WELLS FARGO & COMPANY/MN - Quarter Report: 2020 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number 001-2979

WELLS FARGO & COMPANY

(Exact name of registrant as specified in its charter)



Delaware	No.	41-0449260
(State of incorporation)	(I.R.S. Employer Identification No.)

420 Montgomery Street, San Francisco, California 94104

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: 1-866-249-3302

Securities registered pursuant to Section 12(b) of the Act:



Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock, par value $1-2/3	WFC	NYSE
7.5% Non-Cumulative Perpetual Convertible Class A Preferred Stock, Series L	WFC.PRL	NYSE
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series N	WFC.PRN	NYSE
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series O	WFC.PRO	NYSE
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series P	WFC.PRP	NYSE
Depositary Shares, each representing a 1/1000th interest in a share of 5.85% Fixed-to-Floating Rate Non-Cumulative Perpetual Class A Preferred Stock, Series Q	WFC.PRQ	NYSE
Depositary Shares, each representing a 1/1000th interest in a share of 6.625% Fixed-to-Floating Rate Non-Cumulative Perpetual Class A Preferred Stock, Series R	WFC.PRR	NYSE
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series T	WFC.PRT	NYSE
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series V	WFC.PRV	NYSE
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series W	WFC.PRW	NYSE
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series X	WFC.PRX	NYSE
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series Y	WFC.PRY	NYSE
Depositary Shares, each representing a 1/1000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series Z	WFC.PRZ	NYSE
Guarantee of 5.80% Fixed-to-Floating Rate Normal Wachovia Income Trust Securities of Wachovia Capital Trust III	WFC/TP	NYSE
Guarantee of Medium-Term Notes, Series A, due October 30, 2028 of Wells Fargo Finance LLC	WFC/28A	NYSE

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ Accelerated filer ¨

Non-accelerated filer ¨ Smaller reporting company ☐

Emerging growth company ☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ

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



		Shares Outstanding
		April 24, 2020
Common stock, $1-2/3 par value		4,099,997,545



FORM 10-Q
CROSS-REFERENCE INDEX
PART I	Financial Information
Item 1.	Financial Statements			Page
	Consolidated Statement of Income			59
	Consolidated Statement of Comprehensive Income			60
	Consolidated Balance Sheet			61
	Consolidated Statement of Changes in Equity			62
	Consolidated Statement of Cash Flows			64
	Notes to Financial Statements
	1	—	Summary of Significant Accounting Policies	65
	2	—	Business Combinations	70
	3	—	Cash, Loan and Dividend Restrictions	71
	4	—	Trading Activities	72
	5	—	Available-for-Sale and Held-to-Maturity Debt Securities	73
	6	—	Loans and Related Allowance for Credit Losses	80
	7	—	Leasing Activity	97
	8	—	Equity Securities	98
	9	—	Other Assets	100
	10	—	Securitizations and Variable Interest Entities	101
	11	—	Mortgage Banking Activities	107
	12	—	Intangible Assets	109
	13	—	Guarantees, Pledged Assets and Collateral, and Other Commitments	110
	14	—	Legal Actions	114
	15	—	Derivatives	119
	16	—	Fair Values of Assets and Liabilities	127
	17	—	Preferred Stock	140
	18	—	Revenue from Contracts with Customers	143
	19	—	Employee Benefits and Other Expenses	146
	20	—	Earnings and Dividends Per Common Share	147
	21	—	Other Comprehensive Income	148
	22	—	Operating Segments	150
	23	—	Regulatory and Agency Capital Requirements	151
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations (Financial Review)
	Summary Financial Data			2
	Overview			3
	Earnings Performance			6
	Balance Sheet Analysis			18
	Off-Balance Sheet Arrangements			21
	Risk Management			22
	Capital Management			45
	Regulatory Matters			51
	Critical Accounting Policies			52
	Current Accounting Developments			54
	Forward-Looking Statements			55
	Risk Factors			57
	Glossary of Acronyms			152
Item 3.	Quantitative and Qualitative Disclosures About Market Risk			39
Item 4.	Controls and Procedures			58

PART II	Other Information
Item 1.	Legal Proceedings			153
Item 1A.	Risk Factors			153
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds			153
Item 6.	Exhibits			154

Signature				155

PART I - FINANCIAL INFORMATION

FINANCIAL REVIEW



Summary Financial Data
						% Change
	Quarter ended					Mar 31, 2020 from
($ in millions, except per share amounts)	Mar 31, 2020			Dec 31, 2019	Mar 31, 2019	Dec 31, 2019		Mar 31, 2019
For the Period
Wells Fargo net income	$	653		2,873	5,860	(77	)%	(89	)
Wells Fargo net income applicable to common stock	42			2,546	5,507	(98	)	(99	)
Diluted earnings per common share	0.01			0.60	1.20	(98	)	(99	)
Profitability ratios (annualized):
Wells Fargo net income to average assets (ROA)	0.13		%	0.59	1.26	(78	)	(90	)
Wells Fargo net income applicable to common stock to average Wells Fargo common stockholders’ equity (ROE)	0.10			5.91	12.71	(98	)	(99	)
Return on average tangible common equity (ROTCE) (1)	0.12			7.08	15.16	(98	)	(99	)
Efficiency ratio (2)	73.6			78.6	64.4	(6	)	14
Total revenue	$	17,717		19,860	21,609	(11	)	(18	)
Pre-tax pre-provision profit (PTPP) (3)	4,669			4,246	7,693	10		(39	)
Dividends declared per common share	0.51			0.51	0.45	—		13
Average common shares outstanding	4,104.8			4,197.1	4,551.5	(2	)	(10	)
Diluted average common shares outstanding	4,135.3			4,234.6	4,584.0	(2	)	(10	)
Average loans	$	965,046		956,536	950,010	1		2
Average assets	1,950,659			1,941,843	1,883,091	—		4
Average total deposits	1,337,963			1,321,913	1,262,062	1		6
Average consumer and small business banking deposits (4)	779,521			763,169	739,654	2		5
Net interest margin	2.58		%	2.53	2.91	2		(11	)
At Period End
Debt securities	$	501,563		497,125	483,467	1		4
Loans	1,009,843			962,265	948,249	5		6
Allowance for loan losses	11,263			9,551	9,900	18		14
Goodwill	26,381			26,390	26,420	—		—
Equity securities	54,047			68,241	58,440	(21	)	(8	)
Assets	1,981,349			1,927,555	1,887,792	3		5
Deposits	1,376,532			1,322,626	1,264,013	4		9
Common stockholders’ equity	162,654			166,669	176,025	(2	)	(8	)
Wells Fargo stockholders’ equity	182,718			187,146	197,832	(2	)	(8	)
Total equity	183,330			187,984	198,733	(2	)	(8	)
Tangible common equity (1)	134,787			138,506	147,723	(3	)	(9	)
Capital ratios (5):
Total equity to assets	9.25		%	9.75	10.53	(5	)	(12	)
Risk-based capital:
Common Equity Tier 1	10.67			11.14	11.92	(4	)	(10	)
Tier 1 capital	12.22			12.76	13.64	(4	)	(10	)
Total capital (6)	15.21			15.75	16.74	(3	)	(9	)
Tier 1 leverage	8.03			8.31	9.15	(3	)	(12	)
Common shares outstanding	4,096.4			4,134.4	4,511.9	(1	)	(9	)
Book value per common share (7)	$	39.71		40.31	39.01	(1	)	2
Tangible book value per common share (1)(7)	32.90			33.50	32.74	(2	)	—
Team members (active, full-time equivalent)	262,800			259,800	262,100	1		—

(1)

Tangible common equity is a non-GAAP financial measure and represents total equity less preferred equity, noncontrolling interests, goodwill, certain identifiable intangible assets (other than mortgage servicing rights) and goodwill and other intangibles on nonmarketable equity securities, net of applicable deferred taxes. The methodology of determining tangible common equity may differ among companies. Management believes that return on average tangible common equity and tangible book value per common share, which utilize tangible common equity, are useful financial measures because they enable investors and others to assess the Company’s use of equity. For additional information, including a corresponding reconciliation to generally accepted accounting principles (GAAP) financial measures, see the “Capital Management – Tangible Common Equity” section in this Report.


(2)	The efficiency ratio is noninterest expense divided by total revenue (net interest income and noninterest income).


(3)	Pre-tax pre-provision profit (PTPP) is total revenue less noninterest expense. Management believes that PTPP is a useful financial measure because it enables investors and others to assess the Company’s ability to generate capital to cover credit losses through a credit cycle.


(4)	Consumer and small business banking deposits are total deposits excluding mortgage escrow and wholesale deposits.

(5)

The risk-based capital ratios were calculated under the lower of the Standardized or Advanced Approach determined pursuant to Basel III. Beginning January 1, 2018, the requirements for calculating common equity tier 1 and tier 1 capital, along with risk-weighted assets, became fully phased-in. Accordingly, the information presented reflects fully phased-in common equity tier 1 capital, tier 1 capital and risk-weighted assets, but reflects total capital still in accordance with Transition Requirements. See the “Capital Management” section and Note 23 (Regulatory and Agency Capital Requirements) to Financial Statements in this Report for additional information.


(6)	The total capital ratio for December 31, 2019, has been revised to the lower ratio under the Standardized Approach due to an increase in the previously disclosed total capital ratio under the Advanced Approach as a result of a decrease in risk-weighted assets (RWAs) due to the correction of duplicated operational loss amounts.


(7)	Book value per common share is common stockholders’ equity divided by common shares outstanding. Tangible book value per common share is tangible common equity divided by common shares outstanding.

Overview (continued)

This Quarterly Report, including the Financial Review and the Financial Statements and related Notes, contains forward-looking statements, which may include forecasts of our financial results and condition, expectations for our operations and business, and our assumptions for those forecasts and expectations. Do not unduly rely on forward-looking statements. Actual results may differ materially from our forward-looking statements due to several factors. Factors that could cause our actual results to differ materially from our forward-looking statements are described in this Report, including in the “Forward-Looking Statements” section, and in the “Risk Factors” and “Regulation and Supervision” sections of our Annual Report on Form 10-K for the year ended December 31, 2019 (2019 Form 10-K).

When we refer to “Wells Fargo,” “the Company,” “we,” “our,” or “us” in this Report, we mean Wells Fargo & Company and Subsidiaries (consolidated). When we refer to the “Parent,” we mean Wells Fargo & Company. See the Glossary of Acronyms for definitions of terms used throughout this Report.

Financial Review

Overview

Wells Fargo & Company is a diversified, community-based financial services company with $1.98 trillion in assets. Founded in 1852 and headquartered in San Francisco, we provide banking, investment and mortgage products and services, as well as consumer and commercial finance, through 7,400 locations, more than 13,000 ATMs, digital (online, mobile and social), and contact centers (phone, email and correspondence), and we have offices in 31 countries and territories to support customers who conduct business in the global economy. With approximately 263,000 active, full-time equivalent team members, we serve one in three households in the United States and ranked No. 29 on Fortune’s 2019 rankings of America’s largest corporations. We ranked fourth in assets and third in the market value of our common stock among all U.S. banks at March 31, 2020.

Wells Fargo’s top priority remains meeting its regulatory requirements in order to build the right foundation for all that lies ahead. To do that, the Company is committing the resources necessary to ensure that we operate with the strongest business practices and controls, maintain the highest level of integrity, and have an appropriate culture in place.

In response to the COVID-19 pandemic, we have been working diligently to protect employee safety while continuing to carry out Wells Fargo’s role as a provider of critical and essential services to the public. We have taken comprehensive steps to help customers, employees and communities.

For our customers, we have suspended residential property foreclosure activities, offered fee waivers, and provided payment deferrals, among other actions. We are also rapidly expanding digital access and deploying new tools, including changes to our ATMs and mobile technology for the convenience of our customers. We continue to work with regulatory agencies, government officials, and not-for-profit groups to identify other ways to assist customers facing financial challenges in the current environment.

For our employees, we have enabled approximately 180,000 to work remotely. For jobs that cannot be done from home, we have taken significant actions to help ensure employee safety, including adopting social distancing measures, staggering staff and shifts, and implementing an enhanced cleaning program. We are also making additional cash payments to employees whose roles require them to come into the office.

To support our communities, we are directing $175 million in charitable donations from the Wells Fargo Foundation to help address food, shelter, small business and housing stability, as well as providing help to public health organizations fighting to contain the spread of COVID-19.

We have strong levels of capital and liquidity, and we remain focused on delivering for our customers and communities to get through these unprecedented times.

Federal Reserve Board Consent Order Regarding Governance Oversight and Compliance and Operational Risk Management

On February 2, 2018, the Company entered into a consent order with the Board of Governors of the Federal Reserve System (FRB). As required by the consent order, the Company’s Board of Directors (Board) submitted to the FRB a plan to further enhance the Board’s governance and oversight of the Company, and the Company submitted to the FRB a plan to further improve the Company’s compliance and operational risk management program. The Company continues to engage with the FRB as the Company works to address the consent order provisions. The consent order also requires the Company, following the FRB’s acceptance and approval of the plans and the Company’s adoption and implementation of the plans, to complete an initial third-party review of the enhancements and improvements provided for in the plans. Until this third-party review is complete and the plans are approved and implemented to the satisfaction of the FRB, the Company’s total consolidated assets as defined under the consent order will be limited to the level as of December 31, 2017. Compliance with this asset cap is measured on a two-quarter daily average basis to allow for management of temporary fluctuations. While our total consolidated assets of $1.98 trillion as of the end of first quarter 2020 were in excess of our total consolidated assets of $1.95 trillion as of December 31, 2017, we continued to operate in compliance with the asset cap because the two-quarter daily average for our assets of $1.943 trillion remained below the asset cap level. We are actively working to create balance sheet capacity to lend to and help our customers during these unprecedented and challenging times created by the COVID-19 pandemic. Due to the COVID-19 pandemic, on April 8, 2020, the FRB amended the consent order to allow the Company to exclude from the asset cap any on- balance sheet exposure resulting from loans made by the Company in connection with the Small Business Administration’s Paycheck Protection Program and the FRB’s Main Street Lending Program. As required under the amendment to the consent order, certain fees and other economic benefits received by the Company from loans made in connection with these programs shall be transferred to the U.S. Treasury or to non-profit organizations approved by the FRB that support small businesses. After removal of the asset cap, a second third-party review must also be conducted to assess the efficacy and sustainability of the enhancements and improvements.

Consent Orders with the Consumer Financial Protection Bureau and Office of the Comptroller of the Currency Regarding Compliance Risk Management Program, Automobile Collateral Protection Insurance Policies, and Mortgage Interest Rate Lock Extensions

On April 20, 2018, the Company entered into consent orders with the Consumer Financial Protection Bureau (CFPB) and the Office of the Comptroller of the Currency (OCC) to pay an aggregate of $1 billion in civil money penalties to resolve matters regarding the Company’s compliance risk management program and past practices involving certain automobile collateral protection insurance (CPI) policies and certain mortgage interest rate lock extensions. As required by the consent orders, the Company submitted to the CFPB and OCC an enterprise-wide compliance risk management plan and a plan to enhance the Company’s internal audit program with respect to federal consumer financial law and the terms of the consent orders. In addition, as required by the consent orders, the Company submitted for non-objection plans to remediate customers affected by the automobile collateral protection insurance and mortgage interest rate lock matters, as well as a plan for the management of remediation activities conducted by the Company.

Retail Sales Practices Matters

In September 2016, we announced settlements with the CFPB, the OCC, and the Office of the Los Angeles City Attorney, and entered into related consent orders with the CFPB and the OCC, in connection with allegations that some of our retail customers received products and services they did not request. As a result, it remains a top priority to rebuild trust through a comprehensive action plan that includes making things right for our customers, team members, and other stakeholders, and building a better Company for the future. Our priority of rebuilding trust has included numerous actions focused on identifying potential financial harm to customers resulting from these matters and providing remediation.

For additional information regarding retail sales practices matters, including related legal matters, see the “Risk Factors” section in our 2019 Form 10-K and Note 14 (Legal Actions) to Financial Statements in this Report.

Other Customer Remediation Activities

Our priority of rebuilding trust has also included an effort to identify other areas or instances where customers may have experienced financial harm, provide remediation as appropriate, and implement additional operational and control procedures. We are working with our regulatory agencies in this effort. We have previously disclosed key areas of focus as part of our rebuilding trust efforts and are in the process of providing remediation for those matters. We have accrued for the reasonably estimable remediation costs related to our rebuilding trust efforts, which amounts may change based on additional facts and information, as well as ongoing reviews and communications with our regulators.

As our ongoing reviews continue, it is possible that in the future we may identify additional items or areas of potential concern. To the extent issues are identified, we will continue to assess any customer harm and provide remediation as appropriate. For more information, including related legal and regulatory risk, see the “Risk Factors” section in our 2019 Form 10-K and Note 14 (Legal Actions) to Financial Statements in this Report.

Financial Performance

Wells Fargo net income was $653 million in first quarter 2020 with diluted earnings per common share (EPS) of $0.01, compared with $5.9 billion and $1.20, respectively, a year ago. Our results in first quarter 2020 were impacted by a $4.0 billion provision for credit losses and an impairment of debt and equity securities of $950 million driven by economic and market conditions. Financial performance items for first quarter 2020 compared with the same period a year ago included:


•	revenue of $17.7 billion, down $3.9 billion, with net interest income of $11.3 billion, down $999 million, or 8%, and noninterest income of $6.4 billion, down $2.9 billion, or 31%;


•	a net interest margin of 2.58%, down 33 basis points;


•	noninterest expense of $13.0 billion, down $868 million, or 6%;


•	an efficiency ratio of 73.6%, compared with 64.4%;


•	average loans of $965.0 billion, up $15.0 billion;


•	average deposits of $1.34 trillion, up $75.9 billion;


•	net loan charge-off rate of 0.38% (annualized) of average loans, compared with 0.30% (annualized);


•	nonaccrual loans of $6.2 billion, down $749 million, or 11%; and


•	return on assets (ROA) of 0.13% and return on equity (ROE) of 0.10%, down from 1.26% and 12.71%, respectively.

Balance Sheet and Liquidity

Our balance sheet remained strong during first quarter 2020 with solid levels of liquidity and capital. Our total assets were $1.98 trillion at March 31, 2020. Cash and other short-term investments decreased $6.1 billion from December 31, 2019, reflecting lower federal funds sold and securities purchased under resale agreements, partially offset by an increase in cash balances. Debt securities increased $4.4 billion from December 31, 2019, predominantly due to an increase in held-to-maturity debt securities, partially offset by a decline in available-for-sale debt securities. Loans increased $47.6 billion from December 31, 2019, predominantly due to increases in commercial and industrial loans driven by draws of revolving lines and origination of new lending facilities due to the impact of the COVID-19 pandemic on economic and market conditions. The increase in loans was partially offset by a decrease in credit card loans primarily due to seasonality and fewer new account openings, and declines in consumer real estate mortgages and other revolving credit and installment loans, as originations and draws of existing lines were more than offset by paydowns.

Average deposits in first quarter 2020 were $1.34 trillion, up $75.9 billion from first quarter 2019, which reflected growth from retail banking deposit campaigns, as well as the inflow of deposits associated with corporate and commercial loan draws.

Credit Quality

Credit quality declined due to the COVID-19 pandemic’s effect on market conditions, which impacted our customer base.

Net loan charge-offs were $909 million, or 0.38% (annualized) of average loans, in first quarter 2020, compared with $695 million a year ago (0.30%) (annualized). Our commercial portfolio net loan charge-offs were $324 million, or 25 basis points (annualized) of average commercial loans, in first quarter 2020, compared with net loan charge-offs of $145 million, or 11 basis points (annualized), a year ago, predominantly driven by increased losses in our commercial and industrial loan portfolio primarily related to higher oil and gas net charge-offs reflecting significant declines in oil prices. Our consumer portfolio net loan charge-offs were $585 million, or 53 basis points (annualized) of average consumer loans, in first

Overview (continued)

quarter 2020, compared with net loan charge-offs of $550 million, or 51 basis points (annualized), a year ago, primarily driven by increased losses in our credit card portfolio.

The allowance for credit losses (ACL) for loans of $12.0 billion at March 31, 2020, increased $1.2 billion, compared with a year ago, and increased $1.6 billion from December 31, 2019. We had a $2.9 billion increase in the allowance for credit losses for loans in first quarter 2020, partially offset by a $1.3 billion decline as a result of our adoption on January 1, 2020, of Accounting Standards Update (ASU) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (CECL), compared with a $150 million increase in the allowance in the same period a year ago. The increase in the allowance for credit losses for loans reflected forecasted credit deterioration due to the COVID-19 pandemic and credit weakness in the oil and gas portfolio due to the recent sharp declines in oil prices. The allowance coverage for total loans was 1.19% at March 31, 2020, compared with 1.14% a year ago and 1.09% at December 31, 2019. The allowance covered 3.3 times annualized net loan charge-offs in first quarter 2020, compared with 3.8 times in first quarter 2019. Our provision for loan losses was $3.8 billion in first quarter 2020, up from $845 million a year ago, which reflected an increase in the allowance for credit losses for loans due to forecasted credit deterioration due to the COVID-19 pandemic, and higher net loan charge-offs primarily due to the impact of the recent sharp decline in oil prices on our oil and gas portfolio.

Nonperforming assets (NPAs) at March 31, 2020, of $6.4 billion, increased $759 million, or 13%, from December 31, 2019, and represented 0.63% of total loans at March 31, 2020. Nonaccrual loans increased $810 million from December 31, 2019, driven by increases in commercial and industrial, and commercial real estate mortgage as the effect of the COVID-19 pandemic on market conditions began to impact our customer base. In addition, real estate 1-4 family mortgage nonaccrual loans increased primarily as a result of our adoption of CECL, which required the reclassification of purchased credit-impaired loans as nonaccruing based on performance. Foreclosed assets decreased $51 million from December 31, 2019. For information on how we are assisting our customers in response to the COVID-19 pandemic, see the “Risk Management – Credit Risk Management” section in this Report.

Capital

We maintained a solid capital position in first quarter 2020, with total equity of $183.3 billion at March 31, 2020, compared with $188.0 billion at December 31, 2019. We reduced our common shares outstanding by 38.0 million shares through the repurchase of 75.4 million common shares, net of issuances, in the quarter. On March 15, 2020, we, along with the other members of the Financial Services Forum (which consists of the eight largest and most diversified financial institutions headquartered in the U.S.), decided to temporarily suspend share repurchases for the remainder of the first quarter and for second quarter 2020. This decision is consistent with our objective to use our significant capital and liquidity to provide support to individuals, small businesses, and the broader economy through lending and other important services.

In first quarter 2020, we issued $2.0 billion of Non-Cumulative Perpetual Class A Preferred Stock, Series Z. Additionally, we redeemed the remaining $1.8 billion of our Fixed-to-Floating Rate Non-Cumulative Perpetual Class A Preferred Stock, Series K. We also redeemed $669 million of our Non-Cumulative Perpetual Class A Preferred Stock, Series T.

We believe an important measure of our capital strength is the Common Equity Tier 1 (CET1) ratio, which was 10.67% at March 31, 2020, down from 11.14% at December 31, 2019, but still above our internal target of 10% and the regulatory minimum of 9%. As of March 31, 2020, our eligible external total loss absorbing capacity (TLAC) as a percentage of total risk-weighted assets was 23.27%, compared with the required minimum of 22.0%. Likewise, our other regulatory capital ratios remained strong. See the “Capital Management” section in this Report for more information regarding our capital, including the calculation of our regulatory capital amounts.

Earnings Performance

Wells Fargo net income for first quarter 2020 was $653 million ($0.01 diluted earnings per common share), compared with $5.9 billion ($1.20 diluted per share) for first quarter 2019. Net income decreased in first quarter 2020, compared with the same period a year ago, due to a $999 million decrease in net interest income, a $3.2 billion increase in our provision for credit losses, and a $2.9 billion decrease in noninterest income, partially offset by a $868 million decrease in noninterest expense, and a $722 million decrease in income tax expense.

Revenue, the sum of net interest income and noninterest income, was $17.7 billion in first quarter 2020, compared with $21.6 billion in the same period a year ago. Net interest income represented 64% of revenue in first quarter 2020, compared with 57% in first quarter 2019. Noninterest income represented 36% of revenue in first quarter 2020, compared with 43% in first quarter 2019.

Net Interest Income

Net interest income is the interest earned on debt securities, loans (including yield-related loan fees) and other interest-earning assets minus the interest paid on deposits, short-term borrowings and long-term debt. The net interest margin is the average yield on earning assets minus the average interest rate paid for deposits and our other sources of funding. Net interest income and the net interest margin are presented on a taxable-equivalent basis in Table 1 to consistently reflect income from taxable and tax-exempt loans and debt and equity securities based on a 21% federal statutory tax rate for the periods ending March 31, 2020 and 2019.

Net interest income and the net interest margin in any one period can be significantly affected by a variety of factors including the mix of earning assets in our portfolio, the overall size of our earning assets portfolio, and the cost of funding those assets. In addition, variable sources of interest income, such as loan fees, periodic dividends, and collection of interest on nonaccrual loans, can fluctuate from period to period.

Net interest income on a taxable-equivalent basis was $11.5 billion in first quarter 2020, compared with $12.5 billion for the same period a year ago. Net interest margin on a taxable-equivalent basis was 2.58% in first quarter 2020, compared with 2.91% for the same period a year ago. The decrease in net interest income and net interest margin in first quarter 2020, compared with the same period a year ago, was driven by unfavorable impacts of repricing due to lower market rates and changes in mix of earning assets and funding sources, including sales of high yielding Pick-a-Pay loans in 2019, as well as higher costs on promotional retail banking deposits.

Average earning assets increased $49.8 billion in first quarter 2020 compared with the same period a year ago. The change was driven by increases in:


•	average federal funds sold and securities purchased under resale agreements of $24.0 billion;


•	average loans of $15.0 billion;


•	average debt securities of $8.5 billion;


•	average mortgage loans held for sale of $6.5 billion;


•	average equity securities of $4.5 billion; and


•	other earning assets of $3.0 billion;

partially offset by decreases in:


•	average interest-earning deposits with banks of $11.3 billion; and


•	average loans held for sale of $377 million.

Deposits are an important low-cost source of funding and affect both net interest income and the net interest margin. Deposits include noninterest-bearing deposits, interest-bearing checking, market rate and other savings, savings certificates, other time deposits, and deposits in foreign offices. Average deposits were $1.34 trillion in first quarter 2020, compared with $1.26 trillion in the same period a year ago, and represented 139% of average loans in first quarter 2020, compared with 133% in first quarter 2019. Average deposits were 75% of average earning assets in first quarter 2020, compared with 73% in the same period a year ago. The average deposit cost for first quarter 2020 was 52 basis points, down 13 basis points from a year ago, reflecting the lower interest rate environment, partially offset by retail banking promotional pricing for new deposits.

Earnings Performance (continued)

Table 1: Average Balances, Yields and Rates Paid (Taxable-Equivalent Basis) (1)



	Quarter ended March 31,
						2020						2019
(in millions)	Average balance			Yields/ rates		Interest income/ expense		Average balance		Yields/ rates		Interest income/ expense
Earning assets
Interest-earning deposits with banks	$	129,522		1.18	%	$	381	140,784		2.33	%	$	810
Federal funds sold and securities purchased under resale agreements	107,555			1.42		380		83,539		2.40		495
Debt securities (2):
Trading debt securities	101,062			3.05		770		89,378		3.58		798
Available-for-sale debt securities:
Securities of U.S. Treasury and federal agencies	10,781			1.40		38		14,070		2.14		74
Securities of U.S. states and political subdivisions	38,950			3.43		334		48,342		4.02		486
Mortgage-backed securities:
Federal agencies	158,639			2.68		1,062		151,494		3.10		1,173
Residential and commercial	4,648			2.82		33		5,984		4.31		64
Total mortgage-backed securities	163,287			2.68		1,095		157,478		3.14		1,237
Other debt securities	39,541			3.48		343		46,788		4.46		517
Total available-for-sale debt securities	252,559			2.87		1,810		266,678		3.48		2,314
Held-to-maturity debt securities:
Securities of U.S. Treasury and federal agencies	45,937			2.19		251		44,754		2.20		243
Securities of U.S. states and political subdivisions	13,536			3.84		130		6,158		4.03		62
Federal agency and other mortgage-backed securities	98,394			2.55		628		96,004		2.74		656
Other debt securities	24			3.10		—		61		3.96		1
Total held-to-maturity debt securities	157,891			2.56		1,009		146,977		2.63		962
Total debt securities	511,512			2.81		3,589		503,033		3.25		4,074
Mortgage loans held for sale (3)	20,361			3.87		197		13,898		4.37		152
Loans held for sale (3)	1,485			3.17		12		1,862		5.25		24
Loans:
Commercial loans:
Commercial and industrial – U.S.	288,502			3.55		2,546		286,577		4.48		3,169
Commercial and industrial – non U.S.	70,659			3.16		556		62,821		3.90		604
Real estate mortgage	121,788			3.92		1,187		121,417		4.58		1,373
Real estate construction	20,277			4.54		229		22,435		5.43		301
Lease financing	19,288			4.40		212		19,391		4.61		224
Total commercial loans	520,514			3.65		4,730		512,641		4.48		5,671
Consumer loans:
Real estate 1-4 family first mortgage	293,556			3.61		2,650		285,214		3.96		2,821
Real estate 1-4 family junior lien mortgage	28,905			5.14		370		33,791		5.75		481
Credit card	39,756			12.21		1,207		38,182		12.88		1,212
Automobile	48,258			4.96		596		44,833		5.19		574
Other revolving credit and installment	34,057			6.32		534		35,349		7.14		623
Total consumer loans	444,532			4.83		5,357		437,369		5.26		5,711
Total loans (3)	965,046			4.20		10,087		950,010		4.84		11,382
Equity securities	37,532			2.22		208		33,080		2.56		211
Other	7,431			0.77		14		4,416		1.63		18
Total earning assets	$	1,780,444		3.35	%	$	14,868	1,730,622		4.00	%	$	17,166
Funding sources
Deposits:
Interest-bearing checking	$	63,086		0.86	%	$	135	56,253		1.42	%	$	197
Market rate and other savings	762,138			0.52		978		688,568		0.50		847
Savings certificates	30,099			1.47		110		25,231		1.26		78
Other time deposits	81,978			1.74		356		97,830		2.67		645
Deposits in non-U.S. offices	53,335			1.23		163		55,443		1.89		259
Total interest-bearing deposits	990,636			0.71		1,742		923,325		0.89		2,026
Short-term borrowings	102,977			1.14		292		108,651		2.23		597
Long-term debt	229,002			2.17		1,240		233,172		3.32		1,927
Other liabilities	30,199			1.90		142		25,292		2.28		143
Total interest-bearing liabilities	1,352,814			1.01		3,416		1,290,440		1.47		4,693
Portion of noninterest-bearing funding sources	427,630			—		—		440,182		—		—
Total funding sources	$	1,780,444		0.77		3,416		1,730,622		1.09		4,693
Net interest margin and net interest income on a taxable-equivalent basis (4)				2.58	%	$	11,452			2.91	%	$	12,473
Noninterest-earning assets
Cash and due from banks	$	20,571						19,614
Goodwill	26,387							26,420
Other	123,257							106,435
Total noninterest-earning assets	$	170,215						152,469
Noninterest-bearing funding sources
Deposits	$	347,327						338,737
Other liabilities	62,348							55,565
Total equity	188,170							198,349
Noninterest-bearing funding sources used to fund earning assets	(427,630		)					(440,182	)
Net noninterest-bearing funding sources	$	170,215						152,469
Total assets	$	1,950,659						1,883,091

Average prime rate				4.41	%					5.50	%
Average three-month London Interbank Offered Rate (LIBOR)				1.53						2.69


(1)	Yields/rates and amounts include the effects of hedge and risk management activities associated with the respective asset and liability categories.


(2)	Yields/rates are based on interest income/expense amounts for the period, annualized based on the accrual basis for the respective accounts. The average balance amounts represent amortized cost for the periods presented.


(3)	Nonaccrual loans and related income are included in their respective loan categories.


(4)	Includes taxable-equivalent adjustments of $140 million and $162 million for the quarters ended March 31, 2020 and 2019, respectively, predominantly related to tax-exempt income on certain loans and securities.

Noninterest Income

Table 2: Noninterest Income



	Quarter ended Mar 31,				%
(in millions)	2020			2019	Change
Service charges on deposit accounts	$	1,209		1,094	11	%
Trust and investment fees:
Brokerage advisory, commissions and other fees	2,482			2,193	13
Trust and investment management	701			786	(11	)
Investment banking	391			394	(1	)
Total trust and investment fees	3,574			3,373	6
Card fees	892			944	(6	)
Other fees:
Lending related charges and fees	328			347	(5	)
Cash network fees	106			109	(3	)
Commercial real estate brokerage commissions	1			81	(99	)
Wire transfer and other remittance fees	110			113	(3	)
All other fees	87			120	(28	)
Total other fees	632			770	(18	)
Mortgage banking:
Servicing income, net	271			364	(26	)
Net gains on mortgage loan origination/sales activities	108			344	(69	)
Total mortgage banking	379			708	(46	)
Insurance	95			96	(1	)
Net gains from trading activities	64			357	(82	)
Net gains on debt securities	237			125	90
Net gains (losses) from equity securities	(1,401		)	814	NM
Lease income	352			443	(21	)
Life insurance investment income	161			159	1
All other	211			415	(49	)
Total	$	6,405		9,298	(31	)

NM – Not meaningful

Noninterest income was $6.4 billion, or 36% of revenue, in first quarter 2020, compared with $9.3 billion, or 43% of revenue, for the same period a year ago. The decrease in noninterest income in first quarter 2020, compared with the same period a year ago, was predominantly due to lower other fees, mortgage banking income, net gains from trading activities, and net losses from equity securities, partially offset by higher service charges on deposit accounts, and trust and investment fees. For more information on our performance obligations and the nature of services performed for certain of our revenues discussed below, see Note 18 (Revenue from Contracts with Customers) to Financial Statements in this Report.

Service charges on deposit accounts increased to $1.2 billion in first quarter 2020, compared with $1.1 billion for the same period a year ago, driven by higher overdraft fees and higher treasury management fees due to the impact of a lower earnings credit rate applied to commercial accounts given the lower interest rate environment. Overdraft fees were higher due to one additional day in first quarter 2020, compared with the same period a year ago, as well as fee waivers and reversals for customers affected by our data center system outage and the government shutdown in first quarter 2019. As part of our actions to support customers during the COVID-19 pandemic, we have provided certain fee waivers and reversals to our customers, which may negatively impact income from service charges on deposit accounts in future periods.

Brokerage advisory, commissions and other fees increased to $2.5 billion in first quarter 2020, compared with $2.2 billion for the same period a year ago, due to higher asset-based fees and higher transactional revenue. Retail brokerage client assets totaled $1.4 trillion at March 31, 2020, compared with $1.6 trillion at March 31, 2019. Asset-based fees are generally calculated on the market value of the assets as of the beginning of each quarter. All retail brokerage services are provided by our Wealth and Investment Management (WIM) operating segment. For additional information on retail brokerage client assets, see the discussion and Tables 4d and 4e in the “Operating Segment Results – Wealth and Investment Management – Retail Brokerage Client Assets” section in this Report.

Trust and investment management fees decreased to $701 million in first quarter 2020, from $786 million for the same period a year ago, predominantly driven by lower trust fees due to the sale of our Institutional Retirement and Trust (IRT) business in 2019.

Our assets under management (AUM) totaled $693.1 billion at March 31, 2020, compared with $661.1 billion at March 31, 2019. Substantially all of our AUM is managed by our WIM operating segment. Our assets under administration (AUA) totaled $1.7 trillion at both March 31, 2020 and 2019. Management believes that AUM and AUA are useful metrics because they allow investors and others to assess how changes in asset amounts may impact the generation of certain asset-based fees.

Earnings Performance (continued)

Our AUM and AUA included IRT client assets of $19 billion and $797 billion, respectively, at March 31, 2020, which we continue to administer at the direction of the buyer pursuant to a transition services agreement that will terminate no later than July 2021.

Additional information regarding our WIM operating segment AUM is provided in Table 4f and the related discussion in the “Operating Segment Results – Wealth and Investment Management – Trust and Investment Client Assets Under Management” section in this Report.

Card fees decreased to $892 million in first quarter 2020, compared with $944 million for the same period a year ago, due to higher rewards costs and lower interchange fees driven by decreased purchase activity due to the impact of the COVID-19 pandemic on consumer spending, partially offset by strong purchase volume early in the quarter.

Other fees decreased to $632 million in first quarter 2020, compared with $770 million for the same period a year ago, largely driven by the sale of our commercial real estate brokerage business, Eastdil Secured (Eastdil), in fourth quarter 2019 and lower business payroll income due to the sale of our Business Payroll Services business in first quarter 2019.

Mortgage banking noninterest income, consisting of net servicing income and net gains on mortgage loan origination/ sales activities, decreased to $379 million in first quarter 2020, compared with $708 million for the same period a year ago. For more information, see Note 11 (Mortgage Banking Activities) to Financial Statements in this Report.

Net servicing income decreased to $271 million in first quarter 2020, compared with $364 million for the same period a year ago driven by a decrease in contractually specified fees as a result of sales of mortgage servicing rights (MSRs) in 2019 and continued prepayments, as well as higher unreimbursed servicing costs due to the expected impact of the COVID-19 pandemic, such as extended foreclosure timelines and higher defaults. In addition to servicing fees, net servicing income includes amortization of commercial MSRs, changes in the fair value of residential MSRs, as well as changes in the fair value of derivatives (economic hedges) used to hedge the residential MSRs. The total fair value of our residential MSRs declined in first quarter 2020, compared with the same period a year ago, driven by lower mortgage interest rates and higher prepayments, which were substantially offset by hedge gains. In addition, the fair value decline in first quarter 2020 included assumption updates attributable to higher prepayment estimates. Table 2a presents the components of the market-related valuation changes to our residential MSRs, net of hedge results.

Table 2a: Market-Related Valuation Changes on Residential MSRs, Net of Hedge Results



	Quarter ended Mar 31,
(in millions)	2020			2019
MSR valuation losses	$	(3,257	)	(891	)
Net derivative gains from economic hedges of residential MSRs	3,400			962
Net MSR valuation gain	$	143		71

Our portfolio of loans serviced for others was $1.6 trillion at both March 31, 2020, and December 31, 2019. At March 31, 2020, the ratio of combined residential and commercial MSRs to related loans serviced for others was 0.60%, compared with 0.79% at December 31, 2019. See the “Risk Management – Asset/Liability Management – Mortgage Banking Interest Rate and Market Risk” section in this Report for additional information

regarding our MSRs risks and hedging approach.

Net gains on mortgage loan origination/sales activities decreased to $108 million in first quarter 2020, compared with $344 million for the same period a year ago, as gains from higher residential real estate origination volumes and margins in first quarter 2020 were more than offset by losses driven by the impact of interest rate volatility on hedging activities associated with our residential mortgage loans held for sale portfolio and pipeline, as well as valuation losses on certain residential and commercial loans held for sale due to market conditions.

The production margin on residential held-for-sale mortgage loan originations, which represents net gains on residential mortgage loan origination/sales activities divided by total residential held-for-sale mortgage loan originations, provides a measure of the profitability of our residential mortgage origination activity. Table 2b presents the information used in determining the production margin.

Table 2b: Selected Mortgage Production Data



		Quarter ended March 31,
		2020			2019
Net gains on mortgage loan origination/sales activities (in millions):
Residential	(A)	$	360		232
Commercial		23			47
Residential pipeline and unsold/repurchased loan management (1)		(275		)	65
Total		$	108		344
Residential real estate originations (in billions):
Held-for-sale	(B)	$	33		22
Held-for-investment		15			11
Total		$	48		33
Production margin on residential held-for-sale mortgage loan originations	(A)/(B)	1.08		%	1.05	%


(1)	Predominantly includes the results of Government National Mortgage Association (GNMA) loss mitigation activities, interest rate management activities and changes in estimate to the liability for mortgage loan repurchase losses.

The production margin was 1.08% for first quarter 2020, compared with 1.05% for the same period a year ago. The increase in production margin in first quarter 2020, compared with the same period a year ago, was due to higher margins in both our retail and correspondent production channel, as well as a shift to more retail origination volume, which has a higher margin. The higher production margin was reduced by valuation losses on residential mortgage loans held for sale, particularly non-agency loans.

Mortgage applications increased to $108 billion in first quarter 2020, compared with $64 billion for the same period a year ago. The 1-4 family first mortgage unclosed application pipeline was $62 billion at March 31, 2020, compared with $32 billion at March 31, 2019. For additional information about our mortgage banking activities and results, see the “Risk Management – Asset/Liability Management – Mortgage Banking Interest Rate and Market Risk” section and Note 11 (Mortgage Banking Activities) and Note 16 (Fair Values of Assets and Liabilities) to Financial Statements in this Report.

Net gains from trading activities, which reflect unrealized changes in fair value of our trading positions and realized gains and losses, decreased to $64 million in first quarter 2020, compared with $357 million in the same period a year ago. The decrease in first quarter 2020, compared with the same period a year ago, reflected trading volatility created by the COVID-19 pandemic. We had lower income in first quarter 2020 from wider

credit spreads for asset-backed securities and credit trading, as well as lower trading volumes on asset-backed securities, partially offset by increased demand for interest rate products due to lower interest rates. Net gains from trading activities exclude interest and dividend income and expense on trading securities, which are reported within interest income from debt and equity securities and other interest income. For additional information about trading activities, see the “Risk Management – Asset/Liability Management – Market Risk-Trading Activities” section and Note 4 (Trading Activities) to Financial Statements in this Report.

Net losses from equity securities were $1.4 billion in first quarter 2020 and included $621 million of deferred compensation plan investment losses (largely offset in employee benefits expense). Net losses from equity securities in first quarter 2020 also included nonmarketable equity securities impairments of $935 million, reflecting lower market valuations. The impairments on equity securities in the venture capital, private equity and certain wholesale businesses represented 17% of the carrying values of these businesses’ portfolio investments subject to the impairment assessment. Table 3a presents results for our deferred compensation plan and related investments.

Lease income decreased to $352 million in first quarter 2020, compared with $443 million for the same period a year ago, driven by reductions in the size of the equipment leasing portfolio.

All other income decreased to $211 million in first quarter 2020, compared with $415 million for the same period a year ago. All other income includes income or losses from equity method investments, including low-income housing tax credit investments (excluding related tax credits recorded in income tax expense), foreign currency adjustments and related hedges of foreign currency risks, and certain economic hedges. The decrease in all other income was driven by higher income in first quarter 2019 from gains on the sales of purchased credit-impaired (PCI) loans and a pre-tax gain on the sale of our Business Payroll Services business, partially offset by transition services fees in first quarter 2020 associated with the sale of our IRT business and gains on the sales of loans reclassified to held for sale in 2019 and sold in first quarter 2020.

Earnings Performance (continued)

Noninterest Expense

Table 3: Noninterest Expense



	Quarter ended Mar 31,			%
(in millions)	2020		2019	Change
Salaries	$	4,721	4,425	7	%
Commission and incentive compensation	2,463		2,845	(13	)
Employee benefits	1,130		1,938	(42	)
Technology and equipment	661		661	—
Net occupancy (1)	715		717	—
Core deposit and other intangibles	23		28	(18	)
FDIC and other deposit assessments	118		159	(26	)
Operating losses	464		238	95
Outside professional services	727		678	7
Contract services	630		563	12
Leases (2)	260		286	(9	)
Advertising and promotion	181		237	(24	)
Outside data processing	165		167	(1	)
Travel and entertainment	93		147	(37	)
Postage, stationery and supplies	129		122	6
Telecommunications	92		91	1
Foreclosed assets	29		37	(22	)
Insurance	25		25	—
All other	422		552	(24	)
Total	$	13,048	13,916	(6	)


(1)	Represents expenses for both leased and owned properties.


(2)	Represents expenses for assets we lease to customers.

Noninterest expense was $13.0 billion in first quarter 2020, down 6% from $13.9 billion in the same period a year ago, driven by lower personnel expenses, advertising and promotions expense, travel and entertainment expense, and other expense, partially offset by higher operating losses, and outside professional and contract services expense.

Personnel expenses, which include salaries, commissions, incentive compensation, and employee benefits, were down $894 million, or 10%, in first quarter 2020, compared with the same period a year ago, due to lower employee benefits expense from lower deferred compensation expense (largely offset in net losses from equity securities) and lower incentive compensation and commissions, partially offset by higher salaries driven by the impact of staffing mix changes and annual salary increases, as well as one additional payroll day in the quarter. Table 3a presents results for our deferred compensation plan and related investments.

The decrease in incentive compensation and commissions was due to lower stock incentive compensation expense and lower annual bonus expense, partially offset by higher revenue-related incentive compensation. We have provided various types of financial support to our employees in response to the COVID-19 pandemic, including additional cash payments for our employees who continue to serve customers, enhanced childcare, and other extended benefits. These additional benefits did not meaningfully impact our expenses in first quarter 2020, but are expected to have a greater impact beginning in second quarter 2020 and throughout the remainder of the year. See the “Financial Review – Overview” section in this Report for more information on the actions we have taken to support our employees during the COVID-19 pandemic.

Table 3a: Deferred Compensation Plan and Related Investments



	Quarter ended Mar 31,
(in millions)	2020			2019
Net interest income	$	12		13
Net gains (losses) from equity securities	(621		)	345
Total revenue (losses) from deferred compensation plan investments	(609		)	358
Employee benefits expense (1)	(598		)	357
Income (loss) before income tax expense	$	(11	)	1


(1)	Represents change in deferred compensation plan liability.

Operating losses were up $226 million, or 95%, in first quarter 2020, compared with the same period a year ago, due to higher litigation and remediation accruals.

Outside professional and contract services expense was up $116 million, or 9%, in first quarter 2020, compared with the

same period a year ago, largely due to an increase in project spending, partially offset by lower legal expenses.

Advertising and promotion expense was down $56 million, or 24%, in first quarter 2020, compared with the same period a year ago, due to decreases in marketing and brand campaign volumes.

Travel and entertainment was down $54 million, or 37%, in first quarter 2020, compared with the same period a year ago, driven by a reduction in business travel and company events due to ongoing expense management initiatives, as well as the impact of the COVID-19 pandemic.

All other expense was down $130 million, or 24%, in first quarter 2020, compared with the same period a year ago, due to higher gains on the extinguishment of debt, lower pension benefit plan expenses, and a lower insurance claims reserve.

Income Tax Expense

Income tax expense was $159 million in first quarter 2020, down 82% from $881 million in the same period a year ago, driven by lower income. Our effective income tax rate was 19.5% for first quarter 2020, compared with 13.1% for the same period a year ago. The effective income tax rate for first quarter 2020 reflected net discrete income tax expense of $141 million driven by the accounting for stock compensation activity, the net impact of accounting for uncertain tax positions, and the outcome of U.S. federal income tax examinations. The lower rate in first quarter 2019 was related to net discrete income tax benefits of $297 million related mostly to the results of U.S. federal and state income tax examinations and the accounting for stock compensation activity.

Operating Segment Results

As of March 31, 2020, we were organized for management reporting purposes into three operating segments: Community Banking; Wholesale Banking; and Wealth and Investment Management (WIM). These segments are defined by product type and customer segment and their results are based on our management reporting process. The management reporting process is based on U.S. GAAP with specific adjustments, such as for funds transfer pricing for asset/liability management, for shared revenues and expenses, and tax-equivalent adjustments to consistently reflect income from taxable and tax-exempt sources. On February 11, 2020, we announced a new organizational structure with five principal lines of business: Consumer and Small Business Banking; Consumer Lending; Commercial Banking; Corporate and Investment Banking; and Wealth and Investment

Management. This new organizational structure is intended to help drive operating, control, and business performance. The Company is currently in the process of transitioning to this new organizational structure, including identifying leadership for some of these principal business lines and aligning management reporting and allocation methodologies. These changes will not impact the consolidated financial results of the Company, but are expected to result in changes to our operating segments. We will update our operating segment disclosures, including comparative financial results, when the Company completes its transition and is managed in accordance with the new organizational structure. Table 4 and the following discussion present our results by operating segment. For additional description of our operating segments, including additional financial information and the underlying management reporting process, see Note 22 (Operating Segments) to Financial Statements in this Report.

We perform a goodwill impairment assessment annually in the fourth quarter. However, in first quarter 2020, we performed an interim, quantitative impairment assessment of our goodwill given deteriorated macroeconomic conditions from the impact of the COVID-19 pandemic. These market conditions led to a sharp decline in share prices for Wells Fargo and other companies across many industries. As part of our interim assessment, we updated our assumptions used in both the income and market approaches for estimating fair values of our reporting units. The update to assumptions incorporated current market-based information such as price-earnings information and a regular update to our internal enterprise-wide forecasts, which reflected lower interest rates and higher expected credit losses, as well as a weaker macroeconomic outlook. While we observed declines in the fair values of our reporting units and the amount of excess fair value over the carrying amount of our reporting units, we did not have evidence of goodwill impairment. Due to the impact of the market disruption on our investment banking fees and trading activities, our corporate and investment banking reporting unit, included within the Wholesale Banking operating segment, had the smallest difference between fair value and carrying value. Given the uncertainty of the severity or length of the current economic downturn, we will continue to monitor market conditions for circumstances that could have a further negative effect on our estimated fair values on our reporting units.

In connection with the planned change to our operating segment disclosures, we will realign our goodwill to the reporting units that underlie our operating segments. We will reassess goodwill for impairment at the time of the realignment.

Table 4: Operating Segment Results – Highlights



(income/expense in millions,	Community Banking			Wholesale Banking		Wealth and Investment Management		Other (1)				Consolidated Company
balance sheet data in billions)	2020		2019	2020	2019	2020	2019	2020		2019		2020	2019
Quarter ended Mar 31,
Revenue	$	9,496	11,750	5,817	7,111	3,715	4,079	(1,311	)	(1,331	)	17,717	21,609
Provision (reversal of provision) for credit losses	1,718		710	2,288	134	8	4	(9	)	(3	)	4,005	845
Net income (loss)	155		2,823	311	2,770	463	577	(276	)	(310	)	653	5,860

Average loans	$	462.6	458.2	484.5	476.4	78.5	74.4	(60.6	)	(59.0	)	965.0	950.0
Average deposits	798.6		765.6	456.6	409.8	151.4	153.2	(68.6	)	(66.5	)	1,338.0	1,262.1
Goodwill	16.7		16.7	8.4	8.4	1.3	1.3	—		—		26.4	26.4


(1)	Includes the elimination of certain items that are included in more than one business segment, substantially all of which represents products and services for WIM customers served through Community Banking distribution channels.

Earnings Performance (continued)

Community Banking offers a complete line of diversified financial products and services for consumers and small businesses with annual sales generally up to $5 million in which the owner generally is the financial decision maker. These financial products and services include checking and savings accounts, credit and debit cards, automobile, student, mortgage, home equity and small business lending, as well as referrals to Wholesale Banking

and WIM business partners. The Community Banking segment also includes the results of our Corporate Treasury activities net of allocations (including funds transfer pricing, capital, liquidity and certain corporate expenses) in support of other segments and results of investments in our affiliated venture capital and private equity partnerships. Table 4a provides additional financial information for Community Banking.

Table 4a: Community Banking



	Quarter ended Mar 31,
(in millions, except average balances which are in billions)	2020			2019		% Change
Net interest income	$	6,787		7,248		(6	)%
Noninterest income:
Service charges on deposit accounts	700			610		15
Trust and investment fees:
Brokerage advisory, commissions and other fees (1)	518			449		15
Trust and investment management (1)	194			210		(8	)
Investment banking (2)	(99		)	(20	)	NM
Total trust and investment fees	613			639		(4	)
Card fees	809			858		(6	)
Other fees	285			332		(14	)
Mortgage banking	340			641		(47	)
Insurance	11			11		—
Net gains from trading activities	29			5		480
Net gains on debt securities	194			37		424
Net gains (losses) from equity securities (3)	(1,028		)	601		NM
Other income of the segment	756			768		(2	)
Total noninterest income	2,709			4,502		(40	)

Total revenue	9,496			11,750		(19	)

Provision for credit losses	1,718			710		142
Noninterest expense:
Personnel expense	5,455			5,981		(9	)
Technology and equipment	645			641		1
Net occupancy	529			542		(2	)
Core deposit and other intangibles	1			1		—
FDIC and other deposit assessments	68			106		(36	)
Outside professional services	442			316		40
Operating losses	454			219		107
Other expense of the segment	(478		)	(117	)	NM
Total noninterest expense	7,116			7,689		(7	)
Income before income tax expense and noncontrolling interests	662			3,351		(80	)
Income tax expense	644			424		52
Less: Net income (loss) from noncontrolling interests (4)	(137		)	104		NM
Net income	$	155		2,823		(95	)
Average loans	$	462.6		458.2		1
Average deposits	798.6			765.6		4

NM – Not meaningful


(1)	Represents income on products and services for WIM customers served through Community Banking distribution channels which is eliminated in consolidation.


(2)	Includes underwriting fees paid to Wells Fargo Securities for services related to the issuance of our corporate securities which are offset in our Wholesale Banking segment and eliminated in consolidation.


(3)	Primarily represents gains resulting from venture capital investments.


(4)	Reflects results attributable to noncontrolling interests predominantly associated with the Company’s consolidated venture capital investments.

Community Banking reported net income of $155 million in first quarter 2020, down $2.7 billion, or 95%, compared with the same period a year ago.

Revenue of $9.5 billion in first quarter 2020, decreased $2.3 billion, or 19%, compared with the same period a year ago. The decrease in revenue was due to net losses on equity securities (including lower deferred compensation plan investment results, which were largely offset in employee benefits expense), lower card fees driven by higher rewards costs and the impact of the COVID-19 pandemic on consumer spending, lower net interest income reflecting the lower interest rate environment, and lower mortgage banking income. These decreases were partially offset by higher gains on debt securities and service charges on deposit accounts due to one additional day in first quarter 2020, and that first quarter 2019 included a higher level of fee waivers for customers affected by our data center system outage and the government shutdown.

The provision for credit losses in first quarter 2020 increased $1.0 billion compared with the same period a year ago, predominantly due to a $1.0 billion increase in the allowance for credit losses in first quarter 2020 reflecting expected credit deterioration due to the impact of the COVID-19 pandemic.

Noninterest expense of $7.1 billion in first quarter 2020, decreased $573 million, or 7%, compared with the same period a year ago, predominantly due to lower personnel expenses driven by lower deferred compensation expense (largely offset by net losses from equity securities) and lower other expenses, partially offset by higher operating losses driven by an increase in remediation accruals and higher outside professional services expense.

Income tax expense of $644 million in first quarter 2020, increased $220 million from first quarter 2019, driven by a higher effective income tax rate of 19.5% and included net discrete income tax expense of $141 million driven by the accounting for

stock compensation activity, the net impact of accounting for uncertain tax positions, and the outcome of U.S. federal income tax examinations.

Average loans of $462.6 billion in first quarter 2020, increased $4.4 billion, or 1%, compared with first quarter 2019. The increase in average loans from first quarter 2019 was due to higher real estate 1-4 family first mortgage loans and automobile loans, partially offset by lower junior lien mortgage loans.

Average deposits of $798.6 billion in first quarter 2020 increased $33.0 billion, or 4%, from first quarter 2019 reflecting growth from retail banking deposit campaigns.

Wholesale Banking provides financial solutions to businesses with annual sales generally in excess of $5 million and to financial institutions globally. Products and businesses include Commercial Banking, Commercial Real Estate, Corporate and Investment Banking, Credit Investment Portfolio, Treasury Management, and Commercial Capital. Table 4b provides additional financial information for Wholesale Banking.

Table 4b: Wholesale Banking



	Quarter ended Mar 31,
(in millions, except average balances which are in billions)	2020			2019	% Change
Net interest income	$	4,136		4,534	(9	)%
Noninterest income:
Service charges on deposit accounts	508			483	5
Trust and investment fees:
Brokerage advisory, commissions and other fees	90			78	15
Trust and investment management	131			114	15
Investment banking	490			412	19
Total trust and investment fees	711			604	18
Card fees	83			86	(3	)
Other fees	346			437	(21	)
Mortgage banking	40			68	(41	)
Insurance	75			78	(4	)
Net gains from trading activities	41			333	(88	)
Net gains on debt securities	43			88	(51	)
Net gains (losses) from equity securities	(95		)	77	NM
Other income of the segment	(71		)	323	NM
Total noninterest income	1,681			2,577	(35	)

Total revenue	5,817			7,111	(18	)

Provision for credit losses	2,288			134	NM
Noninterest expense:
Personnel expense	1,383			1,510	(8	)
Technology and equipment	9			9	—
Net occupancy	104			95	9
Core deposit and other intangibles	19			24	(21	)
FDIC and other deposit assessments	44			45	(2	)
Outside professional services	101			184	(45	)
Operating losses	4			1	300
Other expense of the segment	2,099			1,970	7
Total noninterest expense	3,763			3,838	(2	)
Income (loss) before income tax expense (benefit) and noncontrolling interests	(234		)	3,139	NM
Income tax expense (benefit) (1)	(546		)	369	NM
Less: Net income from noncontrolling interests	1			—	NM
Net income	$	311		2,770	(89	)
Average loans	$	484.5		476.4	2
Average deposits	456.6			409.8	11

NM – Not meaningful


(1)	Income tax expense for our Wholesale Banking operating segment included income tax credits related to low-income housing and renewable energy investments of $491 million and $427 million for the first quarter 2020 and 2019, respectively.

Wholesale Banking reported net income of $311 million in first quarter 2020, down $2.5 billion, or 89%, from the same period a year ago.

Net interest income of $4.1 billion in first quarter 2020 decreased $398 million, or 9%, from first quarter 2019, due to the impact of the lower interest rate environment, partially offset by higher loan and deposit volumes and increased spreads on trading assets.

Noninterest income decreased $896 million, or 35%, from first quarter 2019, predominantly due to lower market sensitive revenue (represents net gains (losses) from trading activities, debt securities, and equity securities), lower other income from higher amortization on renewable energy and community lending

investments and lower operating lease income, as well as lower other fees related to our sale of Eastdil in fourth quarter 2019.

The provision for credit losses increased $2.2 billion from first quarter 2019, predominantly due to a $2.1 billion increase in the allowance for credit losses reflecting forecasted credit deterioration due to the COVID-19 pandemic and higher charge-offs in the oil and gas portfolio driven by the significant decline in oil prices.

Noninterest expense decreased $75 million, or 2%, from first quarter 2019, reflecting the sale of Eastdil, as well as lower personnel expense, lease expense within other noninterest expense, and travel expense within other noninterest expense, partially offset by higher regulatory and risk related expense within other noninterest expense.

Earnings Performance (continued)

Average loans of $484.5 billion in first quarter 2020 increased $8.1 billion, or 2%, from first quarter 2019, on broad-based growth across the lines of businesses driven by draws of revolving lines due to the economic slowdown associated with the COVID-19 pandemic. Average deposits of $456.6 billion in first quarter 2020 increased $46.8 billion, or 11%, from first quarter 2019, reflecting an inflow of deposits associated with corporate and commercial loan draws.

Wealth and Investment Management provides a full range of personalized wealth management, investment and retirement products and services to clients across U.S.-based businesses

including Wells Fargo Advisors, The Private Bank, Abbot Downing, and Wells Fargo Asset Management. We deliver financial planning, private banking, credit, investment management and fiduciary services to high-net worth and ultra-high-net worth individuals and families. We also serve clients’ brokerage needs and provide investment management capabilities delivered to global institutional clients through separate accounts and the Wells Fargo Funds. The sale of our IRT business closed on July 1, 2019. For additional information on the sale of our IRT business, including its impact on our AUM and AUA, see the “Earnings Performance – Noninterest Income” section in this Report. Table 4c provides additional financial information for WIM.

Table 4c: Wealth and Investment Management



	Quarter ended Mar 31,
(in millions, except average balances which are in billions)	2020			2019		% Change
Net interest income	$	867		1,101		(21	)%
Noninterest income:
Service charges on deposit accounts	5			4		25
Trust and investment fees:
Brokerage advisory, commissions and other fees	2,397			2,124		13
Trust and investment management	582			676		(14	)
Investment banking	1			5		(80	)
Total trust and investment fees	2,980			2,805		6
Card fees	1			1		—
Other fees	4			4		—
Mortgage banking	(3		)	(3	)	—
Insurance	19			17		12
Net gains (losses) from trading activities	(7		)	19		NM
Net gains on debt securities	—			—		NM
Net gains (losses) from equity securities	(278		)	136		NM
Other income of the segment	127			(5	)	NM
Total noninterest income	2,848			2,978		(4	)

Total revenue	3,715			4,079		(9	)

Provision for credit losses	8			4		100
Noninterest expense:
Personnel expense	1,950			2,197		(11	)
Technology and equipment	7			11		(36	)
Net occupancy	113			112		1
Core deposit and other intangibles	3			3		—
FDIC and other deposit assessments	12			14		(14	)
Outside professional services	191			184		4
Operating losses	9			21		(57	)
Other expense of the segment	818			761		7
Total noninterest expense	3,103			3,303		(6	)
Income before income tax expense and noncontrolling interests	604			772		(22	)
Income tax expense	153			192		(20	)
Less: Net income (loss) from noncontrolling interests	(12		)	3		NM
Net income	$	463		577		(20	)
Average loans	$	78.5		74.4		6
Average deposits	151.4			153.2		(1	)

NM – Not meaningful

WIM reported net income of $463 million in first quarter 2020, down $114 million, or 20%, from first quarter 2019.

Net interest income of $867 million in first quarter 2020 decreased $234 million, or 21%, from first quarter 2019, driven by lower interest rates.

Noninterest income of $2.8 billion in first quarter 2020 decreased $130 million from first quarter 2019, predominantly driven by net losses from equity securities driven by a decline in deferred compensation plan investment results (largely offset by lower employee benefits expense), partially offset by higher retail brokerage advisory fees (priced at the beginning of the quarter) and higher brokerage transaction revenue.

Noninterest expense of $3.1 billion in first quarter 2020 decreased $200 million, or 6%, from first quarter 2019, predominantly due to lower personnel expense driven by lower deferred compensation plan expense (largely offset by net losses from equity securities), partially offset by higher broker commissions within personnel expense.

Average loans of $78.5 billion in first quarter 2020 increased $4.1 billion, or 6%, from first quarter 2019, driven by growth in nonconforming mortgage loans. Average deposits of $151.4 billion in first quarter 2020 decreased $1.8 billion, or 1%.

The following discussions provide additional information for client assets we oversee in our retail brokerage advisory and trust and investment management business lines.

Retail Brokerage Client Assets Brokerage advisory, commissions and other fees are received for providing full-service and discount brokerage services predominantly to retail brokerage clients. Offering advisory account relationships to our brokerage clients is an important component of our broader strategy of meeting their financial needs. Although a majority of our retail brokerage client assets are in accounts that earn brokerage commissions,

the fees from those accounts generally represent transactional commissions based on the number and size of transactions executed at the client’s direction. Fees from advisory accounts are based on a percentage of the market value of the assets as of the beginning of the quarter, which vary across the account types based on the distinct services provided, and are affected by investment performance as well as asset inflows and outflows. A majority of our brokerage advisory, commissions and other fee income is earned from advisory accounts. Table 4d shows advisory account client assets as a percentage of total retail brokerage client assets at March 31, 2020 and 2019.

Table 4d: Retail Brokerage Client Assets



	March 31,
($ in billions)	2020			2019
Retail brokerage client assets	$	1,397.9		1,600.6
Advisory account client assets	498.8			546.7
Advisory account client assets as a percentage of total client assets	36		%	34

Retail Brokerage advisory accounts include assets that are financial advisor-directed and separately managed by third-party managers, as well as certain client-directed brokerage assets where we earn a fee for advisory and other services, but do not have investment discretion. For first quarter 2020 and 2019, the

average fee rate by account type ranged from 80 to 120 basis points. Table 4e presents retail brokerage advisory account client assets activity by account type for first quarter 2020 and 2019.

Table 4e: Retail Brokerage Advisory Account Client Assets



	Quarter ended
(in billions)	Balance, beginning of period		Inflows (1)	Outflows (2)		Market impact (3)		Balance, end of period
March 31, 2020
Client directed (4)	$	169.4	10.1	(9.6	)	(27.2	)	142.7
Financial advisor directed (5)	176.3		10.7	(8.6	)	(26.0	)	152.4
Separate accounts (6)	160.1		6.8	(8.5	)	(24.2	)	134.2
Mutual fund advisory (7)	83.7		3.2	(4.5	)	(12.9	)	69.5
Total advisory client assets	$	589.5	30.8	(31.2	)	(90.3	)	498.8
March 31, 2019
Client directed (4)	$	151.5	7.9	(9.3	)	13.5		163.6
Financial advisor directed (5)	141.9		7.5	(7.7	)	15.2		156.9
Separate accounts (6)	136.4		5.6	(6.9	)	13.2		148.3
Mutual fund advisory (7)	71.3		2.8	(3.2	)	7.0		77.9
Total advisory client assets	$	501.1	23.8	(27.1	)	48.9		546.7


(1)	Inflows include new advisory account assets, contributions, dividends and interest.


(2)	Outflows include closed advisory account assets, withdrawals, and client management fees.


(3)	Market impact reflects gains and losses on portfolio investments.


(4)	Investment advice and other services are provided to client, but decisions are made by the client and the fees earned are based on a percentage of the advisory account assets, not the number and size of transactions executed by the client.


(5)	Professionally managed portfolios with fees earned based on respective strategies and as a percentage of certain client assets.


(6)	Professional advisory portfolios managed by Wells Fargo Asset Management or third-party asset managers. Fees are earned based on a percentage of certain client assets.


(7)	Program with portfolios constructed of load-waived, no-load and institutional share class mutual funds. Fees are earned based on a percentage of certain client assets.

Earnings Performance (continued)

Trust and Investment Client Assets Under Management We earn trust and investment management fees from managing and administering assets, including mutual funds, separate accounts, and personal trust assets, through our asset management and wealth businesses. Prior to the sale of our IRT business, which closed on July 1, 2019, we also earned fees from managing employee benefit trusts through the retirement business. Our asset management business is conducted by Wells Fargo Asset Management (WFAM), which offers Wells Fargo proprietary mutual funds and manages institutional separate accounts, and

our wealth business manages assets for high net worth clients. Substantially all of our trust and investment management fee income is earned from AUM where we have discretionary management authority over the investments and generate fees as a percentage of the market value of the AUM. For additional information on the sale of our IRT business, including its impact on our AUM and AUA, see the “Earnings Performance – Noninterest Income” section in this Report. Table 4f presents AUM activity for first quarter 2020 and 2019.

Table 4f: WIM Trust and Investment – Assets Under Management



	Quarter ended
(in billions)	Balance, beginning of period		Inflows (1)	Outflows (2)		Market impact (3)		Balance, end of period
March 31, 2020
Assets managed by WFAM (4):
Money market funds (5)	$	130.6	35.6	—		—		166.2
Other assets managed	378.2		26.2	(28.6	)	(24.2	)	351.6
Assets managed by Wealth and IRT (6)	187.4		7.8	(10.6	)	(21.8	)	162.8
Total assets under management	$	696.2	69.6	(39.2	)	(46.0	)	680.6
March 31, 2019
Assets managed by WFAM (4):
Money market funds (5)	$	112.4	—	(2.9	)	—		109.5
Other assets managed	353.5		19.3	(21.9	)	16.1		367.0
Assets managed by Wealth and IRT (6)	170.7		9.2	(10.4	)	11.9		181.4
Total assets under management	$	636.6	28.5	(35.2	)	28.0		657.9


(1)	Inflows include new managed account assets, contributions, dividends and interest.


(2)	Outflows include closed managed account assets, withdrawals and client management fees.


(3)	Market impact reflects gains and losses on portfolio investments.


(4)	Assets managed by WFAM consist of equity, alternative, balanced, fixed income, money market, and stable value, and include client assets that are managed or sub-advised on behalf of other Wells Fargo lines of business.


(5)	Money Market funds activity is presented on a net inflow or net outflow basis, because the gross flows are not meaningful nor used by management as an indicator of performance.


(6)	Includes $4.9 billion and $4.8 billion as of March 31, 2020 and 2019, respectively, of client assets invested in proprietary funds managed by WFAM.

Balance Sheet Analysis

At March 31, 2020, our assets totaled $1.98 trillion, up $53.8 billion from December 31, 2019. Asset growth reflected increases in debt securities and loans of $4.4 billion and $47.6 billion, respectively, partially offset by a $15.7 billion decrease in federal funds sold and securities purchased under resale agreements, and a $14.2 billion decrease in equity securities.

The following discussion provides additional information about the major components of our balance sheet. Information regarding our capital and changes in our asset mix is included in the “Earnings Performance – Net Interest Income” and “Capital Management” sections and Note 23 (Regulatory and Agency Capital Requirements) to Financial Statements in this Report.

Available-for-Sale and Held-to-Maturity Debt Securities

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



	March 31, 2020				December 31, 2019
(in millions)	Amortized cost, net (1)		Net unrealized gain (loss)	Fair value	Amortized cost	Net unrealized gain (loss)	Fair value
Available-for-sale (2)	248,187		3,042	251,229	260,060	3,399	263,459
Held-to-maturity (3)	169,909		7,653	177,562	153,933	2,927	156,860
Total	$	418,096	10,695	428,791	413,993	6,326	420,319

(1)

Represents amortized cost of the securities, net of the allowance for credit losses, of $161 million related to available-for-sale debt securities and $11 million related to held-to-maturity debt securities at March 31, 2020. The allowance for credit losses related to available-for-sale and held-to-maturity debt securities was $0 at December 31, 2019, due to our adoption of CECL on January 1, 2020. For more information, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report.


(2)	Available-for-sale debt securities are carried on the balance sheet at fair value, which includes the allowance for credit losses, subsequent to the adoption of CECL on January 1, 2020.


(3)	Held-to-maturity debt securities are carried on the balance sheet at amortized cost, net of allowance for credit losses, subsequent to the adoption of CECL on January 1, 2020.

Table 5 presents a summary of our available-for-sale and held-to-maturity debt securities, which increased $3.7 billion in balance sheet carrying value from December 31, 2019, predominantly due to higher net unrealized gains.

The total net unrealized gains on available-for-sale debt securities were $3.0 billion at March 31, 2020, down from net unrealized gains of $3.4 billion at December 31, 2019, driven by wider credit spreads, which were primarily offset by lower interest rates. For a discussion of our investment management objectives and practices, see the “Balance Sheet Analysis” section in our 2019 Form 10-K. Also, see the “Risk Management – Asset/Liability Management” section in this Report for information on our use of investments to manage liquidity and interest rate risk.

After adoption of CECL, we recorded an allowance for credit losses on available-for-sale and held-to-maturity debt securities. Total provision for credit losses on debt securities was $172 million in first quarter 2020. For a discussion of our accounting policies relating to the allowance for credit losses on debt securities and underlying considerations and analysis, see Note 1 (Summary of Significant Accounting Policies) and Note 5 (Available-for-Sale and Held-to-Maturity Debt Securities) to Financial Statements in this Report.

At March 31, 2020, debt securities included $52.4 billion of municipal bonds, of which 97.2% were rated “A-” or better based predominantly on external ratings. Additionally, some of the debt securities in our total municipal bond portfolio are guaranteed against loss by bond insurers. These guaranteed bonds are predominantly investment grade and were generally underwritten in accordance with our own investment standards prior to the determination to purchase, without relying on the bond insurer’s guarantee in making the investment decision. The credit quality of our municipal bond holdings are monitored as part of our ongoing evaluation of the appropriateness of the allowance for credit losses on debt securities.

The weighted-average expected maturity of debt securities available-for-sale was 4.2 years at March 31, 2020. The expected remaining maturity is shorter than the remaining contractual maturity for the 66% of this portfolio that is mortgage-backed securities (MBS) because borrowers generally have the right to prepay obligations before the underlying mortgages mature. The estimated effects of a 200 basis point increase or decrease in interest rates on the fair value and the expected remaining maturity of the MBS available-for-sale portfolio are shown in Table 6.

Table 6: Mortgage-Backed Securities Available-for-Sale



(in billions)	Fair value		Net unrealized gain (loss)		Expected remaining maturity (in years)
At March 31, 2020
Actual	$	164.6	5.5		3.5
Assuming a 200 basis point:
Increase in interest rates	150.2		(8.9	)	5.6
Decrease in interest rates	168.2		9.1		3.2

The weighted-average expected remaining maturity of debt securities held-to-maturity (HTM) was 4.5 years at March 31, 2020. HTM debt securities are measured at amortized cost and, therefore, changes in the fair value of our held-to-maturity MBS resulting from changes in interest rates are not recognized in earnings. See Note 5 (Available-for-Sale and Held-to-Maturity Debt Securities) to Financial Statements in this Report for a summary of debt securities by security type.

Balance Sheet Analysis (continued)

Loan Portfolios

Table 7 provides a summary of total outstanding loans by portfolio segment. Total loans increased $47.6 billion from December 31, 2019, due to an increase in commercial loans.

Commercial loans increased $52.0 billion from December 31, 2019, predominantly driven by growth in our commercial and industrial loan portfolio, reflecting significant draws on revolving

lines of credit and additional funding requests within our Corporate & Investment Banking and Commercial Banking businesses due to the impact of COVID-19.

Consumer loans were down $4.4 billion from December 31, 2019, primarily due to a decrease in the credit card portfolio due to seasonality and fewer new accounts and lower consumer spending as a result of the impact of COVID-19.

Table 7: Loan Portfolios



(in millions)	March 31, 2020		December 31, 2019
Commercial	$	567,735	515,719
Consumer	442,108		446,546
Total loans	$	1,009,843	962,265
Change from prior year-end	$	47,578	9,155

Average loan balances and a comparative detail of average loan balances is included in Table 1 under “Earnings Performance – Net Interest Income” earlier in this Report. Additional information on total loans outstanding by portfolio segment and class of financing receivable is included in the “Risk Management – Credit Risk Management” section in this Report. Period-end balances and other loan related information are in Note 6 (Loans

and Related Allowance for Credit Losses) to Financial Statements in this Report.

See the “Balance Sheet Analysis – Loan Portfolios” section in our 2019 Form 10-K for information regarding contractual loan maturities and the distribution of loans to changes in interest rates.

Deposits

Deposits were $1.4 trillion at March 31, 2020, up $53.9 billion from December 31, 2019, reflecting growth across all deposit gathering businesses driven by seasonality, customers’ flight to quality following the emergence of COVID-19, as well as the inflow of deposits associated with corporate and commercial loan draws. The increase in deposits was partially offset by actions taken to manage to the asset cap resulting in declines in other

time deposits driven by lower brokered certificates of deposit (CDs) and deposits in non-U.S. offices.

Table 8 provides additional information regarding deposits. Information regarding the impact of deposits on net interest income and a comparison of average deposit balances is provided in the “Earnings Performance – Net Interest Income” section and Table 1 earlier in this Report.

Table 8: Deposits



($ in millions)	Mar 31, 2020		% of total deposits		Dec 31, 2019		% of total deposits		% Change
Noninterest-bearing	$	379,678	28	%	$	344,496	26	%	10
Interest-bearing checking	71,668		5		62,814		5		14
Market rate and other savings	781,051		57		751,080		57		4
Savings certificates	28,431		2		31,715		2		(10	)
Other time deposits	72,928		5		78,609		6		(7	)
Deposits in non-U.S. offices (1)	42,776		3		53,912		4		(21	)
Total deposits	$	1,376,532	100	%	$	1,322,626	100	%	4


(1)	Includes Eurodollar sweep balances of $22.0 billion and $34.2 billion at March 31, 2020, and December 31, 2019, respectively.

Fair Value of Financial Instruments

We use fair value measurements to record fair value adjustments to certain financial instruments and to determine fair value disclosures. See the “Critical Accounting Policies” section in our 2019 Form 10-K and Note 16 (Fair Values of Assets and Liabilities) to Financial Statements in this Report for a description of our critical accounting policy related to fair value of financial instruments and a discussion of our fair value measurement techniques.

Table 9 presents the summary of the fair value of financial instruments recorded at fair value on a recurring basis, and the amounts measured using significant Level 3 inputs (before derivative netting adjustments). The fair value of the remaining assets and liabilities were measured using valuation methodologies involving market-based or market-derived information (collectively Level 1 and 2 measurements).

Table 9: Fair Value Level 3 Summary



	March 31, 2020				December 31, 2019
($ in billions)	Total balance			Level 3 (1)	Total balance	Level 3 (1)
Assets carried at fair value	$	411.5		23.3	428.6	24.3
As a percentage of total assets	21		%	1	22	1
Liabilities carried at fair value	$	33.2		1.3	26.5	1.8
As a percentage of total liabilities	2		%	*	2	*

* Less than 1%.


(1)	Before derivative netting adjustments.

See Note 16 (Fair Values of Assets and Liabilities) to Financial Statements in this Report for additional information on fair value measurements and a description of the Level 1, 2 and 3 fair value hierarchy.

Equity

Total equity was $183.3 billion at March 31, 2020, compared with $188.0 billion at December 31, 2019. The decrease was predominantly driven by common stock repurchases of $3.4 billion, preferred stock redemptions of $2.5 billion, and dividends of $2.4 billion, partially offset by the issuance of preferred stock of $2.0 billion and net income of $653 million.

Off-Balance Sheet Arrangements

In the ordinary course of business, we engage in financial transactions that are not recorded on the balance sheet, or may be recorded on the balance sheet in amounts that are different from the full contract or notional amount of the transaction. Our off-balance sheet arrangements include commitments to lend and purchase debt and equity securities, transactions with unconsolidated entities, guarantees, derivatives, and other commitments. These transactions are designed to (1) meet the financial needs of customers, (2) manage our credit, market or liquidity risks, and/or (3) diversify our funding sources. For additional information on our contractual obligations that may require future cash payments, see the “Off-Balance Sheet Arrangements – Contractual Cash Obligations” section in our 2019 Form 10-K.

Commitments to Lend

We enter into commitments to lend to customers, which are usually at a stated interest rate, if funded, and for specific purposes and time periods. When we enter into commitments, we are exposed to credit risk. The maximum credit risk for these commitments will generally be lower than the contractual amount because a significant portion of these commitments are not funded. For more information, see Note 6 (Loans and Related Allowance for Credit Losses) to Financial Statements in this Report.

Commitments to Purchase Debt and Equity Securities

We enter into commitments to purchase securities under resale agreements. We also may enter into commitments to purchase debt and equity securities to provide capital for customers’ funding, liquidity or other future needs. For more information, see Note 13 (Guarantees, Pledged Assets and Collateral, and Other Commitments) to Financial Statements in this Report.

Transactions with Unconsolidated Entities

In the normal course of business, we enter into various types of on- and off-balance sheet transactions with special purpose entities (SPEs), which are corporations, trusts, limited liability companies or partnerships that are established for a limited purpose. Generally, SPEs are formed in connection with securitization transactions and are considered variable interest entities (VIEs). For more information, see Note 10 (Securitizations and Variable Interest Entities) to Financial Statements in this Report.

Guarantees and Other Arrangements

Guarantees are contracts that contingently require us to make payments to a guaranteed party based on an event or a change in an underlying asset, liability, rate or index. Guarantees are generally in the form of standby letters of credit, direct pay letters of credit, written options, recourse obligations, exchange and clearing house guarantees, indemnifications, and other types of similar arrangements. For more information, see Note 13 (Guarantees, Pledged Assets and Collateral, and Other Commitments) to Financial Statements in this Report.

Derivatives

We use derivatives to manage exposure to market risk, including interest rate risk, credit risk and foreign currency risk, and to assist customers with their risk management objectives. Derivatives are recorded on the balance sheet at fair value, and volume can be measured in terms of the notional amount, which is generally not exchanged, but is used only as the basis on which interest and other payments are determined. The notional amount is not recorded on the balance sheet and is not, when viewed in isolation, a meaningful measure of the risk profile of the instruments. For more information, see Note 15 (Derivatives) to Financial Statements in this Report.

Risk Management

Wells Fargo manages a variety of risks that can significantly affect our financial performance and our ability to meet the expectations of our customers, shareholders, regulators and other stakeholders. For more information about how we manage risk, see the “Risk Management” section in our 2019 Form 10-K. The discussion that follows supplements our discussion of the management of certain risks contained in the “Risk Management” section in our 2019 Form 10-K.

Credit Risk Management

We define credit risk as the risk of loss associated with a borrower or counterparty default (failure to meet obligations in accordance with agreed upon terms). Credit risk exists with many of our assets and exposures such as debt security holdings, certain derivatives, and loans.

The Board’s Credit Committee has primary oversight responsibility for credit risk. At the management level, Credit Risk, which is part of the Company’s Independent Risk Management (IRM) organization, has primary oversight responsibility for credit risk. Credit Risk reports to the Chief Risk Officer (CRO) and also provides periodic reports related to credit risk to the Board’s Credit Committee.

Actions to Support Customers During the COVID-19 Pandemic

In response to the COVID-19 pandemic, we have provided accommodations to our customers, including fee reversals for consumer and small business deposit customers, and fee waivers, payment deferrals, and other expanded assistance for mortgage, credit card, automobile, small business, personal and commercial lending customers. We have also provided significant credit to our customers. In March 2020, our commercial customers drew over $80 billion on revolving lines of credit.

From March 9 through April 24, 2020, we helped more than 1.7 million consumer, small business, and commercial customers by deferring payments, reversing and waiving fees, and offering maturity date extensions. We deferred approximately 1.4 million payments, representing more than $4.6 billion of principal and interest payments, of which approximately 50% related to real estate 1-4 family mortgage loans that we service for others. Additionally, we provided over 1.8 million fee waivers exceeding $75 million. For commercial distribution and automobile finance customers, we provided over 175,000 maturity date extensions, representing approximately $6.3 billion of outstanding principal and interest. The accommodations provided to our customers were not limited to customers that were past due. In addition, we do not plan on retaining fees from loans made in connection with the Paycheck Protection Program.

On March 25, 2020, the U.S. Senate approved the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), a bill designed to provide a wide range of economic relief to consumers and businesses in the U.S. In addition, the CARES Act provides banks optional, temporary relief from accounting for certain loan modifications as troubled debt restructurings (TDRs). The modifications must be related to the adverse effects of COVID-19 and certain other criteria are required to be met to apply the relief. In first quarter 2020, we elected to apply the TDR relief provided by the CARES Act, which expires no later than December 31, 2020.

Interagency Statement provides additional TDR relief as it clarifies that it is not necessary to consider the impact of COVID-19 on the financial condition of a borrower in connection with short-term (e.g., six months) loan modifications related to COVID-19 provided the borrower is current at the date the modification program is implemented. For additional information regarding the TDR relief provided by the CARES Act and the clarifying TDR accounting guidance from the Interagency Statement, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report

The TDR relief provided under the CARES Act, as well as from the Interagency Statement, does not change our processes for monitoring the credit quality of our loan portfolios or for updating our measurement of the allowance for credit losses for loans based on expected losses.

Additionally, our election to apply the TDR relief provided by the CARES Act and the Interagency Statement impacts our regulatory capital ratios as these loan modifications related to COVID-19 are not adjusted to a higher risk-weighting normally required with TDR classification.

Loan Portfolios

The following discussion focuses on our loan portfolios, which represent the largest component of assets on our balance sheet for which we have credit risk. Table 10 presents our total loans outstanding by portfolio segment and class of financing receivable.

Table 10: Total Loans Outstanding by Portfolio Segment and Class of Financing Receivable



(in millions)	Mar 31, 2020		Dec 31, 2019
Commercial:
Commercial and industrial	$	405,020	354,125
Real estate mortgage	122,767		121,824
Real estate construction	20,812		19,939
Lease financing	19,136		19,831
Total commercial	567,735		515,719
Consumer:
Real estate 1-4 family first mortgage	292,920		293,847
Real estate 1-4 family junior lien mortgage	28,527		29,509
Credit card	38,582		41,013
Automobile	48,568		47,873
Other revolving credit and installment	33,511		34,304
Total consumer	442,108		446,546
Total loans	$	1,009,843	962,265

We manage our credit risk by establishing what we believe are sound credit policies for underwriting new business, while monitoring and reviewing the performance of our existing loan portfolios. We employ various credit risk management and monitoring activities to mitigate risks associated with multiple risk factors affecting loans we hold, could acquire or originate including:


•	Loan concentrations and related credit quality


•	Counterparty credit risk


•	Economic and market conditions


•	Legislative or regulatory mandates


•	Changes in interest rates

Risk Management - Credit Risk Management (continued)


•	Merger and acquisition activities


•	Reputation risk

Our credit risk management oversight process is governed centrally, but provides for decentralized management and accountability by our lines of business. Our overall credit process includes comprehensive credit policies, disciplined credit underwriting, frequent and detailed risk measurement and modeling, extensive credit training programs, and a continual loan review and audit process.

A key to our credit risk management is adherence to a well-controlled underwriting process, which we believe is appropriate for the needs of our customers as well as investors who purchase the loans or securities collateralized by the loans.

Credit Quality Overview Credit quality in first quarter 2020 declined due to the effect of the COVID-19 pandemic on market conditions, which impacted our customer base. First quarter 2020 results reflected:

•

Nonaccrual loans were $6.2 billion at March 31, 2020, up from $5.3 billion at December 31, 2019, largely driven by a $585 million increase in commercial real estate and commercial and industrial nonaccrual loans, as the effect of the COVID-19 pandemic on market conditions began to impact our customer base. Commercial nonaccrual loans increased to $2.9 billion at March 31, 2020, compared with $2.3 billion at December 31, 2019, and consumer nonaccrual loans increased to $3.3 billion at March 31, 2020, compared with $3.1 billion at December 31, 2019. Nonaccrual loans represented 0.61% of total loans at March 31, 2020, compared with 0.56% at December 31, 2019.


•	Net loan charge-offs (annualized) as a percentage of our average commercial and consumer loan portfolios were 0.25% and 0.53% in first quarter 2020, respectively, compared with 0.11% and 0.51% in first quarter 2019.


•	Loans that are not government insured/guaranteed and 90 days or more past due and still accruing were $53 million and $828 million in our commercial and consumer portfolios, respectively, at March 31, 2020, compared with $78 million and $855 million at December 31, 2019.

•

Our provision for credit losses for loans was $3.8 billion in first quarter 2020, compared with $845 million for the same period a year ago. The increase in provision for credit losses for loans in first quarter 2020, compared with the same period a year ago, reflected an increase in the allowance for credit losses for loans due to forecasted credit deterioration from the impact of the COVID-19 pandemic, and higher net loan charge-offs primarily due to the impact of the recent sharp decline in oil prices on our oil and gas portfolio.


•	The allowance for credit losses for loans totaled $12.0 billion, or 1.19% of total loans, at March 31, 2020, up from $10.5 billion, or 1.09%, at December 31, 2019.

Additional information on our loan portfolios and our credit quality trends follows.

Significant Loan Portfolio Reviews Measuring and monitoring our credit risk is an ongoing process that tracks delinquencies, collateral values, Fair Isaac Corporation (FICO) scores, economic trends by geographic areas, loan-level risk grading for certain portfolios (typically commercial) and other indications of credit risk. Our credit risk monitoring process is designed to enable early identification of developing risk and to support our determination of an appropriate allowance for credit losses. The following discussion provides additional characteristics and analysis of our

significant portfolios. See Note 6 (Loans and Related Allowance for Credit Losses) to Financial Statements in this Report for more analysis and credit metric information for each of the following portfolios.

COMMERCIAL AND INDUSTRIAL LOANS AND LEASE FINANCING For purposes of portfolio risk management, we aggregate commercial and industrial loans and lease financing according to market segmentation and standard industry codes. We generally subject commercial and industrial loans and lease financing to individual risk assessment using our internal borrower and collateral quality ratings. Our ratings are aligned to federal banking regulators’ definitions of pass and criticized categories with the criticized category including special mention, substandard, doubtful, and loss categories.

The commercial and industrial loans and lease financing portfolio totaled $424.2 billion, or 42% of total loans, at March 31, 2020. The net charge-off rate (annualized) for this portfolio was 0.36% in first quarter 2020, compared with 0.16% for the same period a year ago. At March 31, 2020, and December 31, 2019, 0.45% and 0.44% of this portfolio was nonaccruing, respectively. Nonaccrual loans in this portfolio increased $270 million from December 31, 2019, due to the effect of the COVID-19 pandemic on market conditions, which impacted our customer base. Also, $20.5 billion of the commercial and industrial loan and lease financing portfolio was internally classified as criticized in accordance with regulatory guidance at March 31, 2020, compared with $16.6 billion at December 31, 2019, reflecting the effect of the COVID-19 pandemic on market conditions, which impacted our customer base.

The majority of our commercial and industrial loans and lease financing portfolio is secured by short-term assets, such as accounts receivable, inventory and debt securities, as well as long-lived assets, such as equipment and other business assets. Generally, the collateral securing this portfolio represents a secondary source of repayment.

Table 11 provides our commercial and industrial loans and lease financing by industry, and includes non-U.S. loans of $79.9 billion and $71.7 billion at March 31, 2020, and December 31, 2019, respectively. Significant industry concentrations of non-U.S. loans included $36.8 billion and $31.2 billion in the financials except banks category, and $20.2 billion and $19.9 billion in the banks category at March 31, 2020, and December 31, 2019, respectively. The oil, gas and pipelines category included $1.6 billion of non-U.S. loans at both March 31, 2020, and December 31, 2019. The industry categories are based on the North American Industry Classification System.

Loans to financials except banks, our largest industry concentration, were $126.3 billion, or 13% of total outstanding loans, at March 31, 2020, compared with $117.3 billion, or 12% of total outstanding loans, at December 31, 2019. This industry category is comprised of loans to investment firms, financial vehicles, and non-bank creditors, including those that invest in financial assets backed predominantly by commercial or residential real estate or consumer loan assets. We had $83.1 billion and $75.2 billion of loans originated by our Asset Backed Finance (ABF) lines of business at March 31, 2020, and December 31, 2019, respectively. These ABF loans are limited to a percentage of the value of the underlying financial assets considering underlying credit risk, asset duration, and ongoing performance. These ABF loans may also have other features to manage credit risk such as cross-collateralization, credit enhancements, and contractual re-margining of collateral supporting the loans. Loans to financials except banks included

collateralized loan obligations (CLOs) in loan form of $7.7 billion and $7.0 billion at March 31, 2020, and December 31, 2019, respectively.

Oil, gas and pipelines loans totaled $14.3 billion, or 1% of total outstanding loans, at March 31, 2020, compared with $13.6 billion, or 1% of total outstanding loans, at December 31, 2019. Oil, gas and pipelines loans included $9.5 billion and $9.2 billion of senior secured loans outstanding at March 31, 2020 and December 31, 2019, respectively. Oil, gas and pipelines nonaccrual loans decreased to $549 million at March 31, 2020,

compared with $615 million at December 31, 2019, due to higher net loan charge-offs, as well as loan payments, partially offset by new downgrades to nonaccrual status in first quarter 2020.

In addition to the oil, gas and pipelines category, industries with escalated credit monitoring include retail, entertainment and recreation, transportation services, and commercial real estate. Table 11 and Table 12 include information about our exposure to certain sectors of these industries, including those that have been significantly affected by the COVID-19 pandemic.

Table 11: Commercial and Industrial Loans and Lease Financing by Industry



	March 31, 2020						December 31, 2019
($ in millions)	Nonaccrual loans		Loans outstanding	% of total loans		Total commitments (1)	Nonaccrual loans		Loans outstanding	% of total loans		Total commitments (1)
Financials except banks	$	95	126,270	13	%	204,143	$	112	117,312	12	%	200,848
Equipment, machinery and parts manufacturing	58		25,054	2		44,641	36		23,457	2		42,040
Technology, telecom and media	57		26,896	3		56,462	28		22,447	2		53,343
Real estate and construction	49		27,222	3		48,977	47		22,011	2		48,217
Banks	—		20,282	2		20,948	—		20,070	2		20,728
Retail (2)	204		27,844	3		43,801	105		19,923	2		41,938
Materials and commodities	57		19,118	2		39,385	33		16,375	2		39,369
Automobile related	24		17,436	2		26,032	24		15,996	2		26,310
Food and beverage manufacturing	12		16,908	2		31,004	9		14,991	2		29,172
Health care and pharmaceuticals	81		18,785	2		32,230	28		14,920	2		30,168
Oil, gas and pipelines	549		14,287	1		34,443	615		13,562	1		35,445
Entertainment and recreation (3)	65		16,163	2		20,532	44		13,462	1		19,854
Transportation services (4)	336		11,901	1		17,853	224		10,957	1		17,660
Commercial services	120		12,684	1		22,989	50		10,455	1		22,713
Agribusiness	37		6,994	*		12,137	35		7,539	*		12,901
Utilities	147		8,598	*		21,545	224		5,995	*		19,390
Insurance and fiduciaries	1		7,292	*		16,481	1		5,525	*		15,596
Government and education	7		5,548	*		11,918	6		5,363	*		12,267
Other (5)	11		14,874	1		32,769	19		13,596	*		32,988
Total	$	1,910	424,156	42	%	738,290	$	1,640	373,956	39	%	720,947


*	Less than 1%.


(1)	Total commitments consist of loans outstanding plus unfunded credit commitments, excluding issued letters of credit.


(2)	Loans outstanding to the restaurant sector were $5.8 billion and $4.3 billion and included $3.9 billion and $3.1 billion of loans outstanding to limited service restaurants at March 31, 2020, and December 31, 2019, respectively.


(3)	Less than 1% of loans outstanding and 1% of total commitments were to cruise lines at both March 31, 2020, and December 31, 2019.


(4)	Includes air transportation loans outstanding of $2.4 billion and $1.1 billion at March 31, 2020, and December 31, 2019, respectively.


(5)	No other single industry had total loans in excess of $5.0 billion and $4.7 billion at March 31, 2020, and December 31, 2019, respectively.

Risk Management - Credit Risk Management (continued)

COMMERCIAL REAL ESTATE (CRE) We generally subject CRE loans to individual risk assessment using our internal borrower and collateral quality ratings. Our ratings are aligned to regulatory definitions of pass and criticized categories with criticized segmented among special mention, substandard, doubtful and loss categories. The CRE portfolio, which included $7.8 billion of non-U.S. CRE loans, totaled $143.6 billion, or 14% of total loans, at March 31, 2020, and consisted of $122.8 billion of mortgage loans and $20.8 billion of construction loans.

Table 12 summarizes CRE loans by state and property type with the related nonaccrual totals. The portfolio is diversified both geographically and by property type. The largest geographic concentrations of CRE loans are in California, New York, Florida

and Texas, which combined represented 49% of the total CRE portfolio. By property type, the largest concentrations are office buildings at 26% and apartments at 18% of the portfolio. CRE nonaccrual loans totaled 0.67% of the CRE outstanding balance at March 31, 2020, compared with 0.43% at December 31, 2019. The increase in CRE nonaccrual loans reflected the effect of the COVID-19 pandemic on market conditions, which impacted our customer base. At March 31, 2020, we had $4.1 billion of criticized CRE mortgage loans, compared with $3.8 billion at December 31, 2019, and $222 million of criticized CRE construction loans, compared with $187 million at December 31, 2019.

Table 12: CRE Loans by State and Property Type



	March 31, 2020
	Real estate mortgage			Real estate construction		Total			% of total loans
($ in millions)	Nonaccrual loans		Total portfolio	Nonaccrual loans	Total portfolio	Nonaccrual loans	Total portfolio		% of total loans
By state:
California	$	172	31,837	1	4,446	173	36,283		4	%
New York	21		12,676	2	1,861	23	14,537		1
Florida	22		8,200	1	1,487	23	9,687		*
Texas	304		7,848	5	1,393	309	9,241		*
Washington	11		3,979	—	768	11	4,747		*
North Carolina	14		3,868	—	617	14	4,485		*
Georgia	15		3,901	—	465	15	4,366		*
Arizona	40		4,034	—	269	40	4,303		*
Colorado	16		3,298	—	546	16	3,844		*
New Jersey	18		2,962	—	682	18	3,644		*
Other	311		40,164	12	8,278	323	48,442	(1)	5
Total	$	944	122,767	21	20,812	965	143,579		14	%
By property:
Office buildings	$	140	34,547	5	2,945	145	37,492		4	%
Apartments	12		18,642	—	7,103	12	25,745		3
Industrial/warehouse	76		15,929	1	1,471	77	17,400		2
Retail (excluding shopping center)	125		14,089	2	223	127	14,312		1
Hotel/motel	79		10,637	—	1,543	79	12,180		1
Shopping Center	279		10,707	—	1,361	279	12,068		1
Mixed use properties	95		6,087	—	545	95	6,632		*
Institutional	60		3,934	1	2,041	61	5,975		*
Collateral pool	—		2,514	—	200	—	2,714		*
Agriculture	70		2,144	—	9	70	2,153		*
Other	8		3,537	12	3,371	20	6,908		*
Total	$	944	122,767	21	20,812	965	143,579		14	%


*	Less than 1%.

(1)Includes 40 states; no state had loans in excess of $3.7 billion.

NON-U.S LOANS Our classification of non-U.S. loans is based on whether the borrower’s primary address is outside of the United States. At March 31, 2020, non-U.S. loans totaled $88.0 billion, representing approximately 9% of our total consolidated loans outstanding, compared with $80.5 billion, or approximately 8% of total consolidated loans outstanding, at December 31, 2019. Non-U.S. loans were approximately 4% of our consolidated total assets at both March 31, 2020, and December 31, 2019.

COUNTRY RISK EXPOSURE Our country risk monitoring process incorporates centralized monitoring of economic, political, social, legal, and transfer risks in countries where we do or plan to do business, along with frequent dialogue with our customers, counterparties and regulatory agencies. We establish exposure limits for each country through a centralized oversight process based on customer needs, and through consideration of the relevant and distinct risk of each country. We monitor exposures closely and adjust our country limits in response to changing conditions.

We evaluate our individual country risk exposure based on our assessment of the borrower’s ability to repay, which gives consideration for allowable transfers of risk such as guarantees and collateral and may be different from the reporting based on the borrower’s primary address. Our largest single country exposure outside the U.S. based on our assessment of risk at March 31, 2020, was the United Kingdom, which totaled $37.6 billion, or approximately 2% of our total assets, and included $11.2 billion of sovereign claims. Our United Kingdom sovereign claims arise predominantly from deposits we have placed with the Bank of England pursuant to regulatory requirements in support of our London branch.

The United Kingdom withdrew from the European Union (Brexit) on January 31, 2020, and is currently subject to a

transition period during which the terms and conditions of its exit are being negotiated. As the United Kingdom exits from the European Union, our primary goal is to continue to serve our existing clients in the United Kingdom and the European Union as well as to continue to meet the needs of our domestic clients as they do business in those locations. We have an existing authorized bank in Ireland and an asset management entity in Luxembourg. Additionally, we established a broker dealer in France. We are in the process of leveraging these entities to continue to serve clients in the European Union and continue to take actions to update our business operations in the United Kingdom and European Union, including implementing new supplier contracts and staffing arrangements. For additional information on risks associated with Brexit, see the “Risk Factors” section in our 2019 Form 10-K.

Table 13 provides information regarding our top 20 exposures by country (excluding the U.S.) and our Eurozone exposure, based on our assessment of risk, which gives consideration to the country of any guarantors and/or underlying collateral. With respect to Table 13:


•	Lending exposure includes outstanding loans, unfunded credit commitments, and deposits with non-U.S. banks. These balances are presented prior to the deduction of allowance for credit losses or collateral received under the terms of the credit agreements, if any.


•	Securities exposure represents debt and equity securities of non-U.S. issuers. Long and short positions are netted, and net short positions are reflected as negative exposure.


•	Derivatives and other exposure represents foreign exchange contracts, derivative contracts, securities resale agreements, and securities lending agreements.

Table 13: Select Country Exposures



	March 31, 2020
	Lending			Securities				Derivatives and other		Total exposure
(in millions)	Sovereign		Non- sovereign	Sovereign		Non- sovereign		Sovereign	Non- sovereign	Sovereign	Non- sovereign (1)	Total
Top 20 country exposures:
United Kingdom	$	11,182	22,815	—		1,672		1	1,968	11,183	26,455	37,638
Canada	4		16,778	2		120		—	593	6	17,491	17,497
Cayman Islands	—		8,952	—		—		—	328	—	9,280	9,280
Ireland	976		4,857	—		122		—	68	976	5,047	6,023
China	—		4,188	(13	)	444		37	35	24	4,667	4,691
Bermuda	—		4,308	—		125		—	51	—	4,484	4,484
Luxembourg	—		3,925	—		126		—	103	—	4,154	4,154
Japan	20		1,304	1,996		143		—	256	2,016	1,703	3,719
Guernsey	—		3,494	—		3		—	35	—	3,532	3,532
Germany	—		2,787	10		45		6	59	16	2,891	2,907
South Korea	—		2,546	3		84		—	15	3	2,645	2,648
Netherlands	—		1,794	—		171		14	241	14	2,206	2,220
France	—		1,847	—		94		142	13	142	1,954	2,096
Brazil	—		2,062	1		3		6	8	7	2,073	2,080
Chile	—		1,910	—		1		—	—	—	1,911	1,911
India	—		1,683	—		114		—	1	—	1,798	1,798
Switzerland	—		1,608	—		38		—	90	—	1,736	1,736
Australia	—		1,505	—		68		—	17	—	1,590	1,590
Singapore	—		1,304	—		24		—	88	—	1,416	1,416
United Arab Emirates	—		1,286	—		82		—	4	—	1,372	1,372
Total top 20 country exposures	$	12,182	90,953	1,999		3,479		206	3,973	14,387	98,405	112,792
Eurozone exposure:
Eurozone countries included in Top 20 above (2)	$	976	15,210	10		558		162	484	1,148	16,252	17,400
Spain	—		385	—		121		—	9	—	515	515
Belgium	—		536	—		(54	)	—	4	—	486	486
Austria	—		234	—		1		—	—	—	235	235
Italy	—		108	—		19		—	1	—	128	128
Other Eurozone exposure	—		93	—		27		—	—	—	120	120
Total Eurozone exposure	$	976	16,566	10		672		162	498	1,148	17,736	18,884


(1)	For countries presented in the table, total non-sovereign exposure comprises $56.0 billion exposure to financial institutions and $43.9 billion to non-financial corporations at March 31, 2020.


(2)	Consists of exposure to Ireland, Luxembourg, Germany, Netherlands and France included in Top 20.

Risk Management - Credit Risk Management (continued)

REAL ESTATE 1-4 FAMILY MORTGAGE LOANS Our real estate 1-4 family mortgage loan portfolio is comprised of both first and junior lien mortgage loans, which are presented in Table 14.

Table 14: Real Estate 1-4 Family Mortgage Loans



	March 31, 2020				December 31, 2019
(in millions)	Balance		% of portfolio		Balance		% of portfolio
Real estate 1-4 family first mortgage	$	292,920	91	%	$	293,847	91	%
Real estate 1-4 family junior lien mortgage	28,527		9		29,509		9
Total real estate 1-4 family mortgage loans	$	321,447	100	%	$	323,356	100	%

The real estate 1-4 family mortgage loan portfolio includes some loans with an interest-only feature as part of the loan terms and some with adjustable-rate features. Interest-only loans were approximately 3% of total loans at both March 31, 2020, and December 31, 2019. We believe we have manageable adjustable-rate mortgage (ARM) reset risk across our mortgage loan portfolios, including ARM loans that have negative amortizing features that were acquired in prior business combinations. We do not offer option ARM products, nor do we offer variable-rate mortgage products with fixed payment amounts, commonly referred to within the financial services industry as negative amortizing mortgage loans. In connection with our adoption of CECL on January 1, 2020, our real estate 1-4 family mortgage purchased credit-impaired (PCI) loans, which had a carrying value of $568 million, were reclassified as purchased credit-deteriorated (PCD) loans. PCD loans are generally accounted for in the same manner as non-PCD loans. For more information on PCD loans, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report.

We continue to modify real estate 1-4 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 2019

Form 10-K. For more information on customer accommodations, including loan modifications, in response to the COVID-19 pandemic, see the “Risk Management – Credit Risk Management – Actions to Support Customers During the COVID-19 Pandemic” section in this Report.

Part of our credit monitoring includes tracking delinquency, current FICO scores and loan/combined loan to collateral values (LTV/CLTV) on the entire real estate 1-4 family mortgage loan portfolio. These credit risk indicators on the mortgage portfolio exclude government insured/guaranteed loans. Loans 30 days or more delinquent at March 31, 2020, totaled $3.6 billion, or 1% of total mortgages, compared with $3.0 billion, or 1%, at December 31, 2019. Loans with FICO scores lower than 640 totaled $7.5 billion, or 2% of total mortgages at March 31, 2020, compared with $7.6 billion, or 2%, at December 31, 2019. Mortgages with a LTV/CLTV greater than 100% totaled $2.5 billion at March 31, 2020, or 1% of total mortgages, compared with $2.5 billion, or 1%, at December 31, 2019. Information regarding credit quality indicators can be found in Note 6 (Loans and Related Allowance for Credit Losses) to Financial Statements in this Report.

Real estate 1-4 mortgage loans by state are presented in Table 15. Our real estate 1-4 family mortgage loans to borrowers in California represented 13% of total loans at March 31, 2020, located predominantly within the larger metropolitan areas, with no single California metropolitan area consisting of more than 4% of total loans. We monitor changes in real estate values and underlying economic or market conditions for all geographic areas of our real estate 1-4 family mortgage portfolios as part of our credit risk management process. Our underwriting and periodic review of loans and lines secured by residential real estate collateral includes original appraisals adjusted for the change in Home Price Index (HPI) or estimates from automated valuation models (AVMs) to support property values. Additional information about appraisals and AVMs and our policy for their use can be found in Note 6 (Loans and Related Allowance for Credit Losses) to Financial Statements in this Report and the “Risk Management – Credit Risk Management – Real Estate 1-4 Family Mortgage Loans” section in our 2019 Form 10-K.

Table 15: Real Estate 1-4 Family Mortgage Loans by State



	March 31, 2020
(in millions)	Real estate 1-4 family first mortgage		Real estate 1-4 family junior lien mortgage	Total real estate 1-4 family mortgage	% of total loans
Real estate 1-4 family loans:
California	$	118,484	7,814	126,298	13	%
New York	31,801		1,469	33,270	3
New Jersey	14,074		2,667	16,741	2
Florida	11,675		2,523	14,198	1
Washington	10,869		644	11,513	1
Virginia	8,740		1,645	10,385	1
Texas	8,954		576	9,530	1
North Carolina	5,758		1,338	7,096	1
Colorado	6,357		644	7,001	1
Other (1)	65,369		9,207	74,576	7
Government insured/ guaranteed loans (2)	10,839		—	10,839	1
Total	$	292,920	28,527	321,447	32	%


(1)	Consists of 41 states; none of which had loans in excess of $6.9 billion.


(2)	Represents loans whose repayments are predominantly insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA).

First Lien Mortgage Portfolio Our total real estate 1-4 family first lien mortgage portfolio (first mortgage) decreased $927 million in first quarter 2020. Mortgage loan originations of $14.3 billion in first quarter 2020 were more than offset by paydowns.

Net loan charge-offs (annualized) as a percentage of average first mortgage loans was 0.00% in first quarter 2020, compared with a net recovery of 0.02% for the same period a year ago. Nonaccrual loans were $2.4 billion at March 31, 2020, up

$222 million from December 31, 2019. The increase in nonaccrual loans from December 31, 2019 was driven by the implementation of CECL, which required PCI loans to be classified as nonaccruing based on performance. For additional information, see the “Risk Management – Credit Risk Management – Nonperforming Assets (Nonaccrual Loans and Foreclosed Assets)” section in this Report.

Table 16 shows certain delinquency and loss information for the first mortgage portfolio and lists the top five states by outstanding balance.

Table 16: First Mortgage Portfolio Performance



	Outstanding balance			% of loans 30 days or more past due			Loss (recovery) rate (annualized) quarter ended
(in millions)	Mar 31, 2020		Dec 31, 2019	Mar 31, 2020		Dec 31, 2019	Mar 31, 2020		Dec 31, 2019		Sep 30, 2019		Jun 30, 2019		Mar 31, 2019
California	$	118,484	118,256	0.66	%	0.48	(0.01	)	(0.02	)	(0.01	)	(0.04	)	(0.03	)
New York	31,801		31,336	1.11		0.83	(0.01	)	0.02		0.01		—		0.02
New Jersey	14,074		14,113	1.65		1.40	—		0.02		0.02		(0.06	)	0.08
Florida	11,675		11,804	2.36		1.81	(0.03	)	(0.06	)	(0.07	)	(0.11	)	(0.10	)
Washington	10,869		10,863	0.40		0.29	(0.02	)	(0.02	)	—		(0.03	)	(0.04	)
Other	95,178		95,750	1.36		1.20	0.01		(0.02	)	—		(0.06	)	(0.02	)
Total	282,081		282,122	1.05		0.86	—		(0.02	)	(0.01	)	(0.04	)	(0.02	)
Government insured/guaranteed loans	10,839		11,170
PCI (1)	N/A		555
Total first lien mortgages	$	292,920	293,847


(1)	In connection with our adoption of CECL on January 1, 2020, PCI loans were reclassified as PCD loans and are therefore included with other non-PCD loans in this table. For more information, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report.

Risk Management - Credit Risk Management (continued)

Junior Lien Mortgage Portfolio The junior lien mortgage portfolio consists of residential mortgage lines and loans that are subordinate in rights to an existing lien on the same property. It is not unusual for these lines and loans to have draw periods, interest-only payments, balloon payments, adjustable rates, and similar features. Junior lien loan products are mostly amortizing payment loans with fixed interest rates and repayment periods between five to 30 years.

We continuously monitor the credit performance of our junior lien mortgage portfolio for trends and factors that influence the frequency and severity of loss, such as junior lien mortgage performance when the first mortgage loan is delinquent. Table 17 shows certain delinquency and loss information for the junior lien mortgage portfolio and lists the top five states by outstanding balance. The decrease in

outstanding balances since December 31, 2019, predominantly reflected loan paydowns. As of March 31, 2020, 4% of the outstanding balance of the junior lien mortgage portfolio was associated with loans that had a combined loan to value (CLTV) ratio in excess of 100%. Of those junior lien mortgages with a CLTV ratio in excess of 100%, 3% were 30 days or more past due. CLTV means the ratio of the total loan balance of first mortgages and junior lien mortgages (including unused line amounts for credit line products) to property collateral value. The unsecured portion (the outstanding amount that was in excess of the most recent property collateral value) of the outstanding balances of these loans totaled 1% of the junior lien mortgage portfolio at March 31, 2020. For additional information on consumer loans by LTV/CLTV, see Table 6.12 in Note 6 (Loans and Related Allowance for Credit Losses) to Financial Statements in this Report.

Table 17: Junior Lien Mortgage Portfolio Performance



	Outstanding balance			% of loans 30 days or more past due			Loss (recovery) rate (annualized) quarter ended
(in millions)	Mar 31, 2020		Dec 31, 2019	Mar 31, 2020		Dec 31, 2019	Mar 31, 2020		Dec 31, 2019		Sep 30, 2019		Jun 30, 2019		Mar 31, 2019
California	$	7,814	8,054	1.65	%	1.62	(0.36	)	(0.44	)	(0.51	)	(0.40	)	(0.39	)
New Jersey	2,667		2,744	2.67		2.74	0.13		0.07		0.11		(0.07	)	0.12
Florida	2,523		2,600	2.76		2.93	—		(0.09	)	(0.11	)	(0.11	)	(0.05	)
Virginia	1,645		1,712	2.15		1.97	0.09		(0.02	)	(0.23	)	(0.17	)	0.14
Pennsylvania	1,618		1,674	2.18		2.16	0.11		(0.10	)	(0.05	)	(0.19	)	0.04
Other	12,260		12,712	2.06		2.05	0.01		(0.18	)	(0.29	)	(0.22	)	(0.03	)
Total	28,527		29,496	2.08		2.07	(0.07	)	(0.21	)	(0.28	)	(0.24	)	(0.11	)
PCI (1)	N/A		13
Total junior lien mortgages	$	28,527	29,509


(1)	In connection with our adoption of CECL on January 1, 2020, PCI loans were reclassified as PCD loans and are therefore included with other non-PCD loans in this table. For more information, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report.

Our junior lien, as well as first lien, lines of credit portfolios generally have draw periods of 10, 15 or 20 years with variable interest rate and payment options available during the draw period of (1) interest only or (2) 1.5% of outstanding principal balance plus accrued interest. As of March 31, 2020, lines of credit in a draw period primarily used the interest-only option. During the draw period, the borrower has the option of converting all or a portion of the line from a variable interest rate to a fixed rate with terms including interest-only payments for a fixed period between three to seven years or a fully amortizing payment with a fixed period between five to 30 years. At the end of the draw period, a line of credit generally converts to an amortizing payment schedule with repayment terms of up to 30 years based on the balance at time of conversion. Certain lines and loans have been structured with a balloon payment, which requires full repayment of the outstanding balance at the end of the term period. The conversion of lines or loans to fully amortizing or balloon payoff may result in a significant payment increase, which can affect some borrowers’ ability to repay the outstanding balance.

On a monthly basis, we monitor the payment characteristics of borrowers in our first and junior lien lines of credit portfolios. In March 2020, approximately 46% of these borrowers paid only the minimum amount due and approximately 50% paid more than the minimum amount due. The rest were either delinquent or paid

less than the minimum amount due. For the borrowers with an interest-only payment feature, approximately 30% paid only the minimum amount due and approximately 66% paid more than the minimum amount due.

The lines that enter their amortization period may experience higher delinquencies and higher loss rates than the ones in their draw or term period. We have considered this increased inherent risk in our allowance for credit loss estimate.

In anticipation of our borrowers reaching the end of their contractual commitment, we have created a program to inform, educate and help these borrowers transition from interest-only to fully-amortizing payments or full repayment. We monitor the performance of the borrowers moving through the program in an effort to refine our ongoing program strategy.

Table 18 reflects the outstanding balance of our portfolio of junior lien mortgages, including lines and loans, and first lien lines segregated into scheduled end-of-draw or end-of-term periods and products that are currently amortizing, or in balloon repayment status. At March 31, 2020, $464 million, or 2%, of lines in their draw period were 30 days or more past due, compared with $395 million, or 5%, of amortizing lines of credit. Included in the amortizing amounts in Table 18 is $53 million of end-of-term balloon payments which were past due. The unfunded credit commitments for junior and first lien lines totaled $58.1 billion at March 31, 2020.

Table 18: Junior Lien Mortgage Line and Loan and First Lien Mortgage Line Portfolios Payment Schedule



					Scheduled end of draw / term
(in millions)	Outstanding balance March 31, 2020			Remainder of 2020	2021	2022	2023	2024	2025 and thereafter (1)	Amortizing
Junior lien lines and loans	$	28,527		218	809	3,177	2,191	1,769	11,693	8,670
First lien lines	10,210			103	395	1,566	1,186	922	4,368	1,670
Total	$	38,737		321	1,204	4,743	3,377	2,691	16,061	10,340
% of portfolios	100		%	1	3	12	9	7	41	27


(1)	Substantially all lines and loans are scheduled to convert to amortizing loans by the end of 2029, with annual scheduled amounts through 2029 ranging from $1.8 billion to $4.6 billion and averaging $3.1 billion per year.

CREDIT CARDS Our credit card portfolio totaled $38.6 billion at March 31, 2020, which represented 4% of our total outstanding loans. The net charge-off rate (annualized) for our credit card portfolio was 3.81% for first quarter 2020, compared with 3.73% for first quarter 2019.

AUTOMOBILE Our automobile portfolio totaled $48.6 billion at March 31, 2020. The net charge-off rate (annualized) for our automobile portfolio was 0.68% for first quarter 2020, compared with 0.82% for first quarter 2019. The decrease in the net charge-off rate in first quarter 2020, compared with the same period in 2019, was driven by lower early losses on higher quality originations.

OTHER REVOLVING CREDIT AND INSTALLMENT Other revolving credit and installment loans, totaled $33.5 billion at March 31, 2020, and largely included student and securities-based loans. Our private student loan portfolio totaled $10.6 billion at March 31, 2020. The net charge-off rate (annualized) for other revolving credit and installment loans was 1.59% for first quarter 2020, compared with 1.47% for first quarter 2019.

Risk Management - Credit Risk Management (continued)

NONPERFORMING ASSETS (NONACCRUAL LOANS AND FORECLOSED ASSETS) Table 19 summarizes nonperforming assets (NPAs) for each of the last four quarters. Total NPAs increased $759 million from fourth quarter 2019 to $6.4 billion. Nonaccrual loans of $6.2 billion increased $810 million from fourth quarter 2019. Commercial nonaccrual loans increased predominantly due to an increase in commercial and industrial and real estate mortgage nonaccrual loans as a result of the economic slowdown due to the COVID-19 pandemic impacting our customers. Consumer nonaccrual loans increased driven by higher nonaccruals in the real estate 1-4 family mortgage portfolio, as our adoption of CECL required PCI loans to be classified as nonaccruing based on performance. Prior to January 1, 2020, PCI loans were excluded from nonaccrual loans because they continued to earn interest income from accretable yield, independent of performance in accordance with their contractual terms. However, as a result of our adoption of CECL on January 1, 2020, $275 million of real estate 1-4 family mortgage loans were reclassified from PCI to PCD loans, and as a result, were also classified as nonaccrual loans given their contractual delinquency. For more information on PCD

loans, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report.

For information about when we generally place loans on nonaccrual status, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2019 Form 10-K. As part of our actions to support customers during the COVID-19 pandemic, we have provided borrowers relief in the form of loan modifications. Loan delinquency status will not change during any payment deferral period and loans that were accruing at the time the relief was provided generally will not be placed on nonaccrual status during the deferral period. For more information on customer accommodations, including loan modifications, in response to the COVID-19 pandemic, see the “Risk Management – Credit Risk Management – Actions to Support Customers During the COVID-19 Pandemic” section in this Report.

Foreclosed assets of $252 million were down $51 million from fourth quarter 2019.

Table 19: Nonperforming Assets (Nonaccrual Loans and Foreclosed Assets)



	March 31, 2020				December 31, 2019					September 30, 2019					June 30, 2019
($ in millions)	Balance		% of total loans		Balance			% of total loans		Balance			% of total loans		Balance			% of total loans
Nonaccrual loans:
Commercial:
Commercial and industrial	$	1,779	0.44	%	$	1,545		0.44	%	$	1,539		0.44	%	$	1,634		0.47	%
Real estate mortgage	944		0.77		573			0.47		669			0.55		737			0.60
Real estate construction	21		0.10		41			0.21		32			0.16		36			0.17
Lease financing	131		0.68		95			0.48		72			0.37		63			0.33
Total commercial	2,875		0.51		2,254			0.44		2,312			0.45		2,470			0.48
Consumer:
Real estate 1-4 family first mortgage (1)	2,372		0.81		2,150			0.73		2,261			0.78		2,425			0.85
Real estate 1-4 family junior lien mortgage (1)	769		2.70		796			2.70		819			2.66		868			2.71
Automobile	99		0.20		106			0.22		110			0.24		115			0.25
Other revolving credit and installment	41		0.12		40			0.12		43			0.12		44			0.13
Total consumer	3,281		0.74		3,092			0.69		3,233			0.73		3,452			0.79
Total nonaccrual loans	6,156		0.61		5,346			0.56		5,545			0.58		5,922			0.62
Foreclosed assets:
Government insured/guaranteed (2)	43				50					59					68
Non-government insured/guaranteed	209				253					378					309
Total foreclosed assets	252				303					437					377
Total nonperforming assets	$	6,408	0.63	%	$	5,649		0.59	%	$	5,982		0.63	%	$	6,299		0.66	%
Change in NPAs from prior quarter	$	759			(333		)			(317		)			(1,042		)


(1)	Real estate 1-4 family mortgage loans predominantly insured by the FHA or guaranteed by the VA are not placed on nonaccrual status because they are insured or guaranteed.

(2)

Consistent with regulatory reporting requirements, foreclosed real estate resulting from government insured/guaranteed loans are classified as nonperforming. Both principal and interest related to these foreclosed real estate assets are collectible because the loans were predominantly insured by the FHA or guaranteed by the VA. Receivables related to the foreclosure of certain government guaranteed residential real estate mortgage loans are excluded from this table and included in Accounts Receivable in Other Assets. For more information on foreclosed assets, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2019 Form 10-K.

Table 20 provides an analysis of the changes in nonaccrual loans.

Table 20: Analysis of Changes in Nonaccrual Loans



	Quarter ended
(in millions)	Mar 31, 2020			Dec 31, 2019		Sep 30, 2019		Jun 30, 2019		Mar 31, 2019
Commercial nonaccrual loans
Balance, beginning of period	$	2,254		2,312		2,470		2,797		2,188
Inflows	1,479			652		710		621		1,238
Outflows:
Returned to accruing	(56		)	(124	)	(52	)	(46	)	(43	)
Foreclosures	—			—		(78	)	(2	)	(15	)
Charge-offs	(360		)	(201	)	(194	)	(187	)	(158	)
Payments, sales and other	(442		)	(385	)	(544	)	(713	)	(413	)
Total outflows	(858		)	(710	)	(868	)	(948	)	(629	)
Balance, end of period	2,875			2,254		2,312		2,470		2,797
Consumer nonaccrual loans
Balance, beginning of period	3,092			3,233		3,452		4,108		4,308
Inflows (1)	749			473		448		437		552
Outflows:
Returned to accruing	(254		)	(227	)	(274	)	(250	)	(248	)
Foreclosures	(21		)	(29	)	(32	)	(34	)	(42	)
Charge-offs	(48		)	(45	)	(44	)	(34	)	(49	)
Payments, sales and other	(237		)	(313	)	(317	)	(775	)	(413	)
Total outflows	(560		)	(614	)	(667	)	(1,093	)	(752	)
Balance, end of period	3,281			3,092		3,233		3,452		4,108
Total nonaccrual loans	$	6,156		5,346		5,545		5,922		6,905


(1)	In connection with our adoption of CECL on January 1, 2020, we classified $275 million of PCD loans as nonaccruing based on performance.

Typically, changes to nonaccrual loans period-over-period represent inflows for loans that are placed on nonaccrual status in accordance with our policy, offset by reductions for loans that are paid down, charged off, sold, foreclosed, or are no longer classified as nonaccrual as a result of continued performance and an improvement in the borrower’s financial condition and loan repayment capabilities.

While nonaccrual loans are not free of loss content, we believe exposure to loss is significantly mitigated by the following factors at March 31, 2020:


•	94% of total commercial nonaccrual loans and 99% of total consumer nonaccrual loans are secured. Of the consumer nonaccrual loans, 96% are secured by real estate and 88% have a combined LTV (CLTV) ratio of 80% or less.


•	losses of $573 million and $985 million have already been recognized on 11% of commercial nonaccrual loans and 34% of consumer nonaccrual loans, respectively, in accordance with our charge-off policies. Once we write down loans to the net realizable value (fair value of collateral less estimated costs to sell), we re-evaluate each loan regularly and record additional write-downs if needed.


•	73% of commercial nonaccrual loans were current on interest and 66% of commercial nonaccrual loans were current on both principal and interest, but were on nonaccrual status because the full or timely collection of interest or principal had become uncertain.


•	of the $1.4 billion of consumer loans in bankruptcy or discharged in bankruptcy, and classified as nonaccrual, $905 million were current.


•	the remaining risk of loss of all nonaccrual loans has been considered and we believe is adequately covered by the allowance for loan losses.

We continue to work with our customers experiencing financial difficulty to determine if they can qualify for a loan modification so that they can stay in their homes. Under our proprietary modification programs, customers may be required to provide updated documentation, and some programs require completion of payment during trial periods to demonstrate sustained performance before the loan can be removed from nonaccrual status.

Risk Management - Credit Risk Management (continued)

Table 21 provides a summary of foreclosed assets and an analysis of changes in foreclosed assets.

Table 21: Foreclosed Assets



(in millions)	Mar 31, 2020			Dec 31, 2019		Sep 30, 2019		Jun 30, 2019		Mar 31, 2019
Summary by loan segment
Government insured/guaranteed	$	43		50		59		68		75
Commercial	49			62		180		101		124
Consumer	160			191		198		208		237
Total foreclosed assets	$	252		303		437		377		436
Analysis of changes in foreclosed assets
Balance, beginning of period	$	303		437		377		436		451
Net change in government insured/guaranteed (1)	(7		)	(9	)	(9	)	(7	)	(13	)
Additions to foreclosed assets (2)	107			126		235		144		193
Reductions:
Sales	(154		)	(250	)	(155	)	(199	)	(205	)
Write-downs and gains (losses) on sales	3			(1	)	(11	)	3		10
Total reductions	(151		)	(251	)	(166	)	(196	)	(195	)
Balance, end of period	$	252		303		437		377		436


(1)	Foreclosed government insured/guaranteed loans are temporarily transferred to and held by us as servicer, until reimbursement is received from FHA or VA.


(2)	Includes loans moved into foreclosed assets from nonaccrual status and repossessed automobiles.

Foreclosed assets at March 31, 2020, included $180 million of foreclosed residential real estate, of which 24% is predominantly FHA insured or VA guaranteed and expected to have minimal or no loss content. The remaining amount of foreclosed assets has been written down to estimated net realizable value. Of the $252 million in foreclosed assets at March 31, 2020, 71% have been in the foreclosed assets portfolio one year or less.

As part of our actions to support customers during the COVID-19 pandemic, we have suspended certain mortgage foreclosure activities, which may affect the amount of our foreclosed assets for the remainder of the year. For additional information on loans in process of foreclosure, see Note 6 (Loans and Related Allowance for Credit Losses) to Financial Statements in this Report.

TROUBLED DEBT RESTRUCTURINGS (TDRs)

Table 22: Troubled Debt Restructurings (TDRs)



(in millions)	Mar 31, 2020		Dec 31, 2019	Sep 30, 2019	Jun 30, 2019	Mar 31, 2019
Commercial:
Commercial and industrial	$	1,302	1,183	1,162	1,294	1,740
Real estate mortgage	697		669	598	620	681
Real estate construction	33		36	40	43	45
Lease financing	10		13	16	31	46
Total commercial TDRs	2,042		1,901	1,816	1,988	2,512
Consumer:
Real estate 1-4 family first mortgage	7,284		7,589	7,905	8,218	10,343
Real estate 1-4 family junior lien mortgage	1,356		1,407	1,457	1,550	1,604
Credit Card	527		520	504	486	473
Automobile	76		81	82	85	85
Other revolving credit and installment	172		170	167	159	156
Trial modifications	108		115	123	127	136
Total consumer TDRs	9,523		9,882	10,238	10,625	12,797
Total TDRs	$	11,565	11,783	12,054	12,613	15,309
TDRs on nonaccrual status	$	2,846	2,833	2,775	3,058	4,037
TDRs on accrual status:
Government insured/guaranteed	1,157		1,190	1,199	1,209	1,275
Non-government insured/guaranteed	7,562		7,760	8,080	8,346	9,997
Total TDRs	$	11,565	11,783	12,054	12,613	15,309

Table 22 provides information regarding the recorded investment of loans modified in TDRs. The allowance for loan losses for TDRs was $439 million and $1.0 billion at March 31, 2020, and December 31, 2019, respectively. See Note 6 (Loans and Related Allowance for Credit Losses) to Financial Statements in this Report for additional information regarding TDRs. In those situations where principal is forgiven, the entire amount of such forgiveness is immediately charged off. When we delay the timing on the repayment of a portion of principal (principal forbearance), we charge off the amount of forbearance if that amount is not considered fully collectible. As part of our actions to support customers during the COVID-19 pandemic, we have provided borrowers relief in the form of loan modifications. Under the CARES Act and the Interagency Statement, loan modifications related to the COVID-19 pandemic will not be classified as TDRs if they meet certain eligibility criteria. For more information on the CARES Act and the Interagency Statement, see the “Risk Management – Credit Risk Management – Actions to Support Customers During the COVID-19 Pandemic” section in this Report.

For more information on our nonaccrual policies when a restructuring is involved, see the “Risk Management – Credit Risk Management – Troubled Debt Restructurings (TDRs)” section in our 2019 Form 10-K.

Table 23 provides an analysis of the changes in TDRs. Loans modified more than once are reported as TDR inflows only in the period they are first modified. Other than resolutions such as foreclosures, sales and transfers to held for sale, we may remove loans held for investment from TDR classification, but only if they have been refinanced or restructured at market terms and qualify as new loans.

Risk Management - Credit Risk Management (continued)

Table 23: Analysis of Changes in TDRs



						Quarter ended
(in millions)	Mar 31, 2020			Dec 31, 2019		Sep 30, 2019		Jun 30, 2019		Mar 31, 2019
Commercial TDRs
Balance, beginning of quarter	$	1,901		1,816		1,988		2,512		2,422
Inflows (1)	452			476		293		232		539
Outflows
Charge-offs	(56		)	(48	)	(66	)	(37	)	(44	)
Foreclosures	—			(1	)	—		—		—
Payments, sales and other (2)	(255		)	(342	)	(399	)	(719	)	(405	)
Balance, end of quarter	2,042			1,901		1,816		1,988		2,512
Consumer TDRs
Balance, beginning of quarter	9,882			10,238		10,625		12,797		13,109
Inflows (1)	312			350		360		336		439
Outflows
Charge-offs	(63		)	(57	)	(56	)	(61	)	(60	)
Foreclosures	(57		)	(61	)	(70	)	(74	)	(86	)
Payments, sales and other (2)	(544		)	(580	)	(617	)	(2,364	)	(593	)
Net change in trial modifications (3)	(7		)	(8	)	(4	)	(9	)	(12	)
Balance, end of quarter	9,523			9,882		10,238		10,625		12,797
Total TDRs	$	11,565		11,783		12,054		12,613		15,309


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


(2)	Other outflows consist of normal amortization/accretion of loan basis adjustments and loans transferred to held-for-sale. Occasionally, loans that have been refinanced or restructured at market terms qualify as new loans, which are also included as other outflows.


(3)	Net change in trial modifications includes: inflows of new TDRs entering the trial payment period, net of outflows for modifications that either (i) successfully perform and enter into a permanent modification, or (ii) did not successfully perform according to the terms of the trial period plan and are subsequently charged-off, foreclosed upon or otherwise resolved.

LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING Loans 90 days or more past due are still accruing if they are (1) well-secured and in the process of collection or (2) real estate 1-4 family mortgage loans or consumer loans exempt under regulatory rules from being classified as nonaccrual until later delinquency, usually 120 days past due. Prior to January 1, 2020, PCI loans were excluded from loans 90 days or more past due and still accruing because they continued to earn interest income from accretable yield, independent of performance in accordance with their contractual terms. In connection with our adoption of CECL, PCI loans were reclassified as PCD loans and classified as accruing or nonaccruing based on performance.

Loans 90 days or more past due and still accruing, excluding insured/guaranteed loans, at March 31, 2020, were down $52 million, or 6%, from December 31, 2019 due to payoffs. Also, fluctuations from quarter to quarter may be influenced by seasonality.

Loans 90 days or more past due and still accruing whose repayments are predominantly insured by the FHA or guaranteed by the VA for mortgages were $6.1 billion at March 31, 2020, down from $6.4 billion at December 31, 2019.

Table 24 reflects loans 90 days or more past due and still accruing by class for loans not government insured/guaranteed. For additional information on delinquencies by loan class, see Note 6 (Loans and Related Allowance for Credit Losses) to Financial Statements in this Report.

Table 24: Loans 90 Days or More Past Due and Still Accruing



(in millions)	Mar 31, 2020		Dec 31, 2019	Sep 30, 2019	Jun 30, 2019	Mar 31, 2019
Total:	$	7,023	7,285	7,130	7,258	7,870
Less: FHA insured/VA guaranteed (1)	6,142		6,352	6,308	6,478	6,996
Total, not government insured/guaranteed	$	881	933	822	780	874
By segment and class, not government insured/guaranteed: Commercial:
Commercial and industrial	$	24	47	6	17	42
Real estate mortgage	28		31	28	24	20
Real estate construction	1		—	—	—	5
Total commercial	53		78	34	41	67
Consumer:
Real estate 1-4 family first mortgage	128		112	100	108	117
Real estate 1-4 family junior lien mortgage	25		32	35	27	28
Credit card	528		546	491	449	502
Automobile	69		78	75	63	68
Other revolving credit and installment	78		87	87	92	92
Total consumer	828		855	788	739	807
Total, not government insured/guaranteed	$	881	933	822	780	874


(1)	Represents loans whose repayments are predominantly insured by the FHA or guaranteed by the VA.

Risk Management - Credit Risk Management (continued)

NET LOAN CHARGE-OFFS

Table 25: Net Loan Charge-offs



																					Quarter ended
	Mar 31, 2020					Dec 31, 2019					Sep 30, 2019					Jun 30, 2019					Mar 31, 2019
($ in millions)	Net loan charge- offs			% of avg. loans(1)		Net loan charge- offs			% of avg. loans (1)		Net loan charge- offs			% of avg. loans (1)		Net loan charge-offs			% of avg. loans (1)		Net loan charge-offs			% of avg. loans (1)
Commercial:
Commercial and industrial	$	333		0.37	%	$	168		0.19	%	$	147		0.17	%	$	159		0.18	%	$	133		0.15	%
Real estate mortgage	(2		)	(0.01	)	4			0.01		(8		)	(0.02	)	4			0.01		6			0.02
Real estate construction	(16		)	(0.32	)	—			—		(8		)	(0.14	)	(2		)	(0.04	)	(2		)	(0.04	)
Lease financing	9			0.19		31			0.63		8			0.17		4			0.09		8			0.17
Total commercial	324			0.25		203			0.16		139			0.11		165			0.13		145			0.11
Consumer:
Real estate 1-4 family first mortgage	(3		)	—		(3		)	—		(5		)	(0.01	)	(30		)	(0.04	)	(12		)	(0.02	)
Real estate 1-4 family junior lien mortgage	(5		)	(0.07	)	(16		)	(0.20	)	(22		)	(0.28	)	(19		)	(0.24	)	(9		)	(0.10	)
Credit card	377			3.81		350			3.48		319			3.22		349			3.68		352			3.73
Automobile	82			0.68		87			0.73		76			0.65		52			0.46		91			0.82
Other revolving credit and installment	134			1.59		148			1.71		138			1.60		136			1.56		128			1.47
Total consumer	585			0.53		566			0.51		506			0.46		488			0.45		550			0.51
Total	$	909		0.38	%	$	769		0.32	%	$	645		0.27	%	$	653		0.28	%	$	695		0.30	%


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

Table 25 presents net loan charge-offs for first quarter 2020 and the previous four quarters. Net loan charge-offs in first quarter 2020 were $909 million (0.38% of average total loans outstanding), compared with $695 million (0.30%) in first quarter 2019.

The increase in commercial and industrial net loan charge-offs in first quarter 2020 was driven by higher losses in our oil and gas portfolio. The increase in consumer net loan charge-offs in first quarter 2020 was driven by higher losses in the credit card portfolio.

The COVID-19 pandemic may continue to impact the credit quality of our loan portfolio, including resulting in additional net loan charge-offs. For more information on customer accommodations in response to the COVID-19 pandemic, see the “Risk Management – Credit Risk Management – Actions to Support Customers During the COVID-19 Pandemic” section in this Report.

ALLOWANCE FOR CREDIT LOSSES We maintain an allowance for credit losses for loans, which is management’s estimate of the expected credit losses in the loan portfolio and unfunded credit commitments, at the balance sheet date, excluding loans and unfunded credit commitments carried at fair value or held for sale. Additionally, we maintain an allowance for credit losses for debt securities classified as either available-for-sale or held-to-maturity, other financial assets measured at amortized cost, net investments in leases, and other off-balance sheet credit exposures.

We apply a disciplined process and methodology to establish our allowance for credit losses each quarter. The process for establishing the allowance for credit losses for loans takes into consideration many factors, including historical and forecasted loss trends, loan-level credit quality ratings and loan grade-specific characteristics. The process involves subjective and complex judgments. In addition, we review a variety of credit metrics and trends. These credit metrics and trends, however, do not solely determine the amount of the allowance as we use several analytical tools. For additional information on our allowance for credit losses, see the “Critical Accounting Policies – Allowance for Credit Losses” section and Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report. For additional information on our allowance for credit losses for loans, see Note 6 (Loans and Related Allowance for Credit Losses) to Financial Statements in this Report, and for additional information on our allowance for credit losses for debt securities, see the “Balance Sheet Analysis – Available-For-Sale and Held-To-Maturity Debt Securities” section and Note 5 (Available-for-Sale and Held-to-Maturity Debt Securities) to Financial Statements in this Report.

Table 26 presents the allocation of the allowance for credit losses for loans by loan segment and class for the most recent quarter end and last four year ends. The detail of the changes in the allowance for credit losses for loans by portfolio segment

(including charge-offs and recoveries by loan class) is included in Note 6 (Loans and Related Allowance for Credit Losses) to Financial Statements in this Report.

Table 26: Allocation of the Allowance for Credit Losses (ACL) for Loans (1)



	Mar 31, 2020				Dec 31, 2019				Dec 31, 2018				Dec 31, 2017				Dec 31, 2016
($ in millions)	ACL		Loans as % of total loans		ACL		Loans as % of total loans		ACL		Loans as % of total loans		ACL		Loans as % of total loans		ACL		Loans as % of total loans
Commercial:
Commercial and industrial	$	4,231	40	%	$	3,600	37	%	$	3,628	37	%	$	3,752	35	%	$	4,560	34	%
Real estate mortgage	848		12		1,236		13		1,282		13		1,374		13		1,320		14
Real estate construction	36		2		1,079		2		1,200		2		1,238		3		1,294		2
Lease financing	164		2		330		2		307		2		268		2		220		2
Total commercial	5,279		56		6,245		54		6,417		54		6,632		53		7,394		52
Consumer:
Real estate 1-4 family first mortgage	836		29		692		30		750		30		1,085		30		1,270		29
Real estate 1-4 family junior lien mortgage	125		3		247		3		431		3		608		4		815		5
Credit card	3,481		4		2,252		4		2,064		4		1,944		4		1,605		4
Automobile	1,016		5		459		5		475		5		1,039		5		817		6
Other revolving credit and installment	1,285		3		561		4		570		4		652		4		639		4
Total consumer	6,743		44		4,211		46		4,290		46		5,328		47		5,146		48
Total	$	12,022	100	%	$	10,456	100	%	$	10,707	100	%	$	11,960	100	%	$	12,540	100	%

	Mar 31, 2020				Dec 31, 2019				Dec 31, 2018				Dec 31, 2017				Dec 31, 2016
Components:
Allowance for loan losses	$	11,263			9,551				9,775				11,004				11,419
Allowance for unfunded credit commitments	759				905				932				956				1,121
Allowance for credit losses for loans	$	12,022			10,456				10,707				11,960				12,540
Allowance for loan losses as a percentage of total loans	1.12			%	0.99				1.03				1.15				1.18
Allowance for loan losses as a percentage of total net loan charge-offs (2)	308				346				356				376				324
Allowance for credit losses for loans as a percentage of total loans	1.19				1.09				1.12				1.25				1.30
Allowance for credit losses for loans as a percentage of total nonaccrual loans	195				196				165				156				126


(1)	Disclosure is not comparative due to our adoption of CECL on January 1, 2020. For more information, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report.


(2)	Total net loan charge-offs are annualized for quarter ended March 31, 2020.

The ratio of the allowance for credit losses for loans to total nonaccrual loans may fluctuate significantly from period to period due to such factors as the mix of loan types in the portfolio, borrower credit strength and the value and marketability of collateral.

The allowance for credit losses for loans increased $1.6 billion, or 15%, from December 31, 2019, driven by a $2.9 billion increase in the allowance for credit losses for loans in first quarter 2020, partially offset by a $1.3 billion decline as a result of adopting CECL. The increase in the allowance for credit losses for loans reflected forecasted credit deterioration due to the COVID-19 pandemic and credit weakness in the oil and gas portfolio due to the recent sharp declines in oil prices. Total provision for credit losses for loans was $3.8 billion in first quarter 2020, compared with $845 million in first quarter 2019. The increase in the provision for credit losses for loans in first quarter 2020, compared with the same period a year ago, reflected an

increase in the allowance for credit losses for loans due to forecasted credit deterioration as a result of the impact of the COVID-19 pandemic and higher net loan charge-offs largely in the oil and gas portfolio due to the recent sharp declines in oil prices.

In determining our allowance for credit losses for loans in first quarter 2020, our analysis considered multiple factors to evaluate the rapidly evolving impacts related to the COVID-19 pandemic. We evaluated a range of expected losses based on economic forecasts that projected both a limited and a severe downturn in economic conditions. In addition, we reviewed several alternative forecasts that included relatively longer yet less severe downturns, as well as relatively shorter yet deeper downturns followed by a significant rebound near the end of 2020. We also assessed the impact of the federal government’s recent economic stimulus programs coupled with expectations for customer accommodation activity of up to six months. Our

Risk Management - Credit Risk Management (continued)

forecasted view reflected a sustained recession through 2020 with a sustained increase in unemployment and decrease in gross domestic product (GDP) for the rest of the year. We also considered the estimated impact on certain industries that we expect to be directly and most adversely affected by the COVID-19 pandemic, as well as our exposure to the oil and gas industry and the potential for additional draws on commercial loan commitments.

Future amounts of the allowance for credit losses for loans will be based on a variety of factors, including loan balance changes, portfolio credit quality and mix changes, and changes in general economic conditions and expectations (including for unemployment and GDP), among other factors. Based on economic conditions at the end of first quarter 2020, it was difficult to estimate the length and severity of the economic downturn that may result from the COVID-19 pandemic and the impact of other factors that may influence the level of eventual losses and corresponding requirements for future amounts of the allowance for credit losses, including the impact of economic stimulus programs and customer accommodation activity. The ultimate impact of the COVID-19 pandemic will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic. The pandemic could continue to result in the recognition of credit losses in our loan portfolios and increases in our allowance for credit losses, particularly if the impact on the economy worsens.

We believe the allowance for credit losses for loans of $12.0 billion at March 31, 2020, was appropriate to cover expected credit losses, including unfunded credit commitments, at that date. The entire allowance is available to absorb expected credit losses from the total loan portfolio. The allowance for credit losses for loans is subject to change and reflects existing factors as of the date of determination, including economic or market conditions and ongoing internal and external examination processes. Due to the sensitivity of the allowance for credit losses for loans to changes in the economic and business environment, it is possible that we will incur incremental credit losses not anticipated as of the balance sheet date.

LIABILITY FOR MORTGAGE LOAN REPURCHASE LOSSES For information on our repurchase liability, see the “Risk Management – Credit Risk Management – Liability For Mortgage Loan Repurchase Losses” section in our 2019 Form 10-K.

RISKS RELATING TO SERVICING ACTIVITIES In addition to servicing loans in our portfolio, we act as servicer and/or master servicer of residential mortgage loans included in GSE-guaranteed mortgage securitizations, GNMA-guaranteed mortgage securitizations of FHA-insured/VA-guaranteed mortgages and private label mortgage securitizations, as well as for unsecuritized loans owned by institutional investors. In connection with our servicing activities, we could become subject to consent orders and settlement agreements with federal and state regulators for alleged servicing issues and practices. In general, these can require us to provide customers with loan modification relief, refinancing relief, and foreclosure prevention and assistance, as well as can impose certain monetary penalties on us.

As a servicer, we are required to advance certain delinquent payments of principal and interest on the mortgage loans we service. Due to an increase in customer requests for payment deferrals as a result of the COVID-19 pandemic, we expect the amount of principal and interest advances we are required to make as a servicer to increase, which may adversely impact our

net servicing income. The amount and timing of reimbursement of these advances varies by investor and the applicable servicing agreements in place.

For additional information about the risks related to our servicing activities, see the “Risk Management – Credit Risk Management – Risks Relating to Servicing Activities” section in our 2019 Form 10-K.

Asset/Liability Management

Asset/liability management involves evaluating, monitoring and managing interest rate risk, market risk, liquidity and funding. Primary oversight of interest rate risk and market risk resides with the Finance Committee of our Board, which oversees the administration and effectiveness of financial risk management policies and processes used to assess and manage these risks. Primary oversight of liquidity and funding resides with the Risk Committee of the Board. At the management level we utilize a Corporate Asset/Liability Committee (Corporate ALCO), which consists of management from finance, risk and business groups, to oversee these risks and provide periodic reports to the Board’s Finance Committee and Risk Committee as appropriate. As discussed in more detail for market risk activities below, we employ separate management level oversight specific to market risk.

INTEREST RATE RISK Interest rate risk, which potentially can have a significant earnings impact, is an integral part of being a financial intermediary. We are subject to interest rate risk because:


•	assets and liabilities may mature or reprice at different times (for example, if assets reprice faster than liabilities and interest rates are generally rising, earnings will initially increase);


•	assets and liabilities may reprice at the same time but by different amounts (for example, when the general level of interest rates is rising, we may increase rates paid on checking and savings deposit accounts by an amount that is less than the general rise in market interest rates);


•	short-term and long-term market interest rates may change by different amounts (for example, the shape of the yield curve may affect new loan yields and funding costs differently);


•	the remaining maturity of various assets or liabilities may shorten or lengthen as interest rates change (for example, if long-term mortgage interest rates increase sharply, MBS held in the debt securities portfolio may pay down slower than anticipated, which could impact portfolio income); or


•	interest rates may also have a direct or indirect effect on loan demand, collateral values, credit losses, mortgage origination volume, the fair value of MSRs and other financial instruments, the value of the pension liability and other items affecting earnings.

We assess interest rate risk by comparing outcomes under various net interest income simulations using many interest rate scenarios that differ in the direction of interest rate changes, the degree of change over time, the speed of change and the projected shape of the yield curve. These simulations require assumptions regarding drivers of earnings and balance sheet composition such as loan originations, prepayment speeds on loans and debt securities, deposit flows and mix, as well as pricing strategies.

Currently, our profile is such that we project net interest income will benefit modestly from higher interest rates as our assets would reprice faster and to a greater degree than our

liabilities, while in the case of lower interest rates, our assets would reprice downward and to a greater degree than our liabilities.

Our most recent simulations estimate net interest income sensitivity over the next two years under a range of both lower and higher interest rates. Measured impacts from standardized ramps (gradual changes) and shocks (instantaneous changes) are summarized in Table 27, indicating net interest income sensitivity relative to the Company’s base net interest income plan. Ramp scenarios assume interest rates move gradually in parallel across the yield curve relative to the base scenario in year one, and the full amount of the ramp is held as a constant differential to the base scenario in year two. The following describes the simulation assumptions for the scenarios presented in Table 27:


•	Simulations are dynamic and reflect anticipated growth across assets and liabilities.


•	Other macroeconomic variables that could be correlated with the changes in interest rates are held constant.


•	Mortgage prepayment and origination assumptions vary across scenarios and reflect only the impact of the higher or lower interest rates.


•	Our base scenario deposit forecast incorporates mix changes consistent with the base interest rate trajectory. Deposit mix is modeled to be the same as in the base scenario across the alternative scenarios. In higher interest rate scenarios, customer activity that shifts balances into higher-yielding products could reduce expected net interest income.


•	We hold the size of the projected debt and equity securities portfolios constant across scenarios.

Table 27: Net Interest Income Sensitivity Over Next Two-Year Horizon Relative to Base Expectation



			Lower Rates (1)	Higher Rates
($ in billions)	Base		100 bps Ramp Parallel Decrease	100 bps Instantaneous Parallel Increase	200 bps Ramp Parallel Increase
First Year of Forecasting Horizon
Net Interest Income Sensitivity to Base Scenario		$	(1.3) - (0.8)	4.7 - 5.2	4.0 - 4.5
Key Rates at Horizon End
Fed Funds Target	0.27	%	0.00	1.27	2.27
10-year CMT (2)	0.81		0.00	1.81	2.81
Second Year of Forecasting Horizon
Net Interest Income Sensitivity to Base Scenario		$	(3.5) - (3.0)	6.8 - 7.3	10.1 - 10.6
Key Rates at Horizon End
Fed Funds Target	0.42	%	0.00	1.42	2.42
10-year CMT (2)	0.89		0.00	1.89	2.89


(1)	U.S. interest rates are floored at zero where applicable in this scenario analysis


(2)	U.S. Constant Maturity Treasury Rate

The sensitivity results above do not capture interest rate sensitive noninterest income and expense impacts. Our interest rate sensitive noninterest income and expense are predominantly driven by mortgage banking activities, and may move in the opposite direction of our net interest income. Mortgage originations generally decline in response to higher interest rates and generally increase, particularly refinancing activity, in response to lower interest rates. Mortgage results are also impacted by the valuation of MSRs and related hedge positions. See the “Risk Management – Asset/Liability Management –

Mortgage Banking Interest Rate and Market Risk” section in this Report for more information.

Interest rate sensitive noninterest income also results from changes in earnings credit for noninterest-bearing deposits that reduce treasury management deposit service fees. Additionally, for the trading portfolio, our trading assets are (before the effects of certain economic hedges) generally less sensitive to changes in interest rates than the related funding liabilities. As a result, net interest income from the trading portfolio contracts and expands as interest rates rise and fall, respectively. The impact to net interest income does not include the fair value changes of trading securities and loans, which, along with the effects of related economic hedges, are recorded in noninterest income.

We use the debt securities portfolio and exchange-traded and over-the-counter (OTC) interest rate derivatives to hedge our interest rate exposures. See the “Balance Sheet Analysis – Available-for-Sale and Held-to-Maturity Debt Securities” section in this Report for more information on the use of the available-for-sale and held-to-maturity securities portfolios. The notional or contractual amount, credit risk amount and fair value of the derivatives used to hedge our interest rate risk exposures as of March 31, 2020, and December 31, 2019, are presented in Note 15 (Derivatives) to Financial Statements in this Report. We use derivatives for asset/liability management in two main ways:


•	to convert the cash flows from selected asset and/or liability instruments/portfolios including investments, commercial loans and long-term debt, from fixed-rate payments to floating-rate payments, or vice versa; and


•	to economically hedge our mortgage origination pipeline, funded mortgage loans and MSRs using interest rate swaps, swaptions, futures, forwards and options.

MORTGAGE BANKING INTEREST RATE AND MARKET RISK We originate, fund and service mortgage loans, which subjects us to various risks, including credit, liquidity and interest rate risks. For more information on mortgage banking interest rate and market risk, see the “Risk Management – Asset/Liability Management – Mortgage Banking Interest Rate and Market Risk” section in our 2019 Form 10-K.

While our hedging activities are designed to balance our mortgage banking interest rate risks, the financial instruments we use may not perfectly correlate with the values and income being hedged. For example, the change in the value of ARM production held for sale from changes in mortgage interest rates may or may not be fully offset by index-based financial instruments used as economic hedges for such ARMs. Hedge results may also be impacted as the overall level of hedges changes as interest rates change, or as there are other changes in the market for mortgage forwards that may affect the implied carry on the MSRs.

The total carrying value of our residential and commercial MSRs was $9.5 billion at March 31, 2020, and $12.9 billion at December 31, 2019. The weighted-average note rate on our portfolio of loans serviced for others was 4.20% at March 31, 2020, and 4.25% at December 31, 2019. The carrying value of our total MSRs represented 0.60% and 0.79% of mortgage loans serviced for others at March 31, 2020 and December 31, 2019, respectively.

MARKET RISK Market risk is the risk of possible economic loss from adverse changes in market risk factors such as interest rates, credit spreads, foreign exchange rates, equity and commodity prices, and the risk of possible loss due to counterparty exposure. This applies to implied volatility risk, basis

Asset/Liability Management (continued)

risk, and market liquidity risk. It also includes price risk in the trading book, mortgage servicing rights and the hedge effectiveness risk associated with the mortgage book, and impairment on private equity investments.

The Board’s Finance Committee has primary oversight responsibility for market risk and oversees the Company’s market risk exposure and market risk management strategies. In addition, the Board’s Risk Committee has certain oversight responsibilities with respect to market risk, including adjusting the Company’s market risk appetite with input from the Finance Committee. The Finance Committee also reports key market risk matters to the Risk Committee.

At the management level, the Market and Counterparty Risk Management function, which is part of IRM, has primary oversight responsibility for market risk. The Market and Counterparty Risk Management function reports into the CRO and also provides periodic reports related to market risk to the Board’s Finance Committee.

MARKET RISK – TRADING ACTIVITIES We engage in trading activities to accommodate the investment and risk management activities of our customers and to execute economic hedging to manage certain balance sheet risks. These trading activities predominantly occur within our Wholesale Banking businesses and to a lesser extent other divisions of the Company. Debt securities held for trading, equity securities held for trading, trading loans and trading derivatives are financial instruments used in our trading activities, and all are carried at fair value. Income earned on the financial instruments used in our trading activities include net interest income, changes in fair value and realized gains and losses. Net interest income earned from our trading activities is reflected in the interest income and interest expense components of our income statement. Changes in fair

value of the financial instruments used in our trading activities are reflected in net gains on trading activities, a component of noninterest income in our income statement. For more information on the financial instruments used in our trading activities and the income from these trading activities, see Note 4 (Trading Activities) to Financial Statements in this Report.

Value-at-risk (VaR) is a statistical risk measure used to estimate the potential loss from adverse moves in the financial markets. The Company uses VaR metrics complemented with sensitivity analysis and stress testing in measuring and monitoring market risk. For more information, including information regarding our monitoring activities, sensitivity analysis and stress testing, see the “Risk Management – Asset/Liability Management – Market Risk – Trading Activities” section in our 2019 Form 10-K.

Trading VaR is the measure used to provide insight into the market risk exhibited by the Company’s trading positions. The

Company calculates Trading VaR for risk management purposes to establish line of business and Company-wide risk limits. Trading VaR is calculated based on all trading positions on our balance sheet.

Table 28 shows the Company’s Trading General VaR by risk category. As presented in Table 28, average Company Trading General VaR was $33 million for the quarter ended March 31, 2020, compared with $31 million for the quarter ended December 31, 2019, and $15 million for the quarter ended March 31, 2019. The increase in average as well as period end Company Trading General VaR for the quarter ended March 31, 2020, compared with the quarter ended March 31, 2019, was driven by recent market volatility, in particular changes in interest rate curves and a significant widening of credit spreads entering the 12-month historical lookback window used to calculate VaR.

Table 28: Trading 1-Day 99% General VaR by Risk Category



				Quarter ended
	March 31, 2020							December 31, 2019						March 31, 2019
(in millions)	Period end			Average		Low	High	Period end		Average		Low	High	Period end		Average		Low	High
Company Trading General VaR Risk Categories
Credit	$	62		28		15	75	15		18		15	26	15		15		11	19
Interest rate	84			32		5	198	14		21		9	45	42		34		22	44
Equity	6			7		4	10	5		5		4	8	5		5		4	7
Commodity	2			2		1	6	2		2		1	4	2		2		1	4
Foreign exchange	2			1		1	6	1		1		1	1	1		1		1	1
Diversification benefit (1)	(63		)	(37	)			(13	)	(16	)			(46	)	(42	)
Company Trading General VaR	$	93		33				24		31				19		15

(1)

The period-end VaR was less than the sum of the VaR components described above, which is due to portfolio diversification. The diversification effect arises because the risks are not perfectly correlated causing a portfolio of positions to usually be less risky than the sum of the risks of the positions alone. The diversification benefit is not meaningful for low and high metrics since they may occur on different days.

MARKET RISK – EQUITY SECURITIES We are directly and indirectly affected by changes in the equity markets. We make and manage direct investments in start-up businesses, emerging growth companies, management buy-outs, acquisitions and corporate recapitalizations. We also invest in non-affiliated funds that make similar private equity investments. These private equity investments are made within capital allocations approved by management and the Board. The Board’s policy is to review business developments, key risks and historical returns for the private equity investment portfolio at least annually. Management reviews these investments at least quarterly and assesses them for possible other-than-temporary impairment

(OTTI) and observable price changes. For nonmarketable equity securities, the analysis is based on facts and circumstances of each individual investment and the expectations for that investment’s cash flows, capital needs, the viability of its business model, our exit strategy, and observable price changes that are similar to the investments held. Investments in nonmarketable equity securities include private equity investments accounted for under the equity method, fair value through net income, and the measurement alternative.

In conjunction with the March 2008 initial public offering (IPO) of Visa, Inc. (Visa), we received approximately 20.7 million shares of Visa Class B common stock, the class which was

apportioned to member banks of Visa at the time of the IPO. To manage our exposure to Visa and realize the value of the appreciated Visa shares, we incrementally sold these shares through a series of sales, thereby eliminating this position as of September 30, 2015. As part of these sales, we agreed to compensate the buyer for any additional contributions to a litigation settlement fund for the litigation matters associated with the Class B shares we sold. Our exposure to this retained litigation risk has been updated quarterly and is reflected on our balance sheet. For additional information about the associated litigation matters, see the “Interchange Litigation” section in Note 14 (Legal Actions) to Financial Statements in this Report.

As part of our business to support our customers, we trade public equities, listed/OTC equity derivatives and convertible bonds. We have parameters that govern these activities. We also have marketable equity securities that include investments relating to our venture capital activities. We manage these marketable equity securities within capital risk limits approved by management and the Board and monitored by Corporate ALCO and the Market Risk Committee. The fair value changes in these marketable equity securities are recognized in net income. For more information, see Note 8 (Equity Securities) to Financial Statements in this Report.

Changes in equity market prices may also indirectly affect our net income by (1) the value of third party assets under management and, hence, fee income, (2) borrowers whose ability to repay principal and/or interest may be affected by the stock market, or (3) brokerage activity, related commission income and other business activities. Each business line monitors and manages these indirect risks.

LIQUIDITY AND FUNDING The objective of effective liquidity management is to ensure that we can meet customer loan requests, customer deposit maturities/withdrawals and other cash commitments efficiently under both normal operating conditions and under periods of Wells Fargo-specific and/or market stress. To achieve this objective, the Board establishes liquidity guidelines that require sufficient asset-based liquidity to cover potential funding requirements and to avoid over-dependence on volatile, less reliable funding markets. These guidelines are monitored on a monthly basis by the Corporate ALCO and on a quarterly basis by the Board. These guidelines are established and monitored for both the consolidated company and for the Parent on a stand-alone basis to ensure that the Parent is a source of strength for its regulated, deposit-taking banking subsidiaries.

Liquidity Standards We are subject to a rule, issued by the FRB, OCC and Federal Deposit Insurance Corporation (FDIC), that includes a quantitative liquidity requirement consistent with the liquidity coverage ratio (LCR) established by the Basel Committee on Banking Supervision (BCBS). The rule requires banking institutions, such as Wells Fargo, to hold high-quality liquid assets (HQLA), such as central bank reserves and government and corporate debt that can be converted easily and quickly into cash, in an amount equal to or greater than its projected net cash

outflows during a 30-day stress period. The rule is applicable to the Company on a consolidated basis and to our insured depository institutions (IDIs) with total assets greater than $10 billion. In addition, rules issued by the FRB impose enhanced liquidity management standards on large bank holding companies (BHC) such as Wells Fargo.

The FRB, OCC and FDIC have proposed a rule that would implement a stable funding requirement, the net stable funding ratio (NSFR), which would require large banking organizations, such as Wells Fargo, to maintain a sufficient amount of stable funding in relation to their assets, derivative exposures and commitments over a one-year horizon period.

Liquidity Coverage Ratio As of March 31, 2020, the consolidated Company and Wells Fargo Bank, N.A. were above the minimum LCR requirement of 100%, which is calculated as HQLA divided by projected net cash outflows, as each is defined under the LCR rule. Table 29 presents the Company’s quarterly average values for the daily-calculated LCR and its components calculated pursuant to the LCR rule requirements.

Table 29: Liquidity Coverage Ratio



(in millions, except ratio)	Average for Quarter ended March 31, 2020
HQLA (1)(2)	$	381,950
Projected net cash outflows	315,980
LCR	121		%


(1)	Excludes excess HQLA at Wells Fargo Bank, N.A.


(2)	Net of applicable haircuts required under the LCR rule.

Liquidity Sources We maintain liquidity in the form of cash, cash equivalents and unencumbered high-quality, liquid debt securities. These assets make up our primary sources of liquidity which are presented in Table 30. Our primary sources of liquidity are substantially the same in composition as HQLA under the LCR rule; however, our primary sources of liquidity will generally exceed HQLA calculated under the LCR rule due to the applicable haircuts to HQLA and the exclusion of excess HQLA at our subsidiary IDIs required under the LCR rule.

Our cash is predominantly on deposit with the Federal Reserve. Debt securities included as part of our primary sources of liquidity are comprised of U.S. Treasury and federal agency debt, and mortgage-backed securities issued by federal agencies within our debt securities portfolio. We believe these debt securities provide quick sources of liquidity through sales or by pledging to obtain financing, regardless of market conditions. Some of these debt securities are within our held-to-maturity portfolio and as such are not intended for sale, but may be pledged to obtain financing. Some of the legal entities within our consolidated group of companies are subject to various regulatory, tax, legal and other restrictions that can limit the transferability of their funds. We believe we maintain adequate liquidity for these entities in consideration of such funds transfer restrictions.

Table 30: Primary Sources of Liquidity



	March 31, 2020				December 31, 2019
(in millions)	Total		Encumbered	Unencumbered	Total	Encumbered	Unencumbered
Interest-earning deposits with banks	$	128,071	—	128,071	119,493	—	119,493
Debt securities of U.S. Treasury and federal agencies	61,727		3,785	57,942	61,099	3,107	57,992
Mortgage-backed securities of federal agencies (1)	271,644		40,769	230,875	258,589	41,135	217,454
Total	$	461,442	44,554	416,888	439,181	44,242	394,939


(1)	Included in encumbered securities at March 31, 2020, were securities with a fair value of $1.7 billion, which were purchased in March 2020, but settled in April 2020.

Asset/Liability Management (continued)

In addition to our primary sources of liquidity shown in

Table 30, liquidity is also available through the sale or financing of other debt securities including trading and/or available-for-sale debt securities, as well as through the sale, securitization or financing of loans, to the extent such debt securities and loans are not encumbered. As of March 31, 2020, we also maintained approximately $273.5 billion of available borrowing capacity at various Federal Home Loan Banks and the Federal Reserve Discount Window.

Deposits have historically provided a sizable source of relatively low-cost funds. Deposits were 136% of total loans at March 31, 2020, and 137% at December 31, 2019.

Additional funding is provided by long-term debt and short-term borrowings. Table 31 shows selected information for short-term borrowings, which generally mature in less than 30 days.

Table 31: Short-Term Borrowings



	Quarter ended
(in millions)	Mar 31 2020		Dec 31, 2019	Sep 30, 2019	Jun 30, 2019	Mar 31, 2019
Balance, period end
Federal funds purchased and securities sold under agreements to repurchase	$	79,036	92,403	110,399	102,560	93,896
Other short-term borrowings	13,253		12,109	13,509	12,784	12,701
Total	$	92,289	104,512	123,908	115,344	106,597
Average daily balance for period
Federal funds purchased and securities sold under agreements to repurchase	$	90,722	103,614	109,499	102,557	95,721
Other short-term borrowings	12,255		12,335	12,343	12,197	12,930
Total	$	102,977	115,949	121,842	114,754	108,651
Maximum month-end balance for period
Federal funds purchased and securities sold under agreements to repurchase (1)	$	91,121	111,727	110,399	105,098	97,650
Other short-term borrowings (2)	13,253		12,708	13,509	12,784	14,129


(1)	Highest month-end balance in each of the last five quarters was in February 2020, and September, May and January 2019.


(2)	Highest month-end balance in each of the last five quarters was in March 2020, and September, June and February 2019.

Long-Term Debt We access domestic and international capital markets for long-term funding (generally greater than one year) through issuances of registered debt securities, private placements and asset-backed secured funding. We issue long-term debt in a variety of maturities and currencies to achieve cost-efficient funding and to maintain an appropriate maturity profile. Proceeds from securities issued were used for general corporate purposes, and, unless otherwise specified in the applicable prospectus or prospectus supplement, we expect the proceeds from securities issued in the future will be used for the

same purposes. Long-term debt of $237.3 billion at March 31, 2020, increased $9.2 billion from December 31, 2019. We issued $18.9 billion of long-term debt in first quarter 2020 and $11.8 billion in April and May 2020. Depending on market conditions, we may purchase our outstanding debt securities from time to time in privately negotiated or open market transactions, by tender offer, or otherwise. Table 32 provides the aggregate carrying value of long-term debt maturities (based on contractual payment dates) for the remainder of 2020 and the following years thereafter, as of March 31, 2020.

Table 32: Maturity of Long-Term Debt



	March 31, 2020
(in millions)	Remaining 2020		2021	2022	2023	2024	Thereafter	Total
Wells Fargo & Company (Parent Only)
Senior notes	$	9,627	17,802	17,782	11,192	9,476	72,658	138,537
Subordinated notes	—		—	—	3,786	770	26,704	31,260
Junior subordinated notes	—		—	—	—	—	1,940	1,940
Total long-term debt – Parent	$	9,627	17,802	17,782	14,978	10,246	101,302	171,737
Wells Fargo Bank, N.A. and other bank entities (Bank)
Senior notes	$	12,373	28,398	5,636	2,989	6	311	49,713
Subordinated notes	—		—	—	1,010	—	4,923	5,933
Junior subordinated notes	—		—	—	—	—	366	366
Securitizations and other bank debt	2,019		1,207	787	264	153	1,890	6,320
Total long-term debt – Bank	$	14,392	29,605	6,423	4,263	159	7,490	62,332
Other consolidated subsidiaries
Senior notes	$	135	1,833	187	475	127	484	3,241
Securitizations and other bank debt	—		—	—	—	—	32	32
Total long-term debt – Other consolidated subsidiaries	$	135	1,833	187	475	127	516	3,273
Total long-term debt	$	24,154	49,240	24,392	19,716	10,532	109,308	237,342

Credit Ratings Investors in the long-term capital markets, as well as other market participants, generally will consider, among other factors, a company’s debt rating in making investment decisions. Rating agencies base their ratings on many quantitative and qualitative factors, including capital adequacy, liquidity, asset quality, business mix, the level and quality of earnings, and rating agency assumptions regarding the probability and extent of federal financial assistance or support for certain large financial institutions. Adverse changes in these factors could result in a reduction of our credit rating; however, our debt securities do not contain credit rating covenants.

There were no actions undertaken by the ratings agencies with regard to our credit ratings during first quarter 2020. On April 22, 2020, Fitch Ratings, Inc. (Fitch) affirmed the Company’s long-term and short-term issuer default ratings and revised the rating outlook to negative from stable as Fitch expects significant

operating environment headwinds from the disruption to economic activity and financial markets as a result of the COVID-19 pandemic. This rating action followed Fitch’s event-driven review of the commercially-oriented U.S. G-SIBs. Both the Parent and Wells Fargo Bank, N.A. remain among the highest-rated financial firms in the United States.

See the “Risk Factors” section in our 2019 Form 10-K for additional information regarding our credit ratings and the potential impact a credit rating downgrade would have on our liquidity and operations, as well as Note 15 (Derivatives) to Financial Statements in this Report for information regarding additional collateral and funding obligations required for certain derivative instruments in the event our credit ratings were to fall below investment grade.

The credit ratings of the Parent and Wells Fargo Bank, N.A. as of March 31, 2020, are presented in Table 33.

Table 33: Credit Ratings as of March 31, 2020



	Wells Fargo & Company		Wells Fargo Bank, N.A.
	Senior debt	Short-term borrowings	Long-term deposits	Short-term borrowings
Moody’s	A2	P-1	Aa1	P-1
S&P Global Ratings	A-	A-2	A+	A-1
Fitch Ratings, Inc.	A+	F1	AA	F1+
DBRS Morningstar	AA (low)	R-1 (middle)	AA	R-1 (high)

FEDERAL HOME LOAN BANK MEMBERSHIP The Federal Home Loan Banks (the FHLBs) are a group of cooperatives that lending institutions use to finance housing and economic development in local communities. We are a member of the FHLBs based in Dallas, Des Moines and San Francisco. Each member of the FHLBs is required to maintain a minimum investment in capital stock of the applicable FHLB. The board of directors of each FHLB can increase the minimum investment requirements in the event it has concluded that additional capital is required to allow it to meet its own regulatory capital requirements. Any increase in the minimum investment requirements outside of specified ranges requires the approval of the Federal Housing Finance Agency. Because the extent of any obligation to increase our investment in any of the FHLBs depends entirely upon the occurrence of a future event, potential future payments to the FHLBs are not determinable.

LIBOR TRANSITION Due to uncertainty surrounding the suitability and sustainability of the London Interbank Offered Rate (LIBOR), central banks and global regulators have called for financial market participants to prepare for the discontinuation of LIBOR by the end of 2021. LIBOR is a widely-referenced benchmark rate, which is published in five currencies and a range of tenors, and seeks to estimate the cost at which banks can borrow on an unsecured basis from other banks. We have a significant number of assets and liabilities referenced to LIBOR and other interbank offered rates (IBORs), such as commercial loans, adjustable-rate mortgage loans, derivatives, debt securities, and long-term debt.

Accordingly, we established a LIBOR Transition Office (LTO) in February 2018, with senior management and Board oversight. The LTO is responsible for developing a coordinated strategy to transition the IBOR-linked contracts and processes across Wells Fargo to alternative reference rates and serves as the primary conduit between Wells Fargo and relevant industry groups, such as the Alternative Reference Rates Committee (ARRC).

In addition, the Company is actively working with regulators, industry working groups (such as the ARRC) and trade associations that are developing guidance to facilitate an orderly transition away from the use of LIBOR. We are closely monitoring and seeking to follow the recommendations and guidance announced by such organizations, including those announced by the Bank of England’s Working Group on Sterling Risk-Free Reference Rates. We continue to assess the risks and related impacts associated with a transition away from IBORs. See the “Risk Factors” section in the 2019 Form 10-K for additional information regarding the potential impact of a benchmark rate, such as LIBOR, or other referenced financial metric being significantly changed, replaced, or discontinued.

On March 12, 2020, the Financial Accounting Standards Board (FASB) issued ASU 2020-04 – Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Update) that provides temporary relief from existing GAAP accounting requirements for entities that perform activities related to reference rate reform. The relief provided by the Update is primarily related to contract modifications and hedge accounting relationships that are impacted by the Company’s reference rate reform activities. For additional information on the Update, see the “Current Accounting Developments” section in this Report.

For additional information on the amount of our IBOR-linked assets and liabilities, as well as the program structure and initiatives created by the LTO, see the “Risk Management – Asset/Liability Management – LIBOR Transition” section in our 2019 Form 10-K.

Capital Management (continued)

Capital Management

We have an active program for managing capital through a comprehensive process for assessing the Company’s overall capital adequacy. Our objective is to maintain capital at an amount commensurate with our risk profile and risk tolerance objectives, and to meet both regulatory and market expectations. We primarily fund our working capital needs through the retention of earnings net of both dividends and share repurchases, as well as through the issuance of preferred stock and long and short-term debt. Retained earnings decreased $1.4 billion from December 31, 2019, predominantly as a result of common and preferred stock dividends of $2.5 billion, partially offset by $653 million of Wells Fargo net income. During first quarter 2020, we issued $1.7 billion of common stock, excluding conversions of preferred shares. During first quarter 2020, we repurchased $3.4 billion of common stock. The amount of our repurchases are subject to various factors as discussed in the “Securities Repurchases” section below. On March 15, 2020, we suspended our share repurchase activities for the remainder of the first quarter and for second quarter 2020. For additional information about share repurchases, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report.

In January 2020, we issued $2.0 billion of our Preferred Stock, Series Z. In March 2020, we redeemed the remaining $1.8 billion of our Preferred Stock, Series K, and redeemed $669 million of our Preferred Stock, Series T. For more information, see Note 17 (Preferred Stock) to Financial Statements in this Report.

Regulatory Capital Guidelines

The Company and each of our IDIs are subject to various regulatory capital adequacy requirements administered by the FRB and the OCC. Risk-based capital (RBC) guidelines establish a risk-adjusted ratio relating capital to different categories of assets and off-balance sheet exposures as discussed below.

RISK-BASED CAPITAL AND RISK-WEIGHTED ASSETS The Company is subject to rules issued by federal banking regulators to implement Basel III capital requirements for U.S. banking organizations. The federal banking regulators’ capital rules, among other things, required on a fully phased-in basis as of March 31, 2020:


•	a minimum Common Equity Tier 1 (CET1) ratio of 9.00%, comprised of a 4.50% minimum requirement plus a capital conservation buffer of 2.50% and for us, as a global systemically important bank (G-SIB), a capital surcharge of 2.00%;


•	a minimum tier 1 capital ratio of 10.50%, comprised of a 6.00% minimum requirement plus the capital conservation buffer of 2.50% and the G-SIB capital surcharge of 2.00%;


•	a minimum total capital ratio of 12.50%, comprised of a 8.00% minimum requirement plus the capital conservation buffer of 2.50% and the G-SIB capital surcharge of 2.00%;


•	a potential countercyclical buffer of up to 2.50% to be added to the minimum capital ratios, which could be imposed by regulators at their discretion if it is determined that a period of excessive credit growth is contributing to an increase in systemic risk; and


•	a minimum tier 1 leverage ratio of 4.00%.

The Basel III capital requirements for calculating CET1 and tier 1 capital, along with risk-weighted assets (RWAs), are fully phased-in. However, the requirements for determining tier 2 and total capital are still in accordance with Transition Requirements and are scheduled to be fully phased-in by the end of 2021. The Basel III capital rules contain two frameworks for calculating capital requirements, a Standardized Approach and an Advanced Approach applicable to certain institutions, including Wells Fargo. Accordingly, in the assessment of our capital adequacy, we must report the lower of our CET1, tier 1 and total capital ratios calculated under the Standardized Approach and under the Advanced Approach.

Effective October 1, 2020, a stress capital buffer will be added to the minimum capital ratio requirements. The stress capital buffer will be calculated based on the decrease in a financial institution’s risk-based capital ratios under the supervisory severely adverse scenario in the annual Comprehensive Capital Analysis and Review (CCAR), plus four quarters of planned common stock dividends. The stress capital buffer will replace the current 2.50% capital conservation buffer under the Standardized Approach. Because the stress capital buffer will be calculated annually as part of CCAR and will be based on data that can differ over time, the amount of the buffer is subject to change in future years.

As a G-SIB, we are also subject to the FRB’s rule implementing the additional capital surcharge of between 1.00-4.50% on the minimum capital requirements of G-SIBs. Under the rule, we must annually calculate our surcharge under two methods and use the higher of the two surcharges. The first method (method one) considers our size, interconnectedness, cross-jurisdictional activity, substitutability, and complexity, consistent with the methodology developed by the BCBS and the Financial Stability Board (FSB). The second (method two) uses similar inputs, but replaces substitutability with use of short-term wholesale funding and will generally result in higher surcharges than the BCBS methodology. Because the G-SIB capital surcharge is calculated annually based on data that can differ over time, the amount of the surcharge is subject to change in future years.

The tables that follow provide information about our risk-based capital and related ratios as calculated under Basel III capital guidelines. Although we continue to report certain capital amounts and ratios in accordance with Transition Requirements for banking industry regulatory reporting purposes, we are managing our capital based on a fully phased-in basis. For information about our capital requirements calculated in accordance with Transition Requirements, see Note 23 (Regulatory and Agency Capital Requirements) to Financial Statements in this Report.

Table 34 summarizes our CET1, tier 1 capital, total capital, RWAs and capital ratios on a fully phased-in basis at March 31, 2020, and December 31, 2019.

Table 34: Capital Components and Ratios (Fully Phased-In) (1)



				March 31, 2020					December 31, 2019
(in millions, except ratios)		Required Minimum Capital Ratios		Advanced Approach			Standardized Approach		Advanced Approach	Standardized Approach
Common Equity Tier 1	(A)			$	134,751		134,751		138,760	138,760
Tier 1 Capital	(B)			154,277			154,277		158,949	158,949
Total Capital (2)	(C)			183,932			191,985		187,813	195,703
Risk-Weighted Assets (3)	(D)			1,181,271			1,262,808		1,165,079	1,245,853
Common Equity Tier 1 Capital Ratio (3)	(A)/(D)	9.00	%	11.41		%	10.67	*	11.91	11.14	*
Tier 1 Capital Ratio (3)	(B)/(D)	10.50		13.06			12.22	*	13.64	12.76	*
Total Capital Ratio (2)(3)	(C)/(D)	12.50		15.57			15.20	*	16.12	15.71	*

*Denotes the lowest capital ratio as determined under the Advanced and Standardized Approaches.


(1)	See Table 35 for information regarding the calculation and components of CET1, tier 1 capital, total capital and RWAs.

(2)

Fully phased-in total capital amounts and ratios are considered non-GAAP financial measures that are used by management, bank regulatory agencies, investors and analysts to assess and monitor the Company’s capital position. See Table 35 for information regarding the calculation and components of our fully phased-in total capital amounts, including a corresponding reconciliation to GAAP financial measures.


(3)	RWAs and capital ratios for December 31, 2019, have been revised as a result of a decrease in RWAs under the Advanced Approach due to the correction of duplicated operational loss amounts.

Table 35 provides information regarding the calculation and composition of our risk-based capital under the Advanced and

Standardized Approaches at March 31, 2020, and

December 31, 2019.

Table 35: Risk-Based Capital Calculation and Components



		March 31, 2020					December 31, 2019
(in millions)		Advanced Approach			Standardized Approach		Advanced Approach		Standardized Approach
Total equity		$	183,330		183,330		187,984		187,984
Adjustments:
Preferred stock		(21,347		)	(21,347	)	(21,549	)	(21,549	)
Additional paid-in capital on preferred stock		140			140		(71	)	(71	)
Unearned ESOP shares		1,143			1,143		1,143		1,143
Noncontrolling interests		(612		)	(612	)	(838	)	(838	)
Total common stockholders’ equity		162,654			162,654		166,669		166,669
Adjustments:
Goodwill		(26,381		)	(26,381	)	(26,390	)	(26,390	)
Certain identifiable intangible assets (other than MSRs)		(413		)	(413	)	(437	)	(437	)
Goodwill and other intangibles on nonmarketable equity securities (included in other assets)		(1,894		)	(1,894	)	(2,146	)	(2,146	)
Applicable deferred taxes related to goodwill and other intangible assets (1)		821			821		810		810
Other		(37		)	(37	)	254		254
Common Equity Tier 1		134,751			134,751		138,760		138,760

Common Equity Tier 1		$	134,751		134,751		138,760		138,760
Preferred stock		21,347			21,347		21,549		21,549
Additional paid-in capital on preferred stock		(140		)	(140	)	71		71
Unearned ESOP shares		(1,143		)	(1,143	)	(1,143	)	(1,143	)
Other		(538		)	(538	)	(288	)	(288	)
Total Tier 1 capital	(A)	154,277			154,277		158,949		158,949

Long-term debt and other instruments qualifying as Tier 2		25,836			25,836		26,515		26,515
Qualifying allowance for credit losses (2)		3,990			12,043		2,566		10,456
Other		(171		)	(171	)	(217	)	(217	)
Total Tier 2 capital (Fully Phased-In)	(B)	29,655			37,708		28,864		36,754
Effect of Transition Requirements		136			136		520		520
Total Tier 2 capital (Transition Requirements)		$	29,791		37,844		29,384		37,274

Total qualifying capital (Fully Phased-In)	(A)+(B)	$	183,932		191,985		187,813		195,703
Total Effect of Transition Requirements		136			136		520		520
Total qualifying capital (Transition Requirements)		$	184,068		192,121		188,333		196,223

Risk-Weighted Assets (RWAs) (3)(4):
Credit risk		$	802,686		1,219,948		790,784		1,210,209
Market risk		42,860			42,860		35,644		35,644
Operational risk (5)		335,725			—		338,651		—
Total RWAs (5)		$	1,181,271		1,262,808		1,165,079		1,245,853


(1)	Determined by applying the combined federal statutory rate and composite state income tax rates to the difference between book and tax basis of the respective goodwill and intangible assets at period end.

(2)

Under the Advanced Approach the allowance for credit losses that exceeds expected credit losses is eligible for inclusion in Tier 2 Capital, to the extent the excess allowance does not exceed 0.60% of Advanced credit RWAs, and under the Standardized Approach, the allowance for credit losses is includable in Tier 2 Capital up to 1.25% of Standardized credit RWAs, with any excess allowance for credit losses being deducted from total RWAs.


(3)	RWAs calculated under the Advanced Approach utilize a risk-sensitive methodology, which relies upon the use of internal credit models based upon our experience with internal rating grades. Advanced Approach also includes an operational risk component, which reflects the risk of operating loss resulting from inadequate or failed internal processes or systems.

(4)

Under the regulatory guidelines for risk-based capital, on-balance sheet assets and credit equivalent amounts of derivatives and off-balance sheet items are assigned to one of several broad risk categories according to the obligor, or, if relevant, the guarantor or the nature of any collateral. The aggregate dollar amount in each risk category is then multiplied by the risk weight associated with that category. The resulting weighted values from each of the risk categories are aggregated for determining total RWAs.


(5)	Amounts for December 31, 2019, have been revised as a result of a decrease in RWAs under the Advanced Approach due to the correction of duplicated operational loss amounts.

Capital Management (continued)

Table 36 presents the changes in Common Equity Tier 1 under the Advanced Approach for the three months ended March 31, 2020.

Table 36: Analysis of Changes in Common Equity Tier 1 (Advanced Approach)



(in millions)
Common Equity Tier 1 at December 31, 2019	$	138,760
Net income applicable to common stock	42
Common stock dividends	(2,096		)
Common stock issued, repurchased, and stock compensation-related items	(2,882		)
Changes in cumulative other comprehensive income	(253		)
Cumulative effect from change in accounting policies (1)	991
Goodwill	9
Certain identifiable intangible assets (other than MSRs)	24
Goodwill and other intangibles on nonmarketable equity securities (included in other assets)	252
Applicable deferred taxes related to goodwill and other intangible assets (2)	11
Other	(107		)
Change in Common Equity Tier 1	(4,009		)
Common Equity Tier 1 at March 31, 2020	$	134,751


(1)	Effective January 1, 2020, we adopted CECL. For more information, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report.


(2)	Determined by applying the combined federal statutory rate and composite state income tax rates to the difference between book and tax basis of the respective goodwill and intangible assets at period end.

Table 37 presents net changes in the components of RWAs under the Advanced and Standardized Approaches for the three months ended March 31, 2020.

Table 37: Analysis of Changes in RWAs



(in millions)	Advanced Approach			Standardized Approach
RWAs at December 31, 2019 (1)	$	1,165,079		1,245,853
Net change in credit risk RWAs	11,902			9,739
Net change in market risk RWAs	7,216			7,216
Net change in operational risk RWAs	(2,926		)	—
Total change in RWAs	16,192			16,955
RWAs at March 31, 2020	$	1,181,271		1,262,808


(1)	Amount for December 31, 2019, has been revised as a result of a decease in RWAs under the Advanced Approach due to the correction of duplicated operational loss amounts.

TANGIBLE COMMON EQUITY We also evaluate our business based on certain ratios that utilize tangible common equity. Tangible common equity is a non-GAAP financial measure and represents total equity less preferred equity, noncontrolling interests, goodwill, certain identifiable intangible assets (other than MSRs) and goodwill and other intangibles on nonmarketable equity securities, net of applicable deferred taxes. These tangible common equity ratios are as follows:


•	Tangible book value per common share, which represents tangible common equity divided by common shares outstanding; and


•	Return on average tangible common equity (ROTCE), which represents our annualized earnings contribution as a percentage of tangible common equity.

The methodology of determining tangible common equity may differ among companies. Management believes that tangible book value per common share and return on average tangible common equity, which utilize tangible common equity, are useful financial measures because they enable investors and others to assess the Company’s use of equity.

Table 38 provides a reconciliation of these non-GAAP financial measures to GAAP financial measures.

Table 38: Tangible Common Equity



		Balance at period end							Average balance
		Quarter ended							Quarter ended
(in millions, except ratios)		Mar 31, 2020			Dec 31, 2019		Mar 31, 2019		Mar 31, 2020			Dec 31, 2019		Mar 31, 2019
Total equity		$	183,330		187,984		198,733		188,170			192,393		198,349
Adjustments:
Preferred stock		(21,347		)	(21,549	)	(23,214	)	(21,794		)	(21,549	)	(23,214	)
Additional paid-in capital on preferred stock		140			(71	)	(95	)	135			(71	)	(95	)
Unearned ESOP shares		1,143			1,143		1,502		1,143			1,143		1,502
Noncontrolling interests		(612		)	(838	)	(901	)	(785		)	(945	)	(899	)
Total common stockholders’ equity	(A)	162,654			166,669		176,025		166,869			170,971		175,643
Adjustments:
Goodwill		(26,381		)	(26,390	)	(26,420	)	(26,387		)	(26,389	)	(26,420	)
Certain identifiable intangible assets (other than MSRs)		(413		)	(437	)	(522	)	(426		)	(449	)	(543	)
Goodwill and other intangibles on nonmarketable equity securities (included in other assets)		(1,894		)	(2,146	)	(2,131	)	(2,152		)	(2,223	)	(2,159	)
Applicable deferred taxes related to goodwill and other intangible assets (1)		821			810		771		818			807		784
Tangible common equity	(B)	$	134,787		138,506		147,723		138,722			142,717		147,305
Common shares outstanding	(C)	4,096.4			4,134.4		4,511.9		N/A			N/A		N/A
Net income applicable to common stock	(D)	N/A			N/A		N/A		$	42		2,546		5,507
Book value per common share	(A)/(C)	$	39.71		40.31		39.01		N/A			N/A		N/A
Tangible book value per common share	(B)/(C)	32.90			33.50		32.74		N/A			N/A		N/A
Return on average common stockholders’ equity (ROE) (annualized)	(D)/(A)	N/A			N/A		N/A		0.10		%	5.91		12.71
Return on average tangible common equity (ROTCE) (annualized)	(D)/(B)	N/A			N/A		N/A		0.12			7.08		15.16


(1)	Determined by applying the combined federal statutory rate and composite state income tax rates to the difference between book and tax basis of the respective goodwill and intangible assets at period end.

Capital Management (continued)

SUPPLEMENTARY LEVERAGE RATIO As a BHC, we are required to maintain a supplementary leverage ratio (SLR) of at least 5.00% (comprised of a 3.00% minimum requirement plus a supplementary leverage buffer of 2.00%) to avoid restrictions on capital distributions and discretionary bonus payments. Our IDIs are required to maintain a SLR of at least 6.00% to be considered well-capitalized under applicable regulatory capital adequacy guidelines. In April 2018, the FRB and OCC proposed rules (the “Proposed SLR Rules”) that would replace the 2.00% supplementary leverage buffer with a buffer equal to one-half of our G-SIB capital surcharge. The Proposed SLR Rules would similarly tailor the current 6.00% SLR requirement for our IDIs. In April 2020, the FRB issued an interim final rule that temporarily allows a BHC to exclude on-balance sheet amounts of U.S. Treasury securities and deposits at Federal Reserve Banks from the calculation of its total leverage exposure in the denominator of the SLR. The interim final rule became effective on April 1, 2020, and expires on March 31, 2021.

At March 31, 2020, our SLR for the Company was 6.84%, and we also exceeded the applicable SLR requirements for each of our IDIs. See Table 39 for information regarding the calculation and components of the SLR.

Table 39: Supplementary Leverage Ratio



(in millions, except ratio)		Quarter ended March 31, 2020
Tier 1 capital	(A)	$	154,277
Total average assets		1,950,659
Less: Goodwill and other permitted Tier 1 capital deductions (net of deferred tax liabilities)		28,530
Total adjusted average assets		1,922,129
Plus adjustments for off-balance sheet exposures:
Derivatives (1)		75,994
Repo-style transactions (2)		4,613
Other (3)		253,578
Total off-balance sheet exposures		334,185
Total leverage exposure	(B)	$	2,256,314
Supplementary leverage ratio	(A)/(B)	6.84		%


(1)	Adjustment represents derivatives and collateral netting exposures as defined for supplementary leverage ratio determination purposes.


(2)	Adjustment represents counterparty credit risk for repo-style transactions where Wells Fargo & Company is the principal (i.e., principal counterparty facing the client).


(3)	Adjustment represents credit equivalent amounts of other off-balance sheet exposures not already included as derivatives and repo-style transactions exposures.

TOTAL LOSS ABSORBING CAPACITY As a G-SIB, we are required to have a minimum amount of equity and unsecured long-term debt for purposes of resolvability and resiliency, often referred to as Total Loss Absorbing Capacity (TLAC). U.S. G-SIBs are required to have a minimum TLAC amount (consisting of CET1 capital and additional tier 1 capital issued directly by the top-tier or covered BHC plus eligible external long-term debt) equal to the greater of (i) 18.00% of RWAs and (ii) 7.50% of total leverage exposure (the denominator of the SLR calculation). Additionally, U.S. G-SIBs are required to maintain (i) a TLAC buffer equal to 2.50% of RWAs plus our applicable G-SIB capital surcharge calculated under method one plus any applicable countercyclical buffer to be added to the 18.00% minimum and (ii) an external TLAC leverage buffer equal to 2.00% of total leverage exposure to be added to the 7.50% minimum, in order to avoid restrictions on capital distributions and discretionary bonus payments. U.S. G-SIBs are also required to have a minimum amount of eligible unsecured long-term debt equal to the greater of (i) 6.00% of RWAs plus our applicable G-SIB capital surcharge calculated under method two

and (ii) 4.50% of the total leverage exposure. Under the Proposed SLR Rules, the 2.00% external TLAC leverage buffer would be replaced with a buffer equal to one-half of our applicable G-SIB capital surcharge, and the leverage component for calculating the minimum amount of eligible unsecured long-term debt would be modified from 4.50% of total leverage exposure to 2.50% of total leverage exposure plus one-half of our applicable G-SIB capital surcharge. As of March 31, 2020, our eligible external TLAC as a percentage of total risk-weighted assets was 23.27% compared with a required minimum of 22.00%. Similar to the risk-based capital requirements, we determine minimum required TLAC based on the greater of RWAs determined under the Standardized and Advanced approaches.

OTHER REGULATORY CAPITAL AND LIQUIDITY MATTERS As discussed in the “Risk Management – Asset/ Liability Management – Liquidity and Funding – Liquidity Standards” section in this Report, federal banking regulators have issued a final rule regarding the U.S. implementation of the Basel III LCR and a proposed rule regarding the NSFR.

As a result of our adoption of CECL on January 1, 2020, our allowance for credit losses is now measured using an estimate of expected life-time credit losses methodology. Federal banking regulators issued rules permitting banking institutions whose capital levels decreased upon the adoption of CECL to phase in the adoption impact of CECL over a period of three years. Because we recognized a net reduction to our allowance for credit losses and a resulting increase to our capital levels upon the adoption of CECL, we were not eligible for this transition relief. In March 2020, federal banking regulators also issued rules that provide banking institutions an option to reduce any negative capital impact from the adoption of CECL and the difference between the allowance for credit losses under CECL and the previous incurred loss methodology. In first quarter 2020, we were not eligible for this transition relief.

Capital Planning and Stress Testing

Our planned long-term capital structure is designed to meet regulatory and market expectations. We believe that our long-term targeted capital structure enables us to invest in and grow our business, satisfy our customers’ financial needs in varying environments, access markets, and maintain flexibility to return capital to our shareholders. Our long-term targeted capital structure also considers capital levels sufficient to exceed capital requirements including the G-SIB capital surcharge. Accordingly, based on the final Basel III capital rules under the lower of the Standardized or Advanced Approaches CET1 capital ratios, we currently target a long-term CET1 capital ratio at or in excess of 10.00%, which includes a 2.00% G-SIB capital surcharge. Our capital targets are subject to change based on various factors, including changes to the regulatory capital framework and expectations for large banks promulgated by bank regulatory agencies, planned capital actions, changes in our risk profile and other factors. As discussed above in the “Capital Management – Regulatory Capital Guidelines – Risk-Based Capital and Risk-Weighted Assets” section of this Report, the FRB has issued a final rule that will replace the current 2.50% capital conservation buffer under the Standardized Approach with a stress capital buffer. Implementation of the stress capital buffer may cause our current long-term CET1 capital ratio target of 10.00% to increase.

Under the FRB’s capital plan rule, large BHCs are required to submit capital plans annually for review to determine if the FRB has any objections before making any capital distributions. The rule requires updates to capital plans in the event of material

changes in a BHC’s risk profile, including as a result of any significant acquisitions. The FRB assesses, among other things, the overall financial condition, risk profile, and capital adequacy of BHCs when evaluating capital plans. The capital plan rule also limits a large BHC’s ability to make capital distributions to the extent its actual capital issuances were less than amounts indicated in its capital plan.

Our 2020 capital plan, which was submitted on April 3, 2020, as part of CCAR, included a comprehensive capital outlook supported by an assessment of expected sources and uses of capital over a given planning horizon under a range of expected and stress scenarios. As part of the 2020 CCAR, the FRB also generated a supervisory stress test, which assumed a sharp decline in the economy and significant decline in asset pricing using the information provided by the Company to estimate performance. The FRB is expected to review the supervisory stress test results both as required under the Dodd-Frank Act using a common set of capital actions for all large BHCs and by taking into account the Company’s proposed capital actions. The FRB has indicated that it will publish its supervisory stress test results as required under the Dodd-Frank Act, and the related CCAR results taking into account the Company’s proposed capital actions, by June 30, 2020.

Concurrently with CCAR, federal banking regulators also require large BHCs and banks to conduct their own stress tests to evaluate whether the institution has sufficient capital to continue to operate during periods of adverse economic and financial conditions. These stress testing requirements set forth the timing and type of stress test activities large BHCs and banks must undertake as well as rules governing stress testing controls, oversight and disclosure requirements.

Securities Repurchases

From time to time the Board authorizes the Company to repurchase shares of our common stock. Although we announce when the Board authorizes share repurchases, we typically do not give any public notice before we repurchase our shares. Future stock repurchases may be private or open-market repurchases, including block transactions, accelerated or delayed block transactions, forward repurchase transactions, and similar transactions. Additionally, we may enter into plans to purchase stock that satisfy the conditions of Rule 10b5-1 of the Securities Exchange Act of 1934. Various factors determine the amount of our share repurchases, including our capital requirements, the number of shares we expect to issue for employee benefit plans and acquisitions, market conditions (including the trading price of our stock), and regulatory and legal considerations, including the FRB’s response to our capital plan and to changes in our risk profile. Due to the various factors impacting the amount of our share repurchases and the fact that we tend to be in the market regularly to satisfy repurchase considerations under our capital plan, our share repurchases occur at various price levels. We may suspend share repurchase activity at any time. On March 15, 2020, we, along with the other members of the Financial Services Forum, suspended our share repurchase activities for the remainder of the first quarter and for second quarter 2020.

At March 31, 2020, we had remaining Board authority to repurchase approximately 168 million shares, subject to regulatory and legal conditions. For more information about share repurchases during first quarter 2020, see Part II, Item 2 in this Report.

Historically, our policy has been to repurchase shares under the “safe harbor” conditions of Rule 10b-18 of the Securities Exchange Act of 1934 including a limitation on the daily volume of repurchases. Rule 10b-18 imposes an additional daily volume limitation on share repurchases during a pending merger or acquisition in which shares of our stock will constitute some or all of the consideration. Our management may determine that during a pending stock merger or acquisition when the safe harbor would otherwise be available, it is in our best interest to repurchase shares in excess of this additional daily volume limitation. In such cases, we intend to repurchase shares in compliance with the other conditions of the safe harbor, including the standing daily volume limitation that applies whether or not there is a pending stock merger or acquisition.

Regulatory Matters (continued)

Regulatory Matters

Since the enactment of the Dodd-Frank Act in 2010, the U.S. financial services industry has been subject to a significant increase in regulation and regulatory oversight initiatives. This increased regulation and oversight has substantially changed how most U.S. financial services companies conduct business and has increased their regulatory compliance costs.

For a discussion of certain consent orders applicable to the Company, see the “Overview” section in this Report. The following supplements our discussion of the other significant regulations and regulatory oversight initiatives that have affected or may affect our business contained in the “Regulatory Matters” and “Risk Factors” sections in our 2019 Form 10-K.

REGULATORY DEVELOPMENTS RELATED TO COVID-19 In response to the COVID-19 pandemic and related events, federal banking regulators have undertaken a number of measures to help stabilize the banking sector, support the broader economy, and facilitate the ability of banking organizations like Wells Fargo to continue lending to consumers and businesses. For example, following the passage of the Coronavirus Aid, Relief and Economic Security Act (CARES Act) in March 2020, federal banking regulators issued interim final rules designed to encourage financial institutions to participate in stimulus measures, such as the Small Business Administration’s Paycheck Protection Program and the FRB’s Main Street Lending Program. Similarly, the FRB launched a number of lending facilities designed to enhance liquidity and the functioning of markets, including facilities covering money market mutual funds and term asset-backed securities loans. Federal banking regulators have also issued several joint interim final rules amending the regulatory capital and TLAC rules and other prudential regulations to ease certain restrictions on banking organizations and encourage the use of certain FRB-established facilities in order to further promote lending to consumers and businesses.

In addition, the OCC and the FRB have issued guidelines for banks and BHCs related to working with customers affected by the COVID-19 pandemic, including guidance with respect to waiving fees, offering repayment accommodations, providing payment deferrals, and increasing daily withdrawal limits at automated teller machines. In addition, the federal government has instituted a moratorium on certain mortgage foreclosure activities. Any current or future rules, regulations, and guidance related to the COVID-19 pandemic and its impacts could require us to change certain of our business practices, reduce our revenue and earnings, impose additional costs on us, or otherwise adversely affect our business operations and/or competitive position.

COMMUNITY REINVESTMENT ACT (CRA) RATING On May 4, 2020, we announced that we received an “Outstanding” rating from the OCC on our most recent CRA performance evaluation, which covers the years 2012 to 2018.

Critical Accounting Policies

Our significant accounting policies (see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2019 Form 10-K) are fundamental to understanding our results of operations and financial condition because they require that we use estimates and assumptions that may affect the value of our assets or liabilities and financial results. Five of these policies are critical because they require management to make difficult, subjective and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. These policies govern:


•	the allowance for credit losses;


•	the valuation of residential MSRs;


•	the fair value of financial instruments;


•	income taxes; and


•	liability for contingent litigation losses.

Management and the Board’s Audit Committee have reviewed and approved these critical accounting policies. These policies are described further in the “Financial Review – Critical Accounting Policies” section and Note 1 (Summary of Significant Accounting Policies) to Financial Statements in our 2019 Form 10-K. In connection with our adoption of CECL on January 1, 2020, we have updated our critical accounting policy for the allowance for credit losses.

Allowance for Credit Losses

We maintain an allowance for credit losses (ACL) for loans, which is management’s estimate of the expected credit losses in the loan portfolio and unfunded credit commitments, at the balance sheet date, excluding loans and unfunded credit commitments carried at fair value or held for sale. Additionally, we maintain an allowance for credit losses for debt securities classified as either held-to-maturity (HTM) or available-for-sale (AFS), other financial assets measured at amortized cost, net investments in leases, and other off-balance sheet credit exposures. In connection with our adoption of CECL, we updated our approach for estimating expected credit losses, which includes new areas for management judgment, described more fully below, and updated our accounting policies. For more information, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report.

For loans and HTM debt securities, the ACL is measured based on the remaining contractual term of the financial asset (including off-balance sheet credit exposures) adjusted, as appropriate, for prepayments and permitted extension options using historical experience, current conditions, and forecasted information. For AFS debt securities, the ACL is measured using a discounted cash flow approach and is limited to the difference between the fair value of the security and its amortized cost.

Changes in the ACL and, therefore, in the related provision for credit losses can materially affect net income. In applying the judgment and review required to determine the ACL, management considerations include the evaluation of past events, historical experience, changes in economic forecasts and conditions, customer behavior, collateral values, and the length of the initial loss forecast period, and other influences. From time to time, changes in economic factors or assumptions, business strategy, products or product mix, or debt security investment strategy, may result in a corresponding increase or decrease in our ACL. While our methodology attributes portions of the ACL to specific financial asset classes (loan and debt

security portfolios) or loan portfolio segments (commercial and consumer), the entire ACL is available to absorb credit losses of the company.

Judgment is specifically applied in:

•

Economic assumptions and the length of the initial loss forecast period. Forecasted economic variables, such as gross domestic product (GDP), unemployment rate or collateral asset prices, are used to estimate expected credit losses. While many of these economic variables are evaluated at the macro-economy level, some economic variables may be forecasted at more granular levels, for example, using the metro statistical area (MSA) level for unemployment rates, home prices and commercial real estate prices. Quarterly, we assess the length of the initial loss forecast period and have currently set the period to one year.

•

Reversion of losses beyond the initial forecast period. We use a reversion approach to connect the losses estimated for our initial loss forecast period to the period of our historical loss expectations. We give consideration to the type of portfolio, point in the credit cycle, expected length of recessions and recoveries, as well as other relevant factors. During forecasted periods of expansionary economic conditions, we revert immediately to our historical loss expectations. However, when recessionary conditions are forecasted over the initial loss forecast period, we will utilize a linear reversion to the long-term average losses. The length of reversion period varies by asset type – one year for shorter contractual term loans such as commercial loans and two years for longer contractual term loans such as 1-4 family mortgage loans. We assess the reversion approach on a quarterly basis and the length of the reversion period by asset type annually.

•

Historical loss expectations. At the end of the reversion period, we incorporate the changes in economic variables observed during representative historical time periods that include both recessions and expansions. This analysis is used to compute average losses for any given portfolio and its associated credit characteristics. Annually, we assess the historical time periods and ensure the average loss estimates are representative of our historical loss experience.

•

Credit risk ratings applied to individual commercial loans, unfunded credit commitments, and debt securities. Individually assessed credit risk ratings are considered key credit variables in our modeled approaches to help assess probability of default and loss given default. Borrower quality ratings are aligned to the borrower’s financial strength and contribute to forecasted probability of default curves. Collateral quality ratings combined with forecasted collateral prices (as applicable) contribute to the forecasted severity of loss in the event of default. These credit risk ratings are reviewed by experienced senior credit officers and subjected to reviews by an internal team of credit risk specialists.


•	Usage of credit loss estimation models. We use internally developed models that incorporate credit attributes and economic variables to generate estimates of credit losses. Management uses a combination of judgement and quantitative analytics in the determination of segmentation, modeling approach, and variables that are leveraged in the models. These models are validated in

accordance with the Company’s policies by an internal model validation group. We routinely assess our model performance and apply adjustments when necessary to improve the accuracy of loss estimation. We also assess our models for limitations against the company-wide risk inventory to help ensure that we appropriately capture known and emerging risks in our estimate of expected credit losses and apply overlays as needed.

•

Valuation of collateral. The current fair value of collateral is utilized to assess the expected credit losses when a financial asset is considered to be collateral dependent. We apply judgment when valuing the collateral either through appraisals, evaluation of the cash flows of the property, or other quantitative techniques. Decreases in collateral valuations support incremental charge-downs and increases in collateral valuation are included in the allowance for credit losses as a negative allowance when the financial asset has been previously written-down below current recovery value.

•

Contractual term considerations. The remaining contractual term of a loan is adjusted for expected prepayments and certain expected extensions, renewals, or modifications. We extend the contractual term when we are not able to unconditionally cancel contractual renewals or extension options. We also incorporate into our allowance for credit losses any scenarios where we reasonably expect to provide an extension through a TDR.


•	Qualitative factors which may not be adequately captured in the loss models. These amounts represent management’s judgment of risks inherent in the processes and assumptions used in establishing the ACL. We also consider economic environmental factors, modeling assumptions and performance, process risk, and other subjective factors, including industry trends and emerging risk assessments.

Sensitivity The ACL for loans is sensitive to changes in key assumptions which requires significant judgment to be used by management. Future amounts of the ACL for loans will be based on a variety of factors, including loan balance changes, portfolio credit quality, and general economic conditions. General economic conditions are forecasted using economic variables, which could have varying impacts on different financial assets or portfolios. Additionally, throughout numerous credit cycles, there are observed changes in economic variables such as the unemployment rate, GDP and real estate prices which may not move in a correlated manner as variables may move in opposite directions or differ across portfolios or geography.

In order to provide a sensitivity analysis, we developed two hypothetical scenarios by applying changes in economic variables to our loan portfolio, which affect the expected balances, credit quality, and mix. The outcomes of both scenarios were influenced by the length of the scenario periods, as well as the duration and timing of changes in economic variables within those scenarios. The scenarios reflect the impact of economic stress and corresponding adverse changes in economic variables for a longer period than the initial loss forecast period used to develop our current ACL for loans. Neither of the scenarios consider any benefit related to economic stimulus programs or other legislative or regulatory relief.

One hypothetical scenario represents an adverse scenario based on changes in economic variables experienced during the last credit crisis. Compared with the economic forecast used to develop our current ACL for loans, this adverse scenario reflects a more substantial and sustained increase in unemployment, a deeper and more sustained decline in GDP along with significant declines in consumer and commercial real estate prices. This adverse scenario resulted in an increase in the ACL for loans of $6.8 billion.

A second more severe scenario is similar to our annual Company-run stress test. Compared with the adverse scenario, the more severe scenario reflects a sustained but sharper increase in unemployment and a more significant and sustained decline in GDP. Declines in real estate prices are consistent with the adverse scenario, with additional stress to consumer and commercial real estate prices based on our regional and industry concentrations, as well as an idiosyncratic stress as a result of declines in oil and gas prices. The more severe scenario resulted in an increase in the ACL for loans of $11.3 billion.

The changes in economic variables in these scenarios were not contemplated in the economic forecast used to develop our current ACL for loans. In addition, these hypothetical increases in our ACL for loans represent changes to our quantitative estimate and do not incorporate the impact of management judgment for qualitative factors applied in the current ACL for loans, which may have an offsetting impact to the scenario results. Finally, if these hypothetical scenarios were to materialize, the increase in our ACL for loans may be recognized over time if actual loss expectations exceed our historical loss experience.

These sensitivity analyses are hypothetical scenarios and the results do not represent management’s view of expected credit losses at the balance sheet date. The sensitivity analyses exclude the ACL for debt securities given its size relative to the overall ACL. Management believes that the current estimate for the ACL for loans was appropriate at the balance sheet date. Because significant judgment is used, it is possible that others performing similar analyses could reach different conclusions.

Current Accounting Developments

Table 41 provides the significant accounting updates applicable to us that have been issued by the Financial Accounting Standards Board (FASB) but are not yet effective.

Table 41: Current Accounting Developments – Issued Standards



Description		Effective date and financial statement impact
ASU 2018-12 – Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts and subsequent related updates
The Update requires all features in long-duration insurance contracts that meet the definition of a market risk benefit to be measured at fair value through earnings with changes in fair value attributable to our own credit risk recognized in other comprehensive income. Currently, two measurement models exist for these features, fair value and insurance accrual. The Update requires the use of a standardized discount rate and routine updates for insurance assumptions used in valuing the liability for future policy benefits for traditional long-duration contracts. The Update also simplifies the amortization of deferred acquisition costs.		The guidance becomes effective on January 1, 2022. Certain of our variable annuity reinsurance products meet the definition of market risk benefits and will require the associated insurance related reserves for these products to be measured at fair value as of the earliest period presented, with the cumulative effect on fair value for changes attributable to our own credit risk recognized in the beginning balance of accumulated other comprehensive income. The cumulative effect of the difference between fair value and carrying value, excluding the effect of our own credit, will be recognized in the opening balance of retained earnings. As of March 31, 2020, we held $1.1 billion in insurance-related reserves of which $560 million was in scope of the Update. A total of $553 million was associated with products that meet the definition of market risk benefits, and of this amount, $65 million was measured at fair value under current accounting standards. The market risk benefits are largely indexed to U.S. equity and fixed income markets. Upon adoption, we may incur periodic earnings volatility from changes in the fair value of market risk benefits generally due to the long duration of these contracts. We plan to economically hedge this volatility, where feasible. The ultimate impact of these changes will depend on the composition of our market risk benefits portfolio at the date of adoption. Changes in the accounting for the liability of future policy benefits for traditional long-duration contracts and deferred acquisition costs will be applied to all outstanding long-duration contracts on the basis of their existing carrying amounts at the beginning of the earliest period presented, and are not expected to be material.
ASU 2020-04 – Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting
The Update provides temporary, optional relief to ease the potential burden of accounting for reference rate reform activities that affect contractual modifications of floating-rate financial instruments indexed to IBORs and hedge accounting relationships. Contractual modifications and changes to existing hedge accounting relationships must meet specific requirements to qualify for the relief. Upon election the guidance is applied consistently to all applicable instruments, where a qualifying contractual modification is accounted for as the continuation of an existing contract rather than a new contract. The optional relief facilitates the preservation of existing fair value and cash flow hedge relationships while amending certain contractual terms of hedge accounting relationships, and changes the way the amounts excluded from the evaluation of hedge effectiveness are reported in earnings. Hedging relationships that qualify for the relief will not require discontinuation of the existing hedge accounting relationships. The election to apply the optional relief for existing fair value and cash flow hedge accounting relationships may be made on a hedge-by-hedge basis and across multiple reporting periods.		We adopted the guidance on April 1, 2020. We applied the guidance consistently to contractual amendments made to all applicable floating rate instruments indexed to IBORs. We elected to apply the guidance on an individual hedge-by-hedge basis for changes to hedge accounting relationships. The financial statement impact of the Update will change each period as contracts, existing and new, are impacted by reference rate reform activities and as our exposure changes to LIBOR and other IBORs.

The following Updates are applicable to us but are not expected to have a material impact on our consolidated financial statements:


•	ASU 2020-01 – Investments – Equity Securities (Topic 321),

Investments – Equity Method and Joint Ventures (Topic

323), and Derivatives and Hedging (Topic 815): Clarifying the

Interactions between Topic 321, Topic 323, and Topic 815 (a

consensus of the FASB Emerging Issues Task Force)


•	ASU 2019-12 – Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes

Forward-Looking Statements (continued)

Forward-Looking Statements

This document contains forward-looking statements. In addition, we may make forward-looking statements in our other documents filed or furnished with the SEC, and our management may make forward-looking statements orally to analysts, investors, representatives of the media and others. Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects,” “target,” “projects,” “outlook,” “forecast,” “will,” “may,” “could,” “should,” “can” and similar references to future periods. In particular, forward-looking statements include, but are not limited to, statements we make about: (i) the future operating or financial performance of the Company, including our outlook for future growth; (ii) our noninterest expense and efficiency ratio; (iii) future credit quality and performance, including our expectations regarding future loan losses and our allowance for credit losses; (iv) the appropriateness of the allowance for credit losses; (v) our expectations regarding net interest income and net interest margin; (vi) loan growth or the reduction or mitigation of risk in our loan portfolios; (vii) future capital or liquidity levels, ratios or targets; (viii) the performance of our mortgage business and any related exposures; (ix) the expected outcome and impact of legal, regulatory and legislative developments, as well as our expectations regarding compliance therewith; (x) future common stock dividends, common share repurchases and other uses of capital; (xi) our targeted range for return on assets, return on equity, and return on tangible common equity; (xii) expectations regarding our effective income tax rate; (xiii) the outcome of contingencies, such as legal proceedings; and (xiv) the Company’s plans, objectives and strategies.

Forward-looking statements are not based on historical facts but instead represent our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you, therefore, against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. While there is no assurance that any list of risks and uncertainties or risk factors is complete, important factors that could cause actual results to differ materially from those in the forward-looking statements include the following, without limitation:


•	current and future economic and market conditions, including the effects of declines in housing prices, high unemployment rates, U.S. fiscal debt, budget and tax matters, geopolitical matters, and any slowdown in global economic growth;


•	the effect of the COVID-19 pandemic, including on our credit quality and business operations, as well as its impact on general economic and financial market conditions;


•	our capital and liquidity requirements (including under regulatory capital standards, such as the Basel III capital standards) and our ability to generate capital internally or raise capital on favorable terms;


•	financial services reform and other current, pending or future legislation or regulation that could have a negative effect on our revenue and businesses, including the Dodd-Frank Act and other legislation and regulation relating to bank products and services;

•

developments in our mortgage banking business, including the extent of the success of our mortgage loan modification efforts, the amount of mortgage loan repurchase demands that we receive, any negative effects relating to our mortgage servicing, loan modification or foreclosure practices, and the effects of regulatory or judicial requirements or guidance impacting our mortgage banking business and any changes in industry standards;


•	our ability to realize any efficiency ratio or expense target as part of our expense management initiatives, including as a result of business and economic cyclicality, seasonality, changes in our business composition and operating environment, growth in our businesses and/or acquisitions, and unexpected expenses relating to, among other things, litigation and regulatory matters;


•	the effect of the current interest rate environment or changes in interest rates or in the level or composition of our assets or liabilities on our net interest income, net interest margin and our mortgage originations, mortgage servicing rights and mortgage loans held for sale;


•	significant turbulence or a disruption in the capital or financial markets, which could result in, among other things, reduced investor demand for mortgage loans, a reduction in the availability of funding or increased funding costs, and declines in asset values and/or recognition of impairments of securities held in our debt securities and equity securities portfolios;


•	the effect of a fall in stock market prices on our investment banking business and our fee income from our brokerage, asset and wealth management businesses;

•

negative effects from the retail banking sales practices matter and from other instances where customers may have experienced financial harm, including on our legal, operational and compliance costs, our ability to engage in certain business activities or offer certain products or services, our ability to keep and attract customers, our ability to attract and retain qualified team members, and our reputation;


•	resolution of regulatory matters, litigation, or other legal actions, which may result in, among other things, additional costs, fines, penalties, restrictions on our business activities, reputational harm, or other adverse consequences;


•	a failure in or breach of our operational or security systems or infrastructure, or those of our third-party vendors or other service providers, including as a result of cyber attacks;


•	the effect of changes in the level of checking or savings account deposits on our funding costs and net interest margin;


•	fiscal and monetary policies of the Federal Reserve Board;


•	changes to U.S. tax guidance and regulations, as well as the effect of discrete items on our effective income tax rate;


•	our ability to develop and execute effective business plans and strategies; and


•	the other risk factors and uncertainties described under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019, as supplemented by the “Risk Factors” section in this Report.

In addition to the above factors, we also caution that the amount and timing of any future common stock dividends or repurchases will depend on the earnings, cash requirements and financial condition of the Company, market conditions, capital

requirements (including under Basel capital standards), common stock issuance requirements, applicable law and regulations (including federal securities laws and federal banking regulations), and other factors deemed relevant by the Company’s Board of Directors, and may be subject to regulatory approval or conditions.

For more information about factors that could cause actual results to differ materially from our expectations, refer to our reports filed with the Securities and Exchange Commission, including the discussion under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019, as supplemented by the “Risk Factors” section in this Report, as filed with the Securities and Exchange Commission and available on its website at www.sec.gov.

Any forward-looking statement made by us speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

Forward-looking Non-GAAP Financial Measures. From time to time management may discuss forward-looking non-GAAP financial measures, such as forward-looking estimates or targets for return on average tangible common equity. We are unable to provide a reconciliation of forward-looking non-GAAP financial measures to their most directly comparable GAAP financial measures because we are unable to provide, without unreasonable effort, a meaningful or accurate calculation or estimation of amounts that would be necessary for the reconciliation due to the complexity and inherent difficulty in forecasting and quantifying future amounts or when they may occur. Such unavailable information could be significant to future results.

Risk Factors

An investment in the Company involves risk, including the possibility that the value of the investment could fall substantially and that dividends or other distributions on the investment could be reduced or eliminated. For a discussion of risk factors that could adversely affect our financial results and condition, and the value of, and return on, an investment in the Company, we refer you to the “Risk Factors” section in our 2019 Form 10-K.

The following risk factor supplements the “Risk Factors” section in our 2019 Form 10-K.

The COVID-19 pandemic has adversely impacted our business and financial results, and the ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, lowered equity market valuations, created significant volatility and disruption in financial markets, and increased unemployment levels. In addition, the pandemic has resulted in temporary closures of many businesses and the institution of social distancing and sheltering in place requirements in many states and communities. As a result, the demand for our products and services may be significantly impacted, which could adversely affect our revenue. Furthermore, the pandemic could continue to result in the recognition of credit losses in our loan portfolios and increases in our allowance for credit losses, particularly if businesses remain closed, the impact on the global economy worsens, or more customers draw on their lines of credit or seek additional loans to help finance their businesses. Similarly, because of changing economic and market conditions affecting issuers, we may be required to recognize further impairments on the securities we hold as well as reductions in other comprehensive income. Our business operations may be further disrupted if significant portions of our workforce are unable to work effectively, including because of illness, quarantines, government actions, or other restrictions in connection with the pandemic, and we have already temporarily closed certain of our branches and offices.

Moreover, the pandemic has created additional operational and compliance risks, including the need to quickly implement and execute new programs and procedures for the products and services we offer our customers, provide enhanced safety measures for our employees and customers, comply with rapidly changing regulatory requirements, address any increased risk of fraudulent activity, and protect the integrity and functionality of our systems and networks as a larger number of our employees work remotely. The pandemic could also result in downgrades to our credit ratings or credit outlook. In response to the pandemic, we have suspended residential property foreclosure sales, evictions, and involuntary automobile repossessions, and are offering fee waivers, payment deferrals, and other expanded assistance for credit card, automobile, mortgage, small business and personal lending customers, and future governmental actions may require these and other types of customer-related responses. In addition, we have temporarily suspended share repurchases and could take other capital actions in response to the COVID-19 pandemic. The extent to which the COVID-19 pandemic impacts our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic.

Controls and Procedures

Disclosure Controls and Procedures

The Company’s management evaluated the effectiveness, as of March 31, 2020, of the Company’s disclosure controls and procedures. The Company’s chief executive officer and chief financial officer participated in the evaluation. Based on this evaluation, the Company’s chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2020.

Internal Control Over Financial Reporting

Internal control over financial reporting is defined in Rule 13a-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s Board, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles (GAAP) and includes those policies and procedures that:


•	pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of assets of the Company;


•	provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and


•	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. No change occurred during first quarter 2020 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.



Wells Fargo & Company and Subsidiaries
Consolidated Statement of Income (Unaudited)
	Quarter ended March 31,
(in millions, except per share amounts)	2020			2019
Interest income
Debt securities	$	3,472		3,941
Mortgage loans held for sale	197			152
Loans held for sale	12			24
Loans	10,065			11,354
Equity securities	206			210
Other interest income	775			1,322
Total interest income	14,727			17,003
Interest expense
Deposits	1,742			2,026
Short-term borrowings	291			596
Long-term debt	1,240			1,927
Other interest expense	142			143
Total interest expense	3,415			4,692
Net interest income	11,312			12,311
Provision for credit losses:
Debt securities (1)	172			—
Loans	3,833			845
Net interest income after provision for credit losses	7,307			11,466
Noninterest income
Service charges on deposit accounts	1,209			1,094
Trust and investment fees	3,574			3,373
Card fees	892			944
Other fees	632			770
Mortgage banking	379			708
Insurance	95			96
Net gains from trading activities	64			357
Net gains on debt securities	237			125
Net gains (losses) from equity securities	(1,401		)	814
Lease income	352			443
Other	372			574
Total noninterest income	6,405			9,298
Noninterest expense
Salaries	4,721			4,425
Commission and incentive compensation	2,463			2,845
Employee benefits	1,130			1,938
Technology and equipment	661			661
Net occupancy	715			717
Core deposit and other intangibles	23			28
FDIC and other deposit assessments	118			159
Other	3,217			3,143
Total noninterest expense	13,048			13,916
Income before income tax expense	664			6,848
Income tax expense	159			881
Net income before noncontrolling interests	505			5,967
Less: Net income (loss) from noncontrolling interests	(148		)	107
Wells Fargo net income	$	653		5,860
Less: Preferred stock dividends and other	611			353
Wells Fargo net income applicable to common stock	$	42		5,507
Per share information
Earnings per common share	$	0.01		1.21
Diluted earnings per common share	0.01			1.20
Average common shares outstanding	4,104.8			4,551.5
Diluted average common shares outstanding	4,135.3			4,584.0

(1)

Prior to our adoption of Accounting Standards Update (ASU) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (CECL), on January 1, 2020, provision for credit losses from debt securities was not applicable and is therefore presented as $0 for the prior period. For more information, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report.

The accompanying notes are an integral part of these statements.



Wells Fargo & Company and Subsidiaries
Consolidated Statement of Comprehensive Income (Unaudited)
	Quarter ended March 31,
(in millions)	2020			2019
Wells Fargo net income	$	653		5,860
Other comprehensive income (loss), before tax:
Debt securities:
Net unrealized gains (losses) arising during the period	(110		)	2,831
Reclassification of net gains to net income	(172		)	(81	)
Derivative and hedging activities:
Net unrealized gains (losses) arising during the period	124			(35	)
Reclassification of net losses to net income	58			79
Defined benefit plans adjustments:
Net actuarial and prior service gains (losses) arising during the period	3			(4	)
Amortization of net actuarial loss, settlements and other to net income	36			35
Foreign currency translation adjustments:
Net unrealized gains (losses) arising during the period	(194		)	42
Other comprehensive income (loss), before tax	(255		)	2,867
Income tax benefit (expense) related to other comprehensive income	1			(694	)
Other comprehensive income (loss), net of tax	(254		)	2,173
Less: Other comprehensive loss from noncontrolling interests	(1		)	—
Wells Fargo other comprehensive income (loss), net of tax	(253		)	2,173
Wells Fargo comprehensive income	400			8,033
Comprehensive income (loss) from noncontrolling interests	(149		)	107
Total comprehensive income	$	251		8,140

The accompanying notes are an integral part of these statements.



Wells Fargo & Company and Subsidiaries
Consolidated Balance Sheet
(in millions, except shares)	Mar 31, 2020			Dec 31, 2019
Assets	(Unaudited)
Cash and due from banks	$	22,738		21,757
Interest-earning deposits with banks	128,071			119,493
Total cash, cash equivalents, and restricted cash	150,809			141,250
Federal funds sold and securities purchased under resale agreements	86,465			102,140
Debt securities:
Trading, at fair value	80,425			79,733
Available-for-sale, at fair value (includes amortized cost of $248,187 and $260,060, net of allowance for credit losses of $161 and $0) (1)	251,229			263,459
Held-to-maturity, at amortized cost, net of allowance for credit losses of $11 and $0 (fair value $177,562 and $156,860) (1)	169,909			153,933
Mortgage loans held for sale (includes $16,665 and $16,606 carried at fair value) (2)	21,795			23,342
Loans held for sale (includes $1,673 and $972 carried at fair value) (2)	1,883			977
Loans (includes $160 and $171 carried at fair value) (2)	1,009,843			962,265
Allowance for loan losses	(11,263		)	(9,551	)
Net loans	998,580			952,714
Mortgage servicing rights:
Measured at fair value	8,126			11,517
Amortized	1,406			1,430
Premises and equipment, net	9,108			9,309
Goodwill	26,381			26,390
Derivative assets	25,023			14,203
Equity securities (includes $28,176 and $41,936 carried at fair value) (2)	54,047			68,241
Other assets	96,163			78,917
Total assets (3)	$	1,981,349		1,927,555
Liabilities
Noninterest-bearing deposits	$	379,678		344,496
Interest-bearing deposits	996,854			978,130
Total deposits	1,376,532			1,322,626
Short-term borrowings	92,289			104,512
Derivative liabilities	15,618			9,079
Accrued expenses and other liabilities	76,238			75,163
Long-term debt	237,342			228,191
Total liabilities (4)	1,798,019			1,739,571
Equity
Wells Fargo stockholders’ equity:
Preferred stock	21,347			21,549
Common stock – $1-2/3 par value, authorized 9,000,000,000 shares; issued 5,481,811,474 shares	9,136			9,136
Additional paid-in capital	59,849			61,049
Retained earnings	165,308			166,697
Cumulative other comprehensive income (loss)	(1,564		)	(1,311	)
Treasury stock – 1,385,401,170 shares and 1,347,385,537 shares	(70,215		)	(68,831	)
Unearned ESOP shares	(1,143		)	(1,143	)
Total Wells Fargo stockholders’ equity	182,718			187,146
Noncontrolling interests	612			838
Total equity	183,330			187,984
Total liabilities and equity	$	1,981,349		1,927,555


(1)	Prior to our adoption of CECL on January 1, 2020, the allowance for credit losses (ACL) related to available-for-sale (AFS) and held-to-maturity (HTM) debt securities was not applicable and is therefore presented as $0 at December 31, 2019. For more information, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report.


(2)	Parenthetical amounts represent assets and liabilities that we are required to carry at fair value or have elected the fair value option.

(3)

Our consolidated assets at March 31, 2020, and December 31, 2019, include the following assets of certain variable interest entities (VIEs) that can only be used to settle the liabilities of those VIEs: Cash and due from banks, $19 million and $16 million; Interest-earning deposits with banks, $0 million and $284 million; Debt securities, $616 million and $540 million; Net loans, $13.1 billion and $13.2 billion; Derivative assets, $6 million and $1 million; Equity securities, $95 million and $118 million; Other assets, $258 million and $239 million; and Total assets, $14.1 billion and $14.4 billion, respectively.

(4)

Our consolidated liabilities at March 31, 2020, and December 31, 2019, include the following VIE liabilities for which the VIE creditors do not have recourse to Wells Fargo: Short-term borrowings, $300 million and $401 million; Derivative liabilities, $8 million and $3 million; Accrued expenses and other liabilities, $230 million and $235 million; Long-term debt, $235 million and $587 million; and Total liabilities, $773 million and $1.2 billion, respectively.

The accompanying notes are an integral part of these statements.



Wells Fargo & Company and Subsidiaries
Consolidated Statement of Changes in Equity (Unaudited)

	Preferred stock					Common stock
(in millions, except shares)	Shares		Amount			Shares		Amount
Balance December 31, 2019	7,492,169		$	21,549		4,134,425,937		$	9,136
Cumulative effect from change in accounting policies (1)
Balance January 1, 2020	7,492,169		$	21,549		4,134,425,937		$	9,136
Net income
Other comprehensive income (loss), net of tax
Noncontrolling interests
Common stock issued						37,351,887
Common stock repurchased						(75,367,520	)
Preferred stock redeemed	(1,828,720	)	(2,215		)
Preferred stock issued to ESOP
Preferred stock released by ESOP
Preferred stock converted to common shares	—		—			—
Preferred stock issued	80,500		2,013
Common stock dividends
Preferred stock dividends
Stock incentive compensation expense
Net change in deferred compensation and related plans
Net change	(1,748,220	)	(202		)	(38,015,633	)	—
Balance March 31, 2020	5,743,949		$	21,347		4,096,410,304		$	9,136
Balance December 31, 2018	9,377,216		$	23,214		4,581,253,608		$	9,136
Cumulative effect from change in accounting policies (2)
Balance January 1, 2019	9,377,216		$	23,214		4,581,253,608		$	9,136
Net income
Other comprehensive income (loss), net of tax
Noncontrolling interests
Common stock issued						28,057,901
Common stock repurchased						(97,363,710	)
Preferred stock redeemed	—		—
Preferred stock issued to ESOP
Preferred stock released by ESOP
Preferred stock converted to common shares	(5	)	—			31
Preferred stock issued
Common stock dividends
Preferred stock dividends
Stock incentive compensation expense
Net change in deferred compensation and related plans
Net change	(5	)	—			(69,305,778	)	—
Balance March 31, 2019	9,377,211		$	23,214		4,511,947,830		$	9,136


(1)	We adopted CECL effective January 1, 2020. For more information, see Note 1 (Summary of Significant Accounting Policies) to Financial Statements in this Report.


(2)	Effective January 1, 2019, we adopted ASU 2016-02 – Leases (Topic 842) and subsequent related Updates, ASU 2017-08 – Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.




										Three months ended March 31,
						Wells Fargo stockholders’ equity
Additional paid-in capital		Retained earnings		Cumulative other comprehensive income		Treasury stock		Unearned ESOP shares		Total Wells Fargo stockholders’ equity		Noncontrolling interests		Total equity
61,049		166,697		(1,311	)	(68,831	)	(1,143	)	187,146		838		187,984
		991								991				991
61,049		167,688		(1,311	)	(68,831	)	(1,143	)	188,137		838		188,975
		653								653		(148	)	505
				(253	)					(253	)	(1	)	(254	)
—										—		(77	)	(77	)
(17	)	(308	)			2,002				1,677				1,677
—						(3,407	)			(3,407	)			(3,407	)
17		(272	)							(2,470	)			(2,470	)
—								—		—				—
—								—		—				—
—						—				—				—
(45	)									1,968				1,968
18		(2,114	)							(2,096	)			(2,096	)
		(339	)							(339	)			(339	)
181										181				181
(1,354	)					21				(1,333	)			(1,333	)
(1,200	)	(2,380	)	(253	)	(1,384	)	—		(5,419	)	(226	)	(5,645	)
59,849		165,308		(1,564	)	(70,215	)	(1,143	)	182,718		612		183,330
60,685		158,163		(6,336	)	(47,194	)	(1,502	)	196,166		900		197,066
		(492	)	481						(11	)			(11	)
60,685		157,671		(5,855	)	(47,194	)	(1,502	)	196,155		900		197,055
		5,860								5,860		107		5,967
				2,173						2,173		—		2,173
—										—		(106	)	(106	)
—		(329	)			1,468				1,139				1,139
—						(4,820	)			(4,820	)			(4,820	)
		—								—				—
—								—		—				—
—								—		—				—
—						—				—				—
—										—				—
19		(2,073	)							(2,054	)			(2,054	)
		(353	)							(353	)			(353	)
544										544				544
(839	)					27				(812	)			(812	)
(276	)	3,105		2,173		(3,325	)	—		1,677		1		1,678
60,409		160,776		(3,682	)	(50,519	)	(1,502	)	197,832		901		198,733



Wells Fargo & Company and Subsidiaries
Consolidated Statement of Cash Flows (Unaudited)
	Quarter ended March 31,
(in millions)	2020			2019
Cash flows from operating activities:
Net income before noncontrolling interests	$	505		5,967
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	4,005			845
Changes in fair value of MSRs, MLHFS and LHFS carried at fair value	3,486			1,144
Depreciation, amortization and accretion	1,868			1,449
Other net (gains) losses	7,638			(1,418	)
Stock-based compensation	582			902
Originations and purchases of mortgage loans held for sale	(37,216		)	(25,098	)
Proceeds from sales of and paydowns on mortgage loans held for sale	31,922			17,148
Net change in:
Debt and equity securities, held for trading	20,413			6,969
Loans held for sale	(731		)	728
Deferred income taxes	(1,448		)	312
Derivative assets and liabilities	(4,293		)	(1,586	)
Other assets	(10,391		)	1,130
Other accrued expenses and liabilities	933			(541	)
Net cash provided by operating activities	17,273			7,951
Cash flows from investing activities:
Net change in:
Federal funds sold and securities purchased under resale agreements	15,675			(18,414	)
Available-for-sale debt securities:
Proceeds from sales	11,843			1,680
Prepayments and maturities	14,135			6,001
Purchases	(18,658		)	(4,937	)
Held-to-maturity debt securities:
Paydowns and maturities	3,769			2,123
Purchases	(19,141		)	—
Equity securities, not held for trading:
Proceeds from sales and capital returns	1,115			1,180
Purchases	(3,338		)	(1,352	)
Loans:
Loans originated by banking subsidiaries, net of principal collected	(53,400		)	669
Proceeds from sales (including participations) of loans held for investment	1,959			3,410
Purchases (including participations) of loans	(342		)	(331	)
Principal collected on nonbank entities’ loans	3,837			899
Loans originated by nonbank entities	(2,348		)	(1,318	)
Proceeds from sales of foreclosed assets and short sales	500			707
Other, net	91			657
Net cash used by investing activities	(44,303		)	(9,026	)
Cash flows from financing activities:
Net change in:
Deposits	53,903			(22,161	)
Short-term borrowings	(12,223		)	810
Long-term debt:
Proceeds from issuance	18,895			17,338
Repayment	(17,563		)	(11,898	)
Preferred stock:
Proceeds from issuance	1,968			—
Redeemed	(2,470		)	—
Cash dividends paid	(280		)	(294	)
Common stock:
Proceeds from issuance	209			181
Stock tendered for payment of withholding taxes	(306		)	(264	)
Repurchased	(3,407		)	(4,820	)
Cash dividends paid	(2,032		)	(1,997	)
Net change in noncontrolling interests	(29		)	(83	)
Other, net	(76		)	(56	)
Net cash provided (used) by financing activities	36,589			(23,244	)
Net change in cash, cash equivalents, and restricted cash	9,559			(24,319	)
Cash, cash equivalents, and restricted cash at beginning of period	141,250			173,287
Cash, cash equivalents, and restricted cash at end of period	$	150,809		148,968
Supplemental cash flow disclosures:
Cash paid for interest	$	3,479		4,401
Cash paid for income taxes	207			126

The accompanying notes are an integral part of these statements. See Note 1 (Summary of Significant Accounting Policies) for noncash activities.

Note 1: Summary of Significant Accounting Policies (continued)

See the Glossary of Acronyms at the end of this Report for terms used throughout the Financial Statements and related Notes.

Note 1: Summary of Significant Accounting Policies

Wells Fargo & Company is a diversified financial services company. We provide banking, trust and investments, mortgage banking, investment banking, retail banking, brokerage, and consumer and commercial finance through banking locations, the internet and other distribution channels to consumers, businesses and institutions in all 50 states, the District of Columbia, and in foreign countries. When we refer to “Wells Fargo,” “the Company,” “we,” “our” or “us,” we mean Wells Fargo & Company and Subsidiaries (consolidated). Wells Fargo & Company (the Parent) is a financial holding company and a bank holding company. We also hold a majority interest in a real estate investment trust, which has publicly traded preferred stock outstanding.

Our accounting and reporting policies conform with U.S. generally accepted accounting principles (GAAP) and practices in the financial services industry. For discussion of our significant accounting policies, see Note 1 (Summary of Significant Accounting Policies) in our Annual Report on Form 10-K for the year ended December 31, 2019 (2019 Form 10-K).

To prepare the financial statements in conformity with GAAP, management must make estimates based on assumptions about future economic and market conditions (for example, unemployment, market liquidity, real estate prices, etc.) that affect the reported amounts of assets and liabilities at the date of the financial statements, income and expenses during the reporting period and the related disclosures. Although our estimates contemplate current conditions and how we expect them to change in the future, it is reasonably possible that actual conditions could be worse than anticipated in those estimates, which could materially affect our results of operations and financial condition. Management has made significant estimates in several areas, including:


•	allowance for credit losses (Note 6 (Loans and Related Allowance for Credit Losses);


•	valuations of residential mortgage servicing rights (MSRs) (Note 10 (Securitizations and Variable Interest Entities) and Note 11 (Mortgage Banking Activities));


•	valuations of financial instruments (Note 15 (Derivatives) and Note 16 (Fair Values of Assets and Liabilities));


•	liabilities for contingent litigation losses (Note 14 (Legal Actions)); and


•	income taxes.

Actual results could differ from those estimates.

These unaudited interim financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the periods presented. These adjustments are of a normal recurring nature, unless otherwise disclosed in this Form 10-Q. The results of operations in the interim financial statements do not necessarily indicate the results that may be expected for the full year. The interim financial information should be read in conjunction with our 2019 Form 10-K.

Accounting Standards Adopted in 2020

In first quarter 2020, we adopted the following new accounting guidance:


•	Accounting Standards Update (ASU or Update) 2019-04 – Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and

Hedging, and Topic 825, Financial Instruments. This Update includes guidance on recoveries of financial assets, which is included in the discussion for ASU 2016-13 below.


•	ASU 2018-17 – Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities


•	ASU 2018-15 – Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force)


•	ASU 2018-13 – Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.


•	ASU 2017-04 – Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment


•	ASU 2016-13 – Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and related subsequent Updates

ASU 2018-17 updates the guidance used by decision-makers of VIEs. Indirect interests held through related parties in common control arrangements will be considered on a proportional basis for determining whether fees paid to decision-makers and service providers are variable interests. This is consistent with how indirect interests held through related parties under common control are considered for determining whether a reporting entity must consolidate a VIE. The Update did not have a material impact on our consolidated financial statements.

ASU 2018-15 clarifies the accounting for implementation costs related to a cloud computing arrangement that is a service contract and enhances disclosures around implementation costs for internal-use software and cloud computing arrangements. The guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). It also requires the expense related to the capitalized implementation costs be presented in the same line item in the statement of income as the fees associated with the hosting element of the arrangement and capitalized implementation costs be presented in the balance sheet in the same line item that a prepayment for the fees of the associated hosting arrangement are presented. The Update did not have a material impact on our consolidated financial statements.

ASU 2018-13 clarifies, eliminates and adds certain fair value measurement disclosure requirements for assets and liabilities, which affects our disclosures in Note 16 (Fair Values of Assets and Liabilities). Although the ASU became effective on January 1, 2020, it permitted early adoption of individual requirements without causing others to be early adopted and, as such, we partially adopted the Update during third quarter 2018 and the remainder of the requirements in first quarter 2020. The Update did not have a material impact on our consolidated financial statements.

ASU 2017-04 simplifies the goodwill impairment test by eliminating the requirement to assign the fair value of a reporting unit to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination. The Update requires that a goodwill impairment loss is recognized if the fair value of the reporting unit is less than the carrying amount, including goodwill. The goodwill impairment loss is limited to the amount of goodwill allocated to the reporting unit. The guidance did not change the qualitative assessment of goodwill. This guidance is applied on a prospective basis, and accordingly, the Update did not have a material impact on our consolidated financial statements.

ASU 2016-13 changes the accounting for the measurement of credit losses on loans and debt securities. For loans and held-to-maturity (HTM) debt securities, the Update requires a current expected credit loss (CECL) measurement to estimate the allowance for credit losses (ACL) for the remaining contractual term, adjusted for prepayments, of the financial asset (including off-balance sheet credit exposures) using historical experience, current conditions, and reasonable and supportable forecasts.

Also, the Update eliminates the existing guidance for purchased credit-impaired (PCI) loans, but requires an allowance for purchased financial assets with more than an insignificant deterioration of credit since origination. In addition, the Update modifies the other-than-temporary impairment (OTTI) model for available-for-sale (AFS) debt securities to require an allowance for credit impairment instead of a direct write-down, which allows for reversal of credit impairments in future periods based on improvements in credit. Upon adoption, we recognized an overall decrease in our ACL of approximately $1.3 billion (pre-tax) as a cumulative effect adjustment from a change in accounting policies, which increased our retained earnings and regulatory capital amounts and ratios. Loans previously classified as PCI were automatically transitioned to purchased credit-deteriorated (PCD) classification. We recognized an ACL for these new PCD loans and made a corresponding adjustment to the loan balance, with no impact to net income or transition adjustment to retained earnings. For more information on the impact of CECL by type of financial asset, see Table 1.1 below.

Table 1.1: ASU 2016-13 Adoption Impact to Allowance for Credit Losses (1)



				Dec 31, 2019		ASU 2016-13 Adoption Impact				Jan 1, 2020
(in billions)	Balance Outstanding		ACL Balance	Coverage		ASU 2016-13 Adoption Impact			ACL Balance	Coverage
Total commercial (2)	$	515.7	6.2	1.2	%	$	(2.9	)	3.4	0.7	%

Real estate 1-4 family mortgage (3)	323.4		0.9	0.3		—			0.9	0.3
Credit card (4)	41.0		2.3	5.5		0.7			2.9	7.1
Automobile (4)	47.9		0.5	1.0		0.3			0.7	1.5
Other revolving credit and installment (4)	34.3		0.6	1.6		0.6			1.2	3.5
Total consumer	446.5		4.2	0.9		1.5			5.7	1.3
Total loans	962.3		10.5	1.1		(1.3		)	9.1	0.9
Available-for-sale and held-to-maturity debt securities and other assets (5)	420.0		0.1	NM		—			0.1	NM
Total	$	1,382.3	10.6	NM		$	(1.3	)	9.3	NM

NM – Not meaningful


(1)	Amounts presented in this table may not equal the sum of its components due to rounding.


(2)	Decrease reflecting shorter contractual maturities given limitation to contractual terms.


(3)	Impact reflects an increase due to longer contractual terms, offset by expectation of recoveries in collateral value on mortgage loans previously written down significantly below current recovery value.


(4)	Increase due to longer contractual terms or indeterminate maturities.


(5)	Excludes other financial assets in the scope of CECL that do not have an allowance for credit losses based on the nature of the asset.

The adoption of ASU 2016-13 did not result in a change to accounting policies, except as noted herein. Our accounting policy for the ACL was updated and is now inclusive of loans, debt securities and other financing receivables. Other than the ACL and the elimination of PCI loans, there were no changes to accounting policies for loans as described in the 2019 Form 10-K. For debt securities, other than the policies with respect to the ACL, all of the current accounting policies, including those that changed as a result of CECL adoption, are included below under Debt Securities.

Debt Securities

Our investments in debt securities that are not held for trading purposes are classified as either debt securities available-for-sale (AFS) or held-to-maturity (HTM).

Investments in debt securities for which the Company does not have the positive intent and ability to hold to maturity are classified as AFS. AFS debt securities are measured at fair value, with unrealized gains and losses reported in cumulative other comprehensive income (OCI), net of the allowance for credit

losses and applicable income taxes. Investments in debt securities for which the Company has the positive intent and ability to hold to maturity are classified as HTM. HTM debt securities are measured at amortized cost, net of allowance for credit losses.

INTEREST INCOME AND GAIN/LOSS RECOGNITION Unamortized premiums and discounts are recognized in interest income over the contractual life of the security using the effective interest method, except for purchased callable debt securities carried at a premium. For purchased callable debt securities carried at a premium, the premium is amortized into interest income to the earliest call date using the effective interest method. As principal repayments are received on securities (e.g., mortgage-backed securities (MBS)), a proportionate amount of the related premium or discount is recognized in income so that the effective interest rate on the remaining portion of the security continues unchanged.

We recognize realized gains and losses on the sale of debt securities in net gains (losses) on debt securities within noninterest income using the specific identification method.

Note 1: Summary of Significant Accounting Policies (continued)

IMPAIRMENT AND CREDIT LOSSES Unrealized losses of AFS debt securities are driven by a number of factors, including changes in interest rates and credit spreads which impact most types of debt securities with additional considerations for certain types of debt securities:


•	Debt securities of U.S. Treasury and federal agencies, including federal agency MBS, are not impacted by credit movements given the explicit or implicit guarantees provided by the U.S. government.


•	Debt securities of U.S. states and political subdivisions are most impacted by changes in the relationship between municipal and term funding credit curves rather than by changes in the credit quality of the underlying securities.


•	Structured securities, such as MBS and collateralized loan obligations (CLO), are also impacted by changes in projected collateral losses of assets underlying the security.

For debt securities where fair value is less than amortized cost basis, we recognize impairment in earnings if we have the intent to sell the security or if it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. Impairment is recognized equal to the entire difference between the amortized cost basis and the fair value of the security and is classified as net gains (losses) from debt securities within noninterest income. Following the recognition of impairment, the security’s new amortized cost basis is the previous basis less impairment.

For debt securities where fair value is less than amortized cost basis where we did not recognize impairment in earnings, we set up an allowance for credit losses as of the balance sheet date. See “Allowance for Credit Losses” section in this Note.

TRANSFERS BETWEEN CATEGORIES OF DEBT SECURITIES AFS debt securities transferred to the HTM classification are recorded at fair value and the unrealized gains or losses resulting from the transfer of these securities continue to be reported in cumulative OCI. The cumulative OCI balance is amortized into earnings over the same period as the unamortized premiums and discounts using the effective interest method. Any allowance for credit losses previously recorded under the AFS model on securities transferred to HTM is reversed and an allowance for credit losses is subsequently recorded under the HTM debt security model.

NONACCRUAL AND PAST DUE, AND CHARGE-OFF POLICIES We generally place debt securities on nonaccrual status using factors similar to those described for loans. When we place a debt security on nonaccrual status, we reverse the accrued unpaid interest receivable against interest income and suspend the

amortization of premiums and accretion of discounts. If the ultimate collectability of the principal is in doubt on a nonaccrual debt security, any cash collected is first applied to reduce the security’s amortized cost basis to zero, followed by recovery of amounts previously charged off, and subsequently to interest income. Generally, we return a debt security to accrual status when all delinquent interest and principal become current under the contractual terms of the security and collectability of remaining principal and interest is no longer doubtful.

Our debt securities are considered past due when contractually required principal or interest payments have not been made on the due dates.

Our charge-off policy for debt securities are similar to those described for loans. Subsequent to charge-off, the debt security will be designated as nonaccrual and follow the process described above for any cash received.

Allowance for Credit Losses

The ACL is management’s estimate of the current expected credit losses in the loan portfolio and unfunded credit commitments, at the balance sheet date, excluding loans and unfunded credit commitments carried at fair value or held for sale. Additionally, we maintain an ACL on AFS and HTM debt securities, other financing receivables measured at amortized cost, and other off-balance sheet credit exposures. While we attribute portions of the allowance to specific financial asset classes (loan and debt security portfolios), loan portfolio segments (commercial and consumer) or major security type, the entire ACL is available to absorb credit losses of the Company.

Our ACL process involves procedures to appropriately consider the unique risk characteristics of our financial asset classes, portfolio segments, and major security types. For each loan portfolio segment and each major HTM debt security type, losses are estimated collectively for groups of loans or securities with similar risk characteristics. For loans and securities that do not share similar risk characteristics with other financial assets, the losses are estimated individually, which primarily includes our impaired large commercial loans and non-accruing HTM debt securities. For AFS debt securities, losses are estimated at the tax-lot level.

Our ACL amounts are influenced by a variety of factors, including changes in loan and debt security volumes, portfolio credit quality, and general economic conditions. General economic conditions are forecasted using economic variables which will create volatility as those variables change over time. See Table 1.2 for key economic variables used for our loan portfolios.

Table 1.2: Key Economic Variables



Loan Portfolio		Key economic variables
Total commercial		• Gross domestic product • Commercial real estate asset prices, where applicable • Unemployment rate • Corporate investment-grade bond spreads
Real estate 1-4 family mortgage		• Home price index • Unemployment rate
Other consumer (including credit card, automobile, and other revolving credit and installment)		• Unemployment rate

Our approach for estimating expected life-time credit losses for loans and debt securities includes the following key components:


•	An initial loss forecast period of one year for all portfolio segments and classes of financing receivables and off-

balance-sheet credit exposures. This period reflects management’s expectation of losses based on forward-looking economic scenarios over that time.


•	A historical loss forecast period covering the remaining contractual term, adjusted for expected prepayments and

certain expected extensions, renewals, or modifications, by portfolio segment and class of financing receivables based on the changes in key historical economic variables during representative historical expansionary and recessionary periods.


•	A reversion period of up to 2 years connecting the initial loss forecast to the historical loss forecast based on economic conditions at the measurement date.


•	Utilization of discounted cash flow (DCF) methods to measure credit impairment for loans modified in a troubled debt restructuring, unless they are collateral dependent and measured at the fair value of the collateral. The DCF methods obtain estimated life-time credit losses using the initial and historical mean loss forecast periods described above.


•	For AFS debt securities and certain beneficial interests classified as HTM, we utilize the DCF methods to measure the ACL, which incorporate expected credit losses using the conceptual components described above. The ACL on AFS debt securities is subject to a limitation based on the fair value of the debt securities (fair value floor).

The ACL for financial assets held at amortized cost and AFS debt securities will be reversible with immediate recognition of recovery in earnings if credit improves. The ACL for financial assets held at amortized cost is a valuation account that is deducted from, or added to, the amortized cost basis of the financial assets to present the net amount expected to be collected, which can include a negative allowance limited to the cumulative amounts previously charged off. For financial assets with an ACL estimated using DCF methods, changes in the ACL due to the passage of time are recorded in interest income. The ACL for AFS debt securities reflects the amount of unrealized loss related to expected credit losses, limited by the amount that fair value is less than the amortized cost basis, and cannot have an associated negative allowance.

For certain financial assets, such as residential real estate loans guaranteed by the Government National Mortgage Association (GNMA), an agency of the federal government, U. S. Treasury and Agency mortgage backed debt securities, as well as certain sovereign debt securities, the Company has not recognized an ACL as our expectation of nonpayment of the amortized cost basis, based on historical losses, adjusted for current conditions and reasonable and supportable forecasts, is zero.

A financial asset is collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. When a collateral-dependent financial asset is probable of foreclosure, we will measure the ACL based on the fair value of the collateral. If we intend to sell the underlying collateral, we will measure the ACL based on the collateral’s net realizable value (fair value of collateral, less estimated costs to sell). In most situations, based on our charge-off policies, we will immediately write-down the financial asset to the fair value of the collateral or net realizable value. For consumer loans, collateral-dependent financial assets may have collateral in the form of residential real estate, automobiles or other personal assets. For commercial loans, collateral-dependent financial assets may have collateral in the form of commercial real estate or other business assets.

In general, we do not record an ACL for accrued interest receivables, which are included in other assets. Uncollectible accrued interest is reversed through interest income in a timely manner in line with our non-accrual and past due policies for loans and debt securities. For consumer credit card and certain consumer lines of credit, we include an ACL for accrued interest

and fees since these loans are not placed on nonaccrual status and written off until the loan is 180 days past due.

COMMERCIAL LOAN PORTFOLIO SEGMENT ACL METHODOLOGY Generally, commercial loans, which include net investments in lease financing, are assessed for estimated losses by grading each loan using various risk factors as identified through periodic reviews. Our estimation approach for the commercial portfolio reflects the estimated probability of default in accordance with the borrower’s financial strength and the severity of loss in the event of default, considering the quality of any underlying collateral. Probability of default and severity at the time of default are statistically derived through historical observations of default and losses after default within each credit risk rating. These estimates are adjusted as appropriate based on additional analysis of long-term average loss experience compared with previously forecasted losses, external loss data or other risks identified from current economic conditions and credit quality trends. The estimated probability of default and severity at the time of default are applied to loan equivalent exposures to estimate losses for unfunded credit commitments.

CONSUMER LOAN PORTFOLIO SEGMENT ACL METHODOLOGY For consumer loans, we determine the allowance at the individual loan level. When developing historical loss experience, we pool loans, generally by product types with similar risk characteristics, such as residential real estate mortgages and credit cards. As appropriate and to achieve greater accuracy, we may further stratify selected portfolios by sub-product, origination channel, vintage, loss type, geographic location and other predictive characteristics. We use pooled loan data such as historic delinquency and default and loss severity in the development of our consumer loan models, in addition to home price trends, unemployment trends, and other economic variables that may influence the frequency and severity of losses in the consumer portfolio.

AFS PORTFOLIO ACL METHODOLOGY We develop our ACL estimate for AFS debt securities by utilizing a security-level multi-scenario, probability-weighted discounted cash flow model based on a combination of past events, current conditions, as well as reasonable and supportable forecasts. The projected cash flows are discounted at the security’s effective interest rate, except for certain variable rate securities which are discounted using projections of future changes in interest rates, prepayable securities which are adjusted for estimated prepayments, and securities part of a fair value hedge which use hedge-adjusted assumptions. The ACL on an AFS debt security is limited to the difference between its amortized cost basis and fair value (fair value floor) and reversals of the allowance are permitted up to the amount previously recorded.

HTM PORTFOLIO ACL METHODOLOGY For most HTM debt securities, the ACL is measured using an expected loss model, similar to the methodology used for loans. Unlike AFS debt securities, the ACL on an HTM debt security is not limited to the fair value floor.

Certain beneficial interests categorized as HTM debt securities utilize a similar discounted cash flow model as described for AFS debt securities, without the limitation of the fair value floor.

OTHER QUALITATIVE FACTORS The ACL includes amounts for qualitative factors which may not be adequately reflected in our loss models. These amounts represent management’s judgment

Note 1: Summary of Significant Accounting Policies (continued)

of risks in the processes and assumptions used in establishing the ACL. Generally, these amounts are established at a granular level below our loan portfolio segments. We also consider economic environmental factors, modeling assumptions and performance, process risk, and other subjective factors, including industry trends and emerging risk assessments.

OFF-BALANCE SHEET CREDIT EXPOSURES Our off-balance sheet credit exposures include unfunded loan commitments (generally in the form of revolving lines of credit), financial guarantees not accounted for as insurance contracts or derivatives, including standby letters of credit, and other similar instruments. For off-balance sheet credit exposures, we recognize an ACL associated with the unfunded amounts. We do not recognize an ACL for commitments that are unconditionally cancelable at our discretion. Additionally, we recognize an ACL for financial guarantees that create off-balance sheet credit exposure, such as loans sold with credit recourse and factoring guarantees. ACL for off-balance sheet credit exposures are reported as a liability in accrued expenses and other liabilities on our consolidated balance sheet.

OTHER FINANCIAL ASSETS Other financial assets are evaluated for expected credit losses. These other financial assets include accounts receivable for fees, receivables from government-sponsored entities, such as Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC), and GNMA, and other accounts receivable from high-credit quality counterparties, such as central clearing counterparties. Many of these financial assets are generally not expected to have an ACL as there is a zero loss expectation (for example, government guarantee) or no historical credit losses. Some financial assets, such as loans to employees, maintain an ACL that is presented on a net basis with the related amortized cost amounts in other assets on our consolidated balance sheet. Given the nature of these financial assets, provision for credit losses is not recognized separately from the regular income or expense associated with these financial assets.

Securities purchased under resale agreements are generally over-collateralized by securities or cash and are generally short-term in nature. We have elected the practical expedient for these financial assets given collateral maintenance provisions. These provisions require that we monitor the collateral value and customers are required to replenish collateral, if needed. Accordingly, we generally do not maintain an ACL for these financial assets.

PURCHASED CREDIT DETERIORATED FINANCIAL ASSETS Financial assets acquired that are of poor credit quality and with more than an insignificant evidence of credit deterioration since their origination or issuance are PCD assets. PCD assets are recorded at their purchase price plus an ACL estimated at the time of acquisition. Under this approach, there is no provision for credit losses recognized at acquisition; rather, there is a gross-up of the purchase price of the financial asset for the estimate of expected credit losses and a corresponding ACL recorded. Changes in estimates of expected credit losses after acquisition are recognized as provision for credit losses (or reversal of provision for credit losses) in subsequent periods. In general, interest income recognition for PCD financial assets is consistent with interest income recognition for the similar non-PCD financial asset.

Troubled Debt Restructuring Relief

On March 25, 2020, the U.S. Senate approved the Coronavirus, Aid, Relief, and Economic Security Act (the CARES Act) providing optional, temporary relief from accounting for certain loan modifications as troubled debt restructurings (TDRs). Under the CARES Act, TDR relief is available to banks for loan modifications related to the adverse effects of Coronavirus Disease 2019 (COVID-19) (COVID-related modifications) granted to borrowers that are current as of December 31, 2019. TDR relief applies to COVID-related modifications made from March 1, 2020, until the earlier of December 31, 2020, or 60 days following the termination of the national emergency declared by the President of the United States. In first quarter 2020, we elected to apply the TDR relief provided by the CARES Act.

On April 7, 2020, federal banking regulators issued the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised) (the Interagency Statement). The guidance in the Interagency Statement provides additional TDR relief as it clarifies that it is not necessary to consider the impact of the COVID-19 pandemic on the financial condition of a borrower in connection with a short-term (e.g., six months) COVID-related modification provided the borrower is current at the date the modification program is implemented.

For COVID-related modifications in the form of payment deferrals, delinquency status will not advance and loans that were accruing at the time the relief is provided will generally not be placed on nonaccrual status during the deferral period. COVID-related modifications that do not meet the provisions of the CARES Act or the Interagency Statement will be assessed for TDR classification.

Share Repurchases

During the first quarter of 2020 and 2019, we repurchased shares of our common stock under Rule 10b5-1 repurchase plans. On March 15, 2020, we, along with the other members of the Financial Services Forum, suspended our share repurchase activities for the remainder of the first quarter and for second quarter 2020. For more information about share repurchases, see Note 1 (Summary of Significant Accounting Policies) in our 2019 Form 10-K.

Supplemental Cash Flow Information

Significant noncash activities are presented in Table 1.3.

Table 1.3: Supplemental Cash Flow Information



	Quarter ended March 31,
(in millions)	2020		2019
Trading debt securities retained from securitization of mortgage loans held for sale (MLHFS)	$	7,538	8,875
Transfers from loans to MLHFS	858		1,292
Transfers from available-for-sale debt securities to held-to-maturity debt securities	—		2,407
Operating lease ROU assets acquired with operating lease liabilities (1)	197		5,127


(1)	Includes amounts attributable to new leases and changes from modified leases. First quarter 2019 also includes $4.9 billion from adoption of ASU 2016-02 – Leases (Topic 842).

Subsequent Events

We have evaluated the effects of events that have occurred subsequent to March 31, 2020, and there have been no material

events that would require recognition in our first quarter 2020 consolidated financial statements or disclosure in the Notes to the consolidated financial statements.

Note 2: Business Combinations

There were no acquisitions during first quarter 2020. As of March 31, 2020, we had no pending acquisitions.

Note 3: Cash, Loan and Dividend Restrictions

Cash and cash equivalents may be restricted as to usage or withdrawal. Federal Reserve Board (FRB) regulations require that each of our subsidiary banks maintain reserve balances on deposit with the Federal Reserve Banks. Table 3.1 provides a summary of restrictions on cash equivalents in addition to the FRB reserve cash balance requirements.

Table 3.1: Nature of Restrictions on Cash Equivalents



(in millions)	Mar 31, 2020		Dec 31, 2019
Average required reserve balance for FRB (1)	$	11,932	11,374
Reserve balance for non-U.S. central banks	1,133		460
Segregated for benefit of brokerage customers under federal and other brokerage regulations	970		733
Related to consolidated variable interest entities (VIEs) that can only be used to settle liabilities of VIEs	19		300


(1)	Represents average for first quarter 2020 and for the year ended December 31, 2019.

We have a state-chartered subsidiary bank that is subject to state regulations that limit dividends. Under these provisions and regulatory limitations, our national and state-chartered subsidiary banks could have declared additional dividends of $1.9 billion at March 31, 2020, without obtaining prior regulatory approval. We have elected to retain higher capital at our national and state-chartered subsidiary banks in order to meet internal capital policy minimums and regulatory requirements. Our nonbank subsidiaries are also limited by certain federal and state statutory provisions and regulations covering the amount of dividends that may be paid in any given year. In addition, under a Support Agreement dated June 28, 2017, as amended and restated on June 26, 2019, among Wells Fargo & Company, the parent holding company (the “Parent”), WFC Holdings, LLC, an intermediate holding company and subsidiary of the Parent (the “IHC”), Wells Fargo Bank, N.A., Wells Fargo Securities, LLC, Wells Fargo Clearing Services, LLC, and certain other direct and indirect subsidiaries of the Parent designated as material entities for resolution planning purposes or identified as related support entities in our resolution plan, the IHC may be restricted from making dividend payments to the Parent if certain liquidity and/or capital metrics fall below defined triggers or if the Parent’s board of directors authorizes it to file a case under the U.S. Bankruptcy Code. Based on retained earnings at March 31, 2020, our nonbank subsidiaries could have declared additional dividends of $24.8 billion at March 31, 2020, without obtaining prior regulatory approval. For additional information see Note 3 (Cash, Loan and Dividend Restrictions) in our 2019 Form 10-K.

The FRB’s Capital Plan Rule (codified at 12 CFR 225.8 of Regulation Y) establishes capital planning and prior notice and approval requirements for capital distributions including dividends by certain large bank holding companies. The FRB has also published guidance regarding its supervisory expectations for capital planning, including capital policies regarding the process relating to common stock dividend and repurchase decisions in the FRB’s SR Letter 15-18. The effect of this guidance is to require the approval of the FRB (or specifically under the Capital Plan Rule, a notice of non-objection) for the repurchase or redemption of common or perpetual preferred stock as well as to raise the per share quarterly dividend from its current level of $0.51 per share as declared by the Company’s Board of Directors on April 28, 2020, payable on June 1, 2020.

Note 4: Trading Activities

Table 4.1 presents a summary of our trading assets and liabilities measured at fair value through earnings.

Table 4.1: Trading Assets and Liabilities



	Mar 31,			Dec 31,
(in millions)	2020			2019
Trading assets:
Debt securities	$	80,425		79,733
Equity securities	13,573			27,440
Loans held for sale	1,673			972
Gross trading derivative assets	72,527			34,825
Netting (1)	(49,821		)	(21,463	)
Total trading derivative assets	22,706			13,362
Total trading assets	118,377			121,507
Trading liabilities:
Short sale	17,603			17,430
Gross trading derivative liabilities	67,891			33,861
Netting (1)	(53,598		)	(26,074	)
Total trading derivative liabilities	14,293			7,787
Total trading liabilities	$	31,896		25,217


(1)	Represents balance sheet netting for trading derivative asset and liability balances, and trading portfolio level counterparty valuation adjustments.

Table 4.2 provides a summary of the net interest income earned from trading securities, and net gains and losses due to the realized and unrealized gains and losses from trading activities.

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

Table 4.2: Net Interest Income and Net Gains (Losses) on Trading Activities



	Quarter ended March 31,
(in millions)	2020			2019
Interest income:
Debt securities	$	766		793
Equity securities	137			115
Loans held for sale	12			23
Total interest income	915			931
Less: Interest expense	141			136
Net interest income	774			795
Net gains (losses) from trading activities (1):
Debt securities	2,355			688
Equity securities	(4,401		)	2,067
Loans held for sale	(12		)	14
Derivatives (2)	2,122			(2,412	)
Total net gains from trading activities	64			357
Total trading-related net interest and noninterest income	$	838		1,152


(1)	Represents realized gains (losses) from our trading activities and unrealized gains (losses) due to changes in fair value of our trading positions.


(2)	Excludes economic hedging of mortgage banking and asset/liability management activities, for which hedge results (realized and unrealized) are reported with the respective hedged activities.

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

Table 5.1 provides the amortized cost, net of the allowance for credit losses, and fair value by major categories of available-for-sale debt securities, which are carried at fair value, and held-to-maturity debt securities, which are carried at amortized cost, net of allowance for credit losses. The net unrealized gains (losses) for available-for-sale debt securities are reported as a component of cumulative OCI, net of the allowance for credit losses and applicable income taxes. Information on debt securities held for trading is included in Note 4 (Trading Activities).

Outstanding balances exclude accrued interest receivable on available-for-sale and held-to-maturity debt securities which are included in other assets. During the quarter ended March 31, 2020, we reversed accrued interest receivable on our available-for-sale and held-to-maturity debt securities by reversing interest income of $6 million. See Note 9 (Other Assets) for additional information on accrued interest receivable.

Table 5.1: Available-for-Sale and Held-to-Maturity Debt Securities Outstanding



(in millions)	Amortized cost, net (1)		Gross unrealized gains	Gross unrealized losses		Fair value
March 31, 2020
Available-for-sale debt securities:
Securities of U.S. Treasury and federal agencies	$	10,952	88	(4	)	11,036
Securities of U.S. states and political subdivisions (2)	38,686		206	(748	)	38,144
Mortgage-backed securities:
Federal agencies	154,390		5,839	(15	)	160,214
Residential	820		—	(44	)	776
Commercial	3,897		10	(253	)	3,654
Total mortgage-backed securities	159,107		5,849	(312	)	164,644
Corporate debt securities	6,092		38	(275	)	5,855
Collateralized loan and other debt obligations	26,873		63	(1,768	)	25,168
Other (3)	6,477		19	(114	)	6,382
Total available-for-sale debt securities	248,187		6,263	(3,221	)	251,229
Held-to-maturity debt securities:
Securities of U.S. Treasury and federal agencies	48,569		2,146	(24	)	50,691
Securities of U.S. states and political subdivisions	14,304		344	(37	)	14,611
Federal agency and other mortgage-backed securities (4)	107,013		5,268	(43	)	112,238
Other debt securities	23		—	(1	)	22
Total held-to-maturity debt securities	169,909		7,758	(105	)	177,562
Total (5)	$	418,096	14,021	(3,326	)	428,791
December 31, 2019
Available-for-sale debt securities:
Securities of U.S. Treasury and federal agencies	$	14,948	13	(1	)	14,960
Securities of U.S. states and political subdivisions (2)	39,381		992	(36	)	40,337
Mortgage-backed securities:
Federal agencies	160,318		2,299	(164	)	162,453
Residential	814		14	(1	)	827
Commercial	3,899		41	(6	)	3,934
Total mortgage-backed securities	165,031		2,354	(171	)	167,214
Corporate debt securities	6,343		252	(32	)	6,563
Collateralized loan and other debt obligations	29,693		125	(123	)	29,695
Other (3)	4,664		50	(24	)	4,690
Total available-for-sale debt securities	260,060		3,786	(387	)	263,459
Held-to-maturity debt securities:
Securities of U.S. Treasury and federal agencies	45,541		617	(19	)	46,139
Securities of U.S. states and political subdivisions	13,486		286	(13	)	13,759
Federal agency and other mortgage-backed securities (4)	94,869		2,093	(37	)	96,925
Other debt securities	37		—	—		37
Total held-to-maturity debt securities	153,933		2,996	(69	)	156,860
Total (5)	$	413,993	6,782	(456	)	420,319

(1)

Represents amortized cost of the securities, net of the allowance for credit losses of $161 million related to available-for-sale debt securities and $11 million related to held-to-maturity debt securities at March 31, 2020. Prior to our adoption of CECL on January 1, 2020, the allowance for credit losses related to available-for-sale and held-to-maturity debt securities was not applicable and is therefore presented as $0 at December 31, 2019. For more information, see Note 1 (Summary of Significant Accounting Policies).


(2)	Includes investments in tax-exempt preferred debt securities issued by investment funds or trusts that predominantly invest in tax-exempt municipal securities. The amortized cost net of allowance for credit losses and fair value of these types of securities was $5.8 billion at both March 31, 2020, and December 31, 2019.


(3)	Primarily includes asset-backed securities collateralized by student loans.


(4)	Predominantly consists of federal agency mortgage-backed securities at both March 31, 2020 and December 31, 2019.

(5)

We held available-for-sale and held-to-maturity debt securities from Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC) that each exceeded 10% of stockholders’ equity, with an amortized cost of $102.4 billion and $88.4 billion and a fair value of $107.0 billion and $92.2 billion at March 31, 2020 and an amortized cost of $98.5 billion and $84.1 billion and a fair value of $100.3 billion and $85.5 billion at December 31, 2019, respectively.

Table 5.2 details the breakout of purchases of and transfers to held-to-maturity debt securities by major category of security.

Table 5.2: Held-to-Maturity Debt Securities Purchases and Transfers



	Quarter ended March 31,
(in millions)	2020		2019
Purchases of held-to-maturity debt securities:
Securities of U.S. Treasury and federal agencies	$	3,016	—
Securities of U.S. states and political subdivisions	866		—
Federal agency and other mortgage-backed securities	15,925		16
Total purchases of held-to-maturity debt securities	19,807		16
Transfers from available-for-sale debt securities to held-to-maturity debt securities:
Federal agency and other mortgage-backed securities	—		2,407
Total transfers from available-for-sale debt securities to held-to-maturity debt securities	$	—	2,407

Table 5.3 shows the composition of interest income, provision for credit losses, and gross realized gains and losses

from sales and impairment write-downs included in earnings related to available-for-sale and held-to-maturity debt securities (pre-tax).

Table 5.3: Income Statement Impacts for Available-for-Sale and Held-to-Maturity Debt Securities



	Quarter ended March 31,
(in millions)	2020			2019
Interest income:
Available-for-sale	$	1,726		2,201
Held-to-maturity	980			947
Total interest income (1)	2,706			3,148
Provision for credit losses (2):
Available-for-sale	168			—
Held-to-maturity	4			—
Total provision for credit losses	172			—
Realized gains and losses (3):
Gross realized gains	256			173
Gross realized losses	(4		)	(3	)
Impairment write-downs included in earnings:
Credit-related (4)	—			(16	)
Intent-to-sell	(15		)	(29	)
Total impairment write-downs included in earnings	(15		)	(45	)
Net realized gains	$	237		125


(1)	Total interest income from debt securities excludes interest income from trading debt securities, which is disclosed in Note 4 (Trading Activities).


(2)	Prior to our adoption of CECL on January 1, 2020, the provision for credit losses from debt securities was not applicable and is therefore presented as $0 for the prior period. For more information, see Note 1 (Summary of Significant Accounting Policies).


(3)	Realized gains and losses relate to available-for-sale debt securities. There were no realized gains or losses from held-to-maturity debt securities in all periods presented.


(4)	For the quarter ended March 31, 2020, credit-related impairment recognized in earnings is classified as provision for credit losses due to our adoption of CECL on January 1, 2020. For more information, see Note 1 (Summary of Significant Accounting Policies).

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

Credit Quality

We monitor credit quality of debt securities by evaluating various attributes and utilize such information in our evaluation of the appropriateness of the allowance for credit losses. The credit quality indicators that we most closely monitor include credit ratings and delinquency status and are based on information as of our financial statement date.

CREDIT RATINGS Credit ratings express opinions about the credit quality of a debt security. We determine the credit rating of a security according to the lowest credit rating made available by national recognized statistical rating organizations (NRSRO). Debt securities rated investment grade, that is those with ratings similar to BBB-/Baa3 or above, as defined by NRSRO, are generally considered by the rating agencies and market participants to be low credit risk. Conversely, debt securities rated

below investment grade, labeled as “speculative grade” by the rating agencies, are considered to be distinctively higher credit risk than investment grade debt securities.

For debt securities not rated by the NRSRO, we determine an internal credit grade of the debt securities (used for credit risk management purposes) equivalent to the credit ratings assigned by major credit agencies. The fair value of available-for-sale debt securities categorized as investment grade based on internal credit grades was $1.2 billion at March 31, 2020, and $2.2 billion at December 31, 2019. Held-to-maturity debt securities categorized as investment grade based on internal credit grades are not significant. If an internal credit grade was not assigned, we categorized the debt security as non-investment grade.

Table 5.4 shows the percentage of fair value of available-for-sale debt securities and amortized cost of held-to-maturity debt securities determined by those rated investment grade, inclusive of those based on internal credit grades.

Table 5.4: Investment Grade Debt Securities



	Available-for-Sale				Held-to-Maturity
($ in millions)	Fair value		% investment grade		Amortized cost	% investment grade
March 31, 2020
Total portfolio	$	251,229	99	%	169,920	99	%

Breakdown by category:
Securities of U.S. Treasury and federal agencies (1)	$	171,250	100	%	154,734	100	%
Securities of U.S. states and political subdivisions	38,144		99		14,313	100
Collateralized loan obligations	24,582		100		N/A	N/A
All other debt securities (2)	17,253		82		873	7
December 31, 2019
Total portfolio	$	263,459	99	%	153,933	99	%

Breakdown by category:
Securities of U.S. Treasury and federal agencies (1)	$	177,413	100	%	139,619	100	%
Securities of U.S. states and political subdivisions	40,337		99		13,486	100
Collateralized loan obligations	29,055		100		N/A	N/A
All other debt securities (2)	16,654		82		828	4


(1)	Includes federal agency mortgage-backed securities.


(2)	Includes non-agency mortgage-backed, corporate, and all other debt securities.

DELINQUENCY STATUS AND NONACCRUAL DEBT SECURITIES Debt security issuers that are delinquent in payment of amounts due under contractual debt agreements have a higher probability of recognition of credit losses. As such, as part of our monitoring of the credit quality of the debt security portfolio, we consider whether debt securities we own are past due in payment of principal or interest payments and whether any securities have been placed into nonaccrual status.

We had no debt securities that were past due and still accruing at March 31, 2020 or December 31, 2019. The fair value of available-for-sale debt securities in nonaccrual status was $327 million and $110 million as of March 31, 2020 and

December 31, 2019, respectively. There were no held-to-maturity debt securities in nonaccrual status as of March 31, 2020 or December 31, 2019. Purchased debt securities with credit deterioration (PCD) are not considered to be in nonaccrual status, as payments from issuers of these securities remain current.

Table 5.5 presents detail of available-for-sale debt securities purchased with credit deterioration during the period. There were no held-to-maturity debt securities purchased with credit deterioration during the quarter ended March 31, 2020. The amounts presented are as of the date of the PCD assets were purchased.

Table 5.5: Debt Securities Purchased with Credit Deterioration



(in millions)	Quarter ended March 31, 2020
Available-for-sale debt securities purchased with credit deterioration (PCD):
Par value	$	164
Allowance for credit losses at acquisition	(11		)
Discount (or premiums) attributable to other factors	3
Purchase price of available-for-sale debt securities purchased with credit deterioration	$	156

Unrealized Losses of Available-for-Sale Debt Securities

Table 5.6 shows the gross unrealized losses and fair value of available-for-sale debt securities by length of time those individual securities in each category have been in a continuous loss position. Debt securities on which we have recorded credit impairment are categorized as being “less than 12 months” or

“12 months or more” in a continuous loss position based on the point in time that the fair value declined to below the (1) for the current period presented, amortized cost basis net of allowance for credit losses, or the (2) for the prior period presented, amortized cost basis.

Table 5.6: Gross Unrealized Losses and Fair Value – Available-for-Sale Debt Securities



	Less than 12 months				12 months or more			Total
(in millions)	Gross unrealized losses			Fair value	Gross unrealized losses		Fair value	Gross unrealized losses		Fair value
March 31, 2020
Available-for-sale debt securities:
Securities of U.S. Treasury and federal agencies	$	(4	)	615	—		—	(4	)	615
Securities of U.S. states and political subdivisions	(678		)	22,740	(70	)	1,490	(748	)	24,230
Mortgage-backed securities:
Federal agencies	(3		)	594	(12	)	737	(15	)	1,331
Residential	(44		)	591	—		—	(44	)	591
Commercial	(228		)	3,275	(25	)	243	(253	)	3,518
Total mortgage-backed securities	(275		)	4,460	(37	)	980	(312	)	5,440
Corporate debt securities	(263		)	3,337	(12	)	129	(275	)	3,466
Collateralized loan and other debt obligations	(1,226		)	18,303	(542	)	6,442	(1,768	)	24,745
Other	(91		)	4,085	(23	)	618	(114	)	4,703
Total available-for-sale debt securities	$	(2,537	)	53,540	(684	)	9,659	(3,221	)	63,199
December 31, 2019
Available-for-sale debt securities:
Securities of U.S. Treasury and federal agencies	$	—		—	(1	)	2,423	(1	)	2,423
Securities of U.S. states and political subdivisions	(10		)	2,776	(26	)	2,418	(36	)	5,194
Mortgage-backed securities:
Federal agencies	(50		)	16,807	(114	)	10,641	(164	)	27,448
Residential	(1		)	149	—		—	(1	)	149
Commercial	(3		)	998	(3	)	244	(6	)	1,242
Total mortgage-backed securities	(54		)	17,954	(117	)	10,885	(171	)	28,839
Corporate debt securities	(9		)	303	(23	)	216	(32	)	519
Collateralized loan and other debt obligations	(13		)	5,070	(110	)	16,789	(123	)	21,859
Other	(12		)	1,587	(12	)	492	(24	)	2,079
Total available-for-sale debt securities	$	(98	)	27,690	(289	)	33,223	(387	)	60,913

We have assessed each debt security with gross unrealized losses included in the previous table for credit impairment. As part of that assessment we evaluated and concluded that we do not intend to sell any of the debt securities, and that it is more likely than not that we will not be required to sell, prior to recovery of the amortized cost basis. We evaluate, where necessary, whether credit impairment exists by comparing the present value of the expected cash flows to the debt securities’ amortized cost basis. In prior periods, credit impairment was recorded as a write-down to the amortized cost basis of the security. In the current period, credit impairment is recorded as an allowance for credit losses.

For descriptions of the factors we consider when analyzing debt securities for impairment as well as methodology and significant inputs used to measure credit losses, see Note 1 (Summary of Significant Accounting Policies).

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

Allowance for Credit Losses for Debt Securities

Table 5.7 presents the allowance for credit losses on available-for-sale and held-to-maturity debt securities.

Table 5.7: Allowance for Credit Losses for Debt Securities



	Quarter ended March 31, 2020
(in millions)	Available-for-Sale			Held-to-Maturity
Balance, beginning of period (1)	$	—		—
Cumulative effect from change in accounting policies (2)	24			7
Balance, beginning of period, adjusted	24			7
Provision for credit losses	168			4
Securities purchased with credit deterioration	11			—
Reduction due to intent to sell	(11		)	—
Charge-offs	(32		)	—
Interest income (3)	1			—
Balance, end of period (4)	$	161		11


(1)	Prior to our adoption of CECL on January 1, 2020, the allowance for credit losses related to available-for-sale and held-to-maturity debt securities was not applicable and is therefore presented as $0 at December 31, 2019. For more information, see Note 1 (Summary of Significant Accounting Policies).


(2)	Represents the impact of adoption of CECL on January 1, 2020. For more information, see Note 1 (Summary of Significant Accounting Policies).


(3)	Certain debt securities with an allowance for credit losses calculated by discounting expected cash flows using the securities’ effective interest rate over its remaining life, recognize changes in the allowance for credit losses attributable to the passage of time as interest income.


(4)	Substantially all of allowance for credit losses for debt securities relates to corporate debt securities as of March 31, 2020.

Contractual Maturities

Table 5.8 shows the remaining contractual maturities, amortized cost net of allowance for credit losses, fair value and weighted-average effective yields of available-for-sale debt securities. The remaining contractual principal maturities for MBS do not consider prepayments. Remaining expected maturities will differ

from contractual maturities because borrowers may have the right to prepay obligations before the underlying mortgages mature.

Table 5.8: Contractual Maturities – Available-for-Sale Debt Securities



By remaining contractual maturity ($ in millions)	Total			Within one year		After one year through five years	After five years through ten years	After ten years
March 31, 2020
Available-for-sale debt securities (1):
Securities of U.S. Treasury and federal agencies
Amortized cost, net	$	10,952		8,023		28	45	2,856
Fair value	11,036			8,029		29	49	2,929
Weighted average yield	2.10		%	2.32		1.97	1.84	1.49
Securities of U.S. states and political subdivisions
Amortized cost, net	38,686			3,940		4,196	4,034	26,516
Fair value	38,144			3,963		4,244	4,039	25,898
Weighted average yield	3.15			4.58		3.20	2.78	2.98
Mortgage-backed securities:
Federal agencies
Amortized cost, net	154,390			2		123	1,944	152,321
Fair value	160,214			2		128	2,005	158,079
Weighted average yield	3.19			1.93		3.06	2.44	3.20
Residential
Amortized cost, net	820			—		—	—	820
Fair value	776			—		—	—	776
Weighted average yield	3.19			—		—	—	3.19
Commercial
Amortized cost, net	3,897			—		32	194	3,671
Fair value	3,654			—		31	187	3,436
Weighted average yield	2.62			—		2.49	2.71	2.62
Total mortgage-backed securities
Amortized cost, net	159,107			2		155	2,138	156,812
Fair value	164,644			2		159	2,192	162,291
Weighted average yield	3.18			1.93		2.94	2.46	3.19
Corporate debt securities
Amortized cost, net	6,092			373		2,048	2,847	824
Fair value	5,855			355		1,973	2,755	772
Weighted average yield	4.97			4.12		5.18	5.03	4.67
Collateralized loan and other debt obligations
Amortized cost, net	26,873			—		—	12,014	14,859
Fair value	25,168			—		—	11,362	13,806
Weighted average yield	3.21			—		—	3.29	3.15
Other
Amortized cost, net	6,477			2,021		704	1,296	2,456
Fair value	6,382			2,021		685	1,287	2,389
Weighted average yield	1.51			(0.22	)	2.95	1.41	2.57
Total available-for-sale debt securities
Amortized cost, net	$	248,187		14,359		7,131	22,374	204,323
Fair value	251,229			14,370		7,090	21,684	208,085
Weighted average yield	3.13		%	2.63		3.75	3.24	3.14


(1)	Weighted-average yields displayed by maturity bucket are weighted based on amortized cost without effect for any related hedging derivatives and are shown pre-tax.

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

Table 5.9 shows the remaining contractual maturities, amortized cost net of allowance for credit losses, fair value, and

weighted-average effective yields of held-to-maturity debt securities.

Table 5.9: Contractual Maturities – Held-to-Maturity Debt Securities



By remaining contractual maturity ($ in millions)	Total			Within one year	After one year through five years	After five years through ten years	After ten years
March 31, 2020
Held-to-maturity debt securities (1):
Securities of U.S. Treasury and federal agencies
Amortized cost, net	$	48,569		8,336	36,454	—	3,779
Fair value	50,691			8,494	38,170	—	4,027
Weighted average yield	2.14		%	2.24	2.18	—	1.56
Securities of U.S. states and political subdivisions
Amortized cost, net	14,304			11	713	1,724	11,856
Fair value	14,611			11	731	1,794	12,075
Weighted average yield	2.71			1.95	2.22	2.86	2.72
Federal agency and other mortgage-backed securities
Amortized cost, net	107,013			—	15	104	106,894
Fair value	112,238			—	13	111	112,114
Weighted average yield	2.96			—	2.99	1.37	2.96
Other debt securities
Amortized cost, net	23			—	—	23	—
Fair value	22			—	—	22	—
Weighted average yield	3.01			—	—	3.01	—
Total held-to-maturity debt securities
Amortized cost, net	$	169,909		8,347	37,182	1,851	122,529
Fair value	177,562			8,505	38,914	1,927	128,216
Weighted average yield	2.70		%	2.24	2.18	2.78	2.89


(1)	Weighted-average yields displayed by maturity bucket are weighted based on amortized cost and are shown pre-tax.

Note 6: Loans and Related Allowance for Credit Losses

Table 6.1 presents total loans outstanding by portfolio segment and class of financing receivable. Outstanding balances include unearned income, net deferred loan fees or costs, and unamortized discounts and premiums. These amounts were less than 1% of our total loans outstanding at March 31, 2020, and December 31, 2019.

Outstanding balances exclude accrued interest receivable on loans which are included in other assets. During the quarter ended

March 31, 2020, we reversed accrued interest receivable by reversing interest income of $9 million for our commercial portfolio segment and $63 million for our consumer portfolio segment. See Note 9 (Other Assets) for additional information on accrued interest receivable.

Table 6.1: Loans Outstanding



(in millions)	Mar 31, 2020		Dec 31, 2019
Commercial:
Commercial and industrial	$	405,020	354,125
Real estate mortgage	122,767		121,824
Real estate construction	20,812		19,939
Lease financing	19,136		19,831
Total commercial	567,735		515,719
Consumer:
Real estate 1-4 family first mortgage	292,920		293,847
Real estate 1-4 family junior lien mortgage	28,527		29,509
Credit card	38,582		41,013
Automobile	48,568		47,873
Other revolving credit and installment	33,511		34,304
Total consumer	442,108		446,546
Total loans	$	1,009,843	962,265

Our non-U.S. loans are reported by respective class of financing receivable in the table above. Substantially all of our non-U.S. loan portfolio is commercial loans. Table 6.2 presents total non-U.S. commercial loans outstanding by class of financing receivable.

Table 6.2: Non-U.S. Commercial Loans Outstanding



(in millions)	Mar 31, 2020		Dec 31, 2019
Non-U.S. Commercial Loans
Commercial and industrial	$	78,753	70,494
Real estate mortgage	6,309		7,004
Real estate construction	1,478		1,434
Lease financing	1,120		1,220
Total non-U.S. commercial loans	$	87,660	80,152

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

Loan Purchases, Sales, and Transfers

Table 6.3 summarizes the proceeds paid or received for purchases and sales of loans and transfers from loans held for investment to mortgages/loans held for sale. The table excludes loans for which we have elected the fair value option and government insured/guaranteed real estate 1-4 family first mortgage loans because

their loan activity normally does not impact the ACL. In first quarter 2020, we sold $709 million of 1-4 family first mortgage loans for a gain of $463 million, which is included in other noninterest income on our consolidated income statement. These whole loans were reclassified to MLHFS in 2019.

Table 6.3: Loan Purchases, Sales, and Transfers



	2020							2019
(in millions)	Commercial			Consumer		Total		Commercial		Consumer		Total
Quarter ended March 31,
Purchases	$	341		1		342		329		3		332
Sales	(813		)	(26	)	(839	)	(421	)	(179	)	(600	)
Transfers (to) from MLHFS/LHFS	77			2		79		(3	)	—		(3	)

Commitments to Lend

A commitment to lend is a legally binding agreement to lend funds to a customer, usually at a stated interest rate, if funded, and for specific purposes and time periods. We generally require a fee to extend such commitments. Certain commitments are subject to loan agreements with covenants regarding the financial performance of the customer or borrowing base formulas on an ongoing basis that must be met before we are required to fund the commitment. We may reduce or cancel consumer commitments, including home equity lines and credit card lines, in accordance with the contracts and applicable law.

We may, as a representative for other lenders, advance funds or provide for the issuance of letters of credit under syndicated loan or letter of credit agreements. Any advances are generally repaid in less than a week and would normally require default of both the customer and another lender to expose us to loss. The unfunded amount of these temporary advance arrangements totaled approximately $72.7 billion at March 31, 2020.

We issue commercial letters of credit to assist customers in purchasing goods or services, typically for international trade. At March 31, 2020, and December 31, 2019, we had $981.3 million and $862 million, respectively, of outstanding issued commercial letters of credit. We also originate multipurpose lending commitments under which borrowers have the option to draw on the facility for different purposes in one of several forms, including a standby letter of credit. See Note 13 (Guarantees, Pledged Assets and Collateral, and Other Commitments) for additional information on standby letters of credit.

When we make commitments, we are exposed to credit risk. The maximum credit risk for these commitments will generally be lower than the contractual amount because a significant portion of these commitments are not funded. We manage the potential risk in commitments to lend by limiting the total amount of commitments, both by individual customer and in total, by monitoring the size and maturity structure of these commitments and by applying the same credit standards for these commitments as for all of our credit activities.

For loans and commitments to lend, we generally require collateral or a guarantee. We may require various types of collateral, including commercial and consumer real estate, automobiles, other short-term liquid assets such as accounts receivable or inventory and long-lived assets, such as equipment and other business assets. Collateral requirements for each loan or commitment may vary based on the loan product and our assessment of a customer’s credit risk according to the specific credit underwriting, including credit terms and structure.

The contractual amount of our unfunded credit commitments, including unissued standby and commercial letters of credit, is summarized by portfolio segment and class of financing receivable in Table 6.4. The table excludes the issued standby and commercial letters of credit and temporary advance arrangements described above.

Table 6.4: Unfunded Credit Commitments



(in millions)	Mar 31, 2020		Dec 31, 2019
Commercial:
Commercial and industrial	$	314,135	346,991
Real estate mortgage	9,360		8,206
Real estate construction	17,236		17,729
Total commercial	340,731		372,926
Consumer:
Real estate 1-4 family first mortgage	42,691		34,391
Real estate 1-4 family junior lien mortgage	36,301		36,916
Credit card	118,339		114,933
Other revolving credit and installment	25,187		25,898
Total consumer	222,518		212,138
Total unfunded credit commitments	$	563,249	585,064

Allowance for Credit Losses for Loans

Table 6.5 presents the allowance for credit losses for loans, which consists of the allowance for loan losses and the allowance for unfunded credit commitments. On January 1, 2020, we adopted CECL. Additional information on our adoption of CECL is included in Note 1 (Summary of Significant Accounting Policies). In first quarter 2020, after the adoption of CECL, we added a net $2.9 billion to our ACL for loans predominantly driven by the

expected impacts from the COVID-19 pandemic. These expected impacts were most significantly affected by anticipated changes to economic variables, as well as higher expected losses from certain industries in our commercial portfolio segment that we expect to be directly and most adversely affected by the COVID-19 pandemic. In addition, the increase included expected impacts on oil and gas loans due to lower oil prices and deteriorating credit trends.

Table 6.5: Allowance for Credit Losses for Loans



	Quarter ended March 31,
(in millions)	2020		2019
Balance, beginning of period	10,456		10,707
Cumulative effect from change in accounting policies (1)	(1,337	)	—
Allowance for purchased credit-deteriorated (PCD) loans (2)	8		—
Balance, beginning of period, adjusted	9,127		10,707
Provision for credit losses	3,833		845
Interest income on certain loans (3)	(38	)	(39	)
Loan charge-offs:
Commercial:
Commercial and industrial	(377	)	(176	)
Real estate mortgage	(3	)	(12	)
Real estate construction	—		(1	)
Lease financing	(13	)	(11	)
Total commercial	(393	)	(200	)
Consumer:
Real estate 1-4 family first mortgage	(23	)	(43	)
Real estate 1-4 family junior lien mortgage	(30	)	(34	)
Credit card	(471	)	(437	)
Automobile	(156	)	(187	)
Other revolving credit and installment	(165	)	(162	)
Total consumer	(845	)	(863	)
Total loan charge-offs	(1,238	)	(1,063	)
Loan recoveries:
Commercial:
Commercial and industrial	44		43
Real estate mortgage	5		6
Real estate construction	16		3
Lease financing	4		3
Total commercial	69		55
Consumer:
Real estate 1-4 family first mortgage	26		55
Real estate 1-4 family junior lien mortgage	35		43
Credit card	94		85
Automobile	74		96
Other revolving credit and installment	31		34
Total consumer	260		313
Total loan recoveries	329		368
Net loan charge-offs	(909	)	(695	)
Other	9		3
Balance, end of period	12,022		10,821
Components:
Allowance for loan losses	11,263		9,900
Allowance for unfunded credit commitments	759		921
Allowance for credit losses for loans	12,022		10,821
Net loan charge-offs (annualized) as a percentage of average total loans	0.38		0.30
Allowance for loan losses as a percentage of total loans	1.12		1.04
Allowance for credit losses for loans as a percentage of total loans	1.19		1.14


(1)	Represents the overall decrease in our allowance for credit losses for loans as a result of our adoption of CECL on January 1, 2020.


(2)	Represents the allowance estimated for PCI loans that automatically became PCD loans with the adoption of CECL. For more information, see Note 1 (Summary of Significant Accounting Policies).


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

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

Table 6.6 summarizes the activity in the allowance for credit losses for loans by our commercial and consumer portfolio segments.

Table 6.6: Allowance for Credit Losses for Loans Activity by Portfolio Segment



							2020									2019
(in millions)	Commercial			Consumer			Total			Commercial			Consumer			Total
Quarter ended March 31,
Balance, beginning of period	$	6,245		4,211			10,456			6,417			4,290			10,707
Cumulative effect from change in accounting policies (1)	(2,861		)	1,524			(1,337		)	—			—			—
Allowance for purchased credit-deteriorated (PCD) loans (2)	—			8			8			—			—			—
Balance, beginning of period, adjusted	3,384			5,743			9,127			6,417			4,290			10,707
Provision for credit losses	2,240			1,593			3,833			164			681			845
Interest income on certain loans (3)	(14		)	(24		)	(38		)	(11		)	(28		)	(39		)

Loan charge-offs	(393		)	(845		)	(1,238		)	(200		)	(863		)	(1,063		)
Loan recoveries	69			260			329			55			313			368
Net loan charge-offs	(324		)	(585		)	(909		)	(145		)	(550		)	(695		)
Other	(7		)	16			9			3			—			3
Balance, end of period	$	5,279		$	6,743		$	12,022		$	6,428		$	4,393		$	10,821


(1)	Represents the overall decrease in our allowance for credit losses for loans as a result of our adoption of CECL on January 1, 2020.


(2)	Represents the allowance estimated for PCI loans that automatically became PCD loans with the adoption of CECL. For more information, see Note 1 (Summary of Significant Accounting Policies).


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

Table 6.7 disaggregates our allowance for credit losses for loans and recorded investment in loans by impairment methodology. This is no longer relevant after December 31, 2019,

given our adoption of CECL on January 1, 2020, which has a single impairment methodology.

Table 6.7: Allowance for Credit Losses for Loans by Impairment Methodology



	Allowance for credit losses for loans				Recorded investment in loans
(in millions)	Commercial		Consumer	Total	Commercial	Consumer	Total
December 31, 2019
Collectively evaluated (1)	$	5,778	3,364	9,142	512,586	436,081	948,667
Individually evaluated (2)	467		847	1,314	3,133	9,897	13,030
PCI (3)	—		—	—	—	568	568
Total	$	6,245	4,211	10,456	515,719	446,546	962,265


(1)	Represents non-impaired loans evaluated collectively for impairment.


(2)	Represents impaired loans evaluated individually for impairment.


(3)	Represents the allowance for loan losses and related loan carrying value for PCI loans.

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, 2019. Amounts disclosed in the credit quality tables that follow are not comparative between reported periods due to our adoption of CECL on January 1, 2020. For more information, see Note 1 (Summary of Significant Accounting Policies).

COMMERCIAL CREDIT QUALITY INDICATORS 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, which is our primary credit quality indicator. Our ratings are aligned to federal banking regulators’ definitions of pass and criticized categories with the criticized category including special mention, substandard, doubtful, and loss categories.

Table 6.8 provides a breakdown of outstanding commercial loans by risk category. In connection with our adoption of CECL, credit quality information is provided with the year of origination for term loans. Revolving loans may convert to term loans as a result of a contractual provision in the original loan agreement or if modified in a TDR.

Table 6.8: Commercial Loans Categories by Risk Categories and Vintage (1)



	Term loans by origination year								Revolving loans	Revolving loans converted to term loans	Total
(in millions)	2020		2019	2018	2017	2016		Prior	Revolving loans	Revolving loans converted to term loans	Total
March 31, 2020
Commercial and industrial
Pass	$	32,531	53,904	23,788	11,603	7,815		5,061	250,893	209	385,804
Criticized	885		1,053	948	721	433		458	14,718	—	19,216
Total commercial and industrial	33,416		54,957	24,736	12,324	8,248		5,519	265,611	209	405,020
Real estate mortgage
Pass	7,336		31,320	23,268	14,577	15,376		21,087	5,563	128	118,655
Criticized	60		452	515	741	546		1,525	273	—	4,112
Total real estate mortgage	7,396		31,772	23,783	15,318	15,922		22,612	5,836	128	122,767
Real estate construction
Pass	1,293		7,226	5,528	3,024	1,290		472	1,750	7	20,590
Criticized	2		98	93	6	8		14	1	—	222
Total real estate construction	1,295		7,324	5,621	3,030	1,298		486	1,751	7	20,812
Lease financing
Pass	1,439		5,566	3,769	2,447	1,844		2,739	—	—	17,804
Criticized	83		422	365	196	139		127	—	—	1,332
Total lease financing	1,522		5,988	4,134	2,643	1,983		2,866	—	—	19,136
Total commercial loans	$	43,629	100,041	58,274	33,315	27,451		31,483	273,198	344	567,735
						Commercial and industrial		Real estate mortgage	Real estate construction	Lease financing	Total
December 31, 2019
By risk category:
Pass						$	338,740	118,054	19,752	18,655	495,201
Criticized						15,385		3,770	187	1,176	20,518
Total commercial loans						$	354,125	121,824	19,939	19,831	515,719


(1)	Disclosure is not comparative due to our adoption of CECL on January 1, 2020. For more information, see Note 1 (Summary of Significant Accounting Policies).

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

Table 6.9 provides past due information for commercial loans, which we monitor as part of our credit risk management

practices; however, delinquency is not a primary credit quality indicator for commercial loans.

Table 6.9: Commercial Loan Categories by Delinquency Status



(in millions)	Commercial and industrial		Real estate mortgage	Real estate construction	Lease financing	Total
March 31, 2020
By delinquency status:
Current-29 days past due (DPD) and still accruing	$	402,706	121,621	20,696	18,793	563,816
30-89 DPD and still accruing	511		174	94	212	991
90+ DPD and still accruing	24		28	1	—	53
Nonaccrual loans	1,779		944	21	131	2,875
Total commercial loans	$	405,020	122,767	20,812	19,136	567,735
December 31, 2019
By delinquency status:
Current-29 DPD and still accruing	$	352,110	120,967	19,845	19,484	512,406
30-89 DPD and still accruing	423		253	53	252	981
90+ DPD and still accruing	47		31	—	—	78
Nonaccrual loans	1,545		573	41	95	2,254
Total commercial loans	$	354,125	121,824	19,939	19,831	515,719

CONSUMER CREDIT QUALITY INDICATORS We have various classes of consumer loans that present unique credit risks. Loan delinquency, FICO credit scores and LTV for 1-4 family mortgage loans are the primary credit quality indicators that we monitor and utilize in our evaluation of the appropriateness of the allowance for credit losses for the consumer portfolio segment.

Many of our loss estimation techniques used for the allowance for credit losses rely on delinquency-based models; therefore, delinquency is an important indicator of credit quality and the establishment of our allowance for credit losses.

Table 6.10 provides the outstanding balances of our consumer portfolio by delinquency status.

In connection with our adoption of CECL, credit quality information is provided with the year of origination for term loans. Revolving loans may convert to term loans as a result of a contractual provision in the original loan agreement or if modified in a TDR. The revolving loans converted to term loans in the credit card loan category represent credit card loans with modified terms that require payment over a specific term.

Table 6.10: Consumer Loan Categories by Delinquency Status and Vintage (1)



	Term loans by origination year							Revolving loans	Revolving loans converted to term loans
(in millions)	2020		2019	2018	2017	2016	Prior	Revolving loans	Revolving loans converted to term loans	Total
March 31, 2020
Real estate 1-4 family first mortgage
By delinquency status:
Current-29 DPD	$	14,238	59,044	25,047	36,185	41,121	93,490	7,981	2,020	279,126
30-59 DPD	14		65	30	39	64	1,184	38	57	1,491
60-89 DPD	2		3	6	5	8	370	20	27	441
90-119 DPD	—		—	3	—	6	190	8	17	224
120-179 DPD	—		—	1	4	7	142	11	22	187
180+ DPD	—		—	4	7	5	466	5	125	612
Government insured/guaranteed loans (2)	2		32	150	271	498	9,726	—	—	10,679
Loans held at fair value	—		—	—	—	—	160	—	—	160
Total real estate 1-4 family first mortgage	14,256		59,144	25,241	36,511	41,709	105,728	8,063	2,268	292,920
Real estate 1-4 family junior mortgage
By delinquency status:
Current-29 DPD	8		44	51	48	39	1,491	19,178	7,058	27,917
30-59 DPD	—		—	—	—	—	34	76	119	229
60-89 DPD	—		—	—	1	1	15	28	58	103
90-119 DPD	—		—	—	—	—	8	19	32	59
120-179 DPD	—		—	—	—	—	6	17	44	67
180+ DPD	—		—	—	—	1	16	10	125	152
Total real estate 1-4 family junior mortgage	8		44	51	49	41	1,570	19,328	7,436	28,527
Credit cards
By delinquency status:
Current-29 DPD	—		—	—	—	—	—	37,320	259	37,579
30-59 DPD	—		—	—	—	—	—	260	18	278
60-89 DPD	—		—	—	—	—	—	184	13	197
90-119 DPD	—		—	—	—	—	—	167	14	181
120-179 DPD	—		—	—	—	—	—	335	10	345
180+ DPD	—		—	—	—	—	—	2	—	2
Total credit cards	—		—	—	—	—	—	38,268	314	38,582
Automobile
By delinquency status:
Current-29 DPD	6,334		19,682	9,085	5,509	4,857	2,145	—	—	47,612
30-59 DPD	8		158	134	111	168	104	—	—	683
60-89 DPD	—		49	40	32	53	34	—	—	208
90-119 DPD	—		18	13	9	15	10	—	—	65
120-179 DPD	—		—	—	—	—	—	—	—	—
180+ DPD	—		—	—	—	—	—	—	—	—
Total automobile	6,342		19,907	9,272	5,661	5,093	2,293	—	—	48,568
Other revolving credit and installment
By delinquency status:
Current-29 DPD	948		3,580	2,207	1,468	1,298	5,751	17,766	202	33,220
30-59 DPD	1		9	10	12	9	66	19	7	133
60-89 DPD	—		5	6	5	5	32	9	4	66
90-119 DPD	—		4	6	6	6	31	9	3	65
120-179 DPD	—		—	—	—	—	—	15	2	17
180+ DPD	—		—	—	—	—	1	2	7	10
Total other revolving credit and installment	949		3,598	2,229	1,491	1,318	5,881	17,820	225	33,511
Total consumer loans	$	21,555	82,693	36,793	43,712	48,161	115,472	83,479	10,243	442,108

(continued on following page)

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

(continued from previous page)



	Real estate 1-4 family first mortgage		Real estate 1-4 family junior lien mortgage	Credit card	Automobile	Other revolving credit and installment	Total
December 31, 2019
By delinquency status:
Current-29 DPD	$	279,722	28,870	39,935	46,650	33,981	429,158
30-59 DPD	1,136		216	311	882	140	2,685
60-89 DPD	404		115	221	263	81	1,084
90-119 DPD	197		69	202	77	74	619
120-179 DPD	160		71	343	1	18	593
180+ DPD	503		155	1	—	10	669
Government insured/guaranteed loans (2)	10,999		—	—	—	—	10,999
Loans held at fair value	171		—	—	—	—	171
Total consumer loans (excluding PCI)	293,292		29,496	41,013	47,873	34,304	445,978
Total consumer PCI loans (carrying value) (3)	555		13	—	—	—	568
Total consumer loans	$	293,847	29,509	41,013	47,873	34,304	446,546


(1)	Disclosure is not comparative due to our adoption of CECL on January 1, 2020. For more information, see Note 1 (Summary of Significant Accounting Policies).


(2)	Represents loans whose repayments are predominantly insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA). Loans insured/guaranteed by the FHA/VA and 90+ DPD totaled $6.1 billion at March 31, 2020, compared with $6.4 billion at December 31, 2019.


(3)	26% of the adjusted unpaid principal balance for consumer PCI loans was 30+ DPD at December 31, 2019.

Of the $2.0 billion of consumer loans not government insured/guaranteed that are 90 days or more past due at March 31, 2020, $828 million was accruing, compared with $1.9 billion past due and $855 million accruing at December 31, 2019.

Table 6.11 provides a breakdown of our consumer portfolio by FICO. Substantially all of the scored consumer portfolio has an updated FICO of 680 and above, reflecting a strong current borrower credit profile. FICO is not available for certain loan types, or may not be required if we deem it unnecessary due to strong collateral and other borrower attributes. Loans not requiring a FICO score totaled $8.9 billion and $9.1 billion at March 31, 2020 and December 31, 2019, respectively. Substantially all loans not requiring a FICO score are securities-based loans originated through retail brokerage.

Table 6.11: Consumer Loan Categories by FICO and Vintage (1)



	Term loans by origination year							Revolving loans	Revolving loans converted to term loans
(in millions)	2020		2019	2018	2017	2016	Prior	Revolving loans	Revolving loans converted to term loans	Total
March 31, 2020
By FICO:
Real estate 1-4 family first mortgage
< 600	$	2	27	43	60	92	2,643	209	229	3,305
600-639	10		105	67	68	128	1,663	148	115	2,304
640-679	80		481	297	311	368	3,075	298	171	5,081
680-719	458		1,870	905	1,181	1,301	5,847	665	264	12,491
720-759	1,896		6,104	2,198	2,901	3,147	9,491	1,024	291	27,052
760-799	6,242		16,885	5,542	7,135	7,458	15,595	1,609	298	60,764
800+	5,522		33,344	15,917	24,461	28,544	55,278	3,824	512	167,402
No FICO available	45		296	122	123	173	2,249	286	388	3,682
Government insured/guaranteed loans (2)	1		32	150	271	498	9,887	—	—	10,839
Total real estate 1-4 family first mortgage	14,256		59,144	25,241	36,511	41,709	105,728	8,063	2,268	292,920
Real estate 1-4 family junior lien mortgage
< 600	—		—	—	—	—	133	370	611	1,114
600-639	—		—	—	—	—	82	310	361	753
640-679	—		—	—	—	—	134	686	610	1,430
680-719	—		—	—	—	—	250	1,697	1,102	3,049
720-759	—		—	—	—	—	274	2,751	1,243	4,268
760-799	—		—	—	—	—	228	3,785	1,198	5,211
800+	—		—	—	—	—	359	9,220	2,009	11,588
No FICO available	8		44	51	49	41	110	509	302	1,114
Total real estate 1-4 family junior lien mortgage	8		44	51	49	41	1,570	19,328	7,436	28,527
Credit Card
< 600	—		—	—	—	—	—	3,117	119	3,236
600-639	—		—	—	—	—	—	2,657	49	2,706
640-679	—		—	—	—	—	—	6,291	61	6,352
680-719	—		—	—	—	—	—	9,324	53	9,377
720-759	—		—	—	—	—	—	7,866	24	7,890
760-799	—		—	—	—	—	—	5,176	6	5,182
800+	—		—	—	—	—	—	3,678	1	3,679
No FICO available	—		—	—	—	—	—	159	1	160
Total credit card	—		—	—	—	—	—	38,268	314	38,582
Automobile
< 600	419		2,045	1,163	825	1,082	541	—	—	6,075
600-639	687		1,849	715	425	453	216	—	—	4,345
640-679	1,031		2,830	1,168	644	596	262	—	—	6,531
680-719	1,104		3,383	1,549	885	749	318	—	—	7,988
720-759	1,045		3,334	1,554	911	723	312	—	—	7,879
760-799	991		3,335	1,533	890	652	270	—	—	7,671
800+	1,065		3,112	1,580	1,064	808	349	—	—	7,978
No FICO available	—		19	10	17	30	25	—	—	101
Total automobile	6,342		19,907	9,272	5,661	5,093	2,293	—	—	48,568
Other revolving credit and installment
< 600	3		49	65	50	47	204	219	27	664
600-639	12		66	59	40	41	198	188	15	619
640-679	51		226	169	105	96	410	525	23	1,605
680-719	124		472	310	195	172	719	1,005	29	3,026
720-759	191		683	399	248	226	969	1,169	28	3,913
760-799	249		857	445	288	265	1,179	1,524	18	4,825
800+	274		1,024	621	452	453	2,118	2,690	44	7,676
No FICO available	45		221	161	113	18	84	1,564	41	2,247
FICO not required	—		—	—	—	—	—	8,936	—	8,936
Total other revolving credit and installment	949		3,598	2,229	1,491	1,318	5,881	17,820	225	33,511
Total consumer loans	$	21,555	82,693	36,793	43,712	48,161	115,472	83,479	10,243	442,108

(continued on next page)

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

(continued from prior page)



	Real estate 1-4 family first mortgage		Real estate 1-4 family junior lien mortgage	Credit card	Automobile	Other revolving credit and installment	Total
December 31, 2019
By FICO:
< 600	$	3,264	1,164	3,373	6,041	704	14,546
600-639	2,392		782	2,853	4,230	670	10,927
640-679	5,068		1,499	6,626	6,324	1,730	21,247
680-719	12,844		3,192	9,732	7,871	3,212	36,851
720-759	27,879		4,407	8,376	7,839	4,097	52,598
760-799	61,559		5,483	5,648	7,624	4,915	85,229
800+	165,460		11,851	4,037	7,900	7,585	196,833
No FICO available	3,656		1,118	368	44	2,316	7,502
FICO not required	—		—	—	—	9,075	9,075
Government insured/guaranteed loans (2)	11,170		—	—	—	—	11,170
Total consumer loans (excluding PCI)	293,292		29,496	41,013	47,873	34,304	445,978
Total consumer PCI loans (carrying value) (3)	555		13	—	—	—	568
Total consumer loans	$	293,847	29,509	41,013	47,873	34,304	446,546


(1)	Disclosure is not comparative due to our adoption of CECL on January 1, 2020. For more information, see Note 1 (Summary of Significant Accounting Policies).


(2)	Represents loans whose repayments are predominantly insured by the FHA or guaranteed by the VA.


(3)	41% of the adjusted unpaid principal balance for consumer PCI loans had FICO scores less than 680 and 19% where no FICO was available to us at December 31, 2019.

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

Table 6.12 shows the most updated LTV and CLTV distribution of the real estate 1-4 family first and junior lien mortgage loan portfolios. We consider the trends in residential real estate markets as we monitor credit risk and establish our allowance for credit losses. In the event of a default, any loss should be limited to the portion of the loan amount in excess of the net realizable value of the underlying real estate collateral value. Certain loans do not have an LTV or CLTV due to industry data availability and portfolios acquired from or serviced by other institutions.

Table 6.12: Consumer Loan Categories by LTV/CLTV and Vintage (1)



	Term loans by origination year							Revolving loans		Revolving loans converted to term loans
(in millions)	2020		2019	2018	2017	2016	Prior	Revolving loans		Revolving loans converted to term loans	Total
March 31, 2020
Real estate 1-4 family first mortgage
By LTV/CLTV:
0-60%	$	4,143	16,842	8,032	14,961	22,878	76,122	5,503		1,644	150,125
60.01-80%	9,526		34,239	14,133	19,674	17,326	17,228	1,672		401	114,199
80.01-100%	544		7,791	2,714	1,412	814	1,757	585		155	15,772
100.01-120% (2)	—		80	96	86	72	310	169		39	852
> 120% (2)	—		47	29	27	29	124	71		14	341
No LTV/CLTV available	42		113	87	80	92	300	63		15	792
Government insured/guaranteed loans (3)	1		32	150	271	498	9,887	—		—	10,839
Total real estate 1-4 family first mortgage	14,256		59,144	25,241	36,511	41,709	105,728	8,063		2,268	292,920
Real estate 1-4 family junior lien mortgage
By LTV/CLTV:
0-60%	—		—	—	—	—	634	9,526		4,023	14,183
60.01-80%	—		—	—	—	—	450	6,827		2,055	9,332
80.01-100%	—		—	—	—	—	290	2,165		971	3,426
100.01-120% (2)	—		—	—	—	—	102	566		262	930
> 120% (2)	—		—	—	—	—	33	216		80	329
No LTV/CLTV available	8		44	51	49	41	61	28		45	327
Total real estate 1-4 family junior lien mortgage	8		44	51	49	41	1,570	19,328		7,436	28,527
Total	$	14,264	59,188	25,292	36,560	41,750	107,298	27,391		9,704	321,447
December 31, 2019								Real estate 1-4 family first mortgage by LTV		Real estate 1-4 family junior lien mortgage by CLTV	Total
By LTV/CLTV:
0-60%								$	151,478	14,603	166,081
60.01-80%								114,795		9,663	124,458
80.01-100%								13,867		3,574	17,441
100.01-120% (2)								860		978	1,838
> 120% (2)								338		336	674
No LTV/CLTV available								784		342	1,126
Government insured/guaranteed loans (3)								11,170		—	11,170
Total consumer loans (excluding PCI)								293,292		29,496	322,788
Total consumer PCI loans (carrying value) (4)								555		13	568
Total consumer loans								$	293,847	29,509	323,356


(1)	Disclosure is not comparative due to our adoption of CECL on January 1, 2020. For more information, see Note 1 (Summary of Significant Accounting Policies).


(2)	Reflects total loan balances with LTV/CLTV amounts in excess of 100%. In the event of default, the loss content would generally be limited to only the amount in excess of 100% LTV/CLTV.


(3)	Represents loans whose repayments are predominantly insured by the FHA or guaranteed by the VA.


(4)	9% of the adjusted unpaid principal balance for consumer PCI loans have LTV/CLTV amounts greater than 80% at December 31, 2019.

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

NONACCRUAL LOANS Table 6.13 provides loans on nonaccrual status. In connection with our adoption of CECL, nonaccrual loans may have an allowance for credit losses or a negative allowance for credit losses from expected recoveries of amounts previously written off.

Table 6.13: Nonaccrual Loans (1)



	Amortized cost
(in millions)	Nonaccrual loans		Nonaccrual loans without related allowance for credit losses (2)	Recognized interest income
March 31, 2020
Commercial:
Commercial and industrial	$	1,779	243	16
Real estate mortgage	944		194	8
Real estate construction	21		5	4
Lease financing	131		10	—
Total commercial	2,875		452	28
Consumer:
Real estate 1-4 family first mortgage	2,372		1,382	44
Real estate 1-4 family junior lien mortgage	769		431	16
Automobile	99		—	3
Other revolving credit and installment	41		—	1
Total consumer	3,281		1,813	64
Total nonaccrual loans	$	6,156	2,265	92
December 31, 2019
Commercial:
Commercial and industrial	$	1,545
Real estate mortgage	573
Real estate construction	41
Lease financing	95
Total commercial	2,254
Consumer:
Real estate 1-4 family first mortgage	2,150
Real estate 1-4 family junior lien mortgage	796
Automobile	106
Other revolving credit and installment	40
Total consumer	3,092
Total nonaccrual loans (excluding PCI)	$	5,346


(1)	Disclosure is not comparative due to our adoption of CECL on January 1, 2020. For more information, see Note 1 (Summary of Significant Accounting Policies).


(2)	Nonaccrual loans may not have an allowance for credit losses if the loss expectations are zero given solid collateral value.

LOANS IN PROCESS OF FORECLOSURE Our recorded investment in consumer mortgage loans collateralized by residential real estate property that are in process of foreclosure was $3.4 billion and $3.5 billion at March 31, 2020, and December 31, 2019, respectively, which included $2.7 billion and $2.8 billion, respectively, of loans that are government insured/guaranteed. Under the Consumer Financial Protection Bureau guidelines, we do not commence the foreclosure process on real estate 1-4 family mortgage loans until after the loan is 120 days delinquent. Foreclosure procedures and timelines vary depending on whether the property address resides in a judicial or non-judicial state. Judicial states require the foreclosure to be processed through the state’s courts while non-judicial states are processed without court intervention. Foreclosure timelines vary according to state law. In connection with our actions to support customers during the COVID-19 pandemic, we have suspended certain mortgage foreclosure activities.

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

Table 6.14 shows loans 90 days or more past due and still accruing by class for loans not government insured/guaranteed.

Table 6.14: Loans 90 Days or More Past Due and Still Accruing



(in millions)	Mar 31, 2020		Dec 31, 2019
Total:	$	7,023	7,285
Less: FHA insured/VA guaranteed (1)	6,142		6,352
Total, not government insured/guaranteed	$	881	933
By segment and class, not government insured/guaranteed:
Commercial:
Commercial and industrial	$	24	47
Real estate mortgage	28		31
Real estate construction	1		—
Total commercial	53		78
Consumer:
Real estate 1-4 family first mortgage	128		112
Real estate 1-4 family junior lien mortgage	25		32
Credit card	528		546
Automobile	69		78
Other revolving credit and installment	78		87
Total consumer	828		855
Total, not government insured/guaranteed	$	881	933


(1)	Represents loans whose repayments are predominantly insured by the FHA or guaranteed by the VA.

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

IMPAIRED LOANS In connection with our adoption of CECL, we no longer provide information on impaired loans. We have retained impaired loans information for the period ended December 31, 2019. Table 6.15 summarizes key information for impaired loans. Our impaired loans at December 31, 2019, predominantly included loans on nonaccrual status in the commercial portfolio segment and loans modified in a TDR, whether on accrual or nonaccrual status. Impaired loans generally had estimated losses which are included in the allowance for credit losses. We did have impaired loans with no allowance for credit losses when the loss

content has been previously recognized through charge-offs, such as collateral dependent loans, or when loans are currently performing in accordance with their terms and no loss has been estimated. Impaired loans excluded PCI loans and loans that had been fully charged off or otherwise had zero recorded investment.

Table 6.15 included trial modifications that totaled $115 million at December 31, 2019.

For additional information on our legacy impaired loans and allowance for credit losses, see Note 1 (Summary of Significant Accounting Policies) in our 2019 Form 10-K.

Table 6.15: Impaired Loans Summary



			Recorded investment
(in millions)	Unpaid principal balance		Impaired loans	Impaired loans with related allowance for credit losses	Related allowance for credit losses
December 31, 2019
Commercial:
Commercial and industrial	$	2,792	2,003	1,903	311
Real estate mortgage	1,137		974	803	110
Real estate construction	81		51	41	11
Lease financing	131		105	105	35
Total commercial	4,141		3,133	2,852	467
Consumer:
Real estate 1-4 family first mortgage	8,107		7,674	4,433	437
Real estate 1-4 family junior lien mortgage	1,586		1,451	925	144
Credit card	520		520	520	209
Automobile	138		81	42	8
Other revolving credit and installment	178		171	155	49
Total consumer (1)	10,529		9,897	6,075	847
Total impaired loans (excluding PCI)	$	14,670	13,030	8,927	1,314


(1)	Included the recorded investment of $1.2 billion at December 31, 2019 of government insured/guaranteed loans that are predominantly insured by the FHA or guaranteed by the VA and generally do not have an ACL. Impaired loans may also have limited, if any, ACL when the recorded investment of the loan approximates estimated net realizable value as a result of charge-offs prior to a TDR modification.

Table 6.16 provides the average recorded investment in impaired loans and the amount of interest income recognized on impaired loans by portfolio segment and class.

Table 6.16: Average Recorded Investment in Impaired Loans



	Year ended December 31,
	2019
(in millions)	Average recorded investment		Recognized interest income
Commercial:
Commercial and industrial	$	2,150	129
Real estate mortgage	1,067		59
Real estate construction	52		6
Lease financing	93		1
Total commercial	3,362		195
Consumer:
Real estate 1-4 family first mortgage	9,031		506
Real estate 1-4 family junior lien mortgage	1,586		99
Credit card	488		64
Automobile	84		12
Other revolving credit and installment	162		13
Total consumer	11,351		694
Total impaired loans (excluding PCI)	$	14,713	889



Interest income:
Cash basis of accounting	$	241
Other (1)	648
Total interest income	$	889


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

TROUBLED DEBT RESTRUCTURINGS (TDRs) When, for economic or legal reasons related to a borrower’s financial difficulties, we grant a concession for other than an insignificant period of time to a borrower that we would not otherwise consider, the related loan is classified as a TDR, the balance of which totaled $11.6 billion and $11.8 billion at March 31, 2020, and December 31, 2019, respectively. We do not consider loan resolutions such as foreclosure or short sale to be a TDR. In addition, COVID-related modifications are generally not classified as TDRs due to the relief under the CARES Act. For more information on the TDR relief, see Note 1 (Summary of Significant Accounting Policies).

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

Commitments to lend additional funds on loans whose terms have been modified in a TDR amounted to $403 million and $500 million at March 31, 2020, and December 31, 2019, respectively.

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

Table 6.17 summarizes our TDR modifications for the periods presented by primary modification type and includes the financial effects of these modifications. For those loans that modify more than once, the table reflects each modification that

occurred during the period. Loans that both modify and pay off within the period, as well as changes in recorded investment during the period for loans modified in prior periods, are not included in the table.

Table 6.17: TDR Modifications



	Primary modification type (1)					Financial effects of modifications
($ in millions)	Principal (2)		Interest rate reduction	Other concessions (3)	Total	Charge- offs (4)	Weighted average interest rate reduction		Recorded investment related to interest rate reduction (5)
Quarter ended March 31, 2020
Commercial:
Commercial and industrial	$	18	15	314	347	44	0.65	%	$	15
Real estate mortgage	—		13	152	165	—	0.97		13
Real estate construction	—		—	6	6	—	2.49		—
Lease financing	—		—	—	—	—	—		—
Total commercial	18		28	472	518	44	0.82		28
Consumer:
Real estate 1-4 family first mortgage	21		3	166	190	—	1.63		17
Real estate 1-4 family junior lien mortgage	1		6	14	21	—	2.38		6
Credit card	—		95	—	95	—	12.33		95
Automobile	2		2	10	14	6	4.69		2
Other revolving credit and installment	—		12	2	14	—	8.22		12
Trial modifications (6)	—		—	2	2	—	—		—
Total consumer	24		118	194	336	6	10.00		132
Total	$	42	146	666	854	50	8.38	%	$	160
Quarter ended March 31, 2019
Commercial:
Commercial and industrial	$	—	11	554	565	13	0.68	%	$	11
Real estate mortgage	—		2	73	75	—	0.95		2
Real estate construction	—		—	3	3	—	—		—
Lease financing	—		—	—	—	—	—		—
Total commercial	—		13	630	643	13	0.73		13
Consumer:
Real estate 1-4 family first mortgage	35		3	294	332	1	1.95		19
Real estate 1-4 family junior lien mortgage	2		11	25	38	1	2.29		12
Credit card	—		97	—	97	—	13.20		97
Automobile	2		1	12	15	6	5.38		1
Other revolving credit and installment	—		11	3	14	—	7.58		11
Trial modifications (6)	—		—	—	—	—	—		—
Total consumer	39		123	334	496	8	10.27		140
Total	$	39	136	964	1,139	21	9.44	%	$	153


(1)	Amounts represent the recorded investment in loans after recognizing the effects of the TDR, if any. TDRs may have multiple types of concessions, but are presented only once in the first modification type based on the order presented in the table above. The reported amounts include loans remodified of $263 million and $360 million for the first quarter of 2020 and 2019, respectively.


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


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

(4)

Charge-offs include write-downs of the investment in the loan in the period it is contractually modified. The amount of charge-off will differ from the modification terms if the loan has been charged down prior to the modification based on our policies. In addition, there may be cases where we have a charge-off/down with no legal principal modification. Modifications resulted in deferring or legally forgiving principal (actual or contingent) of $29 million and $3 million for the first quarter of 2020 and 2019, respectively.


(5)	Reflects the effect of reduced interest rates on loans with an interest rate concession as one of its concession types, which includes loans reported as a principal primary modification type that also have an interest rate concession.

(6)

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

Table 6.18 summarizes permanent modification TDRs that have defaulted in the current period within 12 months of their permanent modification date. We are reporting these defaulted TDRs based on a payment default definition of 90 days past due for the commercial portfolio segment and 60 days past due for the consumer portfolio segment.

Table 6.18: Defaulted TDRs



	Recorded investment of defaults
	Quarter ended March 31,
(in millions)	2020		2019
Commercial:
Commercial and industrial	$	185	23
Real estate mortgage	21		28
Real estate construction	—		3
Total commercial	206		54
Consumer:
Real estate 1-4 family first mortgage	10		11
Real estate 1-4 family junior lien mortgage	2		5
Credit card	26		21
Automobile	2		3
Other revolving credit and installment	1		2
Total consumer	41		42
Total	$	247	96

Note 7: Leasing Activity (continued)

Note 7: Leasing Activity

The information below provides a summary of our leasing activities as a lessor and lessee. See Note 7 (Leasing Activities) in our 2019 Form 10-K for additional information about our leasing activities.

As a Lessor

Table 7.1 presents the composition of our leasing revenue.

Table 7.1: Leasing Revenue



	Quarter ended March 31,
(in millions)	2020			2019
Interest income on lease financing	$	211		223
Other lease revenues:
Variable revenues on lease financing	27			24
Fixed revenues on operating leases	314			373
Variable revenues on operating leases	13			18
Other lease-related revenues (1)	(2		)	28
Lease income	352			443
Total leasing revenue	$	563		666


(1)	Predominantly includes net gains (losses) on disposition of assets leased under operating leases or lease financings.

As a Lessee

Substantially all of our leases are operating leases. Table 7.2 presents balances for our operating leases.

Table 7.2: Operating Lease Right of Use (ROU) Assets and Lease Liabilities



(in millions)	Mar 31, 2020		Dec 31, 2019
ROU assets	$	4,650	4,724
Lease liabilities	5,224		5,297

Table 7.3 provides the composition of our lease costs, which are predominantly included in net occupancy expense.

Table 7.3: Lease Costs



	Quarter ended March 31,
(in millions)	2020			2019
Fixed lease expense – operating leases	$	291		297
Variable lease expense	66			73
Other (1)	(14		)	(8	)
Total lease costs	$	343		362


(1)	Predominantly includes gains recognized from sale leaseback transactions and sublease rental income.

Note 8: Equity Securities

Table 8.1 provides a summary of our equity securities by business purpose and accounting method, including equity securities with readily determinable fair values (marketable) and those without readily determinable fair values (nonmarketable).

Table 8.1: Equity Securities



(in millions)	Mar 31, 2020		Dec 31, 2019
Held for trading at fair value:
Marketable equity securities	$	13,573	27,440
Not held for trading:
Fair value:
Marketable equity securities (1)	7,708		6,481
Nonmarketable equity securities	6,895		8,015
Total equity securities at fair value	14,603		14,496
Equity method:
Low-income housing tax credit investments	11,290		11,343
Private equity	3,351		3,459
Tax-advantaged renewable energy	3,991		3,811
New market tax credit and other	387		387
Total equity method	19,019		19,000
Other:
Federal Reserve Bank stock and other at cost (2)	4,512		4,790
Private equity (3)	2,340		2,515
Total equity securities not held for trading	40,474		40,801
Total equity securities	$	54,047	68,241


(1)	Includes $3.1 billion and $3.8 billion at March 31, 2020, and December 31, 2019, respectively, related to securities held as economic hedges of our deferred compensation plan obligations.


(2)	Includes $4.5 billion and $4.8 billion at March 31, 2020, and December 31, 2019, respectively, related to investments in Federal Reserve Bank and Federal Home Loan Bank stock.


(3)	Represents nonmarketable equity securities accounted for under the measurement alternative.

Equity Securities Held for Trading

Equity securities held for trading purposes are marketable equity securities traded on organized exchanges. These securities are held as part of our customer accommodation trading activities. For more information on these activities, see Note 4 (Trading Activities).

Equity Securities Not Held for Trading

We also hold equity securities unrelated to trading activities. These securities include private equity and tax credit investments, securities held as economic hedges or to meet regulatory requirements (for example, Federal Reserve Bank and Federal Home Loan Bank stock).

FAIR VALUE Marketable equity securities held for purposes other than trading partially consist of exchange-traded equity funds held to economically hedge obligations related to our deferred compensation plans and, to a lesser extent, other holdings of publicly traded equity securities held for investment purposes. We account for certain nonmarketable equity securities under the fair value method, and substantially all of these securities are economically hedged with equity derivatives.

EQUITY METHOD Our equity method investments consist of tax credit and private equity investments, the majority of which are our low-income housing tax credit (LIHTC) investments.

We invest in affordable housing projects that qualify for the LIHTC, which are designed to promote private development of low-income housing. These investments generate a return mostly through realization of federal tax credit and other tax benefits. In first quarter 2020, we recognized pre-tax losses of $339 million related to our LIHTC investments, compared with $273 million in first quarter 2019. These losses were recognized in other noninterest income. We also recognized total tax benefits of $398 million in first quarter 2020, which included tax credits recorded to income taxes of $314 million. In first quarter 2019, total tax benefits were $370 million, which included tax credits of $302 million. We are periodically required to provide additional financial support during the investment period. A liability is recognized for unfunded commitments that are both legally binding and probable of funding. These commitments are predominantly funded within three years of initial investment. Our liability for these unfunded commitments was $4.2 billion at March 31, 2020, and $4.3 billion at December 31, 2019. This liability for unfunded commitments is included in long-term debt.

OTHER The remaining portion of our nonmarketable equity securities portfolio consists of securities accounted for using the cost or measurement alternative.

Note 8: Equity Securities (continued)

Realized Gains and Losses Not Held for Trading

Table 8.2 provides a summary of the net gains and losses from equity securities not held for trading. Gains and losses for securities held for trading are reported in net gains from trading activities.

Table 8.2: Net Gains (Losses) from Equity Securities Not Held for Trading



	Quarter ended March 31,
(in millions)	2020			2019
Net gains (losses) from equity securities carried at fair value:
Marketable equity securities	$	(803	)	377
Nonmarketable equity securities	(1,104		)	936
Total equity securities carried at fair value	(1,907		)	1,313
Net gains (losses) from nonmarketable equity securities not carried at fair value:
Impairment write-downs	(935		)	(36	)
Net unrealized gains related to measurement alternative observable transactions	222			185
Net realized gains on sale	—			237
All other	—			—
Total nonmarketable equity securities not carried at fair value	(713		)	386
Net gains (losses) from economic hedge derivatives (1)	1,219			(885	)
Total net gains (losses) from equity securities not held for trading	$	(1,401	)	814


(1)	Includes net gains (losses) on derivatives not designated as hedging instruments.

Measurement Alternative

Table 8.3 provides additional information about the impairment write-downs and observable price adjustments related to

nonmarketable equity securities accounted for under the measurement alternative. Gains and losses related to these adjustments are also included in Table 8.2.

Table 8.3: Net Gains (Losses) from Measurement Alternative Equity Securities



	Quarter ended March 31,
(in millions)	2020			2019
Net gains (losses) recognized in earnings during the period:
Gross unrealized gains due to observable price changes	$	222		185
Gross unrealized losses due to observable price changes	—			—
Impairment write-downs	(354		)	(22	)
Realized net gains from sale	2			23
Total net gains (losses) recognized during the period	$	(130	)	186

Table 8.4 presents cumulative carrying value adjustments to nonmarketable equity securities accounted for under the measurement alternative that were still held at the end of each reporting period presented.

Table 8.4: Measurement Alternative Cumulative Gains (Losses)



(in millions)	Mar 31, 2020			Dec 31, 2019
Cumulative gains (losses):
Gross unrealized gains due to observable price changes	$	1,084		973
Gross unrealized losses due to observable price changes	(42		)	(42	)
Impairment write-downs	(473		)	(134	)

Note 9: Other Assets

Table 9.1 presents the components of other assets.

Table 9.1: Other Assets



(in millions)	Mar 31, 2020		Dec 31, 2019
Corporate/bank-owned life insurance	$	20,128	20,070
Accounts receivable (1)	46,762		29,137
Interest receivable:
AFS and HTM debt securities	1,705		1,729
Loans	3,038		3,099
Trading and other	708		758
Customer relationship and other amortized intangibles	399		423
Foreclosed assets:
Residential real estate:
Government insured/guaranteed (1)	43		50
Non-government insured/guaranteed	137		172
Other	72		81
Operating lease assets (lessor)	8,124		8,221
Operating lease ROU assets (lessee)	4,650		4,724
Due from customers on acceptances	128		253
Other	10,269		10,200
Total other assets	$	96,163	78,917


(1)	Certain government-guaranteed residential real estate mortgage loans upon foreclosure are included in Accounts receivable. For more information, see Note 1 (Summary of Significant Accounting Policies) in our 2019 Form 10-K.

100

Note 10: Securitizations and Variable Interest Entities (continued)

Note 10: Securitizations and Variable Interest Entities

Involvement with Special Purpose Entities (SPEs)

In the normal course of business, we enter into various types of on- and off-balance sheet transactions with SPEs, which are corporations, trusts, limited liability companies or partnerships that are established for a limited purpose. For further description

of our involvement with SPEs, see Note 10 (Securitizations and Variable Interest Entities) in our 2019 Form 10-K.

Table 10.1 provides the classifications of assets and liabilities in our balance sheet for our transactions with VIEs.

Table 10.1: Balance Sheet Transactions with VIEs



(in millions)	VIEs that we do not consolidate		VIEs that we consolidate	Transfers that we account for as secured borrowings		Total
March 31, 2020
Cash and due from banks	$	—	19		—	19
Interest-earning deposits with banks	—		—		—	—
Debt securities (1):
Trading debt securities	1,326		316		—	1,642
Available-for-sale debt securities	1,718		300		—	2,018
Held-to-maturity debt securities	1,158		—		—	1,158
Loans	2,196		13,102		77	15,375
Mortgage servicing rights	8,709		—		—	8,709
Derivative assets	269		6		—	275
Equity securities	11,337		95		—	11,432
Other assets	1,030		258		—	1,288
Total assets	27,743		14,096		77	41,916
Short-term borrowings	—		500		—	500
Derivative liabilities	2		8		—	10
Accrued expenses and other liabilities	154		231		—	385
Long-term debt	4,722		235		76	5,033
Total liabilities	4,878		974		76	5,928
Noncontrolling interests	—		33		—	33
Net assets	$	22,865	13,089		1	35,955
December 31, 2019
Cash and due from banks	$	—	16		—	16
Interest-earning deposits with banks	—		284		—	284
Debt securities (1):
Trading debt securities	792		339		—	1,131
Available-for-sale debt securities	1,696		201		—	1,897
Held-to-maturity debt securities	791		—		—	791
Loans	2,127		13,170		80	15,377
Mortgage servicing rights	11,884		—		—	11,884
Derivative assets	142		1		—	143
Equity securities	11,401		118		—	11,519
Other assets	1,268		239		—	1,507
Total assets	30,101