (49,115) | | | (49,073) | |
Cash collateral netting | (4,996) | | | (9,410) | | | (7,049) | | | (12,754) | |
Total derivatives subject to enforceable master netting arrangements, net | 13,294 | | | 15,138 | | | 17,043 | | | 12,986 | |
Derivatives not subject to enforceable master netting arrangements (2) | 4,696 | | | 6,293 | | | 5,731 | | | 7,081 | |
Total derivatives recognized in consolidated balance sheet, net | 17,990 | | | 21,431 | | | 22,774 | | | 20,067 | |
Non-cash collateral | (2,369) | | | (3,502) | | | (3,517) | | | (582) | |
Total Derivatives, net | $ | 15,621 | | | 17,929 | | | 19,257 | | | 19,485 | |
(1)Represents amounts with counterparties subject to enforceable master netting arrangements that have been offset in our consolidated balance sheet, including portfolio level counterparty valuation adjustments related to customer accommodation and other trading derivatives. Counterparty valuation adjustments related to derivative assets were $305 million and $372 million and debit valuation adjustments related to derivative liabilities were $316 million and $331 million as of June 30, 2023, and December 31, 2022, respectively, and were primarily related to interest rate contracts.
(2)In first quarter 2023, we adopted ASU 2018-12 – Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. For additional information, see Note 1 (Summary of Significant Accounting Policies).
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. We also enter into futures contracts, forward contracts, and swap contracts to hedge our exposure to the price risk of physical commodities included in Other Assets. 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 (AFS) debt securities due to changes in interest rates, foreign currency rates, or both. For certain fair value hedges of interest rate risk, we use the portfolio layer method to hedge stated amounts of closed portfolios of AFS debt securities. 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
(OCI). See Note 20 (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 interest-earning deposits with banks and certain floating-rate commercial loans, and interest 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 $947 million pre-tax of deferred net losses related to cash flow hedges in OCI at June 30, 2023, will be reclassified into net interest income during the next twelve months. For cash flow hedges as of June 30, 2023, we are hedging our interest rate and foreign currency exposure to the variability of future cash flows for all forecasted transactions for a maximum of 9 years. For additional information on our accounting hedges, see Note 1 (Summary of Significant Accounting Policies) in our 2022 Form 10-K.
Table 11.3 and Table 11.4 show the net gains (losses) related to derivatives in cash flow and fair value hedging relationships, respectively.
Note 11: Derivatives (continued)
Table 11.3:Gains (Losses) Recognized on Cash Flow Hedging Relationships | | | | | | | | | | | | | | | | | | | | | |
| | Net interest income | | Total recorded in net income | Total recorded in OCI |
(in millions) | | Loans | Other interest income | Long-term debt | | Derivative gains (losses) | Derivative gains (losses) |
Quarter ended June 30, 2023 | | | | | | | |
Total amounts presented in the consolidated statement of income and other comprehensive income | | $ | 14,115 | | 2,390 | | (2,693) | | | N/A | (811) | |
Interest rate contracts: | | | | | | | |
Realized gains (losses) (pre-tax) reclassified from OCI into net income | | (68) | | (115) | | — | | | (183) | | 183 | |
Net unrealized gains (losses) (pre-tax) recognized in OCI | | N/A | N/A | N/A | | N/A | (1,000) | |
Total gains (losses) (pre-tax) on interest rate contracts | | (68) | | (115) | | — | | | (183) | | (817) | |
Foreign exchange contracts: | | | | | | | |
Realized gains (losses) (pre-tax) reclassified from OCI into net income | | — | | — | | (2) | | | (2) | | 2 | |
Net unrealized gains (losses) (pre-tax) recognized in OCI | | N/A | N/A | N/A | | N/A | (1) | |
Total gains (losses) (pre-tax) on foreign exchange contracts | | — | | — | | (2) | | | (2) | | 1 | |
Total gains (losses) (pre-tax) recognized on cash flow hedges | | $ | (68) | | (115) | | (2) | | | (185) | | (816) | |
Quarter ended June 30, 2022 | | | | | | | |
Total amounts presented in the consolidated statement of income and other comprehensive income | | $ | 8,116 | | 419 | | (1,011) | | | N/A | (111) | |
Interest rate contracts: | | | | | | | |
Realized gains (losses) (pre-tax) reclassified from OCI into net income | | 11 | | 34 | | — | | | 45 | | (45) | |
Net unrealized gains (losses) (pre-tax) recognized in OCI | | N/A | N/A | N/A | | N/A | (101) | |
Total gains (losses) (pre-tax) on interest rate contracts | | 11 | | 34 | | — | | | 45 | | (146) | |
Foreign exchange contracts: | | | | | | | |
Realized gains (losses) (pre-tax) reclassified from OCI into net income | | — | | — | | (2) | | | (2) | | 2 | |
Net unrealized gains (losses) (pre-tax) recognized in OCI | | N/A | N/A | N/A | | N/A | (13) | |
Total gains (losses) (pre-tax) on foreign exchange contracts | | — | | — | | (2) | | | (2) | | (11) | |
Total gains (losses) (pre-tax) recognized on cash flow hedges | | $ | 11 | | 34 | | (2) | | | 43 | | (157) | |
| | | | | | | |
Six months ended June 30, 2023 | | | | | | | |
Total amounts presented in the consolidated statement of income and other comprehensive income | | $ | 27,433 | | 4,378 | | (5,204) | | | N/A | (308) | |
Interest rate contracts: | | | | | | | |
Realized gains (losses) (pre-tax) reclassified from OCI into net income | | (121) | | (173) | | — | | | (294) | | 294 | |
Net unrealized gains (losses) (pre-tax) recognized in OCI | | N/A | N/A | N/A | | N/A | (617) | |
Total gains (losses) (pre-tax) on interest rate contracts | | (121) | | (173) | | — | | | (294) | | (323) | |
Foreign exchange contracts: | | | | | | | |
Realized gains (losses) (pre-tax) reclassified from OCI into net income | | — | | — | | (4) | | | (4) | | 4 | |
Net unrealized gains (losses) (pre-tax) recognized in OCI | | N/A | N/A | N/A | | N/A | — | |
Total gains (losses) (pre-tax) on foreign exchange contracts | | — | | — | | (4) | | | (4) | | 4 | |
Total gains (losses) (pre-tax) recognized on cash flow hedges | | $ | (121) | | (173) | | (4) | | | (298) | | (319) | |
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Six months ended June 30, 2022 | | | | | | | |
Total amounts presented in the consolidated statement of income and other comprehensive income | | $ | 15,334 | | 509 | | (1,772) | | | N/A | (84) | |
Interest rate contracts: | | | | | | | |
Realized gains (losses) (pre-tax) reclassified from OCI into net income | | (5) | | 38 | | — | | | 33 | | (33) | |
Net unrealized gains (losses) (pre-tax) recognized in OCI | | N/A | N/A | N/A | | N/A | (149) | |
Total gains (losses) (pre-tax) on interest rate contracts | | (5) | | 38 | | — | | | 33 | | (182) | |
Foreign exchange contracts: | | | | | | | |
Realized gains (losses) (pre-tax) reclassified from OCI into net income | | — | | — | | (4) | | | (4) | | 4 | |
Net unrealized gains (losses) (pre-tax) recognized in OCI | | N/A | N/A | N/A | | N/A | (16) | |
Total gains (losses) (pre-tax) on foreign exchange contracts | | — | | — | | (4) | | | (4) | | (12) | |
Total gains (losses) (pre-tax) recognized on cash flow hedges | | $ | (5) | | 38 | | (4) | | | 29 | | (194) | |
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Table 11.4:Gains (Losses) Recognized on Fair Value Hedging Relationships | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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) |
Quarter ended June 30, 2023 | | | | | | | | | | |
Total amounts presented in the consolidated statement of income and other comprehensive income | $ | 4,037 | | | (3,805) | | (2,693) | | | 412 | | | N/A | | (811) | |
Interest contracts | | | | | | | | | | |
Amounts related to cash flows on derivatives | 331 | | | (82) | | (850) | | | — | | | (601) | | | N/A |
Recognized on derivatives | 937 | | | (276) | | (2,587) | | | — | | | (1,926) | | | — | |
Recognized on hedged items | (937) | | | 278 | | 2,575 | | | — | | | 1,916 | | | N/A |
Total gains (losses) (pre-tax) on interest rate contracts | 331 | | | (80) | | (862) | | | — | | | (611) | | | — | |
Foreign exchange contracts | | | | | | | | | | |
Amounts related to cash flows on derivatives | — | | | — | | (48) | | | — | | | (48) | | | N/A |
Recognized on derivatives | — | | | — | | (18) | | | (8) | | | (26) | | | 5 | |
Recognized on hedged items | — | | | — | | 14 | | | 8 | | | 22 | | | N/A |
Total gains (losses) (pre-tax) on foreign exchange contracts | — | | | — | | (52) | | | — | | | (52) | | | 5 | |
Commodity contracts | | | | | | | | | | |
Recognized on derivatives | — | | | — | | — | | | 109 | | | 109 | | | — | |
Recognized on hedged items | — | | | — | | — | | | (90) | | | (90) | | | N/A |
Total gains (losses) (pre-tax) on commodity contracts | — | | | — | | — | | | 19 | | | 19 | | | — | |
Total gains (losses) (pre-tax) recognized on fair value hedges | $ | 331 | | | (80) | | (914) | | | 19 | | | (644) | | | 5 | |
Quarter ended June 30, 2022 | | | | | | | | | | |
Total amounts presented in the consolidated statement of income and other comprehensive income | $ | 2,702 | | | (158) | | (1,011) | | | 566 | | | N/A | | (111) | |
Interest contracts | | | | | | | | | | |
Amounts related to cash flows on derivatives | (45) | | | 23 | | 336 | | | — | | | 314 | | | N/A |
Recognized on derivatives | 768 | | | (70) | | (5,202) | | | — | | | (4,504) | | | — | |
Recognized on hedged items | (753) | | | 68 | | 5,128 | | | — | | | 4,443 | | | N/A |
Total gains (losses) (pre-tax) on interest rate contracts | (30) | | | 21 | | 262 | | | — | | | 253 | | | — | |
Foreign exchange contracts | | | | | | | | | | |
Amounts related to cash flows on derivatives | — | | | — | | (21) | | | — | | | (21) | | | N/A |
Recognized on derivatives | — | | | — | | (315) | | | (929) | | | (1,244) | | | 46 | |
Recognized on hedged items | — | | | — | | 333 | | | 898 | | | 1,231 | | | N/A |
Total gains (losses) (pre-tax) on foreign exchange contracts | — | | | — | | (3) | | | (31) | | | (34) | | | 46 | |
Commodity contracts | | | | | | | | | | |
Recognized on derivatives | — | | | — | | — | | | 228 | | | 228 | | | — | |
Recognized on hedged items | — | | | — | | — | | | (217) | | | (217) | | | N/A |
Total gains (losses) (pre-tax) on commodity contracts | — | | | — | | — | | | 11 | | | 11 | | | — | |
Total gains (losses) (pre-tax) recognized on fair value hedges | $ | (30) | | | 21 | | 259 | | | (20) | | | 230 | | | 46 | |
(continued on following page)
Note 11: Derivatives (continued)
(continued from previous page)
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| 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, 2023 | | | | | | | | | | |
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Total amounts presented in the consolidated statement of income and other comprehensive income | $ | 7,820 | | | (6,566) | | (5,204) | | | 992 | | | N/A | | (308) | |
Interest contracts | | | | | | | | | | |
Amounts related to cash flows on derivatives | 600 | | | (112) | | (1,532) | | | — | | | (1,044) | | | N/A |
Recognized on derivatives | 237 | | | (171) | | (229) | | | — | | | (163) | | | — | |
Recognized on hedged items | (245) | | | 170 | | 215 | | | — | | | 140 | | | N/A |
Total gains (losses) (pre-tax) on interest rate contracts | 592 | | | (113) | | (1,546) | | | — | | | (1,067) | | | — | |
Foreign exchange contracts | | | | | | | | | | |
Amounts related to cash flows on derivatives | — | | | — | | (151) | | | — | | | (151) | | | N/A |
Recognized on derivatives | — | | | — | | 34 | | | 27 | | | 61 | | | 11 | |
Recognized on hedged items | — | | | — | | (46) | | | (21) | | | (67) | | | N/A |
Total gains (losses) (pre-tax) on foreign exchange contracts | — | | | — | | (163) | | | 6 | | | (157) | | | 11 | |
Commodity contracts | | | | | | | | | | |
Recognized on derivatives | — | | | — | | — | | | 97 | | | 97 | | | — | |
Recognized on hedged items | — | | | — | | — | | | (65) | | | (65) | | | N/A |
Total gains (losses) (pre-tax) on commodity contracts | — | | | — | | — | | | 32 | | | 32 | | | — | |
Total gains (losses) (pre-tax) recognized on fair value hedges | $ | 592 | | | (113) | | (1,709) | | | 38 | | | (1,192) | | | 11 | |
Six months ended June 30, 2022 | | | | | | | | | | |
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Total amounts presented in the consolidated statement of income and other comprehensive income | $ | 5,265 | | | (241) | | (1,772) | | | 1,258 | | | N/A | | (84) | |
Interest contracts | | | | | | | | | | |
Amounts related to cash flows on derivatives | (86) | | | 64 | | 817 | | | — | | | 795 | | | N/A |
Recognized on derivatives | 2,030 | | | (215) | | (12,071) | | | — | | | (10,256) | | | — | |
Recognized on hedged items | (2,001) | | | 211 | | 11,941 | | | — | | | 10,151 | | | N/A |
Total gains (losses) (pre-tax) on interest rate contracts | (57) | | | 60 | | 687 | | | — | | | 690 | | | — | |
Foreign exchange contracts | | | | | | | | | | |
Amounts related to cash flows on derivatives | — | | | — | | (17) | | | — | | | (17) | | | N/A |
Recognized on derivatives | — | | | — | | (771) | | | (1,171) | | | (1,942) | | | 110 | |
Recognized on hedged items | — | | | — | | 778 | | | 1,139 | | | 1,917 | | | N/A |
Total gains (losses) (pre-tax) on foreign exchange contracts | — | | | — | | (10) | | | (32) | | | (42) | | | 110 | |
Commodity contracts | | | | | | | | | | |
Recognized on derivatives | — | | | — | | — | | | 136 | | | 136 | | | — | |
Recognized on hedged items | — | | | — | | — | | | (130) | | | (130) | | | N/A |
Total gains (losses) (pre-tax) on commodity contracts | — | | | — | | — | | | 6 | | | 6 | | | — | |
Total gains (losses) (pre-tax) recognized on fair value hedges | $ | (57) | | | 60 | | 677 | | | (26) | | | 654 | | | 110 | |
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Table 11.5 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 11.5:Hedged Items in Fair Value Hedging Relationships
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| Hedged items currently designated | | Hedged items no longer designated |
(in millions) | Carrying amount of assets/(liabilities) (1)(2) | Hedge accounting basis adjustment assets/(liabilities) (3) | | Carrying amount of assets/(liabilities) (2) | Hedge accounting basis adjustment assets/(liabilities) |
June 30, 2023 | | | | | |
Available-for-sale debt securities (4)(5) | $ | 52,703 | | (3,186) | | | 15,113 | | 602 | |
Other assets | 2,013 | | (49) | | | — | | — | |
Deposits | (65,415) | | 374 | | | (10) | | — | |
Long-term debt | (129,708) | | 13,970 | | | (34) | | 3 | |
December 31, 2022 | | | | | |
Available-for-sale debt securities (4) | $ | 39,423 | | (3,859) | | | 16,100 | | 722 | |
Other assets | 1,663 | | 38 | | | — | | — | |
Deposits | (41,687) | | 205 | | | (10) | | — | |
Long-term debt | (130,997) | | 13,862 | | | (5) | | — | |
(1)Does not include the carrying amount of hedged items where only foreign currency risk is the designated hedged risk. The carrying amount excluded $673 million and $739 million for available-for-sale debt securities as of June 30, 2023, and December 31, 2022, respectively. There was no carrying amount related to long-term debt at both June 30, 2023, and December 31, 2022.
(2)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.
(3)The balance includes $35 million and $802 million of debt securities and long-term debt cumulative basis adjustments, respectively, as of June 30, 2023, and $39 million and $334 million of debt securities and long-term debt cumulative basis adjustments, respectively, as of December 31, 2022, on terminated hedges whereby the hedged items have subsequently been re-designated into existing hedges.
(4)Carrying amount represents the amortized cost.
(5)The balance includes cumulative basis adjustments of $(224) million for hedged items currently designated as of June 30, 2023, related to certain AFS debt securities designated as the hedged item in a fair value hedge using the portfolio layer method. At June 30, 2023, the aggregated designated hedged items using the portfolio layer method had a carrying amount of $23.0 billion from closed portfolios of financial assets totaling $26.1 billion.
Derivatives Not Designated as Hedging Instruments
Derivatives not designated as hedging instruments include economic hedges and derivatives entered into for customer accommodation trading purposes.
We use economic hedge derivatives to 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.
Changes in the fair values of derivatives used to economically hedge the deferred compensation plan are reported in personnel expense.
For additional information on our derivatives activities, see Note 14 (Derivatives) in our 2022 Form 10-K.
Note 11: Derivatives (continued)
Table 11.6 shows the net gains (losses), recognized by income statement lines, related to derivatives not designated as hedging instruments.
Table 11.6:Gains (Losses) on Derivatives Not Designated as Hedging Instruments | | | | | | | | | | | | | | | | | | | | | |
| Noninterest income | | Noninterest expense |
(in millions) | Mortgage banking | Net gains (losses) on trading and securities | | Other | Total | | Personnel expense |
Quarter ended June 30, 2023 | | | | | | | |
Net gains (losses) recognized on economic hedges derivatives: | | | | | | | |
Interest contracts (1) | $ | (242) | | — | | | (98) | | (340) | | | — | |
Equity contracts | — | | — | | | (81) | | (81) | | | (172) | |
Foreign exchange contracts | — | | — | | | (327) | | (327) | | | — | |
Credit contracts | — | | — | | | — | | — | | | — | |
Subtotal | (242) | | — | | | (506) | | (748) | | | (172) | |
Net gains (losses) recognized on customer accommodation trading and other derivatives: | | | | | | | |
Interest contracts | (9) | | 499 | | | — | | 490 | | | — | |
Commodity contracts | — | | 87 | | | — | | 87 | | | — | |
Equity contracts | — | | (1,440) | | | (119) | | (1,559) | | | — | |
Foreign exchange contracts | — | | 893 | | | — | | 893 | | | — | |
Credit contracts | — | | (20) | | | — | | (20) | | | — | |
Subtotal | (9) | | 19 | | | (119) | | (109) | | | — | |
Net gains (losses) recognized related to derivatives not designated as hedging instruments | $ | (251) | | 19 | | | (625) | | (857) | | | (172) | |
Quarter ended June 30, 2022 | | | | | | | |
Net gains (losses) recognized on economic hedges derivatives: | | | | | | | |
Interest contracts (1) | $ | (270) | | — | | | (26) | | (296) | | | — | |
Equity contracts (2) | — | | — | | | 11 | | 11 | | | 577 | |
Foreign exchange contracts | — | | — | | | 838 | | 838 | | | — | |
Credit contracts | — | | — | | | 2 | | 2 | | | — | |
Subtotal | (270) | | — | | | 825 | | 555 | | | 577 | |
Net gains (losses) recognized on customer accommodation trading and other derivatives: | | | | | | | |
Interest contracts | (314) | | 2,791 | | | — | | 2,477 | | | — | |
Commodity contracts | — | | 104 | | | — | | 104 | | | — | |
Equity contracts | — | | 3,901 | | | (76) | | 3,825 | | | — | |
Foreign exchange contracts | — | | 318 | | | — | | 318 | | | — | |
Credit contracts | — | | 29 | | | — | | 29 | | | — | |
Subtotal | (314) | | 7,143 | | | (76) | | 6,753 | | | — | |
Net gains (losses) recognized related to derivatives not designated as hedging instruments | $ | (584) | | 7,143 | | | 749 | | 7,308 | | | 577 | |
(continued on following page)
(continued from previous page)
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| Noninterest income | | Noninterest expense |
(in millions) | Mortgage banking | Net gains (losses) from trading and securities | | Other | Total | | Personnel expense |
Six months ended June 30, 2023 | | | | | | | |
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Net gains (losses) recognized on economic hedges derivatives: | | | | | | | |
Interest contracts (1) | $ | (96) | | — | | | (50) | | (146) | | | — | |
Equity contracts | — | | — | | | (161) | | (161) | | | (363) | |
Foreign exchange contracts | — | | — | | | (693) | | (693) | | | — | |
Credit contracts | — | | — | | | (1) | | (1) | | | — | |
Subtotal | (96) | | — | | | (905) | | (1,001) | | | (363) | |
Net gains (losses) recognized on customer accommodation trading and other derivatives: | | | | | | | |
Interest contracts | (11) | | 163 | | | — | | 152 | | | — | |
Commodity contracts | — | | 199 | | | — | | 199 | | | — | |
Equity contracts | — | | (2,910) | | | (183) | | (3,093) | | | — | |
Foreign exchange contracts | — | | 794 | | | — | | 794 | | | — | |
Credit contracts | — | | (27) | | | — | | (27) | | | — | |
Subtotal | (11) | | (1,781) | | | (183) | | (1,975) | | | — | |
Net gains (losses) recognized related to derivatives not designated as hedging instruments | $ | (107) | | (1,781) | | | (1,088) | | (2,976) | | | (363) | |
Six months ended June 30, 2022 | | | | | | | |
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Net gains (losses) recognized on economic hedges derivatives: | | | | | | | |
Interest contracts (1) | $ | (638) | | — | | | (52) | | (690) | | | — | |
Equity contracts (2) | — | | — | | | 16 | | 16 | | | 843 | |
Foreign exchange contracts | — | | — | | | 1,069 | | 1,069 | | | — | |
Credit contracts | — | | — | | | 7 | | 7 | | | — | |
Subtotal | (638) | | — | | | 1,040 | | 402 | | | 843 | |
Net gains (losses) recognized on customer accommodation trading and other derivatives: | | | | | | | |
Interest contracts | (812) | | 6,005 | | | — | | 5,193 | | | — | |
Commodity contracts | — | | 217 | | | — | | 217 | | | — | |
Equity contracts | — | | 4,904 | | | (114) | | 4,790 | | | — | |
Foreign exchange contracts | — | | 645 | | | — | | 645 | | | — | |
Credit contracts | — | | 41 | | | — | | 41 | | | — | |
Subtotal | (812) | | 11,812 | | | (114) | | 10,886 | | | — | |
Net gains (losses) recognized related to derivatives not designated as hedging instruments | $ | (1,450) | | 11,812 | | | 926 | | 11,288 | | | 843 | |
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(1)Mortgage banking amounts for the second quarter and first half of 2023 are comprised of gains (losses) of $(331) million and $(146) million, respectively, related to derivatives used as economic hedges of MSRs measured at fair value offset by gains (losses) of $89 million and $50 million, respectively, related to derivatives used as economic hedges of mortgage loans held for sale and derivative loan commitments. The corresponding amounts for the second quarter and first half of 2022 are comprised of gain (losses) of $(980) million and $(2.6) billion, respectively, offset by gains (losses) of $710 million and $2.0 billion, respectively.
(2)In first quarter 2023, we adopted ASU 2018-12 – Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. For additional information, see Note 1 (Summary of Significant Accounting Policies).
Note 11: 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 generally use credit derivatives to assist customers with their risk management objectives by purchasing and selling credit protection on corporate debt obligations through the use of credit default swaps or through risk participation swaps to help manage counterparty exposure. We would be required to perform under the credit derivatives we sold 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.
Table 11.7 provides details of sold credit derivatives.
Table 11.7:Sold Credit Derivatives
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| Notional amount |
(in millions) | Protection sold | Protection sold – non-investment grade |
June 30, 2023 | | |
Credit default swaps | $ | 14,273 | | 1,677 | |
Risk participation swaps | 6,460 | | 6,250 | |
Total credit derivatives | $ | 20,733 | | 7,927 | |
December 31, 2022 | | |
Credit default swaps | $ | 12,733 | | 1,860 | |
Risk participation swaps | 6,728 | | 6,518 | |
Total credit derivatives | $ | 19,461 | | 8,378 | |
Protection sold represents the estimated maximum exposure to loss that would be incurred if, upon an event of default, the value of our interests and any associated collateral declined to zero, and does not take into consideration any of recovery value from the referenced obligation or offset from collateral held or any economic hedges.
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 credit risk to be low if the underlying assets under the credit derivative have an external rating that is investment grade. If an external rating is not available, we classify the credit derivative as non-investment grade.
Our maximum exposure to sold credit derivatives is managed through posted collateral and purchased credit derivatives with identical or similar reference positions in order to achieve our desired credit risk profile. The credit risk management is designed to provide an ability to recover a significant portion of any amounts that would be paid under sold credit derivatives.
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 11.8 illustrates our exposure to OTC 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 11.8:Credit-Risk Contingent Features
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(in billions) | Jun 30, 2023 | Dec 31, 2022 |
Net derivative liabilities with credit-risk contingent features | $ | 23.2 | | 20.7 | |
Collateral posted | 20.0 | | 17.4 | |
Additional collateral to be posted upon a below investment grade credit rating (1) | 3.2 | | 3.3 | |
(1)Any credit rating below investment grade requires us to post the maximum amount of collateral.
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Note 12: Fair Values of Assets and Liabilities |
We use fair value measurements to record fair value adjustments to certain assets and liabilities and to fulfill fair value disclosure requirements. 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 12.1 in this Note. Additionally, from time to time, we record fair value adjustments on a nonrecurring basis. These nonrecurring adjustments typically involve application of lower 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 12.4 in this Note. We provide in Table 12.9 estimates of fair value for financial instruments that are not recorded at fair value, such as loans and debt liabilities carried at amortized cost.
See Note 1 (Summary of Significant Accounting Policies) in our 2022 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, see Note 15 (Fair Values of Assets and Liabilities) in our 2022 Form 10-K.
FAIR VALUE HIERARCHY We classify our assets and liabilities recorded at fair value as either Level 1, 2, or 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 2022 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. This determination is ultimately based upon the specific facts and circumstances of each instrument or instrument category and judgments are made regarding the significance of the unobservable inputs to the instruments’ fair value measurement in its entirety. If unobservable 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) as a practical expedient to measure fair value. Marketable equity securities with published NAVs are classified in the fair value hierarchy.
Note 12: Fair Values of Assets and Liabilities (continued)
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
Table 12.1 presents the balances of assets and liabilities recorded at fair value on a recurring basis.
Table 12.1:Fair Value on a Recurring Basis
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| June 30, 2023 | | December 31, 2022 |
(in millions) | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
Trading debt securities: | | | | | | | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | $ | 31,084 | | | 2,818 | | | — | | | 33,902 | | | 28,844 | | | 4,530 | | | — | | | 33,374 | |
Collateralized loan obligations | — | | | 624 | | | 64 | | | 688 | | | — | | | 540 | | | 150 | | | 690 | |
Corporate debt securities | — | | | 13,499 | | | 62 | | | 13,561 | | | — | | | 10,344 | | | 23 | | | 10,367 | |
Federal agency mortgage-backed securities | — | | | 39,235 | | | — | | | 39,235 | | | — | | | 34,447 | | | — | | | 34,447 | |
Non-agency mortgage-backed securities | — | | | 1,317 | | | 5 | | | 1,322 | | | — | | | 1,243 | | | 12 | | | 1,255 | |
Other debt securities | — | | | 8,148 | | | 1 | | | 8,149 | | | — | | | 6,022 | | | — | | | 6,022 | |
Total trading debt securities | 31,084 | | | 65,641 | | | 132 | | | 96,857 | | | 28,844 | | | 57,126 | | | 185 | | | 86,155 | |
Available-for-sale debt securities: | | | | | | | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | 46,896 | | | — | | | — | | | 46,896 | | | 45,285 | | | — | | | — | | | 45,285 | |
Non-U.S. government securities | — | | | 162 | | | — | | | 162 | | | — | | | 162 | | | — | | | 162 | |
Securities of U.S. states and political subdivisions | — | | | 21,295 | | | 79 | | | 21,374 | | | — | | | 10,332 | | | 113 | | | 10,445 | |
Federal agency mortgage-backed securities | — | | | 56,981 | | | — | | | 56,981 | | | — | | | 48,137 | | | — | | | 48,137 | |
Non-agency mortgage-backed securities | — | | | 3,049 | | | — | | | 3,049 | | | — | | | 3,284 | | | — | | | 3,284 | |
Collateralized loan obligations | — | | | 3,725 | | | — | | | 3,725 | | | — | | | 3,981 | | | — | | | 3,981 | |
Other debt securities | — | | | 1,913 | | | 151 | | | 2,064 | | | — | | | 2,137 | | | 163 | | | 2,300 | |
Total available-for-sale debt securities | 46,896 | | | 87,125 | | | 230 | | | 134,251 | | | 45,285 | | | 68,033 | | | 276 | | | 113,594 | |
Loans held for sale | — | | | 2,488 | | | 486 | | | 2,974 | | | — | | | 3,427 | | | 793 | | | 4,220 | |
Mortgage servicing rights (residential) | — | | | — | | | 8,251 | | | 8,251 | | | — | | | — | | | 9,310 | | | 9,310 | |
Derivative assets (gross): | | | | | | | | | | | | | | | |
Interest rate contracts | 258 | | | 35,353 | | | 455 | | | 36,066 | | | 262 | | | 40,503 | | | 321 | | | 41,086 | |
Commodity contracts | — | | | 3,136 | | | 32 | | | 3,168 | | | — | | | 5,866 | | | 134 | | | 6,000 | |
Equity contracts | 178 | | | 12,335 | | | 268 | | | 12,781 | | | 112 | | | 9,051 | | | 410 | | | 9,573 | |
Foreign exchange contracts | 30 | | | 16,445 | | | 17 | | | 16,492 | | | 27 | | | 22,175 | | | 11 | | | 22,213 | |
Credit contracts | — | | | 55 | | | 24 | | | 79 | | | — | | | 44 | | | 22 | | | 66 | |
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Total derivative assets (gross) | 466 | | | 67,324 | | | 796 | | | 68,586 | | | 401 | | | 77,639 | | | 898 | | | 78,938 | |
Equity securities: | | | | | | | | | | | | | | | |
Marketable | 20,348 | | | 159 | | | 5 | | | 20,512 | | | 18,527 | | | 86 | | | 3 | | | 18,616 | |
Nonmarketable | — | | | 11,075 | | | 22 | | | 11,097 | | | — | | | 9,750 | | | 17 | | | 9,767 | |
Total equity securities | 20,348 | | | 11,234 | | | 27 | | | 31,609 | | | 18,527 | | | 9,836 | | | 20 | | | 28,383 | |
Total assets prior to derivative netting | $ | 98,794 | | | 233,812 | | | 9,922 | | | 342,528 | | | 93,057 | | | 216,061 | | | 11,482 | | | 320,600 | |
Derivative netting (1) | | | | | | | (50,596) | | | | | | | | | (56,164) | |
Total assets after derivative netting | | | | | | | $ | 291,932 | | | | | | | | | 264,436 | |
Derivative liabilities (gross): | | | | | | | | | | | | | | | |
Interest rate contracts | $ | (287) | | | (35,418) | | | (6,093) | | | (41,798) | | | (193) | | | (40,377) | | | (2,903) | | | (43,473) | |
Commodity contracts | — | | | (2,556) | | | (48) | | | (2,604) | | | — | | | (3,325) | | | (120) | | | (3,445) | |
Equity contracts (2) | (161) | | | (11,523) | | | (1,649) | | | (13,333) | | | (118) | | | (6,502) | | | (1,634) | | | (8,254) | |
Foreign exchange contracts | (38) | | | (18,630) | | | (24) | | | (18,692) | | | (29) | | | (26,622) | | | (35) | | | (26,686) | |
Credit contracts | — | | | (23) | | | (2) | | | (25) | | | — | | | (33) | | | (3) | | | (36) | |
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Total derivative liabilities (gross) | (486) | | | (68,150) | | | (7,816) | | | (76,452) | | | (340) | | | (76,859) | | | (4,695) | | | (81,894) | |
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Short-sale and other liabilities (2) | (22,966) | | | (4,739) | | | (58) | | | (27,763) | | | (14,791) | | | (5,513) | | | (167) | | | (20,471) | |
Long-term debt | — | | | (1,600) | | | — | | | (1,600) | | | — | | | (1,346) | | | — | | | (1,346) | |
Total liabilities prior to derivative netting | $ | (23,452) | | | $ | (74,489) | | | (7,874) | | | (105,815) | | | (15,131) | | | (83,718) | | | (4,862) | | | (103,711) | |
Derivative netting (1) | | | | | | | 55,021 | | | | | | | | | 61,827 | |
Total liabilities after derivative netting | | | | | | | $ | (50,794) | | | | | | | | | (41,884) | |
(1)Represents balance sheet netting of derivative asset and liability balances, related cash collateral and portfolio level counterparty valuation adjustments. See Note 11 (Derivatives) for additional information.
(2)In first quarter 2023, we adopted ASU 2018-12 – Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. For additional information, see Note 1 (Summary of Significant Accounting Policies).
Level 3 Assets and Liabilities Recorded at Fair Value on a Recurring Basis
Table 12.2 presents the changes in Level 3 assets and liabilities measured at fair value on a recurring basis.
Table 12.2:Changes in Level 3 Fair Value Assets and Liabilities on a Recurring Basis
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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, 2023 | | | | | | | | | | | | | | | | | | |
Trading debt securities | $ | 132 | | | (8) | | | 31 | | | (36) | | | (3) | | | 55 | | | (39) | | | 132 | | | (8) | | (6) |
Available-for-sale debt securities | 505 | | | (4) | | | 7 | | | — | | | (4) | | | 22 | | | (296) | | | 230 | | | (3) | | (6) |
Loans held for sale | 564 | | | (10) | | | 94 | | | (180) | | | (26) | | | 49 | | | (5) | | | 486 | | | (30) | | (7) |
Mortgage servicing rights (residential) (8) | 8,819 | | | (9) | | | 47 | | | (606) | | | — | | | — | | | — | | | 8,251 | | | 316 | | (7) |
Net derivative assets and liabilities: | | | | | | | | | | | | | | | | | | |
Interest rate contracts | (2,752) | | | (2,870) | | | 1 | | | (1) | | | 668 | | | (684) | | | — | | | (5,638) | | | (2,258) | | |
Equity contracts | (1,278) | | | (160) | | | — | | | — | | | 49 | | | (17) | | | 25 | | | (1,381) | | | (131) | | |
Other derivative contracts | (10) | | | (8) | | | 4 | | | (1) | | | 14 | | | — | | | — | | | (1) | | | 4 | | |
Total derivative contracts | (4,040) | | | (3,038) | | | 5 | | | (2) | | | 731 | | | (701) | | | 25 | | | (7,020) | | | (2,385) | | (9) |
Equity securities | 32 | | | (15) | | | 4 | | | (3) | | | — | | | 9 | | | — | | | 27 | | | (15) | | (6) |
Other liabilities | (193) | | | 135 | | | — | | | — | | | — | | | — | | | — | | | (58) | | | 135 | | (10) |
Quarter ended June 30, 2022 | | | | | | | | | | | | | | | | | | |
Trading debt securities | $ | 201 | | | (22) | | | 46 | | | (78) | | | 29 | | | — | | | (7) | | | 169 | | | (28) | | (6) |
Available-for-sale debt securities | 338 | | | (5) | | | 2 | | | (25) | | | (5) | | | — | | | (138) | | | 167 | | | (1) | | (6) |
Loans held for sale | 1,019 | | | (61) | | | 116 | | | (27) | | | (57) | | | 84 | | | (2) | | | 1,072 | | | (61) | | (7) |
Mortgage servicing rights (residential) (8) | 8,511 | | | 581 | | | 322 | | | (251) | | | — | | | — | | | — | | | 9,163 | | | 868 | | (7) |
Net derivative assets and liabilities: | | | | | | | | | | | | | | | | | | |
Interest rate contracts | (176) | | | (381) | | | — | | | — | | | 371 | | | (385) | | | — | | | (571) | | | (133) | | |
Equity contracts | (1,416) | | | 202 | | | — | | | — | | | 280 | | | (516) | | | (34) | | | (1,484) | | | 403 | | |
Other derivative contracts | 27 | | | 88 | | | — | | | — | | | 28 | | | — | | | (6) | | | 137 | | | 89 | | |
Total derivative contracts | (1,565) | | | (91) | | | — | | | — | | | 679 | | | (901) | | | (40) | | | (1,918) | | | 359 | | (9) |
Equity securities | 26 | | | 5 | | | — | | | (2) | | | — | | | 3 | | | (1) | | | 31 | | | 5 | | (6) |
Other liabilities (11) | (638) | | | 89 | | | — | | | — | | | — | | | — | | | — | | | (549) | | | 89 | | (10) |
Six months ended June 30, 2023 | | | | | | | | | | | | | | | | | | |
Trading debt securities | $ | 185 | | | (7) | | | 107 | | | (148) | | | (4) | | | 55 | | | (56) | | | 132 | | | (11) | | (6) |
Available-for-sale debt securities | 276 | | | (24) | | | 76 | | | — | | | (10) | | | 255 | | | (343) | | | 230 | | | (22) | | (6) |
Loans held for sale | 793 | | | — | | | 167 | | | (229) | | | (65) | | | 65 | | | (245) | | | 486 | | | (23) | | (7) |
Mortgage servicing rights (residential) (8) | 9,310 | | | (555) | | | 95 | | | (599) | | | — | | | — | | | — | | | 8,251 | | | 91 | | (7) |
Net derivative assets and liabilities: | | | | | | | | | | | | | | | | | | |
Interest rate contracts | (2,582) | | | (2,575) | | | 1 | | | (1) | | | 935 | | | (1,430) | | | 14 | | | (5,638) | | | (1,755) | | |
Equity contracts | (1,224) | | | (463) | | | — | | | — | | | 334 | | | (55) | | | 27 | | | (1,381) | | | (125) | | |
Other derivative contracts | 9 | | | (63) | | | 6 | | | (2) | | | 51 | | | (2) | | | — | | | (1) | | | (36) | | |
Total derivative contracts | (3,797) | | | (3,101) | | | 7 | | | (3) | | | 1,320 | | | (1,487) | | | 41 | | | (7,020) | | | (1,916) | | (9) |
Equity securities | 20 | | | (16) | | | 4 | | | (3) | | | — | | | 22 | | | — | | | 27 | | | (16) | | (6) |
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Other liabilities | (167) | | | 109 | | | — | | | — | | | — | | | — | | | — | | | (58) | | | 109 | | (10) |
Six months ended June 30, 2022 | | | | | | | | | | | | | | | | | | |
Trading debt securities | $ | 241 | | | (37) | | | 93 | | | (92) | | | (6) | | | 5 | | | (35) | | | 169 | | | (40) | | (6) |
Available-for-sale debt securities | 186 | | | (26) | | | 54 | | | (25) | | | (10) | | | 126 | | | (138) | | | 167 | | | (1) | | (6) |
Loans held for sale | 1,033 | | | (118) | | | 179 | | | (70) | | | (130) | | | 186 | | | (8) | | | 1,072 | | | (115) | | (7) |
Mortgage servicing rights (residential) (8) | 6,920 | | | 1,829 | | | 664 | | | (250) | | | — | | | — | | | — | | | 9,163 | | | 2,473 | | (7) |
Net derivative assets and liabilities: | | | | | | | | | | | | | | | | | | |
Interest rate contracts | 127 | | | (959) | | | — | | | — | | | 646 | | | (385) | | | — | | | (571) | | | (241) | | |
Equity contracts (11) | (417) | | | (14) | | | — | | | — | | | 869 | | | (596) | | | (1,326) | | | (1,484) | | | 610 | | |
Other derivative contracts | 5 | | | 66 | | | — | | | — | | | 72 | | | — | | | (6) | | | 137 | | | 110 | | |
Total derivative contracts | (285) | | | (907) | | | — | | | — | | | 1,587 | | | (981) | | | (1,332) | | | (1,918) | | | 479 | | (9) |
Equity securities | 8,910 | | | 4 | | | — | | | (2) | | | — | | | 5 | | | (8,886) | | | 31 | | | 4 | | (6) |
Other liabilities (11) | (791) | | | 242 | | | — | | | — | | | — | | | — | | | — | | | (549) | | | 242 | | (10) |
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(1)All amounts represent net gains (losses) included in net income except for AFS debt securities and other liabilities which also included net gains (losses) in other comprehensive income. Net gains (losses) included in other comprehensive income for AFS debt securities were $(3) million and $(19) million for the second quarter and first half of 2023, respectively, and $(6) million and $(27) million for the second quarter and first half of 2022, respectively. Net gains (losses) included in other comprehensive income for other liabilities were $5 million for both the second quarter and first half of 2023, and $87 million and $101 million for the second quarter and first half of 2022, respectively.
(2)Includes originations of mortgage servicing rights and 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 Level 3 are classified as Level 2. During first quarter 2022, we transferred $8.9 billion of non-marketable equity securities and $1.4 billion of related economic hedging derivative assets (equity contracts) out of Level 3 due to our election to measure fair value of these instruments as a portfolio. Under this election, the unit of valuation is the portfolio-level, rather than each individual instrument. The unobservable inputs previously significant to the valuation of the instruments individually are no longer significant, as those unobservable inputs offset under the portfolio election.
(5)All amounts represent net unrealized gains (losses) related to assets and liabilities held at period end included in net income except for AFS debt securities and other liabilities which also included net unrealized gains (losses) related to assets and liabilities held at period end in other comprehensive income. Net unrealized gains (losses) included in other comprehensive income for AFS debt securities were $(2) million and $(17) million for the second quarter and first half of 2023, respectively, and $0 for both the second quarter and first half of 2022. Net unrealized gains (losses) included in other comprehensive income for other liabilities were $5 million for both the second quarter and first half of 2023, and $87 million and $101 million for the second quarter and first half of 2022, respectively.
(6)Included in net gains from trading and securities on our consolidated statement of income.
(7)Included in mortgage banking income on our consolidated statement of income.
(8)For additional information on the changes in mortgage servicing rights, see Note 6 (Mortgage Banking Activities).
(9)Included in mortgage banking income, net gains from trading and securities, and other noninterest income on our consolidated statement of income.
(10)Included in other noninterest income on our consolidated statement of income.
(11)In first quarter 2023, we adopted ASU 2018-12 – Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. For additional information, see Note 1 (Summary of Significant Accounting Policies).
Note 12: Fair Values of Assets and Liabilities (continued)
Table 12.3 provides quantitative information about the valuation techniques and significant unobservable inputs used in the valuation of our Level 3 assets and liabilities measured at fair value on a recurring basis.
The significant unobservable inputs for Level 3 assets inherent in the fair values obtained from third-party vendors are not included in the table, as the specific inputs applied are not
provided by the vendor (for additional information on vendor-developed valuations, see Note 15 (Fair Values of Assets and Liabilities) in our 2022 Form 10-K).
Weighted averages of inputs are calculated using outstanding unpaid principal balance for cash instruments, such as loans and securities, and notional amounts for derivative instruments.
Table 12.3:Valuation Techniques – Recurring Basis
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($ in millions, except cost to service amounts) | Fair Value Level 3 | | Valuation Technique | | Significant Unobservable Input | | Range of Inputs | | | Weighted Average |
June 30, 2023 | | | | | | | | | | | | |
Trading and available-for-sale debt securities | $ | 125 | | | Discounted cash flow | | Discount rate | | 3.0 | | - | 12.5 | | % | | 6.4 | |
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| 132 | | | Market comparable pricing | | Comparability adjustment | | (46.3) | | - | 48.3 | | | | (16.1) | |
| 105 | | | Market comparable pricing | | Multiples | | 1.4x | - | 7.4x | | | 3.7x |
Loans held for sale | 486 | | | Discounted cash flow | | Default rate | | 0.0 | | - | 28.8 | | % | | 1.0 | |
| | | | | Discount rate | | 2.9 | | - | 15.0 | | | | 9.8 | |
| | | | | Loss severity | | 0.0 | | - | 54.9 | | | | 17.1 | |
| | | | | Prepayment rate | | 4.3 | | - | 15.5 | | | | 10.5 | |
Mortgage servicing rights (residential) | 8,251 | | | Discounted cash flow | | Cost to service per loan (1) | | $ | 52 | | - | 518 | | | | 102 | |
| | | | | Discount rate | | 8.8 | | - | 13.8 | | % | | 9.2 | |
| | | | | Prepayment rate (2) | | 7.8 | | - | 23.4 | | | | 9.2 | |
Net derivative assets and (liabilities): | | | | | | | | | | | | |
Interest rate contracts | (5,518) | | | Discounted cash flow | | Discount rate | | 3.2 | | - | 5.4 | | | | 4.6 | |
| (61) | | | Discounted cash flow | | Default rate | | 0.4 | | - | 5.0 | | | | 1.6 | |
| | | | | Loss severity | | 50.0 | | - | 50.0 | | | | 50.0 | |
| | | | | Prepayment rate | | 2.8 | | - | 22.0 | | | | 16.0 | |
Interest rate contracts: derivative loan commitments | (59) | | | Discounted cash flow | | Fall-out factor | | 1.0 | | - | 99.0 | | | | 28.8 | |
| | | | | Initial-value servicing | | (43.9) | | - | 141.0 | | bps | | (14.5) | |
Equity contracts | (976) | | | Discounted cash flow | | Conversion factor | | (7.4) | | - | 0.0 | | % | | (6.6) | |
| | | | | Weighted average life | | 0.5 | - | 1.5 | yrs | | 1.1 |
| (405) | | | Option model | | Correlation factor | | (77.0) | | - | 99.0 | | % | | 63.6 | |
| | | | | Volatility factor | | 6.5 | | - | 98.0 | | | | 34.4 | |
Insignificant Level 3 liabilities, net of assets (3) | (32) | | | | | | | | | | | | |
Total Level 3 assets, net of liabilities | $ | 2,048 | | (4) | | | | | | | | | | |
December 31, 2022 | | | | | | | | | | | | |
Trading and available-for-sale debt securities | $ | 157 | | | Discounted cash flow | | Discount rate | | 2.7 | | - | 12.5 | | % | | 6.4 | |
| 185 | | | Market comparable pricing | | Comparability adjustment | | (33.6) | | - | 14.1 | | | | (4.8) | |
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| 119 | | | Market comparable pricing | | Multiples | | 1.1x | - | 7.4x | | | 4.0x |
Loans held for sale | 793 | | | Discounted cash flow | | Default rate | | 0.0 | | - | 25.0 | | % | | 0.7 | |
| | | | | Discount rate | | 2.9 | | - | 13.4 | | | | 9.5 | |
| | | | | Loss severity | | 0.0 | | - | 53.6 | | | | 15.7 | |
| | | | | Prepayment rate | | 3.5 | | - | 14.2 | | | | 10.7 | |
Mortgage servicing rights (residential) | 9,310 | | | Discounted cash flow | | Cost to service per loan (1) | | $ | 52 | | - | 550 | | | | 102 | |
| | | | | Discount rate | | 8.7 | | - | 14.1 | | % | | 9.1 | |
| | | | | Prepayment rate (2) | | 8.1 | | - | 21.9 | | | | 9.4 | |
Net derivative assets and (liabilities): | | | | | | | | | | | | |
Interest rate contracts | (2,411) | | | Discounted cash flow | | Discount rate | | 3.2 | | - | 4.9 | | | | 4.2 | |
| (63) | | | Discounted cash flow | | Default rate | | 0.4 | | - | 5.0 | | | | 2.3 | |
| | | | | Loss severity | | 50.0 | | - | 50.0 | | | | 50.0 | |
| | | | | Prepayment rate | | 2.8 | | - | 22.0 | | | | 18.7 | |
Interest rate contracts: derivative loan commitments | (108) | | | Discounted cash flow | | Fall-out factor | | 1.0 | | - | 99.0 | | | | 41.0 | |
| | | | | Initial-value servicing | | (9.3) | | - | 141.0 | | bps | | 11.5 | |
Equity contracts (3) | (1,000) | | | Discounted cash flow | | Conversion factor | | (12.2) | | - | 0.0 | | % | | (9.9) | |
| | | | | Weighted average life | | 0.5 | - | 1.5 | yrs | | 0.8 |
| (224) | | | Option model | | Correlation factor | | (77.0) | | - | 99.0 | | % | | 49.5 | |
| | | | | Volatility factor | | 6.5 | | - | 96.5 | | | | 37.3 | |
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| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Insignificant Level 3 liabilities, net of assets (3) | (138) | | | | | | | | | | | | |
Total Level 3 assets, net of liabilities | $ | 6,620 | | (4) | | | | | | | | | | |
(1)The high end of the range of inputs is for servicing modified loans. For non-modified loans, the range is $52 - $175 at June 30, 2023, and $52 - $178 at December 31, 2022.
(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.
(3)In first quarter 2023, we adopted ASU 2018-12 – Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. For additional information, see Note 1 (Summary of Significant Accounting Policies).
(4)Consists of total Level 3 assets of $9.9 billion and $11.5 billion and total Level 3 liabilities of $7.9 billion and $4.9 billion, before netting of derivative balances, at June 30, 2023, and December 31, 2022, respectively.
For additional information on the valuation techniques and significant unobservable inputs used in the valuation of our Level 3 assets and liabilities, including how changes in these
inputs affect fair value estimates, see Note 15 (Fair Values of Assets and Liabilities) in our 2022 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 application of the measurement alternative for certain nonmarketable equity securities.
Table 12.4 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 June 30, 2023, and December 31, 2022, and for which a nonrecurring fair value adjustment was recorded during the six months ended June 30, 2023, and the year ended December 31, 2022.
Table 12.4:Fair Value on a Nonrecurring Basis
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
(in millions) | Level 2 | | Level 3 | | Total | | Level 2 | | Level 3 | | Total |
Loans held for sale (1) | $ | 1,268 | | | 315 | | | 1,583 | | | 838 | | | 554 | | | 1,392 | |
Loans: | | | | | | | | | | | |
Commercial | 645 | | | — | | | 645 | | | 285 | | | — | | | 285 | |
Consumer | 68 | | | — | | | 68 | | | 512 | | | — | | | 512 | |
Total loans | 713 | | | — | | | 713 | | | 797 | | | — | | | 797 | |
Mortgage servicing rights (commercial) | — | | | — | | | — | | | — | | | 75 | | | 75 | |
Nonmarketable equity securities | 606 | | | 1,483 | | | 2,089 | | | 1,926 | | | 2,818 | | | 4,744 | |
Other assets | 2,063 | | | 49 | | | 2,112 | | | 1,862 | | | 296 | | | 2,158 | |
Total assets at fair value on a nonrecurring basis | $ | 4,650 | | | 1,847 | | | 6,497 | | | 5,423 | | | 3,743 | | | 9,166 | |
(1)Consists of commercial mortgages and residential mortgage – first lien loans.
Table 12.5 presents the gains (losses) on certain assets held at the end of the reporting periods presented for which a nonrecurring fair value adjustment was recognized in earnings during the respective periods.
Table 12.5:Gains (Losses) on Assets with Nonrecurring Fair Value Adjustment
| | | | | | | | | | | | | |
| Six months ended June 30, |
(in millions) | 2023 | | 2022 | | |
Loans held for sale | $ | (40) | | | (66) | | | |
Loans: | | | | | |
Commercial | (205) | | | (36) | | | |
Consumer | (368) | | | (358) | | | |
Total loans | (573) | | | (394) | | | |
Mortgage servicing rights (commercial) | — | | | 4 | | | |
Nonmarketable equity securities (1) | (526) | | | (95) | | | |
| | | | | |
Other assets (2) | (102) | | | (176) | | | |
Total | $ | (1,241) | | | (727) | | | |
(1)Includes impairment of nonmarketable equity securities and observable price changes related to nonmarketable equity securities accounted for under the measurement alternative.
(2)Includes impairment of operating lease ROU assets, valuation of physical commodities, valuation losses on foreclosed real estate and other collateral owned, and impairment of private equity and venture capital investments in consolidated portfolio companies.
Table 12.6 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 and 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 and private equity and venture capital investments in consolidated portfolio companies.
Note 12: Fair Values of Assets and Liabilities (continued)
Table 12.6:Valuation Techniques – Nonrecurring Basis
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
($ in millions) | Fair Value Level 3 | Valuation Technique (1) | | Significant Unobservable Input (1) | | Range of Inputs Positive (Negative) | | Weighted Average |
June 30, 2023 | | | | | | | | | | |
Loans held for sale | $ | 315 | | Discounted cash flow | | Default rate | | 0.1 | | - | 98.3 | % | | 16.9 | |
| | | | Discount rate | | 4.4 | | - | 14.3 | | 5.8 | |
| | | | Loss severity | | 7.3 | | - | 65.6 | | 16.8 | |
| | | | Prepayment rate | | 3.2 | | - | 32.4 | | 12.9 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Nonmarketable equity securities | 429 | | Market comparable pricing | | Comparability adjustment | | (100.0) | | - | (4.7) | | | (33.8) | |
| | | | | | | | | | |
| 1,052 | | Market comparable pricing | | Multiples | | 3.0x | - | 27.1x | | 9.5x |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Insignificant Level 3 assets | 51 | | | | | | | | | | |
Total | $ | 1,847 | | | | | | | | | | |
December 31, 2022 | | | | | | | | | | |
Loans held for sale | $ | 143 | | Discounted cash flow | | Default rate | | 0.1 | | - | 86.1 | % | | 13.8 | |
| | | | Discount rate | | 3.8 | | - | 13.8 | | 9.0 | |
| | | | Loss severity | | 8.1 | | - | 43.8 | | 18.6 | |
| | | | Prepayment rate | | 2.3 | | - | 23.4 | | 18.6 | |
| 411 | | Market comparable pricing | | Comparability adjustment | | (8.2) | | - | (0.9) | | (4.3) | |
Mortgage servicing rights (commercial) | 75 | | Discounted cash flow | | Cost to service per loan | | $ | 3,775 | | - | 3,775 | | 3,775 | |
| | | | Discount rate | | 5.2 | | - | 5.2 | % | | 5.2 | |
| | | | Prepayment rate | | 0.0 | | - | 20.6 | | 6.7 | |
Nonmarketable equity securities | 1,461 | | Market comparable pricing | | Comparability adjustment | | (100.0) | | - | (4.0) | | | (30.1) | |
| | | | | | | | | | |
| 1,352 | | Market comparable pricing | | Multiples | | 0.8x | - | 18.7x | | 9.9x |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Other assets (2) | 234 | | Market comparable pricing | | Multiples | | 6.4 | | - | 8.0 | | 7.1 | |
Insignificant Level 3 assets | 67 | | | | | | | | | | |
Total | $ | 3,743 | | | | | | | | | | |
(1)See Note 15 (Fair Values of Assets and Liabilities) in our 2022 Form 10-K for additional information on the valuation technique(s) and significant unobservable inputs used in the valuation of Level 3 assets.
(2)Represents private equity and venture capital investments in consolidated portfolio companies.
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 15 (Fair Values of Assets and Liabilities) in our 2022 Form 10-K.
Table 12.7 reflects differences between the fair value carrying amount of the assets and liabilities for which we have elected the fair value option and the contractual aggregate unpaid principal amount at maturity.
Table 12.7:Fair Value Option
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
(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 (1) | $ | 2,974 | | | 3,238 | | | (264) | | | 4,220 | | | 4,614 | | | (394) | |
Long-term debt (2) | (1,600) | | | (2,147) | | | 547 | | | (1,346) | | | (1,775) | | | 429 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
(1)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, 2023, and December 31, 2022.
(2)Includes zero coupon notes for which the aggregate unpaid principal amount reflects the contractual principal due at maturity.
Table 12.8 reflects amounts included in earnings related to initial measurement and subsequent changes in fair value, by income statement line item, for assets and liabilities for which
the fair value option was elected. Amounts recorded in net interest income are excluded from the table below.
Table 12.8:Gains (Losses) on Changes in Fair Value Included in Earnings
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| 2023 | | 2022 | | | | |
(in millions) | Mortgage banking noninterest income | | Net gains from trading and securities | | Other noninterest income | | Mortgage banking noninterest income | | Net gains from trading and securities | | Other noninterest income | | | | | | | | | | | | |
Quarter ended June 30, | | | | | | | | | | | | | | | | | | | | | | | |
Loans held for sale | $ | 34 | | | 13 | | | — | | | (237) | | | 1 | | | — | | | | | | | | | | | | | |
Long-term debt | — | | | 9 | | | — | | | — | | | 11 | | | — | | | | | | | | | | | | | |
Six months ended June 30, | | | | | | | | | | | | | | | | | | | | | | | |
Loans held for sale | $ | 131 | | | 25 | | | (4) | | | (603) | | | 10 | | | — | | | | | | | | | | | | | |
Long-term debt | — | | | (21) | | | — | | | — | | | 23 | | | — | | | | | | | | | | | | | |
For performing loans, instrument-specific credit risk gains or losses are 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. For LHFS accounted for under the fair value option, instrument-specific credit gains or losses were insignificant during the second quarter and first half of both 2023 and 2022.
For long-term debt, instrument-specific credit risk gains or losses represent the impact of changes in fair value due to changes in our credit spread and are derived using observable secondary bond market information. These impacts are recorded within the debit valuation adjustments (DVA) in OCI. See
Note 20 (Other Comprehensive Income) for additional information.
Note 12: Fair Values of Assets and Liabilities (continued)
Disclosures about Fair Value of Financial Instruments
Table 12.9 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 12.9. 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 $622 million and $737 million at June 30, 2023, and December 31, 2022, 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 12.9:Fair Value Estimates for Financial Instruments
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Estimated fair value |
(in millions) | Carrying amount | | Level 1 | | Level 2 | | Level 3 | | Total |
June 30, 2023 | | | | | | | | | |
Financial assets | | | | | | | | | |
Cash and due from banks (1) | $ | 31,915 | | | 31,915 | | | — | | | — | | | 31,915 | |
Interest-earning deposits with banks (1) | 123,418 | | | 123,195 | | | 223 | | | — | | | 123,418 | |
Federal funds sold and securities purchased under resale agreements (1) | 66,500 | | | — | | | 66,500 | | | — | | | 66,500 | |
Held-to-maturity debt securities | 272,360 | | | 2,371 | | | 228,748 | | | 2,717 | | | 233,836 | |
Loans held for sale | 3,055 | | | — | | | 2,641 | | | 462 | | | 3,103 | |
Loans, net (2) | 918,454 | | | — | | | 55,515 | | | 825,008 | | | 880,523 | |
Nonmarketable equity securities (cost method) | 4,552 | | | — | | | — | | | 4,620 | | | 4,620 | |
Total financial assets | $ | 1,420,254 | | | 157,481 | | | 353,627 | | | 832,807 | | | 1,343,915 | |
Financial liabilities | | | | | | | | | |
Deposits (3) | $ | 128,458 | | | — | | | 85,183 | | | 41,616 | | | 126,799 | |
Short-term borrowings | 84,054 | | | — | | | 84,056 | | | — | | | 84,056 | |
Long-term debt (4) | 169,012 | | | — | | | 168,245 | | | 1,969 | | | 170,214 | |
Total financial liabilities | $ | 381,524 | | | — | | | 337,484 | | | 43,585 | | | 381,069 | |
December 31, 2022 | | | | | | | | | |
Financial assets | | | | | | | | | |
Cash and due from banks (1) | $ | 34,596 | | | 34,596 | | | — | | | — | | | 34,596 | |
Interest-earning deposits with banks (1) | 124,561 | | | 124,338 | | | 223 | | | — | | | 124,561 | |
Federal funds sold and securities purchased under resale agreements (1) | 68,036 | | | — | | | 68,036 | | | — | | | 68,036 | |
Held-to-maturity debt securities | 297,059 | | | 14,285 | | | 238,552 | | | 2,684 | | | 255,521 | |
Loans held for sale | 2,884 | | | — | | | 2,208 | | | 719 | | | 2,927 | |
Loans, net (2) | 928,049 | | | — | | | 57,532 | | | 836,831 | | | 894,363 | |
Nonmarketable equity securities (cost method) | 4,900 | | | — | | | — | | | 4,961 | | | 4,961 | |
Total financial assets | $ | 1,460,085 | | | 173,219 | | | 366,551 | | | 845,195 | | | 1,384,965 | |
Financial liabilities | | | | | | | | | |
Deposits (3) | $ | 66,887 | | | — | | | 46,745 | | | 18,719 | | | 65,464 | |
Short-term borrowings | 50,964 | | | — | | | 50,970 | | | — | | | 50,970 | |
Long-term debt (4) | 173,502 | | | — | | | 172,783 | | | 999 | | | 173,782 | |
Total financial liabilities | $ | 291,353 | | | — | | | 270,498 | | | 19,718 | | | 290,216 | |
(1)Amounts consist of financial instruments for which carrying value approximates fair value.
(2)Excludes lease financing with a carrying amount of $15.1 billion and $14.7 billion at June 30, 2023, and December 31, 2022, respectively.
(3)Excludes deposit liabilities with no defined or contractual maturity of $1.2 trillion and $1.3 trillion at June 30, 2023, and December 31, 2022, respectively.
(4)Excludes obligations under finance leases of $20 million and $22 million at June 30, 2023, and December 31, 2022, respectively.
| | |
Note 13: Securitizations and Variable Interest Entities |
Involvement with Variable Interest Entities (VIEs)
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. 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 consolidated balance sheet to a VIE in connection with a securitization, we typically receive cash and sometimes other interests in the VIE as proceeds for the assets we transfer. In certain transactions with VIEs, we may retain the right to service the transferred assets and repurchase 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 securitization or other VIE activities, we have various forms of ongoing involvement with VIEs, 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 in VIEs;
•acting as servicer or investment manager for VIEs;
•providing administrative or trustee services to VIEs; and
•providing seller financing to VIEs.
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 securitization pools 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. When we do not repurchase these loans, they are recorded on our consolidated balance sheet and pledged to the GNMA securitization. We repurchased loans of $574$99 million and $2.1$191 million, during the second quarter and first half of 2023, respectively, and $564 million and $1.5 billion during the thirdsecond quarter and first nine monthshalf of 2022, respectively, and $780 million and $3.7 billion during the third quarter and first nine months of 2021, respectively, whichrespectively. In 2022, these predominantly represented repurchases of government insured loans. WeAt June 30, 2023, and December 31, 2022, we recorded assets and related liabilities of $345$940 million and $107$743 million, at September 30, 2022, and December 31, 2021, 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 SeptemberJune 30, 2022,2023, and December 31, 2021,2022, our liability for these repurchase and recourse arrangements was $158$162 million and $173$167 million, respectively, and the maximum exposure to loss was $13.6 billion and $13.3$13.8 billion at Septemberboth June 30, 2022,2023, and December 31, 2021, respectively.2022.
Loans serviced for others presented inSubstantially all Table 8.3 are predominantly loans inresidential servicing activity is related to assets transferred to GSE and GNMA securitizations. See Note 96 (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 and account for the transfers as sales and do not consolidate the VIE.sales. We also typically retain the right to service the loans and may 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 andservicer. We do not consolidate the VIE because 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 may also sell whole loans to VIEs where we have continuing involvement in the form of financing. We account for these transfers as sales, and do not consolidate the VIEs as we do not have the power to direct the most significant activities of the VIEs.
Table 8.113.1 presents information about transfers of assets during the periods presented 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 loans.securities. 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. Substantially allThe majority of our transfers were relatedrelate to residential mortgage securitizations with the GSEs or GNMA and
| | | | | | | | |
| Wells Fargo & Company | 95115 |
Note 8:13: Securitizations and Variable Interest Entities (continued)
resultedresidential mortgage securitizations with the GSEs or GNMA and generally result in no gain or loss because the loans are measured at fair value on a recurring basis. Additionally, we may transfer certain government insured loans that we previously repurchased. These
repurchased. These loans are carried at the lower of cost or market, and we recognize gains on such transfers when the market value is greater than the carrying value of the loan when it is sold.
Table 8.1:13.1: Transfers with Continuing Involvement
| | | | 2022 | | 2021 | | | 2023 | | 2022 | |
(in millions) | (in millions) | Residential mortgages | | Commercial mortgages | | Residential mortgages | | Commercial mortgages | | (in millions) | Residential mortgages | | Commercial mortgages | | Residential mortgages | | Commercial mortgages | |
Quarter ended September 30, | | | |
Quarter ended June 30, | | Quarter ended June 30, | | |
Assets sold | Assets sold | $ | 14,447 | | | 3,061 | | | 37,230 | | | 3,502 | | | Assets sold | $ | 3,917 | | | 1,800 | | | 23,817 | | | 4,345 | | |
Proceeds from transfer (1) | Proceeds from transfer (1) | 14,447 | | | 3,121 | | | 37,412 | | | 3,583 | | | Proceeds from transfer (1) | 3,917 | | | 1,823 | | | 23,817 | | | 4,411 | | |
Net gains (losses) on sale | Net gains (losses) on sale | — | | | 60 | | | 182 | | | 81 | | | Net gains (losses) on sale | — | | | 23 | | | — | | | 66 | | |
| Continuing involvement (2): | Continuing involvement (2): | | | Continuing involvement (2): | | |
Servicing rights recognized | Servicing rights recognized | $ | 193 | | | 32 | | | 378 | | | 52 | | | Servicing rights recognized | $ | 46 | | | 16 | | | 313 | | | 41 | | |
Securities recognized (3) | Securities recognized (3) | — | | | 39 | | | 1,363 | | | 30 | | | Securities recognized (3) | — | | | 22 | | | 475 | | | 33 | | |
Loans recognized | — | | | — | | | — | | | — | | | |
Nine months ended September 30, | | | |
| Six months ended June 30, | | Six months ended June 30, | | |
Assets sold | Assets sold | $ | 64,438 | | | 11,439 | | | 123,719 | | | 11,866 | | | Assets sold | $ | 8,378 | | | 3,299 | | | 49,991 | | | 8,378 | | |
Proceeds from transfer (1) | Proceeds from transfer (1) | 64,490 | | | 11,629 | | | 124,333 | | | 12,092 | | | Proceeds from transfer (1) | 8,378 | | | 3,363 | | | 50,043 | | | 8,508 | | |
Net gains (losses) on sale | Net gains (losses) on sale | 52 | | | 190 | | | 614 | | | 226 | | | Net gains (losses) on sale | — | | | 64 | | | 52 | | | 130 | | |
| Continuing involvement (2): | Continuing involvement (2): | | | Continuing involvement (2): | | |
Servicing rights recognized | Servicing rights recognized | $ | 833 | | | 102 | | | 1,272 | | | 123 | | | Servicing rights recognized | $ | 93 | | | 34 | | | 640 | | | 70 | | |
Securities recognized (3) | Securities recognized (3) | 2,062 | | | 176 | | | 17,757 | | | 98 | | | Securities recognized (3) | — | | | 48 | | | 2,062 | | | 137 | | |
Loans recognized | — | | | — | | | 926 | | | — | | | |
|
(1)Represents cash proceeds and the fair value of non-cash beneficial interests recognized at securitization settlement.
(2)Represents assets or liabilities recognized at securitization settlement date related to our continuing involvement in the transferred assets.
(3)Represents debt securities obtained at securitization settlement held for investment purposes that are classified as available-for-sale or held-to-maturity, whichheld-to-maturity. In 2022, these predominantly relaterelated 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 $3.0$1.8 billion and $13.3$3.7 billion during the thirdsecond quarter and first nine monthshalf of 2022,2023, respectively, and $13.6$3.6 billion and $31.6$10.3 billion during the thirdsecond quarter and first nine monthshalf of 2021,2022, respectively.
In the normal course of business, we purchase certain
non-agency securities at initial securitization or subsequently in the secondary market, which we hold for investment. We also provide seller financing in the form of loans. We received cash flows of $95$91 million and $399$141 million during the thirdsecond quarter and first nine monthshalf of 2022,2023, respectively, and $116$168 million and $577$304 million, during the thirdsecond quarter and first nine monthshalf of 2021,2022, respectively, related to principal and interest payments on these securities and loans, which exclude cash flows related to trading activities and to the sale of our student loan portfolio.activities.
Table 8.213.2 presents the key weighted-average assumptions we used to initially measure residential MSRs recognized during the periods presented.
Table 8.2:13.2: Residential MSRs – Assumptions at Securitization Date
| | | | 2022 | | 2021 | | | 2023 | | 2022 | |
Quarter ended September 30, | | | |
Quarter ended June 30, | | Quarter ended June 30, | | |
Prepayment rate (1) | Prepayment rate (1) | 15.0 | % | | 14.8 | | | Prepayment rate (1) | 16.4 | % | | 10.9 | | |
Discount rate | Discount rate | 8.5 | | | 5.4 | | | Discount rate | 9.4 | | | 8.0 | | |
Cost to service ($ per loan) | Cost to service ($ per loan) | $ | 101 | | | 94 | | | Cost to service ($ per loan) | $ | 176 | | | 122 | | |
Nine months ended September 30, | | | |
Six months ended June 30, | | Six months ended June 30, | | |
Prepayment rate (1) | Prepayment rate (1) | 11.9 | % | | 14.1 | | | Prepayment rate (1) | 17.5 | % | | 11.0 | | |
Discount rate | Discount rate | 7.7 | | | 5.7 | | | Discount rate | 9.6 | | | 7.5 | | |
Cost to service ($ per loan) | Cost to service ($ per loan) | $ | 114 | | | 89 | | | Cost to service ($ per loan) | $ | 185 | | | 117 | | |
(1)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.
See Note 1512 (Fair Values of Assets and Liabilities) and
Note 96 (Mortgage Banking Activities) for additional information on key economic assumptions for residential MSRs.
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 resecuritization transactions, we transfer trading debt securities to 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 specific return or risk profile. Substantially all of our transactions involve the resecuritization of conforming mortgage-backed securities issued by the GSEs or guaranteed by GNMA. We do not consolidate the resecuritization VIEs as we share in the decision-making power with third parties and do not hold significant economic interests in the VIEs other than for market-making activities. WeDuring the six months ended June 30, 2023 and 2022, we transferred $15.7securities of $6.1 billion and $33.8$12.6 billion, respectively, to resecuritization VIEs, and retained securities of securities to re-securitization VIEs during the nine months ended September 30, 2022$329 million and 2021,$525 million, respectively. These amounts are not included in Table 8.1.13.1. Related total VIE assets were $113.8$111.1 billion and $117.7$112.0 billion at SeptemberJune 30, 2022,2023, and December 31, 2021,2022, respectively. As of SeptemberJune 30, 2022,2023, and December 31, 20212022, we held $1.0$1.3 billion and $817$793 million of securities, respectively. $622 million and $1.1 billion of these securities related to resecuritizations transacted during the nine months ended September 30, 2022 and 2021, respectively.
| | | | | | | | |
96116 | Wells Fargo & Company | |
Sold or Securitized Loans Serviced for Others
Table 8.313.3 presents information about loans that we sold or securitized in which we have ongoing involvement as servicer. These are primarily residential mortgage loans in GSE or GNMA securitizations. Delinquent loans include loans 90 days or more past due and loans in bankruptcy, regardless of delinquency
status. For loans sold or securitized where servicing is our only form of continuing involvement, we generally 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 13.3 excludes mortgage loans sold to and held or securitized by GSEs or GNMA of $637.0 billion and $704.5 billion at June 30, 2023, and December 31, 2022, respectively. Delinquent loans and foreclosed assets related to loans sold to and held or securitized by GSEs or GNMA were $3.4 billion and $4.6 billion at June 30, 2023, and December 31, 2022, respectively.
Table 8.3:13.3: Sold or Securitized Loans Serviced for Others
| | | Net charge-offs (2) | | Net charge-offs |
| | Total loans | | Delinquent loans and foreclosed assets (1) | | Nine months ended September 30, | | Total loans | | Delinquent loans and foreclosed assets (1) | | Six months ended June 30, |
(in millions) | (in millions) | Sep 30, 2022 | | Dec 31, 2021 | | Sep 30, 2022 | | Dec 31, 2021 | | 2022 | | 2021 | (in millions) | Jun 30, 2023 | | Dec 31, 2022 | | Jun 30, 2023 | | Dec 31, 2022 | | 2023 | | 2022 |
Commercial | Commercial | $ | 122,716 | | | 120,962 | | | 1,298 | | | 1,923 | | | 24 | | | 123 | | Commercial | $ | 66,082 | | | 67,029 | | | 849 | | | 912 | | | 67 | | | 22 | |
Residential | Residential | 665,158 | | | 690,813 | | | 5,801 | | | 10,714 | | | 13 | | | 16 | | Residential | 8,789 | | | 9,201 | | | 433 | | | 501 | | | 8 | | | 7 | |
Total off-balance sheet sold or securitized loans (3) | Total off-balance sheet sold or securitized loans (3) | $ | 787,874 | | | 811,775 | | | 7,099 | | | 12,637 | | | 37 | | | 139 | | Total off-balance sheet sold or securitized loans (3) | $ | 74,871 | | | 76,230 | | | 1,282 | | | 1,413 | | | 75 | | | 29 | |
(1)Includes $339$213 million and $403$274 million of commercial foreclosed assets and $120$28 million and $129$25 million of residential foreclosed assets at SeptemberJune 30, 2022,2023, and December 31, 2021,2022, respectively.
(2)Net charge-offs exclude loans sold to Federal National Mortgage Association (FNMA), Federal Home Loan Mortgage Corporation (FHLMC) and GNMA as we do not service or manage the underlying real estate upon foreclosure and, as such, do not have access to net charge-off information.
(3)At September 30, 2022, and December 31, 2021, the table includes total loans of $711.3 billion and $736.8 billion, delinquent loans of $5.3 billion and $10.2 billion, and foreclosed assets of $96 million and $100 million, respectively, for FNMA, FHLMC and GNMA.
Transactions with Unconsolidated VIEsDerivatives Not Designated as Hedging Instruments
MORTGAGE LOAN SECURITIZATIONS Table 8.4 includes nonconforming mortgage loan securitizations where we originateDerivatives not designated as hedging instruments include economic hedges and transfer the loansderivatives entered into for customer accommodation trading purposes.
We use economic hedge derivatives 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 8.4 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 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 may transfer purchased industrial development bonds and GSE credit enhancements to VIEs in exchange for beneficial interests. We may also acquire such beneficial interests in transactions where we do not act as a transferor. We own all of the beneficial interests and may also service the underlying mortgages that serve as collateral to the bonds.
OTHER VIE STRUCTURESWe engage in various forms of structured finance arrangements with other VIEs, including asset-backed finance structures and other securitizations collateralized by asset classes other than mortgages. Collateral may include rental properties, asset-backed securities, student loans and mortgage 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.
Note 8: Securitizations and Variable Interest Entities (continued)
Table 8.4 provides a summary ofmanage 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 8.4, “Total VIE assets” represents the remaining principal balance of assets held by unconsolidated VIEs using the most current information available. “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 8.4: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 |
September 30, 2022 | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Nonconforming mortgage loan securitizations | $ | 153,831 | | | — | | | 2,468 | | | — | | | 610 | | | (14) | | | 3,064 | |
Tax credit structures | 45,130 | | | 1,864 | | | — | | | 12,182 | | | — | | | (4,809) | | | 9,237 | |
Commercial real estate loans | 5,632 | | | 5,619 | | | — | | | — | | | 13 | | | — | | | 5,632 | |
Other | 2,138 | | | 319 | | | 1 | | | 39 | | | 20 | | | — | | | 379 | |
Total | $ | 206,731 | | | 7,802 | | | 2,469 | | | 12,221 | | | 643 | | | (4,823) | | | 18,312 | |
| | | 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 | | | $ | — | | | 2,468 | | | — | | | 610 | | | 14 | | | 3,092 | |
Tax credit structures | | | 1,864 | | | — | | | 12,182 | | | — | | | 3,749 | | | 17,795 | |
Commercial real estate loans | | | 5,619 | | | — | | | — | | | 13 | | | 706 | | | 6,338 | |
Other | | | 319 | | | 1 | | | 39 | | | 20 | | | 229 | | | 608 | |
Total | | | $ | 7,802 | | | 2,469 | | | 12,221 | | | 643 | | | 4,698 | | | 27,833 | |
| | | 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, 2021 | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Nonconforming mortgage loan securitizations | $ | 146,482 | | | — | | | 2,620 | | | — | | | 694 | | | — | | | 3,314 | |
Tax credit structures | 44,528 | | | 1,904 | | | — | | | 12,322 | | | — | | | (4,941) | | | 9,285 | |
Commercial real estate loans | 5,489 | | | 5,481 | | | — | | | — | | | 8 | | | — | | | 5,489 | |
Other | 3,196 | | | 531 | | | 3 | | | 62 | | | 49 | | | (1) | | | 644 | |
Total | $ | 199,695 | | | 7,916 | | | 2,623 | | | 12,384 | | | 751 | | | (4,942) | | | 18,732 | |
| | | 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 | | | $ | — | | | 2,620 | | | — | | | 694 | | | 27 | | | 3,341 | |
Tax credit structures | | | 1,904 | | | — | | | 12,322 | | | — | | | 3,730 | | | 17,956 | |
Commercial real estate loans | | | 5,481 | | | — | | | — | | | 8 | | | 710 | | | 6,199 | |
Other | | | 531 | | | 3 | | | 62 | | | 49 | | | 229 | | | 874 | |
Total | | | $ | 7,916 | | | 2,623 | | | 12,384 | | | 751 | | | 4,696 | | | 28,370 | |
(1)Includes $216 million and $352 million of securities classified as trading at September 30, 2022, and December 31, 2021, respectively.
(2)All other assets includes mortgage servicing rights, derivative assets, and other assets (predominantly servicing advances).
Consolidated 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 8.5. 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 predominantly related to municipal tender option bond (MTOB) transactions. MTOBs are vehicles to finance the purchase of municipal bonds through the issuance of short-term debt to investors. Our involvement with MTOBs 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 may also securitize nonconforming mortgage loans, in which our involvement includes servicer of the underlying assets and holder of subordinate or senior securities issued by the VIE. During second quarter 2022, we purchased the outstanding mortgage loans from the VIEs and extinguished the related debt associated with such securitizations.
Table 8.5 presents a summary of financial assets and liabilities of our consolidated VIEs. The carrying value represents assets and liabilities recorded on our consolidated balance sheet. Carrying values of assets are presented using GAAP measurement methods, which may include fair value, credit impairment or other adjustments, and therefore in some instances will differ from “Total VIE assets.”
On our 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, and (2) the consolidated liabilities of certain VIEs for which the VIE creditors do not have recourse to Wells Fargo.
Table 8.5:Transactions with Consolidated VIEs
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Carrying value – asset (liability) |
(in millions) | Total VIE assets | | Loans | | Debt securities | | All other assets (1) | | Long-term debt | | All other liabilities (2) |
September 30, 2022 | | | | | | | | | | | |
Commercial and industrial loans and leases | $ | 7,068 | | | 4,585 | | | — | | | 171 | | | — | | | (163) | |
Other | 72 | | | — | | | 71 | | | 1 | | | — | | | (72) | |
Total consolidated VIEs | $ | 7,140 | | | 4,585 | | | 71 | | | 172 | | | — | | | (235) | |
December 31, 2021 | | | | | | | | | | | |
Commercial and industrial loans and leases | $ | 7,013 | | | 4,099 | | | — | | | 231 | | | — | | | (188) | |
Other | 516 | | | 377 | | | 71 | | | 3 | | | (149) | | | (71) | |
Total consolidated VIEs | $ | 7,529 | | | 4,476 | | | 71 | | | 234 | | | (149) | | | (259) | |
(1)All other assets includes cash and due from banks, interest-earning deposits with banks, derivative assets, equity securities, and other assets.
(2)All other liabilities includes short-term borrowings, derivative liabilities, and accrued expenses and other liabilities.
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 $398 million and $388 million at September 30, 2022, and December 31, 2021, respectively. See Note 16 (Preferred Stock) for additional information about trust preferred securities.
| | |
Note 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 $1.2 billion and $1.3 billion, with an estimated fair value of $2.3 billion and $1.5 billion, at September 30, 2022 and 2021, respectively. Table 9.1 presents the changes in MSRs measured using the fair value method.
Table 9.1:Analysis of Changes in Fair Value MSRs
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended September 30, | | Nine months ended September 30, | | |
(in millions) | 2022 | | 2021 | | 2022 | | 2021 | | |
Fair value, beginning of period | $ | 9,163 | | | 6,717 | | | $ | 6,920 | | | 6,125 | | | |
Servicing from securitizations or asset transfers (1) | 204 | | | 379 | | | 868 | | | 1,270 | | | |
Sales and other (2) | 1 | | | (2) | | | (249) | | | (10) | | | |
Net additions | 205 | | | 377 | | | 619 | | | 1,260 | | | |
Changes in fair value: | | | | | | | | | |
Due to valuation inputs or assumptions: | | | | | | | | | |
Mortgage interest rates (3) | 760 | | | 320 | | | 3,408 | | | 1,421 | | | |
Servicing and foreclosure costs (4) | (8) | | | 2 | | | (20) | | | 11 | | | |
Discount rates (5) | (44) | | | (263) | | | 42 | | | (56) | | | |
Prepayment estimates and other (6) | 42 | | | 216 | | | (207) | | | (319) | | | |
Net changes in valuation inputs or assumptions | 750 | | | 275 | | | 3,223 | | | 1,057 | | | |
Changes due to collection/realization of expected cash flows (7) | (290) | | | (507) | | | (934) | | | (1,580) | | | |
Total changes in fair value | 460 | | | (232) | | | 2,289 | | | (523) | | | |
Fair value, end of period | $ | 9,828 | | | 6,862 | | | $ | 9,828 | | | 6,862 | | | |
(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. In the first nine months of 2022, MSRs decreased $244 million due to the sale of interest-only strips in second quarter 2022 related to excess servicing cash flows from agency residential mortgage backed securitizations.
(3)Includes prepayment rate changes as well as other valuation changes due to changes in mortgage interest rates.
(4)Includes costs to service and unreimbursed foreclosure costs.
(5)In third quarter 2022, we enhanced our approach for estimating the discount rates to a more dynamic methodology for market curves and volatility, which had a nominal impact.
(6)Represents other changes in valuation model inputs or assumptions including prepayment rate estimation changes that are independent of mortgage interest rate changes.
(7)Represents the reduction in the MSR fair value for the cash flows expected to be collected during the period, net of income accreted due to the passage of time.
Table 9.2 provides key weighted-average assumptions used in the valuation of residential MSRsrisk, equity price risk, foreign currency risk, and sensitivity of the current fair value of residential MSRs to immediate adverse changes in those assumptions. Amounts for residential MSRs include
purchased servicing rights as well as servicing rights resulting from the transfer of loans. See Note 15 (Fair Values of Assets and Liabilities) for additional information on key assumptions for residential MSRs.
Table 9.2: Assumptions and Sensitivity of Residential MSRs
| | | | | | | | | | | |
($ in millions, except cost to service amounts) | Sep 30, 2022 | | Dec 31, 2021 |
Fair value of interests held | $ | 9,828 | | | 6,920 | |
Expected weighted-average life (in years) | 6.3 | | 4.7 |
| | | |
Key assumptions: | | | |
Prepayment rate assumption (1) | 9.3 | % | | 14.7 | |
Impact on fair value from 10% adverse change | $ | 302 | | | 356 | |
Impact on fair value from 25% adverse change | 720 | | | 834 | |
| | | |
Discount rate assumption | 9.1 | % | | 6.4 | |
Impact on fair value from 100 basis point increase | $ | 387 | | | 276 | |
Impact on fair value from 200 basis point increase | 742 | | | 529 | |
| | | |
Cost to service assumption ($ per loan) | 102 | | | 106 | |
Impact on fair value from 10% adverse change | 174 | | | 165 | |
Impact on fair value from 25% adverse change | 434 | | | 411 | |
(1)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.
The sensitivities in the preceding table are hypothetical and caution should be exercised when relying on this data. Changes in value based on variations in assumptions generally cannot be extrapolated because the relationship of the change in the assumption to the change in value may not be linear. Also, the effect of a variation in a particular assumption on the value of the
other interests held is calculated independently without changing any other assumptions. In reality, changes in one factor may result in changes in others, which might magnify or counteract the sensitivities.
We present the components of our managed servicing portfolio in Table 9.3 at unpaid principal balance for loans serviced and subserviced for others and at book value for owned loans serviced.
Table 9.3:Managed Servicing Portfolio
| | | | | | | | | | | |
(in billions) | Sep 30, 2022 | | Dec 31, 2021 |
Residential mortgage servicing: | | | |
Serviced and subserviced for others | $ | 688 | | | 718 | |
Owned loans serviced | 274 | | | 276 | |
Total residential servicing | 962 | | | 994 | |
Commercial mortgage servicing: | | | |
Serviced and subserviced for others | 586 | | | 597 | |
Owned loans serviced | 134 | | | 130 | |
Total commercial servicing | 720 | | | 727 | |
Total managed servicing portfolio | $ | 1,682 | | | 1,721 | |
Total serviced for others, excluding subserviced for others | $ | 1,264 | | | 1,304 | |
MSRs as a percentage of loans serviced for others | 0.87 | % | | 0.63 | |
Weighted average note rate (mortgage loans serviced for others) | 4.10 | | | 3.82 | |
At September 30, 2022, and December 31, 2021, we had servicer advances, net of an allowance for uncollectible amounts, of $2.3 billion and $3.2 billion, respectively. 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.risk. We also advance payments of taxes and insurance for our owned loans which are collectible
fromuse economic hedge derivatives to mitigate the borrower. We maintain an allowance for uncollectible amounts for advances on loans serviced for others that may not be reimbursed ifperiodic earnings volatility caused by mismatches between 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 9.4 presents the components of mortgage banking noninterest income.
Table 9.4:Mortgage Banking Noninterest Income
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Quarter ended September 30, | | Nine months ended September 30, | | |
(in millions) | | 2022 | | 2021 | | 2022 | | 2021 | | |
Servicing fees: | | | | | | | | | | |
Contractually specified servicing fees, late charges and ancillary fees | | $ | 629 | | | 684 | | | $ | 1,909 | | | 2,100 | | | |
Unreimbursed direct servicing costs (1) | | (35) | | | (70) | | | (116) | | | (284) | | | |
Servicing fees | | 594 | | | 614 | | | 1,793 | | | 1,816 | | | |
Amortization (2) | | (62) | | | (61) | | | (185) | | | (159) | | | |
Changes due to collection/realization of expected cash flows (3) | (A) | (290) | | | (507) | | | (934) | | | (1,580) | | | |
Net servicing fees | | 242 | | | 46 | | | 674 | | | 77 | | | |
Changes in fair value of MSRs due to valuation inputs or assumptions (4) | (B) | 750 | | | 275 | | | 3,223 | | | 1,057 | | | |
Net derivative gains (losses) from economic hedges (5) | | (863) | | | (176) | | | (3,489) | | | (1,109) | | | |
Market-related valuation changes to MSRs, net of hedge results | | (113) | | | 99 | | | (266) | | | (52) | | | |
Total net servicing income | | 129 | | | 145 | | | 408 | | | 25 | | | |
Net gains on mortgage loan originations/sales (6) | | 195 | | | 1,114 | | | 896 | | | 3,896 | | | |
Total mortgage banking noninterest income | | $ | 324 | | | 1,259 | | | $ | 1,304 | | | 3,921 | | | |
Total changes in fair value of MSRs carried at fair value | (A)+(B) | $ | 460 | | | (232) | | | $ | 2,289 | | | (523) | | | |
(1)Includes costs associated with foreclosures, unreimbursed interest advances to investors, and other interest costs.
(2)There was no reversal of impairment on the commercial amortized MSRs in third quarter 2022, and $4 million in the first nine months of 2022, compared with a $4 million and $41 million reversal of impairment in the third quarter and first nine months of 2021.
(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 presentedof the hedged item and hedging instrument recognized on our fair value accounting hedges.
Changes in Table 9.1the fair values of derivatives used to economically hedge the deferred compensation plan are reported in this Note for more detail.personnel expense.
(5)SeeFor additional information on our derivatives activities, see Note 14 (Derivatives) for additional discussion and detail on economic hedges.
(6)Includes net gains (losses) of $568 million and $2.6 billion in the third quarter and first nine months ofour 2022 respectively, and $142 million and $987 million in the third quarter and first nine months of 2021, respectively, related to derivatives used as economic hedges of mortgage loans held for sale and derivative loan commitments.
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Note 10: Intangible Assets
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Table 10.1 presents the gross carrying value of intangible assets and accumulated amortization.Form 10-K.
Table 10.1:Intangible Assets
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
(in millions) | Gross carrying value | | Accumulated amortization | | Net carrying value | | Gross carrying value | | Accumulated amortization | | Net carrying value |
Amortized intangible assets (1): | | | | | | | | | | | |
MSRs (2) | $ | 4,909 | | | (3,710) | | | 1,199 | | | 4,794 | | | (3,525) | | | 1,269 | |
| | | | | | | | | | | |
Customer relationship and other intangibles | 754 | | | (587) | | | 167 | | | 842 | | | (631) | | | 211 | |
Total amortized intangible assets | $ | 5,663 | | | (4,297) | | | 1,366 | | | 5,636 | | | (4,156) | | | 1,480 | |
Unamortized intangible assets: | | | | | | | | | | | |
MSRs (carried at fair value) | $ | 9,828 | | | | | | | 6,920 | | | | | |
Goodwill | 25,172 | | | | | | | 25,180 | | | | | |
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(1)Balances are excluded commencing in the period following full amortization.
(2)Includes a $4 million valuation allowance recorded for amortized MSRs at December 31, 2021. See Note 9 (Mortgage Banking Activities) for additional information on MSRs.
Table 10.2 provides the current year and estimated future amortization expense for amortized intangible assets. We based our projections of amortization expense shown below on existing
asset balances at September 30, 2022. Future amortization expense may vary from these projections.
Table 10.2:Amortization Expense for Intangible Assets
| | | | | | | | | | | | | | | | | | | |
(in millions) | Amortized MSRs | | | | Customer relationship and other intangibles | | Total |
Nine months ended September 30, 2022 (actual) | $ | 185 | | | | | 44 | | | 229 | |
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Estimate for the remainder of 2022 | $ | 63 | | | | | 15 | | | 78 | |
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Estimate for year ended December 31, | | | | | | | |
2023 | 228 | | | | | 51 | | | 279 | |
2024 | 194 | | | | | 41 | | | 235 | |
2025 | 170 | | | | | 33 | | | 203 | |
2026 | 137 | | | | | 27 | | | 164 | |
2027 | 108 | | | | | — | | | 108 | |
Table 10.3 shows the allocation of goodwill to our reportable operating segments.
Table 10.3:Goodwill
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Consumer Banking and Lending | | Commercial Banking | | Corporate and Investment Banking | | Wealth and Investment Management | | Corporate | | Consolidated Company |
December 31, 2021 | $ | 16,418 | | | 2,938 | | | 5,375 | | | 344 | | | 105 | | | 25,180 | |
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Foreign currency translation | — | | | (8) | | | — | | | — | | | — | | | (8) | |
| | | | | | | | | | | |
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September 30, 2022 | $ | 16,418 | | | 2,930 | | | 5,375 | | | 344 | | | 105 | | | 25,172 | |
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Note 11: Guarantees and Other Commitments
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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. For additional
descriptions of our guarantees, see Note 13 (Guarantees and Other Commitments) in our 2021 Form 10-K. Table 11.1 shows carrying value and maximum exposure to loss on our guarantees.
Table 11.1:Guarantees – Carrying Value and Maximum Exposure to Loss
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Maximum exposure to loss |
(in millions) | Carrying value of obligation (asset) | | Expires in one year or less | | Expires after one year through three years | | Expires after three years through five years | | Expires after five years | | Total | | Non-investment grade |
September 30, 2022 | | | | | | | | | | | | | |
Standby letters of credit (1) | $ | 116 | | | 15,299 | | | 4,170 | | | 2,064 | | | 432 | | | 21,965 | | | 6,557 | |
Direct pay letters of credit (1) | 13 | | | 1,480 | | | 2,512 | | | 464 | | | 6 | | | 4,462 | | | 1,360 | |
Written options (2) | 725 | | | 14,127 | | | 6,779 | | | 1,399 | | | 460 | | | 22,765 | | | 17,171 | |
Loans and LHFS sold with recourse (3) | 16 | | | 302 | | | 916 | | | 3,486 | | | 8,896 | | | 13,600 | | | 11,457 | |
Exchange and clearing house guarantees | — | | | — | | | — | | | — | | | 4,438 | | | 4,438 | | | — | |
Other guarantees and indemnifications (4) | — | | | 583 | | | 1 | | | 10 | | | 183 | | | 777 | | | 527 | |
Total guarantees | $ | 870 | | | 31,791 | | | 14,378 | | | 7,423 | | | 14,415 | | | 68,007 | | | 37,072 | |
December 31, 2021 | | | | | | | | | | | | | |
Standby letters of credit (1) | $ | 119 | | | 13,816 | | | 5,260 | | | 1,572 | | | 460 | | | 21,108 | | | 6,939 | |
Direct pay letters of credit (1) | 6 | | | 1,597 | | | 2,137 | | | 1,283 | | | 4 | | | 5,021 | | | 1,373 | |
Written options (2) | (280) | | | 12,107 | | | 4,575 | | | 513 | | | 36 | | | 17,231 | | | 13,645 | |
Loans and LHFS sold with recourse (3) | 20 | | | 71 | | | 943 | | | 3,610 | | | 8,650 | | | 13,274 | | | 11,268 | |
Exchange and clearing house guarantees | — | | | — | | | — | | | — | | | 8,100 | | | 8,100 | | | — | |
Other guarantees and indemnifications (4) | — | | | 797 | | | 2 | | | 12 | | | 263 | | | 1,074 | | | 756 | |
Total guarantees | $ | (135) | | | 28,388 | | | 12,917 | | | 6,990 | | | 17,513 | | | 65,808 | | | 33,981 | |
(1)Standby and direct pay letters of credit are reported net of syndications and participations.
(2)Written options, which are in the form of derivatives, are also included in the derivative disclosures in Note 14 (Derivatives). Carrying value net asset position is a result of certain deferred premium option trades.
(3)Represents recourse provided, predominantly to the GSEs, on loans sold under various programs and arrangements.
(4)Includes indemnifications provided to certain third-party clearing agents. Estimated maximum exposure to loss was $138 million and $216 million with related collateral of $1.4 billion and $2.3 billion as of September 30, 2022, and December 31, 2021, respectively.
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 11.1 do not reflect economic hedges or collateral we could use to offset or recover losses we may incur under our guarantee agreements. Accordingly, these amounts are not an indication of expected loss. We believe the carrying value is more representative of our current 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. In determining the ACL for guarantees, we consider the credit risk of the related contingent obligation.
For our guarantees other than written options, non-investment grade represents those guarantees on which we have a higher risk of performance under the terms of the guarantee, which is determined based on an external rating or an internal credit grade that is below investment grade. For written options, non-investment grade represents those guarantees where the current intrinsic values would require us to perform under the contract.
MERCHANT PROCESSING SERVICES We provide debit and credit card transaction processing services through 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 in connection with payment and delivery disputes between the merchant and the cardholder that are resolved in favor of the cardholder, referred to as a charge-back transaction. We estimate our potential maximum exposure to be the total merchant transaction volume processed in the preceding four months, which is generally the lifecycle for a charge-back transaction. As of September 30, 2022, our potential maximum exposure was approximately $749.9 billion, and related losses, including those from our joint venture entity, were insignificant.
GUARANTEES OF SUBSIDIARIES 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 $1.0 billion and $1.2 billion at September 30, 2022, and December 31, 2021, respectively. These guarantees rank on parity with all of the Parent’s other unsecured and unsubordinated indebtedness.
Note 11: Guarantees and Other CommitmentsDerivatives (continued)
OTHER COMMITMENTS To meetTable 11.6 shows the financing needs of our customers, we may enter into commitmentsnet gains (losses), recognized by income statement lines, related to purchase debt and equity securities to provide capital for their funding, liquidity or other future needs. As of September 30, 2022, and December 31, 2021, we had commitments to purchase debt securities of $165 million and $18 million, respectively, and commitments to purchase equity securities of $3.0 billion and $2.4 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 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 $11.9 billion and $11.0 billionderivatives not designated as of September 30, 2022, and December 31, 2021, 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).hedging instruments.
Table 11.6:Gains (Losses) on Derivatives Not Designated as Hedging Instruments | | | | | | | | | | | | | | | | | | | | | |
| Noninterest income | | Noninterest expense |
(in millions) | Mortgage banking | Net gains (losses) on trading and securities | | Other | Total | | Personnel expense |
Quarter ended June 30, 2023 | | | | | | | |
Net gains (losses) recognized on economic hedges derivatives: | | | | | | | |
Interest contracts (1) | $ | (242) | | — | | | (98) | | (340) | | | — | |
Equity contracts | — | | — | | | (81) | | (81) | | | (172) | |
Foreign exchange contracts | — | | — | | | (327) | | (327) | | | — | |
Credit contracts | — | | — | | | — | | — | | | — | |
Subtotal | (242) | | — | | | (506) | | (748) | | | (172) | |
Net gains (losses) recognized on customer accommodation trading and other derivatives: | | | | | | | |
Interest contracts | (9) | | 499 | | | — | | 490 | | | — | |
Commodity contracts | — | | 87 | | | — | | 87 | | | — | |
Equity contracts | — | | (1,440) | | | (119) | | (1,559) | | | — | |
Foreign exchange contracts | — | | 893 | | | — | | 893 | | | — | |
Credit contracts | — | | (20) | | | — | | (20) | | | — | |
Subtotal | (9) | | 19 | | | (119) | | (109) | | | — | |
Net gains (losses) recognized related to derivatives not designated as hedging instruments | $ | (251) | | 19 | | | (625) | | (857) | | | (172) | |
Quarter ended June 30, 2022 | | | | | | | |
Net gains (losses) recognized on economic hedges derivatives: | | | | | | | |
Interest contracts (1) | $ | (270) | | — | | | (26) | | (296) | | | — | |
Equity contracts (2) | — | | — | | | 11 | | 11 | | | 577 | |
Foreign exchange contracts | — | | — | | | 838 | | 838 | | | — | |
Credit contracts | — | | — | | | 2 | | 2 | | | — | |
Subtotal | (270) | | — | | | 825 | | 555 | | | 577 | |
Net gains (losses) recognized on customer accommodation trading and other derivatives: | | | | | | | |
Interest contracts | (314) | | 2,791 | | | — | | 2,477 | | | — | |
Commodity contracts | — | | 104 | | | — | | 104 | | | — | |
Equity contracts | — | | 3,901 | | | (76) | | 3,825 | | | — | |
Foreign exchange contracts | — | | 318 | | | — | | 318 | | | — | |
Credit contracts | — | | 29 | | | — | | 29 | | | — | |
Subtotal | (314) | | 7,143 | | | (76) | | 6,753 | | | — | |
Net gains (losses) recognized related to derivatives not designated as hedging instruments | $ | (584) | | 7,143 | | | 749 | | 7,308 | | | 577 | |
(continued on following page)
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Note 12: Pledged Assets and Collateral
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Pledged Assets
Table 12.1 provides the carrying amount of on-balance sheet pledged assets, as well as the fair value of other pledged collateral not recognized on our consolidated balance sheet, which we have received(continued from third parties, have the right to repledge, and have repledged.previous page)
| | | | | | | | | | | | | | | | | | | | | |
| Noninterest income | | Noninterest expense |
(in millions) | Mortgage banking | Net gains (losses) from trading and securities | | Other | Total | | Personnel expense |
Six months ended June 30, 2023 | | | | | | | |
| | | | | | | |
Net gains (losses) recognized on economic hedges derivatives: | | | | | | | |
Interest contracts (1) | $ | (96) | | — | | | (50) | | (146) | | | — | |
Equity contracts | — | | — | | | (161) | | (161) | | | (363) | |
Foreign exchange contracts | — | | — | | | (693) | | (693) | | | — | |
Credit contracts | — | | — | | | (1) | | (1) | | | — | |
Subtotal | (96) | | — | | | (905) | | (1,001) | | | (363) | |
Net gains (losses) recognized on customer accommodation trading and other derivatives: | | | | | | | |
Interest contracts | (11) | | 163 | | | — | | 152 | | | — | |
Commodity contracts | — | | 199 | | | — | | 199 | | | — | |
Equity contracts | — | | (2,910) | | | (183) | | (3,093) | | | — | |
Foreign exchange contracts | — | | 794 | | | — | | 794 | | | — | |
Credit contracts | — | | (27) | | | — | | (27) | | | — | |
Subtotal | (11) | | (1,781) | | | (183) | | (1,975) | | | — | |
Net gains (losses) recognized related to derivatives not designated as hedging instruments | $ | (107) | | (1,781) | | | (1,088) | | (2,976) | | | (363) | |
Six months ended June 30, 2022 | | | | | | | |
| | | | | | | |
Net gains (losses) recognized on economic hedges derivatives: | | | | | | | |
Interest contracts (1) | $ | (638) | | — | | | (52) | | (690) | | | — | |
Equity contracts (2) | — | | — | | | 16 | | 16 | | | 843 | |
Foreign exchange contracts | — | | — | | | 1,069 | | 1,069 | | | — | |
Credit contracts | — | | — | | | 7 | | 7 | | | — | |
Subtotal | (638) | | — | | | 1,040 | | 402 | | | 843 | |
Net gains (losses) recognized on customer accommodation trading and other derivatives: | | | | | | | |
Interest contracts | (812) | | 6,005 | | | — | | 5,193 | | | — | |
Commodity contracts | — | | 217 | | | — | | 217 | | | — | |
Equity contracts | — | | 4,904 | | | (114) | | 4,790 | | | — | |
Foreign exchange contracts | — | | 645 | | | — | | 645 | | | — | |
Credit contracts | — | | 41 | | | — | | 41 | | | — | |
Subtotal | (812) | | 11,812 | | | (114) | | 10,886 | | | — | |
Net gains (losses) recognized related to derivatives not designated as hedging instruments | $ | (1,450) | | 11,812 | | | 926 | | 11,288 | | | 843 | |
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TRADING RELATED ACTIVITY(1)Our trading businesses may pledge debtMortgage banking amounts for the second quarter and equity securities in connection with securities sold under agreements to repurchase (repurchase agreements)first half of 2023 are comprised of gains (losses) of $(331) million and securities lending arrangements. The collateral that we pledge$(146) million, respectively, related to our trading activities may include our own collateralderivatives used as well as collateral that we have received from third partieseconomic hedges of MSRs measured at fair value offset by gains (losses) of $89 million and have the right to repledge. All of the collateral we pledge$50 million, respectively, related to trading activity is eligible to be repledged or soldderivatives used as economic hedges of mortgage loans held for sale and derivative loan commitments. The corresponding amounts for the second quarter and first half of 2022 are comprised of gain (losses) of $(980) million and $(2.6) billion, respectively, offset by the secured party.gains (losses) of $710 million and $2.0 billion, respectively.
(2)In first quarter 2023, we adopted ASU 2018-12 – Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. For additional information, see Note 1 (Summary of Significant Accounting Policies).
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 Federal Home Loan Banks (FHLBs) and the 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 8 (Securitizations and Variable Interest Entities) for additional information on consolidated VIE assets.
Table 12.1:Pledged Assets
| | | | | | | | | | | |
(in millions) | Sep 30, 2022 | | Dec 31, 2021 |
Related to trading activities: | | | |
Off-balance sheet repledged third-party owned debt and equity securities | $ | 36,282 | | | 31,087 | |
Trading debt securities and other | 28,687 | | | 14,216 | |
Equity securities | 2,502 | | | 984 | |
Total pledged assets related to trading activities | 67,471 | | | 46,287 | |
Related to non-trading activities: | | | |
Loans | 322,237 | | | 288,698 | |
Debt securities: | | | |
| | | |
Available-for-sale | 52,961 | | | 65,198 | |
Held-to-maturity | 10,973 | | | 13,843 | |
Equity securities | 236 | | | 1,600 | |
Total pledged assets related to non-trading activities | 386,407 | | | 369,339 | |
Related to VIEs: | | | |
Consolidated VIE assets | 4,828 | | | 4,781 | |
Loans eligible for repurchase from GNMA securitizations | 348 | | | 109 | |
Total pledged assets related to VIEs | 5,176 | | | 4,890 | |
Total pledged assets | $ | 459,054 | | | 420,516 | |
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, 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 12.2 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. The majority of 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
Note 12:11: Pledged Assets and CollateralDerivatives (continued)
Credit Derivatives
Credit derivative contracts are arrangements whose value is derived from the balance sheet. 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 generally use credit derivatives to assist customers with their risk management objectives by purchasing and selling credit protection on corporate debt obligations through the use of credit default swaps or through risk participation swaps to help manage counterparty exposure. We would be required to perform under the credit derivatives we sold 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.
Table 11.7 provides details of sold credit derivatives.
Table 11.7:Sold Credit Derivatives
| | | | | | | | |
| Notional amount |
(in millions) | Protection sold | Protection sold – non-investment grade |
June 30, 2023 | | |
Credit default swaps | $ | 14,273 | | 1,677 | |
Risk participation swaps | 6,460 | | 6,250 | |
Total credit derivatives | $ | 20,733 | | 7,927 | |
December 31, 2022 | | |
Credit default swaps | $ | 12,733 | | 1,860 | |
Risk participation swaps | 6,728 | | 6,518 | |
Total credit derivatives | $ | 19,461 | | 8,378 | |
Protection sold represents the estimated maximum exposure to loss that would be incurred if, upon an event of default, the value of our interests and any associated collateral declined to zero, and does not take into consideration any of recovery value from the referenced obligation or offset from collateral held or any economic hedges.
The following table includesamounts under non-investment grade represent the amountnotional amounts of collateral pledged or received relatedthose credit derivatives on which we have a higher risk of being required to exposures subject to enforceable MRAs or MSLAs. While these agreementsperform under the terms of the credit derivative and are typically over-collateralized, U.S. GAAP requires disclosure in this table to limita function of the reported amount of such collateral to theunderlying assets.
amount ofWe consider the related recognized asset or liability for each counterparty.
In additioncredit risk to be low if the amounts included in Table 12.2, we alsounderlying assets under the credit derivative have balance sheet netting related to derivativesan external rating that is disclosedinvestment grade. If an external rating is not available, we classify the credit derivative as non-investment grade.
Our maximum exposure to sold credit derivatives is managed through posted collateral and purchased credit derivatives with identical or similar reference positions in Note 14 (Derivatives).order to achieve our desired credit risk profile. The credit risk management is designed to provide an ability to recover a significant portion of any amounts that would be paid under sold credit derivatives.
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 11.8 illustrates our exposure to OTC 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 12.2:11.8: Offsetting – Securities Financing ActivitiesCredit-Risk Contingent Features
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(in millions) | Sep 30, 2022 | | Dec 31, 2021 |
Assets: | | | |
Resale and securities borrowing agreements | | | |
Gross amounts recognized | $ | 107,586 | | | 103,140 | |
Gross amounts offset in consolidated balance sheet (1) | (28,674) | | | (14,074) | |
Net amounts in consolidated balance sheet (2) | 78,912 | | | 89,066 | |
Collateral not recognized in consolidated balance sheet (3) | (78,303) | | | (88,330) | |
Net amount (4) | $ | 609 | | | 736 | |
Liabilities: | | | |
Repurchase and securities lending agreements | | | |
Gross amounts recognized | $ | 53,805 | | | 35,043 | |
Gross amounts offset in consolidated balance sheet (1) | (28,674) | | | (14,074) | |
Net amounts in consolidated balance sheet (5) | 25,131 | | | 20,969 | |
Collateral pledged but not netted in consolidated balance sheet (6) | (24,837) | | | (20,820) | |
Net amount (4) | $ | 294 | | | 149 | |
| | | | | | | | |
(in billions) | Jun 30, 2023 | Dec 31, 2022 |
Net derivative liabilities with credit-risk contingent features | $ | 23.2 | | 20.7 | |
Collateral posted | 20.0 | | 17.4 | |
Additional collateral to be posted upon a below investment grade credit rating (1) | 3.2 | | 3.3 | |
(1)Represents recognizedAny credit rating below investment grade requires us to post the maximum amount of resale and repurchase agreements with counterparties subject to enforceable MRAs that have been offset in the consolidated balance sheet.collateral.
(2)Includes $55.8 billion and $66.2 billion classified on our consolidated balance sheet in federal funds sold and securities purchased under resale agreements at September 30, 2022, and December 31, 2021, respectively. Also includes securities purchased under long-term resale agreements (generally one year or more) classified in loans, which totaled $23.1 billion and $22.9 billion, at September 30, 2022, and December 31, 2021, 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 September 30, 2022, and December 31, 2021, we have received total collateral with a fair value of $128.0 billion and $124.4 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 $35.3 billion and $28.8 billion at September 30, 2022, and December 31, 2021, 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 September 30, 2022, and December 31, 2021, we have pledged total collateral with a fair value of $54.9 billion and $35.9 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 12.3 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.
Table 12.3:Gross Obligations by Underlying Collateral Type | | |
Note 12: Fair Values of Assets and Liabilities |
| | | | | | | | | | | | | | |
(in millions) | | Sep 30, 2022 | | Dec 31, 2021 |
Repurchase agreements: | | | | |
Securities of U.S. Treasury and federal agencies | | $ | 29,519 | | | 14,956 | |
Securities of U.S. States and political subdivisions | | 62 | | | 1 | |
Federal agency mortgage-backed securities | | 6,259 | | | 3,432 | |
Non-agency mortgage-backed securities | | 1,127 | | | 809 | |
Corporate debt securities | | 6,935 | | | 8,899 | |
Asset-backed securities | | 991 | | | 358 | |
Equity securities | | 653 | | | 919 | |
Other | | 489 | | | 409 | |
Total repurchases | | 46,035 | | | 29,783 | |
Securities lending arrangements: | | | | |
Securities of U.S. Treasury and federal agencies | | 238 | | | 33 | |
| | | | |
Federal agency mortgage-backed securities | | 38 | | | 17 | |
| | | | |
Corporate debt securities | | 144 | | | 80 | |
| | | | |
Equity securities (1) | | 7,262 | | | 5,050 | |
Other | | 88 | | | 80 | |
Total securities lending | | 7,770 | | | 5,260 | |
Total repurchases and securities lending | | $ | 53,805 | | | 35,043 | |
(1)EquityWe use fair value measurements to record fair value adjustments to certain assets and liabilities and to fulfill fair value disclosure requirements. Assets and liabilities recorded at fair value on a recurring basis, such as derivatives, residential MSRs, and trading or AFS debt securities, are generally exchange traded and represent collateral receivedpresented in Table 12.1 in this Note. Additionally, from third parties that has been repledged. We receivedtime to time, we record fair value adjustments on a nonrecurring basis. These nonrecurring adjustments typically involve application of lower of cost or fair value (LOCOM) accounting, write-downs of individual assets or application of the collateral through either margin lending agreements or contemporaneous securities borrowing transactions with other counterparties.
measurement alternative for nonmarketable equity securities. Assets recorded at fair value on a nonrecurring basis are presented in Table 12.4 providesin this Note. We provide in Table 12.9 estimates of fair value for financial instruments that are not recorded at fair value, such as loans and debt liabilities carried at amortized cost.
See Note 1 (Summary of Significant Accounting Policies) in our 2022 Form 10-K for discussion of how we determine fair value. For descriptions of the contractual maturitiesvaluation methodologies we use for assets and liabilities recorded at fair value on a recurring or nonrecurring basis, see Note 15 (Fair Values of Assets and Liabilities) in our gross obligations under repurchase and securities lending agreements.2022 Form 10-K.
FAIR VALUE HIERARCHY We classify our assets and liabilities recorded at fair value as either Level 1, 2, or 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 2022 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. This determination is ultimately based upon the specific facts and circumstances of each instrument or instrument category and judgments are made regarding the significance of the unobservable inputs to the instruments’ fair value measurement in its entirety. If unobservable 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) as a practical expedient to measure fair value. Marketable equity securities with published NAVs are classified in the fair value hierarchy.
Table 12.4:Contractual Maturities of Gross Obligations
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Overnight/continuous | | Up to 30 days | | 30-90 days | | >90 days | | Total gross obligation |
September 30, 2022 | | | | | | | | | |
Repurchase agreements | $ | 34,045 | | | 2,322 | | | 3,383 | | | 6,285 | | | 46,035 | |
Securities lending arrangements | 7,320 | | | — | | | 450 | | | — | | | 7,770 | |
Total repurchases and securities lending (1) | $ | 41,365 | | | 2,322 | | | 3,833 | | | 6,285 | | | 53,805 | |
December 31, 2021 | | | | | | | | | |
Repurchase agreements | $ | 16,452 | | | 3,570 | | | 4,276 | | | 5,485 | | | 29,783 | |
Securities lending arrangements | 4,810 | | | — | | | — | | | 450 | | | 5,260 | |
Total repurchases and securities lending (1) | $ | 21,262 | | | 3,570 | | | 4,276 | | | 5,935 | | | 35,043 | |
(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.
| | |
Note 13: Legal ActionsNote 12: Fair Values of Assets and Liabilities (continued)
|
Wells FargoAssets and certainLiabilities Recorded at Fair Value on a Recurring Basis
Table 12.1 presents the balances of our subsidiaries are involved inassets and liabilities recorded at fair value on 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 or other adverse consequences. 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 to or otherwise cooperate with government authorities in the conduct of investigations of other persons or industry groups.
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. There can be no assurance as to the ultimate outcome of legal actions, including the matters described below, and the actual costs of resolving legal actions may be substantially higher or lower than the amounts accrued for those actions.recurring basis.
ATM ACCESS FEE LITIGATION In October 2011, plaintiffs filed a putative class action, Mackmin, et al. v. Visa, Inc. et al., against Wells Fargo & Company, Wells Fargo Bank, N.A., Visa, MasterCard, and several other banks in the United States District Court for the District of Columbia. Plaintiffs allege that the Visa and MasterCard requirement that if an ATM operator charges an access fee on Visa and MasterCard transactions, then that fee cannot be greater than the access fee charged for transactions on other networks, violates antitrust rules. Plaintiffs seek treble damages, restitution, injunctive relief, and attorneys’ fees where available under federal and state law. Two other antitrust cases that make similar allegations were filed in the same court, but these cases did not name Wells Fargo as a defendant. On February 13, 2013, the district court granted defendants’ motions to dismiss the three actions. Plaintiffs appealed the dismissals and, on August 4, 2015, the United States Court of Appeals for the District of Columbia Circuit vacated the district court’s decisions and remanded the three cases to the district court for further proceedings. On June 28, 2016, the United States Supreme Court granted defendants’ petitions for writ of certiorari to review the decisions of the United States Court of Appeals for the District of Columbia. On November 17, 2016, the United States Supreme Court dismissed the petitions as improvidently granted, and the three cases returned to the district court for further proceedings. In November 2021, the district court granted preliminary approval of an agreement pursuant to which the Company will pay $20.8 million in order to resolve the cases. In August 2022, the district court granted final approval of the settlement.
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 customersTable 12.1:Fair Value on a Recurring Basis
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
(in millions) | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
Trading debt securities: | | | | | | | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | $ | 31,084 | | | 2,818 | | | — | | | 33,902 | | | 28,844 | | | 4,530 | | | — | | | 33,374 | |
Collateralized loan obligations | — | | | 624 | | | 64 | | | 688 | | | — | | | 540 | | | 150 | | | 690 | |
Corporate debt securities | — | | | 13,499 | | | 62 | | | 13,561 | | | — | | | 10,344 | | | 23 | | | 10,367 | |
Federal agency mortgage-backed securities | — | | | 39,235 | | | — | | | 39,235 | | | — | | | 34,447 | | | — | | | 34,447 | |
Non-agency mortgage-backed securities | — | | | 1,317 | | | 5 | | | 1,322 | | | — | | | 1,243 | | | 12 | | | 1,255 | |
Other debt securities | — | | | 8,148 | | | 1 | | | 8,149 | | | — | | | 6,022 | | | — | | | 6,022 | |
Total trading debt securities | 31,084 | | | 65,641 | | | 132 | | | 96,857 | | | 28,844 | | | 57,126 | | | 185 | | | 86,155 | |
Available-for-sale debt securities: | | | | | | | | | | | | | | | |
Securities of U.S. Treasury and federal agencies | 46,896 | | | — | | | — | | | 46,896 | | | 45,285 | | | — | | | — | | | 45,285 | |
Non-U.S. government securities | — | | | 162 | | | — | | | 162 | | | — | | | 162 | | | — | | | 162 | |
Securities of U.S. states and political subdivisions | — | | | 21,295 | | | 79 | | | 21,374 | | | — | | | 10,332 | | | 113 | | | 10,445 | |
Federal agency mortgage-backed securities | — | | | 56,981 | | | — | | | 56,981 | | | — | | | 48,137 | | | — | | | 48,137 | |
Non-agency mortgage-backed securities | — | | | 3,049 | | | — | | | 3,049 | | | — | | | 3,284 | | | — | | | 3,284 | |
Collateralized loan obligations | — | | | 3,725 | | | — | | | 3,725 | | | — | | | 3,981 | | | — | | | 3,981 | |
Other debt securities | — | | | 1,913 | | | 151 | | | 2,064 | | | — | | | 2,137 | | | 163 | | | 2,300 | |
Total available-for-sale debt securities | 46,896 | | | 87,125 | | | 230 | | | 134,251 | | | 45,285 | | | 68,033 | | | 276 | | | 113,594 | |
Loans held for sale | — | | | 2,488 | | | 486 | | | 2,974 | | | — | | | 3,427 | | | 793 | | | 4,220 | |
Mortgage servicing rights (residential) | — | | | — | | | 8,251 | | | 8,251 | | | — | | | — | | | 9,310 | | | 9,310 | |
Derivative assets (gross): | | | | | | | | | | | | | | | |
Interest rate contracts | 258 | | | 35,353 | | | 455 | | | 36,066 | | | 262 | | | 40,503 | | | 321 | | | 41,086 | |
Commodity contracts | — | | | 3,136 | | | 32 | | | 3,168 | | | — | | | 5,866 | | | 134 | | | 6,000 | |
Equity contracts | 178 | | | 12,335 | | | 268 | | | 12,781 | | | 112 | | | 9,051 | | | 410 | | | 9,573 | |
Foreign exchange contracts | 30 | | | 16,445 | | | 17 | | | 16,492 | | | 27 | | | 22,175 | | | 11 | | | 22,213 | |
Credit contracts | — | | | 55 | | | 24 | | | 79 | | | — | | | 44 | | | 22 | | | 66 | |
| | | | | | | | | | | | | | | |
Total derivative assets (gross) | 466 | | | 67,324 | | | 796 | | | 68,586 | | | 401 | | | 77,639 | | | 898 | | | 78,938 | |
Equity securities: | | | | | | | | | | | | | | | |
Marketable | 20,348 | | | 159 | | | 5 | | | 20,512 | | | 18,527 | | | 86 | | | 3 | | | 18,616 | |
Nonmarketable | — | | | 11,075 | | | 22 | | | 11,097 | | | — | | | 9,750 | | | 17 | | | 9,767 | |
Total equity securities | 20,348 | | | 11,234 | | | 27 | | | 31,609 | | | 18,527 | | | 9,836 | | | 20 | | | 28,383 | |
Total assets prior to derivative netting | $ | 98,794 | | | 233,812 | | | 9,922 | | | 342,528 | | | 93,057 | | | 216,061 | | | 11,482 | | | 320,600 | |
Derivative netting (1) | | | | | | | (50,596) | | | | | | | | | (56,164) | |
Total assets after derivative netting | | | | | | | $ | 291,932 | | | | | | | | | 264,436 | |
Derivative liabilities (gross): | | | | | | | | | | | | | | | |
Interest rate contracts | $ | (287) | | | (35,418) | | | (6,093) | | | (41,798) | | | (193) | | | (40,377) | | | (2,903) | | | (43,473) | |
Commodity contracts | — | | | (2,556) | | | (48) | | | (2,604) | | | — | | | (3,325) | | | (120) | | | (3,445) | |
Equity contracts (2) | (161) | | | (11,523) | | | (1,649) | | | (13,333) | | | (118) | | | (6,502) | | | (1,634) | | | (8,254) | |
Foreign exchange contracts | (38) | | | (18,630) | | | (24) | | | (18,692) | | | (29) | | | (26,622) | | | (35) | | | (26,686) | |
Credit contracts | — | | | (23) | | | (2) | | | (25) | | | — | | | (33) | | | (3) | | | (36) | |
| | | | | | | | | | | | | | | |
Total derivative liabilities (gross) | (486) | | | (68,150) | | | (7,816) | | | (76,452) | | | (340) | | | (76,859) | | | (4,695) | | | (81,894) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Short-sale and other liabilities (2) | (22,966) | | | (4,739) | | | (58) | | | (27,763) | | | (14,791) | | | (5,513) | | | (167) | | | (20,471) | |
Long-term debt | — | | | (1,600) | | | — | | | (1,600) | | | — | | | (1,346) | | | — | | | (1,346) | |
Total liabilities prior to derivative netting | $ | (23,452) | | | $ | (74,489) | | | (7,874) | | | (105,815) | | | (15,131) | | | (83,718) | | | (4,862) | | | (103,711) | |
Derivative netting (1) | | | | | | | 55,021 | | | | | | | | | 61,827 | |
Total liabilities after derivative netting | | | | | | | $ | (50,794) | | | | | | | | | (41,884) | |
(1)Represents balance sheet netting of derivative asset and the payment of a total of $1.0 billion in civil money penaltiesliability balances, related cash collateral and portfolio level counterparty valuation adjustments. See Note 11 (Derivatives) for additional information.
(2)In first quarter 2023, we adopted ASU 2018-12 – Financial Services – Insurance (Topic 944): Targeted Improvements 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 actions alleging, among other things, unfair and deceptive practices relating to these CPI policies, were filed against the Company and consolidated into one multi-district litigation in the United States District CourtAccounting for the Central DistrictLong-Duration Contracts. For additional information, see Note 1 (Summary of California. As previously disclosed, the Company entered into a settlement to resolve the multi-district litigation. 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 was subject to a class action in the United States District Court for the Central District of California alleging that customers were 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. As previously disclosed, the Company entered into a settlement to resolve the class action. Allegations related to the CPI and GAP programs were among the subjects of a shareholder derivative lawsuit in the United States District Court for the Northern District of California, which has been dismissed. In addition, federal and state government agencies, including the CFPB, have undertaken formal or informal inquiries, investigations, or examinations regarding these and other issues related to the origination, servicing, and collection of consumer auto loans, including related insurance products. The Company is in resolution discussions with the CFPB regarding a number of CFPB investigations, inquiries, and other matters, including automobile lending matters, consumer deposit account related matters, and mortgage lending matters. There can be no assurance as to the outcome of these discussions. As previously disclosed, the Company entered into an agreement to resolve investigations by state attorneys general.
COMMERCIAL LENDING SHAREHOLDER LITIGATION Significant Accounting Policies).In October and November 2020, plaintiffs filed two putative securities fraud class actions, which were consolidated into one lawsuit pending in the United States District Court for the Northern District of California alleging that the Company and certain of its current and former 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 value of its commercial loans, collateralized loan obligations and commercial mortgage-backed securities. In May 2022, the district court granted defendants’ motion to dismiss the lawsuit, which was appealed to the United States Court of Appeals for the Ninth Circuit.
COMPANY 401(K) PLAN MATTERS Federal government agencies, including the United States Department of Labor (Department of Labor), are reviewing certain transactions associated with the Employee Stock Ownership Plan feature of the Company’s 401(k) plan, including the manner in which the 401(k) plan purchased certain securities used in connection with the
Company’s contributions to the 401(k) plan. On September 12, 2022, the Company announced it had entered into an agreement with the Department of Labor whereby the Company agreed to pay approximately $13.2 million to the Department of LaborLevel 3 Assets and approximately $131.8 million to eligible current and former Company 401(k) plan participants in order to resolve the Department of Labor’s review. As part of the settlement with the Department of Labor, the Company also agreed to redeem certain preferred securities held by the Company’s 401(k) plan in exchange for shares of the Company’s common stock. On September 26, 2022, participants in the Company’s 401(k) plan filedLiabilities Recorded at Fair Value on a putative class action in the United States District Court for the District of Minnesota alleging that the Company violated the Employee Retirement Income Security Act of 1974 in connection with certain of these transactions.
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 filed in California state court.
CONSUMER DEPOSIT ACCOUNT RELATED REGULATORY INVESTIGATIONS 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. The CFPB is also investigating certain of the Company’s past disclosures to customers regarding the minimum qualifying debit card usage required for customers to receive a waiver of monthly service fees on certain consumer deposit accounts. The Company is in resolution discussions with the CFPB regarding a number of CFPB investigations, inquiries, and other matters, including automobile lending matters, consumer deposit account related matters, and mortgage lending matters. There can be no assurance as to the outcome of these discussions.
HIRING PRACTICES MATTERS Government agencies, including the United States Department of Justice and the United States Securities and Exchange Commission, have undertaken formal or informal inquiries or investigations regarding the Company’s hiring practices related to diversity. A putative securities fraud class action has also been filed in the United States District Court for the Northern District of California alleging that the Company and certain of its executive officers made false or misleading statements about the Company’s hiring practices related to diversity. Allegations related to the Company’s hiring practices related to diversity are also among the subjects of shareholder derivative lawsuits filed in the United States District Court for the Northern District of California.
INTERCHANGE LITIGATIONPlaintiffs representing a 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,Recurring Basis
MasterCard,Table 12.2 presents the changes in Level 3 assets and severalliabilities measured at fair value on a recurring basis.
Table 12.2:Changes in Level 3 Fair Value Assets and Liabilities on a Recurring Basis
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | 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, 2023 | | | | | | | | | | | | | | | | | | |
Trading debt securities | $ | 132 | | | (8) | | | 31 | | | (36) | | | (3) | | | 55 | | | (39) | | | 132 | | | (8) | | (6) |
Available-for-sale debt securities | 505 | | | (4) | | | 7 | | | — | | | (4) | | | 22 | | | (296) | | | 230 | | | (3) | | (6) |
Loans held for sale | 564 | | | (10) | | | 94 | | | (180) | | | (26) | | | 49 | | | (5) | | | 486 | | | (30) | | (7) |
Mortgage servicing rights (residential) (8) | 8,819 | | | (9) | | | 47 | | | (606) | | | — | | | — | | | — | | | 8,251 | | | 316 | | (7) |
Net derivative assets and liabilities: | | | | | | | | | | | | | | | | | | |
Interest rate contracts | (2,752) | | | (2,870) | | | 1 | | | (1) | | | 668 | | | (684) | | | — | | | (5,638) | | | (2,258) | | |
Equity contracts | (1,278) | | | (160) | | | — | | | — | | | 49 | | | (17) | | | 25 | | | (1,381) | | | (131) | | |
Other derivative contracts | (10) | | | (8) | | | 4 | | | (1) | | | 14 | | | — | | | — | | | (1) | | | 4 | | |
Total derivative contracts | (4,040) | | | (3,038) | | | 5 | | | (2) | | | 731 | | | (701) | | | 25 | | | (7,020) | | | (2,385) | | (9) |
Equity securities | 32 | | | (15) | | | 4 | | | (3) | | | — | | | 9 | | | — | | | 27 | | | (15) | | (6) |
Other liabilities | (193) | | | 135 | | | — | | | — | | | — | | | — | | | — | | | (58) | | | 135 | | (10) |
Quarter ended June 30, 2022 | | | | | | | | | | | | | | | | | | |
Trading debt securities | $ | 201 | | | (22) | | | 46 | | | (78) | | | 29 | | | — | | | (7) | | | 169 | | | (28) | | (6) |
Available-for-sale debt securities | 338 | | | (5) | | | 2 | | | (25) | | | (5) | | | — | | | (138) | | | 167 | | | (1) | | (6) |
Loans held for sale | 1,019 | | | (61) | | | 116 | | | (27) | | | (57) | | | 84 | | | (2) | | | 1,072 | | | (61) | | (7) |
Mortgage servicing rights (residential) (8) | 8,511 | | | 581 | | | 322 | | | (251) | | | — | | | — | | | — | | | 9,163 | | | 868 | | (7) |
Net derivative assets and liabilities: | | | | | | | | | | | | | | | | | | |
Interest rate contracts | (176) | | | (381) | | | — | | | — | | | 371 | | | (385) | | | — | | | (571) | | | (133) | | |
Equity contracts | (1,416) | | | 202 | | | — | | | — | | | 280 | | | (516) | | | (34) | | | (1,484) | | | 403 | | |
Other derivative contracts | 27 | | | 88 | | | — | | | — | | | 28 | | | — | | | (6) | | | 137 | | | 89 | | |
Total derivative contracts | (1,565) | | | (91) | | | — | | | — | | | 679 | | | (901) | | | (40) | | | (1,918) | | | 359 | | (9) |
Equity securities | 26 | | | 5 | | | — | | | (2) | | | — | | | 3 | | | (1) | | | 31 | | | 5 | | (6) |
Other liabilities (11) | (638) | | | 89 | | | — | | | — | | | — | | | — | | | — | | | (549) | | | 89 | | (10) |
Six months ended June 30, 2023 | | | | | | | | | | | | | | | | | | |
Trading debt securities | $ | 185 | | | (7) | | | 107 | | | (148) | | | (4) | | | 55 | | | (56) | | | 132 | | | (11) | | (6) |
Available-for-sale debt securities | 276 | | | (24) | | | 76 | | | — | | | (10) | | | 255 | | | (343) | | | 230 | | | (22) | | (6) |
Loans held for sale | 793 | | | — | | | 167 | | | (229) | | | (65) | | | 65 | | | (245) | | | 486 | | | (23) | | (7) |
Mortgage servicing rights (residential) (8) | 9,310 | | | (555) | | | 95 | | | (599) | | | — | | | — | | | — | | | 8,251 | | | 91 | | (7) |
Net derivative assets and liabilities: | | | | | | | | | | | | | | | | | | |
Interest rate contracts | (2,582) | | | (2,575) | | | 1 | | | (1) | | | 935 | | | (1,430) | | | 14 | | | (5,638) | | | (1,755) | | |
Equity contracts | (1,224) | | | (463) | | | — | | | — | | | 334 | | | (55) | | | 27 | | | (1,381) | | | (125) | | |
Other derivative contracts | 9 | | | (63) | | | 6 | | | (2) | | | 51 | | | (2) | | | — | | | (1) | | | (36) | | |
Total derivative contracts | (3,797) | | | (3,101) | | | 7 | | | (3) | | | 1,320 | | | (1,487) | | | 41 | | | (7,020) | | | (1,916) | | (9) |
Equity securities | 20 | | | (16) | | | 4 | | | (3) | | | — | | | 22 | | | — | | | 27 | | | (16) | | (6) |
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Other liabilities | (167) | | | 109 | | | — | | | — | | | — | | | — | | | — | | | (58) | | | 109 | | (10) |
Six months ended June 30, 2022 | | | | | | | | | | | | | | | | | | |
Trading debt securities | $ | 241 | | | (37) | | | 93 | | | (92) | | | (6) | | | 5 | | | (35) | | | 169 | | | (40) | | (6) |
Available-for-sale debt securities | 186 | | | (26) | | | 54 | | | (25) | | | (10) | | | 126 | | | (138) | | | 167 | | | (1) | | (6) |
Loans held for sale | 1,033 | | | (118) | | | 179 | | | (70) | | | (130) | | | 186 | | | (8) | | | 1,072 | | | (115) | | (7) |
Mortgage servicing rights (residential) (8) | 6,920 | | | 1,829 | | | 664 | | | (250) | | | — | | | — | | | — | | | 9,163 | | | 2,473 | | (7) |
Net derivative assets and liabilities: | | | | | | | | | | | | | | | | | | |
Interest rate contracts | 127 | | | (959) | | | — | | | — | | | 646 | | | (385) | | | — | | | (571) | | | (241) | | |
Equity contracts (11) | (417) | | | (14) | | | — | | | — | | | 869 | | | (596) | | | (1,326) | | | (1,484) | | | 610 | | |
Other derivative contracts | 5 | | | 66 | | | — | | | — | | | 72 | | | — | | | (6) | | | 137 | | | 110 | | |
Total derivative contracts | (285) | | | (907) | | | — | | | — | | | 1,587 | | | (981) | | | (1,332) | | | (1,918) | | | 479 | | (9) |
Equity securities | 8,910 | | | 4 | | | — | | | (2) | | | — | | | 5 | | | (8,886) | | | 31 | | | 4 | | (6) |
Other liabilities (11) | (791) | | | 242 | | | — | | | — | | | — | | | — | | | — | | | (549) | | | 242 | | (10) |
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(1)All amounts represent net gains (losses) included in net income except for AFS debt securities and other banksliabilities which also included net gains (losses) in other comprehensive income. Net gains (losses) included in other comprehensive income for AFS debt securities were $(3) million and bank holding companies are also named as defendants in these actions. These actions have been consolidated in the United States District Court$(19) million for the Eastern Districtsecond quarter and first half of New York.2023, respectively, and $(6) million and $(27) million for the second quarter and first half of 2022, respectively. Net gains (losses) included in other comprehensive income for other liabilities were $5 million for both the second quarter and first half of 2023, and $87 million and $101 million for the second quarter and first half of 2022, respectively.
(2)Includes originations of mortgage servicing rights and 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 Level 3 are classified as Level 2. During first quarter 2022, we transferred $8.9 billion of non-marketable equity securities and $1.4 billion of related economic hedging derivative assets (equity contracts) out of Level 3 due to our election to measure fair value of these instruments as a portfolio. Under this election, the unit of valuation is the portfolio-level, rather than each individual instrument. 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 colludedunobservable inputs previously significant 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 principlevaluation of the consolidated individual actions. The settlement paymentsinstruments individually are no longer significant, as those unobservable inputs offset under the portfolio election.
(5)All amounts represent net unrealized gains (losses) related to be made by all defendantsassets and liabilities held at period end included in the consolidated classnet income except for AFS debt securities and individual actions totaled approximately $6.6 billion before reductions applicableother liabilities which also included net unrealized gains (losses) related to certain merchants opting out of the settlement. The class settlement also providedassets and liabilities held at period end in other comprehensive income. Net unrealized gains (losses) included in other comprehensive income for AFS debt securities were $(2) million and $(17) million for the distribution to class merchantssecond quarter and first half of 10 basis points2023, respectively, and $0 for both the second quarter and first half of default interchange across all credit rate categories2022. Net unrealized gains (losses) included in other comprehensive income for a periodother liabilities were $5 million for both the second quarter and first half of eight consecutive months. The district court granted final approval2023, and $87 million and $101 million for the second quarter and first half of 2022, respectively.
(6)Included in net gains from trading and securities on our consolidated statement of income.
(7)Included in mortgage banking income on our consolidated statement of income.
(8)For additional information on the settlement, which was appealedchanges in mortgage servicing rights, see Note 6 (Mortgage Banking Activities).
(9)Included in mortgage banking income, net gains from trading and securities, and other noninterest income on our consolidated statement of income.
(10)Included in other noninterest income on our consolidated statement of income.
(11)In first quarter 2023, we adopted ASU 2018-12 – Financial Services – Insurance (Topic 944): Targeted Improvements to the United States CourtAccounting for Long-Duration Contracts. For additional information, see Note 1 (Summary 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. On September 27, 2021, the district court granted the plaintiffs’ motion for class certification in the equitable relief case. Several of the opt-out and direct action litigations have been settled while others remain pending.
MORTGAGE LENDING MATTERSSignificant Accounting Policies). Plaintiffs representing a class of mortgage borrowers filed separate putative class actions alleging 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. As previously disclosed, the Company entered into settlements to resolve the class actions, while the others were voluntarily dismissed. In addition, federal and state government agencies, including the CFPB, have undertaken
Note 13:12: Legal ActionsFair Values of Assets and Liabilities (continued)
formal or informal inquiries or investigations regarding theseTable 12.3 provides quantitative information about the valuation techniques and other mortgage servicing matters. The Company is in resolution discussions with the CFPB regarding a number of CFPB investigations, inquiries, and other matters, including automobile lending matters, consumer deposit account related matters, and mortgage lending matters. There can be no assurance as to the outcome of these discussions. On September 9, 2021, the OCC assessed a $250 million civil money penalty against the Company regarding loss mitigation activitiessignificant unobservable inputs used in the Company’s Home Lending businessvaluation of our Level 3 assets and insufficient progressliabilities measured at fair value on a recurring basis.
The significant unobservable inputs for Level 3 assets inherent in addressing requirements under the OCC’s April 2018 consent order. In addition, on September 9, 2021,fair values obtained from third-party vendors are not included in the Company entered into a consent order withtable, as the OCC requiring the Company to improve the execution, risk management, and oversight of loss mitigation activities in its Home Lending business.
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 seven 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. In March 2022, Wells Fargo entered into an agreement to settle the six actions filed by Nomura, and the actions have been voluntarily dismissed. In the remaining action filed by Natixis, Wells Fargo has asserted counterclaims alleging that Natixis failed to provide Wells Fargo notice of its 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 dospecific inputs applied are 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 has been cooperating with investigations or inquiries arising out of this matter by federal government agencies. The Company is in resolution discussions with certain of these agencies, although there can be no assurance as to the outcome of these discussions.
RETAIL SALES PRACTICES MATTERSFederal and state government agencies, including the United States Department of Justice (Department of Justice) and the United States Securities and Exchange Commission (SEC), have undertaken formal or informal inquiries or investigations 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. 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 by the Company abides by all the termsvendor (for additional information on vendor-developed valuations, see Note 15 (Fair Values of Assets and Liabilities) in our 2022 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.
Table 12.3:Valuation Techniques – Recurring Basis
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($ in millions, except cost to service amounts) | Fair Value Level 3 | | Valuation Technique | | Significant Unobservable Input | | Range of Inputs | | | Weighted Average |
June 30, 2023 | | | | | | | | | | | | |
Trading and available-for-sale debt securities | $ | 125 | | | Discounted cash flow | | Discount rate | | 3.0 | | - | 12.5 | | % | | 6.4 | |
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| 132 | | | Market comparable pricing | | Comparability adjustment | | (46.3) | | - | 48.3 | | | | (16.1) | |
| 105 | | | Market comparable pricing | | Multiples | | 1.4x | - | 7.4x | | | 3.7x |
Loans held for sale | 486 | | | Discounted cash flow | | Default rate | | 0.0 | | - | 28.8 | | % | | 1.0 | |
| | | | | Discount rate | | 2.9 | | - | 15.0 | | | | 9.8 | |
| | | | | Loss severity | | 0.0 | | - | 54.9 | | | | 17.1 | |
| | | | | Prepayment rate | | 4.3 | | - | 15.5 | | | | 10.5 | |
Mortgage servicing rights (residential) | 8,251 | | | Discounted cash flow | | Cost to service per loan (1) | | $ | 52 | | - | 518 | | | | 102 | |
| | | | | Discount rate | | 8.8 | | - | 13.8 | | % | | 9.2 | |
| | | | | Prepayment rate (2) | | 7.8 | | - | 23.4 | | | | 9.2 | |
Net derivative assets and (liabilities): | | | | | | | | | | | | |
Interest rate contracts | (5,518) | | | Discounted cash flow | | Discount rate | | 3.2 | | - | 5.4 | | | | 4.6 | |
| (61) | | | Discounted cash flow | | Default rate | | 0.4 | | - | 5.0 | | | | 1.6 | |
| | | | | Loss severity | | 50.0 | | - | 50.0 | | | | 50.0 | |
| | | | | Prepayment rate | | 2.8 | | - | 22.0 | | | | 16.0 | |
Interest rate contracts: derivative loan commitments | (59) | | | Discounted cash flow | | Fall-out factor | | 1.0 | | - | 99.0 | | | | 28.8 | |
| | | | | Initial-value servicing | | (43.9) | | - | 141.0 | | bps | | (14.5) | |
Equity contracts | (976) | | | Discounted cash flow | | Conversion factor | | (7.4) | | - | 0.0 | | % | | (6.6) | |
| | | | | Weighted average life | | 0.5 | - | 1.5 | yrs | | 1.1 |
| (405) | | | Option model | | Correlation factor | | (77.0) | | - | 99.0 | | % | | 63.6 | |
| | | | | Volatility factor | | 6.5 | | - | 98.0 | | | | 34.4 | |
Insignificant Level 3 liabilities, net of assets (3) | (32) | | | | | | | | | | | | |
Total Level 3 assets, net of liabilities | $ | 2,048 | | (4) | | | | | | | | | | |
December 31, 2022 | | | | | | | | | | | | |
Trading and available-for-sale debt securities | $ | 157 | | | Discounted cash flow | | Discount rate | | 2.7 | | - | 12.5 | | % | | 6.4 | |
| 185 | | | Market comparable pricing | | Comparability adjustment | | (33.6) | | - | 14.1 | | | | (4.8) | |
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| 119 | | | Market comparable pricing | | Multiples | | 1.1x | - | 7.4x | | | 4.0x |
Loans held for sale | 793 | | | Discounted cash flow | | Default rate | | 0.0 | | - | 25.0 | | % | | 0.7 | |
| | | | | Discount rate | | 2.9 | | - | 13.4 | | | | 9.5 | |
| | | | | Loss severity | | 0.0 | | - | 53.6 | | | | 15.7 | |
| | | | | Prepayment rate | | 3.5 | | - | 14.2 | | | | 10.7 | |
Mortgage servicing rights (residential) | 9,310 | | | Discounted cash flow | | Cost to service per loan (1) | | $ | 52 | | - | 550 | | | | 102 | |
| | | | | Discount rate | | 8.7 | | - | 14.1 | | % | | 9.1 | |
| | | | | Prepayment rate (2) | | 8.1 | | - | 21.9 | | | | 9.4 | |
Net derivative assets and (liabilities): | | | | | | | | | | | | |
Interest rate contracts | (2,411) | | | Discounted cash flow | | Discount rate | | 3.2 | | - | 4.9 | | | | 4.2 | |
| (63) | | | Discounted cash flow | | Default rate | | 0.4 | | - | 5.0 | | | | 2.3 | |
| | | | | Loss severity | | 50.0 | | - | 50.0 | | | | 50.0 | |
| | | | | Prepayment rate | | 2.8 | | - | 22.0 | | | | 18.7 | |
Interest rate contracts: derivative loan commitments | (108) | | | Discounted cash flow | | Fall-out factor | | 1.0 | | - | 99.0 | | | | 41.0 | |
| | | | | Initial-value servicing | | (9.3) | | - | 141.0 | | bps | | 11.5 | |
Equity contracts (3) | (1,000) | | | Discounted cash flow | | Conversion factor | | (12.2) | | - | 0.0 | | % | | (9.9) | |
| | | | | Weighted average life | | 0.5 | - | 1.5 | yrs | | 0.8 |
| (224) | | | Option model | | Correlation factor | | (77.0) | | - | 99.0 | | % | | 49.5 | |
| | | | | Volatility factor | | 6.5 | | - | 96.5 | | | | 37.3 | |
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Insignificant Level 3 liabilities, net of assets (3) | (138) | | | | | | | | | | | | |
Total Level 3 assets, net of liabilities | $ | 6,620 | | (4) | | | | | | | | | | |
(1)The high end of the agreement. The Departmentrange of Justice criminal settlement also includesinputs is for servicing modified loans. For non-modified loans, the Company’s agreement thatrange is $52 - $175 at June 30, 2023, and $52 - $178 at December 31, 2022.
(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.
(3)In first quarter 2023, we adopted ASU 2018-12 – Financial Services – Insurance (Topic 944): Targeted Improvements to the facts set forthAccounting for Long-Duration Contracts. For additional information, see Note 1 (Summary of Significant Accounting Policies).
(4)Consists of total Level 3 assets of $9.9 billion and $11.5 billion and total Level 3 liabilities of $7.9 billion and $4.9 billion, before netting of derivative balances, at June 30, 2023, and December 31, 2022, respectively.
For additional information on the valuation techniques and significant unobservable inputs used in the settlement document constitute sufficient facts for the findingvaluation of criminal violationsour Level 3 assets and liabilities, including how changes in these
inputs affect fair value estimates, see Note 15 (Fair Values of statutes regarding bank recordsAssets 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 made payments totaling $3.0 billion. The Company has also entered into agreements to resolve other government agency investigations, including investigations by the state attorneys general. In addition, a number of lawsuits were filed by non-governmental parties seeking damages or other remedies related to these retail sales practices. As previously disclosed, the Company entered into various settlements to resolve these lawsuits.
RMBS TRUSTEE LITIGATION In December 2014, Phoenix Light SF Limited (Phoenix Light) and certain related entities filed a complaintLiabilities) in the United States District Court for the Southern District of New York alleging claims against Wells Fargo Bank, N.A., in its capacity as trustee for a number of residential mortgage-backed securities (RMBS) trusts. Complaints raising similar allegations have been filed by Commerzbank AG in the Southern District of New York and by IKB International and IKB Deutsche Industriebank in New York state court. In each case, the plaintiffs allege that Wells Fargo Bank, N.A., as trustee, caused losses to investors, and plaintiffs 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. In Julyour 2022 the district court dismissed Phoenix Light’s claims and certain of the claims asserted by Commerzbank AG, and subsequently entered judgment in each case in favor of Wells Fargo Bank, N.A. In August 2022, Phoenix Light and Commerzbank AG appealed the district court’s decision to the United States Court of Appeals for the Second Circuit. The Company previously settled two class actions filed by institutional investors and an action filed by the National Credit Union Administration with similar allegations. In addition, Park Royal I LLC and Park Royal II LLC have filed complaints that were consolidated in New York state court alleging Wells Fargo Bank, N.A., as trustee, failed to take appropriate actions upon learning of defective mortgage loan documentation.
SEMINOLE TRIBE TRUSTEE LITIGATION The Seminole Tribe of Florida filed a complaint in Florida state court alleging that Wells Fargo, as trustee, charged excess fees in connection with the administration of a minor’s trust and failed to invest the assets of the trust prudently. The complaint was later amended to include three individual current and former beneficiaries as plaintiffs and to remove the Tribe as a party to the case. Wells Fargo filed a petition to remove the case to federal court.
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 application of the measurement alternative for certain nonmarketable equity securities.
Table 12.4 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 June 30, 2023, and December 31, 2022, and for which a nonrecurring fair value adjustment was recorded during the six months ended June 30, 2023, and the year ended December 31, 2022.
OUTLOOK
Table 12.4: As described above,Fair Value on a Nonrecurring Basis
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| June 30, 2023 | | December 31, 2022 |
(in millions) | Level 2 | | Level 3 | | Total | | Level 2 | | Level 3 | | Total |
Loans held for sale (1) | $ | 1,268 | | | 315 | | | 1,583 | | | 838 | | | 554 | | | 1,392 | |
Loans: | | | | | | | | | | | |
Commercial | 645 | | | — | | | 645 | | | 285 | | | — | | | 285 | |
Consumer | 68 | | | — | | | 68 | | | 512 | | | — | | | 512 | |
Total loans | 713 | | | — | | | 713 | | | 797 | | | — | | | 797 | |
Mortgage servicing rights (commercial) | — | | | — | | | — | | | — | | | 75 | | | 75 | |
Nonmarketable equity securities | 606 | | | 1,483 | | | 2,089 | | | 1,926 | | | 2,818 | | | 4,744 | |
Other assets | 2,063 | | | 49 | | | 2,112 | | | 1,862 | | | 296 | | | 2,158 | |
Total assets at fair value on a nonrecurring basis | $ | 4,650 | | | 1,847 | | | 6,497 | | | 5,423 | | | 3,743 | | | 9,166 | |
(1)Consists of commercial mortgages and residential mortgage – first lien loans.
Table 12.5 presents the Company establishes accruals for legal actions when potential losses associated withgains (losses) on certain assets held at the actions become probable and the costs can be reasonably estimated. The high end of the range of reasonably possible potential losses in excess of the Company’s accrual for probable and estimable losses was approximately $3.7 billion as of September 30, 2022. 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 mattersreporting periods presented for which a loss is probable or reasonably possible but not currently estimable. Accordingly, actualnonrecurring fair value adjustment was recognized in earnings during the respective periods.
Table 12.5:Gains (Losses) on Assets with Nonrecurring Fair Value Adjustment
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| Six months ended June 30, |
(in millions) | 2023 | | 2022 | | |
Loans held for sale | $ | (40) | | | (66) | | | |
Loans: | | | | | |
Commercial | (205) | | | (36) | | | |
Consumer | (368) | | | (358) | | | |
Total loans | (573) | | | (394) | | | |
Mortgage servicing rights (commercial) | — | | | 4 | | | |
Nonmarketable equity securities (1) | (526) | | | (95) | | | |
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Other assets (2) | (102) | | | (176) | | | |
Total | $ | (1,241) | | | (727) | | | |
(1)Includes impairment of nonmarketable equity securities and observable price changes related to nonmarketable equity securities accounted for under the measurement alternative.
(2)Includes impairment of operating lease ROU assets, valuation of physical commodities, valuation losses may beon foreclosed real estate and other collateral owned, and impairment of private equity and venture capital investments in excess of the established accrual or the range of reasonably possible loss. Based on information currently available, advice of counsel, available insurance coverage, and established reserves, Wells Fargo believes that the eventual outcome of the 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.portfolio companies.
Table 12.6 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 and 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 and private equity and venture capital investments in consolidated portfolio companies.
Note 12: Fair Values of Assets and Liabilities (continued)
| | |
Note 14:Table 12.6:Valuation Techniques – Nonrecurring Basis Derivatives
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
($ in millions) | Fair Value Level 3 | Valuation Technique (1) | | Significant Unobservable Input (1) | | Range of Inputs Positive (Negative) | | Weighted Average |
June 30, 2023 | | | | | | | | | | |
Loans held for sale | $ | 315 | | Discounted cash flow | | Default rate | | 0.1 | | - | 98.3 | % | | 16.9 | |
| | | | Discount rate | | 4.4 | | - | 14.3 | | 5.8 | |
| | | | Loss severity | | 7.3 | | - | 65.6 | | 16.8 | |
| | | | Prepayment rate | | 3.2 | | - | 32.4 | | 12.9 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Nonmarketable equity securities | 429 | | Market comparable pricing | | Comparability adjustment | | (100.0) | | - | (4.7) | | | (33.8) | |
| | | | | | | | | | |
| 1,052 | | Market comparable pricing | | Multiples | | 3.0x | - | 27.1x | | 9.5x |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Insignificant Level 3 assets | 51 | | | | | | | | | | |
Total | $ | 1,847 | | | | | | | | | | |
December 31, 2022 | | | | | | | | | | |
Loans held for sale | $ | 143 | | Discounted cash flow | | Default rate | | 0.1 | | - | 86.1 | % | | 13.8 | |
| | | | Discount rate | | 3.8 | | - | 13.8 | | 9.0 | |
| | | | Loss severity | | 8.1 | | - | 43.8 | | 18.6 | |
| | | | Prepayment rate | | 2.3 | | - | 23.4 | | 18.6 | |
| 411 | | Market comparable pricing | | Comparability adjustment | | (8.2) | | - | (0.9) | | (4.3) | |
Mortgage servicing rights (commercial) | 75 | | Discounted cash flow | | Cost to service per loan | | $ | 3,775 | | - | 3,775 | | 3,775 | |
| | | | Discount rate | | 5.2 | | - | 5.2 | % | | 5.2 | |
| | | | Prepayment rate | | 0.0 | | - | 20.6 | | 6.7 | |
Nonmarketable equity securities | 1,461 | | Market comparable pricing | | Comparability adjustment | | (100.0) | | - | (4.0) | | | (30.1) | |
| | | | | | | | | | |
| 1,352 | | Market comparable pricing | | Multiples | | 0.8x | - | 18.7x | | 9.9x |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Other assets (2) | 234 | | Market comparable pricing | | Multiples | | 6.4 | | - | 8.0 | | 7.1 | |
Insignificant Level 3 assets | 67 | | | | | | | | | | |
Total | $ | 3,743 | | | | | | | | | | |
We use derivatives to manage exposure to market risk, including interest rate risk, credit risk(1)See Note 15 (Fair Values of Assets and foreign currency risk, and to assist customers with their risk management objectives. We designate certain derivatives as hedging instrumentsLiabilities) in qualifying hedge accounting relationships (fair value or cash flow hedges). Our remaining derivatives consist of economic hedges that do not qualifyour 2022 Form 10-K for hedge accounting and derivatives held for customer accommodation trading or other purposes. For additional information on our derivative activities, see Note 16 (Derivatives)the valuation technique(s) and significant unobservable inputs used in our 2021 Form 10-K.
Table 14.1 presents the total notional or contractual amounts and fair values for our derivatives. Derivative transactions can be measured in termsvaluation of the notional amount, but this amount is not recorded on our 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.
Level 3 assets.
Table 14.1:(2)Notional or Contractual AmountsRepresents private equity and Fair Values of Derivatives
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| 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 | $ | 235,162 | | | 625 | | | 565 | | | 153,993 | | | 2,212 | | | 327 | |
Commodity contracts | 1,921 | | | 41 | | | 16 | | | 1,739 | | | 26 | | | 3 | |
Foreign exchange contracts | 17,352 | | | 43 | | | 1,997 | | | 24,949 | | | 281 | | | 669 | |
Total derivatives designated as qualifying hedging instruments | | | 709 | | | 2,578 | | | | | 2,519 | | | 999 | |
Derivatives not designated as hedging instruments | | | | | | | | | | | |
Economic hedges: | | | | | | | | | | | |
Interest rate contracts | 86,738 | | | 1,058 | | | 489 | | | 142,234 | | | 40 | | | 41 | |
Equity contracts (1) | 3,648 | | | — | | | 366 | | | 26,263 | | | 1,493 | | | 1,194 | |
Foreign exchange contracts | 32,965 | | | 1,843 | | | 336 | | | 28,192 | | | 395 | | | 88 | |
Credit contracts | 40 | | | 13 | | | — | | | 290 | | | 7 | | | — | |
Subtotal | | | 2,914 | | | 1,191 | | | | | 1,935 | | | 1,323 | |
Customer accommodation trading and other derivatives: | | | | | | | | | | | |
Interest rate contracts | 10,278,481 | | | 43,682 | | | 46,094 | | | 7,976,534 | | | 20,286 | | | 17,435 | |
Commodity contracts | 108,378 | | | 10,015 | | | 5,461 | | | 74,903 | | | 5,939 | | | 2,414 | |
Equity contracts (1) | 409,739 | | | 15,721 | | | 10,154 | | | 321,863 | | | 16,278 | | | 17,827 | |
Foreign exchange contracts | 1,186,615 | | | 22,689 | | | 25,725 | | | 560,049 | | | 5,912 | | | 5,915 | |
Credit contracts | 44,558 | | | 49 | | | 35 | | | 38,318 | | | 39 | | | 43 | |
| | | | | | | | | | | |
Subtotal | | | 92,156 | | | 87,469 | | | | | 48,454 | | | 43,634 | |
Total derivatives not designated as hedging instruments | | | 95,070 | | | 88,660 | | | | | 50,389 | | | 44,957 | |
Total derivatives before netting | | | 95,779 | | | 91,238 | | | | | 52,908 | | | 45,956 | |
Netting | | | (66,526) | | | (67,838) | | | | | (31,430) | | | (36,532) | |
Total | | | $ | 29,253 | | | 23,400 | | | | | 21,478 | | | 9,424 | |
(1) In first quarter 2022, we prospectively reclassified certain equity securities and related economic hedge derivatives from "not held for trading activities" to "held for trading activities" to better reflect the business activity of those financial instruments. For additional information on Trading Activities, see Note 1 (Summary of Significant Accounting Policies)venture capital investments in our 2021 Form 10-K.
Table 14.2 provides information on the fair values of derivative assets and liabilities subject to enforceable master netting arrangements, 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 our consolidated balance sheet. We determine the balance sheet netting adjustments based on the terms specified within each master netting arrangement, which are determined at the counterparty level. On our consolidated balance sheet we do not net non-cash collateral that we receive or pledge. For disclosure purposes, we present “Total Derivatives, net” which represents the aggregate of our net exposure to each counterparty after considering the balance sheet netting
adjustments and any non-cash collateral. We manage derivative exposure by monitoring the credit risk associated with each counterparty using counterparty-specific credit risk limits, using master netting arrangements and obtaining collateral. 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 12 (Pledged Assets and Collateral).
portfolio companies.
Table 14.2:Fair Values of Derivative Assets and Liabilities | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
(in millions) | Derivative Assets | | Derivative Liabilities | | Derivative Assets | | Derivative Liabilities |
Interest rate contracts | | | | | | | |
Over-the-counter (OTC) | $ | 39,884 | | | 40,917 | | | 20,067 | | | 16,654 | |
OTC cleared | 2,304 | | | 2,200 | | | 168 | | | 192 | |
Exchange traded | 508 | | | 309 | | | 52 | | | 28 | |
Total interest rate contracts | 42,696 | | | 43,426 | | | 20,287 | | | 16,874 | |
Commodity contracts | | | | | | | |
OTC | 8,400 | | | 2,759 | | | 5,040 | | | 1,249 | |
Exchange traded | 1,318 | | | 2,252 | | | 557 | | | 1,047 | |
Total commodity contracts | 9,718 | | | 5,011 | | | 5,597 | | | 2,296 | |
Equity contracts | | | | | | | |
OTC | 6,771 | | | 4,663 | | | 6,132 | | | 9,730 | |
Exchange traded | 6,069 | | | 4,199 | | | 7,493 | | | 6,086 | |
Total equity contracts | 12,840 | | | 8,862 | | | 13,625 | | | 15,816 | |
Foreign exchange contracts | | | | | | | |
OTC | 23,460 | | | 26,938 | | | 6,335 | | | 6,221 | |
| | | | | | | |
Total foreign exchange contracts | 23,460 | | | 26,938 | | | 6,335 | | | 6,221 | |
Credit contracts | | | | | | | |
OTC | 37 | | | 26 | | | 32 | | | 31 | |
| | | | | | | |
Total credit contracts | 37 | | | 26 | | | 32 | | | 31 | |
Total derivatives subject to enforceable master netting arrangements, gross | 88,751 | | | 84,263 | | | 45,876 | | | 41,238 | |
Less: Gross amounts offset | | | | | | | |
Counterparty netting (1) | (56,340) | | | (56,441) | | | (27,172) | | | (27,046) | |
Cash collateral netting | (10,186) | | | (11,397) | | | (4,258) | | | (9,486) | |
Total derivatives subject to enforceable master netting arrangements, net | 22,225 | | | 16,425 | | | 14,446 | | | 4,706 | |
Derivatives not subject to enforceable master netting arrangements | 7,028 | | | 6,975 | | | 7,032 | | | 4,718 | |
Total derivatives recognized in consolidated balance sheet, net | 29,253 | | | 23,400 | | | 21,478 | | | 9,424 | |
Non-cash collateral | (4,847) | | | (1,173) | | | (1,432) | | | (412) | |
Total Derivatives, net | $ | 24,406 | | | 22,227 | | | 20,046 | | | 9,012 | |
(1)Represents amounts with counterparties subject to enforceable master netting arrangements that have been offset in our consolidated balance sheet, including portfolio level counterparty valuation adjustments related to customer accommodation and other trading derivatives. Counterparty valuation adjustments related to derivative assets were $396 million and $284 million and debit valuation adjustments related to derivative liabilities were $497 million and $158 million as of September 30, 2022, and December 31, 2021, respectively, and were primarily related to interest rate contracts.
Fair Value and Cash Flow HedgesOption
ForThe fair value hedges, we use interest rate swapsoption is an irrevocable election, generally only permitted upon initial recognition of financial assets or liabilities, 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 associatedmeasure eligible financial instruments at fair value with the issuance of non-U.S. dollar denominated long-term debt. We also enter into futures contracts, forward contracts, and swap contracts to hedge our exposure to the price risk of physical commodities included in Other Assets. 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 investmentsreflected in available-for-sale debt securities due to changes in interest rates, foreign currency rates, or both. For certainearnings. We may elect the fair value hedgesoption 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 foreign currency risk,the
portfolios for which we elected the fair value option. For additional information, including the basis for our fair value option elections, see Note 15 (Fair Values of Assets and Liabilities) in our 2022 Form 10-K.
Table 12.7 reflects differences between the fair value carrying amount of the assets and liabilities for which we have elected the fair value option and the contractual aggregate unpaid principal amount at maturity.
Table 12.7:Fair Value Option
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
(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 (1) | $ | 2,974 | | | 3,238 | | | (264) | | | 4,220 | | | 4,614 | | | (394) | |
Long-term debt (2) | (1,600) | | | (2,147) | | | 547 | | | (1,346) | | | (1,775) | | | 429 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
(1)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, 2023, and December 31, 2022.
(2)Includes zero coupon notes for which the aggregate unpaid principal amount reflects the contractual principal due at maturity.
Table 12.8 reflects amounts included in earnings related to initial measurement and subsequent changes in fair value, of cross-currency swaps attributable to changesby income statement line item, for assets and liabilities for which
the fair value option was elected. Amounts recorded in cross-currency basis spreadsnet interest income are excluded from the assessment of hedge effectiveness and recordedtable below.
Table 12.8:Gains (Losses) on Changes in other comprehensive income (OCI). See Note 21 (Other Comprehensive Income) for the amounts recognizedFair Value Included in other comprehensive income.
Earnings | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| 2023 | | 2022 | | | | |
(in millions) | Mortgage banking noninterest income | | Net gains from trading and securities | | Other noninterest income | | Mortgage banking noninterest income | | Net gains from trading and securities | | Other noninterest income | | | | | | | | | | | | |
Quarter ended June 30, | | | | | | | | | | | | | | | | | | | | | | | |
Loans held for sale | $ | 34 | | | 13 | | | — | | | (237) | | | 1 | | | — | | | | | | | | | | | | | |
Long-term debt | — | | | 9 | | | — | | | — | | | 11 | | | — | | | | | | | | | | | | | |
Six months ended June 30, | | | | | | | | | | | | | | | | | | | | | | | |
Loans held for sale | $ | 131 | | | 25 | | | (4) | | | (603) | | | 10 | | | — | | | | | | | | | | | | | |
Long-term debt | — | | | (21) | | | — | | | — | | | 23 | | | — | | | | | | | | | | | | | |
For cash flow hedges, we use interest rate swaps to hedgeperforming loans, instrument-specific credit risk gains or losses are derived principally by determining the variabilitychange in interest payments received on certain interest-earning deposits with banks and certain floating-rate commercialfair value of the loans and interest paid on certain floating-rate debt due to changes in the contractually specifiedobservable or implied credit spread. Credit spread is the market yield on the loans less the relevant risk-free benchmark interest rate. We also use cross-currency swapsFor nonperforming loans, we attribute all changes in fair value to hedge variabilityinstrument-specific credit risk. For LHFS accounted for under the fair value option, instrument-specific credit gains or losses were insignificant during the second quarter and first half of both 2023 and 2022.
For long-term debt, instrument-specific credit risk gains or losses represent the impact of changes in interest payments on fixed-rate foreign currency-denominated long-term debtfair value due to changes in foreign exchange rates.our credit spread and are derived using observable secondary bond market information. These impacts are recorded within the debit valuation adjustments (DVA) in OCI. See
We estimate $491 million pre-tax of deferred net losses related to cash flow hedges in OCI at September 30, 2022, will be reclassified into net interest income during the next twelve months. For cash flow hedges as of September 30, 2022, we are hedging our interest rate and foreign currency exposure to the variability of future cash flowsNote 20 (Other Comprehensive Income) for all forecasted transactions for a maximum of 10 years. For additional information on our accounting hedges, see Note 1 (Summary of Significant Accounting Policies) in our 2021 Form 10-K.information.
Note 14:12: DerivativesFair Values of Assets and Liabilities (continued)
Disclosures about Fair Value of Financial Instruments
Table 14.3 and Table 14.4 show the net gains (losses) related to derivatives in12.9 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 cash flow hedgingleases. This table also excludes assets and liabilities that are not financial instruments such as the value of the long-term relationships respectively.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 12.9. 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 $622 million and $737 million at June 30, 2023, and December 31, 2022, 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 14.3:12.9: Gains (Losses) Recognized on Fair Value Hedging RelationshipsEstimates for Financial Instruments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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) |
Quarter ended September 30, 2022 | | | | | | | | | | |
Total amounts presented in the consolidated statement of income and other comprehensive income | $ | 3,043 | | | (513) | | (1,553) | | | 397 | | | N/A | | (1,476) | |
Interest contracts | | | | | | | | | | |
Amounts related to interest settlements on derivatives | 53 | | | 8 | | (66) | | | — | | | (5) | | | N/A |
Recognized on derivatives | 1,821 | | | (98) | | (6,218) | | | — | | | (4,495) | | | — | |
Recognized on hedged items | (1,805) | | | 99 | | 6,183 | | | — | | | 4,477 | | | N/A |
Total gains (losses) (pre-tax) on interest rate contracts | 69 | | | 9 | | (101) | | | — | | | (23) | | | — | |
Foreign exchange contracts | | | | | | | | | | |
Amounts related to interest settlements on derivatives | — | | | — | | (69) | | | — | | | (69) | | | N/A |
Recognized on derivatives | — | | | — | | (283) | | | (663) | | | (946) | | | 30 | |
Recognized on hedged items | — | | | — | | 311 | | | 630 | | | 941 | | | N/A |
Total gains (losses) (pre-tax) on foreign exchange contracts | — | | | — | | (41) | | | (33) | | | (74) | | | 30 | |
Commodity contracts | | | | | | | | | | |
Recognized on derivatives | — | | | — | | — | | | 94 | | | 94 | | | — | |
Recognized on hedged items | — | | | — | | — | | | (90) | | | (90) | | | N/A |
Total gains (losses) (pre-tax) on commodity contracts | — | | | — | | — | | | 4 | | | 4 | | | — | |
Total gains (losses) (pre-tax) recognized on fair value hedges | $ | 69 | | | 9 | | (142) | | | (29) | | | (93) | | | 30 | |
Quarter ended September 30, 2021 | | | | | | | | | | |
Total amounts presented in the consolidated statement of income and other comprehensive income | $ | 2,354 | | | (99) | | (745) | | | 609 | | | N/A | | 50 | |
Interest contracts | | | | | | | | | | |
Amounts related to interest settlements on derivatives | (65) | | | 68 | | 534 | | | — | | | 537 | | | N/A |
Recognized on derivatives | 138 | | | (64) | | (1,159) | | | — | | | (1,085) | | | — | |
Recognized on hedged items | (139) | | | 64 | | 1,159 | | | — | | | 1,084 | | | N/A |
Total gains (losses) (pre-tax) on interest rate contracts | (66) | | | 68 | | 534 | | | — | | | 536 | | | — | |
Foreign exchange contracts | | | | | | | | | | |
Amounts related to interest settlements on derivatives | 9 | | | — | | 4 | | | — | | | 13 | | | N/A |
Recognized on derivatives | — | | | — | | (94) | | | (436) | | | (530) | | | 29 | |
Recognized on hedged items | (1) | | | — | | 72 | | | 431 | | | 502 | | | N/A |
Total gains (losses) (pre-tax) on foreign exchange contracts | 8 | | | — | | (18) | | | (5) | | | (15) | | | 29 | |
Commodity contracts | | | | | | | | | | |
Recognized on derivatives | — | | | — | | — | | | 93 | | | 93 | | | — | |
Recognized on hedged items | — | | | — | | — | | | (92) | | | (92) | | | N/A |
Total gains (losses) (pre-tax) on commodity contracts | — | | | — | | — | | | 1 | | | 1 | | | — | |
Total gains (losses) (pre-tax) recognized on fair value hedges | $ | (58) | | | 68 | | 516 | | | (4) | | | 522 | | | 29 | |
(continued on following page) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Estimated fair value |
(in millions) | Carrying amount | | Level 1 | | Level 2 | | Level 3 | | Total |
June 30, 2023 | | | | | | | | | |
Financial assets | | | | | | | | | |
Cash and due from banks (1) | $ | 31,915 | | | 31,915 | | | — | | | — | | | 31,915 | |
Interest-earning deposits with banks (1) | 123,418 | | | 123,195 | | | 223 | | | — | | | 123,418 | |
Federal funds sold and securities purchased under resale agreements (1) | 66,500 | | | — | | | 66,500 | | | — | | | 66,500 | |
Held-to-maturity debt securities | 272,360 | | | 2,371 | | | 228,748 | | | 2,717 | | | 233,836 | |
Loans held for sale | 3,055 | | | — | | | 2,641 | | | 462 | | | 3,103 | |
Loans, net (2) | 918,454 | | | — | | | 55,515 | | | 825,008 | | | 880,523 | |
Nonmarketable equity securities (cost method) | 4,552 | | | — | | | — | | | 4,620 | | | 4,620 | |
Total financial assets | $ | 1,420,254 | | | 157,481 | | | 353,627 | | | 832,807 | | | 1,343,915 | |
Financial liabilities | | | | | | | | | |
Deposits (3) | $ | 128,458 | | | — | | | 85,183 | | | 41,616 | | | 126,799 | |
Short-term borrowings | 84,054 | | | — | | | 84,056 | | | — | | | 84,056 | |
Long-term debt (4) | 169,012 | | | — | | | 168,245 | | | 1,969 | | | 170,214 | |
Total financial liabilities | $ | 381,524 | | | — | | | 337,484 | | | 43,585 | | | 381,069 | |
December 31, 2022 | | | | | | | | | |
Financial assets | | | | | | | | | |
Cash and due from banks (1) | $ | 34,596 | | | 34,596 | | | — | | | — | | | 34,596 | |
Interest-earning deposits with banks (1) | 124,561 | | | 124,338 | | | 223 | | | — | | | 124,561 | |
Federal funds sold and securities purchased under resale agreements (1) | 68,036 | | | — | | | 68,036 | | | — | | | 68,036 | |
Held-to-maturity debt securities | 297,059 | | | 14,285 | | | 238,552 | | | 2,684 | | | 255,521 | |
Loans held for sale | 2,884 | | | — | | | 2,208 | | | 719 | | | 2,927 | |
Loans, net (2) | 928,049 | | | — | | | 57,532 | | | 836,831 | | | 894,363 | |
Nonmarketable equity securities (cost method) | 4,900 | | | — | | | — | | | 4,961 | | | 4,961 | |
Total financial assets | $ | 1,460,085 | | | 173,219 | | | 366,551 | | | 845,195 | | | 1,384,965 | |
Financial liabilities | | | | | | | | | |
Deposits (3) | $ | 66,887 | | | — | | | 46,745 | | | 18,719 | | | 65,464 | |
Short-term borrowings | 50,964 | | | — | | | 50,970 | | | — | | | 50,970 | |
Long-term debt (4) | 173,502 | | | — | | | 172,783 | | | 999 | | | 173,782 | |
Total financial liabilities | $ | 291,353 | | | — | | | 270,498 | | | 19,718 | | | 290,216 | |
(1)Amounts consist of financial instruments for which carrying value approximates fair value.
(2)Excludes lease financing with a carrying amount of $15.1 billion and $14.7 billion at June 30, 2023, and December 31, 2022, respectively.
(3)Excludes deposit liabilities with no defined or contractual maturity of $1.2 trillion and $1.3 trillion at June 30, 2023, and December 31, 2022, respectively.
(4)Excludes obligations under finance leases of $20 million and $22 million at June 30, 2023, and December 31, 2022, respectively.
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Note 13: Securitizations and Variable Interest Entities |
Involvement with Variable Interest Entities (VIEs)
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. 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 consolidated balance sheet to a VIE in connection with a securitization, we typically receive cash and sometimes other interests in the VIE as proceeds for the assets we transfer. In certain transactions with VIEs, we may retain the right to service the transferred assets and repurchase 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 securitization or other VIE activities, we have various forms of ongoing involvement with VIEs, 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 in VIEs;
•acting as servicer or investment manager for VIEs;
•providing administrative or trustee services to VIEs; and
•providing seller financing to VIEs.
Loan Sales and Securitization Activity
(continuedWe 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 securitization pools 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 previous page)GNMA loan securitization pools, which becomes exercisable when three scheduled loan payments remain unpaid by the borrower. When we do not repurchase these loans, they are recorded on our consolidated balance sheet and pledged to the GNMA securitization. We repurchased loans of $99 million and $191 million, during the second quarter and first half of 2023, respectively, and $564 million and $1.5 billion during the second quarter and first half of 2022, respectively. In 2022, these predominantly represented repurchases of government insured loans. At June 30, 2023, and December 31, 2022, we recorded assets and related liabilities of $940 million and $743 million, respectively, where we did not exercise our option to repurchase eligible loans.
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| 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) |
Nine months ended September 30, 2022 | | | | | | | | | | |
Total amounts presented in the consolidated statement of income and other comprehensive income | $ | 8,308 | | | (754) | | (3,325) | | | 1,507 | | | N/A | | (1,560) | |
Interest contracts | | | | | | | | | | |
Amounts related to interest settlements on derivatives | (33) | | | 72 | | 751 | | | — | | | 790 | | | N/A |
Recognized on derivatives | 3,851 | | | (313) | | (18,289) | | | — | | | (14,751) | | | — | |
Recognized on hedged items | (3,806) | | | 310 | | 18,124 | | | — | | | 14,628 | | | N/A |
Total gains (losses) (pre-tax) on interest rate contracts | 12 | | | 69 | | 586 | | | — | | | 667 | | | — | |
Foreign exchange contracts | | | | | | | | | | |
Amounts related to interest settlements on derivatives | — | | | — | | (86) | | | — | | | (86) | | | N/A |
Recognized on derivatives | — | | | — | | (1,054) | | | (1,834) | | | (2,888) | | | 140 | |
Recognized on hedged items | — | | | — | | 1,089 | | | 1,769 | | | 2,858 | | | N/A |
Total gains (losses) (pre-tax) on foreign exchange contracts | — | | | — | | (51) | | | (65) | | | (116) | | | 140 | |
Commodity contracts | | | | | | | | | | |
Recognized on derivatives | — | | | — | | — | | | 230 | | | 230 | | | — | |
Recognized on hedged items | — | | | — | | — | | | (220) | | | (220) | | | N/A |
Total gains (losses) (pre-tax) on commodity contracts | — | | | — | | — | | | 10 | | | 10 | | | — | |
Total gains (losses) (pre-tax) recognized on fair value hedges | $ | 12 | | | 69 | | 535 | | | (55) | | | 561 | | | 140 | |
Nine months ended September 30, 2021 | | | | | | | | | | |
Total amounts presented in the consolidated statement of income and other comprehensive income | $ | 6,865 | | | (303) | | (2,483) | | | 2,283 | | | N/A | | 134 | |
Interest contracts | | | | | | | | | | |
Amounts related to interest settlements on derivatives | (200) | | | 233 | | 1,625 | | | — | | | 1,658 | | | N/A |
Recognized on derivatives | 964 | | | (248) | | (5,777) | | | — | | | (5,061) | | | — | |
Recognized on hedged items | (945) | | | 245 | | 5,701 | | | — | | | 5,001 | | | N/A |
Total gains (losses) (pre-tax) on interest rate contracts | (181) | | | 230 | | 1,549 | | | — | | | 1,598 | | | — | |
Foreign exchange contracts | | | | | | | | | | |
Amounts related to interest settlements on derivatives | 52 | | | — | | 7 | | | — | | | 59 | | | N/A |
Recognized on derivatives | 3 | | | — | | (363) | | | 73 | | | (287) | | | 40 | |
Recognized on hedged items | (3) | | | — | | 310 | | | (89) | | | 218 | | | N/A |
Total gains (losses) (pre-tax) on foreign exchange contracts | 52 | | | — | | (46) | | | (16) | | | (10) | | | 40 | |
Commodity contracts | | | | | | | | | | |
Recognized on derivatives | — | | | — | | — | | | 126 | | | 126 | | | — | |
Recognized on hedged items | — | | | — | | — | | | (129) | | | (129) | | | N/A |
Total gains (losses) (pre-tax) on commodity contracts | — | | | — | | — | | | (3) | | | (3) | | | — | |
Total gains (losses) (pre-tax) recognized on fair value hedges | $ | (129) | | | 230 | | 1,503 | | | (19) | | | 1,585 | | | 40 | |
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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, 2023, and December 31, 2022, our liability for these repurchase and recourse arrangements was $162 million and $167 million, respectively, and the maximum exposure to loss was $13.8 billion at both June 30, 2023, and December 31, 2022.Substantially allresidential servicing activity is related to assets transferred to GSE and GNMA securitizations. See Note 6 (Mortgage Banking Activities) for additional information about residential and commercial servicing rights, advances and servicing fees.
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 and account for the transfers as sales. We also typically retain the right to service the loans and may 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. We do not consolidate the VIE because 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 may also sell whole loans to VIEs where we have continuing involvement in the form of financing. We account for these transfers as sales, and do not consolidate the VIEs as we do not have the power to direct the most significant activities of the VIEs.
Table 13.1 presents information about transfers of assets during the periods presented 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 and securities. 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. The majority of our transfers relate to
Note 14:13: DerivativesSecuritizations and Variable Interest Entities (continued)
residential mortgage securitizations with the GSEs or GNMA and generally result in no gain or loss because the loans are measured at fair value on a recurring basis. Additionally, we may transfer certain government insured loans that we previously
repurchased. These loans are carried at the lower of cost or market, and we recognize gains on such transfers when the market value is greater than the carrying value of the loan when it is sold.
Table 14.4:13.1: Gains (Losses) RecognizedTransfers with Continuing Involvement
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| 2023 | | 2022 | | |
(in millions) | Residential mortgages | | Commercial mortgages | | Residential mortgages | | Commercial mortgages | | | | |
Quarter ended June 30, | | | | | | | | | | | |
Assets sold | $ | 3,917 | | | 1,800 | | | 23,817 | | | 4,345 | | | | | |
Proceeds from transfer (1) | 3,917 | | | 1,823 | | | 23,817 | | | 4,411 | | | | | |
Net gains (losses) on sale | — | | | 23 | | | — | | | 66 | | | | | |
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Continuing involvement (2): | | | | | | | | | | | |
Servicing rights recognized | $ | 46 | | | 16 | | | 313 | | | 41 | | | | | |
Securities recognized (3) | — | | | 22 | | | 475 | | | 33 | | | | | |
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Six months ended June 30, | | | | | | | | | | | |
Assets sold | $ | 8,378 | | | 3,299 | | | 49,991 | | | 8,378 | | | | | |
Proceeds from transfer (1) | 8,378 | | | 3,363 | | | 50,043 | | | 8,508 | | | | | |
Net gains (losses) on sale | — | | | 64 | | | 52 | | | 130 | | | | | |
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Continuing involvement (2): | | | | | | | | | | | |
Servicing rights recognized | $ | 93 | | | 34 | | | 640 | | | 70 | | | | | |
Securities recognized (3) | — | | | 48 | | | 2,062 | | | 137 | | | | | |
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(1)Represents cash proceeds and the fair value of non-cash beneficial interests recognized at securitization settlement.
(2)Represents assets or liabilities recognized at securitization settlement date related to our continuing involvement in the transferred assets.
(3)Represents debt securities obtained at securitization settlement held for investment purposes that are classified as available-for-sale or held-to-maturity. In 2022, these predominantly related 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 $1.8 billion and $3.7 billion during the second quarter and first half of 2023, respectively, and $3.6 billion and $10.3 billion during the second quarter and first half of 2022, respectively.
In the normal course of business, we purchase certain
non-agency securities at initial securitization or subsequently in the secondary market, which we hold for investment. We also provide seller financing in the form of loans. We received cash flows of $91 million and $141 million during the second quarter and first half of 2023, respectively, and $168 million and $304 million, during the second quarter and first half of 2022, respectively, related to principal and interest payments on
Cash Flow Hedging Relationships | | | | | | | | | | | | | | | | | | | | | |
| | Net interest income | | Total recorded in net income | Total recorded in OCI |
(in millions) | | Loans | Other interest income | Long-term debt | | Derivative gains (losses) | Derivative gains (losses) |
Quarter ended September 30, 2022 | | | | | | | |
Total amounts presented in the consolidated statement of income and other comprehensive income | | $ | 10,158 | | 1,017 | | (1,553) | | | N/A | (1,476) | |
Interest rate contracts: | | | | | | | |
Realized gains (losses) (pre-tax) reclassified from OCI into net income | | 12 | | 15 | | — | | | 27 | | (27) | |
Net unrealized gains (losses) (pre-tax) recognized in OCI | | N/A | N/A | N/A | | N/A | (1,472) | |
Total gains (losses) (pre-tax) on interest rate contracts | | 12 | | 15 | | — | | | 27 | | (1,499) | |
Foreign exchange contracts: | | | | | | | |
Realized gains (losses) (pre-tax) reclassified from OCI into net income | | — | | — | | (3) | | | (3) | | 3 | |
Net unrealized gains (losses) (pre-tax) recognized in OCI | | N/A | N/A | N/A | | N/A | (10) | |
Total gains (losses) (pre-tax) on foreign exchange contracts | | — | | — | | (3) | | | (3) | | (7) | |
Total gains (losses) (pre-tax) recognized on cash flow hedges | | $ | 12 | | 15 | | (3) | | | 24 | | (1,506) | |
Quarter ended September 30, 2021 | | | | | | | |
Total amounts presented in the consolidated statement of income and other comprehensive income | | $ | 7,057 | | 105 | | (745) | | | N/A | 50 | |
Interest rate contracts: | | | | | | | |
Realized gains (losses) (pre-tax) reclassified from OCI into net income | | (26) | | — | | — | | | (26) | | 26 | |
Net unrealized gains (losses) (pre-tax) recognized in OCI | | N/A | N/A | N/A | | N/A | (1) | |
Total gains (losses) (pre-tax) on interest rate contracts | | (26) | | — | | — | | | (26) | | 25 | |
Foreign exchange contracts: | | | | | | | |
Realized gains (losses) (pre-tax) reclassified from OCI into net income | | — | | — | | (2) | | | (2) | | 2 | |
Net unrealized gains (losses) (pre-tax) recognized in OCI | | N/A | N/A | N/A | | N/A | (6) | |
Total gains (losses) (pre-tax) on foreign exchange contracts | | — | | — | | (2) | | | (2) | | (4) | |
Total gains (losses) (pre-tax) recognized on cash flow hedges | | $ | (26) | | — | | (2) | | | (28) | | 21 | |
Nine months ended September 30, 2022 | | | | | | | |
Total amounts presented in the consolidated statement of income and other comprehensive income | | $ | 25,492 | | 1,526 | | (3,325) | | | N/A | (1,560) | |
Interest rate contracts: | | | | | | | |
Realized gains (losses) (pre-tax) reclassified from OCI into net income | | 7 | | 53 | | — | | | 60 | | (60) | |
Net unrealized gains (losses) (pre-tax) recognized in OCI | | N/A | N/A | N/A | | N/A | (1,621) | |
Total gains (losses) (pre-tax) on interest rate contracts | | 7 | | 53 | | — | | | 60 | | (1,681) | |
Foreign exchange contracts: | | | | | | | |
Realized gains (losses) (pre-tax) reclassified from OCI into net income | | — | | — | | (7) | | | (7) | | 7 | |
Net unrealized gains (losses) (pre-tax) recognized in OCI | | N/A | N/A | N/A | | N/A | (26) | |
Total gains (losses) (pre-tax) on foreign exchange contracts | | — | | — | | (7) | | | (7) | | (19) | |
Total gains (losses) (pre-tax) recognized on cash flow hedges | | $ | 7 | | 53 | | (7) | | | 53 | | (1,700) | |
Nine months ended September 30, 2021 | | | | | | | |
Total amounts presented in the consolidated statement of income and other comprehensive income | | $ | 21,353 | | 244 | | (2,483) | | | N/A | 134 | |
Interest rate contracts: | | | | | | | |
Realized gains (losses) (pre-tax) reclassified from OCI into net income | | (117) | | — | | — | | | (117) | | 117 | |
Net unrealized gains (losses) (pre-tax) recognized in OCI | | N/A | N/A | N/A | | N/A | (11) | |
Total gains (losses) (pre-tax) on interest rate contracts | | (117) | | — | | — | | | (117) | | 106 | |
Foreign exchange contracts: | | | | | | | |
Realized gains (losses) (pre-tax) reclassified from OCI into net income | | — | | — | | (4) | | | (4) | | 4 | |
Net unrealized gains (losses) (pre-tax) recognized in OCI | | N/A | N/A | N/A | | N/A | (16) | |
Total gains (losses) (pre-tax) on foreign exchange contracts | | — | | — | | (4) | | | (4) | | (12) | |
Total gains (losses) (pre-tax) recognized on cash flow hedges | | $ | (117) | | — | | (4) | | | (121) | | 94 | |
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these securities and loans, which exclude cash flows related to trading activities. Table 13.2 presents the key weighted-average assumptions we used to initially measure residential MSRs recognized during the periods presented.
Table 13.2:Residential MSRs – Assumptions at Securitization Date
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| 2023 | | 2022 | | |
Quarter ended June 30, | | | | | |
Prepayment rate (1) | 16.4 | % | | 10.9 | | | |
Discount rate | 9.4 | | | 8.0 | | | |
Cost to service ($ per loan) | $ | 176 | | | 122 | | | |
Six months ended June 30, | | | | | |
Prepayment rate (1) | 17.5 | % | | 11.0 | | | |
Discount rate | 9.6 | | | 7.5 | | | |
Cost to service ($ per loan) | $ | 185 | | | 117 | | | |
(1)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.
See Note 12 (Fair Values of Assets and Liabilities) and
Note 6 (Mortgage Banking Activities) for additional information on key assumptions for residential MSRs.
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 resecuritization transactions, we transfer trading debt securities to 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 specific return or risk profile. Substantially all of our transactions involve the resecuritization of conforming mortgage-backed securities issued by the GSEs or guaranteed by GNMA. We do not consolidate the resecuritization VIEs as we share in the decision-making power with third parties and do not hold significant economic interests in the VIEs other than for market-making activities. During the six months ended June 30, 2023 and 2022, we transferred securities of $6.1 billion and $12.6 billion, respectively, to resecuritization VIEs, and retained securities of $329 million and $525 million, respectively. These amounts are not included in Table 13.1. Related total VIE assets were $111.1 billion and $112.0 billion at June 30, 2023, and December 31, 2022, respectively. As of June 30, 2023, and December 31, 2022, we held $1.3 billion and $793 million of securities, respectively.
Sold or Securitized Loans Serviced for Others
Table 14.5 shows the carrying amount13.3 presents information about loans that we sold or securitized in which we have ongoing involvement as servicer. Delinquent loans include loans 90 days or more past due and associated cumulative basis adjustment relatedloans in bankruptcy, regardless of delinquency status. For loans sold or securitized where servicing is our only form of continuing involvement, we generally experience a loss only if we were required to the application of hedge accounting that is included in the carrying amount of hedged assets and liabilities in fair value hedging relationships.repurchase a delinquent loan or foreclosed asset due
to a breach in representations and warranties associated with our loan sale or servicing contracts. Table 13.3 excludes mortgage loans sold to and held or securitized by GSEs or GNMA of $637.0 billion and $704.5 billion at June 30, 2023, and December 31, 2022, respectively. Delinquent loans and foreclosed assets related to loans sold to and held or securitized by GSEs or GNMA were $3.4 billion and $4.6 billion at June 30, 2023, and December 31, 2022, respectively.
Table 14.5:13.3: Hedged Items in Fair Value Hedging RelationshipsSold or Securitized Loans Serviced for Others
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| Hedged items currently designated | | Hedged items no longer designated |
(in millions) | Carrying amount of assets/(liabilities) (1)(2) | Hedge accounting basis adjustment assets/(liabilities) (3) | | Carrying amount of assets/(liabilities) (2) | Hedge accounting basis adjustment assets/(liabilities) |
September 30, 2022 | | | | | |
Available-for-sale debt securities (4) | $ | 39,287 | | (4,088) | | | 16,515 | | 781 | |
Other assets | 1,505 | | (132) | | | — | | — | |
Deposits | (19,852) | | 166 | | | (11) | | — | |
Long-term debt | (128,562) | | 14,026 | | | (5) | | — | |
December 31, 2021 | | | | | |
Available-for-sale debt securities (4) | $ | 24,144 | | (559) | | | 17,962 | | 965 | |
Other assets | 1,156 | | (58) | | | — | | — | |
Deposits | (10,187) | | (144) | | | — | | — | |
Long-term debt | (138,801) | | (5,192) | | | — | | — | |
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| Total loans | | Delinquent loans and foreclosed assets (1) | | Six months ended June 30, |
(in millions) | Jun 30, 2023 | | Dec 31, 2022 | | Jun 30, 2023 | | Dec 31, 2022 | | 2023 | | 2022 |
Commercial | $ | 66,082 | | | 67,029 | | | 849 | | | 912 | | | 67 | | | 22 | |
Residential | 8,789 | | | 9,201 | | | 433 | | | 501 | | | 8 | | | 7 | |
Total off-balance sheet sold or securitized loans | $ | 74,871 | | | 76,230 | | | 1,282 | | | 1,413 | | | 75 | | | 29 | |
(1)Does not include the carrying amount of hedged items where only foreign currency risk is the designated hedged risk. The carrying amount excluded for debt securities is $699Includes $213 million and for long-term debt is $0$274 million as of Septembercommercial foreclosed assets and $28 million and $25 million of residential foreclosed assets at June 30, 2022,2023, and $873 million for debt securities and $(2.7) billion for long-term debt as of December 31, 2021.
(2)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.
(3)The balance includes $41 million and $248 million of debt securities and long-term debt cumulative basis adjustments as of September 30, 2022, respectively, and $136 million and $188 million of debt securities and long-term debt cumulative basis adjustments as of December 31, 2021, respectively, on terminated hedges whereby the hedged items have subsequently been re-designated into existing hedges.
(4)Carrying amount represents the amortized cost.respectively.
Derivatives Not Designated as Hedging Instruments
Derivatives not designated as hedging instruments include economic hedges and derivatives entered into for customer accommodation trading purposes.
We use economic hedge derivatives to 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.
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 otherour derivatives activities, see Note 1614 (Derivatives) in our 20212022 Form 10-K.
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| Wells Fargo & Company | 117103 |
Note 14:11: Derivatives (continued)
Table 14.611.6 shows the net gains (losses), recognized by income statement lines, related to derivatives not designated as hedging instruments.
Table 14.6:11.6: 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) on trading and securities | | Other | Total | | Personnel expense | (in millions) | Mortgage banking | Net gains (losses) on trading and securities | | Other | Total | | Personnel expense |
Quarter ended September 30, 2022 | | | | |
Quarter ended June 30, 2023 | | Quarter ended June 30, 2023 | | | |
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) | $ | (295) | | — | | | (29) | | (324) | | | — | | Interest contracts (1) | $ | (242) | | — | | | (98) | | (340) | | | — | |
Equity contracts (2) | Equity contracts (2) | — | | — | | | 3 | | 3 | | | 188 | | Equity contracts (2) | — | | — | | | (81) | | (81) | | | (172) | |
Foreign exchange contracts | Foreign exchange contracts | — | | — | | | 940 | | 940 | | | — | | Foreign exchange contracts | — | | — | | | (327) | | (327) | | | — | |
Credit contracts | Credit contracts | — | | — | | | (2) | | (2) | | | — | | Credit contracts | — | | — | | | — | | — | | | — | |
Subtotal | Subtotal | (295) | | — | | | 912 | | 617 | | | 188 | | Subtotal | (242) | | — | | | (506) | | (748) | | | (172) | |
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 | (275) | | 3,861 | | | — | | 3,586 | | | — | | Interest contracts | (9) | | 499 | | | — | | 490 | | | — | |
Commodity contracts | Commodity contracts | — | | 69 | | | — | | 69 | | | — | | Commodity contracts | — | | 87 | | | — | | 87 | | | — | |
Equity contracts (2) | Equity contracts (2) | — | | 1,658 | | | (35) | | 1,623 | | | — | | Equity contracts (2) | — | | (1,440) | | | (119) | | (1,559) | | | — | |
Foreign exchange contracts | Foreign exchange contracts | — | | 240 | | | — | | 240 | | | — | | Foreign exchange contracts | — | | 893 | | | — | | 893 | | | — | |
Credit contracts | Credit contracts | — | | (21) | | | — | | (21) | | | — | | Credit contracts | — | | (20) | | | — | | (20) | | | — | |
Subtotal | Subtotal | (275) | | 5,807 | | | (35) | | 5,497 | | | — | | Subtotal | (9) | | 19 | | | (119) | | (109) | | | — | |
Net gains (losses) recognized related to derivatives not designated as hedging instruments | Net gains (losses) recognized related to derivatives not designated as hedging instruments | $ | (570) | | 5,807 | | | 877 | | 6,114 | | | 188 | | Net gains (losses) recognized related to derivatives not designated as hedging instruments | $ | (251) | | 19 | | | (625) | | (857) | | | (172) | |
Quarter ended September 30, 2021 | | | | |
Quarter ended June 30, 2022 | | Quarter ended June 30, 2022 | | | |
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) | $ | (34) | | — | | | (1) | | (35) | | | — | | Interest contracts (1) | $ | (270) | | — | | | (26) | | (296) | | | — | |
Equity contracts(2) | Equity contracts(2) | — | | 564 | | | (2) | | 562 | | | 42 | | Equity contracts(2) | — | | — | | | 11 | | 11 | | | 577 | |
Foreign exchange contracts | Foreign exchange contracts | — | | — | | | 310 | | 310 | | | — | | Foreign exchange contracts | — | | — | | | 838 | | 838 | | | — | |
Credit contracts | Credit contracts | — | | — | | | (5) | | (5) | | | — | | Credit contracts | — | | — | | | 2 | | 2 | | | — | |
Subtotal | Subtotal | (34) | | 564 | | | 302 | | 832 | | | 42 | | Subtotal | (270) | | — | | | 825 | | 555 | | | 577 | |
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 | 109 | | 189 | | | — | | 298 | | | — | | Interest contracts | (314) | | 2,791 | | | — | | 2,477 | | | — | |
Commodity contracts | Commodity contracts | — | | 31 | | | — | | 31 | | | — | | Commodity contracts | — | | 104 | | | — | | 104 | | | — | |
Equity contracts | Equity contracts | — | | (722) | | | (51) | | (773) | | | — | | Equity contracts | — | | 3,901 | | | (76) | | 3,825 | | | — | |
Foreign exchange contracts | Foreign exchange contracts | — | | 105 | | | — | | 105 | | | — | | Foreign exchange contracts | — | | 318 | | | — | | 318 | | | — | |
Credit contracts | Credit contracts | — | | (7) | | | — | | (7) | | | — | | Credit contracts | — | | 29 | | | — | | 29 | | | — | |
Subtotal | Subtotal | 109 | | (404) | | | (51) | | (346) | | | — | | Subtotal | (314) | | 7,143 | | | (76) | | 6,753 | | | — | |
Net gains (losses) recognized related to derivatives not designated as hedging instruments | Net gains (losses) recognized related to derivatives not designated as hedging instruments | $ | 75 | | 160 | | | 251 | | 486 | | | 42 | | Net gains (losses) recognized related to derivatives not designated as hedging instruments | $ | (584) | | 7,143 | | | 749 | | 7,308 | | | 577 | |
(continued on following page)
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118104 | Wells Fargo & Company | |
(continued from previous page)
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| Noninterest income | | Noninterest expense |
(in millions) | Mortgage banking | Net gains from trading and securities | | Other | Total | | Personnel expense |
Nine months ended September 30, 2022 | | | | | | | |
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Net gains (losses) recognized on economic hedges derivatives: | | | | | | | |
Interest contracts (1) | $ | (933) | | — | | | (81) | | (1,014) | | | — | |
Equity contracts (2) | — | | — | | | 12 | | 12 | | | 1,031 | |
Foreign exchange contracts | — | | — | | | 2,009 | | 2,009 | | | — | |
Credit contracts | — | | — | | | 5 | | 5 | | | — | |
Subtotal | (933) | | — | | | 1,945 | | 1,012 | | | 1,031 | |
Net gains (losses) recognized on customer accommodation trading and other derivatives: | | | | | | | |
Interest contracts | (1,087) | | 9,866 | | | — | | 8,779 | | | — | |
Commodity contracts | — | | 286 | | | — | | 286 | | | — | |
Equity contracts (2) | — | | 6,562 | | | (149) | | 6,413 | | | — | |
Foreign exchange contracts | — | | 885 | | | — | | 885 | | | — | |
Credit contracts | — | | 20 | | | — | | 20 | | | — | |
Subtotal | (1,087) | | 17,619 | | | (149) | | 16,383 | | | — | |
Net gains (losses) recognized related to derivatives not designated as hedging instruments | $ | (2,020) | | 17,619 | | | 1,796 | | 17,395 | | | 1,031 | |
Nine months ended September 30, 2021 | | | | | | | |
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Net gains (losses) recognized on economic hedges derivatives: | | | | | | | |
Interest contracts (1) | $ | (122) | | — | | | (7) | | (129) | | | — | |
Equity contracts | — | | 227 | | | (1) | | 226 | | | (357) | |
Foreign exchange contracts | — | | — | | | 291 | | 291 | | | — | |
Credit contracts | — | | — | | | (10) | | (10) | | | — | |
Subtotal | (122) | | 227 | | | 273 | | 378 | | | (357) | |
Net gains (losses) recognized on customer accommodation trading and other derivatives: | | | | | | | |
Interest contracts | 60 | | 1,519 | | | — | | 1,579 | | | — | |
Commodity contracts | — | | 75 | | | — | | 75 | | | — | |
Equity contracts | — | | (2,807) | | | (444) | | (3,251) | | | — | |
Foreign exchange contracts | — | | 545 | | | — | | 545 | | | — | |
Credit contracts | — | | (78) | | | — | | (78) | | | — | |
Subtotal | 60 | | (746) | | | (444) | | (1,130) | | | — | |
Net gains (losses) recognized related to derivatives not designated as hedging instruments | $ | (62) | | (519) | | | (171) | | (752) | | | (357) | |
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| Noninterest income | | Noninterest expense |
(in millions) | Mortgage banking | Net gains (losses) from trading and securities | | Other | Total | | Personnel expense |
Six months ended June 30, 2023 | | | | | | | |
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Net gains (losses) recognized on economic hedges derivatives: | | | | | | | |
Interest contracts (1) | $ | (96) | | — | | | (50) | | (146) | | | — | |
Equity contracts | — | | — | | | (161) | | (161) | | | (363) | |
Foreign exchange contracts | — | | — | | | (693) | | (693) | | | — | |
Credit contracts | — | | — | | | (1) | | (1) | | | — | |
Subtotal | (96) | | — | | | (905) | | (1,001) | | | (363) | |
Net gains (losses) recognized on customer accommodation trading and other derivatives: | | | | | | | |
Interest contracts | (11) | | 163 | | | — | | 152 | | | — | |
Commodity contracts | — | | 199 | | | — | | 199 | | | — | |
Equity contracts | — | | (2,910) | | | (183) | | (3,093) | | | — | |
Foreign exchange contracts | — | | 794 | | | — | | 794 | | | — | |
Credit contracts | — | | (27) | | | — | | (27) | | | — | |
Subtotal | (11) | | (1,781) | | | (183) | | (1,975) | | | — | |
Net gains (losses) recognized related to derivatives not designated as hedging instruments | $ | (107) | | (1,781) | | | (1,088) | | (2,976) | | | (363) | |
Six months ended June 30, 2022 | | | | | | | |
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Net gains (losses) recognized on economic hedges derivatives: | | | | | | | |
Interest contracts (1) | $ | (638) | | — | | | (52) | | (690) | | | — | |
Equity contracts (2) | — | | — | | | 16 | | 16 | | | 843 | |
Foreign exchange contracts | — | | — | | | 1,069 | | 1,069 | | | — | |
Credit contracts | — | | — | | | 7 | | 7 | | | — | |
Subtotal | (638) | | — | | | 1,040 | | 402 | | | 843 | |
Net gains (losses) recognized on customer accommodation trading and other derivatives: | | | | | | | |
Interest contracts | (812) | | 6,005 | | | — | | 5,193 | | | — | |
Commodity contracts | — | | 217 | | | — | | 217 | | | — | |
Equity contracts | — | | 4,904 | | | (114) | | 4,790 | | | — | |
Foreign exchange contracts | — | | 645 | | | — | | 645 | | | — | |
Credit contracts | — | | 41 | | | — | | 41 | | | — | |
Subtotal | (812) | | 11,812 | | | (114) | | 10,886 | | | — | |
Net gains (losses) recognized related to derivatives not designated as hedging instruments | $ | (1,450) | | 11,812 | | | 926 | | 11,288 | | | 843 | |
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(1)Mortgage banking amounts for thirdthe second quarter and first nine monthshalf of 20222023 are comprised of gains (losses) of $(863)$(331) million and $(3.5) billion,$(146) million, respectively, related to derivatives used as economic hedges of MSRs measured at fair value offset by gains (losses) of $568$89 million and $2.6 billion,$50 million, respectively, related to derivatives used as economic hedges of mortgage loans held for sale and derivative loan commitments. The corresponding amounts for thirdthe second quarter and first nine monthshalf of 20212022 are comprised of gainsgain (losses) of $(176)$(980) million and $(1.1)$(2.6) billion, respectively, offset by gains (losses) of $142$710 million and $987 million,$2.0 billion, respectively.
(2)In first quarter 2022,2023, we prospectively reclassified certain equity securities and related economic hedge derivatives from “not heldadopted ASU 2018-12 – Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for trading activities” to “held for trading activities” to better reflect the business activity of those financial instruments.Long-Duration Contracts. For additional information, on Trading Activities, see Note 1 (Summary of Significant Accounting Policies) in our 2021 Form 10-K..
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| Wells Fargo & Company | 119105 |
Note 14:11: 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 generally use credit derivatives to assist customers with their risk management objectives by purchasing and selling credit protection on corporate debt obligations through the use of credit default swaps or through risk participation swaps to help manage counterparty exposure. We would be required to perform under the credit derivatives we sold 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.
Table 14.711.7 provides details of sold credit derivatives.
Table 14.7:11.7: Sold Credit Derivatives
| | | Notional amount | | Notional amount |
(in millions) | (in millions) | Protection sold | | Protection sold – non-investment grade | (in millions) | Protection sold | Protection sold – non-investment grade |
September 30, 2022 | | |
June 30, 2023 | | June 30, 2023 | |
Credit default swaps | Credit default swaps | $ | 10,552 | | | 1,950 | | Credit default swaps | $ | 14,273 | | 1,677 | |
Risk participation swaps | Risk participation swaps | 7,232 | | | 6,983 | | Risk participation swaps | 6,460 | | 6,250 | |
Total credit derivatives | Total credit derivatives | $ | 17,784 | | | 8,933 | | Total credit derivatives | $ | 20,733 | | 7,927 | |
December 31, 2021 | | |
December 31, 2022 | | December 31, 2022 | |
Credit default swaps | Credit default swaps | $ | 8,033 | | | 1,982 | | Credit default swaps | $ | 12,733 | | 1,860 | |
Risk participation swaps | Risk participation swaps | 6,756 | | | 6,012 | | Risk participation swaps | 6,728 | | 6,518 | |
Total credit derivatives | Total credit derivatives | $ | 14,789 | | | 7,994 | | Total credit derivatives | $ | 19,461 | | 8,378 | |
Protection sold represents the estimated maximum exposure to loss that would be incurred if, upon an event of default, the value of our interests and any associated collateral declined to zero, and does not take into consideration any of recovery value from the referenced obligation or offset from collateral held or any economic hedges.
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 credit risk to be low if the underlying assets under the credit derivative have an external rating that is investment grade. If an external rating is not available, we classify the credit derivative as non-investment grade.
Our maximum exposure to sold credit derivatives is managed through posted collateral and purchased credit derivatives with identical or similar reference positions in order to achieve our desired credit risk profile. The credit risk management is designed to provide an ability to recover a significant portion of any amounts that would be paid under sold credit derivatives.
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 14.811.8 illustrates our exposure to OTC 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 14.8:11.8: Credit-Risk Contingent Features
| (in billions) | (in billions) | Sep 30, 2022 | Dec 31, 2021 | (in billions) | Jun 30, 2023 | Dec 31, 2022 |
Net derivative liabilities with credit-risk contingent features | Net derivative liabilities with credit-risk contingent features | $ | 17.7 | | 12.2 | | Net derivative liabilities with credit-risk contingent features | $ | 23.2 | | 20.7 | |
Collateral posted | Collateral posted | 13.9 | | 11.0 | | Collateral posted | 20.0 | | 17.4 | |
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) | 3.9 | | 1.2 | | Additional collateral to be posted upon a below investment grade credit rating (1) | 3.2 | | 3.3 | |
(1)Any credit rating below investment grade requires us to post the maximum amount of collateral.
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120106 | Wells Fargo & Company | |
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Note 15:12: Fair Values of Assets and Liabilities |
We use fair value measurements to record fair value adjustments to certain assets and liabilities and to fulfill fair value disclosure requirements. 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 15.112.1 in this Note. Additionally, from time to time, we record fair value adjustments on a nonrecurring basis. These nonrecurring adjustments typically involve application of lower 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 15.412.4 in this Note. We provide in Table 15.812.9 estimates of fair value for financial instruments that are not recorded at fair value, such as loans and debt liabilities carried at amortized cost.
See Note 1 (Summary of Significant Accounting Policies) in our 20212022 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, see Note 1715 (Fair Values of Assets and Liabilities) in our 20212022 Form 10-K.
FAIR VALUE HIERARCHY We classify our assets and liabilities recorded at fair value as either Level 1, 2, or 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 20212022 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. This determination is ultimately based upon the specific facts and circumstances of each instrument or instrument category and judgments are made regarding the significance of the unobservable inputs to the instruments’ fair value measurement in its entirety. If unobservable 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) as a practical expedient to measure fair value. Marketable equity securities with published NAVs are classified in the fair value hierarchy.
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| Wells Fargo & Company | 121107 |
Note 15:12: Fair Values of Assets and Liabilities (continued)
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
Table 15.112.1 presents the balances of assets and liabilities recorded at fair value on a recurring basis.
Table 15.1:12.1: Fair Value on a Recurring Basis
| | | September 30, 2022 | | December 31, 2021 | | June 30, 2023 | | December 31, 2022 |
(in millions) | (in millions) | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | (in millions) | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
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 | $ | 29,417 | | | 4,768 | | | — | | | 34,185 | | | 27,607 | | | 2,249 | | | — | | | 29,856 | | Securities of U.S. Treasury and federal agencies | $ | 31,084 | | | 2,818 | | | — | | | 33,902 | | | 28,844 | | | 4,530 | | | — | | | 33,374 | |
Collateralized loan obligations | Collateralized loan obligations | — | | | 660 | | | 167 | | | 827 | | | — | | | 655 | | | 211 | | | 866 | | Collateralized loan obligations | — | | | 624 | | | 64 | | | 688 | | | — | | | 540 | | | 150 | | | 690 | |
Corporate debt securities | Corporate debt securities | — | | | 10,154 | | | 15 | | | 10,169 | | | — | | | 9,987 | | | 18 | | | 10,005 | | Corporate debt securities | — | | | 13,499 | | | 62 | | | 13,561 | | | — | | | 10,344 | | | 23 | | | 10,367 | |
Federal agency mortgage-backed securities | Federal agency mortgage-backed securities | — | | | 32,921 | | | — | | | 32,921 | | | — | | | 40,350 | | | — | | | 40,350 | | Federal agency mortgage-backed securities | — | | | 39,235 | | | — | | | 39,235 | | | — | | | 34,447 | | | — | | | 34,447 | |
Non-agency mortgage-backed securities | Non-agency mortgage-backed securities | — | | | 1,409 | | | — | | | 1,409 | | | — | | | 1,531 | | | 11 | | | 1,542 | | Non-agency mortgage-backed securities | — | | | 1,317 | | | 5 | | | 1,322 | | | — | | | 1,243 | | | 12 | | | 1,255 | |
Other debt securities | Other debt securities | — | | | 6,255 | | | — | | | 6,255 | | | — | | | 5,645 | | | 1 | | | 5,646 | | Other debt securities | — | | | 8,148 | | | 1 | | | 8,149 | | | — | | | 6,022 | | | — | | | 6,022 | |
Total trading debt securities | Total trading debt securities | 29,417 | | | 56,167 | | | 182 | | | 85,766 | | | 27,607 | | | 60,417 | | | 241 | | | 88,265 | | Total trading debt securities | 31,084 | | | 65,641 | | | 132 | | | 96,857 | | | 28,844 | | | 57,126 | | | 185 | | | 86,155 | |
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 | 44,730 | | | — | | | — | | | 44,730 | | | 39,661 | | | — | | | — | | | 39,661 | | Securities of U.S. Treasury and federal agencies | 46,896 | | | — | | | — | | | 46,896 | | | 45,285 | | | — | | | — | | | 45,285 | |
Non-U.S. government securities | Non-U.S. government securities | — | | | 162 | | | — | | | 162 | | | — | | | 71 | | | — | | | 71 | | Non-U.S. government securities | — | | | 162 | | | — | | | 162 | | | — | | | 162 | | | — | | | 162 | |
Securities of U.S. states and political subdivisions | Securities of U.S. states and political subdivisions | — | | | 10,127 | | | 539 | | | 10,666 | | | — | | | 16,832 | | | 85 | | | 16,917 | | Securities of U.S. states and political subdivisions | — | | | 21,295 | | | 79 | | | 21,374 | | | — | | | 10,332 | | | 113 | | | 10,445 | |
Federal agency mortgage-backed securities | Federal agency mortgage-backed securities | — | | | 50,351 | | | — | | | 50,351 | | | — | | | 105,886 | | | — | | | 105,886 | | Federal agency mortgage-backed securities | — | | | 56,981 | | | — | | | 56,981 | | | — | | | 48,137 | | | — | | | 48,137 | |
Non-agency mortgage-backed securities | Non-agency mortgage-backed securities | — | | | 3,426 | | | — | | | 3,426 | | | — | | | 4,522 | | | 10 | | | 4,532 | | Non-agency mortgage-backed securities | — | | | 3,049 | | | — | | | 3,049 | | | — | | | 3,284 | | | — | | | 3,284 | |
Collateralized loan obligations | Collateralized loan obligations | — | | | 4,134 | | | — | | | 4,134 | | | — | | | 5,708 | | | — | | | 5,708 | | Collateralized loan obligations | — | | | 3,725 | | | — | | | 3,725 | | | — | | | 3,981 | | | — | | | 3,981 | |
Other debt securities | Other debt securities | — | | | 2,192 | | | 174 | | | 2,366 | | | — | | | 4,378 | | | 91 | | | 4,469 | | Other debt securities | — | | | 1,913 | | | 151 | | | 2,064 | | | — | | | 2,137 | | | 163 | | | 2,300 | |
Total available-for-sale debt securities | Total available-for-sale debt securities | 44,730 | | | 70,392 | | | 713 | | | 115,835 | | | 39,661 | | | 137,397 | | | 186 | | | 177,244 | | Total available-for-sale debt securities | 46,896 | | | 87,125 | | | 230 | | | 134,251 | | | 45,285 | | | 68,033 | | | 276 | | | 113,594 | |
Loans held for sale | Loans held for sale | — | | | 5,051 | | | 1,074 | | | 6,125 | | | — | | | 14,862 | | | 1,033 | | | 15,895 | | Loans held for sale | — | | | 2,488 | | | 486 | | | 2,974 | | | — | | | 3,427 | | | 793 | | | 4,220 | |
Mortgage servicing rights (residential) | Mortgage servicing rights (residential) | — | | | — | | | 9,828 | | | 9,828 | | | — | | | — | | | 6,920 | | | 6,920 | | Mortgage servicing rights (residential) | — | | | — | | | 8,251 | | | 8,251 | | | — | | | — | | | 9,310 | | | 9,310 | |
Derivative assets (gross): | Derivative assets (gross): | | Derivative assets (gross): | |
Interest rate contracts | Interest rate contracts | 508 | | | 44,681 | | | 176 | | | 45,365 | | | 52 | | | 22,296 | | | 190 | | | 22,538 | | Interest rate contracts | 258 | | | 35,353 | | | 455 | | | 36,066 | | | 262 | | | 40,503 | | | 321 | | | 41,086 | |
Commodity contracts | Commodity contracts | — | | | 9,811 | | | 245 | | | 10,056 | | | — | | | 5,902 | | | 63 | | | 5,965 | | Commodity contracts | — | | | 3,136 | | | 32 | | | 3,168 | | | — | | | 5,866 | | | 134 | | | 6,000 | |
Equity contracts | Equity contracts | 5,472 | | | 9,683 | | | 566 | | | 15,721 | | | 6,402 | | | 9,350 | | | 2,019 | | | 17,771 | | Equity contracts | 178 | | | 12,335 | | | 268 | | | 12,781 | | | 112 | | | 9,051 | | | 410 | | | 9,573 | |
Foreign exchange contracts | Foreign exchange contracts | 95 | | | 24,390 | | | 90 | | | 24,575 | | | 8 | | | 6,573 | | | 7 | | | 6,588 | | Foreign exchange contracts | 30 | | | 16,445 | | | 17 | | | 16,492 | | | 27 | | | 22,175 | | | 11 | | | 22,213 | |
Credit contracts | Credit contracts | — | | | 44 | | | 18 | | | 62 | | | — | | | 32 | | | 14 | | | 46 | | Credit contracts | — | | | 55 | | | 24 | | | 79 | | | — | | | 44 | | | 22 | | | 66 | |
| Total derivative assets (gross) | Total derivative assets (gross) | 6,075 | | | 88,609 | | | 1,095 | | | 95,779 | | | 6,462 | | | 44,153 | | | 2,293 | | | 52,908 | | Total derivative assets (gross) | 466 | | | 67,324 | | | 796 | | | 68,586 | | | 401 | | | 77,639 | | | 898 | | | 78,938 | |
Equity securities: | Equity securities: | | Equity securities: | |
Marketable | Marketable | 16,092 | | | 222 | | | 3 | | | 16,317 | | | 29,968 | | | 82 | | | 4 | | | 30,054 | | Marketable | 20,348 | | | 159 | | | 5 | | | 20,512 | | | 18,527 | | | 86 | | | 3 | | | 18,616 | |
Nonmarketable (1) | Nonmarketable (1) | — | | | 8,366 | | | 15 | | | 8,381 | | | — | | | 57 | | | 8,906 | | | 8,963 | | Nonmarketable (1) | — | | | 11,075 | | | 22 | | | 11,097 | | | — | | | 9,750 | | | 17 | | | 9,767 | |
Total equity securities | Total equity securities | 16,092 | | | 8,588 | | | 18 | | | 24,698 | | | 29,968 | | | 139 | | | 8,910 | | | 39,017 | | Total equity securities | 20,348 | | | 11,234 | | | 27 | | | 31,609 | | | 18,527 | | | 9,836 | | | 20 | | | 28,383 | |
Total assets prior to derivative netting | Total assets prior to derivative netting | $ | 96,314 | | | 228,807 | | | 12,910 | | | 338,031 | | | 103,698 | | | 256,968 | | | 19,583 | | | 380,249 | | Total assets prior to derivative netting | $ | 98,794 | | | 233,812 | | | 9,922 | | | 342,528 | | | 93,057 | | | 216,061 | | | 11,482 | | | 320,600 | |
Derivative netting (2) | | (66,526) | | | (31,430) | | |
Derivative netting (1) | | Derivative netting (1) | | (50,596) | | | (56,164) | |
Total assets after derivative netting | Total assets after derivative netting | | $ | 271,505 | | | 348,819 | | Total assets after derivative netting | | $ | 291,932 | | | 264,436 | |
Derivative liabilities (gross): | Derivative liabilities (gross): | | Derivative liabilities (gross): | |
Interest rate contracts | Interest rate contracts | $ | (309) | | | (44,193) | | | (2,646) | | | (47,148) | | | (28) | | | (17,712) | | | (63) | | | (17,803) | | Interest rate contracts | $ | (287) | | | (35,418) | | | (6,093) | | | (41,798) | | | (193) | | | (40,377) | | | (2,903) | | | (43,473) | |
Commodity contracts | Commodity contracts | — | | | (5,357) | | | (120) | | | (5,477) | | | — | | | (2,351) | | | (66) | | | (2,417) | | Commodity contracts | — | | | (2,556) | | | (48) | | | (2,604) | | | — | | | (3,325) | | | (120) | | | (3,445) | |
Equity contracts | (3,550) | | | (5,261) | | | (1,709) | | | (10,520) | | | (5,820) | | | (10,753) | | | (2,448) | | | (19,021) | | |
Equity contracts (2) | | Equity contracts (2) | (161) | | | (11,523) | | | (1,649) | | | (13,333) | | | (118) | | | (6,502) | | | (1,634) | | | (8,254) | |
Foreign exchange contracts | Foreign exchange contracts | (87) | | | (27,943) | | | (28) | | | (28,058) | | | (8) | | | (6,654) | | | (10) | | | (6,672) | | Foreign exchange contracts | (38) | | | (18,630) | | | (24) | | | (18,692) | | | (29) | | | (26,622) | | | (35) | | | (26,686) | |
Credit contracts | Credit contracts | — | | | (33) | | | (2) | | | (35) | | | — | | | (40) | | | (3) | | | (43) | | Credit contracts | — | | | (23) | | | (2) | | | (25) | | | — | | | (33) | | | (3) | | | (36) | |
| Total derivative liabilities (gross) | Total derivative liabilities (gross) | (3,946) | | | (82,787) | | | (4,505) | | | (91,238) | | | (5,856) | | | (37,510) | | | (2,590) | | | (45,956) | | Total derivative liabilities (gross) | (486) | | | (68,150) | | | (7,816) | | | (76,452) | | | (340) | | | (76,859) | | | (4,695) | | | (81,894) | |
| Short-sale and other trading liabilities | (20,592) | | | (6,380) | | | — | | | (26,972) | | | (15,436) | | | (5,249) | | | — | | | (20,685) | | |
Short-sale and other liabilities (2) | | Short-sale and other liabilities (2) | (22,966) | | | (4,739) | | | (58) | | | (27,763) | | | (14,791) | | | (5,513) | | | (167) | | | (20,471) | |
Long-term debt | | Long-term debt | — | | | (1,600) | | | — | | | (1,600) | | | — | | | (1,346) | | | — | | | (1,346) | |
Total liabilities prior to derivative netting | Total liabilities prior to derivative netting | $ | (24,538) | | | (89,167) | | | (4,505) | | | (118,210) | | | (21,292) | | | (42,759) | | | (2,590) | | | (66,641) | | Total liabilities prior to derivative netting | $ | (23,452) | | | $ | (74,489) | | | (7,874) | | | (105,815) | | | (15,131) | | | (83,718) | | | (4,862) | | | (103,711) | |
Derivative netting (2) | | 67,838 | | | 36,532 | | |
Derivative netting (1) | | Derivative netting (1) | | 55,021 | | | 61,827 | |
Total liabilities after derivative netting | Total liabilities after derivative netting | | $ | (50,372) | | | (30,109) | | Total liabilities after derivative netting | | $ | (50,794) | | | (41,884) | |
(1)Excludes $81 million of nonmarketable equity securities as of December 31, 2021 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 1411 (Derivatives) for additional information.
(2)In first quarter 2023, we adopted ASU 2018-12 – Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. For additional information, see Note 1 (Summary of Significant Accounting Policies).
| | | | | | | | |
122108 | Wells Fargo & Company | |
Level 3 Assets and Liabilities Recorded at Fair Value on a Recurring Basis
Table 15.212.2 presents the changes in Level 3 assets and liabilities measured at fair value on a recurring basis.
Table 15.2:12.2: Changes in Level 3 Fair Value Assets and Liabilities on a Recurring Basis
| | | Net unrealized gains (losses) related to assets and liabilities held at period end | | | Net unrealized gains (losses) related to assets and liabilities held at period end | |
(in millions) | (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) | (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 September 30, 2022 | | | |
Quarter ended June 30, 2023 | | Quarter ended June 30, 2023 | | |
Trading debt securities | | Trading debt securities | $ | 132 | | | (8) | | | 31 | | | (36) | | | (3) | | | 55 | | | (39) | | | 132 | | | (8) | | (6) |
Available-for-sale debt securities | | Available-for-sale debt securities | 505 | | | (4) | | | 7 | | | — | | | (4) | | | 22 | | | (296) | | | 230 | | | (3) | | (6) |
Loans held for sale | | Loans held for sale | 564 | | | (10) | | | 94 | | | (180) | | | (26) | | | 49 | | | (5) | | | 486 | | | (30) | | (7) |
Mortgage servicing rights (residential) (8) | | Mortgage servicing rights (residential) (8) | 8,819 | | | (9) | | | 47 | | | (606) | | | — | | | — | | | — | | | 8,251 | | | 316 | | (7) |
Net derivative assets and liabilities: | | Net derivative assets and liabilities: | |
Interest rate contracts | | Interest rate contracts | (2,752) | | | (2,870) | | | 1 | | | (1) | | | 668 | | | (684) | | | — | | | (5,638) | | | (2,258) | | |
Equity contracts | | Equity contracts | (1,278) | | | (160) | | | — | | | — | | | 49 | | | (17) | | | 25 | | | (1,381) | | | (131) | | |
Other derivative contracts | | Other derivative contracts | (10) | | | (8) | | | 4 | | | (1) | | | 14 | | | — | | | — | | | (1) | | | 4 | | |
Total derivative contracts | | Total derivative contracts | (4,040) | | | (3,038) | | | 5 | | | (2) | | | 731 | | | (701) | | | 25 | | | (7,020) | | | (2,385) | | (9) |
Equity securities | | Equity securities | 32 | | | (15) | | | 4 | | | (3) | | | — | | | 9 | | | — | | | 27 | | | (15) | | (6) |
Other liabilities | | Other liabilities | (193) | | | 135 | | | — | | | — | | | — | | | — | | | — | | | (58) | | | 135 | | (10) |
Quarter ended June 30, 2022 | | Quarter ended June 30, 2022 | | |
Trading debt securities | | Trading debt securities | $ | 201 | | | (22) | | | 46 | | | (78) | | | 29 | | | — | | | (7) | | | 169 | | | (28) | | (6) |
Available-for-sale debt securities | | Available-for-sale debt securities | 338 | | | (5) | | | 2 | | | (25) | | | (5) | | | — | | | (138) | | | 167 | | | (1) | | (6) |
Loans held for sale | | Loans held for sale | 1,019 | | | (61) | | | 116 | | | (27) | | | (57) | | | 84 | | | (2) | | | 1,072 | | | (61) | | (7) |
Mortgage servicing rights (residential) (8) | | Mortgage servicing rights (residential) (8) | 8,511 | | | 581 | | | 322 | | | (251) | | | — | | | — | | | — | | | 9,163 | | | 868 | | (7) |
Net derivative assets and liabilities: | | Net derivative assets and liabilities: | |
Interest rate contracts | | Interest rate contracts | (176) | | | (381) | | | — | | | — | | | 371 | | | (385) | | | — | | | (571) | | | (133) | | |
Equity contracts | | Equity contracts | (1,416) | | | 202 | | | — | | | — | | | 280 | | | (516) | | | (34) | | | (1,484) | | | 403 | | |
Other derivative contracts | | Other derivative contracts | 27 | | | 88 | | | — | | | — | | | 28 | | | — | | | (6) | | | 137 | | | 89 | | |
Total derivative contracts | | Total derivative contracts | (1,565) | | | (91) | | | — | | | — | | | 679 | | | (901) | | | (40) | | | (1,918) | | | 359 | | (9) |
Equity securities | | Equity securities | 26 | | | 5 | | | — | | | (2) | | | — | | | 3 | | | (1) | | | 31 | | | 5 | | (6) |
Other liabilities (11) | | Other liabilities (11) | (638) | | | 89 | | | — | | | — | | | — | | | — | | | — | | | (549) | | | 89 | | (10) |
Six months ended June 30, 2023 | | Six months ended June 30, 2023 | | |
Trading debt securities | Trading debt securities | $ | 169 | | | (15) | | | 68 | | | (43) | | | — | | | — | | | 3 | | | 182 | | | (15) | | (6) | Trading debt securities | $ | 185 | | | (7) | | | 107 | | | (148) | | | (4) | | | 55 | | | (56) | | | 132 | | | (11) | | (6) |
Available-for-sale debt securities | Available-for-sale debt securities | 167 | | | (9) | | | 225 | | | — | | | (4) | | | 334 | | | — | | | 713 | | | — | | (6) | Available-for-sale debt securities | 276 | | | (24) | | | 76 | | | — | | | (10) | | | 255 | | | (343) | | | 230 | | | (22) | | (6) |
Loans held for sale | Loans held for sale | 1,072 | | | (55) | | | 114 | | | (36) | | | (45) | | | 28 | | | (4) | | | 1,074 | | | (55) | | (7) | Loans held for sale | 793 | | | — | | | 167 | | | (229) | | | (65) | | | 65 | | | (245) | | | 486 | | | (23) | | (7) |
Mortgage servicing rights (residential) (8) | Mortgage servicing rights (residential) (8) | 9,163 | | | 460 | | | 204 | | | 1 | | | — | | | — | | | — | | | 9,828 | | | 750 | | (7) | Mortgage servicing rights (residential) (8) | 9,310 | | | (555) | | | 95 | | | (599) | | | — | | | — | | | — | | | 8,251 | | | 91 | | (7) |
Net derivative assets and liabilities: | Net derivative assets and liabilities: | | Net derivative assets and liabilities: | |
Interest rate contracts | Interest rate contracts | (571) | | | (2,220) | | | — | | | — | | | 132 | | | 188 | | | 1 | | | (2,470) | | | (1,905) | | | Interest rate contracts | (2,582) | | | (2,575) | | | 1 | | | (1) | | | 935 | | | (1,430) | | | 14 | | | (5,638) | | | (1,755) | | |
Equity contracts | Equity contracts | (1,503) | | | (137) | | | — | | | — | | | 249 | | | 12 | | | 236 | | | (1,143) | | | 131 | | | Equity contracts | (1,224) | | | (463) | | | — | | | — | | | 334 | | | (55) | | | 27 | | | (1,381) | | | (125) | | |
Other derivative contracts | Other derivative contracts | 137 | | | 28 | | | 13 | | | (8) | | | 28 | | | — | | | 5 | | | 203 | | | 70 | | | Other derivative contracts | 9 | | | (63) | | | 6 | | | (2) | | | 51 | | | (2) | | | — | | | (1) | | | (36) | | |
Total derivative contracts | Total derivative contracts | (1,937) | | | (2,329) | | | 13 | | | (8) | | | 409 | | | 200 | | | 242 | | | (3,410) | | | (1,704) | | (9) | Total derivative contracts | (3,797) | | | (3,101) | | | 7 | | | (3) | | | 1,320 | | | (1,487) | | | 41 | | | (7,020) | | | (1,916) | | (9) |
Equity securities | Equity securities | 31 | | | (1) | | | 1 | | | (1) | | | — | | | (3) | | | (9) | | | 18 | | | (1) | | (6) | Equity securities | 20 | | | (16) | | | 4 | | | (3) | | | — | | | 22 | | | — | | | 27 | | | (16) | | (6) |
| Quarter ended September 30, 2021 | | | |
Other liabilities | | Other liabilities | (167) | | | 109 | | | — | | | — | | | — | | | — | | | — | | | (58) | | | 109 | | (10) |
Six months ended June 30, 2022 | | Six months ended June 30, 2022 | | |
Trading debt securities | Trading debt securities | $ | 192 | | | 1 | | | 130 | | | (101) | | | (2) | | | — | | | (6) | | | 214 | | | (3) | | (6) | Trading debt securities | $ | 241 | | | (37) | | | 93 | | | (92) | | | (6) | | | 5 | | | (35) | | | 169 | | | (40) | | (6) |
Available-for-sale debt securities | Available-for-sale debt securities | 2,805 | | | 1 | | | 362 | | | — | | | (49) | | | — | | | (816) | | | 2,303 | | | 7 | | (6) | Available-for-sale debt securities | 186 | | | (26) | | | 54 | | | (25) | | | (10) | | | 126 | | | (138) | | | 167 | | | (1) | | (6) |
Loans held for sale | Loans held for sale | 1,069 | | | (8) | | | 117 | | | (79) | | | (83) | | | 106 | | | (131) | | | 991 | | | (10) | | (7) | Loans held for sale | 1,033 | | | (118) | | | 179 | | | (70) | | | (130) | | | 186 | | | (8) | | | 1,072 | | | (115) | | (7) |
Mortgage servicing rights (residential) (8) | Mortgage servicing rights (residential) (8) | 6,717 | | | (232) | | | 379 | | | (2) | | | — | | | — | | | — | | | 6,862 | | | 275 | | (7) | Mortgage servicing rights (residential) (8) | 6,920 | | | 1,829 | | | 664 | | | (250) | | | — | | | — | | | — | | | 9,163 | | | 2,473 | | (7) |
Net derivative assets and liabilities: | Net derivative assets and liabilities: | | Net derivative assets and liabilities: | |
Interest rate contracts | Interest rate contracts | 314 | | | 110 | | | — | | | — | | | (260) | | | — | | | — | | | 164 | | | 16 | | | Interest rate contracts | 127 | | | (959) | | | — | | | — | | | 646 | | | (385) | | | — | | | (571) | | | (241) | | |
Equity contracts | (425) | | | (493) | | | — | | | — | | | 595 | | | (58) | | | 46 | | | (335) | | | 45 | | | |
Equity contracts (11) | | Equity contracts (11) | (417) | | | (14) | | | — | | | — | | | 869 | | | (596) | | | (1,326) | | | (1,484) | | | 610 | | |
Other derivative contracts | Other derivative contracts | 35 | | | (68) | | | 1 | | | (3) | | | 25 | | | (2) | | | — | | | (12) | | | (25) | | | Other derivative contracts | 5 | | | 66 | | | — | | | — | | | 72 | | | — | | | (6) | | | 137 | | | 110 | | |
Total derivative contracts | Total derivative contracts | (76) | | | (451) | | | 1 | | | (3) | | | 360 | | | (60) | | | 46 | | | (183) | | | 36 | | (9) | Total derivative contracts | (285) | | | (907) | | | — | | | — | | | 1,587 | | | (981) | | | (1,332) | | | (1,918) | | | 479 | | (9) |
Equity securities | Equity securities | 9,660 | | | (487) | | | — | | | — | | | — | | | 4 | | | — | | | 9,177 | | | (487) | | (6) | Equity securities | 8,910 | | | 4 | | | — | | | (2) | | | — | | | 5 | | | (8,886) | | | 31 | | | 4 | | (6) |
Nine months ended September 30, 2022 | | | |
Trading debt securities | $ | 241 | | | (52) | | | 161 | | | (135) | | | (6) | | | 5 | | | (32) | | | 182 | | | (48) | | (6) | |
Available-for-sale debt securities | 186 | | | (35) | | | 279 | | | (25) | | | (14) | | | 460 | | | (138) | | | 713 | | | (1) | | (6) | |
Loans held for sale | 1,033 | | | (173) | | | 293 | | | (106) | | | (175) | | | 214 | | | (12) | | | 1,074 | | | (163) | | (7) | |
Mortgage servicing rights (residential) (8) | 6,920 | | | 2,289 | | | 868 | | | (249) | | | — | | | — | | | — | | | 9,828 | | | 3,223 | | (7) | |
Net derivative assets and liabilities: | | |
Interest rate contracts | 127 | | | (3,179) | | | — | | | — | | | 778 | | | (197) | | | 1 | | | (2,470) | | | (2,348) | | | |
Equity contracts | (429) | | | (158) | | | — | | | — | | | 1,118 | | | (584) | | | (1,090) | | | (1,143) | | | 503 | | | |
Other derivative contracts | 5 | | | 94 | | | 13 | | | (8) | | | 100 | | | — | | | (1) | | | 203 | | | 179 | | | |
Total derivative contracts | (297) | | | (3,243) | | | 13 | | | (8) | | | 1,996 | | | (781) | | | (1,090) | | | (3,410) | | | (1,666) | | (9) | |
Equity securities | 8,910 | | | 3 | | | 1 | | | (3) | | | — | | | 2 | | | (8,895) | | | 18 | | | (2) | | (6) | |
| Nine months ended September 30, 2021 | | | |
Trading debt securities | $ | 173 | | | 21 | | | 422 | | | (403) | | | (7) | | | 22 | | | (14) | | | 214 | | | 2 | | (6) | |
Available-for-sale debt securities | 2,994 | | | 22 | | | 386 | | | — | | | (237) | | | 253 | | | (1,115) | | | 2,303 | | | (13) | | (6) | |
Loans held for sale | 1,234 | | | (12) | | | 377 | | | (458) | | | (300) | | | 284 | | | (134) | | | 991 | | | (13) | | (7) | |
Mortgage servicing rights (residential) (8) | 6,125 | | | (523) | | | 1,270 | | | (10) | | | — | | | — | | | — | | | 6,862 | | | 1,057 | | (7) | |
Net derivative assets and liabilities: | | |
Interest rate contracts | 446 | | | 27 | | | — | | | — | | | (304) | | | — | | | (5) | | | 164 | | | (14) | | | |
Equity contracts | (314) | | | (819) | | | — | | | — | | | 755 | | | (95) | | | 138 | | | (335) | | | (154) | | | |
Other derivative contracts | 39 | | | (108) | | | 3 | | | (4) | | | 57 | | | (2) | | | 3 | | | (12) | | | (10) | | | |
Total derivative contracts | 171 | | | (900) | | | 3 | | | (4) | | | 508 | | | (97) | | | 136 | | | (183) | | | (178) | | (9) | |
Equity securities | 9,233 | | | (58) | | | — | | | (5) | | | — | | | 7 | | | — | | | 9,177 | | | (59) | | (6) | |
Other liabilities (11) | | Other liabilities (11) | (791) | | | 242 | | | — | | | — | | | — | | | — | | | — | | | (549) | | | 242 | | (10) |
|
(1)Includes net gains (losses) included in both net income and other comprehensive income. All amounts represent net gains (losses) included in net income except for $(9) millionAFS debt securities and $(36) million andother liabilities which also included net gains (losses) in other comprehensive income. Net gains (losses) included in other comprehensive income fromfor AFS debt securities were $(3) million and $(19) million for the thirdsecond quarter and first nine monthshalf of 2023, respectively, and $(6) million and $(27) million for the second quarter and first half of 2022, respectively. The corresponding amountsNet gains (losses) included in other comprehensive income for other liabilities were $5 million for both the thirdsecond quarter and first nine monthshalf of 2021 were $(2)2023, and $87 million and $34$101 million for the second quarter and first half of 2022, respectively.
(2)Includes originations of mortgage servicing rights and 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 Level 3 are classified as Level 2. During first quarter 2022, we transferred $8.9 billion of non-marketable equity securities and $1.4 billion of related economic hedging derivative assets (equity contracts) out of Level 3 due to our election to measure fair value of these instruments as a portfolio. Under this election, the unit of valuation is the portfolio-level, rather than each individual instrument. The unobservable inputs previously significant to the valuation of the instruments individually are no longer significant, as those unobservable inputs offset under the portfolio election.
(5)IncludesAll amounts represent net unrealized gains (losses) related to assets and liabilities held at period end included in both net income except for AFS debt securities and other liabilities which also included net unrealized gains (losses) related to assets and liabilities held at period end in other comprehensive income. All amounts represent netNet unrealized gains (losses) included in netother comprehensive income except for $5AFS debt securities were $(2) million and $(3)$(17) million for the second quarter and first half of 2023, respectively, and $0 for both the second quarter and first half of 2022. Net unrealized gains (losses) included in other comprehensive income from AFS debt securities for other liabilities were $5 million for both the thirdsecond quarter and first nine monthshalf of 2021,2023, and $87 million and $101 million for the second quarter and first half of 2022, respectively.
(6)Included in net gains from trading and securities in theon our consolidated statement of income.
(7)Included in mortgage banking income in theon our consolidated statement of income.
(8)For additional information on the changes in mortgage servicing rights, see Note 96 (Mortgage Banking Activities).
(9)Included in mortgage banking income, net gains from trading and securities, and other noninterest income in theon our consolidated statement of income.
(10)Included in other noninterest income on our consolidated statement of income.
(11)In first quarter 2023, we adopted ASU 2018-12 – Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. For additional information, see Note 1 (Summary of Significant Accounting Policies).
| | | | | | | | |
| Wells Fargo & Company | 123109 |
Note 15:12: Fair Values of Assets and Liabilities (continued)
Table 15.312.3 provides quantitative information about the valuation techniques and significant unobservable inputs used in the valuation of our Level 3 assets and liabilities measured at fair value on a recurring basis.
The significant unobservable inputs for Level 3 assets inherent in the fair values obtained from third-party vendors are not included in the table, as the specific inputs applied are not
provided by the vendor (for additional information on vendor-developed valuations, see Note 1715 (Fair Values of Assets and Liabilities) in our 20212022 Form 10-K).
Weighted averages of inputs are calculated using outstanding unpaid principal balance for cash instruments, such as loans and securities, and notional amounts for derivative instruments.
Table 15.3:12.3: Valuation Techniques – Recurring Basis
| ($ in millions, except cost to service amounts) | ($ in millions, except cost to service amounts) | Fair Value Level 3 | | Valuation Technique | | Significant Unobservable Input | | Range of Inputs | | Weighted Average | ($ in millions, except cost to service amounts) | Fair Value Level 3 | | Valuation Technique | | Significant Unobservable Input | | Range of Inputs | | Weighted Average |
September 30, 2022 | | |
June 30, 2023 | | June 30, 2023 | |
Trading and available-for-sale debt securities | Trading and available-for-sale debt securities | $ | 585 | | | Discounted cash flow | | Discount rate | | 3.0 | | - | 12.5 | | % | | 4.4 | | Trading and available-for-sale debt securities | $ | 125 | | | Discounted cash flow | | Discount rate | | 3.0 | | - | 12.5 | | % | | 6.4 | |
| | | 182 | | | Market comparable pricing | | Comparability adjustment | | (26.8) | | - | 48.0 | | | 0.7 | | | 132 | | | Market comparable pricing | | Comparability adjustment | | (46.3) | | - | 48.3 | | | (16.1) | |
| | 128 | | | Market comparable pricing | | Multiples | | 1.1x | - | 7.4x | | 4.1x | | 105 | | | Market comparable pricing | | Multiples | | 1.4x | - | 7.4x | | 3.7x |
Loans held for sale | Loans held for sale | 1,074 | | | Discounted cash flow | | Default rate | | 0.0 | | - | 33.4 | | % | | 0.7 | | Loans held for sale | 486 | | | Discounted cash flow | | Default rate | | 0.0 | | - | 28.8 | | % | | 1.0 | |
| | Discount rate | | 2.3 | | - | 13.7 | | | 7.8 | | | Discount rate | | 2.9 | | - | 15.0 | | | 9.8 | |
| | Loss severity | | 0.0 | | - | 54.7 | | | 17.4 | | | Loss severity | | 0.0 | | - | 54.9 | | | 17.1 | |
| | Prepayment rate | | 3.7 | | - | 15.0 | | | 11.2 | | | Prepayment rate | | 4.3 | | - | 15.5 | | | 10.5 | |
Mortgage servicing rights (residential) | Mortgage servicing rights (residential) | 9,828 | | | Discounted cash flow | | Cost to service per loan (1) | | $ | 52 | | - | 563 | | | 102 | | Mortgage servicing rights (residential) | 8,251 | | | Discounted cash flow | | Cost to service per loan (1) | | $ | 52 | | - | 518 | | | 102 | |
| | Discount rate | | 8.8 | | - | 13.3 | | % | | 9.1 | | | Discount rate | | 8.8 | | - | 13.8 | | % | | 9.2 | |
| | Prepayment rate (2) | | 8.1 | | - | 19.7 | | | 9.3 | | | Prepayment rate (2) | | 7.8 | | - | 23.4 | | | 9.2 | |
Net derivative assets and (liabilities): | Net derivative assets and (liabilities): | | | Net derivative assets and (liabilities): | | |
Interest rate contracts | Interest rate contracts | (2,082) | | | Discounted cash flow | | Discount rate | | 3.1 | | - | 4.3 | | | 3.9 | | Interest rate contracts | (5,518) | | | Discounted cash flow | | Discount rate | | 3.2 | | - | 5.4 | | | 4.6 | |
| | (102) | | | Discounted cash flow | | Default rate | | 0.4 | | - | 5.0 | | | 2.2 | | | (61) | | | Discounted cash flow | | Default rate | | 0.4 | | - | 5.0 | | | 1.6 | |
| | Loss severity | | 50.0 | | - | 50.0 | | | 50.0 | | | Loss severity | | 50.0 | | - | 50.0 | | | 50.0 | |
| | Prepayment rate | | 2.8 | | - | 22.0 | | | 18.6 | | | Prepayment rate | | 2.8 | | - | 22.0 | | | 16.0 | |
Interest rate contracts: derivative loan commitments | Interest rate contracts: derivative loan commitments | (286) | | | Discounted cash flow | | Fall-out factor | | 1.0 | | - | 99.0 | | | 20.5 | | Interest rate contracts: derivative loan commitments | (59) | | | Discounted cash flow | | Fall-out factor | | 1.0 | | - | 99.0 | | | 28.8 | |
| | Initial-value servicing | | (43.2) | | - | 276.0 | | bps | | 5.5 | | | Initial-value servicing | | (43.9) | | - | 141.0 | | bps | | (14.5) | |
Equity contracts | Equity contracts | (948) | | | Discounted cash flow | | Conversion factor | | (13.9) | | - | 0.0 | | % | | (10.3) | | Equity contracts | (976) | | | Discounted cash flow | | Conversion factor | | (7.4) | | - | 0.0 | | % | | (6.6) | |
| | Weighted average life | | 0.3 | - | 2.3 | yrs | | 1.0 | | Weighted average life | | 0.5 | - | 1.5 | yrs | | 1.1 |
| | (195) | | | Option model | | Correlation factor | | (77.0) | | - | 99.0 | | % | | 50.8 | | | (405) | | | Option model | | Correlation factor | | (77.0) | | - | 99.0 | | % | | 63.6 | |
| | Volatility factor | | 6.5 | | - | 85.0 | | | 39.9 | | | Volatility factor | | 6.5 | | - | 98.0 | | | 34.4 | |
| Insignificant Level 3 assets, net of liabilities | 221 | | | | |
Insignificant Level 3 liabilities, net of assets (3) | | Insignificant Level 3 liabilities, net of assets (3) | (32) | | | |
Total Level 3 assets, net of liabilities | Total Level 3 assets, net of liabilities | $ | 8,405 | | (3) | | Total Level 3 assets, net of liabilities | $ | 2,048 | | (4) | |
December 31, 2021 | | |
December 31, 2022 | | December 31, 2022 | |
Trading and available-for-sale debt securities | Trading and available-for-sale debt securities | $ | 136 | | | Discounted cash flow | | Discount rate | | 0.4 | | - | 12.5 | | % | | 5.5 | | Trading and available-for-sale debt securities | $ | 157 | | | Discounted cash flow | | Discount rate | | 2.7 | | - | 12.5 | | % | | 6.4 | |
| | 11 | | | Vendor priced | | | 185 | | | Market comparable pricing | | Comparability adjustment | | (33.6) | | - | 14.1 | | | (4.8) | |
| | 280 | | | Market comparable pricing | | Comparability adjustment | | (30.2) | | - | 19.2 | | | (4.6) | | |
| | | 119 | | | Market comparable pricing | | Multiples | | 1.1x | - | 7.4x | | 4.0x |
Loans held for sale | Loans held for sale | 1,033 | | | Discounted cash flow | | Default rate | | 0.0 | | - | 29.2 | | % | | 1.2 | | Loans held for sale | 793 | | | Discounted cash flow | | Default rate | | 0.0 | | - | 25.0 | | % | | 0.7 | |
| | Discount rate | | 1.6 | | - | 11.9 | | | 5.1 | | | Discount rate | | 2.9 | | - | 13.4 | | | 9.5 | |
| | Loss severity | | 0.0 | | - | 46.9 | | | 15.4 | | | Loss severity | | 0.0 | | - | 53.6 | | | 15.7 | |
| | Prepayment rate | | 7.5 | | - | 18.2 | | | 13.1 | | | Prepayment rate | | 3.5 | | - | 14.2 | | | 10.7 | |
Mortgage servicing rights (residential) | Mortgage servicing rights (residential) | 6,920 | | | Discounted cash flow | | Cost to service per loan (1) | | $ | 54 | | - | 585 | | | 106 | | Mortgage servicing rights (residential) | 9,310 | | | Discounted cash flow | | Cost to service per loan (1) | | $ | 52 | | - | 550 | | | 102 | |
| | Discount rate | | 5.8 | | - | 8.8 | | % | | 6.4 | | | Discount rate | | 8.7 | | - | 14.1 | | % | | 9.1 | |
| | Prepayment rate (2) | | 12.5 | | - | 21.1 | | | 14.7 | | | Prepayment rate (2) | | 8.1 | | - | 21.9 | | | 9.4 | |
Net derivative assets and (liabilities): | Net derivative assets and (liabilities): | | | Net derivative assets and (liabilities): | | |
Interest rate contracts | Interest rate contracts | 87 | | | Discounted cash flow | | Default rate | | 0.0 | | - | 5.0 | | | 2.1 | | Interest rate contracts | (2,411) | | | Discounted cash flow | | Discount rate | | 3.2 | | - | 4.9 | | | 4.2 | |
| | Loss severity | | 50.0 | | - | 50.0 | | | 50.0 | | | (63) | | | Discounted cash flow | | Default rate | | 0.4 | | - | 5.0 | | | 2.3 | |
| | Prepayment rate | | 2.8 | | - | 22.0 | | | 18.7 | | | Loss severity | | 50.0 | | - | 50.0 | | | 50.0 | |
| | | Prepayment rate | | 2.8 | | - | 22.0 | | | 18.7 | |
Interest rate contracts: derivative loan commitments | Interest rate contracts: derivative loan commitments | 40 | | | Discounted cash flow | | Fall-out factor | | 1.0 | | - | 99.0 | | | 16.8 | | Interest rate contracts: derivative loan commitments | (108) | | | Discounted cash flow | | Fall-out factor | | 1.0 | | - | 99.0 | | | 41.0 | |
| | Initial-value servicing | | (74.8) | | - | 146.0 | | bps | | 50.9 | | | Initial-value servicing | | (9.3) | | - | 141.0 | | bps | | 11.5 | |
Equity contracts | 253 | | | Discounted cash flow | | Conversion factor | | (10.2) | | - | 0.0 | | % | | (9.7) | | |
Equity contracts (3) | | Equity contracts (3) | (1,000) | | | Discounted cash flow | | Conversion factor | | (12.2) | | - | 0.0 | | % | | (9.9) | |
| | Weighted average life | | 0.5 | - | 2.0 | yrs | | 1.1 | | Weighted average life | | 0.5 | - | 1.5 | yrs | | 0.8 |
| | (682) | | | Option model | | Correlation factor | | (77.0) | | - | 99.0 | | % | | 23.2 | | | (224) | | | Option model | | Correlation factor | | (77.0) | | - | 99.0 | | % | | 49.5 | |
| | Volatility factor | | 6.5 | | - | 72.0 | | | 29.1 | | | Volatility factor | | 6.5 | | - | 96.5 | | | 37.3 | |
Nonmarketable equity securities | 8,906 | | | Market comparable pricing | | Comparability adjustment | | (21.6) | | - | (7.7) | | | (15.5) | | |
Insignificant Level 3 assets, net of liabilities | 9 | | | | |
| Insignificant Level 3 liabilities, net of assets (3) | | Insignificant Level 3 liabilities, net of assets (3) | (138) | | | |
Total Level 3 assets, net of liabilities | Total Level 3 assets, net of liabilities | $ | 16,993 | | (3) | | Total Level 3 assets, net of liabilities | $ | 6,620 | | (4) | |
(1)The high end of the range of inputs is for servicing modified loans. For non-modified loans, the range is $52 - $181$175 at SeptemberJune 30, 2022,2023, and $54$52 - $199$178 at December 31, 2021.2022.
(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.
(3)In first quarter 2023, we adopted ASU 2018-12 – Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. For additional information, see Note 1 (Summary of Significant Accounting Policies).
(4)Consists of total Level 3 assets of $12.9$9.9 billion and $19.6$11.5 billion and total Level 3 liabilities of $4.5$7.9 billion and $2.6$4.9 billion, before netting of derivative balances, at SeptemberJune 30, 2022,2023, and December 31, 2021,2022, respectively.
For additional information on the valuation techniques and significant unobservable inputs used in the valuation of our Level 3 assets and liabilities, including how changes in these inputs
inputs affect fair value estimates, see Note 1715 (Fair Values of Assets and Liabilities) in our 20212022 Form 10-K).
10-K.
| | | | | | | | |
124110 | Wells Fargo & Company | |
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 application of the measurement alternative for certain nonmarketable equity securities.
Table 15.412.4 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, 2022,2023, and December 31, 2021,2022, and for which a nonrecurring fair value adjustment was recorded during the ninesix months ended SeptemberJune 30, 2022,2023, and the year ended December 31, 2021.2022.
Table 15.4:12.4: Fair Value on a Nonrecurring Basis
| | | September 30, 2022 | | December 31, 2021 | | June 30, 2023 | | December 31, 2022 |
(in millions) | (in millions) | Level 2 | | Level 3 | | Total | | Level 2 | | Level 3 | | Total | (in millions) | Level 2 | | Level 3 | | Total | | Level 2 | | Level 3 | | Total |
Loans held for sale (1) | Loans held for sale (1) | $ | 840 | | | 1,513 | | | 2,353 | | | 3,911 | | | 1,407 | | | 5,318 | | Loans held for sale (1) | $ | 1,268 | | | 315 | | | 1,583 | | | 838 | | | 554 | | | 1,392 | |
Loans: | Loans: | | Loans: | |
Commercial | Commercial | 206 | | | — | | | 206 | | | 476 | | | — | | | 476 | | Commercial | 645 | | | — | | | 645 | | | 285 | | | — | | | 285 | |
Consumer | Consumer | 491 | | | — | | | 491 | | | 380 | | | — | | | 380 | | Consumer | 68 | | | — | | | 68 | | | 512 | | | — | | | 512 | |
Total loans | Total loans | 697 | | | — | | | 697 | | | 856 | | | — | | | 856 | | Total loans | 713 | | | — | | | 713 | | | 797 | | | — | | | 797 | |
Mortgage servicing rights (commercial) | Mortgage servicing rights (commercial) | — | | | 75 | | | 75 | | | — | | | 567 | | | 567 | | Mortgage servicing rights (commercial) | — | | | — | | | — | | | — | | | 75 | | | 75 | |
Nonmarketable equity securities | Nonmarketable equity securities | 1,566 | | | 3,666 | | | 5,232 | | | 6,262 | | | 765 | | | 7,027 | | Nonmarketable equity securities | 606 | | | 1,483 | | | 2,089 | | | 1,926 | | | 2,818 | | | 4,744 | |
Other assets | Other assets | 1,560 | | | 243 | | | 1,803 | | | 1,373 | | | 175 | | | 1,548 | | Other assets | 2,063 | | | 49 | | | 2,112 | | | 1,862 | | | 296 | | | 2,158 | |
Total assets at fair value on a nonrecurring basis | Total assets at fair value on a nonrecurring basis | $ | 4,663 | | | 5,497 | | | 10,160 | | | 12,402 | | | 2,914 | | | 15,316 | | Total assets at fair value on a nonrecurring basis | $ | 4,650 | | | 1,847 | | | 6,497 | | | 5,423 | | | 3,743 | | | 9,166 | |
(1)Predominantly consistsConsists of commercial mortgages and residential mortgage – first lien loans.
Table 15.512.5 presents the gains (losses) on certain assets held at the end of the reporting periods presented for which a nonrecurring fair value adjustment was recognized in earnings during the respective periods.
Table 15.5:12.5: Gains (Losses) on Assets with Nonrecurring Fair Value Adjustment
| | | Nine months ended September 30, | | Six months ended June 30, |
(in millions) | (in millions) | 2022 | | 2021 | | (in millions) | 2023 | | 2022 | |
Loans held for sale | Loans held for sale | $ | (87) | | | 28 | | | Loans held for sale | $ | (40) | | | (66) | | |
Loans: | Loans: | | | Loans: | | |
Commercial | Commercial | (72) | | | (254) | | | Commercial | (205) | | | (36) | | |
Consumer | Consumer | (544) | | | (409) | | | Consumer | (368) | | | (358) | | |
Total loans | Total loans | (616) | | | (663) | | | Total loans | (573) | | | (394) | | |
Mortgage servicing rights (commercial) | Mortgage servicing rights (commercial) | 4 | | | 36 | | | Mortgage servicing rights (commercial) | — | | | 4 | | |
Nonmarketable equity securities (1) | Nonmarketable equity securities (1) | (357) | | | 2,974 | | | Nonmarketable equity securities (1) | (526) | | | (95) | | |
| Other assets (2) | Other assets (2) | (319) | | | (84) | | | Other assets (2) | (102) | | | (176) | | |
Total | Total | $ | (1,375) | | | 2,291 | | | Total | $ | (1,241) | | | (727) | | |
(1)Includes impairment of nonmarketable equity securities and observable price changes related to nonmarketable equity securities accounted for under the measurement alternative.
(2)Includes impairment of operating lease ROU assets, valuation of physical commodities, valuation losses on foreclosed real estate and other collateral owned, and impairment of private equity and venture capital investments in consolidated portfolio companies.
Table 15.612.6 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 and 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 and private equity and venture capital investments in consolidated portfolio companies.
| | | | | | | | |
| Wells Fargo & Company | 125111 |
Note 15:12: Fair Values of Assets and Liabilities (continued)
Table 15.6:12.6: Valuation Techniques – Nonrecurring Basis
| ($ in millions) | ($ in millions) | Fair Value Level 3 | Valuation Technique (1) | | Significant Unobservable Input (1) | | Range of Inputs Positive (Negative) | | Weighted Average |
($ in millions) | Fair Value Level 3 | Valuation Technique (1) | | Significant Unobservable Input (1) | | Range of Inputs Positive (Negative) | | Weighted Average |
September 30, 2022 | | |
June 30, 2023 | | June 30, 2023 | |
Loans held for sale (2) | | Loans held for sale (2) | $ | 315 | | Discounted cash flow | | Default rate | | 0.1 | | - | 98.3 | % | | 16.9 | |
| | | Discount rate | | 4.4 | | - | 14.3 | | 5.8 | |
| | | Loss severity | | 7.3 | | - | 65.6 | | 16.8 | |
| | | Prepayment rate | | 3.2 | | - | 32.4 | | 12.9 | |
| Nonmarketable equity securities | | Nonmarketable equity securities | 429 | | Market comparable pricing | | Comparability adjustment | | (100.0) | | - | (4.7) | | | (33.8) | |
| | | | 1,052 | | Market comparable pricing | | Multiples | | 3.0x | - | 27.1x | | 9.5x |
| Insignificant Level 3 assets | | Insignificant Level 3 assets | 51 | | |
Total | | Total | $ | 1,847 | | |
December 31, 2022 | | December 31, 2022 | |
Loans held for sale (2) | Loans held for sale (2) | $ | 1,513 | | Discounted cash flow | | Default rate | (3) | 0.2 | | - | 89.8 | % | | 15.9 | | Loans held for sale (2) | $ | 143 | | Discounted cash flow | | Default rate | | 0.1 | | - | 86.1 | % | | 13.8 | |
| | Discount rate | | 0.6 | | - | 13.9 | | 4.1 | | | Discount rate | | 3.8 | | - | 13.8 | | 9.0 | |
| | Loss severity | | 0.4 | | - | 49.8 | | 3.9 | | | Loss severity | | 8.1 | | - | 43.8 | | 18.6 | |
| | Prepayment rate | (4) | 2.7 | | - | 100.0 | | 37.1 | | | Prepayment rate | | 2.3 | | - | 23.4 | | 18.6 | |
| | | 411 | | Market comparable pricing | | Comparability adjustment | | (8.2) | | - | (0.9) | | (4.3) | |
Mortgage servicing rights (commercial) | Mortgage servicing rights (commercial) | 75 | | Discounted cash flow | | Cost to service per loan | | $ | 3,775 | | - | 3,775 | | 3,775 | | Mortgage servicing rights (commercial) | 75 | | Discounted cash flow | | Cost to service per loan | | $ | 3,775 | | - | 3,775 | | 3,775 | |
| | Discount rate | | 5.2 | | - | 5.2 | % | | 5.2 | | | Discount rate | | 5.2 | | - | 5.2 | % | | 5.2 | |
| | Prepayment rate | | 0.0 | | - | 20.6 | | 6.7 | | | Prepayment rate | | 0.0 | | - | 20.6 | | 6.7 | |
Nonmarketable equity securities | Nonmarketable equity securities | 1,992 | | Market comparable pricing | | Comparability adjustment | | (100.0) | | - | (4.0) | | | (23.0) | | Nonmarketable equity securities | 1,461 | | Market comparable pricing | | Comparability adjustment | | (100.0) | | - | (4.0) | | | (30.1) | |
| | | 1,666 | | Market comparable pricing | | Multiples | | 0.8x | - | 24.2x | | 16.7x | | 1,352 | | Market comparable pricing | | Multiples | | 0.8x | - | 18.7x | | 9.9x |
| Other assets (5) | 234 | | Market comparable pricing | | Multiples | | 6.4 | | - | 8.0 | | 7.1 | | |
Other assets (2) | | Other assets (2) | 234 | | Market comparable pricing | | Multiples | | 6.4 | | - | 8.0 | | 7.1 | |
Insignificant Level 3 assets | Insignificant Level 3 assets | 17 | | | Insignificant Level 3 assets | 67 | | |
Total | Total | $ | 5,497 | | | Total | $ | 3,743 | | |
December 31, 2021 | | |
Loans held for sale (2) | $ | 1,407 | | Discounted cash flow | | Default rate | (3) | 0.2 | | - | 78.3 | % | | 25.6 | | |
| Discount rate | | 0.6 | | - | 12.0 | | 3.3 | | |
| Loss severity | | 0.4 | | - | 45.6 | | 4.8 | | |
| Prepayment rate | (4) | 5.4 | | - | 100.0 | | 38.9 | | |
| Mortgage servicing rights (commercial) | 567 | | Discounted cash flow | | Cost to service per loan | | $ | 150 | | - | 3,381 | | 2,771 | | |
| Discount rate | | 4.0 | | - | 4.5 | % | | 4.0 | | |
| Prepayment rate | | 0.0 | | - | 20.6 | | 5.5 | | |
Nonmarketable equity securities | 745 | | Market comparable pricing | | Comparability adjustment | | (100.0) | | - | (33.0) | | | (59.0) | | |
| 15 | | Market comparable pricing | | Multiples | | 2.0x | - | 3.3x | | 2.8x | |
| 5 | | Discounted cash flow | | Discount rate | | 10.5 | | - | 10.5 | % | | 10.5 | | |
Other assets | 175 | | Discounted cash flow | | Discount rate | | 0.2 | | - | 4.4 | | 2.9 | | |
Total | $ | 2,914 | | | |
(1)See Note 1715 (Fair Values of Assets and Liabilities) in our 20212022 Form 10-K for additional information on the valuation techniquetechnique(s) and significant unobservable inputs used in the valuation of Level 3 assets.
(2)Consists of approximately $1.3 billion and $1.2 billion of government insured/guaranteed loans purchased from GNMA-guaranteed mortgage securitizations at September 30, 2022, and December 31, 2021, respectively, and approximately $200 million of other mortgage loans that are not government insured/guaranteed at both September 30, 2022, and December 31, 2021.
(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)Represents private equity and venture capital investments in consolidated portfolio companies.
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 1715 (Fair Values of Assets and Liabilities) in our 20212022 Form 10-K.
Table 15.712.7 reflects differences between the fair value carrying amount of the assets and liabilities for which we have elected the fair value option and the contractual aggregate unpaid principal amount at maturity.
Table 12.7:Fair Value Option
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
(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 (1) | $ | 2,974 | | | 3,238 | | | (264) | | | 4,220 | | | 4,614 | | | (394) | |
Long-term debt (2) | (1,600) | | | (2,147) | | | 547 | | | (1,346) | | | (1,775) | | | 429 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
(1)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 SeptemberJune 30, 2022,2023, and December 31, 2021.
2022.
(2)Table 15.7:Includes zero coupon notes for which the aggregate unpaid principal amount reflects the contractual principal due at maturity.Fair Value Option
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
(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 | $ | 6,125 | | | 6,612 | | | (487) | | | 15,895 | | | 15,750 | | | 145 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
The changesTable 12.8 reflects amounts included in fair valueearnings related to initial measurement and subsequent changes in fair value, included in earningsby income statement line item, for LHFS accountedassets and liabilities for under which
the fair value option were $(146) million and $(739) millionwas elected. Amounts recorded in net interest income are excluded from the third quarter and first nine months of 2022, respectively, and $495 million and $1.7 billiontable below.
Table 12.8:Gains (Losses) on Changes in the third quarter and first nine months of 2021, respectively. Substantially all of these amounts were includedFair Value Included in the mortgage banking noninterest income line of the consolidated statement of income. Earnings
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| |
| 2023 | | 2022 | | | | |
(in millions) | Mortgage banking noninterest income | | Net gains from trading and securities | | Other noninterest income | | Mortgage banking noninterest income | | Net gains from trading and securities | | Other noninterest income | | | | | | | | | | | | |
Quarter ended June 30, | | | | | | | | | | | | | | | | | | | | | | | |
Loans held for sale | $ | 34 | | | 13 | | | — | | | (237) | | | 1 | | | — | | | | | | | | | | | | | |
Long-term debt | — | | | 9 | | | — | | | — | | | 11 | | | — | | | | | | | | | | | | | |
Six months ended June 30, | | | | | | | | | | | | | | | | | | | | | | | |
Loans held for sale | $ | 131 | | | 25 | | | (4) | | | (603) | | | 10 | | | — | | | | | | | | | | | | | |
Long-term debt | — | | | (21) | | | — | | | — | | | 23 | | | — | | | | | | | | | | | | | |
For performing loans, instrument-specific credit risk gains or losses wereare 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. Gains and losses attributable to instrument-specific credit risk related to assetsFor LHFS accounted for under the fair value option, ininstrument-specific credit gains or losses were insignificant during the thirdsecond quarter and first nine monthshalf of both 20222023 and 2021, were insignificant.2022.
For long-term debt, instrument-specific credit risk gains or losses represent the impact of changes in fair value due to changes in our credit spread and are derived using observable secondary bond market information. These impacts are recorded within the debit valuation adjustments (DVA) in OCI. See
Note 20 (Other Comprehensive Income) for additional information.
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126 | Wells Fargo & Company | 113 |
Note 12: Fair Values of Assets and Liabilities (continued)
Disclosures about Fair Value of Financial Instruments
Table 15.812.9 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 15.8.12.9. 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 $800$622 million and $1.4 billion$737 million at SeptemberJune 30, 2022,2023, and December 31, 2021,2022, 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 15.8:12.9: 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, 2022 | | |
June 30, 2023 | | June 30, 2023 | |
Financial assets | Financial assets | | Financial assets | |
Cash and due from banks (1) | Cash and due from banks (1) | $ | 27,634 | | | 27,634 | | | — | | | — | | | 27,634 | | Cash and due from banks (1) | $ | 31,915 | | | 31,915 | | | — | | | — | | | 31,915 | |
Interest-earning deposits with banks (1) | Interest-earning deposits with banks (1) | 137,821 | | | 137,618 | | | 203 | | | — | | | 137,821 | | Interest-earning deposits with banks (1) | 123,418 | | | 123,195 | | | 223 | | | — | | | 123,418 | |
Federal funds sold and securities purchased under resale agreements (1) | Federal funds sold and securities purchased under resale agreements (1) | 55,840 | | | — | | | 55,840 | | | — | | | 55,840 | | Federal funds sold and securities purchased under resale agreements (1) | 66,500 | | | — | | | 66,500 | | | — | | | 66,500 | |
Held-to-maturity debt securities | Held-to-maturity debt securities | 300,434 | | | 14,358 | | | 238,580 | | | 2,633 | | | 255,571 | | Held-to-maturity debt securities | 272,360 | | | 2,371 | | | 228,748 | | | 2,717 | | | 233,836 | |
Loans held for sale | Loans held for sale | 3,309 | | | — | | | 1,652 | | | 1,707 | | | 3,359 | | Loans held for sale | 3,055 | | | — | | | 2,641 | | | 462 | | | 3,103 | |
Loans, net (2) | Loans, net (2) | 918,780 | | | — | | | 58,172 | | | 828,320 | | | 886,492 | | Loans, net (2) | 918,454 | | | — | | | 55,515 | | | 825,008 | | | 880,523 | |
Nonmarketable equity securities (cost method) | Nonmarketable equity securities (cost method) | 4,301 | | | — | | | — | | | 4,363 | | | 4,363 | | Nonmarketable equity securities (cost method) | 4,552 | | | — | | | — | | | 4,620 | | | 4,620 | |
Total financial assets | Total financial assets | $ | 1,448,119 | | | 179,610 | | | 354,447 | | | 837,023 | | | 1,371,080 | | Total financial assets | $ | 1,420,254 | | | 157,481 | | | 353,627 | | | 832,807 | | | 1,343,915 | |
Financial liabilities | Financial liabilities | | Financial liabilities | |
Deposits (3) | Deposits (3) | $ | 39,194 | | | — | | | 25,093 | | | 13,051 | | | 38,144 | | Deposits (3) | $ | 128,458 | | | — | | | 85,183 | | | 41,616 | | | 126,799 | |
Short-term borrowings | Short-term borrowings | 48,222 | | | — | | | 48,237 | | | — | | | 48,237 | | Short-term borrowings | 84,054 | | | — | | | 84,056 | | | — | | | 84,056 | |
Long-term debt (4) | Long-term debt (4) | 155,634 | | | — | | | 151,895 | | | 1,022 | | | 152,917 | | Long-term debt (4) | 169,012 | | | — | | | 168,245 | | | 1,969 | | | 170,214 | |
Total financial liabilities | Total financial liabilities | $ | 243,050 | | | — | | | 225,225 | | | 14,073 | | | 239,298 | | Total financial liabilities | $ | 381,524 | | | — | | | 337,484 | | | 43,585 | | | 381,069 | |
December 31, 2021 | | |
December 31, 2022 | | December 31, 2022 | |
Financial assets | Financial assets | | Financial assets | |
Cash and due from banks (1) | Cash and due from banks (1) | $ | 24,616 | | | 24,616 | | | — | | | — | | | 24,616 | | Cash and due from banks (1) | $ | 34,596 | | | 34,596 | | | — | | | — | | | 34,596 | |
Interest-earning deposits with banks (1) | Interest-earning deposits with banks (1) | 209,614 | | | 209,452 | | | 162 | | | — | | | 209,614 | | Interest-earning deposits with banks (1) | 124,561 | | | 124,338 | | | 223 | | | — | | | 124,561 | |
Federal funds sold and securities purchased under resale agreements (1) | Federal funds sold and securities purchased under resale agreements (1) | 66,223 | | | — | | | 66,223 | | | — | | | 66,223 | | Federal funds sold and securities purchased under resale agreements (1) | 68,036 | | | — | | | 68,036 | | | — | | | 68,036 | |
Held-to-maturity debt securities | Held-to-maturity debt securities | 272,022 | | | 16,825 | | | 252,717 | | | 2,844 | | | 272,386 | | Held-to-maturity debt securities | 297,059 | | | 14,285 | | | 238,552 | | | 2,684 | | | 255,521 | |
Loans held for sale | Loans held for sale | 7,722 | | | — | | | 6,300 | | | 1,629 | | | 7,929 | | Loans held for sale | 2,884 | | | — | | | 2,208 | | | 719 | | | 2,927 | |
Loans, net (2) | Loans, net (2) | 868,278 | | | — | | | 63,404 | | | 820,559 | | | 883,963 | | Loans, net (2) | 928,049 | | | — | | | 57,532 | | | 836,831 | | | 894,363 | |
Nonmarketable equity securities (cost method) | Nonmarketable equity securities (cost method) | 3,584 | | | — | | | — | | | 3,646 | | | 3,646 | | Nonmarketable equity securities (cost method) | 4,900 | | | — | | | — | | | 4,961 | | | 4,961 | |
Total financial assets | Total financial assets | $ | 1,452,059 | | | 250,893 | | | 388,806 | | | 828,678 | | | 1,468,377 | | Total financial assets | $ | 1,460,085 | | | 173,219 | | | 366,551 | | | 845,195 | | | 1,384,965 | |
Financial liabilities | Financial liabilities | | Financial liabilities | |
Deposits (3) | Deposits (3) | $ | 30,012 | | | — | | | 14,401 | | | 15,601 | | | 30,002 | | Deposits (3) | $ | 66,887 | | | — | | | 46,745 | | | 18,719 | | | 65,464 | |
Short-term borrowings | Short-term borrowings | 34,409 | | | — | | | 34,409 | | | — | | | 34,409 | | Short-term borrowings | 50,964 | | | — | | | 50,970 | | | — | | | 50,970 | |
Long-term debt (4) | Long-term debt (4) | 160,660 | | | — | | | 166,682 | | | 1,402 | | | 168,084 | | Long-term debt (4) | 173,502 | | | — | | | 172,783 | | | 999 | | | 173,782 | |
Total financial liabilities | Total financial liabilities | $ | 225,081 | | | — | | | 215,492 | | | 17,003 | | | 232,495 | | Total financial liabilities | $ | 291,353 | | | — | | | 270,498 | | | 19,718 | | | 290,216 | |
(1)Amounts consist of financial instruments for which carrying value approximates fair value.
(2)Excludes lease financing with a carrying amount of $14.4$15.1 billion and $14.5$14.7 billion at SeptemberJune 30, 2022,2023, and December 31, 2021,2022, respectively.
(3)Excludes deposit liabilities with no defined or contractual maturity of $1.4$1.2 trillion and $1.5$1.3 trillion at SeptemberJune 30, 2022,2023, and December 31, 2021,2022, respectively.
(4)Excludes obligations under finance leases of $23$20 million and $26$22 million at SeptemberJune 30, 2022,2023, and December 31, 2021,2022, respectively.
| | |
Note 13: Securitizations and Variable Interest Entities |
Involvement with Variable Interest Entities (VIEs)
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. 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 consolidated balance sheet to a VIE in connection with a securitization, we typically receive cash and sometimes other interests in the VIE as proceeds for the assets we transfer. In certain transactions with VIEs, we may retain the right to service the transferred assets and repurchase 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 securitization or other VIE activities, we have various forms of ongoing involvement with VIEs, 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 in VIEs;
•acting as servicer or investment manager for VIEs;
•providing administrative or trustee services to VIEs; and
•providing seller financing to VIEs.
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 securitization pools 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. When we do not repurchase these loans, they are recorded on our consolidated balance sheet and pledged to the GNMA securitization. We repurchased loans of $99 million and $191 million, during the second quarter and first half of 2023, respectively, and $564 million and $1.5 billion during the second quarter and first half of 2022, respectively. In 2022, these predominantly represented repurchases of government insured loans. At June 30, 2023, and December 31, 2022, we recorded assets and related liabilities of $940 million and $743 million, 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, 2023, and December 31, 2022, our liability for these repurchase and recourse arrangements was $162 million and $167 million, respectively, and the maximum exposure to loss was $13.8 billion at both June 30, 2023, and December 31, 2022.
Substantially allresidential servicing activity is related to assets transferred to GSE and GNMA securitizations. See Note 6 (Mortgage Banking Activities) for additional information about residential and commercial servicing rights, advances and servicing fees.
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 and account for the transfers as sales. We also typically retain the right to service the loans and may 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. We do not consolidate the VIE because 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 may also sell whole loans to VIEs where we have continuing involvement in the form of financing. We account for these transfers as sales, and do not consolidate the VIEs as we do not have the power to direct the most significant activities of the VIEs.
Table 13.1 presents information about transfers of assets during the periods presented 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 and securities. 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. The majority of our transfers relate to
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| Wells Fargo & Company | 127115 |
| | |
Note 16: Preferred StockNote 13: Securitizations and Variable Interest Entities (continued)
|
Weresidential mortgage securitizations with the GSEs or GNMA and generally result in no gain or loss because the loans 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 undermeasured at fair value on a recurring basis. Additionally, we may transfer certain government insured loans that we previously
this authorization. If issued, preference shares would be limited to one vote per share. Table 16.1 summarizes information about our preferred stock includingrepurchased. These loans are carried at the Employee Stock Ownership Plan (ESOP) Cumulative Convertible Preferred Stock.
lower of cost or market, and we recognize gains on such transfers when the market value is greater than the carrying value of the loan when it is sold.
Table 16.1:13.1: Preferred StockTransfers with Continuing Involvement
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
(in millions, except shares) | Shares authorized and designated | | Shares issued and outstanding | | Liquidation preference value | | Carrying value | | Shares authorized and designated | | Shares issued and outstanding | | Liquidation preference value | | Carrying value |
DEP Shares | | | | | | | | | | | | | | | |
Dividend Equalization Preferred Shares (DEP) | 97,000 | | | 96,546 | | | $ | — | | | — | | | 97,000 | | | 96,546 | | | $ | — | | | — | |
Series L (1) | | | | | | | | | | | | | | | |
7.50% Non-Cumulative Perpetual Convertible Class A Preferred Stock | 4,025,000 | | | 3,967,986 | | | 3,968 | | | 3,200 | | | 4,025,000 | | | 3,967,995 | | | 3,968 | | | 3,200 | |
Series Q | | | | | | | | | | | | | | | |
5.85% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock | 69,000 | | | 69,000 | | | 1,725 | | | 1,725 | | | 69,000 | | | 69,000 | | | 1,725 | | | 1,725 | |
Series R | | | | | | | | | | | | | | | |
6.625% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock | 34,500 | | | 33,600 | | | 840 | | | 840 | | | 34,500 | | | 33,600 | | | 840 | | | 840 | |
Series S | | | | | | | | | | | | | | | |
5.90% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock | 80,000 | | | 80,000 | | | 2,000 | | | 2,000 | | | 80,000 | | | 80,000 | | | 2,000 | | | 2,000 | |
Series U | | | | | | | | | | | | | | | |
5.875% Fixed-to-Floating Non-Cumulative Perpetual Class A Preferred Stock | 80,000 | | | 80,000 | | | 2,000 | | | 2,000 | | | 80,000 | | | 80,000 | | | 2,000 | | | 2,000 | |
Series Y | | | | | | | | | | | | | | | |
5.625% Non-Cumulative Perpetual Class A Preferred Stock | 27,600 | | | 27,600 | | | 690 | | | 690 | | | 27,600 | | | 27,600 | | | 690 | | | 690 | |
Series Z | | | | | | | | | | | | | | | |
4.75% Non-Cumulative Perpetual Class A Preferred Stock | 80,500 | | | 80,500 | | | 2,013 | | | 2,013 | | | 80,500 | | | 80,500 | | | 2,013 | | | 2,013 | |
Series AA | | | | | | | | | | | | | | | |
4.70% Non-Cumulative Perpetual Class A Preferred Stock | 46,800 | | | 46,800 | | | 1,170 | | | 1,170 | | | 46,800 | | | 46,800 | | | 1,170 | | | 1,170 | |
Series BB | | | | | | | | | | | | | | | |
3.90% Fixed-Reset Non-Cumulative Perpetual Class A Preferred Stock | 140,400 | | | 140,400 | | | 3,510 | | | 3,510 | | | 140,400 | | | 140,400 | | | 3,510 | | | 3,510 | |
Series CC | | | | | | | | | | | | | | | |
4.375% Non-Cumulative Perpetual Class A Preferred Stock | 46,000 | | | 42,000 | | | 1,050 | | | 1,050 | | | 46,000 | | | 42,000 | | | 1,050 | | | 1,050 | |
Series DD | | | | | | | | | | | | | | | |
4.25% Non-Cumulative Perpetual Class A Preferred Stock | 50,000 | | | 50,000 | | | 1,250 | | | 1,250 | | | 50,000 | | | 50,000 | | | 1,250 | | | 1,250 | |
ESOP (2) | | | | | | | | | | | | | | | |
Cumulative Convertible Preferred Stock | 609,434 | | | 609,434 | | | 609 | | | 609 | | | 609,434 | | | 609,434 | | | 609 | | | 609 | |
Total | 5,386,234 | | | 5,323,866 | | | $ | 20,825 | | | 20,057 | | | 5,386,234 | | | 5,323,875 | | | $ | 20,825 | | | 20,057 | |
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| |
| 2023 | | 2022 | | |
(in millions) | Residential mortgages | | Commercial mortgages | | Residential mortgages | | Commercial mortgages | | | | |
Quarter ended June 30, | | | | | | | | | | | |
Assets sold | $ | 3,917 | | | 1,800 | | | 23,817 | | | 4,345 | | | | | |
Proceeds from transfer (1) | 3,917 | | | 1,823 | | | 23,817 | | | 4,411 | | | | | |
Net gains (losses) on sale | — | | | 23 | | | — | | | 66 | | | | | |
| | | | | | | | | | | |
Continuing involvement (2): | | | | | | | | | | | |
Servicing rights recognized | $ | 46 | | | 16 | | | 313 | | | 41 | | | | | |
Securities recognized (3) | — | | | 22 | | | 475 | | | 33 | | | | | |
| | | | | | | | | | | |
Six months ended June 30, | | | | | | | | | | | |
Assets sold | $ | 8,378 | | | 3,299 | | | 49,991 | | | 8,378 | | | | | |
Proceeds from transfer (1) | 8,378 | | | 3,363 | | | 50,043 | | | 8,508 | | | | | |
Net gains (losses) on sale | — | | | 64 | | | 52 | | | 130 | | | | | |
| | | | | | | | | | | |
Continuing involvement (2): | | | | | | | | | | | |
Servicing rights recognized | $ | 93 | | | 34 | | | 640 | | | 70 | | | | | |
Securities recognized (3) | — | | | 48 | | | 2,062 | | | 137 | | | | | |
| | | | | | | | | | | |
(1)Preferred Stock, Series L, may be convertedRepresents cash proceeds and the fair value of non-cash beneficial interests recognized 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.securitization settlement.
(2)Represents assets or liabilities recognized at securitization settlement date related to our continuing involvement in the transferred assets.
(3)Represents debt securities obtained at securitization settlement held for investment purposes that are classified as available-for-sale or held-to-maturity. In 2022, these predominantly related 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 $1.8 billion and $3.7 billion during the second quarter and first half of 2023, respectively, and $3.6 billion and $10.3 billion during the second quarter and first half of 2022, respectively.
In the normal course of business, we purchase certain
non-agency securities at initial securitization or subsequently in the secondary market, which we hold for investment. We also provide seller financing in the form of loans. We received cash flows of $91 million and $141 million during the second quarter and first half of 2023, respectively, and $168 million and $304 million, during the second quarter and first half of 2022, respectively, related to principal and interest payments on these securities and loans, which exclude cash flows related to trading activities.
Table 13.2 presents the key weighted-average assumptions we used to initially measure residential MSRs recognized during the periods presented.
Table 13.2:Residential MSRs – Assumptions at Securitization Date
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| |
| 2023 | | 2022 | | |
Quarter ended June 30, | | | | | |
Prepayment rate (1) | 16.4 | % | | 10.9 | | | |
Discount rate | 9.4 | | | 8.0 | | | |
Cost to service ($ per loan) | $ | 176 | | | 122 | | | |
Six months ended June 30, | | | | | |
Prepayment rate (1) | 17.5 | % | | 11.0 | | | |
Discount rate | 9.6 | | | 7.5 | | | |
Cost to service ($ per loan) | $ | 185 | | | 117 | | | |
(1)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.
See the “ESOP Cumulative Convertible Preferred Stock” section in this Note 12 (Fair Values of Assets and Liabilities) and
Note 6 (Mortgage Banking Activities) for additional information about the liquidation preferenceon key assumptions for the ESOP Cumulative Convertible Preferred Stock.residential MSRs.
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 resecuritization transactions, we transfer trading debt securities to 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 specific return or risk profile. Substantially all of our transactions involve the resecuritization of conforming mortgage-backed securities issued by the GSEs or guaranteed by GNMA. We do not consolidate the resecuritization VIEs as we share in the decision-making power with third parties and do not hold significant economic interests in the VIEs other than for market-making activities. During the six months ended June 30, 2023 and 2022, we transferred securities of $6.1 billion and $12.6 billion, respectively, to resecuritization VIEs, and retained securities of $329 million and $525 million, respectively. These amounts are not included in Table 13.1. Related total VIE assets were $111.1 billion and $112.0 billion at June 30, 2023, and December 31, 2022, respectively. As of June 30, 2023, and December 31, 2022, we held $1.3 billion and $793 million of securities, respectively.
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128116 | Wells Fargo & Company | |
ESOP CUMULATIVE CONVERTIBLE PREFERRED STOCK All sharesSold or Securitized Loans Serviced for Others
Table 13.3 presents information about loans that we sold or securitized in which we have ongoing involvement as servicer. Delinquent loans include loans 90 days or more past due and loans in bankruptcy, regardless of delinquency status. For loans sold or securitized where servicing is our ESOP Cumulative Convertible Preferred Stock (ESOP Preferred Stock)only form of continuing involvement, we generally experience a loss only if we were issuedrequired to repurchase 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 alsodelinquent loan or foreclosed asset due
convertibleto a breach in representations and warranties associated with our loan sale or servicing contracts. Table 13.3 excludes mortgage loans sold to and held or securitized by GSEs or GNMA of $637.0 billion and $704.5 billion at June 30, 2023, and December 31, 2022, respectively. Delinquent loans and foreclosed assets related to loans sold to and held or securitized by GSEs or GNMA were $3.4 billion and $4.6 billion at June 30, 2023, and December 31, 2022, respectively.
Table 13.3:Sold or Securitized Loans Serviced for Others
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| Total loans | | Delinquent loans and foreclosed assets (1) | | Six months ended June 30, |
(in millions) | Jun 30, 2023 | | Dec 31, 2022 | | Jun 30, 2023 | | Dec 31, 2022 | | 2023 | | 2022 |
Commercial | $ | 66,082 | | | 67,029 | | | 849 | | | 912 | | | 67 | | | 22 | |
Residential | 8,789 | | | 9,201 | | | 433 | | | 501 | | | 8 | | | 7 | |
Total off-balance sheet sold or securitized loans | $ | 74,871 | | | 76,230 | | | 1,282 | | | 1,413 | | | 75 | | | 29 | |
(1)Includes $213 million and $274 million of commercial foreclosed assets and $28 million and $25 million of residential foreclosed assets at June 30, 2023, and December 31, 2022, respectively.
Transactions with Unconsolidated VIEs
MORTGAGE LOAN SECURITIZATIONS Table 13.4 includes nonconforming mortgage loan securitizations where we originate and transfer the optionloans 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 13.4 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 holder at any time, unless previously redeemed. We haveguarantees provided by the option to redeemGSEs and the ESOP Preferred Stock at any time, in whole or in part, at a redemption price per share equal toFHA and VA, our credit risk associated with these VIEs is limited. For additional information about conforming mortgage loan securitizations and resecuritizations, see the higher of (a) $1,000 per share plus accrued“Loan Sales and unpaid dividends or (b) the fair market value, as defined in the Certificates of Designation for the ESOP Preferred Stock.
In October 2022, we redeemed all outstanding shares of our ESOP Preferred Stock in exchange for shares of the Company’s common stock. The redemption price was based on a fair market value of $618 million.
Securitization Activity” and “Resecuritization Activities” sections within this Note.
Table 16.2:COMMERCIAL REAL ESTATE LOANS We may transfer purchased industrial development bonds and GSE credit enhancements to VIEs in exchange for beneficial interests. We may also acquire such beneficial interests in transactions where we do not act as a transferor. We own all of the beneficial interests and may also service the underlying mortgages that serve as collateral to the bonds. The GSEs have the power to direct the servicing and workout activities of the VIE in the event of a default, therefore we do not have control over the key decisions of the VIEs.
OTHER VIE STRUCTURES ESOP Preferred StockWe engage in various forms of structured finance arrangements with other VIEs, including asset-backed finance structures and other securitizations collateralized by asset classes other than mortgages. Collateral may include rental properties, asset-backed securities, student loans and mortgage 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.
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| Shares issued and outstanding | | Carrying value | | Adjustable dividend rate |
(in millions, except shares) | Sep 30, 2022 | | Dec 31, 2021 | | Sep 30, 2022 | | Dec 31, 2021 | | Minimum | | Maximum |
ESOP Preferred Stock | | | | | | | | | | | |
$1,000 liquidation preference per share | | | | | | | | | | | |
2018 | 189,225 | | | 189,225 | | | $ | 189 | | | 189 | | | 7.00 | % | | 8.00 | % |
2017 | 135,135 | | | 135,135 | | | 135 | | | 135 | | | 7.00 | | | 8.00 | |
2016 | 128,380 | | | 128,380 | | | 128 | | | 128 | | | 9.30 | | | 10.30 | |
2015 | 68,106 | | | 68,106 | | | 68 | | | 68 | | | 8.90 | | | 9.90 | |
2014 | 62,420 | | | 62,420 | | | 63 | | | 63 | | | 8.70 | | | 9.70 | |
2013 | 26,168 | | | 26,168 | | | 26 | | | 26 | | | 8.50 | | | 9.50 | |
Total ESOP Preferred Stock (1) | 609,434 | | | 609,434 | | | $ | 609 | | | 609 | | | | | |
Unearned ESOP shares (2) | | | | | $ | (646) | | | (646) | | | | | |
Table 13.4 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.(1)At both September 30, 2022, and December 31, 2021, additional paid-in capital included $37 millionIn Table 13.4, “Total VIE assets” represents the remaining principal balance of assets held by unconsolidated VIEs using the most current information available. “Carrying value” is the amount in our consolidated balance sheet related to ESOP Preferred Stock.
(2)We recorded a corresponding charge to unearned ESOP shares in connectionour involvement with the issuanceunconsolidated VIEs. “Maximum exposure to loss” is determined as the carrying value of our investment in the ESOP Preferred Stock. The unearned ESOP shares are reducedVIEs 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 lending arrangements, liquidity agreements, and certain loss sharing obligations associated with loans originated, sold, and serviced under certain GSE programs.
“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 shareswhere the value of the ESOP Preferred Stock are committedour interests and any associated collateral declines to be released.zero, without any consideration of recovery or offset from any economic hedges. Accordingly, this disclosure is not an indication of expected loss.
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| Wells Fargo & Company | 129117 |
Note 13: Securitizations and Variable Interest Entities (continued)
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Note 17:Table 13.4: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, 2023 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Nonconforming mortgage loan securitizations | $ | 152,727 | | | — | | | 2,424 | | | — | | | 604 | | | (12) | | | 3,016 | | Commercial real estate loans | 5,606 | | | 5,590 | | | — | | | — | | | 16 | | | — | | | 5,606 | | Other | 2,063 | | | 256 | | | — | | | 45 | | | 17 | | | — | | | 318 | | Total | $ | 160,396 | | | 5,846 | | | 2,424 | | | 45 | | | 637 | | | (12) | | | 8,940 | | | | | 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 | | | $ | — | | | 2,424 | | | — | | | 604 | | | 12 | | | 3,040 | | Commercial real estate loans | | | 5,590 | | | — | | | — | | | 16 | | | 702 | | | 6,308 | | Other | | | 256 | | | — | | | 45 | | | 17 | | | 229 | | | 547 | | Total | | | $ | 5,846 | | | 2,424 | | | 45 | | | 637 | | | 943 | | | 9,895 | | | | | 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, 2022 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Nonconforming mortgage loan securitizations | $ | 154,464 | | | — | | | 2,420 | | | — | | | 617 | | | (13) | | | 3,024 | | Commercial real estate loans | 5,627 | | | 5,611 | | | — | | | — | | | 16 | | | — | | | 5,627 | | Other | 2,174 | | | 292 | | | 1 | | | 43 | | | 21 | | | — | | | 357 | | Total | $ | 162,265 | | | 5,903 | | | 2,421 | | | 43 | | | 654 | | | (13) | | | 9,008 | | | | | 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 | | | $ | — | | | 2,420 | | | — | | | 617 | | | 13 | | | 3,050 | | Commercial real estate loans | | | 5,611 | | | — | | | — | | | 16 | | | 705 | | | 6,332 | | Other | | | 292 | | | 1 | | | 43 | | | 21 | | | 228 | | | 585 | | Total | | | $ | 5,903 | | | 2,421 | | | 43 | | | 654 | | | 946 | | | 9,967 | |
(1)Includes $170 million and $172 million of securities classified as trading at June 30, 2023, and December 31, 2022, respectively. (2)All other assets includes mortgage servicing rights, derivative assets, and other assets (predominantly servicing advances). Revenue from Contracts with Customers |
INVOLVEMENT WITH TAX CREDIT VIES In addition to the unconsolidated VIEs in Table 13.4, we may invest in or provide funding to affordable housing, renewable energy or similar projects that are designed to generate a return primarily through the realization of federal tax credits and other tax benefits. The projects are typically managed by third-party sponsors who have the power over the VIE’s assets, therefore, we do not consolidate the VIEs. The carrying value of our equity investments in tax credit VIEs was $19.0 billion and $18.7 billion at June 30, 2023, and December 31, 2022, respectively. We also had loans to tax credit VIEs with a carrying value of $2.0 billion at both June 30, 2023, and December 31, 2022.
Our revenue includes net interest income on financial instrumentsmaximum exposure to loss for tax credit VIEs at June 30, 2023, and noninterest income. Table 17.1 presents our revenue by operating segment.December 31, 2022, was $29.7 billion and $28.0 billion, respectively. Our maximum exposure to loss included total unfunded equity and lending commitments of $8.8 billion and $7.3 billion at June 30, 2023, and December 31, 2022, respectively. See Note 14 (Guarantees and Other Commitments) for additional information about commitments to purchase equity securities.
Our affordable housing equity investments qualify for the low-income housing tax credit (LIHTC). For additional description ofinformation on our LIHTC investments, see Note 16 (Securitizations and Variable Interest Entities) in our 2022 Form 10-K.
operating segments, including additional financial information
Consolidated 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 may securitize dealer floor plan loans in a revolving master trust entity. 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 13.5. In a separate transaction structure, we may provide the majority of debt and equity financing to an SPE that engages in lending and leasing to specific vendors and service the underlying management accounting process, see
Note 22 (Operating Segments). For a description of our revenue from contracts with customers, see Note 20 (Revenue from Contracts with Customers) in our 2021 Form 10-K.
collateral.Table 17.1:
OTHER VIE STRUCTURES RevenueOther VIEs are predominantly related to municipal tender option bond (MTOB) transactions. MTOBs are vehicles to finance the purchase of municipal bonds through the issuance of short-term debt to investors. Our involvement with MTOBs 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 may also securitize nonconforming mortgage loans, in which our involvement includes servicer of the underlying assets and holder of subordinate or senior securities issued by Operating Segmentthe VIE. During second quarter 2022, we purchased the outstanding mortgage loans from the VIEs and extinguished the related debt associated with such securitizations.
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(in millions) | Consumer Banking and Lending | | Commercial Banking | | Corporate and Investment Banking | | Wealth and Investment Management | | Corporate | | Reconciling Items (1) | | Consolidated Company |
Quarter ended September 30, 2022 |
Net interest income (2) | $ | 7,102 | | | 1,991 | | | 2,270 | | | 1,088 | | | (248) | | | (105) | | | 12,098 | |
Noninterest income: | | | | | | | | | | | | | |
Deposit-related fees | 773 | | | 256 | | | 255 | | | 5 | | | — | | | — | | | 1,289 | |
Lending-related fees (2) | 32 | | | 126 | | | 198 | | | 2 | | | — | | | — | | | 358 | |
Investment advisory and other asset-based fees (3) | — | | | 13 | | | 32 | | | 2,066 | | | — | | | — | | | 2,111 | |
Commissions and brokerage services fees | — | | | — | | | 76 | | | 486 | | | — | | | — | | | 562 | |
Investment banking fees | — | | | 14 | | | 392 | | | — | | | (31) | | | — | | | 375 | |
Card fees: | | | | | | | | | | | | | |
Card interchange and network revenue (4) | 915 | | | 60 | | | 15 | | | 1 | | | — | | | — | | | 991 | |
Other card fees (2) | 128 | | | — | | | — | | | — | | | — | | | — | | | 128 | |
Total card fees | 1,043 | | | 60 | | | 15 | | | 1 | | | — | | | — | | | 1,119 | |
Mortgage banking (2) | 212 | | | — | | | 115 | | | (3) | | | — | | | — | | | 324 | |
Net gains (losses) from trading activities (2) | — | | | (4) | | | 674 | | | 16 | | | 214 | | | — | | | 900 | |
Net gains from debt securities (2) | — | | | — | | | — | | | — | | | 6 | | | — | | | 6 | |
Net gains (losses) from equity securities (2) | 12 | | | 85 | | | (2) | | | (1) | | | (128) | | | — | | | (34) | |
Lease income (2) | — | | | 176 | | | 1 | | | — | | | 145 | | | — | | | 322 | |
Other (2) | 103 | | | 235 | | | 34 | | | 5 | | | 78 | | | (380) | | | 75 | |
Total noninterest income | 2,175 | | | 961 | | | 1,790 | | | 2,577 | | | 284 | | | (380) | | | 7,407 | |
Total revenue | $ | 9,277 | | | 2,952 | | | 4,060 | | | 3,665 | | | 36 | | | (485) | | | 19,505 | |
Quarter ended September 30, 2021 |
Net interest income (2) | $ | 5,707 | | | 1,231 | | | 1,866 | | | 637 | | | (427) | | | (105) | | | 8,909 | |
Noninterest income: | | | | | | | | | | | | | |
Deposit-related fees | 799 | | | 323 | | | 286 | | | 7 | | | 1 | | | — | | | 1,416 | |
Lending-related fees (2) | 35 | | | 132 | | | 196 | | | 2 | | | — | | | — | | | 365 | |
Investment advisory and other asset-based fees (3) | — | | | 1 | | | 9 | | | 2,457 | | | 415 | | | — | | | 2,882 | |
Commissions and brokerage services fees | — | | | — | | | 67 | | | 458 | | | — | | | — | | | 525 | |
Investment banking fees | (1) | | | 16 | | | 536 | | | 4 | | | (8) | | | — | | | 547 | |
Card fees: | | | | | | | | | | | | | |
Card interchange and network revenue (4) | 878 | | | 51 | | | 12 | | | 1 | | | — | | | — | | | 942 | |
Other card fees (2) | 136 | | | — | | | — | | | — | | | — | | | — | | | 136 | |
Total card fees | 1,014 | | | 51 | | | 12 | | | 1 | | | — | | | — | | | 1,078 | |
Mortgage banking (2) | 1,168 | | | — | | | 94 | | | (3) | | | — | | | — | | | 1,259 | |
Net gains (losses) from trading activities (2) | (1) | | | (1) | | | 85 | | | 4 | | | 5 | | | — | | | 92 | |
Net gains from debt securities (2) | — | | | 44 | | | — | | | — | | | 239 | | | — | | | 283 | |
Net gains (losses) from equity securities (2) | (2) | | | (40) | | | 100 | | | 37 | | | 774 | | | — | | | 869 | |
Lease income (2) | — | | | 165 | | | — | | | — | | | 157 | | | — | | | 322 | |
Other (2) | 85 | | | 154 | | | 134 | | | 14 | | | 169 | | | (269) | | | 287 | |
Total noninterest income | 3,097 | | | 845 | | | 1,519 | | | 2,981 | | | 1,752 | | | (269) | | | 9,925 | |
Total revenue | $ | 8,804 | | | 2,076 | | | 3,385 | | | 3,618 | | | 1,325 | | | (374) | | | 18,834 | |
Nine months ended September 30, 2022 |
Net interest income (2) | $ | 19,470 | | | 4,932 | | | 6,317 | | | 2,803 | | | (1,685) | | | (320) | | | 31,517 | |
Noninterest income: | | | | | | | | | | | | | |
Deposit-related fees | 2,397 | | | 894 | | | 828 | | | 19 | | | — | | | — | | | 4,138 | |
Lending-related fees (2) | 100 | | | 369 | | | 578 | | | 6 | | | — | | | — | | | 1,053 | |
Investment advisory and other asset-based fees (3) | — | | | 25 | | | 74 | | | 6,848 | | | 8 | | | — | | | 6,955 | |
Commissions and brokerage services fees | — | | | — | | | 242 | | | 1,399 | | | — | | | — | | | 1,641 | |
Investment banking fees | (3) | | | 44 | | | 1,161 | | | — | | | (94) | | | — | | | 1,108 | |
Card fees: | | | | | | | | | | | | | |
Card interchange and network revenue (4) | 2,669 | | | 171 | | | 44 | | | 3 | | | — | | | — | | | 2,887 | |
Other card fees (2) | 373 | | | — | | | — | | | — | | | — | | | — | | | 373 | |
Total card fees | 3,042 | | | 171 | | | 44 | | | 3 | | | — | | | — | | | 3,260 | |
Mortgage banking (2) | 1,077 | | | — | | | 236 | | | (9) | | | — | | | — | | | 1,304 | |
Net gains (losses) from trading activities (2) | — | | | (4) | | | 1,280 | | | 28 | | | 260 | | | — | | | 1,564 | |
Net gains from debt securities (2) | — | | | 5 | | | — | | | — | | | 146 | | | — | | | 151 | |
Net gains (losses) from equity securities (2) | (5) | | | 104 | | | (9) | | | (2) | | | (161) | | | — | | | (73) | |
Lease income (2) | — | | | 534 | | | 14 | | | — | | | 434 | | | — | | | 982 | |
Other (2) | 269 | | | 697 | | | 338 | | | 32 | | | 383 | | | (1,194) | | | 525 | |
Total noninterest income | 6,877 | | | 2,839 | | | 4,786 | | | 8,324 | | | 976 | | | (1,194) | | | 22,608 | |
Total revenue | $ | 26,347 | | | 7,771 | | | 11,103 | | | 11,127 | | | (709) | | | (1,514) | | | 54,125 | |
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130118 | Wells Fargo & Company | |
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(in millions) | Consumer Banking and Lending | | Commercial Banking | | Corporate and Investment Banking | | Wealth and Investment Management | | Corporate | | Reconciling Items (1) | | Consolidated Company |
Nine months ended September 30, 2021 |
Net interest income (2) | $ | 16,940 | | | 3,687 | | | 5,428 | | | 1,904 | | | (1,121) | | | (321) | | | 26,517 | |
Noninterest income: | | | | | | | | | | | | | |
Deposit-related fees | 2,192 | | | 965 | | | 829 | | | 21 | | | 6 | | | — | | | 4,013 | |
Lending-related fees (2) | 111 | | | 403 | | | 569 | | | 6 | | | (1) | | | — | | | 1,088 | |
Investment advisory and other asset-based fees (3) | — | | | 8 | | | 43 | | | 7,145 | | | 1,236 | | | — | | | 8,432 | |
Commissions and brokerage services fees | — | | | — | | | 216 | | | 1,526 | | | (1) | | | — | | | 1,741 | |
Investment banking fees | (9) | | | 38 | | | 1,727 | | | 2 | | | (73) | | | — | | | 1,685 | |
Card fees: | | | | | | | | | | | | | |
Card interchange and network revenue (4) | 2,552 | | | 145 | | | 33 | | | 3 | | | — | | | — | | | 2,733 | |
Other card fees (2) | 371 | | | — | | | — | | | — | | | — | | | — | | | 371 | |
Total card fees | 2,923 | | | 145 | | | 33 | | | 3 | | | — | | | — | | | 3,104 | |
Mortgage banking (2) | 3,585 | | | — | | | 345 | | | (9) | | | — | | | — | | | 3,921 | |
Net gains (losses) from trading activities (2) | — | | | — | | | 446 | | | 16 | | | (1) | | | — | | | 461 | |
Net gains from debt securities (2) | — | | | 44 | | | — | | | — | | | 390 | | | — | | | 434 | |
Net gains from equity securities (2) | 32 | | | 5 | | | 221 | | | 43 | | | 3,656 | | | — | | | 3,957 | |
Lease income (2) | — | | | 512 | | | 1 | | | — | | | 437 | | | — | | | 950 | |
Other (2) | 370 | | | 458 | | | 469 | | | 41 | | | 847 | | | (852) | | | 1,333 | |
Total noninterest income | 9,204 | | | 2,578 | | | 4,899 | | | 8,794 | | | 6,496 | | | (852) | | | 31,119 | |
Total revenue | $ | 26,144 | | | 6,265 | | | 10,327 | | | 10,698 | | | 5,375 | | | (1,173) | | | 57,636 | |
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(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 toTable 13.5 presents a summary of financial assets and liabilities including loans, leases, securitiesof our consolidated VIEs. The carrying value represents assets and derivatives,liabilities recorded on our consolidated balance sheet. “Total VIE assets” includes affiliate balances that are eliminated upon consolidation, and therefore in some instances will differ from the carrying value of assets.
On our 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, and (2) the consolidated liabilities of certain VIEs for which the VIE creditors do not have recourse to Wells Fargo.
Table 13.5:Transactions with additional detailsConsolidated VIEs
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Carrying value – asset (liability) |
(in millions) | Total VIE assets | | Loans | | Debt securities | | All other assets (1) | | | | Liabilities (2) |
June 30, 2023 | | | | | | | | | | | |
Commercial and industrial loans and leases | $ | 7,345 | | | 4,947 | | | — | | | 204 | | | | | (136) | |
Other | 72 | | | — | | | 71 | | | 1 | | | | | (72) | |
Total consolidated VIEs | $ | 7,417 | | | 4,947 | | | 71 | | | 205 | | | | | (208) | |
December 31, 2022 | | | | | | | | | | | |
Commercial and industrial loans and leases | $ | 7,148 | | | 4,802 | | | — | | | 190 | | | | | (129) | |
Other | 72 | | | — | | | 71 | | | 1 | | | | | (72) | |
Total consolidated VIEs | $ | 7,220 | | | 4,802 | | | 71 | | | 191 | | | | | (201) | |
(1)All other assets includes cash and due from banks, and other assets.
(2)Liabilities include short-term borrowings, and accrued expenses and other liabilities.
Other Transactions
In addition to the transactions included in other footnotesthe 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. On our financial statements.
(3)We earned trailing commissionsconsolidated balance sheet, we reported the debt securities issued to the VIEs as long-term junior subordinated debt with a carrying value of $231$407 million and $747$401 million for the third quarterat June 30, 2023, and first nine months ofDecember 31, 2022, respectively, and $297 million and $895 million for the third quarter and first nine months of 2021, respectively.
(4)The cost of credit card rewards and rebates of $577 million and $1.6 billion for the third quarter and first nine months of 2022, respectively, and $416 million and $1.1 billion for the third quarter and first nine months of 2021, respectively, are presented net against the related revenues.
| | | | | | | | |
| Wells Fargo & Company | 131119 |
| | |
Note 18:14: Employee BenefitsGuarantees and ExpensesOther Commitments |
Pension and Postretirement Plans
We sponsorGuarantees are contracts that contingently require us to make payments to a frozen noncontributory qualified defined benefit retirement plan, the Wells Fargo & Company Cash Balance Plan (Cash Balance Plan), which covers eligible employees of Wells Fargo. The Cash Balance Plan was frozen on July 1, 2009, and no new benefits accrue after that date. For additional information on our pension and postretirement plans, including plan assumptions, investment strategy and asset allocation, projected benefit payments, and valuation methodologies used for assets measured at fair value, see Note 1 (Summary of Significant Accounting Policies) and Note 21 (Employee Benefits and Other Expenses) in our 2021 Form 10-K.
We recognize settlement losses for our Cash Balance Planguaranteed party based on an assessment of whether lump sum benefit payments will,event or a change in aggregate for the year, exceed the sum of its annual service and interest cost (threshold). Settlement losses of $48 million and $151 million were recognized during the third quarter and first nine months of 2022, respectively, compared with $35 million and $97 million, respectively, for the same periods a year ago, representing the pro rata portion of the net loss in AOCI based on the percentage reduction in the Cash Balance Plan’s projected benefit obligation attributable to lump sum benefit payments during the first nine months of 2022 andan underlying asset, liability, rate or index. For additional
2021. As a resultdescriptions of the settlement losses, we remeasured the Cash Balance Plan obligationour guarantees, see Note 17 (Guarantees and plan assets as of both September 30,Other Commitments) in our 2022 Form 10-K. Table 14.1 shows carrying value and 2021, and used a discount rate of 5.44% and 2.80%, respectively. In the third quarter and first nine months of 2022, respectively, the result of the settlement losses and remeasurements was:
•a decrease of $143 million and $253 million in the Cash Balance Plan asset; and
•a decrease of $95 million and $102 million in OCI (pre-tax).
In the third quarter and first nine months of 2021, the result of the settlement losses and remeasurement was:
•a decrease of $224 million and increase of $123 million in the Cash Balance Plan asset; and
•a decrease of $189 million and increase of $220 million in OCI (pre-tax).
Table 18.1 presents the components of net periodic benefit cost. The expected long-term rate of returnmaximum exposure to loss on plan assets and interest cost discount rate in determining net periodic benefit cost for third quarter 2022 were 5.34% and 4.48%, respectively. 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.our guarantees.
Table 18.1:14.1: Net Periodic Benefit CostGuarantees – Carrying Value and Maximum Exposure to Loss
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | |
| Pension benefits | | | | Pension benefits | | | | | | |
(in millions) | Qualified | | Non- qualified | | Other benefits | | Qualified | | Non- qualified | | Other benefits | | | | | | |
Quarter ended September 30, | | | | | | | | | | | | | | | | | |
Service cost | $ | 5 | | | — | | | — | | | 4 | | | — | | | — | | | | | | | |
Interest cost | 95 | | | 3 | | | 1 | | | 77 | | | 3 | | | 2 | | | | | | | |
Expected return on plan assets | (119) | | | — | | | (5) | | | (150) | | | — | | | (5) | | | | | | | |
Amortization of net actuarial loss (gain) | 34 | | | 3 | | | (6) | | | 31 | | | 4 | | | (5) | | | | | | | |
Amortization of prior service credit | — | | | — | | | (2) | | | — | | | — | | | (2) | | | | | | | |
Settlement loss | 48 | | | — | | | — | | | 35 | | | — | | | — | | | | | | | |
Net periodic benefit cost | $ | 63 | | | 6 | | | (12) | | | (3) | | | 7 | | | (10) | | | | | | | |
Nine months ended September 30, | | | | | | | | | | | | | | | | | |
Service cost | $ | 15 | | | — | | | — | | | 13 | | | — | | | — | | | | | | | |
Interest cost | 244 | | | 8 | | | 6 | | | 219 | | | 9 | | | 8 | | | | | | | |
Expected return on plan assets | (384) | | | — | | | (16) | | | (456) | | | — | | | (14) | | | | | | | |
Amortization of net actuarial loss (gain) | 100 | | | 9 | | | (17) | | | 106 | | | 11 | | | (15) | | | | | | | |
Amortization of prior service credit | — | | | — | | | (7) | | | — | | | — | | | (7) | | | | | | | |
Settlement loss | 157 | | | 1 | | | — | | | 97 | | | 2 | | | — | | | | | | | |
Net periodic benefit cost | $ | 132 | | | 18 | | | (34) | | | (21) | | | 22 | | | (28) | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Maximum exposure to loss |
(in millions) | Carrying value of obligation | | Expires in one year or less | | Expires after one year through three years | | Expires after three years through five years | | Expires after five years | | Total | | Non-investment grade |
June 30, 2023 | | | | | | | | | | | | | |
Standby letters of credit (1) | $ | 92 | | | 14,223 | | | 4,480 | | | 3,550 | | | 12 | | | 22,265 | | | 7,528 | |
Direct pay letters of credit (1) | 11 | | | 1,137 | | | 2,855 | | | 407 | | | 5 | | | 4,404 | | | 1,122 | |
Loans and LHFS sold with recourse (2) | 20 | | | 361 | | | 2,112 | | | 3,121 | | | 8,351 | | | 13,945 | | | 11,112 | |
Exchange and clearing house guarantees | — | | | 6,204 | | | — | | | — | | | — | | | 6,204 | | | — | |
Other guarantees and indemnifications (3) | — | | | 515 | | | — | | | 9 | | | 216 | | | 740 | | | 469 | |
Total guarantees | $ | 123 | | | 22,440 | | | 9,447 | | | 7,087 | | | 8,584 | | | 47,558 | | | 20,231 | |
December 31, 2022 | | | | | | | | | | | | | |
Standby letters of credit (1) | $ | 112 | | | 14,014 | | | 4,694 | | | 3,058 | | | 53 | | | 21,819 | | | 7,071 | |
Direct pay letters of credit (1) | 13 | | | 1,593 | | | 2,734 | | | 465 | | | 5 | | | 4,797 | | | 1,283 | |
Loans and LHFS sold with recourse (2) | 16 | | | 322 | | | 1,078 | | | 3,408 | | | 8,906 | | | 13,714 | | | 11,399 | |
Exchange and clearing house guarantees | — | | | 4,623 | | | — | | | — | | | — | | | 4,623 | | | — | |
Other guarantees and indemnifications (3) | — | | | 548 | | | 1 | | | 10 | | | 201 | | | 760 | | | 515 | |
Total guarantees | $ | 141 | | | 21,100 | | | 8,507 | | | 6,941 | | | 9,165 | | | 45,713 | | | 20,268 | |
(1)Standby and direct pay letters of credit are reported net of syndications and participations.
(2)Represents recourse provided, predominantly to the GSEs, on loans sold under various programs and arrangements.
(3)Includes indemnifications provided to certain third-party clearing agents. Estimated maximum exposure to loss was $172 million and $157 million with related collateral of $1.7 billion and $1.3 billion as of June 30, 2023, and December 31, 2022, respectively.
ExpensesMaximum 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
Regulatory ChargesTable 14.1 do not reflect economic hedges or collateral we could use to offset or recover losses we may incur under our guarantee agreements. Accordingly, these amounts are not an indication of expected loss. We believe the carrying value is more representative of our current exposure to loss than maximum exposure to loss. The carrying value represents the fair value of the guarantee, if any, and Assessments expense,also includes an ACL for guarantees, if applicable. In determining the ACL for guarantees, we consider the credit risk of the related contingent obligation.
For our guarantees in Table 14.1, non-investment grade represents those guarantees on which we have a higher risk of performance under the terms of the guarantee, which is included in other noninterest expense,determined based on an external rating or an internal credit grade that is below investment grade.
WRITTEN OPTIONS We enter into written foreign currency options and over-the-counter written equity put options that are derivative contracts that have the characteristics of a guarantee. The fair value of written options represents our view of the probability that we will be required to perform under the contract. The fair value of these written options was $207an asset of $449 million and $640a liability of $15 million at June 30, 2023, and December 31, 2022, respectively. The fair value may be an asset as a result of deferred premiums on certain option trades. The maximum exposure to loss represents the notional value of these derivative contracts. At June 30, 2023, the maximum exposure to loss was $31.8 billion, with $29.3 billion expiring in the third quarter and first nine months of 2022, respectively,three years or less compared with $213 million$23.4 billion and $622 million in the same periods a year ago, and primarily consisted of Federal Deposit Insurance Corporation (FDIC) deposit assessment expense.$21.3 billion,
respectively, at December 31, 2022. See Note 11 (Derivatives) for additional information regarding written derivative contracts.
REPRESENTATIONS OR WARRANTIES We may incur expenses relatedrecord a liability for mortgage loans that we expect to a variety of loss contingencies, such as customer remediation activities. We establish an accrued liability when a loss event is probable and the amount of the loss can be reasonably estimated. In third quarter 2022, we recognized $2.0 billion of accruals primarily relatedrepurchase pursuant to a variety of historical matters, including litigation, customer remediation, and regulatory matters, which were included in operating losses.various representations or warranties. See Note 13 (Legal Actions)(Securitizations and Variable Interest Entities) for additional information on accrualsfurther discussion and related amounts. Additionally, when we sell MSRs, we may provide indemnifications for legal actions.losses incurred due to material breaches of contractual representations or warranties as well as other recourse arrangements. At June 30, 2023, our liability for these indemnification arrangements was $8 million and the maximum exposure to loss was $650 million, with $609 million expiring in three years or less.
MERCHANT PROCESSING SERVICES We provide debit and credit card transaction processing services through 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 in connection with payment and delivery disputes between the merchant and the cardholder that are resolved in favor of the cardholder, referred to as a charge-back transaction. We estimate our potential maximum exposure to be the total merchant transaction volume processed in the preceding four months, which is generally the lifecycle for a charge-back transaction. As of June 30, 2023, our potential maximum exposure was approximately $789.5 billion, and related losses, including those from our joint venture entity, were insignificant.
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132120 | Wells Fargo & Company | |
| | |
Note 19: Restructuring Charges
|
GUARANTEES OF SUBSIDIARIES The Company began pursuing various initiatives to reduce expensesParent fully and create a more efficientunconditionally guarantees the payment of principal, interest, and streamlined organization in third quarter 2020. Actions from these initiatives included (i) reorganizingany 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 $847 million and simplifying business processes$948 million at June 30, 2023, 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. SubstantiallyDecember 31, 2022, respectively. These guarantees rank on parity with all of the restructuring charges were personnel expenses related to severance costs associated with headcount reductions with
payments made over time in accordance with our severance plan, as well as payments forParent’s other employee benefit costs such as incentive compensation.
Restructuring charges are recorded as a component of noninterest expense on our consolidated statement of income. Changes in estimates represent adjustments to noninterest expense based on refinements to previously estimated amounts, which may reflect trends such as higher voluntary employee attrition, as well as changes in business activities.
Table 19.1 provides details on our restructuring charges.
Table 19.1:unsecured and unsubordinated indebtedness.Accruals for Restructuring Charges
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended September 30, | | Nine months ended September 30, | | |
(in millions) | 2022 | | 2021 | | 2022 | | 2021 | | |
Balance, beginning of period | $ | 375 | | | 804 | | | $ | 565 | | | 1,214 | | | |
Restructuring charges | — | | | 244 | | | — | | | 547 | | | |
Changes in estimates | — | | | (243) | | | 5 | | | (537) | | | |
Payments and utilization | (108) | | | (149) | | | (303) | | | (568) | | | |
Balance, end of period | $ | 267 | | | 656 | | | $ | 267 | | | 656 | | | |
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, 2023, and December 31, 2022, we had commitments to purchase debt securities of $100 million and commitments to purchase equity securities of $5.0 billion and $3.8 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 Table 14.1 in Other guarantees and indemnifications.
We have commitments to enter into resale and securities borrowing agreements as well as repurchase and securities lending agreements with certain counterparties, including central clearing organizations. The amount of our unfunded contractual commitments for resale and securities borrowing agreements was $16.6 billion and $19.9 billion as of June 30, 2023, and December 31, 2022, respectively. The amount of our unfunded contractual commitments for repurchase and securities lending agreements was $2.4 billion and $1.6 billion as of June 30, 2023, and December 31, 2022, respectively.
Given the nature of these commitments, they are excluded from Table 5.4 (Unfunded Credit Commitments) in Note 5 (Loans and Related Allowance for Credit Losses).
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| Wells Fargo & Company | 133121 |
| | |
Note 20:15: EarningsPledged Assets and Dividends Per Common ShareCollateral |
Pledged Assets
Table 20.1 shows earnings per common share15.1 provides the carrying amount of on-balance sheet pledged assets as well as the fair value of other pledged collateral not recognized on our consolidated balance sheet, which we have received from third parties, have the right to repledge and diluted earnings per common share and reconciles the numerator and denominator of both earnings per common share calculations.
have repledged. These amounts include assets pledged in transactions accounted for as secured borrowings, which are presented parenthetically on our consolidated balance sheet.
Table 20.1:TRADING RELATED ACTIVITY Earnings Per Common Share CalculationsOur 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 is eligible to be repledged or sold by the secured party. | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Quarter ended September 30, | | Nine months ended September 30, |
(in millions, except per share amounts) | 2022 | | 2021 | | 2022 | | 2021 | | |
Wells Fargo net income | $ | 3,528 | | | 5,122 | | | $ | 10,318 | | | 15,798 | | | |
Less: Preferred stock dividends and other (1) | 278 | | | 335 | | | 836 | | | 1,012 | | | |
Wells Fargo net income applicable to common stock (numerator) | $ | 3,250 | | | 4,787 | | | $ | 9,482 | | | 14,786 | | | |
Earnings per common share | | | | | | | | | |
Average common shares outstanding (denominator) | 3,796.5 | | | 4,056.3 | | | 3,807.0 | | | 4,107.1 | | | |
Per share | $ | 0.86 | | | 1.18 | | | $ | 2.49 | | | 3.60 | | | |
Diluted earnings per common share | | | | | | | | | |
Average common shares outstanding | 3,796.5 | | | 4,056.3 | | | 3,807.0 | | | 4,107.1 | | | |
| | | | | | | | | | |
Add: | Restricted share rights (2) | 28.6 | | | 34.1 | | | 31.5 | | | 32.9 | | | |
Diluted average common shares outstanding (denominator) | 3,825.1 | | | 4,090.4 | | | 3,838.5 | | | 4,140.0 | | | |
Per share | $ | 0.85 | | | 1.17 | | | $ | 2.47 | | | 3.57 | | | |
(1)NON-TRADING RELATED ACTIVITYThe quarter ended September 30, 2021, balance includes $38 million, 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 Federal Home Loan Banks (FHLBs) and the nine months ended September 30, 2021, balance includes $86 million fromBoard of Governors of the eliminationFederal Reserve System (FRB) and for other purposes as required or permitted by law or insurance statutory requirements. Substantially all of discountsthe non-trading activity pledged collateral is not eligible to be repledged or issuance costs associated with redemptions of preferred stock.sold by the secured party.
(2)Calculated using the treasury stock method.
Table 20.2 presentsVIE 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 outstanding securitiesliabilities of those entities.
We also have loans recorded on our consolidated balance sheet which represent certain delinquent loans that were anti-dilutiveare eligible for repurchase from GNMA loan securitizations. See Note 13 (Securitizations and therefore not included in the calculation of diluted earnings per common share.Variable Interest Entities) for additional information on consolidated VIE assets.
Table 20.2:15.1: Outstanding Anti-Dilutive SecuritiesPledged Assets
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Weighted-average shares |
| Quarter ended September 30, | | Nine months ended September 30, |
(in millions) | 2022 | | 2021 | | 2022 | | 2021 | | |
Convertible Preferred Stock, Series L (1) | 25.3 | | | 25.3 | | | 25.3 | | | 25.3 | | | |
Restricted share rights (2) | 0.3 | | | — | | | 0.2 | | | 0.4 | | | |
| | | | | | | | | |
(1) Calculated using the if-converted method.
(2) Calculated using the treasury stock method. | | | | | | | | | | | |
(in millions) | Jun 30, 2023 | | Dec 31, 2022 |
Related to trading activities: | | | |
Off-balance sheet repledged third-party owned debt and equity securities | $ | 56,044 | | | 38,191 | |
Trading debt securities and other | 51,534 | | | 28,284 | |
Equity securities | 1,996 | | | 1,477 | |
Total pledged assets related to trading activities | 109,574 | | | 67,952 | |
Related to non-trading activities: | | | |
Loans | 375,115 | | | 344,000 | |
Debt securities: | | | |
| | | |
Available-for-sale | 66,018 | | | 50,538 | |
Held-to-maturity | 247,754 | | | 17,477 | |
Equity securities | 178 | | | 141 | |
Total pledged assets related to non-trading activities | 689,065 | | | 412,156 | |
Related to VIEs: | | | |
Consolidated VIE assets | 5,223 | | | 5,064 | |
Loans eligible for repurchase from GNMA securitizations | 946 | | | 749 | |
Total pledged assets related to VIEs | 6,169 | | | 5,813 | |
Total pledged assets | $ | 804,808 | | | 485,921 | |
Table 20.3 presents dividends declared per common share.Securities and Other Collateralized 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, 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. We also enter into resale agreements
involving collateral other than securities, such as loans, as part of our commercial lending business activities.
Table 20.3:Dividends Declared Per Common Share
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended September 30, | | Nine months ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 | | |
Per common share | $ | 0.30 | | | 0.20 | | | $ | 0.80 | | | 0.40 | | | |
| | | | | | | | | |
OFFSETTING OF SECURITIES AND OTHER COLLATERALIZED FINANCING ACTIVITIES Table 15.2 presents resale and repurchase agreements subject to master repurchase agreements (MRA) and securities borrowing and lending agreements subject to master securities lending agreements (MSLA). Where legally enforceable, these master netting arrangements give the ability, in the event of default by the counterparty, to liquidate securities held as collateral and to offset receivables and payables with the same counterparty. 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. The majority of 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 our consolidated balance sheet against the related liability. Collateral we received
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134122 | Wells Fargo & Company | |
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Note 21: Other Comprehensive Income
|
Table 21.1 providesincludes 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 componentsassets 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 other comprehensive income (OCI), reclassificationscollateral pledged or received related to net income by income statement line item, and the related tax effects.exposures subject to
enforceable MRAs or MSLAs. While these agreements are typically over-collateralized, U.S. GAAP requires disclosure in this table to limit the reported amount of such collateral to the amount of the related recognized asset or liability for each counterparty.
In addition to the amounts included in Table 15.2, we also have balance sheet netting related to derivatives that is disclosed in Note 11 (Derivatives).
Table 21.1:15.2: Summary ofOffsetting – Securities and Other Comprehensive IncomeCollateralized Financing Activities
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter ended September 30, | | Nine months ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 | | |
(in millions) | Before tax | | Tax effect | | Net of tax | | Before tax | | Tax effect | | Net of tax | | Before tax | | Tax effect | | Net of tax | | Before tax | | Tax effect | | Net of tax | | | | | | |
Debt securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net unrealized gains (losses) arising during the period | $ | (3,373) | | | 829 | | | (2,544) | | | (447) | | | 112 | | | (335) | | | (15,067) | | | 3,709 | | | (11,358) | | | (2,187) | | | 544 | | | (1,643) | | | | | | | |
Reclassification of net (gains) losses to net income | 180 | | | (44) | | | 136 | | | (175) | | | 42 | | | (133) | | | 242 | | | (60) | | | 182 | | | (57) | | | 11 | | | (46) | | | | | | | |
Net change | (3,193) | | | 785 | | | (2,408) | | | (622) | | | 154 | | | (468) | | | (14,825) | | | 3,649 | | | (11,176) | | | (2,244) | | | 555 | | | (1,689) | | | | | | | |
Derivatives and hedging activities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fair Value Hedges: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Change in fair value of excluded components on fair value hedges (1) | 30 | | | (7) | | | 23 | | | 29 | | | (6) | | | 23 | | | 140 | | | (34) | | | 106 | | | 40 | | | (9) | | | 31 | | | | | | | |
Cash Flow Hedges: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net unrealized gains (losses) arising during the period on cash flow hedges | (1,482) | | | 366 | | | (1,116) | | | (7) | | | 1 | | | (6) | | | (1,647) | | | 407 | | | (1,240) | | | (27) | | | 6 | | | (21) | | | | | | | |
Reclassification of net (gains) losses to net income | (24) | | | 6 | | | (18) | | | 28 | | | (7) | | | 21 | | | (53) | | | 13 | | | (40) | | | 121 | | | (30) | | | 91 | | | | | | | |
Net change | (1,476) | | | 365 | | | (1,111) | | | 50 | | | (12) | | | 38 | | | (1,560) | | | 386 | | | (1,174) | | | 134 | | | (33) | | | 101 | | | | | | | |
Defined benefit plans adjustments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net actuarial and prior service gains (losses) arising during the period | (143) | | | 36 | | | (107) | | | (224) | | | 55 | | | (169) | | | (244) | | | 61 | | | (183) | | | 133 | | | (33) | | | 100 | | | | | | | |
Reclassification of amounts to noninterest expense (2) | 77 | | | (19) | | | 58 | | | 63 | | | (15) | | | 48 | | | 243 | | | (59) | | | 184 | | | 194 | | | (46) | | | 148 | | | | | | | |
Net change | (66) | | | 17 | | | (49) | | | (161) | | | 40 | | | (121) | | | (1) | | | 2 | | | 1 | | | 327 | | | (79) | | | 248 | | | | | | | |
Debit valuation adjustments (DVA): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net unrealized gains (losses) arising during the period | 10 | | | (2) | | | 8 | | | — | | | — | | | — | | | 16 | | | (4) | | | 12 | | | — | | | — | | | — | | | | | | | |
Reclassification of net (gains) losses to net income | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | | | |
Net change | 10 | | | (2) | | | 8 | | | — | | | — | | | — | | | 16 | | | (4) | | | 12 | | | — | | | — | | | — | | | | | | | |
Foreign currency translation adjustments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net unrealized gains (losses) arising during the period | (174) | | | — | | | (174) | | | (66) | | | 2 | | | (64) | | | (301) | | | (2) | | | (303) | | | (30) | | | (1) | | | (31) | | | | | | | |
Reclassification of net (gains) losses to net income | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | | | |
Net change | (174) | | | — | | | (174) | | | (66) | | | 2 | | | (64) | | | (301) | | | (2) | | | (303) | | | (30) | | | (1) | | | (31) | | | | | | | |
Other comprehensive income (loss) | $ | (4,899) | | | 1,165 | | | (3,734) | | | (799) | | | 184 | | | (615) | | | (16,671) | | | 4,031 | | | (12,640) | | | (1,813) | | | 442 | | | (1,371) | | | | | | | |
Less: Other comprehensive income (loss) from noncontrolling interests, net of tax | | | | | 2 | | | | | | | (2) | | | | | | | 2 | | | | | | | — | | | | | | | |
Wells Fargo other comprehensive loss, net of tax | | | | | $ | (3,736) | | | | | | | (613) | | | | | | | (12,642) | | | | | | | (1,371) | | | | | | | |
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(in millions) | Jun 30, 2023 | | Dec 31, 2022 |
Assets: | | | |
Resale and securities borrowing agreements | | | |
Gross amounts recognized | $ | 116,017 | | | 114,729 | |
Gross amounts offset in consolidated balance sheet (1) | (27,246) | | | (24,464) | |
Net amounts in consolidated balance sheet (2) | 88,771 | | | 90,265 | |
Collateral not recognized in consolidated balance sheet (3) | (88,285) | | | (89,592) | |
Net amount (4) | $ | 486 | | | 673 | |
Liabilities: | | | |
Repurchase and securities lending agreements | | | |
Gross amounts recognized | $ | 94,834 | | | 55,054 | |
Gross amounts offset in consolidated balance sheet (1) | (27,246) | | | (24,464) | |
Net amounts in consolidated balance sheet (5) | 67,588 | | | 30,590 | |
Collateral pledged but not netted in consolidated balance sheet (6) | (67,478) | | | (30,383) | |
Net amount (4) | $ | 110 | | | 207 | |
(1)Represents changesrecognized amount of resale and repurchase agreements with counterparties subject to enforceable MRAs that have been offset in our consolidated balance sheet.
(2)Includes $66.5 billion and $68.0 billion classified on our consolidated balance sheet in federal funds sold and securities purchased under resale agreements at June 30, 2023, and December 31, 2022, respectively. Also includes $22.3 billion and $22.3 billion classified on our consolidated balance sheet in loans at June 30, 2023, and December 31, 2022, respectively.
(3)Represents the fair value of cross-currency swaps attributablecollateral we have received under enforceable MRAs or MSLAs, limited in the table above to changes in cross-currency basis spreads,the amount of the recognized asset due from each counterparty. At June 30, 2023, and December 31, 2022, we have received total collateral with a fair value of $140.0 billion and $136.6 billion, respectively, all of which are excluded fromwe have the assessmentright to sell or repledge. These amounts include securities we have sold or repledged to others with a fair value of hedge effectiveness$83.4 billion and recorded in other comprehensive income.$59.1 billion at June 30, 2023, and December 31, 2022, respectively.
(2)(4)These items are includedRepresents 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 computationtable above to the amount of net periodic benefit cost (see Note 18 (Employee Benefitsthe recognized liability owed to each counterparty. At June 30, 2023, and Expenses) for additional information).December 31, 2022, we have pledged total collateral with a fair value of $97.1 billion and $56.3 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 15.3 provides the gross amounts recognized on our consolidated balance sheet (before the effects of offsetting) of our liabilities for repurchase and securities lending agreements disaggregated by underlying collateral type.
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| Wells Fargo & Company | 135123 |
Note 21:15: Other Comprehensive IncomePledged Assets and Collateral (continued)
Table 21.2 provides the accumulated OCI (AOCI) balance activity on an after-tax basis.
Table 21.2:15.3: Accumulated OCI BalancesGross Obligations by Underlying Collateral Type
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(in millions) | Debt securities | | Fair value hedges (1) | | Cash flow hedges (2) | | Defined benefit plans adjustments | | Debit valuation adjustments (DVA) | | Foreign currency translation adjustments | | Accumulated other comprehensive income (loss) |
Quarter ended September 30, 2022 | | | | | | | | | | | | | |
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Balance, beginning of period | $ | (8,103) | | | (60) | | | (173) | | | (2,005) | | | 4 | | | (271) | | | (10,608) | |
Net unrealized gains (losses) arising during the period | (2,544) | | | 23 | | | (1,116) | | | (107) | | | 8 | | | (174) | | | (3,910) | |
Amounts reclassified from accumulated other comprehensive income | 136 | | | — | | | (18) | | | 58 | | | — | | | — | | | 176 | |
Net change | (2,408) | | | 23 | | | (1,134) | | | (49) | | | 8 | | | (174) | | | (3,734) | |
Less: Other comprehensive income from noncontrolling interests | — | | | — | | | — | | | — | | | — | | | 2 | | | 2 | |
Balance, end of period (3) | $ | (10,511) | | | (37) | | | (1,307) | | | (2,054) | | | 12 | | | (447) | | | (14,344) | |
Quarter ended September 30, 2021 | | | | | | | | | | | | | |
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Balance, beginning of period | $ | 1,817 | | | (196) | | | (70) | | | (2,035) | | | — | | | (80) | | | (564) | |
Net unrealized gains (losses) arising during the period | (335) | | | 23 | | | (6) | | | (169) | | | — | | | (64) | | | (551) | |
Amounts reclassified from accumulated other comprehensive income | (133) | | | — | | | 21 | | | 48 | | | — | | | — | | | (64) | |
Net change | (468) | | | 23 | | | 15 | | | (121) | | | — | | | (64) | | | (615) | |
Less: Other comprehensive loss from noncontrolling interests | (1) | | | — | | | — | | | — | | | — | | | (1) | | | (2) | |
Balance, end of period (3) | $ | 1,350 | | | (173) | | | (55) | | | (2,156) | | | — | | | (143) | | | (1,177) | |
Nine months ended September 30, 2022 | | | | | | | | | | | | | |
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Balance, beginning of period | $ | 665 | | | (143) | | | (27) | | | (2,055) | | | — | | | (142) | | | (1,702) | |
Net unrealized gains (losses) arising during the period | (11,358) | | | 106 | | | (1,240) | | | (183) | | | 12 | | | (303) | | | (12,966) | |
Amounts reclassified from accumulated other comprehensive income | 182 | | | — | | | (40) | | | 184 | | | — | | | — | | | 326 | |
Net change | (11,176) | | | 106 | | | (1,280) | | | 1 | | | 12 | | | (303) | | | (12,640) | |
Less: Other comprehensive income from noncontrolling interests | — | | | — | | | — | | | — | | | — | | | 2 | | | 2 | |
Balance, end of period (3) | $ | (10,511) | | | (37) | | | (1,307) | | | (2,054) | | | 12 | | | (447) | | | (14,344) | |
Nine months ended September 30, 2021 | | | | | | | | | | | | | |
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Balance, beginning of period | $ | 3,039 | | | (204) | | | (125) | | | (2,404) | | | — | | | (112) | | | 194 | |
Net unrealized gains (losses) arising during the period | (1,643) | | | 31 | | | (21) | | | 100 | | | — | | | (31) | | | (1,564) | |
Amounts reclassified from accumulated other comprehensive income | (46) | | | — | | | 91 | | | 148 | | | — | | | — | | | 193 | |
Net change | (1,689) | | | 31 | | | 70 | | | 248 | | | — | | | (31) | | | (1,371) | |
Less: Other comprehensive income from noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Balance, end of period (3) | $ | 1,350 | | | (173) | | | (55) | | | (2,156) | | | — | | | (143) | | | (1,177) | |
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(in millions) | | Jun 30, 2023 | | Dec 31, 2022 |
Repurchase agreements: | | | | |
Securities of U.S. Treasury and federal agencies | | $ | 34,235 | | | 27,857 | |
Securities of U.S. States and political subdivisions | | 79 | | | 83 | |
Federal agency mortgage-backed securities | | 42,968 | | | 8,386 | |
Non-agency mortgage-backed securities | | 694 | | | 682 | |
Corporate debt securities | | 6,617 | | | 6,541 | |
Asset-backed securities | | 2,633 | | | 1,529 | |
Equity securities | | 433 | | | 711 | |
Other | | 245 | | | 300 | |
Total repurchases | | 87,904 | | | 46,089 | |
Securities lending arrangements: | | | | |
Securities of U.S. Treasury and federal agencies | | 284 | | | 278 | |
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Federal agency mortgage-backed securities | | 62 | | | 58 | |
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Corporate debt securities | | 210 | | | 206 | |
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Equity securities (1) | | 6,342 | | | 8,356 | |
Other | | 32 | | | 67 | |
Total securities lending | | 6,930 | | | 8,965 | |
Total repurchases and securities lending | | $ | 94,834 | | | 55,054 | |
(1)Substantially all ofEquity securities are generally exchange traded and represent collateral received from third parties that has been repledged. We received the amounts for fair value hedges are foreign exchange contracts.
(2)Substantially all of the amounts for cash flow hedges are interest rate contracts.
(3)AOCI related to debtcollateral through either margin lending agreements or contemporaneous securities includes after-tax unrealized gains or losses associatedborrowing transactions with the transfer of securities from AFS to HTM of $3.6 billion and $817 million at September 30, 2022, and September 30, 2021, respectively. These amounts are subsequently amortized from AOCI into earnings over the same period as the related unamortized premiums and discounts.other counterparties.
Table 15.4 provides the contractual maturities of our gross obligations under repurchase and securities lending agreements.
Table 15.4:Contractual Maturities of Gross Obligations
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(in millions) | Overnight/continuous | | Up to 30 days | | 30-90 days | | >90 days | | Total gross obligation |
June 30, 2023 | | | | | | | | | |
Repurchase agreements | $ | 77,293 | | | 492 | | | 3,784 | | | 6,335 | | | 87,904 | |
Securities lending arrangements | 6,830 | | | — | | | — | | | 100 | | | 6,930 | |
Total repurchases and securities lending (1) | $ | 84,123 | | | 492 | | | 3,784 | | | 6,435 | | | 94,834 | |
December 31, 2022 | | | | | | | | | |
Repurchase agreements | $ | 36,251 | | | 734 | | | 2,884 | | | 6,220 | | | 46,089 | |
Securities lending arrangements | 8,965 | | | — | | | — | | | — | | | 8,965 | |
Total repurchases and securities lending (1) | $ | 45,216 | | | 734 | | | 2,884 | | | 6,220 | | | 55,054 | |
(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.
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136124 | Wells Fargo & Company | |
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Note 22:16: Operating Segments |
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 have been included in Corporate. We define our reportable operating segments by type of product 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 bywith our Chief Executive Officer and Operating Committee.relevant senior management. The management reporting process is based on U.S. GAAP and includes specific adjustments, such as funds transfer pricing for asset/liability management, shared revenuesrevenue and expenses, and taxable-equivalent adjustments to consistently reflect income from taxable and tax-exempt sources, which allows management to assess performance consistently across the operating segments.
Consumer Banking and Lending offers diversified financial products and services for consumers and small businesses with annual sales generally up to $10 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, brokerage, financial planning, lending, private banking, trust and fiduciary products and services to affluent, high-net worth and ultra-high-net worth clients. We operate through financial advisors in our brokerage and wealth offices, consumer bank branches, independent offices, and digitally through WellsTrade® and Intuitive Investor®.
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) 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.
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| Wells Fargo & Company | 137125 |
Note 22:16: Operating Segments (continued)
Table 22.116.1 presents our results by operating segment.
Table 22.1:16.1: Operating Segments
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(in millions) |
(in millions) | Consumer Banking and Lending | | Commercial Banking | | Corporate and Investment Banking | | Wealth and Investment Management | | Corporate | | Reconciling Items (1) | | Consolidated Company |
(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 September 30, 2022 | | |
Quarter ended June 30, 2023 | | Quarter ended June 30, 2023 | |
Net interest income (2)(3) | Net interest income (2)(3) | $ | 7,102 | | | 1,991 | | | 2,270 | | | 1,088 | | | (248) | | | (105) | | | 12,098 | | Net interest income (2)(3) | $ | 7,490 | | | 2,501 | | | 2,359 | | | 1,009 | | | (91) | | | (105) | | | 13,163 | |
Noninterest income | | Noninterest income | 1,965 | | | 868 | | | 2,272 | | | 2,639 | | | 121 | | | (495) | | | 7,370 | |
Total revenue | | Total revenue | 9,455 | | | 3,369 | | | 4,631 | | | 3,648 | | | 30 | | | (600) | | | 20,533 | |
Provision for credit losses | | Provision for credit losses | 874 | | | 26 | | | 933 | | | 24 | | | (144) | | | — | | | 1,713 | |
Noninterest expense | | Noninterest expense | 6,027 | | | 1,630 | | | 2,087 | | | 2,974 | | | 269 | | | — | | | 12,987 | |
Income (loss) before income tax expense (benefit) | | Income (loss) before income tax expense (benefit) | 2,554 | | | 1,713 | | | 1,611 | | | 650 | | | (95) | | | (600) | | | 5,833 | |
Income tax expense (benefit) | | Income tax expense (benefit) | 640 | | | 429 | | | 401 | | | 163 | | | (103) | | | (600) | | | 930 | |
Net income before noncontrolling interests | | Net income before noncontrolling interests | 1,914 | | | 1,284 | | | 1,210 | | | 487 | | | 8 | | | — | | | 4,903 | |
Less: Net income (loss) from noncontrolling interests | | Less: Net income (loss) from noncontrolling interests | — | | | 3 | | | — | | | — | | | (38) | | | — | | | (35) | |
Net income | | Net income | $ | 1,914 | | | 1,281 | | | 1,210 | | | 487 | | | 46 | | | — | | | 4,938 | |
Quarter ended June 30, 2022 | | Quarter ended June 30, 2022 | |
Net interest income (3) | | Net interest income (3) | $ | 6,372 | | | 1,580 | | | 2,057 | | | 916 | | | (619) | | | (108) | | | 10,198 | |
Noninterest income | Noninterest income | 2,175 | | | 961 | | | 1,790 | | | 2,577 | | | 284 | | | (380) | | | 7,407 | | Noninterest income | 2,135 | | | 912 | | | 1,516 | | | 2,789 | | | (102) | | | (408) | | | 6,842 | |
Total revenue | Total revenue | 9,277 | | | 2,952 | | | 4,060 | | | 3,665 | | | 36 | | | (485) | | | 19,505 | | Total revenue | 8,507 | | | 2,492 | | | 3,573 | | | 3,705 | | | (721) | | | (516) | | | 17,040 | |
Provision for credit losses | Provision for credit losses | 917 | | | (168) | | | 32 | | | 8 | | | (5) | | | — | | | 784 | | Provision for credit losses | 613 | | | 21 | | | (62) | | | (7) | | | 15 | | | — | | | 580 | |
Noninterest expense | Noninterest expense | 6,758 | | | 1,526 | | | 1,900 | | | 2,796 | | | 1,347 | | | — | | | 14,327 | | Noninterest expense | 6,036 | | | 1,478 | | | 1,840 | | | 2,911 | | | 597 | | | — | | | 12,862 | |
Income (loss) before income tax expense (benefit) | Income (loss) before income tax expense (benefit) | 1,602 | | | 1,594 | | | 2,128 | | | 861 | | | (1,306) | | | (485) | | | 4,394 | | Income (loss) before income tax expense (benefit) | 1,858 | | | 993 | | | 1,795 | | | 801 | | | (1,333) | | | (516) | | | 3,598 | |
Income tax expense (benefit) | Income tax expense (benefit) | 401 | | | 409 | | | 536 | | | 222 | | | (189) | | | (485) | | | 894 | | Income tax expense (benefit) | 465 | | | 249 | | | 459 | | | 198 | | | (233) | | | (516) | | | 622 | |
Net income (loss) before noncontrolling interests | Net income (loss) before noncontrolling interests | 1,201 | | | 1,185 | | | 1,592 | | | 639 | | | (1,117) | | | — | | | 3,500 | | Net income (loss) before noncontrolling interests | 1,393 | | | 744 | | | 1,336 | | | 603 | | | (1,100) | | | — | | | 2,976 | |
Less: Net income (loss) from noncontrolling interests | Less: Net income (loss) from noncontrolling interests | — | | | 3 | | | — | | | — | | | (31) | | | — | | | (28) | | Less: Net income (loss) from noncontrolling interests | — | | | 3 | | | — | | | — | | | (169) | | | — | | | (166) | |
Net income (loss) | Net income (loss) | $ | 1,201 | | | 1,182 | | | 1,592 | | | 639 | | | (1,086) | | | — | | | 3,528 | | Net income (loss) | $ | 1,393 | | | 741 | | | 1,336 | | | 603 | | | (931) | | | — | | | 3,142 | |
Quarter ended September 30, 2021 | | |
Net interest income (2) | $ | 5,707 | | | 1,231 | | | 1,866 | | | 637 | | | (427) | | | (105) | | | 8,909 | | |
Noninterest income | 3,097 | | | 845 | | | 1,519 | | | 2,981 | | | 1,752 | | | (269) | | | 9,925 | | |
Total revenue | 8,804 | | | 2,076 | | | 3,385 | | | 3,618 | | | 1,325 | | | (374) | | | 18,834 | | |
Provision for credit losses | (518) | | | (335) | | | (460) | | | (73) | | | (9) | | | — | | | (1,395) | | |
Noninterest expense | 6,053 | | | 1,396 | | | 1,797 | | | 2,917 | | | 1,140 | | | — | | | 13,303 | | |
Income (loss) before income tax expense (benefit) | 3,269 | | | 1,015 | | | 2,048 | | | 774 | | | 194 | | | (374) | | | 6,926 | | |
Income tax expense (benefit) | 818 | | | 254 | | | 518 | | | 195 | | | 110 | | | (374) | | | 1,521 | | |
Net income before noncontrolling interests | 2,451 | | | 761 | | | 1,530 | | | 579 | | | 84 | | | — | | | 5,405 | | |
Less: Net income from noncontrolling interests | — | | | 2 | | | — | | | — | | | 281 | | | — | | | 283 | | |
Net income (loss) | $ | 2,451 | | | 759 | | | 1,530 | | | 579 | | | (197) | | | — | | | 5,122 | | |
Nine months ended September 30, 2022 | | |
Net interest income (2) | $ | 19,470 | | | 4,932 | | | 6,317 | | | 2,803 | | | (1,685) | | | (320) | | | 31,517 | | |
Six months ended June 30, 2023 | | Six months ended June 30, 2023 | |
Net interest income (3) | | Net interest income (3) | $ | 14,923 | | | 4,990 | | | 4,820 | | | 2,053 | | | (75) | | | (212) | | | 26,499 | |
Noninterest income | Noninterest income | 6,877 | | | 2,839 | | | 4,786 | | | 8,324 | | | 976 | | | (1,194) | | | 22,608 | | Noninterest income | 3,896 | | | 1,686 | | | 4,713 | | | 5,276 | | | 126 | | | (934) | | | 14,763 | |
Total revenue | Total revenue | 26,347 | | | 7,771 | | | 11,103 | | | 11,127 | | | (709) | | | (1,514) | | | 54,125 | | Total revenue | 18,819 | | | 6,676 | | | 9,533 | | | 7,329 | | | 51 | | | (1,146) | | | 41,262 | |
Provision for credit losses | Provision for credit losses | 1,340 | | | (491) | | | (226) | | | (36) | | | (10) | | | — | | | 577 | | Provision for credit losses | 1,741 | | | (17) | | | 1,185 | | | 35 | | | (24) | | | — | | | 2,920 | |
Noninterest expense | Noninterest expense | 19,189 | | | 4,535 | | | 5,723 | | | 8,882 | | | 2,751 | | | — | | | 41,080 | | Noninterest expense | 12,065 | | | 3,382 | | | 4,304 | | | 6,035 | | | 877 | | | — | | | 26,663 | |
Income (loss) before income tax expense (benefit) | Income (loss) before income tax expense (benefit) | 5,818 | | | 3,727 | | | 5,606 | | | 2,281 | | | (3,450) | | | (1,514) | | | 12,468 | | Income (loss) before income tax expense (benefit) | 5,013 | | | 3,311 | | | 4,044 | | | 1,259 | | | (802) | | | (1,146) | | | 11,679 | |
Income tax expense (benefit) | Income tax expense (benefit) | 1,454 | | | 938 | | | 1,420 | | | 574 | | | (658) | | | (1,514) | | | 2,214 | | Income tax expense (benefit) | 1,258 | | | 828 | | | 1,016 | | | 315 | | | (375) | | | (1,146) | | | 1,896 | |
Net income (loss) before noncontrolling interests | Net income (loss) before noncontrolling interests | 4,364 | | | 2,789 | | | 4,186 | | | 1,707 | | | (2,792) | | | — | | | 10,254 | | Net income (loss) before noncontrolling interests | 3,755 | | | 2,483 | | | 3,028 | | | 944 | | | (427) | | | — | | | 9,783 | |
Less: Net income (loss) from noncontrolling interests | Less: Net income (loss) from noncontrolling interests | — | | | 9 | | | — | | | — | | | (73) | | | — | | | (64) | | Less: Net income (loss) from noncontrolling interests | — | | | 6 | | | — | | | — | | | (152) | | | — | | | (146) | |
Net income (loss) | Net income (loss) | $ | 4,364 | | | 2,780 | | | 4,186 | | | 1,707 | | | (2,719) | | | — | | | 10,318 | | Net income (loss) | $ | 3,755 | | | 2,477 | | | 3,028 | | | 944 | | | (275) | | | — | | | 9,929 | |
Nine months ended September 30, 2021 | | |
Net interest income (2) | $ | 16,940 | | | 3,687 | | | 5,428 | | | 1,904 | | | (1,121) | | | (321) | | | 26,517 | | |
Six months ended June 30, 2022 | | Six months ended June 30, 2022 | |
Net interest income (3) | | Net interest income (3) | $ | 12,368 | | | 2,941 | | | 4,047 | | | 1,715 | | | (1,437) | | | (215) | | | 19,419 | |
Noninterest income | Noninterest income | 9,204 | | | 2,578 | | | 4,899 | | | 8,794 | | | 6,496 | | | (852) | | | 31,119 | | Noninterest income | 4,702 | | | 1,878 | | | 2,996 | | | 5,747 | | | 840 | | | (814) | | | 15,349 | |
Total revenue | Total revenue | 26,144 | | | 6,265 | | | 10,327 | | | 10,698 | | | 5,375 | | | (1,173) | | | 57,636 | | Total revenue | 17,070 | | | 4,819 | | | 7,043 | | | 7,462 | | | (597) | | | (1,029) | | | 34,768 | |
Provision for credit losses | Provision for credit losses | (1,304) | | | (1,116) | | | (1,245) | | | (92) | | | 54 | | | — | | | (3,703) | | Provision for credit losses | 423 | | | (323) | | | (258) | | | (44) | | | (5) | | | — | | | (207) | |
Noninterest expense | Noninterest expense | 18,522 | | | 4,469 | | | 5,435 | | | 8,836 | | | 3,371 | | | — | | | 40,633 | | Noninterest expense | 12,431 | | | 3,009 | | | 3,823 | | | 6,086 | | | 1,364 | | | — | | | 26,713 | |
Income (loss) before income tax expense (benefit) | Income (loss) before income tax expense (benefit) | 8,926 | | | 2,912 | | | 6,137 | | | 1,954 | | | 1,950 | | | (1,173) | | | 20,706 | | Income (loss) before income tax expense (benefit) | 4,216 | | | 2,133 | | | 3,478 | | | 1,420 | | | (1,956) | | | (1,029) | | | 8,262 | |
Income tax expense (benefit) | Income tax expense (benefit) | 2,233 | | | 727 | | | 1,531 | | | 491 | | | 58 | | | (1,173) | | | 3,867 | | Income tax expense (benefit) | 1,053 | | | 529 | | | 884 | | | 352 | | | (421) | | | (1,029) | | | 1,368 | |
Net income before noncontrolling interests | 6,693 | | | 2,185 | | | 4,606 | | | 1,463 | | | 1,892 | | | — | | | 16,839 | | |
Net income (loss) before noncontrolling interests | | Net income (loss) before noncontrolling interests | 3,163 | | | 1,604 | | | 2,594 | | | 1,068 | | | (1,535) | | | — | | | 6,894 | |
Less: Net income (loss) from noncontrolling interests | Less: Net income (loss) from noncontrolling interests | — | | | 5 | | | (2) | | | — | | | 1,038 | | | — | | | 1,041 | | Less: Net income (loss) from noncontrolling interests | — | | | 6 | | | — | | | — | | | (42) | | | — | | | (36) | |
Net income | $ | 6,693 | | | 2,180 | | | 4,608 | | | 1,463 | | | 854 | | | — | | | 15,798 | | |
Net income (loss) | | Net income (loss) | $ | 3,163 | | | 1,598 | | | 2,594 | | | 1,068 | | | (1,493) | | | — | | | 6,930 | |
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138126 | Wells Fargo & Company | |
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| Consumer Banking and Lending | | Commercial Banking | | Corporate and Investment Banking | | Wealth and Investment Management | | Corporate | | Reconciling Items (1) | | Consolidated Company |
| Consumer Banking and Lending | | Commercial Banking | | Corporate and Investment Banking | | Wealth and Investment Management | | Corporate (1) | | Reconciling Items (2) | | Consolidated Company |
Quarter ended September 30, 2022 | | |
Quarter ended June 30, 2023 | | Quarter ended June 30, 2023 | |
Loans (average) | Loans (average) | $ | 335,644 | | | 208,997 | | | 306,240 | | | 85,472 | | | 9,112 | | | — | | | 945,465 | | Loans (average) | $ | 336,351 | | | 225,824 | | | 291,470 | | | 83,045 | | | 9,216 | | | — | | | 945,906 | |
Assets (average) | Assets (average) | 379,672 | | | 230,934 | | | 560,509 | | | 91,862 | | | 617,713 | | | — | | | 1,880,690 | | Assets (average) | 378,532 | | | 249,230 | | | 550,091 | | | 89,983 | | | 610,417 | | | — | | | 1,878,253 | |
Deposits (average) | Deposits (average) | 888,037 | | | 180,231 | | | 156,830 | | | 158,367 | | | 24,386 | | | — | | | 1,407,851 | | Deposits (average) | 823,339 | | | 166,747 | | | 160,251 | | | 112,360 | | | 84,752 | | | — | | | 1,347,449 | |
| Nine months ended September 30, 2022 | | |
Six months ended June 30, 2023 | | Six months ended June 30, 2023 | |
Loans (average) | Loans (average) | $ | 330,557 | | | 201,857 | | | 296,557 | | | 85,386 | | | 9,163 | | | — | | | 923,520 | | Loans (average) | $ | 337,325 | | | 224,333 | | | 293,097 | | | 83,331 | | | 9,185 | | | — | | | 947,271 | |
Assets (average) | Assets (average) | 377,929 | | | 223,312 | | | 558,773 | | | 91,763 | | | 648,966 | | | — | | | 1,900,743 | | Assets (average) | 380,135 | | | 247,674 | | | 549,453 | | | 90,450 | | | 603,293 | | | — | | | 1,871,005 | |
Deposits (average) | Deposits (average) | 889,366 | | | 189,664 | | | 163,578 | | | 172,516 | | | 23,909 | | | — | | | 1,439,033 | | Deposits (average) | 832,252 | | | 168,597 | | | 158,908 | | | 119,443 | | | 72,846 | | | — | | | 1,352,046 | |
| Loans (period-end) | Loans (period-end) | 337,352 | | | 214,585 | | | 299,693 | | | 85,180 | | | 9,096 | | | — | | | 945,906 | | Loans (period-end) | 336,217 | | | 228,711 | | | 291,345 | | | 82,456 | | | 9,231 | | | — | | | 947,960 | |
Assets (period-end) | Assets (period-end) | 380,755 | | | 239,588 | | | 550,695 | | | 91,299 | | | 615,408 | | | — | | | 1,877,745 | | Assets (period-end) | 378,078 | | | 255,914 | | | 559,520 | | | 89,211 | | | 593,597 | | | — | | | 1,876,320 | |
Deposits (period-end) | Deposits (period-end) | 886,991 | | | 172,727 | | | 154,550 | | | 148,890 | | | 34,993 | | | — | | | 1,398,151 | | Deposits (period-end) | 820,495 | | | 164,764 | | | 158,770 | | | 108,532 | | | 92,023 | | | — | | | 1,344,584 | |
Quarter ended September 30, 2021 | | |
Quarter ended June 30, 2022 | | Quarter ended June 30, 2022 | |
Loans (average) | Loans (average) | $ | 325,557 | | | 178,622 | | | 257,295 | | | 82,785 | | | 9,765 | | | — | | | 854,024 | | Loans (average) | $ | 330,859 | | | 202,019 | | | 298,694 | | | 85,912 | | | 9,083 | | | — | | | 926,567 | |
Assets (average) | Assets (average) | 378,665 | | | 196,192 | | | 524,124 | | | 88,652 | | | 762,067 | | | — | | | 1,949,700 | | Assets (average) | 379,194 | | | 223,890 | | | 564,306 | | | 92,575 | | | 642,606 | | | — | | | 1,902,571 | |
Deposits (average) | Deposits (average) | 848,419 | | | 199,226 | | | 189,424 | | | 176,570 | | | 37,302 | | | — | | | 1,450,941 | | Deposits (average) | 898,650 | | | 188,286 | | | 164,860 | | | 173,670 | | | 20,327 | | | — | | | 1,445,793 | |
| Nine months ended September 30, 2021 | | |
Six months ended June 30, 2022 | | Six months ended June 30, 2022 | |
Loans (average) | Loans (average) | $ | 336,743 | | | 180,096 | | | 251,996 | | | 81,810 | | | 10,021 | | | — | | | 860,666 | | Loans (average) | $ | 327,973 | | | 198,228 | | | 291,635 | | | 85,342 | | | 9,187 | | | — | | | 912,365 | |
Assets (average) | Assets (average) | 391,835 | | | 196,990 | | | 516,401 | | | 87,929 | | | 748,236 | | | — | | | 1,941,391 | | Assets (average) | 377,043 | | | 219,438 | | | 557,891 | | | 91,713 | | | 664,853 | | | — | | | 1,910,938 | |
Deposits (average) | Deposits (average) | 824,752 | | | 193,761 | | | 191,560 | | | 175,087 | | | 41,796 | | | — | | | 1,426,956 | | Deposits (average) | 890,042 | | | 194,458 | | | 167,009 | | | 179,708 | | | 23,665 | | | — | | | 1,454,882 | |
| Loans (period-end) | Loans (period-end) | 325,918 | | | 180,539 | | | 263,957 | | | 82,824 | | | 9,589 | | | — | | | 862,827 | | Loans (period-end) | 335,732 | | | 205,241 | | | 308,286 | | | 85,342 | | | 9,133 | | | — | | | 943,734 | |
Assets (period-end) | Assets (period-end) | 379,564 | | | 200,204 | | | 535,385 | | | 88,593 | | | 751,155 | | | — | | | 1,954,901 | | Assets (period-end) | 380,353 | | | 229,454 | | | 567,733 | | | 91,944 | | | 611,657 | | | — | | | 1,881,141 | |
Deposits (period-end) | Deposits (period-end) | 858,424 | | | 204,853 | | | 191,786 | | | 177,809 | | | 37,507 | | | — | | | 1,470,379 | | Deposits (period-end) | 892,373 | | | 183,145 | | | 162,439 | | | 165,633 | | | 21,563 | | | — | | | 1,425,153 | |
(1)In first quarter 2023, we adopted ASU 2018-12 – Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. For additional information, see Note 1 (Summary of Significant Accounting Policies).
(2)Taxable-equivalent adjustments related to tax-exempt income on certain loans and debt securities are included in netNet interest income, while taxable-equivalent adjustments related to income tax credits for low-income housing and renewable energy investments are included in noninterestNoninterest income, in each case with corresponding impacts to incomeIncome 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)(3)Net interest income is interest earned on assets minus the interest paid on liabilities to fund those assets. Segment interest earned includes actual interest income on segment assets as well as a funding credit for their deposits. Segment interest paid on liabilities includes actual interest expense on segment liabilities as well as a funding charge for their assets.
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| Wells Fargo & Company | 139127 |
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Note 23:17: Revenue and Expenses |
Revenue
Our revenue includes net interest income on financial instruments and noninterest income. Table 17.1 presents our
revenue by operating segment. For additional description of our
operating segments, including additional financial information
and the underlying management accounting process, see
Note 16 (Operating Segments). For a description of our revenue from contracts with customers, see Note 20 (Revenue and Expenses) in our 2022 Form 10-K.
Table 17.1: Revenue by Operating Segment
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(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, 2023 |
Net interest income (2) | $ | 7,490 | | | 2,501 | | | 2,359 | | | 1,009 | | | (91) | | | (105) | | | 13,163 | |
Noninterest income: | | | | | | | | | | | | | |
Deposit-related fees | 666 | | | 248 | | | 247 | | | 6 | | | (2) | | | — | | | 1,165 | |
Lending-related fees (2) | 28 | | | 131 | | | 191 | | | 2 | | | — | | | — | | | 352 | |
Investment advisory and other asset-based fees (3) | — | | | 17 | | | 36 | | | 2,110 | | | — | | | — | | | 2,163 | |
Commissions and brokerage services fees | — | | | — | | | 76 | | | 494 | | | — | | | — | | | 570 | |
Investment banking fees | (4) | | | 15 | | | 390 | | | — | | | (25) | | | — | | | 376 | |
Card fees: | | | | | | | | | | | | | |
Card interchange and network revenue (4) | 929 | | | 59 | | | 15 | | | 1 | | | 1 | | | — | | | 1,005 | |
Other card fees (2) | 93 | | | — | | | — | | | — | | | — | | | — | | | 93 | |
Total card fees | 1,022 | | | 59 | | | 15 | | | 1 | | | 1 | | | — | | | 1,098 | |
Mortgage banking (2) | 132 | | | — | | | 73 | | | (3) | | | — | | | — | | | 202 | |
Net gains (losses) from trading activities (2) | — | | | (6) | | | 1,081 | | | 21 | | | 26 | | | — | | | 1,122 | |
Net gains from debt securities (2) | — | | | — | | | — | | | — | | | 4 | | | — | | | 4 | |
Net gains (losses) from equity securities (2) | — | | | 2 | | | (16) | | | — | | | (80) | | | — | | | (94) | |
Lease income (2) | — | | | 167 | | | 4 | | | — | | | 136 | | | — | | | 307 | |
Other (2) | 121 | | | 235 | | | 175 | | | 8 | | | 61 | | | (495) | | | 105 | |
Total noninterest income | 1,965 | | | 868 | | | 2,272 | | | 2,639 | | | 121 | | | (495) | | | 7,370 | |
Total revenue | $ | 9,455 | | | 3,369 | | | 4,631 | | | 3,648 | | | 30 | | | (600) | | | 20,533 | |
Quarter ended June 30, 2022 |
Net interest income (2) | $ | 6,372 | | | 1,580 | | | 2,057 | | | 916 | | | (619) | | | (108) | | | 10,198 | |
Noninterest income: | | | | | | | | | | | | | |
Deposit-related fees | 779 | | | 310 | | | 280 | | | 7 | | | — | | | — | | | 1,376 | |
Lending-related fees (2) | 34 | | | 122 | | | 195 | | | 2 | | | — | | | — | | | 353 | |
Investment advisory and other asset-based fees (3) | — | | | 10 | | | 30 | | | 2,306 | | | — | | | — | | | 2,346 | |
Commissions and brokerage services fees | — | | | — | | | 83 | | | 459 | | | — | | | — | | | 542 | |
Investment banking fees | (2) | | | 15 | | | 307 | | | — | | | (34) | | | — | | | 286 | |
Card fees: | | | | | | | | | | | | | |
Card interchange and network revenue (4) | 920 | | | 58 | | | 15 | | | 1 | | | — | | | — | | | 994 | |
Other card fees (2) | 118 | | | — | | | — | | | — | | | — | | | — | | | 118 | |
Total card fees | 1,038 | | | 58 | | | 15 | | | 1 | | | — | | | — | | | 1,112 | |
Mortgage banking (2) | 211 | | | — | | | 79 | | | (3) | | | — | | | — | | | 287 | |
Net gains from trading activities (2) | — | | | — | | | 378 | | | 11 | | | 57 | | | — | | | 446 | |
Net gains from debt securities (2) | — | | | 5 | | | — | | | — | | | 138 | | | — | | | 143 | |
Net losses from equity securities (2) | (8) | | | (67) | | | (2) | | | (1) | | | (537) | | | — | | | (615) | |
Lease income (2) | — | | | 179 | | | 11 | | | — | | | 143 | | | — | | | 333 | |
Other (2)(5) | 83 | | | 280 | | | 140 | | | 7 | | | 131 | | | (408) | | | 233 | |
Total noninterest income | 2,135 | | | 912 | | | 1,516 | | | 2,789 | | | (102) | | | (408) | | | 6,842 | |
Total revenue | $ | 8,507 | | | 2,492 | | | 3,573 | | | 3,705 | | | (721) | | | (516) | | | 17,040 | |
Six months ended June 30, 2023 |
Net interest income (2) | $ | 14,923 | | | 4,990 | | | 4,820 | | | 2,053 | | | (75) | | | (212) | | | 26,499 | |
Noninterest income: | | | | | | | | | | | | | |
Deposit-related fees | 1,338 | | | 484 | | | 483 | | | 11 | | | (3) | | | — | | | 2,313 | |
Lending-related fees (2) | 59 | | | 260 | | | 385 | | | 4 | | | — | | | — | | | 708 | |
Investment advisory and other asset-based fees (3) | — | | | 35 | | | 71 | | | 4,171 | | | — | | | — | | | 4,277 | |
Commissions and brokerage services fees | — | | | — | | | 154 | | | 1,035 | | | — | | | — | | | 1,189 | |
Investment banking fees | (4) | | | 35 | | | 704 | | | — | | | (33) | | | — | | | 702 | |
Card fees: | | | | | | | | | | | | | |
Card interchange and network revenue (4) | 1,792 | | | 115 | | | 32 | | | 2 | | | 2 | | | — | | | 1,943 | |
Other card fees (2) | 188 | | | — | | | — | | | — | | | — | | | — | | | 188 | |
Total card fees | 1,980 | | | 115 | | | 32 | | | 2 | | | 2 | | | — | | | 2,131 | |
Mortgage banking (2) | 292 | | | — | | | 148 | | | (6) | | | — | | | — | | | 434 | |
Net gains (losses) from trading activities (2) | — | | | (7) | | | 2,338 | | | 44 | | | 89 | | | — | | | 2,464 | |
Net gains from debt securities (2) | — | | | — | | | — | | | — | | | 4 | | | — | | | 4 | |
Net losses from equity securities (2) | — | | | (10) | | | (17) | | | (2) | | | (422) | | | — | | | (451) | |
Lease income (2) | — | | | 336 | | | 46 | | | — | | | 272 | | | — | | | 654 | |
Other (2) | 231 | | | 438 | | | 369 | | | 17 | | | 217 | | | (934) | | | 338 | |
Total noninterest income | 3,896 | | | 1,686 | | | 4,713 | | | 5,276 | | | 126 | | | (934) | | | 14,763 | |
Total revenue | $ | 18,819 | | | 6,676 | | | 9,533 | | | 7,329 | | | 51 | | | (1,146) | | | 41,262 | |
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(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, 2022 |
Net interest income (2) | $ | 12,368 | | | 2,941 | | | 4,047 | | | 1,715 | | | (1,437) | | | (215) | | | 19,419 | |
Noninterest income: | | | | | | | | | | | | | |
Deposit-related fees | 1,624 | | | 638 | | | 573 | | | 14 | | | — | | | — | | | 2,849 | |
Lending-related fees (2) | 68 | | | 243 | | | 380 | | | 4 | | | — | | | — | | | 695 | |
Investment advisory and other asset-based fees (3) | — | | | 12 | | | 42 | | | 4,782 | | | 8 | | | — | | | 4,844 | |
Commissions and brokerage services fees | — | | | — | | | 166 | | | 913 | | | — | | | — | | | 1,079 | |
Investment banking fees | (3) | | | 30 | | | 769 | | | — | | | (63) | | | — | | | 733 | |
Card fees: | | | | | | | | | | | | | |
Card interchange and network revenue (4) | 1,754 | | | 111 | | | 29 | | | 2 | | | — | | | — | | | 1,896 | |
Other card fees (2) | 245 | | | — | | | — | | | — | | | — | | | — | | | 245 | |
Total card fees | 1,999 | | | 111 | | | 29 | | | 2 | | | — | | | — | | | 2,141 | |
Mortgage banking (2) | 865 | | | — | | | 121 | | | (6) | | | — | | | — | | | 980 | |
Net gains from trading activities (2) | — | | | — | | | 606 | | | 12 | | | 46 | | | — | | | 664 | |
Net gains from debt securities (2) | — | | | 5 | | | — | | | — | | | 140 | | | — | | | 145 | |
Net gains (losses) from equity securities (2) | (17) | | | 19 | | | (7) | | | (1) | | | (33) | | | — | | | (39) | |
Lease income (2) | — | | | 358 | | | 13 | | | — | | | 289 | | | — | | | 660 | |
Other (2)(5) | 166 | | | 462 | | | 304 | | | 27 | | | 453 | | | (814) | | | 598 | |
Total noninterest income | 4,702 | | | 1,878 | | | 2,996 | | | 5,747 | | | 840 | | | (814) | | | 15,349 | |
Total revenue | $ | 17,070 | | | 4,819 | | | 7,043 | | | 7,462 | | | (597) | | | (1,029) | | | 34,768 | |
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(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 revenue types are related to financial assets and liabilities, including loans, leases, securities and derivatives, with additional details included in other footnotes to our financial statements.
(3)We earned trailing commissions of $227 million and $454 million for the second quarter and first half of 2023, respectively, and $245 million and $516 million for the second quarter and first half of 2022, respectively.
(4)The cost of credit card rewards and rebates of $628 million and $1.2 billion for the second quarter and first half of 2023, respectively, and $552 million and $1.0 billion for the second quarter and first half of 2022, respectively, are presented net against the related revenue.
(5)In first quarter 2023, we adopted ASU 2018-12 – Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. For additional information, see Note 1 (Summary of Significant Accounting Policies).
Expenses
OPERATING LOSSES Operating losses consist of litigation, regulatory matters, customer remediation activities, and losses from other business activities, such as fraud losses. Operating losses may have significant variability given the inherent and unpredictable nature of litigation, regulatory, and customer remediation matters. The timing and determination of the amount of any associated losses for these matters depends on a variety of factors, some of which are outside of our control. Our operating losses were $232 million and $499 million for the second quarter and first half of 2023, respectively, compared with $576 million and $1.2 billion in the same periods a year ago. See Note 10 (Legal Actions) for additional information on accruals for legal actions.
OTHER EXPENSES Regulatory Charges and Assessments expense, which is included in other noninterest expense, was $301 million and $572 million in the second quarter and first half of 2023, respectively, compared with $208 million and $433 million in the same periods a year ago, and primarily consisted of Federal Deposit Insurance Corporation (FDIC) deposit assessment expense.
In May 2023, the FDIC proposed a rule to recover by special assessment losses to the FDIC deposit insurance fund as a result of recent bank failures. Under the proposed rule, the FDIC would collect a special assessment based on a calculation using an insured depository institution’s estimated amount of uninsured deposits. As currently proposed, the amount of our special assessment may be up to $1.8 billion (pre-tax), and we expect to expense the entire amount upon the FDIC’s finalization of the rule. The proposed rule may be changed prior to finalization and any changes may affect the timing or amount of the special assessment.
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Note 18: Employee Benefits |
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 no new benefits accrue after that date. For additional information on our pension and postretirement plans, including plan assumptions, investment strategy and asset allocation, projected benefit payments, and valuation methodologies used
for assets measured at fair value, see Note 1 (Summary of Significant Accounting Policies) and Note 21 (Employee Benefits) in our 2022 Form 10-K.
Table 18.1 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 our consolidated statement of income.
Table 18.1:Net Periodic Benefit Cost
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| 2023 | | 2022 | | |
| Pension benefits | | | | Pension benefits | | | | | | |
(in millions) | Qualified | | Non- qualified | | Other benefits | | Qualified | | Non- qualified | | Other benefits | | | | | | |
Quarter ended June 30, | | | | | | | | | | | | | | | | | |
Service cost | $ | 7 | | | — | | | — | | | 5 | | | — | | | — | | | | | | | |
Interest cost | 100 | | | 4 | | | 4 | | | 82 | | | 3 | | | 3 | | | | | | | |
Expected return on plan assets | (126) | | | — | | | (7) | | | (126) | | | — | | | (6) | | | | | | | |
Amortization of net actuarial loss (gain) | 35 | | | 1 | | | (6) | | | 33 | | | 3 | | | (6) | | | | | | | |
Amortization of prior service credit | — | | | — | | | (2) | | | — | | | — | | | (2) | | | | | | | |
Settlement loss | — | | | — | | | — | | | 62 | | | — | | | — | | | | | | | |
Net periodic benefit cost | $ | 16 | | | 5 | | | (11) | | | 56 | | | 6 | | | (11) | | | | | | | |
Six months ended June 30, | | | | | | | | | | | | | | | | | |
Service cost | $ | 13 | | | — | | | — | | | 10 | | | — | | | — | | | | | | | |
Interest cost | 201 | | | 9 | | | 8 | | | 149 | | | 5 | | | 5 | | | | | | | |
Expected return on plan assets | (252) | | | — | | | (13) | | | (265) | | | — | | | (11) | | | | | | | |
Amortization of net actuarial loss (gain) | 70 | | | 2 | | | (12) | | | 66 | | | 6 | | | (11) | | | | | | | |
Amortization of prior service credit | — | | | — | | | (5) | | | — | | | — | | | (5) | | | | | | | |
Settlement loss | — | | | — | | | — | | | 109 | | | 1 | | | — | | | | | | | |
Net periodic benefit cost | $ | 32 | | | 11 | | | (22) | | | 69 | | | 12 | | | (22) | | | | | | | |
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Note 19: Earnings and Dividends Per Common Share |
Table 19.1 shows earnings per common share and diluted earnings per common share and reconciles the numerator and denominator of both earnings per common share calculations.
Table 19.1:Earnings Per Common Share Calculations | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Quarter ended June 30, | | Six months ended June 30, |
(in millions, except per share amounts) | 2023 | | 2022 | | 2023 | | 2022 | | |
Wells Fargo net income (1) | $ | 4,938 | | | 3,142 | | | $ | 9,929 | | | 6,930 | | | |
Less: Preferred stock dividends and other | 279 | | | 279 | | | 557 | | | 558 | | | |
Wells Fargo net income applicable to common stock (numerator) (1) | $ | 4,659 | | | 2,863 | | | $ | 9,372 | | | 6,372 | | | |
Earnings per common share | | | | | | | | | |
Average common shares outstanding (denominator) | 3,699.9 | | | 3,793.8 | | | 3,742.6 | | | 3,812.3 | | | |
Per share | $ | 1.26 | | | 0.75 | | | $ | 2.50 | | | 1.67 | | | |
Diluted earnings per common share | | | | | | | | | |
Average common shares outstanding | 3,699.9 | | | 3,793.8 | | | 3,742.6 | | | 3,812.3 | | | |
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Add: | Restricted share rights (2) | 25.0 | | | 25.8 | | | 29.8 | | | 32.7 | | | |
Diluted average common shares outstanding (denominator) | 3,724.9 | | | 3,819.6 | | | 3,772.4 | | | 3,845.0 | | | |
Per share | $ | 1.25 | | | 0.75 | | | $ | 2.48 | | | 1.66 | | | |
(1)In first quarter 2023, we adopted ASU 2018-12 – Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. For additional information, see Note 1 (Summary of Significant Accounting Policies).
(2)Calculated using the treasury stock method.
Table 19.2 presents the outstanding securities that were anti-dilutive and therefore not included in the calculation of diluted earnings per common share.
Table 19.2:Outstanding Anti-Dilutive Securities
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| | | Weighted-average shares |
| Quarter ended June 30, | | Six months ended June 30, |
(in millions) | 2023 | | 2022 | | 2023 | | 2022 | | |
Convertible Preferred Stock, Series L (1) | 25.3 | | | 25.3 | | | 25.3 | | | 25.3 | | | |
Restricted share rights (2) | 0.2 | | | 0.2 | | | 0.4 | | | 0.2 | | | |
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(1) Calculated using the if-converted method.
(2) Calculated using the treasury stock method.
Table 19.3 presents dividends declared per common share.
Table 19.3:Dividends Declared Per Common Share
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| Quarter ended June 30, | | Six months ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 | | |
Per common share | $ | 0.30 | | | 0.25 | | | $ | 0.60 | | | 0.50 | | | |
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Note 20: Other Comprehensive Income |
Table 20.1 provides the components of other comprehensive income (OCI), reclassifications to net income by income statement line item, and the related tax effects.
Table 20.1:Summary of Other Comprehensive Income
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| Quarter ended June 30, | | Six months ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 | | |
(in millions) | Before tax | | Tax effect | | Net of tax | | Before tax | | Tax effect | | Net of tax | | Before tax | | Tax effect | | Net of tax | | Before tax | | Tax effect | | Net of tax | | | | | | |
Debt securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net unrealized gains (losses) arising during the period | $ | (557) | | | 138 | | | (419) | | | (4,806) | | | 1,183 | | | (3,623) | | | (199) | | | 51 | | | (148) | | | (11,694) | | | 2,880 | | | (8,814) | | | | | | | |
Reclassification of net (gains) losses to net income | 148 | | | (37) | | | 111 | | | 4 | | | (1) | | | 3 | | | 269 | | | (67) | | | 202 | | | 62 | | | (16) | | | 46 | | | | | | | |
Net change | (409) | | | 101 | | | (308) | | | (4,802) | | | 1,182 | | | (3,620) | | | 70 | | | (16) | | | 54 | | | (11,632) | | | 2,864 | | | (8,768) | | | | | | | |
Derivatives and hedging activities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fair Value Hedges: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Change in fair value of excluded components on fair value hedges (1) | 5 | | | (1) | | | 4 | | | 46 | | | (11) | | | 35 | | | 11 | | | (3) | | | 8 | | | 110 | | | (27) | | | 83 | | | | | | | |
Cash Flow Hedges: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net unrealized gains (losses) arising during the period on cash flow hedges | (1,001) | | | 248 | | | (753) | | | (114) | | | 28 | | | (86) | | | (617) | | | 153 | | | (464) | | | (165) | | | 41 | | | (124) | | | | | | | |
Reclassification of net (gains) losses to net income | 185 | | | (46) | | | 139 | | | (43) | | | 11 | | | (32) | | | 298 | | | (74) | | | 224 | | | (29) | | | 7 | | | (22) | | | | | | | |
Net change | (811) | | | 201 | | | (610) | | | (111) | | | 28 | | | (83) | | | (308) | | | 76 | | | (232) | | | (84) | | | 21 | | | (63) | | | | | | | |
Defined benefit plans adjustments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net actuarial and prior service gains (losses) arising during the period | — | | | — | | | — | | | (120) | | | 30 | | | (90) | | | — | | | — | | | — | | | (101) | | | 25 | | | (76) | | | | | | | |
Reclassification of amounts to noninterest expense (2) | 28 | | | (7) | | | 21 | | | 90 | | | (22) | | | 68 | | | 55 | | | (13) | | | 42 | | | 166 | | | (40) | | | 126 | | | | | | | |
Net change | 28 | | | (7) | | | 21 | | | (30) | | | 8 | | | (22) | | | 55 | | | (13) | | | 42 | | | 65 | | | (15) | | | 50 | | | | | | | |
Debit valuation adjustments (DVA) and other: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net unrealized gains (losses) arising during the period (3) | (13) | | | 3 | | | (10) | | | 101 | | | (21) | | | 80 | | | (9) | | | 2 | | | (7) | | | 113 | | | (24) | | | 89 | | | | | | | |
Reclassification of net (gains) losses to net income | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | | | |
Net change | (13) | | | 3 | | | (10) | | | 101 | | | (21) | | | 80 | | | (9) | | | 2 | | | (7) | | | 113 | | | (24) | | | 89 | | | | | | | |
Foreign currency translation adjustments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net unrealized gains (losses) arising during the period | 39 | | | — | | | 39 | | | (122) | | | (2) | | | (124) | | | 65 | | | (1) | | | 64 | | | (127) | | | (2) | | | (129) | | | | | | | |
Reclassification of net (gains) losses to net income | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | | | |
Net change | 39 | | | — | | | 39 | | | (122) | | | (2) | | | (124) | | | 65 | | | (1) | | | 64 | | | (127) | | | (2) | | | (129) | | | | | | | |
Other comprehensive income (loss) | $ | (1,166) | | | 298 | | | (868) | | | (4,964) | | | 1,195 | | | (3,769) | | | (127) | | | 48 | | | (79) | | | (11,665) | | | 2,844 | | | (8,821) | | | | | | | |
Less: Other comprehensive income from noncontrolling interests, net of tax | | | | | 1 | | | | | | | — | | | | | | | — | | | | | | | 1 | | | | | | | |
Wells Fargo other comprehensive loss, net of tax | | | | | $ | (869) | | | | | | | (3,769) | | | | | | | (79) | | | | | | | (8,822) | | | | | | | |
(1)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.
(2)These items are included in the computation of net periodic benefit cost (see Note 18 (Employee Benefits) for additional information).
(3)In first quarter 2023, we adopted ASU 2018-12 – Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. For additional information, see Note 1 (Summary of Significant Accounting Policies).
Table 20.2 provides the accumulated OCI (AOCI) balance activity on an after-tax basis.
Table 20.2:Accumulated OCI Balances
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(in millions) | Debt securities | | Fair value hedges (1) | | Cash flow hedges (2) | | Defined benefit plans adjustments | | Debit valuation adjustments (DVA) and other | | Foreign currency translation adjustments | | Accumulated other comprehensive income (loss) |
Quarter ended June 30, 2023 | | | | | | | | | | | | | |
Balance, beginning of period | $ | (9,473) | | | (73) | | | (809) | | | (1,880) | | | 17 | | | (354) | | | (12,572) | |
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Net unrealized gains (losses) arising during the period | (419) | | | 4 | | | (753) | | | — | | | (10) | | | 39 | | | (1,139) | |
Amounts reclassified from accumulated other comprehensive income | 111 | | | — | | | 139 | | | 21 | | | — | | | — | | | 271 | |
Net change | (308) | | | 4 | | | (614) | | | 21 | | | (10) | | | 39 | | | (868) | |
Less: Other comprehensive income from noncontrolling interests | — | | | — | | | — | | | — | | | — | | | 1 | | | 1 | |
Balance, end of period (3)(4) | $ | (9,781) | | | (69) | | | (1,423) | | | (1,859) | | | 7 | | | (316) | | | (13,441) | |
Quarter ended June 30, 2022 | | | | | | | | | | | | | |
Balance, beginning of period | $ | (4,483) | | | (95) | | | (55) | | | (1,983) | | | (3) | | | (148) | | | (6,767) | |
Transition adjustment (3) | — | | | — | | | — | | | — | | | (32) | | | — | | | (32) | |
Balance, beginning of period (3) | (4,483) | | | (95) | | | (55) | | | (1,983) | | | (35) | | | (148) | | | (6,799) | |
Net unrealized gains (losses) arising during the period | (3,623) | | | 35 | | | (86) | | | (90) | | | 80 | | | (124) | | | (3,808) | |
Amounts reclassified from accumulated other comprehensive income | 3 | | | — | | | (32) | | | 68 | | | — | | | — | | | 39 | |
Net change | (3,620) | | | 35 | | | (118) | | | (22) | | | 80 | | | (124) | | | (3,769) | |
Less: Other comprehensive income (loss) from noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Balance, end of period (3)(4) | $ | (8,103) | | | (60) | | | (173) | | | (2,005) | | | 45 | | | (272) | | | (10,568) | |
Six months ended June 30, 2023 | | | | | | | | | | | | | |
Balance, beginning of period | $ | (9,835) | | | (77) | | | (1,183) | | | (1,901) | | | (6) | | | (380) | | | (13,382) | |
Transition adjustment (3) | — | | | — | | | — | | | — | | | 20 | | | — | | | 20 | |
Balance, beginning of period (3) | (9,835) | | | (77) | | | (1,183) | | | (1,901) | | | 14 | | | (380) | | | (13,362) | |
Net unrealized gains (losses) arising during the period | (148) | | | 8 | | | (464) | | | — | | | (7) | | | 64 | | | (547) | |
Amounts reclassified from accumulated other comprehensive income | 202 | | | — | | | 224 | | | 42 | | | — | | | — | | | 468 | |
Net change | 54 | | | 8 | | | (240) | | | 42 | | | (7) | | | 64 | | | (79) | |
Less: Other comprehensive income (loss) from noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Balance, end of period (3)(4) | $ | (9,781) | | | (69) | | | (1,423) | | | (1,859) | | | 7 | | | (316) | | | (13,441) | |
Six months ended June 30, 2022 | | | | | | | | | | | | | |
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Balance, beginning of period | $ | 665 | | | (143) | | | (27) | | | (2,055) | | | — | | | (142) | | | (1,702) | |
Transition adjustment (3) | — | | | — | | | — | | | — | | | (44) | | | — | | | (44) | |
Balance, beginning of period (3) | 665 | | | (143) | | | (27) | | | (2,055) | | | (44) | | | (142) | | | (1,746) | |
Net unrealized gains (losses) arising during the period | (8,814) | | | 83 | | | (124) | | | (76) | | | 89 | | | (129) | | | (8,971) | |
Amounts reclassified from accumulated other comprehensive income | 46 | | | — | | | (22) | | | 126 | | | — | | | — | | | 150 | |
Net change | (8,768) | | | 83 | | | (146) | | | 50 | | | 89 | | | (129) | | | (8,821) | |
Less: Other comprehensive income from noncontrolling interests | — | | | — | | | — | | | — | | | — | | | 1 | | | 1 | |
Balance, end of period (3)(4) | $ | (8,103) | | | (60) | | | (173) | | | (2,005) | | | 45 | | | (272) | | | (10,568) | |
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(1)Substantially all of the amounts for fair value hedges are foreign exchange contracts.
(2)Substantially all of the amounts for cash flow hedges are interest rate contracts.
(3)In first quarter 2023, we adopted ASU 2018-12 – Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. For additional information, see Note 1 (Summary of Significant Accounting Policies).
(4)AOCI related to debt securities includes after-tax unrealized gains or losses associated with the transfer of securities from AFS to HTM of $3.7 billion and $3.4 billion at June 30, 2023 and 2022, respectively. These amounts are subsequently amortized from AOCI into earnings over the same period as the related unamortized premiums and discounts.
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Note 21: Regulatory 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 FRB establishes capital requirements for the consolidated financial holding company, and the OCCOffice of the Comptroller of the Currency (OCC) has similar requirements for the Company’s national banks, including Wells Fargo Bank, N.A. (the Bank).
Table 23.121.1 presents regulatory capital information for Wells Fargo &the Company and the Bank in accordance with Basel III capital requirements. We must calculate our risk-based capital ratios
ratios under both the Standardized and Advanced Approaches. 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.
At SeptemberJune 30, 2022,2023, the Bank and our other insured depository institutions were considered well-capitalized under the requirements of the Federal Deposit Insurance Act.
Table 23.1:21.1: Regulatory Capital Information
| | | Wells Fargo & Company | | Wells Fargo Bank, N.A. | | Wells Fargo & Company | | Wells Fargo Bank, N.A. |
| | Standardized Approach | | Advanced Approach | | Standardized Approach | | Advanced Approach | | Standardized Approach | | Advanced Approach | | Standardized Approach | | Advanced Approach |
(in millions, except ratios) | (in millions, except ratios) | September 30, 2022 | | December 31, 2021 | | September 30, 2022 | | December 31, 2021 | | September 30, 2022 | | December 31, 2021 | | September 30, 2022 | | December 31, 2021 | (in millions, except ratios) | June 30, 2023 | | December 31, 2022 | | June 30, 2023 | | December 31, 2022 | | June 30, 2023 | | December 31, 2022 | | June 30, 2023 | | December 31, 2022 |
Regulatory capital: | Regulatory capital: | | | | | | | | Regulatory capital: | | | | | | | |
Common Equity Tier 1 | Common Equity Tier 1 | $ | 129,758 | | | 140,643 | | | 129,758 | | | 140,643 | | | 137,609 | | | 149,318 | | | 137,609 | | | 149,318 | | Common Equity Tier 1 | $ | 134,221 | | | 133,527 | | | 134,221 | | | 133,527 | | | 142,300 | | | 140,644 | | | 142,300 | | | 140,644 | |
Tier 1 | Tier 1 | 148,810 | | | 159,671 | | | 148,810 | | | 159,671 | | | 137,609 | | | 149,318 | | | 137,609 | | | 149,318 | | Tier 1 | 153,201 | | | 152,567 | | | 153,201 | | | 152,567 | | | 142,300 | | | 140,644 | | | 142,300 | | | 140,644 | |
Total | Total | 182,690 | | | 196,308 | | | 173,520 | | | 186,580 | | | 160,488 | | | 173,044 | | | 151,250 | | | 163,213 | | Total | 187,563 | | | 186,747 | | | 176,926 | | | 177,258 | | | 166,077 | | | 163,885 | | | 155,862 | | | 154,292 | |
Assets: | Assets: | | Assets: | |
Risk-weighted assets | Risk-weighted assets | 1,255,641 | | | 1,239,026 | | | 1,104,116 | | | 1,116,068 | | | 1,175,426 | | | 1,137,839 | | | 971,152 | | | 965,511 | | Risk-weighted assets | 1,250,690 | | | 1,259,889 | | | 1,118,379 | | | 1,112,307 | | | 1,153,795 | | | 1,177,300 | | | 975,072 | | | 977,713 | |
Adjusted average assets | Adjusted average assets | 1,852,392 | | | 1,915,585 | | | 1,852,392 | | | 1,915,585 | | | 1,693,679 | | | 1,758,479 | | | 1,693,679 | | | 1,758,479 | | Adjusted average assets | 1,850,084 | | | 1,846,954 | | | 1,850,084 | | | 1,846,954 | | | 1,651,211 | | | 1,685,401 | | | 1,651,211 | | | 1,685,401 | |
Regulatory capital ratios: | Regulatory capital ratios: | | Regulatory capital ratios: | |
Common Equity Tier 1 capital | Common Equity Tier 1 capital | 10.33 | % | * | 11.35 | | | 11.75 | | | 12.60 | | | 11.71 | | * | 13.12 | | | 14.17 | | | 15.47 | | Common Equity Tier 1 capital | 10.73 | % | * | 10.60 | | | 12.00 | | | 12.00 | | | 12.33 | | * | 11.95 | | | 14.59 | | | 14.39 | |
Tier 1 capital | Tier 1 capital | 11.85 | | * | 12.89 | | | 13.48 | | | 14.31 | | | 11.71 | | * | 13.12 | | | 14.17 | | | 15.47 | | Tier 1 capital | 12.25 | | * | 12.11 | | | 13.70 | | | 13.72 | | | 12.33 | | * | 11.95 | | | 14.59 | | | 14.39 | |
Total capital | Total capital | 14.55 | | * | 15.84 | | | 15.72 | | | 16.72 | | | 13.65 | | * | 15.21 | | | 15.57 | | | 16.90 | | Total capital | 15.00 | | * | 14.82 | | | 15.82 | | | 15.94 | | | 14.39 | | * | 13.92 | | | 15.98 | | | 15.78 | |
Required minimum capital ratios: | Required minimum capital ratios: | | Required minimum capital ratios: | |
Common Equity Tier 1 capital | Common Equity Tier 1 capital | 9.10 | | | 9.60 | | | 8.50 | | | 9.00 | | | 7.00 | | | 7.00 | | | 7.00 | | | 7.00 | | Common Equity Tier 1 capital | 9.20 | | | 9.20 | | | 8.50 | | | 8.50 | | | 7.00 | | | 7.00 | | | 7.00 | | | 7.00 | |
Tier 1 capital | Tier 1 capital | 10.60 | | | 11.10 | | | 10.00 | | | 10.50 | | | 8.50 | | | 8.50 | | | 8.50 | | | 8.50 | | Tier 1 capital | 10.70 | | | 10.70 | | | 10.00 | | | 10.00 | | | 8.50 | | | 8.50 | | | 8.50 | | | 8.50 | |
Total capital | Total capital | 12.60 | | | 13.10 | | | 12.00 | | | 12.50 | | | 10.50 | | | 10.50 | | | 10.50 | | | 10.50 | | Total capital | 12.70 | | | 12.70 | | | 12.00 | | | 12.00 | | | 10.50 | | | 10.50 | | | 10.50 | | | 10.50 | |
| | Wells Fargo & Company | | Wells Fargo Bank, N.A. | | Wells Fargo & Company | | Wells Fargo Bank, N.A. |
| | September 30, 2022 | | December 31, 2021 | | September 30, 2022 | | December 31, 2021 | | June 30, 2023 | | December 31, 2022 | | June 30, 2023 | | December 31, 2022 |
Regulatory leverage: | Regulatory leverage: | | | | | | | | Regulatory leverage: | | | | | | | |
Total leverage exposure (1) | Total leverage exposure (1) | $ | 2,236,647 | | | 2,316,079 | | | 2,072,151 | | | 2,133,798 | | Total leverage exposure (1) | $ | 2,217,575 | | | 2,224,789 | | | 2,005,228 | | | 2,058,568 | |
Supplementary leverage ratio (SLR) (1) | Supplementary leverage ratio (SLR) (1) | 6.65 | % | | 6.89 | | | 6.64 | | | 7.00 | | Supplementary leverage ratio (SLR) (1) | 6.91 | % | | 6.86 | | | 7.10 | | | 6.83 | |
Tier 1 leverage ratio (2) | Tier 1 leverage ratio (2) | 8.03 | | | 8.34 | | | 8.12 | | | 8.49 | | Tier 1 leverage ratio (2) | 8.28 | | | 8.26 | | | 8.62 | | | 8.34 | |
Required minimum leverage: | Required minimum leverage: | | Required minimum leverage: | |
Supplementary leverage ratio | Supplementary leverage ratio | 5.00 | | | 5.00 | | | 6.00 | | | 6.00 | | Supplementary leverage ratio | 5.00 | | | 5.00 | | | 6.00 | | | 6.00 | |
Tier 1 leverage ratio | Tier 1 leverage ratio | 4.00 | | | 4.00 | | | 4.00 | | | 4.00 | | Tier 1 leverage ratio | 4.00 | | | 4.00 | | | 4.00 | | | 4.00 | |
*Denotes the binding ratio under the Standardized and Advanced Approaches at SeptemberJune 30, 2022.2023.
(1)The 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.
(2)The tierTier 1 leverage ratio consists of tierTier 1 capital divided by total average assets, excluding goodwill and certain other items as determined under the rule.
At SeptemberJune 30, 2022,2023, the Common Equity Tier 1 (CET1), tierTier 1 and total capital ratio requirements for the Company included a global systemically important bank (G-SIB) surcharge of 1.50%. The G-SIB surcharge is not applicable to the Bank. In addition, the CET1, tierTier 1 and total capital ratio requirements for the Company included a stress capital buffer of 3.10%3.20% under the Standardized Approach and a capital conservation buffer of 2.50% under the Advanced Approach. The capital ratio requirements for the Bank included a capital conservation buffer of 2.50% under both the Standardized and Advanced Approaches. The Company is required to maintain these risk-based capital ratios and to maintain an SLR of at least 5.00% (composed 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 an SLR of at least 6.00% to be considered well-capitalized under applicable regulatory capital adequacy rules.
Capital Planning Requirements
The FRB’s capitalcapital 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.
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140134 | Wells Fargo & Company | |
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, and regulators can impose additional limitations on, 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 (Parent), WFC Holdings, LLC, an intermediate holding company and subsidiary of the Parent (IHC), Wells Fargothe 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 Boardboard of directors authorizes it to file a case under the U.S. Bankruptcy Code.
For additional information on loan and dividend restrictions, see Note 2825 (Regulatory Capital Requirements and Other Restrictions) in our 20212022 Form 10-K.
Cash Restrictions
Cash and cash equivalents may be restricted as to usage or withdrawal. Table 23.221.2 provides a summary of restrictions on cash and cash equivalents.
Table 23.2:21.2: Nature of Restrictions on Cash and Cash Equivalents
| (in millions) | (in millions) | Sep 30, 2022 | | Dec 31, 2021 | (in millions) | Jun 30, 2023 | | Dec 31, 2022 |
Reserve balance for non-U.S. central banks | Reserve balance for non-U.S. central banks | $ | 237 | | | 382 | | Reserve balance for non-U.S. central banks | $ | 229 | | | 238 | |
Segregated for benefit of brokerage customers under federal and other brokerage regulations | Segregated for benefit of brokerage customers under federal and other brokerage regulations | 809 | | | 830 | | Segregated for benefit of brokerage customers under federal and other brokerage regulations | 690 | | | 898 | |
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| Wells Fargo & Company | 141135 |
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Glossary of Acronyms |
| | | |
ACL | Allowance for credit losses | HTM | Held-to-maturity |
AFS | Available-for-sale | LCR | Liquidity coverage ratio |
AOCI | Accumulated other comprehensive income | LHFS | Loans held for sale |
ARM | Adjustable-rate mortgage | LIBOR | London Interbank Offered Rate |
ASC | Accounting Standards Codification | LIHTC | Low-income housing tax credit |
ASU | Accounting Standards Update | LOCOM | Lower of cost or fair value |
AVM | Automated valuation model | LTV | Loan-to-value |
BCBS | Basel Committee on Banking Supervision | MBS | Mortgage-backed securities |
BHC | Bank holding company | MSR | Mortgage servicing right |
CCAR | Comprehensive Capital Analysis and Review | NAV | Net asset value |
CD | Certificate of deposit | NPA | Nonperforming asset |
CECL | Current expected credit loss | NSFR | Net stable funding ratio |
CET1 | Common Equity Tier 1 | OCC | Office of the Comptroller of the Currency |
CFPB | Consumer Financial Protection Bureau | OCI | Other comprehensive income |
CLO | Collateralized loan obligation | OTC | Over-the-counter |
CLTV | Combined loan-to-value | PCD | Purchased credit-deteriorated |
CPI | Collateral protection insurance | PTPP | Pre-tax pre-provision profit |
CRE | Commercial real estate | RMBS | Residential mortgage-backed securities |
DPD | Days past due | ROA | Return on average assets |
ESOP | Employee Stock Ownership Plan | ROE | Return on average equity |
FASB | Financial Accounting Standards Board | ROTCE | Return on average tangible common equity |
FDIC | Federal Deposit Insurance Corporation | RWAs | Risk-weighted assets |
FHA | Federal Housing Administration | SEC | Securities and Exchange Commission |
FHLB | Federal Home Loan Bank | S&P | Standard & Poor’s Global Ratings |
FHLMC | Federal Home Loan Mortgage Corporation | SLR | Supplementary leverage ratio |
FICO | Fair Isaac Corporation (credit rating) | SOFR | Secured Overnight Financing Rate |
FNMA | Federal National Mortgage Association | SPE | Special purpose entity |
FRB | Board of Governors of the Federal Reserve System | TDR | Troubled debt restructuring |
GAAP | Generally accepted accounting principles | TLAC | Total Loss Absorbing Capacity |
GNMA | Government National Mortgage Association | VA | Department of Veterans Affairs |
GSE | Government-sponsored entity | VaR | Value-at-Risk |
G-SIB | Global systemically important bank | VIE | Variable interest entity |
HQLA | High-quality liquid assets | WIM | Wealth and Investment Management |
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142136 | Wells Fargo & Company | |
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
Information in response to this item can be found in Note 1310 (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, 2022. In third quarter 2022, common stock repurchases were limited to repurchases in connection with the Wells Fargo & Company Stock Purchase Plan and the Company’s deferred compensation plans.2023.
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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 | 34,420 | | | $ | 41.37 | | | 250,601,709 | |
August | 45,950 | | | 44.58 | | | 250,555,759 | |
September | 36,667 | | | 43.40 | | | 250,519,092 | |
Total | 117,037 | | | | | |
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Calendar month | Total number of shares repurchased (1) | | Weighted average price paid per share | | Maximum number of shares that may yet be repurchased under the authorization |
April | 29,637,759 | | | $ | 41.17 | | | 134,366,515 | |
May | 70,530,974 | | | 39.46 | | | 63,835,541 | |
June | 59,638 | | | 41.51 | | | 63,775,903 | |
Total | 100,228,371 | | | | | |
(1)All shares were repurchased under an authorization covering up to 500 million shares of common stock approved by the Board of Directors (Board) and publicly announced by the Company on January 15, 2021. The Company publicly announced on July 25, 2023, that the Board authorized a new common stock repurchase program of up to $30 billion. Unless modified or revoked by the Board, of Directors, this authorization does not expire.expire and supersedes the prior share repurchase authority approved by the Board.
Item 5. Other Information
Trading Plans
During the three months ended June 30, 2023, no director or officer (as defined in Rule 16a-1(f) under the Exchange Act) of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
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| Wells Fargo & Company | 143137 |
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.June 29, 2023. |
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. |
| | | | Filed herewith. |
| | | | Filed herewith. |
| | | | Filed herewith. |
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| | | | Incorporated by reference to Exhibit 22 to the Company’s AnnualQuarterly Report on Form 10-K10-Q for the yearquarter ended DecemberMarch 31, 2020.2023. |
| | | | 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. |
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144138 | Wells Fargo & Company | |
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: October 31, 2022August 1, 2023 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) |
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| Wells Fargo & Company | 145139 |