Wells Fargo Real Estate Investment (WFE) 10-Q 2018 Q1 Quarterly report

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2018

Commission file number 1-36768

Wells Fargo Real Estate Investment Corporation

(Exact name of registrant as specified in its charter)

Delaware	56-1986428
(State of incorporation)	(I.R.S. Employer Identification No.)

90 South 7th Street

Minneapolis, Minnesota 55402

(Address of principal executive offices)

(Zip Code)

(855) 825-1437

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes þ No o

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    o	Accelerated filer  o
Non-accelerated filer    þ (Do not check if a smaller reporting company)	Smaller reporting company  o
	Emerging growth company  o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of April 30, 2018, there were 34,058,028 shares of the registrant’s common stock outstanding.

FORM 10-Q

CROSS-REFERENCE INDEX

PART I	Financial Information
Item 1.	Financial Statements			Page
	Statement of Income			23
	Balance Sheet			24
	Statement of Changes in Equity			25
	Statement of Cash Flows			26
	Notes to Financial Statements
	1	—	Summary of Significant Accounting Policies	27
	2	—	Loans and Allowance for Credit Losses	28
	3	—	Fair Values of Assets and Liabilities	39
	4	—	Common and Preferred Stock	40
	5	—	Transactions with Related Parties	41
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations (Financial Review)
	Summary Financial Data			2
	Overview			3
	Earnings Performance			5
	Balance Sheet Analysis			7
	Risk Management			8
	Critical Accounting Policy			20
	Current Accounting Developments			20
	Forward-Looking Statements			21
	Risk Factors			21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk			18
Item 4.	Controls and Procedures			22
PART II	Other Information
Item 1.	Legal Proceedings			43
Item 1A.	Risk Factors			43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds			43
Item 6.	Exhibits			44
Signature				45

1

PART I - FINANCIAL INFORMATION

FINANCIAL REVIEW

Summary Financial Data
							% Change
	Quarter ended						March 31, 2018 from
($ in thousands, except per share data)	Mar 31, 2018			Dec 31, 2017		Mar 31, 2017	Dec 31, 2017		Mar 31, 2017
For the period
Net income	$	319,032		314,930		288,097	1	%	11
Net income applicable to common stock	314,635			310,533		283,700	1		11
Diluted earnings per common share	9.24			9.12		8.33	1		11
Profitability ratios
Return on average assets	3.64		%	3.66		3.59	(1	)	1
Return on average stockholders’ equity	3.98			3.85		3.60	3		11
Average stockholders’ equity to average assets	91.49			95.09		99.68	(4	)	(8	)
Common dividend payout ratio (1)	103.25			99.78		102.16	3		1
Dividend coverage ratio (2)	7,105			6,929		5,270	3		35
Total revenue	343,520			343,962		324,398	—		6
Average loans	35,326,570			33,637,296		30,730,460	5		15
Average assets	35,569,258			34,112,627		32,547,955	4		9
Net interest margin	3.83		%	3.92		3.86	(2	)	(1	)
Net loan charge-offs (recoveries)	$	(506	)	(2,791	)	4,437	NM		NM
As a percentage of average total loans (annualized)	(0.01		)%	(0.03	)	0.06	NM		NM
At period end
Loans	$	34,824,594		35,865,176		30,277,151	(3	)	15
Allowance for loan losses	122,863			129,360		126,301	(5	)	(3	)
As a percentage of total loans	0.35		%	0.36		0.42	(3	)	(17	)
Assets	$	34,898,519		35,945,599		32,391,113	(3	)	8
Total stockholders’ equity	32,379,898			32,390,263		32,387,884	—		—
Total nonaccrual loans and foreclosed assets	199,449			199,767		211,885	—		(6	)
As a percentage of total loans	0.57		%	0.56		0.70	2		(19	)
Loans 90 days or more past due and still accruing (3)	$	8,272		12,905		9,926	(36	)	(17	)

NM - Not meaningful

(1) Dividends declared per common share as a percentage of earnings per common share.

(2) Thedividend coverage ratio is considered a non-GAAP financial measure. Management believes the dividend coverage ratio is a useful financial measure because the certificate of designation for the Series A preferred stock limits, among other matters, our ability to pay dividends on our common stock or make any payment of interest or principal on our line of credit with Wells Fargo Bank, National Association, if the dividend coverage ratio for the four prior fiscal quarters is less than 150%. The dividend coverage ratio is expressed as a percentage and calculated by dividing the four prior fiscal quarters' GAAP net income, excluding gains (or losses) from sales of property (consistent with the National Association of Real Estate Investment Trusts definition of “funds from operations”), by the amount that would be required to pay annual dividends on the Series A and Series B preferred stock.

(3) The carrying value of purchased credit-impaired (PCI) loans contractually 90 days or more past due is excluded. These PCI loans are considered to be accruing because they continue to earn interest from accretable yield, independent of performance in accordance with their contractual terms.

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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 forecasts and expectations due to several factors. Factors that could cause our results to differ materially from our forward looking statements are described in this Report, including in the “Forward-Looking Statements” section, and the “Risk Factors” section in our Annual Report on Form 10-K for the year ended December 31, 2017 ( 2017 Form 10-K).

When we refer to “WFREIC,” the “Company,” “we,” “our,” and “us” in this Report, we mean Wells Fargo Real Estate Investment Corporation, and where relevant, Wells Fargo Bank, National Association, acting on our behalf; the “Bank” refers to Wells Fargo Bank, National Association; and “Wells Fargo” refers to Wells Fargo & Company.

Financial Review

OVERVIEW

The Company is engaged in acquiring, holding and managing domestic mortgage assets and other authorized investments that generate net income for distribution to our shareholders. We are classified as a real estate investment trust (REIT) for federal income tax purposes and are an indirect subsidiary of Wells Fargo and the Bank.

As of March 31, 2018, we had $34.9 billion in assets, consisting substantially of real estate loan participation interests (loans). Our interests in mortgage and other assets have been acquired from the Bank pursuant to loan participation and servicing and assignment agreements among the Bank, certain of its subsidiaries and us. The Bank originated the loans, purchased them from other financial institutions or acquired them as part of the acquisition of other financial institutions. Substantially all of our loans are serviced by the Bank.

REIT Tax Status

For the tax year ended December 31, 2017, we complied with the relevant provisions of the Internal Revenue Code of 1986, as amended (the Code) to be taxed as a REIT. These provisions for qualifying as a REIT for federal income tax purposes are complex, involving many requirements, including among others, distributing at least 90% of our REIT taxable income to shareholders and satisfying certain asset, income and stock ownership tests. To the extent we meet those provisions, we will not be subject to federal income tax on net income. We continue to monitor each of these complex tests. We believe that we continue to satisfy each of these requirements and therefore continue to qualify as a REIT.

In the event we do not continue to qualify as a REIT, earnings and cash provided by operating activities available for distribution to shareholders would be reduced by the amount of any applicable income tax obligation. Given the level of earning assets, we currently expect there would be sufficient earnings and ample cash to pay preferred dividends. The preferred and common dividends we pay as a REIT are ordinary investment income not eligible for the dividends-received deduction for corporate shareholders or for the favorable qualified dividend tax rate applicable to non-corporate taxpayers, however non-corporate shareholders may be able to deduct 20% of the preferred and common dividends as a deduction for qualified business income under the Tax Cuts and Jobs Act. If we were not a REIT, preferred and common dividends we pay generally would qualify for the dividends received deduction for corporate shareholders and the favorable qualified dividend tax rate applicable to non-corporate taxpayers.

Financial Performance

We earned net income and net income applicable to common stock of $319.0 million and $314.6 million, respectively, in first quarter 2018, or $9.24 diluted earnings per common share, compared with $288.1 million and $283.7 million, respectively, in first quarter 2017, or $8.33 diluted earnings per common share. The increase in net income in first quarter 2018 was attributable to higher net interest income resulting from a larger average interest-earning asset base as well as an increase in yield, partially offset by an increase in interest expense.

Loans

Total loans were $34.8 billion at March 31, 2018, compared with $35.9 billion at December 31, 2017. Net loans represented 99% of assets at both March 31, 2018 and December 31, 2017.

Credit quality, as measured by net charge-offs, nonaccruals and delinquencies, reflected the continued improvement of the housing market. Net recoveries were $506 thousand in first quarter, compared with net charge-offs of $4.4 million in first quarter 2017. Nonaccrual loans were $197.2 million at March 31, 2018, compared with $197.4 million at December 31, 2017. Loans 90 days or more past due and still accruing were $8.3 million at March 31, 2018, compared with $12.9 million at December 31, 2017. Delinquencies remain a small percentage of our loan balances.

First quarter 2018 reversal of provision for credit losses was $5.9 million, compared with a provision for credit losses of $8.1 million a year ago. The lower level of provision in first quarter compared with a year ago reflected an improvement in our outlook for 2017 hurricane-related losses as well as strong performance in our residential real estate portfolio primarily as a result of continued improvement in the housing market. Future allowance levels will be based on a variety of factors, including loan portfolio composition, size and performance, and the general economic environment, including housing market conditions.

Capital Distributions

Dividends declared to holders of our Series A preferred stock totaled $4.4 million in first quarter of both 2018 and 2017. Dividends declared to holders of our Series B preferred stock totaled $14 thousand in the first quarter of both 2018 and 2017.

Dividends declared to the holders of our common stock totaled $325.0 million in first quarter 2018 compared with $290.0 million in first quarter 2017. The increase in dividends declared to the holders of our common stock in the first quarter

3

2018 was attributable to increased REIT taxable income for federal income tax purposes before dividends paid deduction.

4

Earnings Performance

Net Income

We earned net income of $319.0 million and $288.1 million in first quarter 2018 and 2017, respectively. The increase in net income in first quarter 2018 was attributable to higher net interest income resulting from a larger average interest-earning asset base as well as an increase in yield, partially offset by an increase in interest expense.

Net Interest Income

Net interest income is the interest earned on loans and cash and cash equivalents less the interest paid on our Bank line of credit. Net interest income was $337.3 million in first quarter 2018, compared with $310.6 million a year ago. The increase in first quarter was attributable to a larger interest-earning asset base as well as an increase in yield, partially offset by an increase in interest expense.

Net interest margin is the average yield on interest-earning assets minus the average interest paid for funding. Interest-earning assets predominantly consist of loans. Net interest margin was 3.83% in first quarter 2018 compared with 3.86% for the same period a year ago. The decrease in net interest margin for first quarter 2018 was due to the increase in interest expense, a result of an increase in average balance of interest-bearing liabilities, partially offset by an increase in yield on interest-earning assets. Interest income in first quarter 2018 included net accretion of adjustments on loans of $4.3 million compared with $3.9 million a year ago. Loan paydowns and payoffs annualized represented 11.7% of average loan balances during first quarter2018 compared with 13.1% a year ago. The lower paydown and payoff rate in first quarter 2018 was generally attributable to higher mortgage rates compared with a year ago.

Interest income in any one period can be affected by a variety of factors, including mix and size of the earning asset portfolio. See the “Risk Management - Asset/Liability Management - Interest Rate Risk” section in this Report for more information on interest rates and interest income.

The Company has a $5.0 billion line of credit with the Bank. Average borrowings for first quarter 2018 were $3.0 billion at a weighted average interest rate of 1.93%. We did not borrow on the line of credit during first quarter 2017. Effective October 2017, the rate of interest on the line of credit was changed from the average federal funds rate plus 12.5 basis points (0.125%) to the three-month London Interbank Offered Rate (LIBOR) plus 4.4 basis points (0.044%).

Table 1 presents the components of interest-earning assets and interest-bearing liabilities and related average yields to provide an analysis of year-over-year changes that influenced net interest income.

Table 1:Interest Income

	Quarter ended March 31,
					2018						2017
(in thousands)	Average balance		Interest income/expense		Yields/rates		Average balance		Interest income/expense		Yields/rates
Earning assets
Commercial loans	$	3,233,806	30,202		3.79	%	$	3,872,236	28,054		2.94	%
Real estate 1-4 family mortgage loans	32,092,764		321,462		4.01		26,858,224		279,781		4.18
Interest-bearing deposits and other interest-earning assets	—		—		—		1,559,692		2,780		0.72
Total interest-earning assets	$	35,326,570	351,664		3.99		$	32,290,152	310,615		3.86
Funding sources
Line of credit with Bank	$	3,021,064	14,402		1.93		$	—	—		—
Total interest-bearing liabilities	$	3,021,064	14,402		1.93		$	—	—		—
Net interest margin and net interest income			$	337,262	3.83	%			$	310,615	3.86	%

Provision for Credit Losses

First quarter 2018 reversal of provision for credit losses was $5.9 million, compared with a provision for credit losses of $8.1 milliona year ago. The lower level of provision in first quarter 2018 compared with a year ago reflected improvement in our outlook for 2017 hurricane-related losses as well as strong performance in our residential real estate portfolio primarily as a result of continued improvement in the housing market. See

the “Balance Sheet Analysis” and "Risk Management-Allowance for Credit Losses” sections in this Report for additional information on the allowance for credit losses.

5

Noninterest Income

Noninterest income in first quarter 2018 was $6.3 million, compared with $13.8 million a year ago. In first quarter 2018 and 2017, noninterest income predominantly consisted of loan pledge fees.

The certificate of designation for the Series A preferred stock limits our ability to pledge our loans to an aggregate amount not exceeding 80% of our total assets at any time as collateral on behalf of the Bank for the Bank’s access to secured borrowing facilities through the Federal Home Loan Banks or the discount window of Federal Reserve Banks. In exchange for the pledge of our loan assets, the Bank pays us a fee that is consistent with market terms. We earned $6.0 million in pledge fees during first quarter 2018 compared with $13.6 million a year ago. The decrease in first quarter 2018 was attributable to a lower pledge fee rate and lower average balance pledged. See Note 5 (Transactions With Related Parties) to Financial Statements in this Report for more details.

Noninterest Expense

Noninterest expense in first quarter 2018 was $30.3 million, compared with $28.2 million a year ago. Noninterest expense predominantly consists of loan servicing costs, management fees, and foreclosed assets expense.

The loans in our portfolio are predominantly serviced by the Bank pursuant to the terms of participation and servicing and assignment agreements. In limited instances, the Bank has delegated servicing responsibility to third parties that are not affiliated with us or the Bank. Depending on the loan type, the monthly servicing fee charges are based in part on (a) outstanding principal balances, (b) a flat fee per month, or (c) a total loan commitment amount. Loan servicing costs in first quarter 2018 were $21.9 million, compared with $18.8 million in first quarter 2017. The increase in first quarter 2018 was attributable to a higher average loan balance.

Management fees represent reimbursements made to the Bank for general overhead expenses, including allocations of technology support and a combination of finance and accounting, risk management and other general overhead expenses incurred on our behalf. Management fees include direct and indirect expense allocations. Indirect expenses are allocated based on ratios that use our proportion of expense activity drivers. The expense activity drivers and ratios may change from time to time. Management fees were $6.3 million in first quarter 2018 compared with $6.9 million in first quarter 2017.

Foreclosed assets expense was $2.1 million in first quarter 2018 compared with $2.4 million in first quarter 2017. Substantially all of our foreclosed assets consist of residential 1-4 family real estate assets.

See Note 5 (Transactions With Related Parties) to Financial Statements in this Report for more details.

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Balance Sheet Analysis

Total Assets

Our assets predominantly consist of commercial and consumer loans, although we have the authority to hold assets other than loans. Total assets were $34.9 billion at March 31, 2018, and$35.9 billion at December 31, 2017.

Loans

Loans were $34.8 billion at March 31, 2018, and $35.9 billion at December 31, 2017. We did not acquire loans in first quarter 2018 or 2017. At both March 31, 2018 and December 31, 2017, consumer loans represented 91% of loans, respectively, and commercial loans represented the remaining balance of our loan portfolio.

Allowance for Loan Losses

The allowance for loan losses decreased $6.5 million to $122.9 million at March 31, 2018, from $129.4 million at December 31, 2017, reflected improvement in our outlook for 2017 hurricane-related losses as well as strong performance in our residential real estate portfolio primarily as a result of continued improvement in the housing market.

At March 31, 2018, the allowance for loan losses included $97.0 million for consumer loans and $25.8 million for commercial loans; however, the entire allowance is available to absorb credit losses inherent in the total loan portfolio. The total allowance reflects management’s estimate of credit losses inherent in the loan portfolio at the balance sheet date. See the “Risk Management — Credit Risk Management — Allowance for Credit Losses” section in this Report for a description of how management estimates the allowance for loan losses and the allowance for unfunded credit commitments.

Accounts Receivable—Affiliates, Net

Accounts payable and receivable from affiliates result from intercompany transactions in the normal course of business related to loan paydowns and payoffs, interest receipts, servicing costs, management fees and other transactions with the Bank or its affiliates.

Line of Credit with Bank

We draw upon our $5.0 billion line of credit with the Bank to finance loan acquisitions. At March 31, 2018 and December 31, 2017, we had $2.5 billion and $3.6 billion outstanding, respectively.

Retained Earnings (Deficit)

We expect to distribute annually an aggregate amount of dividends with respect to outstanding capital stock equal to approximately 100% of our REIT taxable income for federal income tax purposes before dividends paid deduction. Because our net income determined under GAAP may vary from the determination of REIT taxable income, due to recognition differences for items such as loan losses and purchase accounting adjustments, periodic distributions may exceed our GAAP net income.

The retained deficit included within our balance sheet results from cumulative distributions that have exceeded GAAP net income, predominantly due to the impact on REIT taxable income of purchase accounting adjustments attributable to the Company during the years 2009 through 2013, from the 2008 acquisition of Wachovia Corporation by Wells Fargo.

For further information on the differences between taxable income before dividends paid deduction reported on our income tax returns and net income as reported in our statement of income, see the “Balance Sheet Analysis” section in our 2017 Form 10-K.

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Risk Management

Our board of directors has overall responsibility for overseeing the Company’s risk management structure. This oversight is accomplished through the audit committee of the board of directors and a management-level committee that reviews the allowance for credit losses and is supplemented by certain elements of Wells Fargo’s risk management framework. For more information about how we manage these risks, see the “Risk Management” section in our 2017 Form 10-K. The discussion that follows provides an update regarding these risks.

Credit Risk Management Our assets consist predominantly of loans, and their related credit risk is among the most significant risks we manage. We define credit risk as the risk to earnings associated with a borrower or counterparty default (failure to meet obligations in accordance with agreed upon terms).

Table 2 represents loans by segment and class of financing receivable and the weighted average maturity for those loans calculated using contractual maturity dates.

Table 2:Total Loans Outstanding by Portfolio Segment and Class of Financing Receivable and Weighted Average Contractual Maturity

	Loans outstanding			Weighted average maturity in years
(in thousands)	Mar 31, 2018		Dec 31, 2017	Mar 31, 2018	Dec 31, 2017
Total commercial	$	3,128,427	3,325,939	3.0	3.2
Consumer:
Real estate 1-4 family first mortgage	30,887,109		31,683,651	24.9	25.1
Real estate 1-4 family junior lien mortgage	809,058		855,586	15.3	15.4
Total consumer	31,696,167		32,539,237	24.6	24.8
Total loans	$	34,824,594	35,865,176	22.7	22.8

The discussion that follows provides analysis of the risk elements of our various loan portfolios and our credit risk management and measurement practices. See Note 2 (Loans and Allowance for Credit Losses) to Financial Statements in this Report for more analysis and credit metric information.

In order to maintain our REIT status, the composition of our loan portfolio is highly concentrated in real estate.

We continually evaluate our credit policies and modify as necessary. Measuring and monitoring our credit risk is an ongoing process that tracks delinquencies, collateral values, 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.

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LOAN PORTFOLIO BY GEOGRAPHY Table 3 is a summary of the geographical distribution of our loan portfolio for the top five states by loans outstanding.

Table 3:Loan Portfolio by Geography

	March 31, 2018
(in thousands)	Commercial		Real estate 1-4 family first mortgage	Real estate 1-4 family junior lien mortgage	Total	% of total loans
California	$	1,460,217	8,607,841	9,138	10,077,196	29	%
New York	14,352		3,222,025	49,176	3,285,553	9
Washington	152,063		2,107,615	1,025	2,260,703	6
Virginia	66,059		1,781,494	82,895	1,930,448	6
Texas	74,840		1,252,998	11,639	1,339,477	4
All other states	1,360,896		13,915,136	655,185	15,931,217	46
Total loans	$	3,128,427	30,887,109	809,058	34,824,594	100	%

COMMERCIAL AND INDUSTRIAL LOANS (C&I) C&I loans were less than 1% of total loans at March 31, 2018. We believe the C&I loan portfolio was appropriately underwritten. Our credit risk management process for this portfolio focuses on a

customer's ability to repay the loan through their cash flows. All of the loans in our C&I portfolio were unsecured at March 31, 2018.

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COMMERCIAL SECURED BY REAL ESTATE (CSRE)The CSRE portfolio consists of both mortgage loans and construction loans, where loans are secured by real estate. Table 4 summarizes CSRE loans by state and property type. To identify and manage newly emerging problem CSRE loans, we employ a high level of monitoring and regular customer interaction to understand and manage the risks associated with these loans,

including regular loan reviews and appraisal updates. We consider the creditworthiness of the customers and collateral valuations when selecting CSRE loans for acquisition. In future periods, we expect to consider acquisitions of CSRE loans in addition to other REIT qualifying assets such as real estate 1-4 family mortgage loans. 

Table 4:CSRE Loans by State and Property Type

	March 31, 2018
(in thousands)	Total CSRE loans		% of total CSRE loans
By state:
California	$	1,460,217	47	%
Florida	279,014		9
Utah	196,948		6
Washington	152,063		5
Oregon	149,569		5
All other states	871,828		28
Total loans	$	3,109,639	100	%
By property type:
Office buildings	$	775,226	25	%
Shopping centers	617,520		20
5+ multifamily residences	454,247		15
Warehouses	400,864		13
Retail establishments (restaurants, stores)	365,561		12
Mini-storage	147,077		5
Motels/hotels	113,382		4
Commercial/industrial (non-residential)	93,307		3
Manufacturing plants	66,079		2
Research and development	52,110		1
Other	24,266		—
Total loans	$	3,109,639	100	%

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REAL ESTATE 1-4 FAMILY MORTGAGE LOANSThe concentrations of real estate 1-4 family mortgage loans by state and the related loan-to-value (LTV) ratio for real estate 1-4 family first mortgage and combined loan-to-value (CLTV) ratio for real estate 1-4 family junior lien mortgage loans are presented in combination in Table 5. CLTV means the ratio of the total loan balance of first and junior mortgages to property collateral value. We monitor changes in real estate values and underlying economic or market conditions for all geographic areas of our real estate 1-4 family mortgage portfolio as part of our credit risk management process. Our underwriting and periodic review of loans secured by residential real estate collateral includes appraisals or estimates from automated valuation models (AVMs) to support property values. Additional information about AVMs and our policy for their use can be

found in Note 2 (Loans and Allowance for Credit Losses) to Financial Statements in this Report and the “Risk Management - Credit Risk Management - Real Estate 1-4 Family Mortgage Loans” section in our 2017 Form 10-K.

We continue to modify real estate 1-4 family mortgage loans to assist homeowners and other borrowers experiencing financial difficulties. For more information on our modification programs, see the “Risk Management - Credit Risk Management - Real Estate 1-4 Family Mortgage Loans” section in our 2017 Form 10-K.

The credit performance associated with our real estate 1-4 family mortgage portfolio remained strong in first quarter 2018, as measured through net charge-offs and nonaccrual loans.

Table 5:Real Estate 1-4 Family Mortgage Loans LTV/CLTV by State

	March 31, 2018
(in thousands)	Real estate 1-4 family mortgage		Current LTV\CLTV ratio (1)
California	$	8,616,979	47	%
New York	3,271,201		59
Washington	2,108,640		54
Virginia	1,864,389		64
Texas	1,264,637		58
All other states	14,570,321		61
Total loans	$	31,696,167	57

(1) Collateral values are generally determined using AVMs and are updated quarterly. AVMs are computer-based tools used to estimate market values of homes based on processing large volumes of market data including market comparables and price trends for local market areas.

REAL ESTATE 1-4 FAMILY FIRST MORTGAGE LOANS Net charge-offs (recoveries) (annualized) as a percentage of average loans improved to (0.01)% in first quarter 2018, compared with 0.04% for the same period a year ago. Nonaccrual loans were

$152.5 million at March 31, 2018, compared with $150.4 million at December 31, 2017.

Table 6 summarizes delinquency and loss rates by state for our real estate 1-4 family first mortgage portfolio.

Table 6:Real Estate 1-4 Family First Mortgage Portfolio Performance

	Outstanding balance			% of loans 30 days or more past due			Loss (recovery) rate (annualized) quarter ended
(in thousands)	Mar 31, 2018		Dec 31, 2017	Mar 31, 2018		Dec 31, 2017	Mar 31, 2018		Dec 31, 2017		Sep 30, 2017		Jun 30, 2017		Mar 31, 2017
California	$	8,607,663	8,852,383	0.10	%	0.15	—		—		—		—		—
New York	3,221,504		3,268,458	0.47		0.45	—		0.02		0.01		0.01		0.07
Washington	2,107,615		2,149,416	0.03		0.03	(0.01	)	—		(0.01	)	(0.01	)	0.01
Virginia	1,780,502		1,818,445	0.44		0.51	(0.02	)	0.01		0.02		(0.01	)	0.04
Texas	1,252,963		1,289,611	0.33		0.44	0.02		(0.01	)	0.01		(0.02	)	—
All other states	13,908,898		14,296,320	0.84		0.90	(0.03	)	0.01		—		0.01		0.07
Total	30,879,145		31,674,633	0.50		0.54	(0.01	)	0.01		—		—		0.04
PCI	7,964		9,018
Total first mortgages	$	30,887,109	31,683,651

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REAL ESTATE 1-4 FAMILY JUNIOR LIEN MORTGAGE LOANS Our junior lien portfolio includes real estate 1-4 family junior lien mortgage loans secured by real estate. Predominantly all of our junior lien loans are amortizing payment loans with fixed interest rates and repayment periods between 5 to 30 years. Junior lien loans with balloon payments at the end of the repayment term represent less than 1% of our junior lien loans. We frequently monitor the credit performance of our junior lien mortgage portfolio for trends and factors that influence the

frequency and severity of loss. Net charge-offs (annualized) as a percentage of average loans improved to 0.29% in the first quarter 2018 compared with 0.76% for the same period a year ago. Nonaccrual loans were $42.2 million at March 31, 2018, compared with $44.7 million at December 31, 2017.

Table 7 summarizes delinquency and loss rates by state for our junior lien portfolio.

Table 7:Real Estate 1-4 Family Junior Lien Portfolio Performance

	Outstanding balance			% of loans 30 days or more past due			Loss (recovery) rate (annualized) quarter ended
(in thousands)	Mar 31, 2018		Dec 31, 2017	Mar 31, 2018		Dec 31, 2017	Mar 31, 2018		Dec 31, 2017		Sep 30, 2017		Jun 30, 2017		Mar 31, 2017
New Jersey	$	174,148	183,405	5.70	%	5.42	0.73		(0.18	)	1.06		0.58		2.20
Pennsylvania	126,993		133,313	4.98		5.29	(0.67	)	0.21		0.86		0.02		1.27
Florida	106,391		112,437	2.74		2.65	(1.31	)	(0.51	)	(0.56	)	(1.59	)	0.53
Virginia	82,895		88,017	4.85		5.22	2.59		(0.86	)	1.26		(0.10	)	0.22
Georgia	56,656		60,259	3.00		2.70	(0.78	)	(1.41	)	(1.96	)	0.47		(0.16	)
All other states	261,975		278,155	5.80		4.73	0.63		(0.55	)	0.38		(0.36	)	0.07
Total	809,058		855,586	4.95		4.60	0.29		(0.44	)	0.40		(0.18	)	0.76
PCI	—		—
Total junior lien mortgages	$	809,058	855,586

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NONPERFORMING ASSETS (NONACCRUAL LOANS AND FORECLOSED ASSETS) Table 8 summarizes nonperforming assets (NPAs) for each of the last five quarters. We generally place loans on nonaccrual status when:

• the full and timely collection of interest or principal becomes uncertain (generally based on an assessment of the borrower's financial condition and the adequacy of collateral, if any);

• they are 90 days (120 days with respect to real estate 1-4 family first and junior lien mortgages) past due for interest

or principal, unless both well-secured and in the process of collection;

• part of the principal balance has been charged off;

• for junior lien mortgages, we have evidence that the related first lien mortgage may be 120 days past due or in the process of foreclosure regardless of the junior lien delinquency status; or

• consumer real estate loans receive notification of bankruptcy, regardless of their delinquency status. 

Table 8:Nonperforming Assets (Nonaccrual Loans and Foreclosed Assets)

(in thousands)	Mar 31, 2018			Dec 31, 2017	Sep 30, 2017	Jun 30, 2017	Mar 31, 2017
Nonaccrual loans:
Total commercial	$	2,519		2,306	3,325	3,144	3,473
Consumer:
Real estate 1-4 family first mortgage	152,510			150,381	152,861	157,092	159,444
Real estate 1-4 family junior lien mortgage	42,161			44,703	42,237	43,378	46,065
Total consumer	194,671			195,084	195,098	200,470	205,509
Total nonaccrual loans (1)	197,190			197,390	198,423	203,614	208,982
Foreclosed assets	2,259			2,377	2,473	1,714	2,903
Total nonperforming assets	$	199,449		199,767	200,896	205,328	211,885
As a percentage of total loans	0.57		%	0.56	0.61	0.61	0.70

(1) Excludes PCI loans because they continue to earn interest income from accretable yield, independent of performance in accordance with their contractual terms.

Total NPAs were $199.4 million (0.57% of total loans) at March 31, 2018, and included $197.2 million of nonaccrual loans. Total NPAs were $199.8 million (0.56% of total loans) at December 31, 2017, and included $197.4 million of nonaccrual loans.

Typically, changes to nonaccrual loans period-over-period represent inflows for loans that are placed on nonaccrual status

in accordance with our policy, offset by reductions for loans that are paid down, charged off while on nonaccrual status, sold, transferred to foreclosed properties, 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 9 provides an analysis of the changes in nonaccrual loans.

Table 9:Analysis of Changes in Nonaccrual Loans

	Quarter ended
(in thousands)	Mar 31, 2018			Dec 31, 2017		Sep 30, 2017		Jun 30, 2017		Mar 31, 2017
Commercial:
Balance, beginning of period	$	2,306		3,325		3,144		3,473		2,600
Inflows	252			140		214		—		978
Outflows	(39		)	(1,159	)	(33	)	(329	)	(105	)
Balance, end of period	2,519			2,306		3,325		3,144		3,473
Consumer:
Balance, beginning of period	195,084			195,098		200,470		205,509		213,923
Inflows	32,155			36,586		31,201		31,587		33,360
Outflows:
Returned to accruing	(15,190		)	(18,388	)	(17,063	)	(15,350	)	(20,152	)
Foreclosures	(4,899		)	(2,596	)	(2,286	)	(3,104	)	(3,018	)
Charge-offs	(3,396		)	(4,680	)	(3,508	)	(4,366	)	(7,424	)
Payment, sales and other	(9,083		)	(10,936	)	(13,716	)	(13,806	)	(11,180	)
Total outflows	(32,568		)	(36,600	)	(36,573	)	(36,626	)	(41,774	)
Balance, end of period	194,671			195,084		195,098		200,470		205,509
Total nonaccrual loans	$	197,190		197,390		198,423		203,614		208,982

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TROUBLED DEBT RESTRUCTURINGS (TDRs) The recorded investment of loans modified in TDRs is provided in Table 10. The allowance for loan losses for TDRs was $55.9 million and $56.8 million at March 31, 2018 and December 31, 2017, respectively. See Note 2 (Loans and Allowance for Credit Losses) to Financial Statements in this Report for more information. Those loans discharged in bankruptcy and reported as TDRs have been written down to net realizable collateral value. In those situations where principal is forgiven, the entire amount of such principal forgiveness is immediately charged off to the extent not done so prior to the modification. When we delay the timing on the repayment of a portion of principal (principal forbearance), we charge off the amount of forbearance if that amount is not considered fully collectible.    

For more information on our nonaccrual policies when a restructuring is involved, see the “Risk Management - Credit Risk Management - Troubled Debt Restructurings (TDRs)” section of our 2017 Form 10-K.

Table 11 provides an analysis of the changes in TDRs. Loans modified more than once are reported as TDR inflows only in the period they are first modified. Other than resolutions such as foreclosures, 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.

Table 10:Troubled Debt Restructurings (TDRs)

(in thousands)	Mar 31, 2018		Dec 31, 2017	Sep 30, 2017	Jun 30, 2017	Mar 31, 2017
Total commercial TDRs	$	3,152	2,992	3,035	3,078	3,147
Consumer:
Real estate 1-4 family first mortgage	305,212		309,678	316,831	326,413	335,037
Real estate 1-4 family junior lien mortgage	86,659		89,560	91,534	92,812	96,260
Trial modifications	5,557		7,498	8,799	10,165	9,759
Total consumer TDRs	397,428		406,736	417,164	429,390	441,056
Total TDRs	$	400,580	409,728	420,199	432,468	444,203
TDRs on nonaccrual status	$	118,659	116,885	119,122	124,444	128,807
TDRs on accrual status	281,921		292,843	301,077	308,024	315,396
Total TDRs	$	400,580	409,728	420,199	432,468	444,203

Table 11:Analysis of Changes in TDRs

	Quarter ended
(in thousands)	Mar 31, 2018			Dec 31, 2017		Sep 30, 2017		Jun 30, 2017		Mar 31, 2017
Commercial:
Balance, beginning of period	$	2,992		3,035		3,078		3,147		3,236
Inflows (1)	203			—		—		—		—
Outflows (2)	(43		)	(43	)	(43	)	(69	)	(89	)
Balance, end of period	3,152			2,992		3,035		3,078		3,147
Consumer:
Balance, beginning of period	406,736			417,164		429,390		441,056		451,070
Inflows (1)	7,520			6,187		5,539		6,560		9,706
Outflows:
Charge-offs	(380		)	(269	)	(995	)	(1,653	)	(1,162	)
Foreclosures	(825		)	(640	)	(657	)	(376	)	(1,067	)
Payments, sales and other (2)	(13,682		)	(14,405	)	(14,747	)	(16,603	)	(15,455	)
Net change in trial modifications (3)	(1,941		)	(1,301	)	(1,366	)	406		(2,036	)
Balance, end of period	397,428			406,736		417,164		429,390		441,056
Total TDRs	$	400,580		409,728		420,199		432,468		444,203

(1) Inflows include loans that modify, even if they resolve, within the period as well as advances on loans that modified in a prior period.

(2) Other outflows include normal amortization/accretion of loan basis adjustments. No loans were removed from TDR classification in the quarters ended March 31,2018 and December 31, September 30, June 30 and March 31,2017, as a result of being refinanced or restructured at market terms and qualifying as new loans.

(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.

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LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING Certain loans 90 days or more past due as to interest or principal are still accruing, because they are (1) well-secured and in the process of collection or (2) real estate 1-4 family mortgage loans exempt under regulatory rules from being classified as nonaccrual until later delinquency, usually 120 days past due.

Loans 90 days or more past due and still accruing were less than 1% of loans at both March 31, 2018 and December 31, 2017.

Table 12 reflects non-PCI loans 90 days or more past due and still accruing.

Table 12:Loans 90 Days or More Past Due and Still Accruing (1)

(in thousands)	Mar 31, 2018		Dec 31, 2017	Sep 30, 2017	Jun 30, 2017	Mar 31, 2017
Total commercial	$	2,854	990	991	—	—
Consumer:
Real estate 1-4 family first mortgage	3,999		9,001	3,685	4,495	9,051
Real estate 1-4 family junior lien mortgage	1,419		2,914	1,498	1,746	875
Total consumer	5,418		11,915	5,183	6,241	9,926
Total	$	8,272	12,905	6,174	6,241	9,926

(1) PCI loans of $529 thousand, $699 thousand, $853 thousand, $1.0 million and $1.2 million at March 31, 2018 and December 31, September 30, June 30 and March 31, 2017, respectively, are excluded from this disclosure even though they are 90 days or more contractually past due. These PCI loans are considered to be accruing because they continue to earn interest from accretable yield, independent of performance in accordance with their contractual terms.

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NET CHARGE-OFFS Table 13 presents net charge-offs for first quarter 2018 and the previous four quarters. Substantially all net charge-offs (recoveries) were in consumer real estate. Net charge-offs improved to a net recovery of $506 thousand in first

quarter 2018, compared with net charge-offs of $4.4 million in first quarter 2017.

Table 13:Net Charge-offs (Recoveries)

						Quarter ended
	Mar 31, 2018					Dec 31, 2017					Sep 30, 2017					Jun 30, 2017					Mar 31, 2017
($ in thousands)	Net loan charge- offs			% of avg. loans (1)		Net loan charge- offs			% of avg. loans (1)		Net loan charge- offs			% of avg. loans (1)		Net loan charge- offs			% of avg. loans (1)		Net loan charge- offs			% of avg. loans (1)
Total commercial	$	(15	)	—	%	$	(396	)	(0.05	)%	$	(59	)	(0.01	)%	$	(12	)	—	%	$	(6	)	—	%
Consumer:
Real estate 1-4 family first mortgage	(1,092		)	(0.01	)	(1,417		)	(0.02	)	276			—		190			—		2,457			0.04
Real estate 1-4 family junior lien mortgage	601			0.29		(978		)	(0.44	)	939			0.40		(440		)	(0.18	)	1,986			0.76
Total consumer	(491		)	(0.01	)	(2,395		)	(0.03	)	1,215			0.02		(250		)	—		4,443			0.07
Total	$	(506	)	(0.01	)%	$	(2,791	)	(0.03	)%	$	1,156		0.01	%	$	(262	)	—	%	$	4,437		0.06	%

(1) Quarterly net charge-offs (recoveries) as a percentage of average loans are annualized.

ALLOWANCE FOR CREDIT LOSSES The allowance for credit losses, which consists of the allowance for loan losses and the allowance for unfunded credit commitments, is management’s estimate of credit losses inherent in the loan portfolio and unfunded credit commitments at the balance sheet date, excluding loans carried at fair value. The detail of the changes in the allowance for credit losses by portfolio segment (including charge-offs and recoveries by loan class) is in Note 2 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.

We apply a disciplined process and methodology to establish our allowance for credit losses each quarter. This process takes into consideration many factors, including historical and forecasted loss trends, loan-level credit quality ratings and loan grade-specific characteristics. The process involves subjective and complex judgments. In addition, we review a variety of credit metrics and trends. These credit metrics and trends, however, do not solely determine the amount of the allowance as we use several analytical tools. Our estimation approach for the commercial portfolio reflects the estimated probability of default in accordance with the borrower's financial strength, and the severity of loss in the event of default, considering the quality of any underlying collateral. Probability of default and severity at the time of default are statistically derived through historical observations of defaults and losses after default within each credit risk rating. Our estimation approach for the consumer portfolio uses forecasted losses that represent our best estimate of inherent loss based on historical experience, quantitative and other mathematical techniques.

The ratio of the allowance for credit losses to total nonaccrual loans may fluctuate significantly from period to

period due to such factors as the mix of loan types in the portfolio, borrower credit strength and the value and marketability of collateral. Substantially all of our nonaccrual loans were real estate 1-4 family first and junior lien mortgage loans at March 31, 2018.

The allowance for loan losses decreased $6.5 million to $122.9 million at March 31, 2018, from $129.4 million at December 31, 2017, due to an improvement in our outlook for 2017 hurricane-related losses as well as strong performance in our residential real estate portfolio as a result of continued improvement in the housing market.

We believe the allowance for credit losses of $124.1 million at March 31, 2018, was appropriate to cover credit losses inherent in the loan portfolio, including unfunded credit commitments, at that date. The allowance for credit losses is subject to change and reflects existing factors as of the date of determination, including economic or market conditions and ongoing internal and external examination processes. Due to the sensitivity of the allowance for credit losses to changes in the economic and business environment, it is possible that we will incur incremental credit losses not anticipated as of the balance sheet date. Future allowance levels will be based on a variety of factors, including loan growth, portfolio performance and general economic conditions. Our process for determining the allowance for credit losses is discussed in the “Critical Accounting Policy” section and Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report and in our 2017 Form 10-K.

Table 14 presents an analysis of the allowance for credit losses.

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Table 14:Allocation of the Allowance for Credit Losses (ACL)

	Quarter ended
	Mar 31, 2018				Dec 31, 2017				Sep 30, 2017				Jun 30, 2017				Mar 31, 2017
(in thousands)	ACL		Loans as % of total loans		ACL		Loans as % of total loans		ACL		Loans as % of total loans		ACL		Loans as % of total loans		ACL		Loans as % of total loans
Total commercial	$	27,020	9	%	$	28,085	9	%	$	26,577	11	%	$	27,375	11	%	$	28,192	13	%
Consumer:
Real estate 1-4 family first mortgage	67,780		89		71,341		88		72,941		86		78,130		86		59,906		84
Real estate 1-4 family junior lien mortgage	29,266		2		31,235		3		30,905		3		38,942		3		39,236		3
Total consumer	97,046		91		102,576		91		103,846		89		117,072		89		99,142		87
Total	$	124,066	100	%	$	130,661	100	%	$	130,423	100	%	$	144,447	100	%	$	127,334	100	%

	Quarter ended
(in thousands)	Mar 31, 2018			Dec 31, 2017	Sep 30, 2017	Jun 30, 2017	Mar 31, 2017
Components:
Allowance for loan losses	$	122,863		129,360	129,116	143,389	126,301
Allowance for unfunded credit commitments	1,203			1,301	1,307	1,058	1,033
Allowance for credit losses	$	124,066		130,661	130,423	144,447	127,334
Allowance for loan losses as a percentage of total loans	0.35		%	0.36	0.39	0.42	0.42
Allowance for loan losses as a percentage of annualized net charge-offs	NM			NM	NM	NM	701.91
Allowance for credit losses as a percentage of total loans	0.36			0.36	0.40	0.43	0.42
Allowance for credit losses as a percentage of total nonaccrual loans	62.92			66.19	65.73	70.94	60.93

NM – Not meaningful

17

Asset/Liability Management

Asset/liability management involves the evaluation, monitoring and management of interest rate risk, market risk and liquidity and funding.

INTEREST RATE RISK Interest rate risk is the sensitivity of earnings to changes in interest rates. At March 31, 2018, 13% of our loans had variable interest rates. In a declining rate environment, we may experience a reduction in interest income on our loan portfolio and a corresponding decrease in funds available to be distributed to our shareholders. The reduction in interest income may result from downward adjustment of the indices upon which the interest rates on loans are based and from prepayments of loans with fixed interest rates, resulting in reinvestment of the proceeds in lower yielding assets. To manage interest rate risk, we monitor loan paydown rates, portfolio composition, and the rate sensitivity of loans acquired. Our loan acquisition process attempts to balance desirable yields with the quality of loans acquired.

At March 31, 2018, approximately 87% of our loans had fixed interest rates. Such loans increase our interest rate risk. Our methods for evaluating interest rate risk include an analysis of interest-rate sensitivity “gap,” which is defined as the difference between interest-earning assets and interest-bearing liabilities maturing or repricing within a given time period. A gap is considered positive when the amount of interest rate-sensitive assets exceeds the amount of interest rate-sensitive liabilities. A gap is considered negative when the amount of interest rate-sensitive liabilities exceeds the amount of interest rate-sensitive assets. Our interest rate-sensitive liabilities are generally limited to our line of credit with the Bank.

During a period of rising interest rates, a negative gap would tend to adversely affect net interest income, while a positive gap would tend to result in an increase in net interest income. During a period of falling interest rates, a negative gap would tend to result in an increase in net interest income, while a positive gap would tend to adversely affect net interest income. Because different types of assets and liabilities with the same or similar maturities may react differently to changes in overall market rates or conditions, changes in interest rates may affect net interest income positively or negatively even if an institution is perfectly matched in each maturity category.

At March 31, 2018, 13% of our assets had variable interest rates, and could be expected to reprice with changes in interest rates. At March 31, 2018, our liabilities were 7% of our assets. This positive gap between our assets and liabilities indicates that an increase in interest rates would result in an increase in net interest income and a decrease in interest rates would result in a decrease in net interest income.

LIQUIDITY AND FUNDING The objective of effective liquidity management is to ensure that we can meet customer loan requests and other cash commitments efficiently under both normal operating conditions and under unpredictable circumstances of industry or market stress. To achieve this objective, Wells Fargo’s Corporate Asset/Liability Management Committee establishes and monitors liquidity guidelines that require sufficient asset-based liquidity to cover potential funding requirements and to avoid over-dependence on volatile, less reliable funding markets.

Proceeds received from paydowns of loans are typically sufficient to fund existing lending commitments. Depending upon the timing of the loan acquisitions, we may draw on our $5.0 billion revolving line of credit we have with the Bank as a short-term liquidity source. At March 31, 2018, there was $2.5 billion outstanding on our Bank line of credit. The rate of interest is three-month LIBOR plus 4.4 basis points (0.044%).

Our primary liquidity needs are to pay operating expenses, fund our lending commitments, acquire loans to replace existing loans that mature or repay, and pay dividends. The retained deficit included within our balance sheet results from cumulative distributions that have exceeded GAAP net income, predominantly due to the impact on REIT taxable income of purchase accounting adjustments attributable to the Company during the years 2009 through 2013, from the 2008 acquisition of Wachovia Corporation by Wells Fargo. The excess dividend distributions were funded by using cash provided by investing (generally principal payments received on our loans) and financing activities (generally draws on our Bank line of credit). As the remaining purchase accounting adjustments are not expected to cause a significant variance between GAAP net income and REIT taxable income in future years, operating expenses and dividends are expected to be funded through cash generated by operations or paid-in capital. Funding commitments and the acquisition of loans are intended to be funded with the proceeds obtained from repayment of principal balances by individual borrowers and our line of credit with the Bank.

On September 8, 2016, Wells Fargo reached agreements with the Consumer Financial Protection Bureau (CFPB), the Office of the Comptroller of the Currency (OCC), and the Office of the Los Angeles City Attorney, regarding allegations that some of its retail customers received products and services they did not request. On February 2, 2018, Wells Fargo entered into a consent order with the Board of Governors of the Federal Reserve System (FRB) related to governance oversight and compliance and operational risk management that imposes an asset cap on Wells Fargo until plans to enhance governance oversight and compliance and operational risk management are approved and implemented to the satisfaction of the FRB. On April 20, 2018 Wells Fargo reached agreement on consent orders issued by the CFPB and OCC to resolve matters regarding the compliance risk management program and past practices involving certain automobile collateral protection insurance policies and certain mortgage interest rate lock extensions. Negative publicity or public opinion resulting from the settlements, consent orders, and related matters and other instances where the Bank’s customers may have experienced financial harm as well as from the resolution of other regulatory matters, litigation, or legal actions by Wells Fargo and the Bank may increase the risk of reputational harm to the business of Wells Fargo and the Bank, including the Bank’s ability to originate loans at the same volumes as we have historically acquired. If in future periods we do not reinvest loan paydowns at sufficient levels, management may request our board of directors to consider a return of capital to the holders of our common stock. Annually, we expect to distribute an aggregate amount of outstanding capital stock dividends equal to approximately 100% of our REIT taxable income for federal tax purposes. Such distributions may exceed net income determined under GAAP.

To the extent that we determine that additional funding is necessary or advisable, we could issue additional common or preferred stock, subject to Board of Directors approval, raise

18

funds through debt financings, or a combination of these methods. Retention of operating cash flows does not represent a significant source of funding because any cash flow retention must be consistent with the provisions of the Investment Company Act and the Code, which requires the distribution by a REIT of at least 90% of its REIT taxable income, excluding capital gains, and must take into account taxes that would be imposed on undistributed income.

The certificate of designation for the Series A preferred stock contains a covenant in which we agree not to incur indebtedness for borrowed money, including any guarantees of indebtedness (which does not include any pledges of our assets on behalf of the Bank or our other affiliates), without the consent of the holders of two-thirds of the Series A preferred stock, voting as a separate class, providedthat, we may incur indebtedness in an aggregate amount not exceeding 20% of our stockholders’ equity.

19

Critical Accounting Policy

Our significant accounting policies (see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2017 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. We have identified the accounting policy covering allowance for credit losses as critical because it requires 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.

Management and the audit committee of the board of directors have reviewed and approved this critical accounting policy. This policy is described in the "Critical Accounting Policy" section in our 2017 Form 10-K.

Current Accounting Developments

Table 15 provides accounting pronouncements applicable to us that have been issued by the FASB but are not yet effective.

Table 15:Current Accounting Developments - Issued Standards

Standard	Description	Effective date and financial statement impact
Accounting Standards Update (ASU or Update) 2016-13 – Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments	The Update changes the accounting for credit losses on loans by requiring a current expected credit loss (CECL) approach to determine the allowance for credit losses. CECL requires loss estimates for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts. Also, the Update eliminates the existing guidance for purchased credit-impaired (PCI) loans, but requires an allowance for purchased financial assets with more than insignificant deterioration since origination.	The guidance is effective in first quarter 2020 with a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. While early adoption is permitted beginning in first quarter 2019, we do not expect to elect that option. We are evaluating the impact of the Update on our financial statements. We expect the Update will result in an increase in the allowance for credit losses given the change to estimated losses over the contractual life adjusted for expected prepayments with an expected material impact from longer duration portfolios. The amount of the increase will be impacted by the portfolio composition and quality at the adoption date as well as economic conditions and forecasts at that time.

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Forward-Looking Statements

This Report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. 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. Examples of forward-looking statements include, but are not limited to, statements we make about: future results of WFREIC; expectations for consumer and commercial credit performance and the appropriateness of our allowance for credit losses; our expectations regarding net interest income; expectations regarding loan acquisitions and paydowns; future capital expenditures; future dividends and other capital distributions; the expected outcome and impact of legal, regulatory and legislative developments, as well as our expectations regarding compliance therewith; the outcome of contingencies, such as legal proceedings; and our 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, 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:

• economic conditions that affect the general economy, housing prices, the job market, consumer confidence and spending habits, including our borrowers’ prepayment and repayment of our loans (including the impact of the Tax Cuts & Jobs Act);

• losses related to natural disasters, including from damage or loss to our collateral for loans in our consumer and commercial loan portfolios and from the impact on the ability of our borrowers to repay their loans;

• the effect of the current low interest rate environment or changes in interest rates on our net interest income;

• the level and volatility of the capital markets, interest rates, currency values and other market indices that affect the value of our assets and liabilities;

• the effect of political conditions and geopolitical events;

• adverse developments in the availability of desirable investment opportunities, whether they are due to competition, regulation or otherwise;

• the extent of loan modification efforts, as well as the effects of regulatory requirements or guidance regarding loan modifications;

• the availability and cost of both credit and capital;

• investor sentiment and confidence in the financial markets;

• our reputation and the reputation of Wells Fargo and the Bank, including negative effects from the Bank's retail banking sales practices matter and other instances where the Bank’s customers may have experienced financial harm and negative effects from the resolution of regulatory matters, litigation, or other legal actions by Wells Fargo and the Bank;

• financial services reform and the impact of other current, pending and future legislation, regulation and legal actions applicable to us, the Bank or Wells Fargo, including the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and related regulations;

• changes in accounting standards, rules and interpretations;

• various monetary and fiscal policies and regulations of the U.S. and foreign governments;

• a failure in or breach of our, the Bank’s or Wells Fargo’s operational or security systems or infrastructure, or those of third party vendors and other security providers, including as a result of cyber attacks; and

• the other factors described in “Risk Factors” in the 2017 Form 10-K.

In addition to the above factors, we also caution that our allowance for credit losses currently may not be appropriate to cover future credit losses, especially if housing prices decline, unemployment worsens, or general economic conditions deteriorate. Increases in loan charge-offs or in the allowance for credit losses and related provision expense could materially adversely affect our financial results and condition.

Any forward-looking statement made by us in this Report 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.

Risk Factors

An investment in Wells Fargo Real Estate Investment Corporation 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 WFREIC, refer to the “Risk Factors” section in our 2017 Form 10-K.

21

Controls and Procedures

Disclosure Controls and Procedures

The Company's management evaluated the effectiveness, as of March 31, 2018, of our disclosure controls and procedures. The Company's chief executive officer and chief financial officer participated in the evaluation. Based on this evaluation, the chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of March 31, 2018.

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 of directors, 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 first quarter 2018 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

22

Financial Statements

Wells Fargo Real Estate Investment Corporation
Statement of Income (Unaudited)
	Quarter ended March 31,
(in thousands, except per share amounts)	2018		2017
Interest income	351,664		310,615
Interest expense	14,402		—
Net interest income	337,262		310,615
Provision (reversal of provision) for credit losses	(5,854	)	8,083
Net interest income after provision for credit losses	343,116		302,532
Noninterest income
Pledge fees	6,037		13,599
Other	221		184
Total noninterest income	6,258		13,783
Noninterest expense
Loan servicing costs	21,922		18,752
Management fees	6,260		6,912
Foreclosed assets	2,053		2,359
Other	107		195
Total noninterest expense	30,342		28,218
Net income	319,032		288,097
Comprehensive income	319,032		288,097
Dividends on preferred stock	4,397		4,397
Net income applicable to common stock	314,635		283,700
Per common share information
Earnings per common share	9.24		8.33
Diluted earnings per common share	9.24		8.33
Dividends declared per common share	9.54		8.51
Average common shares outstanding	34,058		34,058
Diluted average common shares outstanding	34,058		34,058

The accompanying notes are an integral part of these statements.

23

Wells Fargo Real Estate Investment Corporation
Balance Sheet
(in thousands, except shares)	Mar 31, 2018			Dec 31, 2017
Assets	(Unaudited)
Cash and cash equivalents	$	—		—
Loans	34,824,594			35,865,176
Allowance for loan losses	(122,863		)	(129,360	)
Net loans	34,701,731			35,735,816
Accounts receivable - affiliates, net	103,275			113,755
Other assets	93,513			96,028
Total assets	$	34,898,519		35,945,599
Liabilities
Line of credit with Bank	$	2,506,674		3,551,426
Other liabilities	11,947			3,910
Total liabilities	2,518,621			3,555,336
Stockholders’ Equity
Preferred stock	110			110
Common stock – $0.01 par value, authorized 100,000,000 shares; issued and outstanding 34,058,028 shares	341			341
Additional paid-in capital	32,550,660			32,550,660
Retained earnings (deficit)	(171,213		)	(160,848	)
Total stockholders’ equity	32,379,898			32,390,263
Total liabilities and stockholders’ equity	$	34,898,519		35,945,599

The accompanying notes are an integral part of these statements.

24

Wells Fargo Real Estate Investment Corporation
Statement of Changes in Stockholders’ Equity (Unaudited)
(in thousands, except per share data)	Preferred stock		Common stock	Additional paid-in capital	Retained earnings (deficit)		Total stockholders’ equity
Balance, December 31, 2016	$	110	341	32,550,660	(156,927	)	32,394,184
Net income	—		—	—	288,097		288,097
Cash dividends
Series A preferred stock at $0.40 per share	—		—	—	(4,383	)	(4,383	)
Series B preferred stock at $21.25 per share	—		—	—	(14	)	(14	)
Common stock at $8.51 per share	—		—	—	(290,000	)	(290,000	)
Balance, March 31, 2017	$	110	341	32,550,660	(163,227	)	32,387,884
Balance, December 31, 2017	$	110	341	32,550,660	(160,848	)	32,390,263
Net income	—		—	—	319,032		319,032
Cash dividends
Series A preferred stock at $0.40 per share	—		—	—	(4,383	)	(4,383	)
Series B preferred stock at $21.25 per share	—		—	—	(14	)	(14	)
Common stock at $9.54 per share	—		—	—	(325,000	)	(325,000	)
Balance, March 31, 2018	$	110	341	32,550,660	(171,213	)	32,379,898

The accompanying notes are an integral part of these statements.

25

Wells Fargo Real Estate Investment Corporation
Statement of Cash Flows (Unaudited)
	Quarter ended March 31,
(in thousands)	2018			2017
Cash flows from operating activities:
Net income	$	319,032		288,097
Adjustments to reconcile net income to net cash provided by operating activities:
Net accretion of adjustments on loans	(4,278		)	(3,893	)
Provision (reversal of provision) for credit losses	(5,854		)	8,083
Other operating activities, net	18,401			6,375
Net cash provided by operating activities	327,301			298,662
Cash flows from investing activities:
Increase in cash realized from
Loans:
Acquisitions	—			—
Proceeds from payments and sales	1,042,451			1,131,240
Net cash provided by investing activities	1,042,451			1,131,240
Cash flows from financing activities:
Increase (decrease) in cash realized from
Draws on line of credit with Bank	337,358			—
Repayments of line of credit with Bank	(1,382,110		)	—
Cash dividends paid	(325,000		)	(294,397	)
Net cash used by financing activities	(1,369,752		)	(294,397	)
Net change in cash and cash equivalents	—			1,135,505
Cash and cash equivalents at beginning of period	—			971,349
Cash and cash equivalents at end of period	$	—		2,106,854
Supplemental cash flow disclosures:
Change in noncash items:
Transfers from loans to foreclosed assets	$	2,457		3,441

The accompanying notes are an integral part of these statements.

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Note 1: Summary of Significant Accounting Policies

Wells Fargo Real Estate Investment Corporation (the Company, we, our or us) is an indirect subsidiary of both Wells Fargo & Company (Wells Fargo) and Wells Fargo Bank, National Association (the Bank). The Company, a Delaware corporation, has operated as a real estate investment trust (REIT) since its formation in 1996.

The accounting and reporting policies of the Company are in accordance with U.S. generally accepted accounting principles (GAAP). For discussion of our significant accounting policies, see Note 1 (Summary of Significant Accounting Policies) in our Annual Report on Form 10-K for the year ended December 31, 2017 (2017 Form 10-K). There were no material changes to these policies in first quarter 2018. The preparation of the financial statements in accordance with GAAP requires management to make estimates based on assumptions about future economic and market conditions that affect the reported amounts of assets and liabilities at the date of the financial statements and 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 future conditions could be significantly different than anticipated in those estimates, which could materially affect our results of operations and financial condition. Management has made significant estimates related to the allowance for credit losses (Note 2 (Loans and Allowance for Credit Losses)). 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 2017 Form 10-K.

Accounting Standards Adopted in 2018

In first quarter 2018, we adopted the following new accounting guidance:

• Accounting Standards Update (ASU or Update) 2016-15 – Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.

• ASU 2014-09 – Revenue from Contracts With Customers (Topic 606) and subsequent related Updates.

• ASU 2016-01 - Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities

ASU 2016-15 addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice for reporting in the Statement of Cash Flows. The Update is effective for us in first quarter 2018 with retrospective application. We do not have any of the activities included in the ASU and there is no impact on our financial statements.

ASU 2014-09 modifies the guidance used to recognize revenue from contracts with customers for transfers of goods or services and transfers of nonfinancial assets, unless those contracts are within the scope of other guidance. Our revenue is from net interest income on financial assets and pledge fees, which are both excluded from the scope of the guidance. Accordingly, there is no impact on our financial statements.

ASU 2016-01 changes the accounting for certain equity securities to record at fair value with unrealized gains or losses reflected in earnings, as well as improve the disclosures of equity securities and the fair value of financial instruments. We do not have equity securities. Accordingly, the impact to our financial statements is limited to our disclosure of the fair value of financial instruments. The valuation methodologies for estimating the fair value of financial instruments that are recorded at amortized cost, including loans, has been changed to conform with an exit price notion.

Subsequent Events

We have evaluated the effects of events that have occurred subsequent to March 31, 2018. There were no material subsequent events requiring adjustment to the financial statements or disclosure in the Notes to Financial Statements.

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Note 2: Loans and Allowance for Credit Losses

The Company acquires loans originated or purchased by the Bank. In order to maintain our status as a REIT, the composition of the loans is highly concentrated in real estate. Underlying loans are concentrated primarily in California, New York, Washington, Virginia and Texas. These markets include approximately 54% of our total loan balance at March 31, 2018.

The following table presents total loans outstanding by portfolio segment and class of financing receivable. Total reductions and additions for unamortized premiums, discounts and other adjustments were less than 1% of outstanding balances at March 31, 2018 and December 31, 2017.

(in thousands)	Mar 31, 2018		Dec 31, 2017
Total commercial	$	3,128,427	3,325,939
Consumer:
Real estate 1-4 family first mortgage	30,887,109		31,683,651
Real estate 1-4 family junior lien mortgage	809,058		855,586
Total consumer	31,696,167		32,539,237
Total loans	$	34,824,594	35,865,176

The following table summarizes the proceeds paid or received from the Bank for acquisitions and sales of loans, respectively.

	2018						2017
(in thousands)	Commercial		Consumer		Total		Commercial	Consumer		Total
Quarter ended March 31,
Loan acquisitions	$	—	—		—		—	—		—
Loan sales	—		(3,641	)	(3,641	)	—	(14,195	)	(14,195	)

Commitments to Lend

The contract or notional amount of commercial loan commitments to extend credit was $519.0 million at March 31, 2018 and $507.8 million at December 31, 2017.

Pledged Loans

See Note 5 (Transactions With Related Parties) for additional details on our agreement with the Bank to pledge loans.

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Allowance for Credit Losses

The following table presents the allowance for credit losses, which consists of the allowance for loan losses and the allowance for unfunded credit commitments.

	Quarter ended March 31,
(in thousands)	2018			2017
Balance, beginning of period	$	130,661		125,029
Provision (reversal of provision) for credit losses	(5,854		)	8,083
Interest income on certain impaired loans (1)	(1,247		)	(1,341	)
Loan charge-offs:
Total commercial	—			(11	)
Consumer:
Real estate 1-4 family first mortgage	(1,092		)	(3,568	)
Real estate 1-4 family junior lien mortgage	(2,798		)	(5,248	)
Total consumer	(3,890		)	(8,816	)
Total loan charge-offs	(3,890		)	(8,827	)
Loan recoveries:
Total commercial	15			17
Consumer:
Real estate 1-4 family first mortgage	2,184			1,111
Real estate 1-4 family junior lien mortgage	2,197			3,262
Total consumer	4,381			4,373
Total loan recoveries	4,396			4,390
Net loan recoveries (charge-offs)	506			(4,437	)
Balance, end of period	$	124,066		127,334
Components:
Allowance for loan losses	$	122,863		126,301
Allowance for unfunded credit commitments	1,203			1,033
Allowance for credit losses	$	124,066		127,334
Net loan (recoveries) charge-offs as a percentage of average total loans (2)	(0.01		)%	0.06
Allowance for loan losses as a percentage of total loans	0.35			0.42
Allowance for credit losses as a percentage of total loans	0.36			0.42

(1) Certain impaired loans with an allowance calculated by discounting expected cash flows using the loan’s effective interest rate over the remaining life of the loan recognize changes in allowance attributable to the passage of time as interest income.

(2) Quarterly net charge-offs (recoveries) as a percentage of average total loans are annualized.

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The following table summarizes the activity in the allowance for credit losses by our commercial and consumer portfolio segments.

	2018							2017
(in thousands)	Commercial			Consumer		Total		Commercial		Consumer		Total
Quarter ended March 31,
Balance, beginning of period	$	28,085		102,576		130,661		29,644		95,385		125,029
Provision (reversal of provision) for credit losses	(1,080		)	(4,774	)	(5,854	)	(1,458	)	9,541		8,083
Interest income on certain impaired loans	—			(1,247	)	(1,247	)	—		(1,341	)	(1,341	)
Loan charge-offs	—			(3,890	)	(3,890	)	(11	)	(8,816	)	(8,827	)
Loan recoveries	15			4,381		4,396		17		4,373		4,390
Net loan recoveries (charge-offs)	15			491		506		6		(4,443	)	(4,437	)
Balance, end of period	$	27,020		97,046		124,066		28,192		99,142		127,334

The following table disaggregates our allowance for credit losses and recorded investment in loans by impairment methodology.

	Allowance for credit losses				Recorded investment in loans
(in thousands)	Commercial		Consumer	Total	Commercial	Consumer	Total
March 31, 2018
Collectively evaluated (1)	$	25,999	42,144	68,143	3,125,275	31,290,775	34,416,050
Individually evaluated (2)	1,021		54,902	55,923	3,152	397,428	400,580
Purchased credit-impaired (PCI) (3)	—		—	—	—	7,964	7,964
Total	$	27,020	97,046	124,066	3,128,427	31,696,167	34,824,594
December 31, 2017
Collectively evaluated (1)	$	27,192	46,664	73,856	3,322,947	32,123,483	35,446,430
Individually evaluated (2)	893		55,912	56,805	2,992	406,736	409,728
PCI (3)	—		—	—	—	9,018	9,018
Total	$	28,085	102,576	130,661	3,325,939	32,539,237	35,865,176

(1) Represents loans collectively evaluated for impairment in accordance with Accounting Standards Codification (ASC) 450-20, Loss Contingencies (formerly FAS 5), and pursuant to amendments by ASU 2010-20 regarding allowance for non-impaired loans.

(2) Represents loans individually evaluated for impairment in accordance with ASC 310-10, Receivables (formerly FAS 114), and pursuant to amendments by ASU 2010-20 regarding allowance for impaired loans.

(3) Represents the allowance and related loan carrying value determined in accordance with ASC 310-30, Receivables - Loans and Debt Securities Acquired with Deteriorated Credit Quality (formerly SOP 03-3) and pursuant to amendments by ASU 2010-20 regarding allowance for PCI loans.

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Credit Quality

We monitor credit quality by evaluating various attributes and utilize such information in our evaluation of the appropriateness of the allowance for credit losses. The following sections provide the credit quality indicators we most closely monitor. The credit quality indicators are generally based on information as of our financial statement date, with the exception of updated Fair Isaac Corporation (FICO) scores and updated loan-to-value (LTV)/combined LTV (CLTV). We obtain FICO scores at loan origination and the scores are generally updated at least quarterly, except in limited circumstances, including compliance with the Fair Credit Reporting Act (FCRA). Generally, the LTV and CLTV indicators are updated in the second month of each quarter, with updates no older than December 31, 2017.

COMMERCIAL CREDIT QUALITY INDICATORSIn addition to monitoring commercial loan concentration risk, we manage a consistent process for assessing commercial loan credit quality. Generally commercial loans are subject to individual risk assessment using our internal borrower and collateral quality ratings. Our ratings are aligned to Pass and Criticized categories. The Criticized category includes Special Mention, Substandard, and Doubtful categories which are defined by bank regulatory agencies.

The table below provides a breakdown of outstanding commercial loans by risk category.

(in thousands)	Total
March 31, 2018
By risk category:
Pass	$	3,117,199
Criticized	11,228
Total commercial loans	$	3,128,427
December 31, 2017
By risk category:
Pass	$	3,316,604
Criticized	9,335
Total commercial loans	$	3,325,939

The following table provides past due information for commercial loans, which we monitor as part of our credit risk management practices.

(in thousands)	Total
March 31, 2018
By delinquency status:
Current-29 days past due (DPD) and still accruing	$	3,104,883
30-89 DPD and still accruing	18,171
90+ DPD and still accruing	2,854
Nonaccrual loans	2,519
Total commercial loans	$	3,128,427
December 31, 2017
By delinquency status:
Current-29 DPD and still accruing	$	3,320,666
30-89 DPD and still accruing	1,977
90+ DPD and still accruing	990
Nonaccrual loans	2,306
Total commercial loans	$	3,325,939

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CONSUMER CREDIT QUALITY INDICATORS We have various classes of consumer loans that present unique risks. Loan delinquency, FICO credit scores and LTV/CLTV for loan types are common credit quality indicators that we monitor and utilize in our evaluation of the appropriateness of the allowance for credit losses for the consumer portfolio segment.

Many of our loss estimation techniques used for the allowance for credit losses rely on delinquency-based models;

therefore, delinquency is an important indicator of credit quality and the establishment of our allowance for credit losses. The following table provides the outstanding balances of our consumer portfolio by delinquency status.

(in thousands)	Real estate 1-4 family first mortgage			Real estate 1-4 family junior lien mortgage		Total
March 31, 2018
By delinquency status:
Current-29 DPD	$	30,753,549		771,267		31,524,816
30-59 DPD	50,366			12,875		63,241
60-89 DPD	16,109			9,766		25,875
90-119 DPD	7,981			3,800		11,781
120-179 DPD	14,928			3,945		18,873
180+ DPD	50,036			10,689		60,725
Remaining PCI accounting adjustments	(5,860		)	(3,284	)	(9,144	)
Total consumer loans	$	30,887,109		809,058		31,696,167
December 31, 2017
By delinquency status:
Current-29 DPD	$	31,529,774		819,000		32,348,774
30-59 DPD	63,591			13,663		77,254
60-89 DPD	20,770			6,245		27,015
90-119 DPD	15,384			5,462		20,846
120-179 DPD	9,235			3,648		12,883
180+ DPD	50,323			10,917		61,240
Remaining PCI accounting adjustments	(5,426		)	(3,349	)	(8,775	)
Total consumer loans	$	31,683,651		855,586		32,539,237

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The following table provides a breakdown of our consumer portfolio by FICO. FICO is not available for certain loan types and may not be obtained if we deem it unnecessary due to strong collateral and other borrower attributes.

(in thousands)	Real estate 1-4 family first mortgage			Real estate 1-4 family junior lien mortgage		Total
March 31, 2018
By FICO:
< 600	$	167,599		65,440		233,039
600-639	129,159			52,326		181,485
640-679	317,657			81,774		399,431
680-719	928,622			145,054		1,073,676
720-759	2,417,533			149,388		2,566,921
760-799	5,551,568			122,598		5,674,166
800+	21,203,047			180,401		21,383,448
No FICO available	177,784			15,361		193,145
Remaining PCI accounting adjustments	(5,860		)	(3,284	)	(9,144	)
Total consumer loans	$	30,887,109		809,058		31,696,167
December 31, 2017
By FICO:
< 600	$	179,829		74,644		254,473
600-639	138,782			50,676		189,458
640-679	307,999			88,948		396,947
680-719	988,162			150,180		1,138,342
720-759	2,556,013			159,309		2,715,322
760-799	5,957,929			126,785		6,084,714
800+	21,359,614			191,851		21,551,465
No FICO available	200,749			16,542		217,291
Remaining PCI accounting adjustments	(5,426		)	(3,349	)	(8,775	)
Total consumer loans	$	31,683,651		855,586		32,539,237

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LTV refers to the ratio comparing the loan’s unpaid principal balance to the property’s collateral value. CLTV refers to the combination of first mortgage and junior lien mortgage ratios. LTVs and CLTVs are updated quarterly using a cascade approach which first uses values provided by automated valuation models (AVMs) for the property. If an AVM is not available, then the value is estimated using the original appraised value adjusted by the change in Home Price Index (HPI) for the property location. If an HPI is not available, the original appraised value is used. The HPI value is normally the only method considered for high value properties, generally with an original value of $1 million or more, as the AVM values have proven less accurate for these properties.

The following table shows the most updated LTV and CLTV distribution of the real estate 1-4 family first and junior lien mortgage loan portfolios. We consider the trends in residential real estate markets as we monitor credit risk and establish our allowance for credit losses. In the event of a default, any loss should be limited to the portion of the loan amount in excess of the net realizable value of the underlying real estate collateral value. Certain loans do not have an LTV or CLTV due to industry data availability and portfolios acquired from or serviced by other institutions.

(in thousands)	Real estate 1-4 family first mortgage by LTV			Real estate 1-4 family junior lien mortgage by CLTV		Total
March 31, 2018
By LTV/CLTV:
0-60%	$	17,571,140		290,998		17,862,138
60.01-80%	12,035,580			235,740		12,271,320
80.01-100%	1,087,623			181,876		1,269,499
100.01-120% (1)	125,785			73,861		199,646
> 120% (1)	58,363			27,858		86,221
No LTV/CLTV available	14,478			2,009		16,487
Remaining PCI accounting adjustments	(5,860		)	(3,284	)	(9,144	)
Total consumer loans	$	30,887,109		809,058		31,696,167
December 31, 2017
By LTV/CLTV:
0-60%	$	17,500,078		307,358		17,807,436
60.01-80%	12,827,337			240,888		13,068,225
80.01-100%	1,153,304			196,456		1,349,760
100.01-120% (1)	129,637			80,636		210,273
> 120% (1)	64,239			32,224		96,463
No LTV/CLTV available	14,482			1,373		15,855
Remaining PCI accounting adjustments	(5,426		)	(3,349	)	(8,775	)
Total consumer loans	$	31,683,651		855,586		32,539,237

(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.

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NONACCRUAL LOANS The following table provides loans on nonaccrual status. PCI loans are excluded from this table due to the existence of the accretable yield, independent of performance in accordance with their contractual terms.

(in thousands)	Mar 31, 2018		Dec 31, 2017
Total commercial	$	2,519	2,306
Consumer:
Real estate 1-4 family first mortgage	152,510		150,381
Real estate 1-4 family junior lien mortgage	42,161		44,703
Total consumer	194,671		195,084
Total nonaccrual loans (excluding PCI)	$	197,190	197,390

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 $36.8 million and $41.7 million at March 31, 2018and December 31, 2017, and none of these loans are government insured/guaranteed. We commence the foreclosure process on consumer real estate loans when a borrower becomes 120 days delinquent in accordance with Consumer Finance Protection Bureau Guidelines. 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 as to interest or principal are still accruing, because they are (1) well-secured and in the process of collection or (2) real estate 1-4 family mortgage loans exempt under regulatory rules from being classified as nonaccrual until later delinquency, usually 120 days past due. PCI loans of $529 thousand at March 31, 2018, and $699 thousand at December 31, 2017, are excluded from this disclosure even though they are 90 days or more contractually past due. These PCI loans are considered to be accruing because they continue to earn interest from accretable yield, independent of performance in accordance with their contractual terms.

The following table shows non-PCI loans 90 days or more past due and still accruing.

(in thousands)	Mar 31, 2018		Dec 31, 2017
Total commercial	$	2,854	990
Consumer:
Real estate 1-4 family first mortgage	3,999		9,001
Real estate 1-4 family junior lien mortgage	1,419		2,914
Total consumer	5,418		11,915
Total past due (excluding PCI)	$	8,272	12,905

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Impaired Loans The table below summarizes key information for impaired loans. Our impaired loans predominantly include loans on nonaccrual status in the commercial portfolio segment and loans modified in a TDR, whether on accrual or nonaccrual status. These impaired loans generally have estimated losses which are included in the allowance for credit losses. We have impaired loans with no allowance for credit losses when loss content has been

previously recognized through charge-offs and we do not anticipate additional charge-offs or losses, or certain loans are currently performing in accordance with their terms and for which no loss has been estimated. Impaired loans exclude PCI loans. The table below includes trial modifications that totaled $5.6 million at March 31, 2018 and $7.5 million at December 31, 2017.

			Recorded investment
(in thousands)	Unpaid principal balance		Impaired loans	Impaired loans with related allowance for credit losses	Related allowance for credit losses
March 31, 2018
Total commercial	$	4,146	3,152	3,152	1,021
Consumer:
Real estate 1-4 family first mortgage	369,250		309,207	208,525	37,274
Real estate 1-4 family junior lien mortgage	97,941		88,221	70,542	17,628
Total consumer	467,191		397,428	279,067	54,902
Total impaired loans (excluding PCI)	$	471,337	400,580	282,219	55,923
December 31, 2017
Total commercial	$	3,714	2,992	2,992	893
Consumer:
Real estate 1-4 family first mortgage	377,877		315,529	215,109	37,090
Real estate 1-4 family junior lien mortgage	100,228		91,207	73,261	18,822
Total consumer	478,105		406,736	288,370	55,912
Total impaired loans (excluding PCI)	$	481,819	409,728	291,362	56,805

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The following table provides the average recorded investment in impaired loans and the amount of interest income recognized on impaired loans by portfolio segment and class.

	Quarter ended March 31,
	2018				2017
(in thousands)	Average recorded investment		Recognized interest income		Average recorded investment	Recognized interest income
Total commercial	$	3,021	12		3,244	12
Consumer:
Real estate 1-4 family first mortgage	313,170		4,960		346,133	5,406
Real estate 1-4 family junior lien mortgage	89,630		1,948		100,044	2,149
Total consumer	402,800		6,908		446,177	7,555
Total impaired loans	$	405,821	6,920		449,421	7,567
Interest income:
Cash basis of accounting			$	1,897		2,158
Other (1)			5,023			5,409
Total interest income			$	6,920		7,567

(1) Includes interest recognized on accruing TDRs, interest recognized related to certain impaired loans which have an allowance calculated using discounting, and amortization of purchase accounting adjustments related to certain impaired loans.

Troubled Debt Restructuring (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 $400.6 million and $409.7 million at March 31, 2018 and December 31, 2017, respectively. We do not consider loan resolutions, such as foreclosure or short sale, to be a TDR.

We may require some consumer borrowers experiencing financial difficulty to make trial payments generally for a period of three to four months, according to the terms of a planned permanent modification, to determine if they can perform according to those terms. These arrangements represent trial modifications, which we classify and account for as TDRs. While loans are in trial payment programs, their original terms are not considered modified and they continue to advance through delinquency status and accrue interest according to their original terms.

The following table summarizes our TDR modifications for the periods presented by primary modification type and includes the financial effects of these modifications. For those loans that modify more than once, the table reflects each modification that occurred during the period. Loans that both modify and pay off within the period, as well as changes in recorded investment during the period for loans modified in prior periods, are not included in the table.

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	Primary modification type (1)							Financial effects of modifications
(in thousands)	Principal (2)		Interest rate reduction	Other concessions (3)		Total		Charge- offs (4)	Weighted average interest rate reduction		Recorded investment related to interest rate reduction (5)
Quarter ended March 31, 2018
Total commercial	$	—	—	2,067		2,067		—	—	%	$	—
Consumer:
Real estate 1-4 family first mortgage	2,049		—	5,602		7,651		76	2.13		1,100
Real estate 1-4 family junior lien mortgage	44		82	1,977		2,103		11	2.28		82
Trial modifications (6)	—		—	(1,589	)	(1,589	)	—	—		—
Total consumer	2,093		82	5,990		8,165		87	2.14		1,182
Total	$	2,093	82	8,057		10,232		87	2.14	%	$	1,182
Quarter ended March 31, 2017
Total commercial	$	—	—	—		—		—	—	%	$	—
Consumer:
Real estate 1-4 family first mortgage	4,105		2,884	2,987		9,976		441	3.34		4,791
Real estate 1-4 family junior lien mortgage	626		1,207	1,039		2,872		181	4.98		1,376
Trial modifications (6)	—		—	(1,193	)	(1,193	)	—	—		—
Total consumer	4,731		4,091	2,833		11,655		622	3.70		6,167
Total	$	4,731	4,091	2,833		11,655		622	3.70	%	$	6,167

(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 $4.2 million and $3.2 million for the quarters ended March 31, 2018 and 2017, respectively.

(2) Principal modifications include principal forgiveness at the time of the modification, contingent principal forgiveness granted over the life of the loan based on borrower performance, and principal that has been legally separated and deferred to the end of the loan, with a zero percent contractual interest rate.

(3) Other concessions include loans discharged in bankruptcy, loan renewals, term extensions and other interest and noninterest adjustments, but exclude modifications that also forgive principal and/or reduce the interest rate.

(4) Charge-offs include write-downs of the investment in the loan in the period it is contractually modified. The amount of charge-off will differ from the modification terms if the loan has been charged down prior to the modification based on our policies. In addition, there may be cases where we have a charge-off/down with no legal principal modification. Modifications resulted in legally forgiving principal (actual, contingent or deferred) of $112 thousand and $396 thousand for the quarters ended March 31, 2018 and 2017, respectively.

(5) 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.

(6) Trial modifications are granted a delay in payments due under the original terms during the trial payment period. However, these loans continue to advance through delinquency status and accrue interest according to their original terms. Any subsequent permanent modification generally includes interest rate related concessions; however, the exact concession type and resulting financial effect are usually not known until the loan is permanently modified. Trial modifications for the period are presented net of previously reported trial modifications that became permanent in the current period.

The table below summarizes permanent modification TDRs that have defaulted in the current period within 12 months of their permanent modification date. We report 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.

	Recorded investment of defaults
	Quarter ended March 31,
(in thousands)	2018		2017
Total commercial	$	—	—
Consumer:
Real estate 1-4 family first mortgage	730		419
Real estate 1-4 family junior lien mortgage	55		57
Total consumer	785		476
Total	$	785	476

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Note 3: Fair Values of Assets and Liabilities

We use fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. We did not elect the fair value option for any financial instruments as permitted in FASB ASC 825, Financial Instruments, which allows companies to elect to carry certain financial instruments at fair value with corresponding changes in fair value reported in the results of operations. As of March 31, 2018 and December 31, 2017, assets measured at fair value on a nonrecurring basis were less than 1% of total assets. See Note 1 (Summary of Significant Accounting Policies) in our 2017 Form 10-K for additional information about our fair value measurement policies and methods.

Disclosures about Fair Value of Financial InstrumentsThe table below is a summary of fair value estimates by level for financial instruments. In connection with the adoption of ASU 2016-01 in first quarter 2018, the valuation

methodologies for estimating the fair value of financial instruments that are recorded at amortized cost, including loans, has been changed, where necessary, to conform with an exit price notion. Under an exit price notion, fair value estimates are based upon the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the balance sheet date. For certain loans the estimated fair values prior to adoption of ASU 2016-01 followed an entrance price notion that based fair values on recent prices offered to customers for loans with similar characteristics. The carrying amounts in the following table are recorded in the balance sheet under the indicated captions.

We have not included assets and liabilities that are not financial instruments in our disclosure, such as other assets and other liabilities. The total of the fair value calculations presented does not represent, and should not be construed to represent, the underlying value of the Company.

	Carrying amount		Estimated fair value
(in thousands)			Level 1	Level 2	Level 3	Total
March 31, 2018
Financial assets
Cash and cash equivalents (1)	$	—	—	—	—	—
Loans, net (2)	34,701,731		—	—	34,709,411	34,709,411
Financial liabilities
Line of credit with Bank (1)	2,506,674		—	—	2,506,674	2,506,674
December 31, 2017
Financial assets
Cash and cash equivalents (1)	$	—	—	—	—	—
Loans, net (2)	35,735,816		—	—	36,407,260	36,407,260
Financial liabilities
Line of credit with Bank (1)	3,551,426		—	—	3,551,426	3,551,426

(1) Amounts consist of financial instruments in which carrying value approximates fair value.

(2) Carrying amount is net of allowance for loan losses.

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Note 4: Common and Preferred Stock

The following table provides details of our authorized common and preferred stock.

				March 31, 2018 and December 31, 2017
	Liquidation preference per share		Shares authorized	Shares issued and outstanding	Par value per share		Carrying value
Preferred stock:
Series A
6.375%, Cumulative, Perpetual Series A Preferred Stock	$	25	11,000,000	11,000,000	$	0.01	110,000
Series B
$85 Annual Dividend Per Share, Cumulative, Perpetual Series B Preferred Stock	1,000		1,000	667	0.01		7
Common stock			100,000,000	34,058,028	0.01		340,580
Total			111,001,000	45,058,695			$	450,587

In the event that the Company is liquidated or dissolved, the holders of the Series A and Series B preferred stock will be entitled to a liquidation preference for each security plus any authorized, declared and unpaid dividends that will be paid prior to any payments to common stockholders. With respect to the payment of dividends and liquidation preference, the Series A preferred stock ranks on parity with Series B preferred stock and senior to the Company’s common stock. The Company may issue additional shares of common stock to affiliates of Wells Fargo without further action by the Series A or Series B stockholders. Additional information related to Series A and B preferred stock, including the ability of the Company to redeem each series, is included in Note 5 (Common and Preferred Stock) to Financial Statements in our 2017 Form 10-K.

The certificate of designation for the Series A preferred stock limits our ability to pay dividends on our common stock or make any payment of interest or principal on our line of credit with the Bank if the dividend coverage ratio for the four prior fiscal quarters is less than 150%. The dividend coverage ratio, expressed as a percentage, is calculated by dividing the four prior fiscal quarters’ funds from operations, defined as GAAP net income excluding gains or losses from sales of property, by the amount that would be required to pay annual dividends on the Series A and Series B preferred stock. At March 31, 2018, the dividend coverage ratio was 7,105%.

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Note 5: Transactions With Related Parties

The Company engages in various transactions and agreements with affiliated parties in the ordinary course of business. Due to the common ownership of the Company and the affiliated parties by Wells Fargo, these transactions and agreements may reflect circumstances and considerations that could differ from

those conducted with unaffiliated parties. The principal items related to transactions with affiliated parties included in the accompanying statement of income and balance sheet are described in the table and narrative below.

	Quarter ended March 31,
(in thousands)	2018	2017
Income statement data
Interest income:
Net accretion of adjustments on loans	4,278	3,893
Interest on deposits	—	2,780
Total interest income	4,278	6,673
Pledge fees	6,037	13,599
Interest expense	14,402	—
Loan servicing costs	21,922	18,752
Management fees	6,260	6,912

(in thousands)	Mar 31, 2018			Dec 31, 2017
Balance sheet related data
Cash and cash equivalents	$	—		—
Loan acquisitions (year-to-date)	—			9,162,579
Loan sales (book value) (year-to-date)	(3,609		)	(121,210	)
Pledged loans (carrying value) (1)	—			24,323,830
Foreclosed asset sales (year-to-date)	(2,576		)	(11,495	)
Line of credit with Bank	2,506,674			3,551,426
Accounts receivable - affiliates, net	103,275			113,755

(1) There were no pledged loans at March 31, 2018. The fair value of pledged loans was approximately $24.8 billion at December 31, 2017.

LoansWe acquire and sell loans to and from the Bank. The acquisitions and sales are transacted at fair value resulting in acquisition discounts and premiums or gains and losses on sales. The net acquisition discount accretion or premium amortization is reported within interest income. Gains or losses on sales of loans are included within noninterest income.

The certificate of designation for the Series A preferred

stock limits our ability to pledge loans to an aggregate amount

not exceeding 80% of our total assets at any time as collateral on behalf of the Bank for the Bank’s access to secured borrowing facilities through the Federal Home Loan Banks or the discount window of Federal Reserve Banks. In exchange for the pledge of our loan assets, the Bank pays us a fee that is consistent with market terms. At March 31, 2018 and March 31, 2017, the fee was equal to an annual rate of 15 basis points (0.15%) and 34 basis points (0.34%), respectively, as applied to the unpaid principal balance of pledged loans on a monthly basis. Such fee may be renegotiated by us and the Bank from time to time.

Loan Servicing CostsThe loans in our portfolio are predominantly serviced by the Bank pursuant to the terms of participation and servicing and assignment agreements. In some instances, the Bank has delegated servicing responsibility to third parties that are not affiliated with us or the Bank. Depending on the loan type, the monthly servicing fee charges are based in part on (a) outstanding principal balances, (b) a flat fee per month, or (c) a total loan commitment amount.

Management FeesWe pay the Bank a management fee to reimburse for general overhead expenses, including allocations of technology support and a combination of finance and accounting, risk management and other general overhead expenses incurred on our behalf. Management fees include direct and indirect expense allocations. Indirect expenses are allocated based on ratios that use our proportion of expense activity drivers. The expense activity drivers and ratios may change from time to time.

DepositsInterest income earned on deposits is included in interest income. Our cash management process includes applying operating cash flows to reduce any outstanding balance on our line of credit with the Bank. Operating cash flows are settled through our affiliate accounts receivable/payable process. Upon settlement cash received is either applied to reduce our line of credit outstanding or retained as a deposit with the Bank.

Foreclosed AssetsWe sell foreclosed assets back to the Bank from time to time at estimated fair value.

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Line of CreditWe have a revolving line of credit with the Bank, pursuant to which we can borrow up to $5.0 billion at a rate of interest equal to the three-month London Interbank Offered Rate plus 4.4 basis points (0.044%).

Accounts Receivable - Affiliates, Net Accounts receivable from or payable to the Bank or its affiliates result from intercompany transactions which include net loan paydowns, interest receipts, and other transactions, including those transactions noted herein, which have not yet settled.

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PART II - OTHER INFORMATION

Item 1.Legal Proceedings

WFREIC is not currently involved in nor, to our knowledge, currently threatened with any material litigation. From time to time we may become involved in routine litigation arising in the ordinary course of business. We do not believe that the eventual outcome of any such routine litigation will, in the aggregate, have a material adverse effect on our financial statements. However, in the event of unexpected future developments, it is possible that the ultimate resolution of those matters, if unfavorable, could be material to our financial statements for any particular period.

Item 1A.Risk Factors

Information in response to this item can be found under the “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

Information required by this Item 2 pursuant to Item 703 of Regulation S-K regarding issuer repurchases of equity securities is not applicable since we do not have a program providing for the repurchase of our securities.

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Item 6.Exhibits

A list of exhibits to this Form 10-Q is set forth below and is incorporated herein by reference.

Exhibit No.	Description	Location
(3)(a)	Amended and Restated Certificate of Incorporation.	Incorporated by reference to Exhibit (3)(a) to WFREIC’s Annual Report on Form 10-K for the year ended December 31, 2014.
(3)(b)	Bylaws.	Incorporated by reference to Exhibit 3.3 to WFREIC’s Registration Statement on Form S-11 No. 333-198948 filed November 18, 2014.
(12)	Computations of Ratios of Earnings to Fixed Charges and Preferred Stock Dividends.	Filed herewith.
(31)(a)	Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	Filed herewith.
(31)(b)	Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	Filed herewith.
(32)(a)	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	Filed herewith.
(32)(b)	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	Filed herewith.
(101.Ins)	XBRL Instance Document	Filed herewith.
(101.Sch)	XBRL Taxonomy Extension Schema Document	Filed herewith.
(101.Cal)	XBRL Taxonomy Extension Calculation Linkbase Document	Filed herewith.
(101.Lab)	XBRL Taxonomy Extension Label Linkbase Document	Filed herewith.
(101.Pre)	XBRL Taxonomy Extension Presentation Linkbase Document	Filed herewith.
(101.Def)	XBRL Taxonomy Extension Definitions Linkbase Document	Filed herewith.

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SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) 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.

Wells Fargo Real Estate Investment Corporation
By:	/s/ RICHARD D. LEVY
	Richard D. Levy Executive Vice President and Controller (Principal Accounting Officer)

Dated: May 7, 2018

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